A Mercantile Middle East by Nasser Saidi and Aathira Prasad

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The Gulf states can catalyze trade within the Middle East and North Africa (MENA) region and the region’s integration into the global trading system.
Publication: F&D Magazine, September 2023.
Authors: NASSER SAIDI and AATHIRA PRASAD.

MENA accounted for just 7.4 percent of total trade in 2022.
The region’s total trade in goods as a percent of GDP was 65.5 percent in 2021.
Intraregional trade represents only 17.8 percent of total trade and 18.5 percent of total exports.
The six oil-exporting GCC nations—Saudi Arabia, Bahrain, Oman, Qatar, Kuwait, and the United Arab Emirates—account for the bulk of intraregional trade.
The share of intragroup exports in the Arab region, excluding the GCC, has remained below 2 percent of their trade flows.
MENA services trade has ranged between 4 and 6 percent of global services trade in the past two decades.
Within MENA, the GCC accounts for the bulk of services trade, with the largest shares in travel (and tourism) and transportation.
MENA nations apply more, and more restrictive, nontariff measures than in any other region; these almost doubled between 2000 and 2020.
Port “dwell times” can exceed 12 days in some MENA countries.
- Algeria and Tunisia delays average about 20 days.
- United Arab Emirates delays are less than five days.
Ukraine and Russia accounted for a third of global wheat exports; Lebanon and Tunisia were importing close to 50 percent of their wheat from Ukraine.

Political fragmentation, violence, and wars since the mid-1990s and after the Arab Spring in 2011 have constrained intraregional trade.
Restrictive policies limit services trade entry in sectors dominated by state-owned enterprises (for example, telecommunications) and impose high fees and license requirements, especially in professional and transportation services.
Lack of uniform standards and harmonization, pervasive red tape, and corruption compound trade barriers.
Business and investment barriers include cumbersome licensing processes, complex regulations, and opaque bidding and procurement procedures.
MENA underperforms on trade facilitation measures and has wide disparities in trade- and transportation-related infrastructure quality across countries.

Commodity-dependent nations in MENA have made substantial gains over time in trade diversification, as shown by the Global Economic Diversification Index.
The Global Economic Diversification Index trade subindex indicates improved scores for commodity-dependent nations that have reduced dependence on fuel exports, reduced export concentration, or changed export composition.
Example: Saudi Arabia’s medium- and high-tech exports rose as a share of overall manufacturing exports to almost 60 percent right before COVID from less than 20 percent in 2000.
GCC members have pursued policies and structural reforms to diversify away from fossil-fuel dependence, including increasing labor mobility, opening capital markets, developing free zones and special economic zones, and attracting foreign direct investment.
There is an evident shift in GCC trade patterns toward Asia and away from the United States and Europe.
Up-and-coming sectors identified for sustainable trade expansion include renewable energy and agritech.

The GCC can catalyze regional integration by lowering barriers to trade, improving trade infrastructure, and diversifying regional economies.
Integrating MENA trade infrastructure (ports, airports, logistics) with that of the GCC would lower costs and facilitate intraregional trade.
GCC can lead integration via:
- Investments in hard infrastructure and trade-related infrastructure and logistics.
- Developing an integrated GCC power grid; a GCC renewable-energy-powered, integrated electricity grid could extend to Europe, Pakistan, and India.
- Pursuing globalization as a regional group through new trade and investment agreements, foreign aid, and direct and portfolio investment.
Recent diplomatic openings and the forging of new links (for example, the Abraham Accords) reduce geopolitical risks and create opportunities to promote regional trade and investment.
The United Arab Emirates have signed comprehensive economic partnership agreements with India, Indonesia, and Türkiye covering services, investment, and regulatory aspects of trade.
The GCC’s accelerated negotiations with partners in the MENA region (including Egypt and Jordan) and in Asia (including China and South Korea) could underpin transformation.

Remove barriers to trade and investment:
- Lower restrictive nontariff measures.
- Harmonize standards and reduce pervasive red tape and corruption.
- Simplify licensing, regulations, and procurement procedures.
Improve trade facilitation and logistics infrastructure to reduce dwell times and overall trade costs.
Promote trade diversification by including knowledge-intensive services in new generation trade agreements.
- Such agreements would support export diversification, bridge gender gaps, improve women’s economic empowerment, and foster more inclusive growth and integration.
Implement the GCC Common Market and invest in digital trade.
Reduce tariffs and nontariff barriers and liberalize trade in services, alongside reforms to facilitate greater labor mobility and enhance financial and capital market linkages.
Develop deep trade agreements between the GCC and other MENA countries that go beyond goods to cover:
- Nontariff measures, direct investment, e-commerce, services, labor standards, taxation, competition, intellectual property rights, climate, the environment, and public procurement.
Adopt “aid for trade” policies by the GCC to support partners in implementing trade-boosting reforms that lower business and investment barriers, improve logistics infrastructure, and facilitate the movement of goods.

Source: A Mercantile Middle East by Nasser Saidi and Aathira Prasad, F&D Magazine, September 2023.

A Mercantile Middle East
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