Trade relations between the GCC and South Africa Mina Baliamoune-Lutz University of North Florida African Economic Conference 2009 African Development Bank and Economic Commission for Africa Addis Ababa, November 11-13

Introduction “Today the Arab countries of the Middle East face a challenge familiar to all south Africans: to create jobs for the large cohort of young people reaching working age. Over the next decade or so, the Middle East may experience population growth of 150m people – the equivalent of adding two Egypts. In demographic terms, the task is similar to that facing SA–only larger. Rising labour force participation by women only increases the pressure. The task is immense and the stakes are high.” (Marcus Noland and Howard Pack, Global Dialogue, 2008)

Similarities between South Africa and Arab countries High unemployment rates. High age dependency rates. Low (although getting stronger in some countries such as Tunisia, Morocco, and SA) share of manufacturing in exports, with heavy reliance on minerals and commodity export in GCC countries. High population growth in most countries.

GCC In the period , unemployment in South Africa averaged 26.6% (see HDR 2007/08) while the highest average unemployment rate in the GCC was 5.2% (in Saudi Arabia). However, when we distinguish between male and female unemployment we find important differences. In South Africa the same unemployment rate applies to both, while in the GCC countries the rates are significantly higher for women. –For example, female unemployment as a % of male unemployment rate is 548% in Qatar, 274% in Saudi Arabia, 173% in Kuwait, and 118% in the UAE.

GCC and SA as engines of growth Ilahi and Shendy (2008) study Growth rates of real GDP, private investment and private consumption in Egypt, Jordan, Morocco, Pakistan, Sudan, Syria, Tunisia, and Yemen (regional countries) are strongly correlated with remittance flows from and the accumulation of financial surpluses in GCC countries. Interestingly, growth in the regional economies does not seem to be influenced by growth in the North. Ilahi and Shendy argue that “[l]inkages with the GCC could help sustain output growth in the regional countries in the face of the global economic slowdown and oil price shocks and could provide diversification gains to international capital seeking markets uncorrelated with Northern and emerging market countries”(p. 3).

Arora and Vamvakidis (2005) study South Africa serves as an “engine” of growth for the rest of Africa. The authors argue that this could be caused by higher efficiency, economies of scale and technological gains associated with trade, and other factors, such as financial linkages.

Recent patterns of trade  Top traded commodities  Top trade partners  Trade between SA and GCC

Source of data: United Nations Statistics Division - Commodity Trade Statistics Database (COMTRADE)

Top traded commodities SA  Increased diversification of exports GCC  High concentration of exports (mineral fuels)  Improving diversification of exports in UAE

Source of data: United Nations Statistics Division - Commodity Trade Statistics Database (COMTRADE)

Major trade partners GCC  High concentration on a small group of countries, especially for exports.  Japan: major export market SA  Slightly lower concentration

SA: Nuclear reactors, boilers, machinery, etc [HS1996 code 84]

SA: Mineral fuels, oils, distillation products, etc [HS1996 code 27]

SA: Electrical, electronic equipment [HS1996 code 85]

SA: Fertilizers [HS1996 code 31]

SA: Beverages, spirits and vinegar [HS1996 code 22]

Table 3. South Africa’s trade with GCC (2007), selected commodities, HS 4 level

Future developments 1.Why should SA and GCC enhance trade with each other? 2.Which ‘sectors’ or groups of products would be good candidates for increased trade? 3.Is China a threat to trade relations between SA and GCC? 4.UAE is one of SA’s lucrative markets in the Gulf region, why do other GCC countries not have a similar (strong) trade (exc. oil) relation with SA?

2015 SA Slower pop. growth Approx. 2/3 of the population is urban 30% of the pop. is under age of % of the pop. is 65 and older GCC Relatively high pop. growth Over 80% of the population is urban 30% of the population under the age of 15 in Saudi Arabia and Oman; approx. 20% in other GCC countries. 3-4% of the pop. is 65 or older (lower in Qatar and UAE)

South-South trade Trade between developing countries (South-South trade) offers wide scope for specialization and efficiency gains. At present, barriers to South-South trade are higher than those governing South trade with other partners, and distance–related costs are higher. Recent OECD research shows that the potential evidence from freer South-South trade may indeed be at least as large as the gains that developing countries can obtain from better access to rich countries’ markets (North-South trade). (OECD Policy Brief, August 2006, p. 1)

 Enhancing trade between South Africa and GCC countries can be viewed within the context of enhancing South-South trade.  South Africa and the United Arab Emirates, in particular are trying to diversify their production and exports. Thus, we should try to identify those areas where trade between GCC and SA would lead to important efficiency gains.

Non-tariff Barriers to trade Language: English is becoming more and more the common business language Culture: Cultural differences will always be there and globalization may or may not reduce them. However, in the case of South Africa, we could talk about proximity in culture, which would make the culture GCC or Arab culture definitely closer (due tohistorical links between SSA and the Arab Gulf) to South African culture than the Chinese culture, for example, is. Distance: GCC is closer to SA than China or other major trade partners are to SA.

Driving from Johannesburg to Dubai takes only 72 hours on average while driving to Frankfurt takes about 97 hours (assuming an average speed of 90 km per hour)!

Future developments There could be substantial gains from increased trade and investment between SA and GCC in some important sectors. 1.Tourism 2.Infrastructure investments (see Development Bank of South Africa Infrastructure Barometer 2008) are an important component of the Accelerated and Shared Growth Initiative for South Africa (AsgiSA). SA’s National Treasury has allocated R568 billion for the infrastructure and maintenance (see Kirsten and Davies, 2008).  Transport  Energy  ICT 3.Food and beverages

Trade chilling SA’s trade with the GCC countries tend to be concentrated compared to its trade with the rest of the world. Are tariffs outside the lines of major traded products relatively high so that trade is chilled? If yes, trade liberalization (free trade agreement) may expand the range of trade between GCC and SA.

Image of the V&A Waterfront - owned by Dubai World Africa - at night Dubai World, through its subsidiary Dubai World Africa, has bought the iconic V&A Waterfront in Cape Town, as well as a string of property and tourism investments such as Pearl Valley golf resort and spa, also in Cape Town and the Shamwari Game Reserve in the Eastern Cape.