Wednesday, 28 September 2011

Japan's Outlook for the United Arab Emirates (UAE) and the Middle East

Map of United Arab Emirates (UAE), the leading countries in the Gulf Cooperation Council.

Aerial shot of The Palm with interchange construction in the foreground, UAE The Axis of politics and economy is shifted to the Gulf countries.

As everyone knows, Middle East is rich in oil deposit and gas and is also the main oil exporter of the world in which two-third of oil consumption has been supplied from Middle-East. This region has strategically been important in trade and world politics since the period of Silk Road, at least for the Arab world. Located at the center of Middle East, United Arab Emirates (UAE) has a strong economic growth and diversified economy, not just based on oil. Presently, Japan and UAE have achieved a solid economic partnership and good diplomatic relation.

Generally speaking Middle East is the center of Arab world and Islam religion and is located on the land of black gold, oil. Although most of the land area is sandy field which make agriculture not so productive, most countries in Middle East such as Saudi Arabia, Iran, Kuwait, UAE, Qatar, etc, are rich with high Gross Domestic Products (GDP) of which two-third come from oil production. Regional cooperation in Middle East began after World War II with the establishment of League of Arab States in 1942 to promote regional cooperation and consists of 22 countries.

To promote regional political economic cooperation, Gulf Cooperation Council was established in 1981, which comprises the Persian Gulf states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Although GCC is formed of only 6 states in the Middle East with a total population of 10% of Middle East, its GDP accounts for 56%, more than half of the total GDP in the region, and Gross GDP growth rate is 5.7% (2008, IMF). Located at the hub of trading route, GCC is the core of Arab world. The Axis of politics and economy are shifting toward GCC, the centre of trade and political power. This means that GCC become more and more strategically important both in terms of politics and economy. Currently, the economic integration of GCC is on the way in order to promote the region’s economy and trade, and regional development. GCC will take EU-model integration which economic cooperation started first. However, while the GCC has enjoyed economic prosperity, it has also experienced conflicting geopolitical risk such as Palestinian problem, nuclear ambition of Iran, and threat of extremists and terrorists. In addition, most countries in GCC have rapid population growth, resulting in the growing number of young unemployed people.

By receiving rapid economic growth, GCC is a newly developing market in term of population and high purchasing power with the basis on oil and gas economy. About 60% of world crude oil deposits are in GCC, which can meet the incremental demand in the future since the world economy is being recovered from recession. Since approximately 31% of oil production coming from Middle East, it is quite important for energy security in Japan, one third of Japan’s oil consumption coming from Saudi Arabia.

As a financial big power, GCC countries is promoting its economic development by investing heavily in oil and natural gas, petrochemical, electric generation, construction and aluminum industry, of which construction accounts for 68% of the total investment amount. This means that construction is a booming industry in GCC due to infrastructure development, housing, business and factory establishments. In financial market, GCC is the fourth largest investor after US, China, and Japan. Therefore, GCC is a rapid developing market which can absorb huge foreign direct investment for economic development.

Now let's have a look at the UAE. Established in 1971 under the leadership of Sheikh Zayed bin Sultan Al Nahyan following the union of the seven states, United Arab Emirate has a land area of 83,600 km2 with a population of more than 5 millions. It succeeds in industry diversification and has an open market/employment policy with free movement of people, goods, and money. As an economic hub in the Gulf coast, Dubai and Abu Dhabi (Capital) are “two wheels of one cart”, meaning that the two major cities are the driving engines of economic growth for UAE. Under the outstanding leadership by Prince Mohammed, UAE has achieved political stability and rapid economic growth with GDP more than that of Singapore. So depending on strong leadership, UAE will continue to be stable in 100 year ahead and will likely follow the same track of development as Japan.

As UAE is a rapid developing market, Japan have made significant investment in this country, especially in the field of petrochemical, new energy/alternative energy, and education by raising fund from Japan Bank for International Cooperation (JBIC). In area of education, national children are accepted by Japanese school in Abu Dhabi in order to promote quality education and Japanese culture and enhance education cooperation. As Prince Mohamed put it “to cultivate elites who would be a bridge between Abu Dhabi and Japan”, the traditional Islamic education system is under reform in order to promote human resource development. There is a strong expectation for Japanese elementary education and advance education (science and technology). In education market, there are also other competitors of “smart power” such as Europe and US. To promote educational development, public-private cooperation is the key to success for human resource development in UAE.

In conclusion, UAE is one of the leading developing countries in the Middle East and it will play significant role in the region politically, economically, and socially. Interestingly, Dubai has caught world’s attention for its rapid economic development and is the centre of huge foreign directed investment. So, UAE’s diplomatic interest is recognized throughout the world, especially in terms of economic and investment interests. For Japan, it has a very fruitful diplomatic relation with UAE to promote Japan’s interest for oil, business, and cultural promotion. From my own point of view, economic cooperation should be strengthened and deepened by establishing UAE-Japan Free Trade Area in the future. Although UAE has a small population, but its citizens, residents, and foreign workers living there, are the middle class with high income, which constitute a high purchasing power and market niche for other exporting countries. For long-term interest in UAE and also in the Middle East, Japan should come up with strategic policy outlook toward this region based on economic cooperation and free trade area as the core of its policy. For example, India has “Look East Policy” to promote political and economic cooperation with ASEAN and other countries in East Asia. Now, ASEAN-India FTA is being negotiated to promote development within the two regions.

It is no doubt that GCC, which consists of strong economies such as UAE and Qatar, is the organization of strategic importance in the Middle East and it will be expanded in the future to have a broader participation and cooperation in the region not only in oil and gas, but also in political and social matter. Within the GCC framework, both Japan and the GCC are negotiating an Economic Partnership Agreement (EPA) to enhance the flow of trades and investment for mutual benefits. As the world’s economy is recovering its strength and the rise of China in 2010 as the possible second world’s biggest economy, Japan should accelerate its EPA negotiations with GCC and other emerging economies to promote its economic development in the future. By expanding economic cooperation in GCC, Japan will gain not only financial and economic influence, but also soft power influence in oil-rich Middle East as it is a region of diplomatic challenges by some superpowers such as US, China, France, Britain, and other countries.

Despite international concerns in the Middle East on the nuclear ambition of Iran, Israel-Palestinian conflict, Iraq, and Afghanistan, the security and stability in the GCC and, particularly, UAE, remain untouched by these problems. Instead, as argued by Mr. Takuma Hatano, former Japan's Ambassador to UAE, that the axis of politics and economy is shifting toward the Gulf countries, I believe that GCC and UAE will be engine of economic growth for the world due to huge amount of investment money from other developed countries and from the UAE itself with its big oil revenue. In political context, regional and trans-regional cooperation is being expanded and established with other regions as well, especially ASEAN as witnessed by ASEAN-GCC cooperation.

ASEAN-GCC Meeting in Singapore 2010

1 comment:

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