Globalization and GCC Countries - Example

Table of Content Introduction………………………………………………………………………………….…….2 Drivers of globalization………………………………………...…………………………………3 Impacts of globalization ……………………………………………………………………..… 6 GCC integration in world economy…..................................................................................7 UAE GDP growth rate ……………………………………………….………………………… 8 Trade impact on political, economical and technological relations in GCC Zone ………….…. 9 Trade impact …………………………………………………………………………….……. 10 Conclusion………………………………………………………………….……………………11 Introduction Globalization is an encroaching process where nations and states collaborate and work as a unit. Globalization is not a single phenomenon and involves the integration of local and international economies into global units. This put into existence through declining international trade barriers which include: tariffs, export fees and importation quotas that are unified political economies, and order of culture. According to Bhagwati (2004), it is thus a significant aspect when it comes to contemporary economic environment. It constitutes forces that transform an economy through embracement of policies that promote free trade. Therefore it has impacted into development of nations and states in terms of economic propagation depending on the strategies that have so far been put forward. Globalization is thus meant to inflate material wealth, goods and services by facilitation of multinational division of labor catalyzed by international relationships, professionalism and competition. It in this event it depicts the unification of nations through promotion of communication, transport and trade links. Globalization is driven by various factors those are: technological, biological, political and social-cultural factors. Moreover it is also propagated by creation and supply of money to national economies, international trade imbalance, third world dept burden and the multinational flow of monetary capital. Globalization has impacted differently in GCC countries. This through considering related issues of trade, technological, political and economical benefits in the latter. Gulf Cooperation Council (GCC) was founded in 26th May 1981 to promote the unification of nations of the Arabian Peninsula excluding the republic of Yemen. GCC countries heavily depend on oil export, trade and include countries such as Kuwait, Saudi Arabia, Bahrain, Qatar, United Arab Emirates and Oman. This was a trend used in the implementation of globalization strategies. During the past decades world trade has so far increased at a very rapid rate. Drivers of globalization Dept burden and international flow monetary capital The acute dept inflicted on developing nations is just but a recipe to globalization. Most of these countries operate on “developing gap” that is between the industrialized and less industrialized nations. Industrialized nations thus dominate the international markets through their large capital base. Therefore third world countries desperate any influx of foreign money are downsized and resources secured by the latter. During the industrial revolution dominant nations dropped trade barriers. This was a move to allow the out flow of money with an aim to engulf foreign investments. The aftermath was the stock exchange which inflated its monetary potential (Rowbotham, 2000). Trade imbalance and supply of money to national economies According to Rowbotham (2000), nations with vast trading potential hence as opposed to Goodbye America prominent nations should trade on the grounds of backing up nations with trade deficits. Hence the countries are in this event encouraged to maintain a balance of trade. Most nations have adopted a fractional reserve banking financial system. This with permanent dept ensures constant circulation of money in the economy. This produces an ideal environment for globalization hence prosperity of resource efficient enterprise. Technology In the case of GCC nations harness the positive influences of globalization in various ways which are necessitated differently. According to Moore (2003), there are two major forces that compel the progressive locomotion of globalization. Technological innovations in transport and communication infrastructure have so far made the world a global village increasing the magnitude of worldwide economic trends. For example after World War II cost in telephonic communication fell by about 99%, mean oceanic freight costs decreased by 50% and air transport by 80%. Moreover the other force which propels globalization is the abandonment and abolishment of trade barriers. This has been promoted through mutual understanding between nations within the region and emergence of amicable solutions. For instance General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) which has acts as the pulpit for trade negotiations. GATT managed to successfully reduce trade tariff in industrial nations from 47% to 10% between early 1990s and 1970s. However, it further reduced to 5% in the beginning of the 20th century. Apart from that there was a tariff reduction imposed on imports. Bending of trade barrier Availability of potential oil wells makes it a vital resource. It is the major driving force of the economy in GCC countries which is subjected to high trade tariffs in the industrial countries. During the early 80s Arab countries formed a free trade zone that is Saudi