Staff Report
Dubai, UAE
Gulf Corporation Council (GCC) countries can secure up to $300 billion in foreign direct investment (FDI) if they move quickly become a centre for global value chains that are being reconfigured towards resilient and sustainable industries, according to a report by &Strategy, a PriceWaterhouseCoopers company.
Global Value Chains around the world are rapidly moving away from a primary focus on cost to move into high-value, resilient and operationally active industries, presenting a chance to countries and regions with distinct advantages, consultancy Strategy& said in its latest report on global supply chains, the report said.
Global Value Chain (GVC) is the series of stages in the production of a product or service for sale to consumers. Each stage adds value, and at least two stages are in different countries. In simple terms, it means increased industrialisation, integrated logistics support for import, export and re-export for faster turn-around of finished goods and services. China is a great example of GVC that has become the largest global source of manufactured products. Most international brands source their production from Chinese factories. Brands such as iPhone is manufactured and shipped out of China. India has also started to manufacture iPhones in recent years.
In terms of logistics, Dubai has created a global logistics hub that is fast, efficient and effective. However, it needs to develop a strong manufacturing hub to produce goods locally to export to the rest of the world.
“Countries around the world are actively reconfiguring their industries. They are focusing on innovation and investment in world-leading technologies, products and services that play to their own strengths,” said Yahya Anouti, partner at Strategy& Middle East. “For GCC countries, this means using their geographic location, abundant renewables and infrastructure to become a hub for global value chains.”
GCC countries could create a global connected hub and generate an estimated US$300 billion FDI, create 150,000 jobs, and unlock $25 billion annually in non-oil exports, as well as potentially offset 75 million tons of CO2 equivalent emissions, by manufacturing local product categories. GCC countries must move fast to capitalise on these emerging competitive advantages and generate a new wave of economic growth.
“Companies are already relocating key elements of GVCs, and other countries are competing vigorously to attract them,” the report says.
Capturing the opportunity will require GCC governments to partner with one another to build multilateral value chains and join with businesses to encourage investment and competitiveness, creating the right environment for talent, innovation, and the development of the enabling infrastructure.
“Within a few years, GVCs will coalesce around a new set of global hubs, meaning that the region must take action now—or risk losing out,” the report warned.
For the bloc to achieve its long-term economic growth targets, its member countries will have to quicken the pace of the development of their value-added industry, the report says.
These countries should move towards “backward GVC participation”, which involves importing or using domestic raw materials to produce complex components such as semiconductors and finished goods such as electronics. Instead of exporting raw materials, GCC countries should focus on attracting downstream manufacturing to develop high-value-added end products.
The UAE is visibly moving towards that direction. In addition to Jebel Ali, the country is creating a large industrial hub in Kezad and Ruwais – where a petrochemical city is being developed with an eye towards downstream petrochemical hub that will add greater value by refining crude oil and develop industries.
“Such a strategy would bring global value chains to the region and thereby boost domestic productivity and economic growth,” the report says.
Rather than exporting hydrogen, for example, governments can build national manufacturing clusters and infrastructure to create inward investment opportunities in areas such as green ammonia, green steel or glass manufacturing, the report says.
“We [have] identified 11 GVCs that GCC countries can develop thanks to their abundance of energy and raw materials such as silicon wafers, recycled plastic, green steel, and titanium aerostructures, among others,” said Georgie Saad, principal with Strategy& Middle East.
