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‘Parsing the Reality and Promise of Gulf-Asia Engagement’
IISS Seminar
15-16 October 2011
SIXTH SESSION: Barriers and Challenges to Gulf-Asia Engagement:
Political, Financial and Social
Terry Newendorp
Chairman and Chief Executive Officer, Taylor-DeJongh Inc.
SIXTH SESSION: Barriers and Challenges to Gulf-Asia Engagement: Political, Financial
and Social
Terry Newendorp
Chairman and Chief Executive Officer, Taylor-DeJongh Inc.
Barriers and Obstacles to GCC-Asia Economic Relations: Closing the Triangle
The modern relationship between the states of the Gulf Cooperation Council (GCC) – Bahrain,
Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates – and Asia first began in the
1950s and is, not surprisingly, rooted in hydrocarbon exchange. Since then, an important bilateral
trade relationship has evolved between the two regions. While the economies of Northeast Asia
have become reliant upon energy imports from the Gulf, GCC states have simultaneously benefited
from Northeast Asia’s low-cost manufacturing industries. Looking ahead over the next 15 years,
market analysts expect to see an increasing percentage of capital flowing from the GCC into
emerging markets, and Asia in particular.1
While historic precedent would indicate that this capital might be directed toward Northeast Asia,
regulatory obstacles and an overly complicated investment environment threaten to impede this
development. At the same time, the markets of Southeast Asia look increasingly primed for GCC
investment. In the coming years, Southeast Asia looks likely to outcompete other regions in Asia to
capture a growing share of GCC investment in the region. This paper seeks to assess the economic
relationship between Asia and the GCC and to describe the obstacles and opportunities for
economic cooperation between the two regions. Finally, this paper will explain why certain Asian
economies are particularly inviting for lucrative GCC investment.
‘GCC Trade and Investment Flows: The Emerging-Market Surge’, Economist Intelligence Unit (EIU),
London, 2011.
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Historic Ties between Northeast Asia and the GCC
While economic ties between Asia and the GCC have evolved significantly since the 1950s,
hydrocarbons remain the central feature of the relationship. Within Asia, China, Korea and Japan
have historically been the drivers of bilateral trade. Japan was the first Asian nation to establish
economic ties with the GCC, establishing formal diplomatic relations with Saudi Arabia. In 1956,
Japan’s Arabian Oil Company secured a 43 year concession to explore and extract Saudi oil,
launching production in 1960. The trade of non-hydrocarbon goods later experienced significant
growth, with Dubai positioning itself as a re-export hub. Japan originally exported clothes to India
through Dubai, and beginning in the late 1970s this trade expanded to include a number of
electronic goods. Throughout the 1960s and 1970s Japan broadened its engagement with the GCC by
establishing diplomatic relations with Kuwait, Qatar, Bahrain and Oman. Japanese oil companies in
turn moved into Kuwait (1961) and the UAE (1972).
Meanwhile, though to a lesser degree than Japan, China and Korea began to engage GCC nations.
China initially approached Gulf countries for re-export trade opportunities throughout the 1950s
and 1960s. Due to its domestic supply, then sufficient, China demonstrated little interest in oil trade
with the GCC at the time. However, China’s interest in the GCC region shifted in 1983 when it began
to import crude oil from Oman. Omani crude was initially imported on a temporary basis, and a
permanent arrangement was established in 1988 as China’s industrialisation accelerated. By the
early 1990s, China had engaged all GCC nations to varying degrees, and its strategic interests in the
region were made clear. South Korea, which had no oil industry until the late 1970s, gradually
established diplomatic relations with GCC nations throughout the 1960s and 1970s.2
Northeast Asia and the GCC Today
Totaling US$192.2 billion in 2008, or three-quarters of GCC exports to Northeast Asia, hydrocarbon
trade continues to be the centerpiece of trade between these two regions.2 China currently imports
58% of its oil from the Middle East, with Saudi Arabia, Oman and Kuwait providing most of this.
