Border reopening to speed up GCC rebound
For the GCC region, on track for recovery from lower oil prices and the coronavirus crisis, the reopening of borders is the best thing to happen, experts said
The breakthrough decision to reopen the air, sea, and land borders with Qatar by Saudi Arabia is expected to give a much-needed fillip to GCC countries prepping to rev up their languishing economies after a disastrous Covid-19-afflicted 2020.
The strategic Saudi move, which is expected to be replicated by three other Arab countries, including the UAE and Bahrain, subsequent to the landmark resolution of three-year-old dispute could not have come at a more opportune moment for the six-nation GCC’s $1.63 trillion economy, economists and analysts believe.
For the UAE, the Arab world’s second-largest economy and the region’s distribution hub, the reopening of land, air, and sea borders with Qatar will have far-reaching positive implications on its cross-border trade, investment, and travel & tourism sectors, accelerating the speed of recovery in 2021.
For 2021, the Central Bank of the UAE foresees the nation’s real total GDP to grow by 2.5 per cent and non-hydrocarbon real GDP by 3.6 per cent.
“Economic projections include exceptional uncertainty amidst Covid-19 repercussions and are thus subject to revisions,” the CBUAE said
Following the severing of diplomatic ties and direct transport links with Qatar in 2017, the UAE’s vibrant re-export and distribution sector, as well as businesses with cross-border operations, faced serious headwinds.
Since 2017, the negative impact of the blockade has been felt across the travel, tourism, real estate and hospitality sectors, the key drivers of the UAE’s $410 billion economy.
A widely anticipated move to reopen the UAE-Qatar air space will have a dramatic positive impact on the aviation sectors of both countries, home to half a dozen international airlines, including Emirates, Etihad Airways, Qatar Airways, Air Arabia, Flydubai and Air Arabia Abu Dhabi.
For the GCC region, on track for recovery from lower oil prices and the coronavirus crisis, the reopening of borders is the best thing to happen, analysts at a global ratings agency said.
“We should see significant cost saving for some Qatari companies on the fuel and logistics side. With a full removal of the blockade, Qatar Airways stands to benefit significantly on fuel cost, which would help them in offering competitive prices to travellers,” said Joice Mathew, senior research manager at United Securities.
“I think the general benefit is to the region and the GCC members as a whole,” said Karen Young, a resident scholar at the American Enterprise Institute.
Economists believe the pace of rebound for the regional economies would be accelerated in 2021 following the landmark GCC accord.
GCC economies, hit hard by a double whammy of depressed oil prices and Covid-19, are expected to make modest economic recovery over 2021-2023, according to credit rating agency Standard & Poor’s.
The sharp decline in oil prices exacerbated by demand lose from the pandemic outbreak had resulted in $270 billion lost revenues for GCC countries, according to the International Monetary Fund.
S&P forecasts real GDP growth of 2.5 per cent for the GCC over 2021-23 after a contraction of about 6 per cent in 2020.
The IMF’s latest Regional Economic Outlook said oil exporters in the Middle East region are expected to face an overall economic contraction of 7.3 per cent. The contraction is 2.0 per cent larger than the IMF's initial projections in April.
First Abu Dhabi bank, the largest bank in the UAE, has forecast the domestic economy to contract by 3.2 per cent in 2020 and Saudi GDP to contract by 2.3 per cent, before both returning to positive growth of 2.4 per cent in 2021.
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