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Passport to purchase, Part II

Passport to purchase, Part II

Even as the financial crisis takes its toll, it looks like the Gulf states maybe looking to reclaim their place at the center of world trade, Part II.

January 26, 2009 8:49 by

Click here to read Passport to Purchase, Part I

Selling points. Gulf states have a lot to build on. Geographically, they’re positioned to capitalize on the growing volume of goods moving between Asia and Europe. Air freight carriers often need a place to stop and refuel between the two continents, and GCC airports inhabit the right neighborhood to benefit from stopover traffic. The region’s coastline is also key, as three-quarters of crossborder trade is still shipped by sea (because it’s much cheaper).

Gulf states have been working hard to capitalize on those strengths. According to Proleads, a Dubai-based research company that monitors construction, about 50 port development projects are underway in the region, which are together worth some $33 billion. Bahrain, for example, is hoping that its brand new Khalifa Bin Salman Port will triple the country’s transshipment business.

And King Abdullah Economic City in Saudi Arabia is slated to host one of the largest ports in the world, with a capacity of 20 million TEUs, by 2020.

“It is extremely important to them,” says Fadi Makki, an analyst with management consultants Booz & Company about the value of crossborder commerce to Gulf states. “First, oil-related trade is very important. And they’re trying to diversify. As such, services [are] growing in importance in all GCC countries.”

Unfortunately, problems in the financial and banking sectors may send trade services expansion projects to the backburner. Slumping shipping rates will mean slimmer profit margins, which could also hamper expansion plans. For example, daily rental prices for enormous Capesize-class tankers and bulk cargo ships have plummeted to about 1 percent of what they were in June last year, (a drop of more than $200,000 a day). In spite those falling shipping rates, by November the credit crunch still hit the industry hard. Demand for trade-related financing outstripped supply by $25 billion that month, according to a report by the World Trade Organization (WTO ) .

In a December report, the World Bank predicted that international trade would likely decline by 2.1 percent in 2009 – the first such drop in more than a quarter century.

But many experts are saying that trade-related development schemes are still well worth pursuing in leaner times.

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