China sources one-third of its oil from Saudi Arabia, and will overtake the US as the largest buyer of
Saudi crude within the next five years.1 Energy exports from the GCC play an equally important role
for Japan and South Korea, though import volumes are much lower than China’s. The UAE exported
2.32 million barrels per day (b/d) of oil in 2009 with Asian markets as the predominant destination.3
While Japan received 40% of total exports, South Korea and Thailand are also major importers UAE
crude.4
In an effort to balance trade deficits with the GCC, Northeast Asian nations have worked to increase
exports to the Gulf and to broaden trade beyond the exchange of hydrocarbons. In 2009, nonChristopher M. Davidson, ‘Persian Gulf-Pacific Asia Linkages in the Twenty-First Century: A Marriage
of Convenience?’ Kuwait Programme on Development, Governance and Globalisation in the Gulf States,
The Centre for the Study of Global Governance, London School of Economics, January 2010, pp. 8-15.
3 ‘United Arab Emirates, Country Analysis’, Energy Information Agency (EIA).
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hydrocarbon trade between Saudi Arabia and Japan reached US$5bn, comprising mostly Japanese
automobile, machinery and consumer durables exports.2 South Korea’s non-hydrocarbon trade with
Saudi Arabia reached US$3bn in 2009, the majority including Korean automobile, rubber and textile
exports.2 In addition, Korean and Japanese firms have also leveraged their skills in advanced
electronics, construction and technology to secure investment opportunities within the GCC.
Construction Trade
Most
major
Korean
contractors have over 30
years of experience in civil
engineering projects, which
has played a key role in
helping many of these firms
secure major engineering,
procurement
and
construction (EPC) awards in
the GCC. Between April 2010
and March 2011, South
Source: MEED Insight
Korean firms won 47% of all
EPC contracts awarded in the GCC and over 65% of the top EPC contracts in the region.4 In 2009,
South Korea’s KEPCO beat out
France’s Areva and a consortium
led by GE-Hitachi to secure a
landmark US$18.6bn contract for
the construction of four nuclear
power plants in the UAE by 2020.5
While Indian and Chinese firms
are eager to compete with Korean
firms in the GCC, their expertise
continues to lag.6
By
comparison,
Japan
has
strengthened and diversified its
economic relations with the GCC
through a range of public-private
partnerships
(PPPs).
Foreign
ownership restrictions in upstream assets and natural resources are common throughout the GCC,
but PPPs offer a unique opportunity for foreign firms to invest directly in the Gulf. Beginning in
‘EPC Market Still Buoyant in the Gulf’, MEED, July 2011.
Kim Tae-gyu, ‘Korea brushes aside UAE doubts’, Korea Times, 01 February 2011.
6 Kevin Baxter, ‘Korean Contractors face increased competition’, MEED Insight, 2011.
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1994 with the Al-Manah independent power project in Oman,7 PPP deals in the GCC have totaled
US$54.7bn. Over 90% of these deals (by value) have been in the power and desalination sector.4 As
of August 2010, Japanese, French and Malaysian firms have been the most successful foreign
companies engaged in power and desalination PPPs in the GCC. Seven Japanese companies have
entered into at least one power or desalination PPP in the region: Japan’s Marubeni Corporation is
currently involved in six projects, third only to France’s GDF Suez and International Power by
number of projects.4
While EPC and service contracts do not qualify as direct foreign investment in the GCC, these deals
generally involve a complex matrix of financing that often include direct and indirect lending from
Korean and Japanese banks. Since 2007, 28 deals have reached financial close in the GCC involving
an EPC contract with a Japanese or Korean firm, 21 of which have involved some form of Japanese
or Korean financing.8 Financing was conducted either though Japanese commercial bank lending or
direct loans and loan guarantees issued by KEXIM, KSURE (formally KEIC) and JBIC. 8 While
Japanese commercial bank lending is the most commonly used technique of these three approaches,
direct loans and loan guarantees have also become quite common, especially since 2009.
