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Fresh milk and yoghurt produced by Almarai of Saudi Arabia dot the shelves of grocery stores in Dubai, Riyadh and throughout the Gulf Arab states. From a humble start as a single milk processing plant in 1976, Almarai now counts more than 60,000 dairy cows at its facilities in the Saudi desert. The company provides 27 per cent of the region’s milk, 40 per cent of its yoghurt and 44 per cent of the market for laban, a yoghurt drink popular in the Gulf.

Almarai’s growth provides a lesson in how a Middle Eastern company can expand beyond the borders of its base country to create a presence across the region – helped in part by the Gulf Co-operation Council, whose member nations do not pay tariffs when exporting to each other, giving regional trade a competitive edge.

Saudi Arabia’s population of 27m remains Almarai’s largest market, accounting for 70 per cent of the company’s revenue. But the United Arab Emirates is now its second-largest market, at 11 per cent. Every day, Almarai trucks fresh dairy to more than 40,000 customers.

Trade within the council – comprising the Gulf states of Bahrain, Kuwait, Oman, Qatar, the UAE and Saudi Arabia – has grown by more than 20 per cent a year since the customs union was established in 2003, says Abdel Aziz Aluwaisheg, director-general of the GCC’s department of international economic relations.

The total size of regional trade has grown from $20bn in 2002 to more than $70bn today. “Trade facilitation has been a GCC priority since its establishment in 1981,” Mr Aluwaisheg adds.

“Much of what they trade is actually best seen as re-exporting and repackaging products, which might be sent from China to Dubai to be imported into Saudi Arabia,’’ says John Sfakinakis, chief economist at Banque Saudi Fransi. “Capital is moving among [countries in the region], as Kuwaitis buy property in Saudi Arabia, and Saudis buy properties in Dubai, but the region is still reliant on goods from the EU, the US and China.”

The GCC countries have also moved towards harmonising standards, business laws and regulations. This year, Saudi Arabia officially adopted the 240-volt electricity standard applied throughout the region, after a period in which electrical appliances using both 127 volts and 220 volts were widely available in the kingdom.

“There has been brisk trade in non-oil items, leading to greater distributional efficiency,” says Mr Aluwaisheg. “We can anticipate that growth will continue – subject to business cycles, of course.’’

Nevertheless, while the growing trade in goods is widely viewed as evidence of progress, some critics contend that the exports abuse local subsidies. For example, Saudi Arabia, which offers substantial incentives for local food companies, exports dairy and vegetable products to its GCC neighbours, effectively transferring Saudi Arabia’s scarce water supplies.

And as food and other prices start increasing in neighbouring countries, inflation risks spreading back to Saudi Arabia – particularly among foodstuffs. This year, the Shura Council, the Saudi advisory body, recommended banning dairy exports to stop depletion of Saudi water resources – an announcement that sent Almarai’s stocks tumbling. The government said, however, that it would not follow the recommendation.

But Almarai has a plan to expand beyond the Gulf states. It has a venture with PepsiCo, the soft drinks group, and acquired dairies in Jordan and Egypt last year. The Saudi company says it also plans to explore opportunities to diversify its business into fruit juices, baked goods and baby food.

Wafaa Baddour, equity research director at EFG-Hermes, a regional investment bank, says he expects Almarai to record a 20 per cent rise in net profit this year.

Copyright The Financial Times Limited 2017. All rights reserved.
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