NOW is the time for the GCC to work as a unified group on all economic fronts, including the currency one. Gulf states must move toward maturity and abandon practices of duplication in order to act in solidarity. There is no better time than the present to enhance regional cooperation as the global economy undergoes structural changes, the United States attempts to sort out its problems, the dollar looks either to be on the road to perpetual weakness or some sort of regrouping, and the global economy is on the verge of exiting a commodities asset bubble. As it battles with corporate transparency issues, the fallout of the global financial crisis and Dubai’s debt troubles, the GCC should showcase its ability to manage and, more importantly, overcome crises. It is not enough for policymakers to simply state that the region is cushioned from regional or international financial events. The GCC must impart a sense of resolve in its handling of economic issues and not merely issue general statements lacking substance to overcome crises.
The GCC needs to move toward examining regional core competencies and recover from a syndrome of duplications that emerged in recent years with the building of artificial islands, high rises, airport hubs, low-cost regional airlines, free zones, harbors, financial centers, plans for aluminum smelters, museums, general racing tracks and F1 tracks. Economic history has taught us that it is virtually impossible for any region to succeed in creating multiple financial centers and multiple, profitable national airlines and tourist hubs based on the same basic attraction points. The region should identify the core competence of each nation and underpin ways to allow them to prosper.
GCC states cannot afford to strive to outdo each other until all are brought to ground. It is only the international suppliers feeding on the region’s aspirations (and sometimes egos) that benefit from this strategy. No single GCC nation has the capacity on its own to be first in everything.
The GCC has to demonstrate its effectiveness as an economic bloc, showing its solidarity in addressing a crisis. The region needs to set aside egos and differences and agree to negotiate. Gulf currency union is not a zero-sum game and some nations must be willing to yield some autonomy in order to become more effective later. The gap is widening between what people expect and what GCC governments deliver on the GCC economic front. There is a wide gap in opinion among businesses and ordinary citizens about the benefits of the Gulf currency and economic union. This gap existed in the European Union prior to the currency union, but necessary steps were taken to inform and create constituents of support. Decisions on customs, trade and capital as well as labor movements have to pick up pace in the Gulf.
The gap in understanding between the GCC as an economic bloc and the rest of the world has also widened. Global investors can see opportunity in the region but they observe lack of commitment from the six states on the merits of the GCC economic bloc, as well as a common currency zone. Much has been done but even more work remains. The institutions in charge of the GCC union will have to be properly empowered and staffed.
Global markets have the ability to prop up or downgrade a region with just a few clicks of a mouse, as we have seen following the Dubai debt debacle in the past month. The GCC has the ability now to step up to the plate and demonstrate its ability to overcome obstacles — otherwise global markets could begin to question the region’s ability to solve problems. Qatar’s proposal to establish a GCC development bank, along the lines of the European Bank for Reconstruction and Development is good. One way of building regional ties would be to base this bank in Abu Dhabi. It is crucial for the GCC to negotiate a come back of the UAE and Oman into the currency union. Both countries have a lot to bring to the table but all participants should understand that some loss of sovereignty is a necessary corollary to the creation of any economic bloc and currency union. The UAE and Oman should realize that they have more to gain as active members of the currency union than if they act alone. There has to be a silver lining in all negotiations and the name of the game is compromise. Saudi Arabia also has an obligation to accommodate its neighbors given its sheer economic weight as the GCC’s largest economy. The region is often known for its cultural and linguistic homogeneity, but this has yet to be proven on the economic front.
GCC attempts to unify their economies under one umbrella often lead analysts to draw parallels with the European Union. It may be more appropriate to look to the Association of Southeast Asian Nations (ASEAN) for a model. Among the motivations behind setting up ASEAN was the desire to promote economic development, reduce faith in or mistrust of external powers, and constrain the rise of regional hegemony.
Singapore and Malaysia actively participated in the project to ensure the bloc could build consensus and prevent the dominance of any single nation. There are some that would rather see the GCC not function as an economic bloc. The region needs to work hard to bridge differences in opinion that will always exist, and find common ground that would only fortify the economic clout of the six-member states.
— John Sfakianakis is chief economist, Banque Saudi Fransi-Credit Agricole Group
