I write this week from Melbourne, Australia, where the first ever GCC-Australia Trade and Investment Forum was held. The forum is part of a wide-ranging strategic dialogue between the two sides that started in Abu Dhabi in March 2011 and includes cooperation in areas from politics and security, to trade and energy, to education and people-to-people contacts.

The Melbourne forum covered several topics, but focused on key areas where the greatest potential for cooperation lies. There were candid discussions about the challenges that the two sides faced and how to work together to turn them into win-win opportunities.

When the GCC and Australia embarked on a “strategic dialogue” in 2011, they entered into a new phase in their relationship that went beyond trade to engagement on politics, security, energy, education and culture. The fact that Australia and some GCC countries are fighting shoulder-to-shoulder these days in a joint effort against terrorism testifies to how far their relationship has reached.

Diversification was a recurring theme at the Melbourne forum. Australia has a problem of concentration in its economic base, as do the GCC states to even a greater degree. They both need to supplement their primary commodity concentration with a wider production base that includes more manufacturing and services. They also need to diversify the composition of their exports.

Australia and the GCC states face labor shortages, but they chose different solutions. Australia has restricted the number of foreign work force to what its system can digest, while GCC countries have adopted laissez faire policies that allowed foreign workers to outnumber native populations.

Each also faced its own challenges. Australia, for example, needs to diversify destinations of its exports, so that it is not too dependent on the economic health of a handful of countries. Australia, but not the GCC, faces a persistent challenge in its trade deficit.

GCC states, more than Australia, have a problem of over-reliance on foreign workers to face the acute shortage of skills demanded by the labor market, which results from the inability of local universities to provide the kind of graduates needed by the business sector.

GCC countries also need to diversify government finances, which now rely primarily on oil revenue, making them subject to uncertainty and wide fluctuations due to the volatility of oil prices.

The conference discussed all these challenges and how to turn them into opportunities, beneficial for both sides.

The forum was organized by the GCC Secretariat and the Australian Department of Foreign Affairs and Trade, together with the government of the State of Victoria. It was attended by ministers from the federal and state governments, who highlighted the significance Australia, and Victoria in particular, attach to GCC trade and investment. There were also representatives from key Australian industries.

From the GCC, senior trade and investment officials from member states and the GCC Secretariat attended the event. The GCC delegation also included over a dozen prominent private business representatives.

It was agreed that there was huge unrealized potential in GCC-Australia relationship. The combined GDP of the GCC countries is estimated at $1.75 trillion, while Australia’s GDP is estimated at $1.6 trillion, for a combined GDP of $3.35 trillion. Compared to this size, economic engagement has been relatively limited between the two sides.

Trade between Australia and the six GCC countries has grown significantly over the past decade, tripling from less than $4 billion in 2001 to over $12 billion last year. However, those numbers are miniscule when compared to the limitless possibilities that the two economies provide.

Australia’s openness or integration in the world economy is relatively limited, as measured by the size of its external trade relative to its GDP. According to World Bank indicators, Australia exports and imports combined constitute only about 40 percent of GDP. By contrast, most GCC economies measure around 100 percent, while the United Arab Emirates measures over 170 percent.

In addition, there is a problem of concentration of exports. In that Australia is similar to the GCC, whose main export is crude oil. Most Australian exports are primary products, such as iron, copper, gold, gas and oil, and agricultural products. Combined, they constitute over 60 percent of Australia’s total exports.

There is also concentration in the destination of those exports. China accounts for 32 percent of Australia’s exports, Japan for 16 percent.

Australia seeks to diversify the makeup of its exports and the destinations for those exports. In both objectives, the GCC could help. Australia is seeking also to enhance its trade in services. Currently, tourism and business travel combined is the number one service export, accounting for over 5 percent of exports, followed closely by education, accounting for slightly less than 5 percent of exports.

As I wrote in previous columns, Australia has a long way to go before it can become a favorite tourism destination, but in education it has a natural advantage, as its official language is English. It also boasts some highly regarded universities in the world.

The Australian Department of Education estimates the number of foreign students in the country at 527,000, including those in higher education (231,000), and vocational schools (135,000). The number of foreign students hit a peak in 2009, when they numbered over 631,000. The decline since may be attributed to the global financial crisis and the ensuing economic stagnation in many countries that could no longer send their students abroad.

The number of GCC students enrolled in Australian universities has been growing steadily and is estimated now at about 20,000, mostly from Saudi Arabia, which accounts for 75 percent of the total foreign students.

In another sign of growing GCC engagement, the recently established Saudi-Australia Business Council will hold its inaugural meeting here next week. In that meeting, the two sides hope to build on this week’s discussions and establish partnerships between Saudi and Australian businesses.

—

Email: [email protected]