The Red Sea Foundation is a non-profit policy think tank, headquartered in Geneva, and was legally established in 2016
The Foundation aims to:
increase global awareness of the potential of the Red Sea region
provide independent advice and a country-neutral perspective on issues relating to trade facilitation, performance and global best practice
provide a platform to attract global companies to invest in the region and assist partner countries develop public-private partnerships for trade and infrastructure development
The case for supranational trade
by Fahd al Rasheed
The gradual abolition of barriers to trade between countries has long been considered a driving force behind economic growth, leading to greater levels of prosperity across the globe. The recent tide of anti-establishment political movements sweeping across the developed world is likely to slow down this process, but world leaders should work together to ensure continued co-operation that is beneficial to all parties involved. The Red Sea region in particular stands to benefit from increased co-operation.
The rise of global trade has been particularly noticeable since the 1990s which saw the establishment of the North American Free Trade Agreement and the evolution of regional co-operation projects such as the European Union (EU) and the Association of Southeast Asian Nations (ASEAN). Unprecedented technological advances made it possible for farmers in one part of the world to expand production and provide goods to new markets that were once considered out of reach. International trade led to enhanced choice for consumers and allowed for bigger market places in which companies and countries can benefit from advantages of scale and improved productivity.
However, recent political trends point to a decline in international resolve in maintaining a number of multilateral agreements as well as fostering new ones. Protectionism and potential trade wars could lead to the collapse of multilateral trading system, distortions in global supply chain mechanisms and cause a global recession. According to recent data from the World Trade Organization (WTO), growth in the volume of global trade is expected to remain subdued in 2016 at 2.8%, unchanged from the 2.8% increase registered in 2015. At 3.6%, the outlook for 2017 is more optimistic but new political risks are likely to pose challenges.
Since 1990, one billion people have been lifted out of poverty. Both the World Bank and WTO argue that trade has played a key role in helping lift growth in developing countries. Developing countries now constitute 48 percent of world trade, up from 33 percent in 2000. The number of people living in extreme poverty has been cut in half since 1990. The ASEAN territory alone has enjoyed an annual growth rate of 5.2 percent between 2007 and 2015, while poverty levels have dropped from 33.0 percent to 15.3 percent since 2000 - all as a result of increased economic co-operation. Global trade has additionally helped increase the quantity and quality of jobs in developing countries.
The development of trade agreements and regional blocs continues to hold many socio-economic benefits for nations, especially those across the Red Sea, due to their untapped potential. Countries in the Red Sea region represent varying levels of economic development, offering ample opportunities for both the public and private sectors. The scale of the regional market, with a current population of 750 million and growing to 1.5 billion by 2050, should allow regional countries to compete for foreign direct investment on a par with major markets.
The Middle East and Africa share two key drivers when it comes to future economic potential: demographics and rapid expansion of trade corridors. The Middle East has also been playing a more integral role as a trading partner with Africa with trade exceeding $50 billion in 2015. More can and should be done to create opportunities between both regions. This can be achieved through the establishment of comprehensive co-operation frameworks that will make it easy for farmers in Eritrea to supply their goods to markets in countries such as Saudi Arabia.
Lowering the barriers to trade between these nations would help drive down poverty rates by opening up the economy to foreign investment, public-private partnerships, increased inflow of raw materials and exchange of economic expertise and know-how. Trade facilitation within the Red Sea economic region could help increase the GDP growth to as much as $6.6 trillion by 2050, almost 30 percent more than the current projections. The private sector will play a key role in further enabling greater connectivity and trade, whilst the governments must work harder at implementing the right policies that promote co-operation and reduce bureaucratic barriers.
Despite the obvious benefits, there are also losers in global trade. New legislation is needed to balance the equation and to ensure the losers do not bear the full burden. Rather than stopping or reversing globalization, world leaders should focus on improving the existing framework in order to protect the economic needs of those that are considered losers. Countries should be partners, not opponents, as they work to secure a fair global trade system.
Connecting the Red Sea
by Fahd al Rasheed
The Red Sea has played a pivotal role in global trade for millennia. In the time of the pharaohs, it was at the heart of the global spice trade. Today, it is an essential global artery, feeding Western demand for hydrocarbons and facilitating the flow of goods between Europe and booming Asian markets. More than 10% of world trade moves through the Red Sea basin every year, a figure that is set to increase as Egypt doubles the capacity of the Suez Canal.
