The 40th session of the Gulf Cooperation Council (GCC) summit, which concluded in the Saudi capital Riyadh on 10 December, urged all parties to redouble efforts to realize the joint Gulf action and reiterated the call, echoed since 2011, to transition the six-nation bloc from being a cooperation to a full-fledged Gulf union.
A final communique issued at the conclusion of the Supreme Council, underscored this call for unity and cohesive action in all fields. While the statement expressed satisfaction in the progress achieved so far, it proposed intensifying efforts to realize the joint action strategy. The statement urged all parties to work together to complete the various pending components, including joint defense and security systems, as well as a unified and effective foreign policy that preserves interests, avoids regional and international conflicts, and meets the aspirations of its citizens.
The joint statement also assigned the Ministerial Council to complete taking the necessary measures to move from the stage of cooperation to the union stage, and to submit a report to the Supreme Council at its next session. The communique also stressed the need for deeper cooperation and integration in the economic field and directed the Economic and Development Affairs Authority to set a road map for achieving economic unity by the year 2025.
In particular, the summit’s call for economic unity could not have come at a more opportune moment. In its latest Gulf Economic Update, the World Bank cautioned that economic growth in the GCC will be significantly weakened in 2019, dropping from the 2 percent in 2018 to an estimated 0.8 percent this year, before gradually recovering in the 2020-21 period. Growth contraction this year is expected to be across the GCC, with Oman set to sink to 0 percent in 2019, Kuwait and Saudi Arabia likely to register 0.4 percent growth, Bahrain poised to drop to 0.8 percent, and Qatar and the UAE, the better performers, to totter at around 1.6 percent growth.
GCC economies are generally characterized by an over-reliance on hydrocarbon resources, government expenditures influenced by the volatility of global oil prices, and a doggedly weak productivity that in the long-term translates into lower growth rates in the region. In addition, attempts by governments to introduce realistic reforms and effectively scale back subsidies, have met with little support from a citizenry with a sense of entitlement to profligate state subsidies and cradle-to-grave benefits.
Slow growth, made worse by inefficient and insufficient reforms have also curtailed the ability of policymakers to tackle various challenges, including growing unemployment. Thousands of young nationals demanding jobs in an already bloated public sector are joining the labor pool each year. With government entities no longer able to regularly absorb citizens, the only remaining option is for the private sector to employ nationals.
However, attempts to persuade private sector firms to employ young nationals through entreatment, enticement and fixed quotas, have so far been less than a resounding success. Moreover, many young citizens prefer to sit out and receive unemployment subsidies while waiting for a government job, rather than take up employment in the private sector. Clearly there is a need for a change in thinking among the youth, as well as for GCC states to deepen their focus on enhancing human capital, which in the long-run is critical to achieving successful and sustainable economic diversification and growth
For its part, the International Monetary Fund (IMF), in its latest review of GCC economies, pointed out that on the basis of broadly unchanged policies, real output growth in the GCC countries as a group would be of the order of 2 percent per annum through the rest of this decade, below the rate of population growth of 3.5 percent. The IMF warned that unless addressed through appropriate policies, the emerging imbalances would further drain official foreign assets and increase internal and external indebtedness.
Economic experts and global entities such as the World Bank and IMF have long reiterated that in order to achieve more sustainable growth, countries in the region would need to continue supporting economic diversification, fiscal consolidation, and increase private sector-led job creation, especially for women and young people. Though several concerted moves aimed at economic diversification have been introduced in the region, the strategy of getting countries to shift from their over dependence on hydrocarbon revenues have been less than successful.
As part of their economic diversification plans, most GCC countries have chosen to go down a well-trodden path. Rather than venture into value-added sectors such as high-tech manufacturing or financial services, the emphasis in regional public private partnership (PPP) projects in the non-oil sector have been largely into labor intensive, low-tech, light manufacturing or construction sectors, many of which are incidentally dependent on oil sector products as raw material or supplies.
One non-oil sector that seems to have flown below the radar of policymakers, is in defense manufacturing. Despite the GCC states spending billions annually on defense equipment, no state has made any serious attempt to introduce offset clauses in defense procurement contracts. These offset arrangements would compel foreign military equipment vendors to open high-tech military hardware manufacturing units locally. With the six-nation bloc expected to spend over US$100 billion on arms and military equipment purchases this year, and the figure forecast to reach around $117 billion by 2023, it is a shame that there has been near-zero local manufacturing to offset this huge defense outlay.
But lack of high-tech manufacturing is a relatively minor problem facing the GCC. Bigger challenges confronting the region on multiple fronts include falling oil revenues, slowing economic growth, weakening productivity, changing demographics, and growing instability from the increasing social, political and economic imbalances in neighboring regions. While any one situation should be reason enough for concern, together, they form an impelling rationale for the GCC to transform into a closer, more cohesive union; probably beginning with a tightly integrated economic union.
Gulf economic integration is feasible and is based on factors such as, facilitating the movement of production across borders, removing all trade barriers, and coordinating and unifying economic policies. The region has already achieved a certain degree of economic integration with the establishment of the free trade zone in 1983, the GCC Customs Union in 2003 and the Gulf Common Market in 2008. However, steps towards meeting the requirements of a Monetary Union and the issuance of the single currency have made less headway, with unresolved objections from some quarters crippling any hopes of such a union in the near future.
In addition, a Saudi proposal tabled at the summit in 2011 to transform the GCC into a ‘Gulf Union’ similar to the European Union (EU) with tighter economic, political and military coordination, also did not win full approval from other GCC members. Experts now believe that prevailing conditions in the region and the shared desire to thwart Iran’s growing influence would resonate louder and bring other GCC capitals around to the original Saudi proposal. However, a big ‘if’ remains; if, and only if, the existing estrangement between Qatar and its immediate GCC neighbors can be resolved amicably and quickly, can this union be achieved.
Implementing a strategic cohesion policy in a timely manner in all fields could see the establishment of a Gulf Union capable of efficiently overcoming obstacles, seizing opportunities as they arise, and driving sustainable development to ensure the future prosperity and wellbeing of the region and its people.
The Times Report