Since January 2010, five deals involving Korean and Japanese EPC contracts totaling around
US$5.6bn have reached financial close in the GCC. KEXIM or KSURE have issued three direct loans
totaling US$709m and three loan guarantees totaling US$246.6m, while JBIC also issued one direct
loan for US$400m.8 Since 2007, Korean export credit agencies have issued US$2.5bn in direct loans
and US$1.3bn in loan guarantees to facilitate projects in the GCC involving Korean contractors.8
These figures do not include the estimated US$9bn in loan guarantees that KEXIM plans to issue for
the nuclear reactor deal in the UAE.
Tracking GCC Investments in Asia
Due to undeveloped local capital markets, petrodollar foreign investments have dwarfed the size of
domestic securities markets in the GCC as domestic investors have sought external investment
opportunities.9 Between 2002 and 2006, roughly 73% of capital outflows from the GCC were directed
to the United States and Europe, with only 11% to Asia.9 However this trend has changed in recent
years as investors from the GCC increasingly seek out investment opportunities in emerging
markets and especially Asia. According to a McKinsey report, investors from GCC countries invest
an average of 80% of their wealth offshore. The same report identified Asia as a key market for GCC
investors in the coming years and estimated that cross-border capital flows between the GCC and
Asia will climb from US$15bn in 2007 to as much as US$290bn by 2020.9
A recent Economist Intelligence Unit report corroborated this analysis by forecasting that Asia is
poised to become the most important emerging market for the GCC in the coming years. 1 This shift
is based upon both Asia’s growing oil consumption, growing export markets and its expanding
‘PPPs in the GCC’, MEED, 2011.
TDJ Analysis based on data collected from Projectware for research conducted on 9/27/2011.
9 ‘The New Power Brokers: How Oil, Asia, Hedge Funds, and Private Equity Are Shaping Global Capital
Markets’, McKinsey & Company, October 2007, pp. 62-3.
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middle class.1 Growth in bilateral activity is reflected in increased trade flows from 2003-2009: over
that time, exports from GCC to Asia increased 55%, to US$174bn.10
Despite a history of trade between Northeast Asia and the GCC, direct financial investments
between these regions have developed relatively slowly. For each Northeast Asian country this
situation is the result of a different set of circumstances. In 2010, foreign direct investment (FDI) into
Korea and Japan represented just 2% of global FDI flowing into Asia.11 Though foreign firms face an
overly complex regulatory environment in Japan, inward FDI is constrained primarily by structural
rather than regulatory factors.12 Entrenched local firms that understand the unique Japanese market
are known to act as ‚cartels‛ in order to thwart competition and drive up prices. Wages and real
estate are expensive, which drives up the cost of doing business.13 Finally, Japan’s internal labour
markets (i.e. Japanese firms tend to promote internally) make it difficult for foreign firms to recruit
local talent.12
Foreign investors face a similarly challenging environment in South Korea, where the local Chaebol
continue to dominate the economy despite government efforts to encourage FDI. Foreign firms
confront a historically unfriendly investment environment.14 At a very basic level, examples of this
include a lack of legal and business-related information available in English, difficult immigration
laws, powerful labour unions and a regulatory environment that lacks clarity, stability and
transparency.15
It has been over six years since a foreign investor of any kind has taken over a Korean financial
company valued at over US$500m.16 Perhaps the most poignant example of Korea’s arduous foreign
investment climate has been US-based Lone Star Funds failed attempts to exit the Korean market.
