GCC told to cut fuel prices to gain investment

Fuel prices are too high in the GCC

A study has claimed that cutting fuel prices in the Gulf Cooperation Council (GCC) would encourage industrial investment across the region.

Fuel prices in the GCC vary hugely, from US$3.19 for one litre of petrol (LPG) in Bahrain, to US$0.59 for a litre of petrol in the UAE. Discrepancies in price across the GCC are commonplace with every type of fuel. Saudi Arabia, for example, charges US$0.10 for a litre of diesel, whereas the UAE's diesel costs US$0.45 per litre.

According to the study, which was conducted by the government-controlled Emirates Industrial Bank (EIB), oil producers in the Gulf need to align, as well as reduce, their prices in order to gain investments that are necessitated by the GCC's ongoing economic diversification programmes.  

Cheap fuel in the GCC, which controls over 40 percent of the world's recoverable crude deposits, has always played a vital role in attracting industrial capital to this area of the world, reported Arabian Business. 

The future is in manufacturing

All of the GCC states have been engaged in an enormous industrialisation drive to diversify their economies and reduce the current reliance on unreliable crude exports. The study suggests that if the GCC were to cut fuel prices there would be greater funds to draw upon to pump into manufacturing instead.

The GCC region is too arid for farming or agriculture and therefore the main industrial focus is placed on manufacturing. Indeed, the GCC nations have prided themselves on having one of the most premium environments for light and medium industrial projects, because of their strategic location, cheap labour and energy.

The study said: "Raising energy prices in some members will also lead to imbalances in the structure of the GCC common market as it means a bigger gap in such prices within the region. GCC countries are called upon to find a common ground to bridge that gap by revising high prices to provide equal opportunities to investors and maintain the strong competitive edge of GCC products in the international markets."

Official statistics revealed that all six of the GCC states - the UAE, Saudi Arabia, Kuwait, Oman, Bahrain and Qatar - invested over US$30 billion into manufacturing during 2009. Overall, total manufacturing investments in the GCC grew from US$151 billion at the end of 2008 to almost US$180.4 billion by the end of the following year.

Saudi Arabia, the world's largest crude exporter, invested the most amount of money in the manufacturing sector: a total amount of US$112 billion came from Saudi, which is almost 62 percent of the GCC's combined capital in this sector, said the Gulf Organisation for Industrial Consulting (GOIC).

Reliance on cheap energy

According to the study: "GCC countries have always counted on their cheap energy sources in attracting local and foreign capital into their vital industrial sector over the years. This trend accelerated after they joined the World Trade Organisation and sought free trade agreements with the European Union and other major economic powers.

"The policy of liberalising or increasing energy prices in the GCC countries will deprive them of a strong factor that had tempted investors despite the high costs of manufacturing projects and their nature as long-term investments."

However, in the UAE, fuel prices are rising rather than falling. In April 2010, the UAE raised prices of petrol and diesel by 11 percent and is currently charging more than the other five GCC countries for a litre of diesel.

There have also been reports that the four government-owned petrol distribution companies - Adnoc, Eppco, Emarat and Enoc - will raise their prices again, although this has yet to happen.

With the GCC's fuel prices in a constant state of flux, it is hard to gauge whether or not these countries will suffer from further inflation. However, it is clear that the manufacturing industry has huge potential for profit too.

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