Abu Dhabi

Source: Alittihad Newspaper

Mufakiru Alemarat

Dr. Ali Mohamed Al Khouri

In recent years, the global economic landscape has been marked by the return of protectionist measures and the escalation of trade disputes. This shift towards economic nationalism, with major economies imposing tariffs and trade barriers, reveals a new gray area, indicating a state of uncertainty and ambiguity in international trade, economic growth and geopolitical relations, and creating varying contradictions and risks. Arab economies, which depend on global markets for their oil exports, international trade and foreign investment, have become more vulnerable to the repercussions of these shifts in the global economic environment.

The data imposes on policymakers in Arab economies that originally depend on exports and investments to understand the hidden dimensions and intertwined effects of these policies on the modern global economy. The global rise of protectionism Protectionist policies imposed a new reality on Arab economies, and for oil-exporting countries, such as the Gulf states, these policies posed a direct threat to their energy revenues, and trade disputes caused a decline in demand for oil, as a result of the slowdown in economic growth, and this was negatively reflected in the budgets of the Gulf states that depend heavily on oil revenues. According to the International Energy Agency, the growth rate of global demand for oil in 2024 did not exceed 1%, a growth rate much lower than the expectations of the past decade. Non-oil Arab economies, such as those of Egypt, Morocco and Jordan, are facing repercussions of a different kind, as trade disputes and protectionist policies have harmed the competitiveness of these countries, as they depend on exports of manufactured goods and remittances from their citizens working abroad. The Moroccan automotive sector, for example, witnessed a 7% decline in its exports to the European Union in 2023, after the EU imposed preferential tariffs in favor of local producers. Financial flows resulting from the decline in the volume of expatriate remittances were also negatively affected by the economic slowdown in major markets such as Europe and North America, which led to a decrease in cash flowing to these Arab countries, and was reflected in local purchasing power and the level of domestic investment. Challenges of diversification in the face of a changing world Although Arab countries are aware of the need for their economies to diversify and expand their economic base, efforts in this direction face various obstacles in light of the current global environment. National strategic initiatives, such as Saudi Arabia’s Vision 2030 and the UAE’s Industrial Strategy, demonstrate ambitious aspirations towards transforming into innovative and diversified economies. However, global transformations, represented by trade barriers and protectionism, threaten to undermine these efforts. Customs duties imposed by the United States and Europe on products such as steel and aluminum have weakened the ability of Gulf producers to compete in global markets. Data indicate that Gulf countries export about 60 percent of their production to global markets.

According to the World Bank, trade tensions have reduced non-oil growth in the GCC by 1.5 percent in 2024, significantly hampering economic diversification agendas. Geography, on the other hand, plays a dual role in influencing Arab economies. The strategic location of Arab countries, especially the Suez Canal that connects Asia to Europe, provides tremendous opportunities for new horizons for Arab trade. However, global geopolitical and trade tensions, and the decline in shipping volumes resulting from escalating protectionist policies, have negatively affected the revenues of this vital passage, losing more than 60 percent of the canal’s revenues, equivalent to about $7 billion in 2024 alone. Recommendations for Arab policies to confront the consequences of global protectionism Policymakers in the Arab region should reassess national and foreign strategies to ensure continued economic growth in this turbulent trade climate, as regional economic integration represents an under-exploited opportunity.

Intra-Arab trade, which represents only about 10-13 percent of the region’s total trade, is still very modest. Regional agreements, such as the Greater Arab Free Trade Area, as well as digitization and facilitation of procedures and systems governing the movement of goods and services between countries, can support trade and production links between Arab countries, contribute to reducing dependence on foreign markets, and increase the flexibility of national economic systems.

It is important to focus on complementary roles and reduce levels of competition between Arab countries to present a model based on coordinating roles to serve joint growth and create the targeted economic value. Shifting towards value-added exports is another strategic option, as it is important for Arab countries to prioritize future sectors, such as renewable energy, technology, and pharmaceutical industries, to diversify their export portfolios. The UAE’s experience in investing in the green hydrogen sector, in order to raise the installed capacity of clean energy to 50 percent of the total energy mix by 2050, is an inspiring model for countries in the region. Focusing on developing value-added technology industries will provide Arab countries with new paths to overcome trade barriers that usually target traditional materials, such as oil and minerals, and will support their ability to enter more dynamic and demanding markets.

Moreover, Arab countries should reconsider their trade map and seek to strengthen their trade relations with emerging economies in Asia and Africa, as these regions provide extensive export opportunities, especially in the energy and building materials sectors. Establishing strategic partnerships with these economies may reduce Arab countries’ dependence on traditional trading partners in Europe and North America, which are increasingly adopting protectionist policies. According to a report issued by ESCWA in 2023, Arab countries’ exports declined by 11.4% compared to the previous year. National agendas must prioritize investment in logistics and trade infrastructure to support national and regional competitiveness.

Projects such as the expansion of the Suez Canal to improve capacity and traffic efficiency, and the modernization of Jebel Ali Port to handle a larger volume of containers and cargo, demonstrate the huge potential to improve trade efficiency in the region. However, to make the most of these projects, the traditional management model that has prevailed for decades must be changed, and modern technologies must be leveraged to complement these large investments, such as the digital transformation of trade and improved customs operations to facilitate the flow of goods and services.

In terms of financial policies, there is no disagreement about the importance of the principle of reducing financial dependence on oil revenues. This requires policymakers to implement multiple reform programs, especially with regard to activating partnerships between the public and private sectors to diversify sources of national revenue. Policymakers must be aware of the need for a stable investment environment and the importance of this conviction reaching the local and foreign private sectors, especially small and medium-sized enterprises that suffer by nature from great financial fragility in the face of economic fluctuations.

Such reforms could provide Arab governments with greater resilience to global economic volatility and trade disruptions caused by protectionism. Another key to strengthening Arab economies’ resilience to economic protectionism is to invest more in developing human capital.

Economies cannot move towards diversification and sustainable growth without a skilled workforce that is able to keep pace with changes and meet the demands of emerging industries. Reforming education systems, strengthening vocational training programs, and developing youth skills in technology, renewable energy, and logistics must be top national priorities. These investments can raise productivity, increase the region’s attractiveness to foreign investment, and help build knowledge- and innovation-based economies.

To be sure, the return of economic protectionism and the escalation of trade disputes expose the Arab region to the risks of fluctuations in global trade and the imbalance in demand for the main sources of Arab economies. These facts require proactive and flexible policies aimed at building economies capable of global competition. Regional integration and the recommendations put forward are pivotal pillars for building a diversified and solid economic future for the region, but they remain dependent on the extent of Arab thought’s readiness to abandon traditional concepts and patterns and to believe in the necessity of change and transformation in the economic mentality to lay new foundations for growth and development.