Lone Star has been eager to sell its 51% stake in Korea Exchange Bank (KEB) since 2006. HSBC has
twice attempted to purchase Lone Star’s shares: once through a failed bid in 2006 and again in 2007
when it signed an agreement to with Lone Star to sell its stake for US$6.3bn. In 2008, HSBC
abandoned its bid following regulatory delays and legal disputes brought by the Korean
government. Korea’s Hana Financial Group recently agreed to purchase the stake in KEB for just
US$4.1bn but the sale has been delayed pending continued legal suits.16 In another example,
Standard Chartered’s efforts to transition its First Bank Korea to a performance-based pay system
have been met by stern labour union opposition and resulted in the longest labour strike in Korea’s
banking history.15
‘Direction of Trade Statistics’, International Monetary Fund, 2010. For purposes of this study, Asia
includes: Japan, South Korea, China, Malaysia, Indonesia, Thailand, and Vietnam.
11 ‘World Investment Report 2011’, UNCTAD, 26 July 2011.
12 Franz Waldenberger, ‘Has the Japanese Economy Become More Open?’, Maison Franco-Japonaise,
February 2008.
13 ‘World Investment Service: Japan Country Report’, EIU, 2011.
14 ‘World Investment Service: South Korea Country Report’, EIU, 2011.
15 ‘Foreign Investment Climate Still Unsatisfactory’, Korea Times, 25 June, 2009.
16 Cha Seonjin, ‘Korea Banking Pitfalls Snaring Lone Star Help Scare Away Foreign Investors’, Bloomberg,
29 August, 2011.
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China continues to capture the largest share of FDI flowing into Asia, yet GCC direct investment
into China has not been overwhelming.11 A number of obstacles have inhibited GCC investment,
including language barriers, a lack of suitable local partners,17 insufficient protection for intellectual
property, and a ‚complex and contradictory‛ legal and regulatory system.18 The investment
obstacles are highlighted by a World Bank study which ranked China in 79th globally in ease of
doing business – the same study ranked Malaysia and Thailand 19th and 21st respectively.19 China’s
restrictions on inward foreign investment are much broader than restrictions in most developing
economies.18 Foreign investment in China is approved on a case-by-case basis: the Catalogue for the
Guidance of Foreign Investment Industries is used by Chinese regulators at the Ministry of Commerce,
State Administration of Industry and Commerce, and National Development and Reform
Commission to determine approved foreign capital inflows. However, not only are changes made to
the Catalogue without forewarning or rationale, but Chinese bureaucrats are not bound to follow it
and are free to restrict or approve investments for other reasons. This ad hoc style of approval
allows for little transparency or certainty in the decision-making process.18
Top* GCC Sovereign Wealth Funds (SWF) Direct Investments in Asia By Sector
3% 3%
Healthcare
5%
Ports
8%
31%
Consumer Discrentionary
Industrial
8%
Telecom
Undisclosed
8%
17%
Financials
Real Estate
17%
*Analysis based on top 14 SWFs in GCC by asset value. Data
does not include SAMA Foreign Holdings because information
was not publicly available.
Energy
Source: Sovereign Wealth Fund
Institute, Capital IQ
‘Near East Meets Far East: The Rise of Gulf Investment in Asia’, EIU, 2007.
‘Doing Business in China’, 2010 CountryCommercial Guide for U.S. Companies (Washington DC: United
States Department of Commerce 2010), Chapter 6.
19 For more information, see http://www.doingbusiness.org/rankings
17
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GCC investors typically favour investments in sectors where they possess experience and thus have
a competitive advantage: real estate, energy, port operations, tourism, financial services, agriculture
and minerals.1 However, many of these sectors are considered ‚vital industries and key fields‛ by
the Chinese government, which seeks to discourage or limit foreign investment in the farming,
mining, electric power, transportation, manufacturing, scientific research, telecommunications, oil
and petrochemicals industries.18 For all these reasons, it is not surprising that the focus of GCC
investment in China to date has been in
the merchandise trade.17
GCC-Southeast Asia Compatibility
Global Flow of FDI into North and
Southeast Asia
Investment obstacles in Northeast Asia
100%
have encouraged potential investors to
seek out alternative opportunities in the
80%
region. Against this backdrop, Southeast
Korea and
Asian economies exhibit a growing
Japan
number of characteristics that are
60%
attractive to GCC investors. Financial
SE Asia
markets in Southeast Asia, and in
particular in Malaysia, Indonesia,
40%
China
Thailand and Vietnam, have a number of
attributes that are particularly attractive
20%
to GCC investors. Among these
characteristics are the region’s current
Source: UNCTAD
state of economic development, its
0%
World Investment
relatively friendly foreign investment
Report 2011
2005
2010
environment and its cultural affinity with
the GCC. As a result, there is a strong likelihood that Southeast Asia will capture a growing share of
GCC foreign investments in the future.
