GCC and Malaysia move toward a sustainable economic partnership

Bad economic news and pessimistic forecasts for growth overshadowed the annual meeting of the International Monetary Fund and the World Bank held in Tokyo recently.
• World economy will continue to suffer from the financial and economic crises that hit US and Europe until 2015.
• China presence was not extensive in the meeting as a result of its border disputes with Japan. A prominent economist estimated that its economic growth could witness a real slowdown by 3 percent over the next five years.
• The voting power of the IMF, which was modified and adopted in 2010 to reflect that of the emerging countries, did not come into force in October this year as planned, because the US will not ratify this decision until after the presidential elections.
• Europeans raised more doubts about the banking union they established before coming to Tokyo. The importance of this issue is that it is one of the vital steps to strengthen the position of the European currency.
• The monetary agreement between Japan and South Korea to provide $ 57 billion for either of the two countries’ central banks if needed had been frozen supposedly owing to border disputes.
Fortunately, GCC and Malaysia economies are in a better shape than the gloomy picture I referred to above. Economic growth rates for these two regions during the past five years are impressive; they were in the range of 4 percent to 7 percent annually. More importantly, these high rates are expected to continue during the next few years. GCC countries, for example, retain up to $ 2.2 trillion in foreign assets, its current account surplus could reach the same as well.
Bilateral trade and investment flows between the two regions are growing at a satisfactory level, and smoothly, although there is still a wide-range of areas in which the pace of this growth can be stepped up. The two sides signed an agreement for cooperation in the fields of economy, investment and technology in Abu Dhabi on Jan. 30, 2011.
In the commercial domain the agreement emphasized on the following:
Exchange of information.
• Reduce tariffs and remove non-tariff barriers.
• Encourage communications between public and private institutions in trade-related areas in the two regions. The agreement emphasized on giving a special priority to training and transfer of technology.
The agreement included a provision for conducting negotiations to sign a free trade agreement between the two regions. As for investment, the two sides pledged to make their outmost efforts to encourage investment flows between the two regions, and establish joint investment ventures. In addition, a joint committee was formed to follow up the process.
It is worth noting that the agreement allowed bilateral economic agreements between Malaysia and any individual of the GCC countries. GCC representatives approved in June a work project program to be implemented during 2012-2015. This program will be submitted to the joint committee in its next meeting. The project includes the following points:
1 Encouraging investment in agriculture and food security, including Halal slaughtering and food storage. The agreement will cover, probably, land reclamation, livestock, fisheries, and health quarantine of animals and plants.
2 Cooperation in energy sector, including renewable.
3 Promoting tourism between the two regions, including medical tourism.
4 Cooperation in transportation sector to enhance trade between the two regions.
5 Cooperation in construction and services sectors, including financial services, Islamic banking and investment.
6 Exchanging knowledge and learning in marketing and finance, issuing of sukuk and bonds, coordinating and converging of laws, regulations and procedures in the aforementioned sectors, as well as encouraging investors in the financial markets of the two regions.
7 There are number of areas in trade sector that are expected to be focused upon:
a- Coordinating attitudes at World Trade Organization.
b- Exchanging specifications and improving the quality of exchanged goods.
c- Exchanging experiences in trade funding, and financial guarantees.
8 Encouraging investments in high added value industries such as petrochemicals, iron and refineries.
I will suggest here more practical areas:
• From my point of view, it is very substantial that the committee extends its joint meetings, with the active role of the private sector.
• Strong cooperation and communication already exist in the field of Islamic banking. All parties are learning from those experiences with a lot more to be learned.
• A lot more to be learned in the area of involving citizens in the development process, including GCC benefiting from the success stories of Malaysia in this regard.
• The two regions have open economies; their exports enjoy the same raw materials specifications. None the less, Malaysia is more successful in protecting its economy against the effects of world economic crises. GCC countries can learn from the Malaysian experience in this field.
• As far as I know, Malaysia is the only country that has agreed, beside China, to deal in both Chinese and Malaysian currencies directly without resorting to the US dollar peg. If this experiment was successful from the Malaysian point of view, could it be replicated in some GCC countries.
• The process of entering into negotiations to reach a FTA is a long and complex one, and may not have the same expected positive returns, considering that the tariffs in the two regions are low compared to international levels. Thus, I suggest postponing these negotiations for some time, at least.

• Dr. Abdullah bin Ibrahim Al-Kuwaiz is a Saudi economist. This speech was delivered before the GCC-Malaysia economic and investment cooperation conference which was held in Kuala Lumpur from Oct. 16-17, organized by the Federation of GCC Chambers of Commerce and Industry (FGCC Chambers) and the Malaysian government.

— Courtesy of Al-Eqtisadiah newspaper.