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Published: August 8, 2011
 / Autumn 2011 / Issue 64

 
 

The New Web of World Trade

For decades, the prevailing view in Western capitalist societies has been that this model cannot succeed — that the bureaucratic nature of government agencies could never compete against a nimble free market. And certainly, some state-owned enterprises in the GCC have stumbled, such as the real estate companies in Abu Dhabi and Dubai that required bailouts. In recent years, however, the track record of some state-supported sectors in the GCC shows that the issue is not quite so black and white. The state-owned airlines in the UAE and Qatar — Emirates, Etihad, and Qatar Airways — have quickly achieved global prominence. In fact, some European carriers (many of which used to be state-owned themselves) complain that it is unfair to have to compete against airlines with the power, and perhaps the economic support, of the state behind them. Thanks to strategic global investments, the size of the GCC’s sovereign wealth funds has nearly tripled in the last decade; they now hold approximately $1.1 trillion, compared with just $321 billion in 2000. And the GCC’s oil companies — the original source of the region’s wealth — are renegotiating their contracts with the foreign oil companies operating within the countries’ borders in ways that give them greater control over national resources while still allowing them to exploit the foreign oil companies’ technology and expertise.

4. Getting connected. As GCC countries seek to branch out and build relationships with other emerging markets, they have found one point of entry in the information and communications technology (ICT) sector. Like many other developing nations, they have recognized the importance of building knowledge economies to accelerate their development, and have made infrastructure investments and policy changes accordingly. Their rankings on the World Economic Forum’s Networked Readiness Index, which measures “the degree of preparation of a nation or community to participate in and benefit from ICT developments,” reflect their efforts: The UAE moved from number 28 on the list in 2005 to number 24 in 2010 (out of 138 nations on the list that year); Qatar jumped from number 40 to number 25 during the same period; and Saudi Arabia, which made its debut on the list in 2007, improved from number 48 in that year to number 33 in 2010.

In making these advances, GCC countries have frequently looked to their counterparts among other emerging nations, many of which have similar initiatives under way. As a result, the nations of the Gulf and their partners in other emerging markets have collaborated to boost their ICT development in ways that they might not have been able to do alone.

Shared infrastructure, for instance, has been crucial. The new silk road runs underwater, in the form of submarine cables that connect the GCC to countries including India, Thailand, Malaysia, South Korea, Pakistan, South Africa, Nigeria, and Sri Lanka. Chinese companies Huawei and ZTE have provided equipment for GCC telecom networks; Huawei has even gone beyond infrastructure to invest in talent in the GCC, sponsoring an academic chair in information technology and communication at the UAE’s Higher Colleges of Technology.

Telecom operators, too, are looking to emerging markets to drive their business. Since the GCC deregulated its own national telecom markets in the 1990s, local operators have been on an acquisition spree, expanding their international footprint from 28 markets in 2005 to 44 markets today. These new outposts are mostly in emerging markets, spanning Indonesia, South Africa, South Asia, the Middle East and North Africa region, and sub-Saharan Africa. These investments run the other way, too, as companies like India’s Bharti consider investments in the GCC. For emerging markets to play any significant role in the global economy of the 21st century, they will need to invest in ICT infrastructure and talent. Pooling their resources to do so can advance them more effectively.

 
 
 
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Resources

  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: www.strategy-business.com/global_perspective