The stock exchanges in Indonesia (US$406bn) and Malaysia (US$409bn) are the largest in Southeast
Asia by market capitalisation. These are followed by Thailand (US$294bn) and Vietnam (US$44bn).
By comparison, the largest exchange in the GCC is in Saudi Arabia (US$ 317bn). However, all of
these are overshadowed by the stock markets in Shanghai (US$2,661 bn) and Hong Kong
(US$2,494bn).20 All of these Asian exchanges (except for Hong Kong) have foreign ownership limits.
Foreign institutional investors must be individually approved to invest in Shanghai Stock Exchange
A Shares, though all foreigners are free to invest in the much smaller pool of B Shares. Southeast
Asian exchanges have foreign ownership ceilings in most industries, though the laws have been
liberalised. One example of interest to GCC investors is Bursa Malaysa. The foreign ownership limit
20
World Federation of Exchanges, as of 31 August 2011.
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is commonly 30% for domestic firms. However, Islamic banks, telecommunications firms and
companies which produce goods for export have much higher foreign ownership ceilings.21
The developing economies of Southeast Asia provide many investment opportunities, especially in
the real estate, energy and tourism sectors. These sectors are well-suited for GCC investors due to
their prominence in Gulf economies.17According to Sourav Kumar, head of Middle East sales and
marketing for Prudential Asset Management, ‚*For Gulf investors+ real estate is likely to remain the
most important asset class after equities.‛17 A noteworthy example of this is the US$1.2bn in funds
committed by a Gulf-based consortium led by Mubadala Development Corporation in Malaysia’s
Iskandar Development Region. The deal was agreed upon in 2007 and is one of the largest ever
single foreign investments in Malaysia.22
Southeast Asian economies have worked to increase local investment opportunities for foreign
firms. Extra-ASEAN (Association of Southeast Asian Nations) FDI into Indonesia, Malaysia,
Thailand, and Vietnam nearly doubled from US$16bn to US$29bn in 2009-10, eclipsing pre-crisis
levels (USD 26 billion in 2008). 23
Indonesia is considered a relatively investment-friendly environment due to its accommodating
foreign-exchange policies, trade regulations and tax regime. The latter offers incentives to foreign
investors in a number of sectors, including its rapidly growing automotive manufacturing
industry.17 Additionally, a tax holiday was recently granted to foreign firms investing at least
US$117m in Indonesia’s base metals, oil refining, petrochemicals and renewable energy sectors.24 As
Country Equities Reports, Asia eTrading, 2011.
‘Mubadala to Develop AED 4.4 billion City in Malaysia’, Gulf News, 29 August 2007.
23 ‘Foreign Direct Investment Net Inflow, intra- and extra-ASEAN’, ASEAN Statistics Database, 15 August
2011
24 Farida Husna and Andreas Ismar, ‘Indonesia Offers Tax Incentives to Spur Growth’, The Wall Street
Journal, 15 August 2011.