Arabia, Kuwait, UAE, Oman, Qatar and Bahrain. This led to the eradication of tariffs on local products especially oil. It saw the implementation of “rule of origin” which simulated the low tariffs to the member. This resulted into increased intra-regional trade to 3.8% and later in the late 1990s by 7.2% and eventually fell to 6% in the dawn of the 20th century. Recently GCC states met under the umbrella of friendly trade fortification. Under this saw the emergence of unified external tariff that ranged between 5% and 10% (Moore, 2003). Oil has so far increased the monetary baggage of the GCC nations. For instance between 1948 and 1999 the rate of exports increased by 6% in real items with inclusion of oil exportation. This was in comparison with the average output of 3.7%. It is evident that nowadays most countries in the Arabian Peninsula highly depend on trade as the economic booster. In other words globalization is engulfing all economic activities (World Trade Organization, 1998). According to Dobson (2002), free trade within the region has paved ways for the development and decentralization of firms from foreign countries. The firms have thus set base within the trade region depicting liberalism inducement. Multinational countries have therefore made cost effective decision through establishing of branches near high demand and raw materials. This is meant to reduce the expenditure incurred in both labor and transportation costs. It hence becomes an uphill task to identify a product from its country of origin. For instance America manufactures about 37% of cars while the rest from other industrialized nations. Most of the countries are specialize in assembly, designing, marketing, data processing and advanced technology constituting the production chain. Moreover other countries are specialized in production of aero-planes especially the Boeing 777 consisting of eight countries making 35% and 40% airbus A330 from EU countries. Countries such as Japan have relocated some of its company’s headquarters to Korea, Taiwan, Singapore and Thailand. This move is to ensure the continuous production eliminating other factors such as skilled labor and proximity to raw material. Impacts of globalization Negativity of globalization Industrialized nations by their financial influence in this way have strong bargaining power controlling international institutions of global resource allocation. Decisions made by these avenues make the latter dominant belittling the underdeveloped countries. The Interests of dominant countries are put into consideration such as retained trade barriers while other countries are forced to decline their barriers. This has led to doctoring of trade policies to their advantage. Globalization is meant to create wealth and improve the economic situation within a nation. However, it does not have the insurance dealing with setbacks such as poverty, financial instability, environmental factors, and market fluctuations. Such an example is witnessed in Asia whereby poverty affects about 20 million Asians and the level of education is very minimal. The rate of unemployment is very high portrayed in the unskilled labor population being very high. Inequality is highly seen to be the major cause of this.Moreover this crisis has been triggered the fall in oil prices in world market negatively affecting the GCC countries. The economies of such countries are disrupted and making the responsible bodies flexing their muscles to cub the problem. GCC countries face inflation in this event (Kim, 2000:25-27). Positivity of globalization Factors that affect free trade once eliminated and other negative factors mitigated globalization becomes a vast positive process. It is therefore a positive compulsion of progressive development. The development of globalization mainly depends on policies that embraced by international avenues such as the International Monetary Fund (IMF) and the World Bank. They ensure fair allocation of global resources and promote the welfare of upcoming countries. In comparison with other countries which are yet through with the first phase of development view globalization as biased as it favors developed countries. Policies and structures which run international avenues are designed in favor of these countries (Dobson, 1993). GCC integration in world economy Springborg (2001), emphasizes that GCC economies are integrating into the world economy. It is evident through the robust rate of multinational trade in the GDP of the associated countries the Arabian Peninsula. Oil exportation to the rest of the world has ignited acquisition of other limited products within the region (consumer products, and inputs). For instance in the beginning of the 20th century GCC openness was 78% , that is summation of exports and imports as a GDP ratio. Moreover the exports in merchandise within the GCC zone was about $9,137 million, 5.7% of GCC countries total exports. Total GDP in subdivision-region: West Asia Source: estimated from World Bank 2001 Drawing comparison with East Asia Economic Caucus (EAEC) which is 46.9%, 61.3% within the Euro zone and 55.5% in NAFTA it is hence small. Meager merchandise trade consists of crude oil imports by Bahrain oil firms. This is from Saudi Arabia with the re-export of foreign goods from other countries in UAE to Oman and Kuwait. Most of the GCC countries maintain their traditional trading partners mainly from western countries. Oil