The annual meeting of World Bank-IMF in Tokyo has been dominated by bad economic news and gloomy growth expectations:
• The world economy will continue to be depressed as a result of the financial and economic crises in Europe and the US. This could prolong until 2015.
• China, who did not attend the meeting in a meaningful way, is slowing down and could slide to 3 percent growth per annum in five years, according to a very respected economist.
• The realignment of the voting power in the IMF to reflect the new economic reality, agreed upon in 2010 did not go into effect this month as agreed, because the Americans will not ratify it until after the presidential election scheduled next month.
• The Europeans are backpedaling on the banking union, which was thought that they had adopted earlier.
• The $ 57 billion currency swap arrangement between Japan and South Korea was frozen, and this was due, according to some speculation, to territory disputes.
Luckily, both the GCC and Malaysia are in a better shape economically.
Economic growth in both regions has been very impressive during the last five years of the financial and economic crisis. It fluctuated between 4-7 percent per year. This robust economic growth is expected to continue for the next few years. The GCC states have around $ 2.2 trillion held in foreign assets and their combined current account surplus is around the same amount.
Bilateral trade and investment have been growing relatively smooth, although there is still a lot of room for improvement.
A framework agreement for economic, trade, investment and technical cooperation was signed in Abu Dhabi on Jan. 30, 2011.
In the area of trade, this framework agreement, emphasizes:
• Exchange of information.
• Reduction of tariffs as well as elimination of none tariff barriers.
• Encouragement of contacts among the private sector as well as institutions involved with trade issues in the two regions.
• Training and transfer of technology are given due priority.
And this agreement includes a clause to negotiate a free trade agreement (FTA)
• In the area of investment, both parties agreed to do what is necessary to encourage investment flows and engage in investment projects in the two regions.
• A joint committee was created to follow up the process.
What is even more interesting is a clause allowing any GCC member to enter into a bilateral economic agreement with Malaysia.
In June this year, GCC representatives have adopted a draft-working plan for the period 2012-15. This will be presented to the coming meeting of the joint committee.
It is expected that this draft-working plan will emphasize the followings:
• Encouragement of investments in agriculture and food security, including halal and joint stock piling of food items. It should also include farming, animal husbandry, fishing, health quarantine for animals and plants.
• Cooperation in the area of energy including renewables.
• Promotion of tourism including health tourism.
• Cooperation in the area of transportation to facilitate more trade. That includes railroads, land, sea, and air.
• Cooperation in the areas of construction and services, financial services including Islamic banking and investment.
• Learning from each other in the area of capital markets, issuing of sukuk and bonds, coordinating laws, rules and procedures in these markets, and encouraging investors from both regions to invest in each other’s capital market.
• In the area of trade there are a number of issues that are generally highlighted.
• Coordination of possessions within the framework of WTO.
• Improving quality of traded goods and exchange of standards.
• Exchange of experience in the area of trade finance and financial guarantees.
• Encouragement of joint investment in high value added industries, such as petrochemicals, steel, refining. etc.
Let me now turn to the more substantive issues:
• Meeting of the joint committee should be more frequent, and the private sector should be active participant in these meeting.
• There are already open channels of communications and strong cooperation in the areas of Islamic banking. We are both learning by doing and there are a lot to learn in this field.
• We also have a lot to learn from each other in involving nationals in the development process. The GCC can learn a lot from the success of Malaysia in this aspect.
• Although both of our economies are open and our exports have somewhat the same characteristics, where export of commodities weigh heavily in exports, Malaysia has been more successful in protecting its economy from external shocks. We want to learn how it is done.
• To my knowledge, Malaysia is the only country that entered into a financial arrangement with the Chinese to use RMB-ringit in trade directly without the intermediation of the US dollar. If this experience proves to be successful why not repeat it with at least some of the GCC members.
• Because of the cumbersome nature of an FTA negotiations and the limited final results, my advice is not to engage in this exercise for the time being.
— Dr. Abdullah I. El-Kuwaiz is a Saudi economist
(This paper was presented at the GCC-Malaysia Economics and Investment Cooperation Conference held in Kuala Lumpur from Oct. 16-17, organized jointly by the Federation of GCC Chambers of
Commerce and Malaysia government.)