One for all and all for one as the GCC moves forward
With similarities to the European Union, the GCC common market was launched earlier this year, but has attracted mixed opinions from the construction industry. Conrad Egbert explores.
Conrad Egbert takes a look at the formation of a GCC Common Market, the advantages this will bring to the region, and the problems being faced in setting it up.
The six-member Gulf Cooperation Council (GCC) has ongoing construction projects valued at around US $2.5 trillion and this figure is expected to increase dramatically once the GCC common market kicks in.
Formed in 1981, the GCC includes Saudi Arabia, Qatar, Bahrain, Oman, Kuwait and the UAE.
The new move requires the GCC markets to realign themselves with each other through harmonising regulations and setting new legislation to encourage investment across the GCC.
Offering a legal insight into the workings of the common market, Paul Taylor, partner in UK law firm, HBJ Gateley Wareing, told Construction Week, that it could be the best thing yet for the GCC if plans are executed well.
"It's not dissimilar to how the European common market was set up a long time ago and the reason why this is so beneficial for the construction industry is because, inevitably, this will increase competition, which is a healthy step forward," said Taylor. "Competition always increases quality. It will also encourage investments across the GCC."
But then there is the question of how the introduction of the common market would be any different from the current scenario?
"At the moment, only the bigger corporates have been looking at investments outside of their own countries, but with the common market, even medium-size contractors will consider taking their business across the border," added Taylor.
All sorts of issues that used to be a hurdle are no longer there; cost issues, setting up businesses, getting over the right skills, getting the right staff - clearly they're at an advantage now. There is a common language and very similar cultures; it's so much different from a western company coming here and setting up in the middle of a Gulf state.
The GCC common market aims to create one market that offers equal opportunities for all GCC citizens, including the right to work in all government and private institutions in member states, buy and sell real estate, move freely between the countries, and receive education and health benefits.
And, according to Guru Iyer, senior quantity surveyor at international construction consultancy firm, DG Jones & Partners, the move will also help balance out the economy.
"Such a move also strengthens the region's combined economy by spreading risk and balancing out the demand and supply curve," he said. "In some countries the growth and demand is very high, so countries that are lagging behind would get more investments and countries that are burdened would be put at ease.
Common markets are the way forward and on a very basic level that is why the European states joined hands and formed the EU - to better protect their interests against other economic powers.
Eng. Salwa Malhas, senior vice president for business development and marketing at Al Mazaya Holding, agreed that investments would increase with the common market. "Currently GCC nationals prefer investment in the GCC markets for a variety of reasons, such as its attractive ROI, the wealth of untapped opportunities in this market and the modern infrastructure," she said.
The launch of a common market will draw more foreign investment to the region, provide attractive opportunities for local capital and boost its competitiveness, especially in the construction and real estate sectors."
But nothing comes without its troubles and with the GCC common markets a lot of loose ends are still to be tied up.
For one thing, the cost of labour is going to go up. The six GCC states are yet to fully harmonise legal requirements and legal codes and implement them on national levels.
Then there is the unification of customs, which is a precondition of a common market, that has not been fully implemented by the GCC; Saudi Arabia has even asked for an extra year to align itself.
Nationalisation laws, labour laws and the sponsorship system will need to be changed and applied to all GCC nationals equally.
The establishment of a common market also requires a separate institution to govern it. The EU has the European Commission, a Council, the European Parliament and a court of justice. The GCC is yet to form such institutions.
Victor Orth, CEO and general manager, Al Qudra Real Estate said: "It's going to increase labour costs, but the GCC common market will develop similarly to Europe. There will be a free flow of labour and easier cross-border transactions. Although there'll be increased labour costs, we believe this will flatten out over time - like in the EU - where we have free-flowing cheap labour.
Taylor added: "One of the concerns must be the superb co-ordination they will need to be able to do this. If the Gulf countries don't put in place the right framework, the chances are that it won't be as big a success as it could be - particularly with labour, the settling of trade disputes, intellectual property rights and government spending on particular projects.
"You've got to create a level that is transparent, like in common markets, and there can't be any inherent advantage to one over the other.
"And all members have to align themselves with each other and put in place the legal and commercial framework they need.