And yet, with a few exceptions, most of the modern wealth generated by that trade sails rapidly onward, leaving little to show for its passage. There is no reason that should continue to be the case. A regional effort to facilitate trade and build infrastructure has the potential to reposition the countries surrounding the Red Sea as destinations for global investment and international trade.
The Red Sea region, comprising the 20 countries that use the route as their primary trading corridor, is the largest, fastest-growing, and least exploited emerging market in the world. Over the next 35 years, the United Nations expects the region's population to rise more than twofold, from 620 million today to 1.3 billion. This population growth will be accompanied by one of the world's highest urbanization rates, creating a burgeoning middle class, which the Brookings Institution estimates will grow from 136 million today to 343 million by 2050.
Over the same period, according to current projections, the region's GDP will triple, from $1.8 trillion to $6.1 trillion, while trade will increase fivefold, from $881 billion to $4.7 trillion.
And yet, as encouraging as these numbers may be, the region has the potential to do much better. Long-term forecasts for the Red Sea region's share of global trade are comparatively flat. According to HSBC, for example, trade within the Middle East and Africa will account for 10% of the global total in 2050, up only slightly from 9% today.
There are good reasons for this conservative outlook. Many of the countries in the Middle East and Africa have comparatively limited infrastructure; there are few world-class deep-water ports in the Red Sea or nearby. Levels of economic development vary widely, from the wealthy countries of the Gulf Cooperation Council to the emerging economies of sub-Saharan and East Africa. And, unfortunately, political and cultural differences do not always encourage cross-border cooperation.
A coordinated initiative to facilitate trade within the Red Sea region would have a significant impact on future development, boosting GDP by about 10% to $6.6 trillion and increasing trade by nearly 35% to $6.3 trillion, according to research commissioned by King Abdullah Economic City. By providing greater access to international trade for small and medium-size enterprises, the core drivers of growth and job creation, such an initiative would diversify exports and significantly enhance the local share of the global value chain.
Achieving this would require significant improvement of logistics capabilities in the region. The World Bank's Logistics Performance Index (LPI) scores most of the countries in the Red Sea economic region below 2.6 on its five-point scale. The most logistics-friendly market in the region, the United Arab Emirates, has a score of 3.54, placing it just within the top 20% of countries in the LPI.
The private sector should be at the forefront of the effort to build the infrastructure and logistics links that form the backbone of global trade, install the technologies and systems that maximize efficiency, and provide the training and skills to boost performance. This process alone will create jobs, open career paths, and improve access to education across the region.
National governments will also need to participate, streamlining customs controls, border management policies, and regional trade regulations. A good place to start would be the formation of a Red Sea Trade Agreement, similar to the Trans-Pacific Partnership, outlining specific measures to reduce the costs of cross-border trade and mechanisms to settle disputes between investors and governments.
Another potential initiative would be the formation of a regional infrastructure bank, modeled on China's Asian Infrastructure Investment Bank. Such an institution would facilitate the efficient distribution of capital to infrastructure development around the region, enhancing national trade capabilities and promoting sustainable economic growth.
The Red Sea region has a unique opportunity to develop into a global center of excellence in trade facilitation, strengthening economic ties throughout the region and building a new growth engine for the global economy. All that is needed is the will to seize it.
This article was first published on Project Syndicate on 10 Feb 2016
The Red Sea Opportunity
by Fahd al Rasheed
Reading the global headlines today it is easy to think that there is not a lot of good news coming out of our part of the world. We read of conflict and division. We read of economic woes and sectarian strife.
While it is true that there are real challenges in the Red Sea region, it is also true that there are many opportunities, today and into the future.
Indeed this region, sitting astride one of the world's major shipping routes, has been a land of opportunity for more than four thousand years.
When the explorer Hanno first traded across the Red Sea at the time of the pharaohs he brought into Egypt precious incense and rare woods from the fabled Land of Punt.
For more than two millennia the region lay at the center of the global spice trade, creating fortunes from Alexandria to Zanzibar and beyond. The fantastic tales told by spice traders to market their products inspired the legends of Sinbad the Sailor. And it was the trade in spices that propelled Venice to become the pre-eminent centre for business and culture at a time when nutmeg was worth more than its weight in gold.
Today the Red Sea is one of the most important maritime trade routes in the world. It carries more than 10 percent of global shipping trade, feeding the demand for hydrocarbons in the west and facilitating the flow of goods between Europe and the booming Asia Pacific. And the expansion of the Suez Canal, doubling its capacity, will only increase the significance of this essential shipping corridor.
