How friendshoring is transforming the Gulf into a global trade hub

Global trade is structured like a vast web. Supply chains criss-cross the planet as goods and services are exchanged.

Yet, rather than being guided solely by the invisible hand of the market, this complex system is frequently disrupted by geopolitical conflicts and natural forces, such as pandemics – disruptions that have become increasingly common in recent years.

In response, companies have started to move away from a hyper-globalized model towards more reliable, strategic arrangements. ‘Friendshoring’, where companies look to establish supply chain networks with countries that are considered political and economic allies, is becoming increasingly important in the Middle East.

Here are four ways this modern economic model is helping the nations of the Gulf Cooperation Council (GCC) – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates – to navigate an unpredictable international system.

As companies seek more resilient alternatives to traditional supply routes, the GCC's geographical location between Asia, Africa and Europe could become more important. This is because the region sits between Europe, Asia and Africa, with one-third of the world’s population living within four hours’ flight. Businesses relocating there can benefit from direct sea and air links to markets in East Africa and Asia, reducing fuel costs and giving exporters greater flexibility to adapt to changing circumstances. It also offers a politically stable hub for trade passing through.

The GCC has already helped deepen ties within the region, facilitating resilient local supply chains that can withstand global disruption. For example, more than one-third of food produced by GCC countries is sold within the bloc, which reduces the region’s dependence on external imports.

GCC countries have also found friends further afield, establishing trading links with diverse allies and building on their role as a gateway between the three continents. Saudi Arabia and the UAE are part of a number of international blocs, such as the India-Middle-East-Europe Economic Corridor. Bahrain also has bilateral free trade agreements with 25 markets, allowing duty-free market access to 33% of the world’s GDP.

These agreements are built on long-standing alliances and they increase the region’s connectivity, enable more frictionless trade between member states and create opportunities for Middle Eastern companies to tap into emerging markets, bringing immediate economic benefits. Crucially, mutual trust in honouring such agreements creates the market confidence needed for long-term investment. If it proves successful, the region’s more open, cooperative model will serve as a viable alternative to the protectionism proposed in other parts of the world.

Over the last few decades, the GCC has sought to build strong diplomatic relationships worldwide. These extend from deepening ties with the Association of Southeast Asian Nations (ASEAN), China and several sub-Saharan African countries, while also consolidating long-standing partnerships with the US, the EU and India.

As more companies embrace friendshoring, member states are working proactively to capitalize on these constructive relations. Primarily, this involves reducing business costs to attract investment from its allies.

All GCC member states have established Special Economic Zones, providing significant business incentives. These include competitive corporation tax rates, duty-free access to GCC markets and enabling foreign nationals to fully own companies they establish there, such as in Bahrain’s International Investment Park. At the state level, Saudi Arabia provides a 30-year tax exemption for foreign companies that set up headquarters in the Kingdom, while Bahrain offers tax breaks, subsidized utilities and streamlined business setup processes.

These measures are designed to stimulate economic development, create jobs and support the region’s economic diversification strategy. A recent World Bank economic update revealed that the GCC is making progress, with strong growth forecast for 2025.

Logistics and transport infrastructure are integral to international supply chains, yet the transit of goods is also one of the points most vulnerable to external factors. Conflict has disrupted shipping routes in the Black Sea, while drought affecting Panama Canal operations has sent economic shockwaves around the world, highlighting a need for more dependable transport alternatives.

As instability disrupts neighbouring regions, the GCC could provide a model for secure, well-connected transport and logistics hubs.

GCC nations have invested heavily in this sector to encourage the flow of trade and boost supply chain productivity. They have built ports, like Jebel Ali in the UAE, Hamad in Qatar and Khalifa Bin Salman in Bahrain, to bring in goods by sea. A 2,000-kilometre GCC railway, scheduled for completion by 2030, aims to connect all six member states and create a seamless flow of freight and passengers.

This expanding, more modern transport network will boost connectivity for companies, allowing them to take full advantage of the GCC’s common market and customs union. As companies prioritize resilient supply chains, this will help cement the region’s position in the global trade system.

The Gulf states are undergoing an intense economic diversification strategy as they work to bring in non-oil revenue, which still makes up around 40% of the GDP for all other than Bahrain and the UAE. Saudi Arabia’s Vision 2030 targets sectors such as tourism, financial services and renewable energy, while the UAE is embracing digital technologies, including cryptocurrency, AI and e-commerce.

Friendshoring opens up new possibilities for foreign direct investment in diverse sectors. Major companies, including Mondelez International and WestPoint Home, have already established manufacturing operations in Bahrain, while Indian chip producer Polymatech Electronics is following suit with an initial $16m investment. As global supply chains are reconfigured, the GCC is well-positioned to turn existing friendships into opportunities and could even see pharmaceutical manufacturing increase in countries such as the UAE, Bahrain and Saudi Arabia.

The region is engaging with the outside world more openly than ever, even as others turn their gaze inwards. It’s signing up to multilateral agreements and its approach is helping bring in investment from international companies who seek stability. Ultimately, it will be this investment that helps member states diversify their economies and drive long-term growth.

The GCC’s example sends a clear message to world leaders: it’s emerging as an indispensable hub for international trade.