JEDDAH – The economic center of the world is quickly shifting eastwards. Emerging Asia has been the source of most of growth in the world's economy in the last decade and this is leading to structural changes that are also impacting the oil-exporting countries of the Gulf cooperation council (GCC), Camille Accad, an economist at Asiya Investments, an investment firm specializing in Emerging Asia investments, said Tuesday. First and foremost, the rising economic activity in emerging Asia has contributed to a significant increase in demand for energy goods, which has led the region to become the GCC's main export partners. In 1990, the more developed economies (G3) – the US, EU and Japan – were buying 45 percent of all GCC exports, while Asia made up only about 15 percent. 23 years later, the situation has reversed: the G3 now only buys 23 percent of the region's exports, while emerging Asia gets 43 percent. Many reasons have contributed to this phenomenon, including the migration of manufacturing to emerging Asia, the US's increasing reliance to its domestic energy supplies, emerging Asia's massive rise in infrastructure construction and its ever growing middle class.
However, this is not the only change in world's trade structure. Imports to GCC have also witnessed a shift in trend: emerging Asia has become GCC's main source of imports. 20 years ago, the Gulf was importing only 15 percent of its merchandise from emerging Asia, while more than half of imported goods were coming from the G3. Today, the Gulf imports more from emerging Asia than it does from the G3, making up more than 35 percent of its total import share. As the graph shows, the trend accelerated in the last decade, where emerging Asia's imports to the GCC gained 15 percent and G3 imports lost 12 percent of total share. Several factors explain why the GCC is now looking East for its purchases. GCC countries have a very particular profile. Agricultural and manufacturing activity is minimal, while oversized extraction industries oriented towards exports provide lavish returns that are used to import everything. The three main categories of imports are manufactured goods, machinery and transport equipment, which together account for 77 percent of the total GCC imports. These categories include clothing, electrical appliances, cars, etc. And these days, they come mostly from Asia. Highest tech products are still predominantly produced in the G3 economies, but production is gradually shifting eastward. China, whose shipments alone make up more than 12 percent of GCC's total imports, is witnessing this phenomenon. In the last decade, the share of Chinese workers in the manufacturing sector employed in high-end production increased from 38 percent to almost 50 percent today, while those in the computers and electronics sector quadrupled. China even overtook Japan in the number of patents applications in 2010. Also, China, the largest world exporter, dominates the shipments of manufactured goods worldwide, accounting for 43 percent of its total exports, compared with 20 percent in the US, 26 percent in the top four EU exporting economies and 19 percent in Japan. The other group of goods, machinery and cars, accounts for another 47 percent of Chinese exports. Adding them together, we see that 90 percent of Chinese exports cater the three key categories of GCC imports. It's not that the GCC countries have changed their preferences. It's rather that most of what the GCC desires, is now manufactured in Asia. The economic and financial implications are very powerful. The GCC is increasingly looking East in its trade exchanges, increasing the interdependence between the two regions. The Asia – GCC relation is not developing on competition but on complementarity. With the shift eastwards of manufacturing activity, Asia became the main source of its imports. With falling energy needs in the US, Asia is becoming the most important source of demand for GCC's exports. Emerging Asia's strong demand for oil will continue to benefit the Gulf for at least the next decade. Financial and investment links are also strengthening. Inter-regional foreign direct flows are rising and the number of industrial projects awarded to Asian firms in the region is also increasing rapidly. This shift in trend is not a temporary one. There are powerful incentives for this partnership to last. The next two decades will be about Asia switching its focus from exports to domestic demand. Asian trade surplus will start to decrease, and regions with large amounts of savings like the GCC can play a central role in funding future Asian growth, ensuring at the same time the sustainability of global oil demand. — SG
