As I said in my last blog, in recent years, the Gulf region has become an area of particular geostrategic relevance, both in political and socioeconomic terms.
It is a region which is permanently and constantly changing, and is also coming up against new, significant security challenges, even threats. These must be properly studied, assessed and taken into account by companies operating in the area and those planning to do business in the region.
The main challenges are:
1.- Real unawareness of the local market – Gulf Cooperation Council (GCC): rules, regulations, competence, modus operandi, trade habits and customs, main operators, etc.
2.- Unawareness of the structure of the government and power of the country where the investment is being made and of its position within the region.
3.- Unawareness of potential trading partners with which to begin operating the company in the country.
The main security threats are:
1.- Social unrest
2.- The risk of reactionary attitudes
3.- The presence and expansion of Al Qaeda
4.- Iran’s expansionist policies in the region
5.- The domino effect of border crises
However, by contrast, there are certain factors working in favour of the regional status quo, which balance out the situation:
1.- The presence of the main proponent of regional/international political and economic stability.
Saudi Arabia has positioned itself as the main mediator of conflicts following the fall of the Mubarak regime. This ensures that a balance of regional powers can contrast the influence of Iran, which is the main partner for western countries and an important ally for western economies dependent on oil.
2.- Consolidation of the GCC as the regional supranational defence organisation.
3.- The spirit of national unity which characterises the GCC countries, since an incident in one country has an immediate effect on the other countries of the region, meaning that they often act together.
Whether in terms of investment or risk control, everything that happens in one of the GCC states will have an effect on the others.
Another stabilising element is the fact that the region represents a major trading market for western companies.
According to data provided by ICEX, the Spanish Institute for Foreign Trade, 35% of the world’s oil reserves and around 24% of global gas supplies are located in the Gulf region.
These economies are experiencing strong GDP growth and there is high demand for infrastructure, civil works and engineering, as well as support for trade and monetary integration processes, which includes the implementation of transparent processes to combat fraud and corruption, among other things.
Bearing in mind the opportunities that the region offers for companies seeking to diversify risks and open themselves up to new emerging markets, companies must be encouraged to invest in this market, without, of course, forgetting the threats and challenges mentioned above – these must be properly dealt with.
Therefore, the formula that companies need to follow to open up their investments/interests in the area is a combination of trade opportunity and the necessary protection of their assets – by protection, I mean the implementation of measures to prevent and mitigate the risks present in the region.
We must not back down when faced with the threats that we can identify at the local or regional level. Instead, we must anticipate how likely it is that said threats will materialise and cause major harm to companies’ interests.
As such, it is necessary to:
1.- Draw up a suitable plan of the market and its access and behavioural features in advance, prior to going into it (in the initial phase, it will be important to select the correct local partner or representative and to have prior knowledge of the competition and the regulatory environment, among other things).
2.- Have analysis mechanisms in place to identify local (where our projects are located) and regional security threats for us, since, as I mentioned earlier, the main feature of the GCC countries is that they are closely interconnected. This is also a positive point as far as trade is concerned because, if we manage to set up in one Gulf market, it is likely that later on we will be able to extend this to other countries in the region, because the same, similar or interconnected players are often involved.
A setback in a project or investment in one GCC country will lead to a high risk of trade opportunities for the foreign company in the region drying up.
The same is true of the current threats. The appearance of a threat in one country in the region affects the rest of its partners.
A classic example of this is the social unrest that has recently shaken Bahrain. This has resulted in some GCC countries sending troops to work with the local authorities to restore order, reflecting a high degree of regional commitment.
As far as the risk to trade is concerned, in future blogs I will further explore the most important steps that a foreign company must take if it wishes to do business in the Gulf states. I will do the same with the chapter on security risks that end up directly affecting one of the most sensitive chapters in any company: Human Resources and as such, the Budget.