The relationship between the six countries of the GCC and the 41 nations of Latin America has undergone significant changes over the years. In the 1970s, there was tentative outreach between the two entities when Gulf countries began deepening ties with Brazil and Mexico. By the 2000s, things were starting to heat up, and the creation of the Summit of South American-Arab Countries in 2005 led to a dramatic increase in trade between the two regions.
By 2020, total trade had reached around USD 20 billion, almost double the figure from 2008. The two most significant countries within each region were Brazil and the UAE, with non-oil trade between the two reaching USD 4.3 billion in 2022. But more work is being done to constantly strengthen the relationship.
Last month, a meeting took place between the GCC and the Community of Latin American and Caribbean States (CELAC), with both sides emphasising their determination to deepen cooperation. There was wide recognition of the potential to expand, particularly in energy, digital transformation, sustainability and food security.
This article examines the important economic relationship, its evolution over time, and its future prospects.
H2: What’s changing in the GCC-South America relationship?
Partly due to the huge geographical distance between the regions and a lack of cultural ties, the two blocs have historically operated on the fringes of each other’s economic orbit. Trade between the two is not an entirely new phenomenon, however, as oil has been shipped from the Gulf states to South America, while South American agricultural and mining commodities have found their way to the GCC. But today, partly due to the ongoing diversification strategies of Gulf countries, there is a significant shift in relations and in what is being traded.
As Gulf economies shift away from their reliance on oil, they have identified several potential strategic partners in South America, notably the Mercosur countries: Brazil, Argentina, Paraguay, and Uruguay. For example, the UAE is currently negotiating a comprehensive economic partnership agreement with Mercosur and has recently scheduled flights to Bogotá in Colombia. Other Gulf countries are also looking to launch direct routes. So, all the signs point to a distinct change in the nature and closeness of this economic relationship.
Factors contributing to this change
There are various factors influencing this change:
- Diversification: GCC economies have long recognised that oil and gas alone cannot sustain long-term growth. A huge number of initiatives and national plans have been implemented to guide this transformation, which is already underway and yielding results. Partnering with emerging regions like South America has the potential to accelerate some of this change through investments and collaborations with strategic partners.
- Resources: South America is renowned for its agriculture, and its output is substantial. It also has substantial resources of critical minerals.
- Allies: As both parties’ traditional trading partners have been affected by a changing political landscape – whether that’s tariffs, new regulations or political instability – they are seeking new, stable partners.
- Readiness: Gulf states have substantial financial reserves. The region’s sovereign wealth funds represent six of the ten most significant funds globally, and the states are increasingly investing outside of the US and Europe. Meanwhile, South America has the assets as well as the need for capital and market access.
H2: What does this mean in practice?
In real terms, the trade between the two entities is no longer limited to oil and commodities, and there have been significant increases in fertilisers and minerals, as well as services and agricultural products. In addition, as the move towards formal trade agreements gathers pace, there is the potential for greater market access and cooperation. South American exporters and service providers gain access to Gulf capital, logistics hubs and markets. This, in turn, creates new supply chains that link the two regions.
The challenges in the GCC-South America relationship
Like any fast-growing business relationship, the partnership between the GCC and South America does not always run perfectly smoothly – particularly in these early stages.
When considering the challenges faced by both parties, geographical location features near the top of the list. The huge distance between the two regions and the lack of established Gulf–South America transport corridors make it challenging to trade between the two regions. As more work is done to establish stronger transportation and supply chains, both sides will benefit.
Harmonising regulations, including standards, tariffs, and investment protections, will be a lengthy process requiring sustained negotiation and the gradual establishment of trust. While much of the trade today and in the past has been centred on commodities, the real test of the relationship will come when the shift to manufacturing and services becomes more prominent.
There are also concerns regarding political and economic volatility, as well as currency fluctuations; hence, long-term investments will require careful navigation.
Looking ahead
There are certainly exciting times ahead, once the various Gulf-South America trade agreements have been finalised. As the infrastructure is built to create a more efficient trade corridor, the necessary logistics hubs and direct flights will contribute to an increasingly robust relationship.
It’s clear that trade between the Gulf and South America is turning a corner, with evidence of a growing relationship and deeper investment flows telling the wider world that this is no longer a relationship based on minor trade but is, in fact, a long-term partnership. This is major news for businesses, investors, and governments, indicating that this trade relationship could be a legitimate driver of growth over the coming years.
While regulatory and logistical hurdles remain, the key task ahead is to establish robust institutional frameworks and supply chains that ensure both Gulf and South American economies benefit significantly from this strengthened partnership.
While the economic relationship has changed significantly since the 1970s, the next few decades are likely to bring the Gulf and South America even closer as their mutually beneficial partnership goes from strength to strength.