21
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a result, a growing number of Gulf-based banks have established operations in the country in order
to meet increased demand for energy and commodities project finance. The latest example is Abu
Dhabi’s First Gulf Bank, which recently announced plans to apply for a license to operate in Jakarta
as part of a larger effort to grow its presence in financing energy and commodities projects in the
region.25
The Malaysian government also recognizes the importance of FDI inflows in supporting its exportdriven economy. In 2009, regulations governing inward foreign investment were relaxed and a law
requiring a 30% indigenous ownership stake in 27 business subsectors was abolished.26 As a result, a
growing number of Gulf banks, such as Kuwait Finance House, Alarajhi Bank and Asian Finance
House (a joint venture between Qatar Islamic Bank, RUSD Investment Bank of Saudi Arabia and
Global Investment House of Kuwait), have expanded into the country.17
Furthermore, a framework agreement for the formation of a Malaysia-GCC Free Trade Agreement
(FTA) was reached in early 2011. If a Malaysia-GCC FTA comes to fruition, it will be just the second
GCC FTA signed with an Asian country27 and will provide GCC states with access to the ASEAN
network. The FTA could also help Malaysia realise its aspirations of becoming a hub for GCC
investors and a cost-competitive environment for offshore operations in advanced technologies
manufacturing. Bilateral trade and investment between Malaysia and GCC countries has increased
significantly in recent years. According to the Malaysia External Trade Development Corporation,
trade between the GCC and Malaysia reached US$11bn in 2010.28 In the same year, electronic goods
overtook jewelry as the top exports to the UAE (by far Malaysia’s largest GCC export market), a sign
that Malaysia’s manufacturing industry has continued to move up the value chain.
Thailand and Vietnam have also made efforts to encourage foreign investment. Despite recent
political instability, Thailand has historically been considered a friendly FDI destination.29 Aside
from relatively low labor costs and flexible labor laws in Thailand, the local board of investment also
offers certain exemptions on corporate income tax and duties on imported machinery. Foreign firms
are also permitted to import foreign workers, own land and remit foreign currency abroad.29 This
favorable environment likely contributed to the 15.7% increase in inward FDI (to US$5.8bn) between
2009 and 2010, after three consecutive years of contraction caused by political upheaval and the
financial crisis. To date, Thailand’s manufacturing sector has attracted the largest proportion of FDI
inflows.29
In Vietnam, political stability and inexpensive labor have been instrumental to attracting foreign
investment.30 The socialist republic has proven particularly attractive to foreign investors seeking an
‘First Gulf Bank Plans Four Asia Offices to Boost Financing Role’, Gulf News, September 07, 2011.
‘World Investment Service’, EIU, 2011.
27 An FTA was signed between the GCC and Singapore in 2008. To date, it has not been ratified by every
GCC country.
28 ‘GCC-Malaysia Trade Hits USD 11 billion’, Khaleej Times, 02 April, 2011.
29 ‘World Investment Service: Thailand Country Report’, EIU, 2011.
30 ‘World Investment Service: Vietnam Country Report’, EIU, 2011
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alternative to China.30 FDI inflows have grown dramatically since 2005, increasing from under
US$2bn to US$8bn in 2010.23 In recent years, the government of Vietnam has introduced a number of
measures intended to bolster foreign investment. These include regulations eliminating
discrimination against foreign companies, permitting profit convertibility and allowing foreign
investors, for the most part, full ownership rights in domestic companies.30
In addition to compatible economic links and a welcoming investment environment, Southeast Asia
also enjoys a degree of cultural affinity with the GCC that Northeast Asia does not. This is most
specifically related to the role of Islam and Islamic banking in Southeast Asia. In a 2009 survey
conducted for the Journal of Real Estate Literature, 78% of respondents agreed that Southeast Asia
had the highest potential in Asia of attracting Sharia-compliant property investment. Further
analysis of the Southeast Asian market found that Malaysia, followed by Singapore, Thailand,
Indonesia and Vietnam are the most favored destinations for Sharia-compliant investments.31 These
economies act as a gateway to further GCC-ASEAN economic integration.
