The UAE and other Gulf economies have benefited from globalisation, leveraging their geographical proximity to the huge populations in Asia and their ability to develop trade infrastructure quickly and efficiently, to become key hubs in the system. As a result, the volume of goods passing through this region has grown exponentially over the past two decades.
Where next, then, for this strategy? How will the region maintain its relevance? We are in a period of flux, that much is certain. Artificial intelligence, tensions between super powers and government-led industrial policies have ushered in a new era for globalisation following years of upheaval thanks to Covid-19, conflict and climate change.
The original forces that super-charged the modern global trade system may have receded in the wake of the 2007-2008 financial crisis and the rise of populism, but other factors are now at play. They include radical changes in industrial policy and the food and energy crises triggered by the war in Ukraine, according to the World Economic Forum’s survey of leading economists.
Almost all economists expect businesses to reconfigure their supply chains in line with the realities associated with the increasingly tense relationships between established powers such as Europe, the US, China and Russia. Given that the next crisis will be along quickly, resilience is also more important than efficiency of trade. “Deepening geopolitical tensions have been a key driver, with the world’s largest powers seeking to maintain or develop their strategic autonomy and limit their dependence on rivals for crucial goods and services,” the Forum said in a report released this week.
Diversification of sources of goods is also a driver of supply-chain change. Industrial policies are being reconfigured to give the state a renewed prominence in national and global economic development, the Forum said. Around two thirds of chief economists expect industrial policy to result in a significant relocation of economic activity worldwide, it said. Politics have also made it necessary for the public sector in developed economies to step up involvement to solve problems, such as a lack of infrastructure or the impact from climate change.
The free market no longer triumphs over everything, which is “leading governments to feel more emboldened in asserting the need for increased political influence over key economic decisions”, the Forum said. This change in more developed economies may cause a protectionist reaction that would distract Europe, the US and China. “Economists believe the resulting pattern of activity will be fragmented and potentially fragile,” the Forum said, backing up the idea that there will be gaps in which Gulf economies could keep expanding their significance.
Some would argue that we are in only the latest phase of “deglobalisation”. However, given that global trade is only growing and not shrinking, the Forum suggests it would be more accurate to describe what is happening as a reshaping of globalisation around several different centres of gravity.
The advent of ChatGPT and generative AI will also mean disruption for all economies, big and small. According to the Forum’s survey of chief economists, the regions that are most likely to benefit from ongoing changes to how global trade works are South Asia, East Asia and the Pacific, Latin America and the Caribbean, and the US. Vietnam, India, Thailand, Indonesia, Mexico, Turkey and Poland, to be specific.
Semiconductors, green energy, automotive, pharmaceuticals, food, energy and technology industries would be most affected by all the changes to global trade.
The role of the traditional powerhouse of globalisation, China, which had driven the explosion of both manufacturing and consumption at scale, is going through an evolution. Economists forecast that China will be the most affected by the changes to global trade patterns, and they say this will be by some distance. It makes sense given that China had been the biggest winner from globalisation that it is most affected by any change to normal patterns.
Oddly, the Gulf region is not being touted by economists despite having natural advantages. Industrial policy is already led by the state, for example. Out of both design and necessity, partly because of relatively narrower private sector, governments have led industrial development for decades, accelerating these efforts in recent years in economies such as the UAE and Saudi Arabia. These policies have been effective.
There is already significant investment in AI and other technologies. Infrastructure such as at seaports continues to be developed. The proximity to Asia and Africa for the Gulf will remain a competitive advantage.
Apart from a laundry list of strengths, it is also worth noting the competition will be about services as much as talent. These will still depend on human talent. To attract the best people, soft infrastructure such as access to affordable health care and education, as well as offering safety and security, have become paramount and are no longer taken for granted by workers in developed economies.
Even as globalisation has waxed and waned, the UAE, for example, has delivered on all of the above and is set to show in the coming years how it can be a leader in the new phase of world commerce that we have embarked on.
