How the Gulf’s nations are adapting to global supply chain challenges

Global supply chains are the lifeblood of society. They underpin everything from the energy that powers our economies to the food that nourishes our families.

In a few short years, the resilience of these supply chains has been tested by extraordinary global events, including the unprecedented shock of the COVID-19 pandemic, the Russia-Ukraine conflict and trade bottlenecks in the Red Sea. What can be done to tackle this ever-evolving crisis?

Nowhere is the question more pressing than in the Gulf Cooperation Council (GCC), a group of high-growth economies in the Middle East that have a strong focus on international trade. As well as a long-standing history of energy exports to Western nations, GCC member countries are increasingly turning to emerging markets in Asia, which now absorb more than 70% of all the GCC oil and gas shipped overseas. But it’s far from a one-way street: GCC countries rely on imports for 85% of their food and up to 65% of electrical machinery and equipment.

To address the impact of supply chain disruptions, GCC nations have taken important steps, helping to ease congestion and smooth trade flows. Here are three successful approaches, all of which have the potential to be applied in other countries and regions facing the same challenges.

Governments have a vital role to play in paving the way for more efficient and shock-resistant international supply chains. In the GCC, a number of regulatory initiatives have helped to remove obstacles, allowing for more frictionless trade.

In addition to investments to streamline sea-to-air cargo through its global sea-to-air hub, which offers two-hour turnaround times for containers, Bahrain has established a mutual recognition agreement with Saudi Arabia to fast-track trade. In addition, the construction of the King Hamad Causeway project will create a second bridge linking Saudi Arabia with Bahrain.

This new causeway will be part of the GCC railway project which, once completed, will link all of the Gulf states, creating cross-border opportunities, including diverse intra-regional trade and freedom of movement for workers. The investment is also expected to optimize the region’s use of natural resources by moving the transport of goods to rail with a projected capacity of 95 million tonnes in 2045.

To boost trade relations with the US, a new US trade zone (USTZ) is expected to open in 2024 in Bahrain, channeling investment of almost $240 million. The USTZ will become a hub for manufacturing and logistics activities and will offer US businesses a range of advantages, including exemptions from customs duties for imported raw materials.

The island nation has also introduced mandatory pre-clearance for goods across all points of entry (seaports, airports and road access) and set up an authorized economic operator certification that gives companies specialized in manufacturing, exports and logistics a fast lane to access end-user markets.

The UAE has invested in a range of strategic economic plans, designed to enhance logistics as a driver of growth. These include multimodal transport solutions – including the Etihad Rail project to connect major hubs across the region – as well as regulatory reforms designed to improve operational efficiency and competitiveness.

Kuwait has also expedited efforts to boost its climate for business, reforming regulation of everything from creating a business, accessing credit and registering property, to green-lighting construction and utilities. It has also removed barriers to trade across borders by implementing a new electronic clearance system.

Supply chain bottlenecks have become more commonplace in recent years, such as those seen during the COVID pandemic or the disruption to grain exports as a result of the Russia-Ukraine conflict. This is a particular concern for import-dependent countries such as those of the GCC, where some 85% of food is imported. When food supply chains falter, governments can be left facing shortages or be forced to absorb increased costs.

To address these complex logistical challenges and reduce vulnerability, GCC countries are using tailored technological solutions.

In Bahrain, technologies such as vertical farming and aqua farming are helping the country get a little closer to achieving food self-sufficiency. With more efficient production and increased food reserves, also targets for 2030, increased autonomy in the agricultural sector is a matter of national importance.

Saudi Arabia is investing in innovation and research to diversify its agricultural sector, improve sustainability and reduce dependence on imports. Recent strides include a $1 billion government investment in high-tech greenhouses that are equipped with smart technology to help reduce irrigation water by up to 60%.

The award-winning Center for Desert Agriculture at the King Abdullah University of Science and Technology takes advantage of cutting-edge research in the agritech sector. Its entrepreneurial spin-off companies are pioneering everything from AI detection models and nano-irrigation systems to drone-based crop improvements and smart IoT devices that reduce food waste.

In just a decade from 2018 to 2028, Saudi Arabia’s precision agriculture market is set to grow nearly five-fold, from around $30 million to more than $140 million.

On the closing day of the World Economic Forum Annual Meeting 2022 in Davos, Scott Morrison, former Prime Minister of Australia, noted that “the lesson of these times is that supply chain resilience requires a new partnership between countries, governments and businesses.”

But what does this look like in practice? Bahrain has spearheaded public-private partnerships to help establish the island as an international logistics centre. The country has also strengthened its trade relations with Saudi Arabia through the Takamul programme, which allows Bahraini products to be treated as Saudi products and grants a 10% preference in government procurement to Saudi companies participating in the programme.

The Bahrain International Airport Express Cargo Village is part of Bahrain Airport’s modernization programme and the first time the airport operator has invested in cargo facilities. Situated within the new airport and with the global logistics giant FedEx as an anchor tenant, it is primed to offer state-of-the-art infrastructure, enabling reduced shipping times, increased cargo capacity and operating efficiencies for express cargo and ecommerce companies.

Elsewhere, the UAE and Australia concluded negotiations for a landmark Comprehensive Economic Partnership Agreement (CEPA) in 2024. By streamlining trade processes, eliminating tariffs on a range of goods and services and encouraging private-sector collaboration in priority sectors, this bilateral, free-trade agreement will help to forge frictionless, resilient trade channels between the two countries.

Other regional initiatives include the GPCA Supply Chain Conference, which provides a platform for knowledge-sharing and collaboration across the Arabian Gulf’s chemical supply chain and logistics sector. The annual event facilitates the strategic partnerships that can help the region navigate challenging disruptions – from geopolitical upheaval and supply shortages to economic volatility and climate change.

While we sleep, the world’s complex logistics systems move everything from rice and wheat to computer chips and cars. These vital networks have been tested in recent years, reminding businesses, governments and consumers of the importance of strong, resilient supply chains. In the GCC region – an area more vulnerable to supply-chain disruption than others – the measures put in place show that it is possible to adapt and thrive.