Exploring International Trade between Malaysia and GCC Countries: Empirical Analysis on Trends, Developments and Challenges

Abstract

The Gulf Cooperation Council (GCC) is the largest economic group in the Middle Eastern region and rank seventeenth in the global economy. The establishment of a GCC custom union in 2003 that led to a flat rate of imports tax between 0 and 5 percent has encouraged a number of economic groups such as the European Union (EU) as well as other individual countries to have closed trade relations with the GCC economic bloc. Malaysia is also interested in expanding its trade relations with the Arab Gulf economies. As Muslim countries and members of the Organisation of Islamic Conferences (OIC), trade between Malaysia and the GCC countries is increasing and has lead to Malaysia’s proposal to expand this relation.

Given this background, one of the main aims of this research is to explore in detail bilateral trade relations between Malaysia and the GCC countries and their determinants. In fulfilling this aim, this thesis examines Malaysia’s trade performances with the Arab Gulf region by analysing the trade intensity index and the revealed comparative advantage (RCA) index. These analyses reveal favourable countries for Malaysia to trade within the GCC, and also niche products for Malaysian exports. The competitiveness of Malaysian main products that are exported to the GCC countries is also compared to its rivals.

To provide further evidence, surveys with Malaysian traders and authorities were conducted. The survey with Malaysian traders was purposely to measure their perceptions of the GCC economic bloc. The surveys also identify traders’ motivation for doing business in this market as well as challenges and obstacles in expanding Malaysian exports to these economies. In collecting this evidence, the combination of a questionnaire and semi-structured interviews were employed to collect the primary data; and the data were analysed through interpretative and textual analysis along with statistical analysis including factor analysis.

Based on the findings, it can be said that trade relations with the GCC countries is still insignificant in comparison to that with Malaysia’s major trading partners. Nevertheless, due to Malaysia’s niche products, expansion strategy of services sectors in both Malaysia and the GCC countries and the existence of favourable countries to trade in the GCC, these may create huge potential for expansion. The findings also reveal that, cultural differences and lack of capital have been the major problems for Malaysian businessmen in doing business with the GCC region. The findings also indicate that there is a growing interest in establishing a Malaysia–GCC free trade agreement as shown by Malaysian traders. Key findings from the aforementioned analyses are then constructed by employing a SWOT analysis based on the current trade relation between Malaysia and the Gulf countries in constructing viable recommendation for future relation between Malaysia and the GCC member within the aspirations of OIC.