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 / Autumn 2011 / Issue 64(originally published by Booz & Company)


The New Web of World Trade

In future years, GCC companies will be looking to expand in a number of directions that will affect their exports. They will build manufacturing bases, as well as act as importers and resellers for automobiles and other advanced manufacturing products; they will also continue developing expertise in critical areas such as water desalination and complex infrastructure and construction projects, and may begin looking outside the region for destinations for those services. Trade partners that support the GCC’s economic goals will find themselves in favorable positions.

2. Rich in talent. As goods and services flow across the borders of the GCC and other emerging markets, so do people. Air arrivals in the GCC from China more than tripled between 2005 and 2009; arrivals from India, which historically has had deep ties to the GCC, increased by 35 percent. Arrivals from Turkey, Egypt, Indonesia, Pakistan, and Iran are on the rise as well: The GCC saw 2.2 million visitors arrive from Egypt in 2009, compared with 1 million in 2005. During the same period, the number of visitors from Pakistan increased from 769,000 to 1.4 million.

The most significant aspect of this change is the skill level of many of the people entering the GCC. No longer do executives come from the West and laborers from the East; instead, skilled individuals from emerging markets are deepening their impact in the GCC with influential positions in the region’s financial, energy, transportation, and public sectors. India, in particular, has a large community of professional expats in the region, stretching back several decades.

Because GCC countries do not publish data on the types of jobs that expats come to the GCC to perform, this trend is difficult to quantify; we are discussing it here primarily on the basis of our own extensive experience and observations. One indicator of the size and status of the Asian expat population, though, is the fact that this group’s private wealth (for which data is available) is now equal to or greater than private wealth among Western expats, and private wealth among Arab expats from outside the GCC is rapidly catching up. In Saudi Arabia, for example, Asian expats held $46 billion in private wealth in 2009, compared with $41 billion for Western expats and $21 billion for Arab expats. In the UAE, Asian expats also led the pack at $27 billion, followed by $20 billion for Western expats and $17 billion for Arab expats.

As countries that are poor in resources but rich in talent send their people to the GCC, they not only further the GCC’s own growth aspirations; they also put their expats in a strong position to encourage and maintain the GCC’s relationships with their countries of origin.

3. New sources of capital. GCC nations have long been investors in other countries — primarily in the U.S. and Europe — via their sovereign wealth funds and other state-owned entities. Although Western countries are still the primary recipients of GCC investments, accounting for 71 percent of capital outflow from the GCC between 2003 and 2008, they are slowly losing share to other Middle East countries and Asia. In light of the strong role that GCC governments play in determining the direction of their countries’ capital investments, this trend could accelerate if GCC governments decide that other emerging markets are a better strategic destination — both economically and politically — for their riyals, dirhams, and dinars.

To some degree, of course, all governments play a role in their national economy. In the aftermath of the global financial crisis, most governments’ roles are larger than they used to be, thanks to bailouts of critical industries in Western countries. But major emerging economies such as China, Russia, Brazil, and Mexico, and the countries of the GCC, among others, are active proponents of “state capitalism” — defined most recently by political risk expert Ian Bremmer as a system in which governments direct state-owned companies, private companies, and sovereign wealth funds in ways that will maximize the state’s resources and power. (See “Surviving State Capitalism,” by Art Kleiner, s+b, Summer 2010.) These countries approach state capitalism not as a last resort in times of crisis but as a sensible policy for protecting national interests while still encouraging economic growth.

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  1. Ian Bremmer, The End of the Free Market: Who Wins the War Between States and Corporations? (Portfolio, 2010): The potential power of state capitalism.
  2. Economist Intelligence Unit, “GCC Trade and Investment Flows: The Emerging-Market Surge,” 2011: Presents research on the strengthening economic ties between the GCC and other emerging markets.
  3. Gideon Rachman, Zero-Sum Future: American Power in an Age of Anxiety (Simon & Schuster, 2011): A zero-sum approach to global economics, in which one country’s gain is another country’s loss, is undermining attempts to restart the world’s growth engines after the recession.
  4. Joe Saddi, Karim Sabbagh, and Richard Shediac, “Oasis Economies,” s+b, Spring 2008: Overview of the GCC’s growing economies and the nature of their development.
  5. Joe Saddi, Karim Sabbagh, and Richard Shediac, “The Challenges of Balance,” s+b, Summer 2009: Analysis of the difficulties confronting the GCC’s rapid economic growth.
  6. For more on this topic, see the s+b website at:
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