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Policy Paper

GCC Economic Presence in the Mediterranean and the Outlook for EU-GCC Cooperation

December 21, 2010

Valeria Talbot

Between 2003 and 2008, foreign direct investments (FDI) from the Gulf Cooperation Countries (GCC) have strongly increased in the Mediterranean region, fueled on the one hand by a strong rise in oil prices, which generated massive investable surplus and, on the other hand, by an improved investment climate, as well as rapid economic growth of the Mediterranean countries. As a consequence, since 2003, GCC FDI has been playing a key role in the economic development of the Mediterranean region.

The increased economic presence of GCC countries in the Mediterranean region has raised interest in possible cooperation between the European Union (EU) and the GCC in this area. The two groups share an interest in the economic development of the Mediterranean region. The launch of the Union for the Mediterranean (UfM) has opened new routes for EU-GCC cooperation in the Mediterranean through some of the major projects within the UfM. The development of renewable energy sources in the Mediterranean has been identified as a key sector to boost this cooperation. However, many key issues are still to be addressed before it may blossom. From an EU-GCC-Mediterranean cooperation perspective, another UfM project, the Mediterranean Business Development Initiative focused on Mediterranean small and medium enterprises (SME), looks more promising, thanks inter alia to the expected structural reassessment of GCC foreign direct investment after the Dubai financial crisis.

Mediterranean economies need growing foreign investments to face their major challenge: the creation of 3-5 million new jobs each year, which is a legacy of the demographic boom of the 1970s and 1980s. To this end, FDI should focus more on job creation and be smaller in size, especially investments coming from the Gulf countries. Mediterranean SME should be increasingly involved in a process of international economic integration through direct investments and a wide range of other forms of financial support, from venture capital to guarantee schemes. This may give room to an EU-GCC-Mediterranean triangular cooperation, which would potentially bring benefits to all parties through transfer of technologies and best practices, more financial resources, and better market access. On the policy front, this entails the need for a broad consensus between the three actors through some sort of permanent dialogue, not necessarily well structured.

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