exportation consist of 88% of the total exports other than machinery, transport equipment manufactured products, perishables and animal products. Since the oil bonanza in late 1970s oil investments have been made in industrialized nations. The GCC countries have less populous compared to other countries. Therefore, are dependent on foreign labor mainly from migrants. Foreign labor consists of about 72% of the total labor force. The implementation of customs union will see to lowered tariff rates. UAE GDP Growth Rate Source: Trading Economics.com, Ministry of Economy Opportunities Globalization has brought a very big transition on the GCC regional countries. Through integration of GCC economies into world economies it has realized its potential. The economies have through globalization failed through inadequate growth, unemployment opportunities and investment ventures: Propagated Economy It is easy to trigger off growth however sustaining it is a thorny burden to many countries. The nations have so far achieved very rapid and appreciable economic growth recently due to quadrupling of crude oil prices and its products. During the 1970s the countries had a very bad economic growth according to IMF. The nations realized declining real per capita GDP and minimal growth in 1990s. MENA as referred to the deteriorating performance in Middle East and North African Countries. As depicted during 1980 and 2001 period real per capita GDP remained constant in comparison to the mean yearly growth of 6.3% in East Asian nations and 1.3 % in developing nations. Apart from that many MENA countries had a productivity factor of less than zero while oil producer had dilapidated economic growth. World Bank statistics show that world economic slowdown will impair the growth rate as the oil and export prices will be affected (Abed & Davoodi, 2003). Socio-economic indicators for the GCC Economies, 2002 Country Nominal GDP(million) Population (Millions) Gov gross Dept Nominal GDP per capita ($) Oil and Gas Exports Oil revenues SA 188,960 22.1 93.8 8567 81.7 78.0 Kuwait 33,215 2.2 32.9 15098 92.4 66.4 UAE 71,187 3.6 4.5 19613 45.7 63.3 Bahrain 8,506 0.7 30.3 11619 69.8 69.9 Qatar 17,321 0.6 58.2 28362 84.2 72.0 Oman 20,290 2.7 16.0 7515 77.2 76.7 Source: IMF publication; AMF publications; and National publication Trade impact on political, economical and technological relations in GCC Zone GCC nations mainly depend on oil exportation as their source of revenue. It is in this event the backbone of the economy of the nations which in-exchange of such provides consumer products to its citizens. Liberalization of trade has thus motivated the growth of trade within the region. It has paved way for sustainable implementation of relevant economic policies. For instance it has provided the nations with an open market outlet for crude oil and its firms to competition. It in turn improves on productivity, efficiency and technological improvement. The open market has provided a source of foreign exchange to import other necessities. As such trade is significant to such countries fostering globalization within the region (Kim, 2000). Globalization phenomenon is new to most of the GCC nations. However the GCC zone is an attractive area for investment considering its territory and population. This is in regards to the accessibility of oil and gas which generates up to 62% and 40% of respectively of the world. Hence the countries require taking part in globalization. Discovery of oil has changed the economies radically. According to domestic per capita UAE is amongst the 20 top economies. Therefore oil resources have become significant due to globalization. Conclusion Economic and financial globalization has necessitated expansion of multinational trade in this event brought substantial benefits. This has boosted inter-countries political, technological and more importantly trade relations. Existence of these mutual relations among the GCC countries introduced new phase in world’s economic development. Currently the economic crisis has been put to a halt. The progression of globalization which is characterized by capital flows, reversal and shrinking of global trade. This is as a result of ignoring the drivers of globalization with insurance covers. The benefits of globalization lack no risks for instance volatile capital risks. The IMF thus offers a remedy to such and work towards reducing the adverse effects. This is realized through implementation of policies and advice. Such policies include microeconomic policy and exchange-rate system. Reference Bhagwati, J. (2004). In Defense of Globalization. New York: Oxford University Press. Henry, C & Springborg, A. (2001). Globolization and the Politics of Development in the Middle East. London: Cambridge Univesity Press. Abed, G & Davoodi, H. (2003). Challenges of Growth and Globolisation in the Middle East and North Africa. Retrieved 06 04, 2011, from Moore, M. (2003). A World Without Walss: Freedom, Development, Free Trade and global Governance. London: Cambridge University. Rowbotham, M. (2000). Goodbye America. Charlbury: Jon Carpenter Publishing. Kim, S. (2000). East Asia and Globalization. Maryland: Rowman And Littlefield Publishers, Inc. World Trade Organization, (1998) Annual report. Geneva Dobson, W. (1993). Japan in East Asia:Trading and Investment Strategies, ISEAS Series on Japan and the Asia-Pacific. Singapore: Institute of Southeast Asain Studies. Read More