The Free Trade Agreement between the six-member bloc of GCC and Turkey will boost economic and trade ties and potentially create “one of the world’s largest FTAs” with $2.4 trillion in trade opportunity, analysts have said.
The Gulf countries are holding trade talks with Turkey in Ankara after signing a pact in March to start discussions on an agreement.
Saudi Arabia, the Arab world’s largest economy, is participating in two-day negotiations, led by the General Authority of Foreign Trade, the Saudi Press Agency reported on Tuesday.
“By liberalising trade in goods and services and investment, a GCC-Turkey FTA would potentially create one of the world’s largest FTAs of $2.4 trillion if fully implemented,” Nasser Saidi, a former economy minister and vice-governor of Lebanon's central bank, told The National.
“This would require agreement on domestic content, GCC co-ordination with Turkey on trade facilitation to avoid long waiting times at borders, inappropriate fees, cumbersome customs formalities, and inadequate or unclear rules and regulations.”
The latest development comes as the Gulf countries continued to strengthen trade and economic relations with Turkey.
Last year, the UAE signed the Comprehensive Economic Partnership Agreement with Turkey, which is expected to boost bilateral non-oil trade to more than $40 billion in the next five years, from about $19 billion as of last year.
The two countries also signed agreements and accords worth $50.7 billion during Turkish President Recep Tayyip Erdogan's visit to the UAE in July last year.
In 2022, the UAE Central Bank also finalised a bilateral currency swap agreement with its Turkish counterpart to improve trade and investment ties.
Saudi Arabia is also bolstering its economic ties with Turkey. Last year, the kingdom deposited $5 billion in Turkey’s Central Bank through the Saudi Fund for Development to shore up its foreign exchange reserves after its economy suffered from the effect of some of Ankara's more unconventional policies.
However, the deposit was returned to Saudi Arabia last week after an improvement in Turkey’s economy, the Financial Times reported.
“The GCC are now negotiating as a trading bloc, strengthening their negotiating power as compared to negotiating individually,” Mr Saidi said.
“Greater regional economic and financial integration implies greater economic diversification gains and generate higher economic growth.”
He said that the GCC and Turkey are to benefit from the deal as global trade is disrupted by sanctions and tariffs at a time when the US and China are at odds.
The deal will also have “positive spillover effects for other countries, such as Iraq and Syria, that can benefit as GCC-Turkey trade and investment links grow”, Mr Saidi said.
There are also strong banking ties between the two nations. Last year, Dubai Islamic Bank, the UAE's biggest Sharia-compliant lender by assets, acquired a 20 per cent stake in Turkey's TOM Group of Companies, marking its entry into the nation's banking sector.
In 2019, Emirates NBD completed the acquisition of Turkey’s Denizbank from Russia’s Sberbank after gaining regulatory approval for the deal in all three countries.
A GCC-Turkey free-trade agreement could also facilitate Brics membership and “add an important economic and geostrategic member”, to the 10-member bloc, Mr Saidi said.
Saudi Arabia, along with the UAE, Egypt, Iran and Ethiopia, joined Brics on January 1, doubling its membership, with Brazil, Russia, India, China and South Africa as the original members.
An agreement at GCC level, however, is expected to take “longer to finalise”, as negotiations continue, Monica Malik, chief economist at Abu Dhabi Commercial Bank, said.
“What is important is that there is willingness to see strong economic and trade relations,” she said.
Turkey has a large population, a diverse economy and offers potential for demand growth, Ms Malik added.
“With Turkey moving towards more orthodox monetary policy, you are also starting to see more optimism on the economic outlook. All of these factors, are all positive for the wider Gulf,” she said.
Since last year, Turkey abandoned Mr Erdogan's low interest policy and started raising interest rates to bring down inflation.
The move resulted in Moody's Investors Service upgrading Turkey's sovereign credit rating, the first such rating action in more than a decade, citing improvements in governance and economic policies.
The country's sovereign credit rating was raised to “B1" from “B3", with a positive outlook, the credit rating agency said this month.
GCC countries will also benefit from stronger economic ties with Turkey, with oil and petrochemicals, banking, property and construction as well as green energy benefiting from the deal, Ms Malik said.
Hasnain Malik, head of emerging markets strategy at Tellimer, an investment research company in Dubai, said Turkey has a “much larger, more competitively priced” manufacturing export sector than the GCC.
“So, a free-trade deal is likely to benefits it more both in terms of higher export growth to and foreign direct investment from the GCC,” he said.
“Specific beneficiaries could be the banks from Kuwait, Qatar, and the UAE with Turkish operations that are already in a position to capture greater cross-border financial flows.”
The GCC bloc is signing trade and economic deals around the world.
In December, it signed a free-trade agreement with South Korea to boost trade and economic ties between the GCC and Seoul. The Gulf bloc signed a similar agreement with Pakistan in September.
It is also in talks towards a free-trade agreement with the UK.
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