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Key findings of the first phase of our research on the GCC and the global economy include the following:
- The GCC will grow in importance as an economic and trading hub. In 2020, the GCC is projected to be a US$2trn economy, providing nearly one-quarter of the world’s oil supplies as well as increasing quantities of petrochemicals, metals and plastics. As economic weight gradually shifts southwards and eastwards, emerging markets will become increasingly important trading partners and investment destinations. Gulf investors and sovereign wealth funds are likely to diversify their assets into Asia and Africa, and the region is likely to export more of its oil to industrialising countries.
- There is likely to be closer economic and political integration between GCC countries. Under our core scenario, the GCC is likely to continue gradual efforts at economic integration, including a single currency, a single central bank and greater harmonisation of legal and regulatory environments.But political will is key. Economic integration will depend on good political relations, but will take precedence over political integration. Development of a common foreign policy or a strengthening of shared security forces remains a longer-term project.
- Monetary union will be in place and there may be a shift from the dollar peg. By 2020, it is likely that the GCC countries will peg their common currency to a trade-weighted basket of currencies,although one or two states may opt out. Any such basket will be heavily weighted towards the dollar—unless there is a global shift away from the practice of trading oil in dollars. Commodity prices (e.g. foroil and gold) may also be included in the basket.
- There will be a greater focus on manufacturing. Production of hydrocarbons in the GCC could rise substantially by 2020, but one likely trend is that the region will be seeking to export a smaller proportion of its oil as crude – a low value added commodity that offers few employment opportunities. Instead, GCC states will aim to turn more of their oil into refined products or petrochemicals, and to use their oil and gas resources as feed stocks for industries that will add more value and provide more jobs. However, the GCC will remain dependent on foreign labour by 2020 despite a range of efforts to encourage the employment of nationals.
- GCC spending on food imports is projected to more than double from US$24bn in 2008 to US$49bn by 2020. An important reason for this growth in imports is water scarcity, which means that domestic agricultural production tends to be costly. Between now and 2020, GCC countries will explore wide-ranging purchases of agricultural land in regions such as Africa, Central Asia and Southeast Asia, in order to strengthen food security. While these investments could boost agricultural production in poor countries, there is a risk of political backlash, especially in times of food shortages.
