GCC scouts for new energy frontiers on 33rd anniversary
Trade between GCC and ASEAN has developed steadily over the last ten years
When dealing with the foreign economic relations of the Gulf Cooperation Council (GCC), which is celebrating its 33rd anniversary, the focus is always on developed countries such as those in Europe, the U.S., Japan, South Korea or emerging economies like China and India. However, the Association of Southeast Asian Nations (ASEAN) gets less attention, although it has strategic importance to the GCC countries and could emerge as a new economic frontier in the next twenty years. Indeed, taken as a single bloc, ASEAN would rival the more traditional BRICS (Brazil, Russia, India, China, and India) emerging markets in terms of economic importance.
The ASEAN bloc, founded in 1967, is composed of 10 countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) which all differ in terms of population, area, size of the economy, stages of development and challenges, but are all sharing immense economic growth potential. Today, ASEAN is home to nearly 620 million people, almost double the U.S.’s population and larger than the European Union, only behind China and India. Above all, ASEAN countries plan to create a single market next year and if the plan proves to be successful, the bloc’s economic importance and political influence will rise significantly.
It is important for the GCC countries to cultivate strategic relations with the rising economic power house that is ASEANDr. Naser al-Tamimi
In this context, trade between GCC and ASEAN has developed steadily over the last ten years. The two-way aggregate trade between the sides has increased almost 5-fold over a decade (2003-2013) making ASEAN countries as a group the 5th largest trade partner for the GCC. Energy is undoubtedly the primary driver of the Gulf-ASEAN relationship today (nearly 70 percent of total trade), and will remain so in coming decades.
Emerging economic power
ASEAN already has become one of the fastest-growing economies in Asia, with annual GDP growth averaging nearly 5.8 percent between 2000 and 2013, a rate that the bloc is expected to sustain over the next decade according to the latest IMF data. To be sure, ASEAN is rapidly emerging as a global economic powerhouse. ASEAN as a bloc its aggregate economic size is over $2.4 trillion ranking seventh globally by GDP measures.
The IMF forecasts that in the next five years (by end-2019), the ASEAN economy may grow by 50 percent to 3.6 trillion to become the fifth largest economy in the world after the U.S., EU, China and Japan. Other estimates predict that ASEAN will surpass Japan’s economy and become the fourth largest single market after the EU, U.S., and China by 2030. In this context, three countries (Indonesia, Thailand and Philippines) among the ASEAN bloc may witness their economic status grow steadily in the coming years. Indonesia’s economy will become more important and could emerge as one of the world’s top 15 economies. Provided political stability can be achieved in the coming years, Thailand is likely to emerge as one of the top 20 economies by 2030. Meanwhile, the Philippines will rise gradually to 28th position in 2028, according to the Centre for Economics and Business Research (CEBR).
This spectacular economic development has been accompanied by a sharp increase in oil demand. The International Energy Agency (IEA) noted in a recent report that: “The ten members of the Association of Southeast Asian Nations (ASEAN) are - along with China and India - shifting the center of gravity of the global energy system to Asia.” The IEA expects ASEAN’s crude oil demand to rise by over 50 percent in the next 20 years. The region’s net oil imports will increase from 1.9 million barrels per day (mb/d) in 2012 (nearly three-quarters imported from GCC countries) to just over 3.1 mb/d in 2020 to hit 5.1 mb/d in 2035, the fourth- highest in the world behind only China, India and the European Union. Consequently, there is further room to expand energy ties between the GCC and ASEAN.
Attractive investment destination
In the past few years, the ASEAN region has become a magnet for foreign direct investment (FDI). Tellingly, a recent report published by Bank of American Merrill Lynch showed that ASEAN markets have been a far better bet than China for portfolio investors. The ASEAN-5 (Indonesia, Malaysia, Thailand, Philippines and Singapore) together received more in FDI ($128.4 billion) in 2013 more than China, ($117.6 billion). Investments from GCC countries to the ASEAN region have grown steadily. The Gulf companies’ targeted projects worth billions of dollars particularly in the energy sector (oil, gas exploration, refineries and petrochemicals) in countries such Indonesia, Malaysia, Thailand and Vietnam.
More importantly, the future looks bright. According to the IEA, ASEAN countries need $705 billion of investment in infrastructure to supply fossil fuels between 2013 and 2035, of which $205 billion is needed for oil, $460 billion for gas and $40 billion for coal, with Indonesia accounting for nearly 45 percent of the total. There is also the growing consumption of liquefied natural gas (LNG), which is growing at high rates, and perhaps provides new opportunities for Qatar to expand its market shares in the ASEAN region.
Challenges a head
Despite this optimistic background, there are three main issues that could pose a challenge to the growth of relations between the Gulf and ASEAN. First, China is now the ASEAN’s biggest trading partner and GCC’s third trading partner. The possibility of China’s severe economic slowdown or a hard landing could have a major negative impact on both sides. Another potential issue is the possible protectionist policies. The GCC only has a Free Trade Agreement (FTA) with Singapore. The Gulf States should double their efforts to reach FTA trade with ASEAN bloc or more countries in the region in order to facilitate trade between the two sides. Last but not least, the possibility of rising tensions over ASEAN workers’ rights inside the GCC countries or the treatment of Muslims’ ethnic minorities in some ASEAN countries could be an issue.
All in all, given the overall shifts in the international relations and the key connection that exists between the GCC and Asia, it is important for the GCC countries to cultivate strategic relations with this rising economic power house.
Dr Naser al-Tamimi is a UK-based Middle East analyst, and author of the forthcoming book “China-Saudi Arabia Relations, 1990-2012: Marriage of Convenience or Strategic Alliance?” He is an Al Arabiya regular contributor, with a particular interest in energy politics, the political economy of the Gulf, and Middle East-Asia relations. The writer can be reached at: Twitter: @nasertamimi and email: [email protected]
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