Nevertheless, I believe that this one of the most overlooked growth opportunities in the world today.
When we look at the future drivers of the global economy it is all too common to look no further than China, Asia and India. And yet the Red Sea region is the fastest growing developing market in the world and will remain so for decades to come.
By current UN estimates we are going to see our population double from 620 million people to one billion within the next two decades and to 1.3 billion by 2050.
According the World Bank we are going to see our GDP triple from $1.8 trillion to $6.1 trillion in the same period.
And we are going to see our volume of trade increase fivefold from $881 billion to $4.7 trillion.
By any measure that is a significant opportunity.
I believe that it could be many times greater.
Our research suggests that, at a conservative estimate, we could increase GDP growth by an additional $500 billion by improving infrastructure and lowering the cost of trade. Or, to put it another way, we could effectively add to the region an economy the size of Norway's. That is over and above the growth figures projected by the World Bank.
I believe that a coordinated regional effort by business and by government could easily double that opportunity. Working together as a region we could do it bigger. We could do it better. We could do it faster.
This region has enormous potential. In Jordan, for example, there is the potential to become the primary feeder hub for the Levant and the Eastern Mediterranean, moving goods and products more efficiently through the region.
In Egypt there is the opportunity to boost intra-regional trade by creating more special economic zones around the Suez Canal, reducing shipping costs and increasing efficiencies.
In Africa there is there is the opportunity to secure better access to agricultural export markets and play a more central role in the regional food security debate.
And the mineral-rich economies of Africa could expand their domestic refining and manufacturing capabilities, extracting greater down-stream value from their resources and securing profitable markets for the products they manufacture.
Of course there are good, practical reasons for a more conservative appraisal of the region's prospects.
Many of the countries that lie on the Red Sea have comparatively limited infrastructure. There are few world class deep-water ports in the region. Levels of economic development vary from the wealthy countries of the GCC to the emerging economies of sub-Saharan and East Africa. And the region's political and cultural differences do not always encourage cross-border cooperation.
Let me give you one example. The World Bank assesses the trade capabilities of countries based on, among other factors, physical infrastructure, customs controls and trade regulations. The Bank captures the results of that assessment in the Logistics Performance Index. The top 20 percent of logistics-friendly countries score above 3.5 on the LPI scale. Most of the countries in the Red Sea region score below 2.6.
This needs to be improved. Physical infrastructure is an essential start. Of the 100 largest ports in the world, 7 are in the Red Sea region. The combined capacity of those seven ports is approximately the same as the capacity of the Port of Shanghai. In other words there is a clear need across the region for more trade infrastructure and for the technology and training to operate it.
Infrastructure alone, though, does not create trade. To do that requires improved border controls, enhanced customs procedures, transparent trade regulations and close cross-border cooperation. We in the private sector can build the roads and the ports. It takes government to build the bridges.
If there is one lesson to be learned from the rise of Asia it is that close coordination can make a region so much more than the sum of its parts. We could expand trade relations on a country by country basis, through bilateral agreements and favoured nation partnerships. Or we could emulate the U.S. government-led Trans-Pacific Partnership and build a Red Sea Trade Pact to streamline cross-border trade and provide mechanisms for dispute resolution to the benefit of the region as a whole.
We could expand infrastructure by appealing to individual investors and competing with other projects around the world. Or we could follow the example of China and create a regional infrastructure bank that exists to facilitate the flow of capital to those projects where it can be of most benefit.
Where the interests of business and government converge you create opportunity. But to realise that opportunity we have to work together. The Red Sea Foundation exists to actualize the enormous potential of this region by enhancing the logistics infrastructure, promoting trade among constituent countries and encouraging foreign investment. It is an initiative in which the public and private sectors and civic society all have important roles to play. The Red Sea Foundation seeks to bring them together to build a new growth engine for the global economy.
That's a real opportunity. It's an opportunity for business and it's an opportunity for growth. More importantly, it's an opportunity to create prosperity in some of the countries where it is needed the most.
What does the RSF do?
The Foundation's activities seek to increase global awareness of the potential of the Red Sea region; provide independent advice and a country-neutral perspective on issues relating to trade facilitation, performance and global best practice; and provide a platform for engagement between the private sector and the governments of the region to encourage investment.
How can I get involved?
To find out more about how you can support the development of the Red Sea Foundation consider becoming a member or contact us for more information about opportunities.
What is the RSF?
The Red Sea Foundation is a non-profit, non-partisan NGO established to support the development of the Red Sea market into a new growth engine for the global economy.