Talking Trade

The low level of inter-Arab trade came under the spotlight in Doha this month, as business and political leaders met for a three-day conference.



Organised by the Qatar Chamber of Commerce and Industry (QCCI), in co-operation with the Arab Administrative Development Organisation, the meeting took as its starting point the fact that although trade among Arab states rose by 26% in 2004, to $32bn, intra-Arab trade still represents only around 8.5% of total trade within the region.



This was no surprise to local businessmen in Qatar, considering the country's import markets are still dominated by the US, Japan, the UK, Germany, Italy and France.



According to figures from the QCCI, in 2005 imports from the US made up 12% of all Qatar's imports. Japan also accounted for 12%, while the Gulf Cooperation Council (GCC) countries combined only accounted for just under 14%, with a total value of QR5.1bn ($1.4bn).



Trade outside the region is also likely to expand. Qatar signed a Trade and Investment Framework Agreement (TIFA) with the US in 2004 which set up a joint council to examine trade and investment issues between the two parties. Both sides are hoping this will lead to a full Free Trade Agreement (FTA) to be signed sometime later this year, which will further drive up commerce between the two countries.



In terms of exports - not including re-exports - QCCI figures show sales from Qatar to other GCC countries in 2005 accounted for QR4.7bn ($1.29bn), or just 5% of the country's total exports.



Another factor limiting the emirate's trade with other Arab states is that Qatar's industrial output is still not fully diversified, with the economy still highly geared towards producing oil and gas for Asian and European markets. There is only limited regional trade in the industry's derivative products. At the same time, sectors well-placed for export to regional as well as local markets, such as fisheries or tourism, remain under-capitalised.



Intra-Arab trade could no doubt be improved if "centres of excellence" were allowed to be created through healthy competition within the region, with each member state left to specialise in producing products and services that would be attractive to other local markets. However, with states keeping one eye on possible political frictions within the region, there is a common desire by countries to remain self-sufficient. Add to this state support for businesses, regardless of the market potential for their product, and competition can be kept artificially at bay.



There is also little development of new products going on, as Peter Rush, CEO of Mannai Corporation, recently told OBG.



"There is very little innovation in the region at the moment", he said, "and copycat investment in certain industries does not seem to be supported by sustainable market volumes. If public money is involved in funding enterprises they need to be sure that access to external markets exists where the domestic market is inadequate. It needs to be demonstrated that the demand is real before subsidised finance is made available. Otherwise, let private capital take the risk."



Although businesses like Mannai import much of their inventory through Dubai, this is not considered intra-Arab trade, since it is mostly in the form of foreign products imported through the Jafza free zone. The uncertain quality standards for regional products - other than foodstuffs - and a lack of common specifications still push large companies towards outside markets.



However, on the plus side, the standard of local products is on the improve, and as more and more products from regional businesses achieve ISO certification, companies may find fewer and fewer reasons to buy from outside the GCC area in the future.



Yet in other ways, the GCC member states are moving ever closer together. Abdul Rahman al-Attiyah, secretary general of the council, has said the region will have a common market by 2007 and that plans for free trade agreements with the EU will soon be concluded. Monetary union within the GCC area by 2010 is still officially being promoted by member state governments, and this will undoubtedly create the climate for greater economic integration within the region. However, for most outside of the official sphere, this date seems overly ambitious and a substantial increase in intra-Arab trade may still be a fair way off.