Islamic banking was first introduced in Malaysia in 1983 with the Islamic Banking Act, which
created a regulatory framework for banks operating in the country. Today, Malaysia has become a
global Islamic banking center. Overall, Islamic banks in the GCC (and in Saudi Arabia and Kuwait in
particular) apply a more traditional and less flexible interpretation of Sharia law than in Malaysia.32
Islamic banking is approached as a co-investment in Malaysia and India, and this allows for
liquidity via secondary market mechanisms. In addition, debt receivables are often permitted to be
securitized and traded.33 These transactions are often difficult to execute in the Gulf because bond
documentation lacks standardization: a new fatwa is necessary every time underwriters bring a
borrower to market in the Gulf.34 In comparison, the documentation process has been standardized
in Malaysia.34 Malaysia’s central bank, Bank Negara Malaysia, has also set guidelines and
standardizations on term sheets for securities. Gulf issuers must obtain approval from the Sharia
Advisory Council, which results in greater uncertainty and higher transaction costs.
Though Islamic banking assets in Indonesia (US$11.5bn) are currently only one tenth the size of
Sharia-compliant assets in Malaysia,35 the industry has experienced rapid growth in recent years and
is poised for future expansion. Because Indonesia is home to the largest Muslim population in the
world, the rise of Islamic banking in the country is a logical step in its economic development.
Indonesia’s Central Bank anticipates that the nation's Islamic assets will increase by as much as 55%
this year.35 This, coupled with Indonesia’s welcoming foreign investment environment, yields a
range of prime investment opportunities for many Gulf based banks and GCC investors. This
situation has not gone unnoticed: earlier this year Bahrain’s Al Baraka announced plans to acquire
an Indonesian bank for US$100m.35
Muhammad Ibrahim et al, ‘Sharia Property Investment in Asia’, Journal of Real Estate Literature, vol. 17,
no. 2, 2009.
32 ‘Malaysia versus the Gulf’, CPI Financial, August 2006.
33 However, securitized debt in Malaysia is limited to single-tier transactions.
34 Angela Shah, ‘Dubai Leads the Rise in Islamic Finance’, Institutional Investor, July 2011.
35 ‘Gulf Lenders Eye Indonesia Acquisitions’, Gulf News, 08 April 2011.
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Conclusion
Financial ties between the GCC and Asia are on track to experience rapid growth over the next 10 to
15 years; by 2017 Asia is expected be the GCC’s largest trade partner.1 Despite the dampening effects
of the financial crisis, Asian exports to the GCC grew to US$81bn in 2009, an increase of 70% since
2003.36 As mentioned earlier, exports from the GCC to Asia increased to US$174bn (a 55% jump)
over the same period.10
GCC relations with Asia were initiated by Northeast Asian countries, but many GCC nations are
now finding investment opportunities in Southeast Asia increasingly attractive. Southeast Asian
economies are growing rapidly, are eager to attract foreign investment, and a number of them
possess a cultural affinity with the GCC. Southeast Asia’s Islamic banking sector is particularly
attractive to GCC investors. These advantages, coupled with investment barriers in Northeast Asia,
will
encourage
GCC
financiers to increasingly
look to Southeast Asia for
(USD Millions)
investment opportunities.
Bilateral Trade, 2003-2009
400,000
What can Northeast Asian
countries do to attract
300,000
Total GCC -> China
more FDI, especially from
the GCC? The easiest and
Total GCC -> SE Asia
most direct way to
Total GCC -> NE Asia
200,000
improve the investment
Total China -> GCC
environment is make the
rules
simpler,
more
Total SE Asia -> GCC
100,000
predictable, and more
Total NE Asia -> GCC
transparent. The informal
barriers to FDI are more
Source: IMF Direction
difficult to address: there
of Trade Statistics
2003 2004 2005 2006 2007 2008 2009
should be an effort to
increase the availability of business information in foreign languages and dismantle local oligopolies
in Korea and Japan. Northeast Asian countries will be able to compete with Southeast Asia for GCC
investments in the long term only if these changes are put in place. But the tide has probably already
turned: China and Southeast Asian countries are the future of GCC foreign investment.
NE Asia includes Japan and South Korea; SE Asia includes Malaysia, Indonesia, Thailand, and
Vietnam.
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