In the first GCC-wide business sentiment survey on the proposed 2010 single currency, the Gulf Research Center (GRC) was surprised by the overwhelmingly positive sentiment, but concerned by the lack of preparations.
As the private sector is now a major source of economic growth in the GCC, it is becoming increasingly important to gauge business sentiment on various economic issues including the prospects for a ‘Gulf dinar’. During the late summer of 2005, the GRC contacted businesses throughout the GCC countries in order to determine their views and opinions on the prospective currency union.
The survey findings offer GCC policy makers mixed blessings — while business attitudes towards a single currency are predominantly positive there is considerable demand from the business community for more clarity on the issue and calls for more assistance in preparing for monetary transition.
In conjunction with the survey, the GRC also conducted interviews throughout the GCC countries with academics, economic analysts and policy makers in order to weigh the findings from the business community with the opinion of experts. The results from the interviews were revealing and to a certain extent concurred with the survey result. The GCC Secretariat officials, along with interviewees in government positions, tended to assert that macro level preparations are on schedule, while most academics and independent economists begged to differ, arguing that preparations were too slow and superficial.
Positive Response
Overall the GCC businesses were optimistic with regard to a single currency — 76 percent felt that currency union would be “very good” or “good” for their businesses. In addition over three quarters of businesses felt that the GCC as a whole would benefit from forming a currency union. The results of the survey indicated that a single GCC currency should lead to greater levels of intraregional trade, make it easier for them to open up operations in neighboring countries and attract greater levels of foreign direct investment.
The overwhelming majority of businesses surveyed said that they have not yet begun preparing for the single currency. This is perhaps not surprising as the proposed launch date is still four years away and many of the region’s businesses are relatively small in size and are less likely to have long-term formal business strategies.
With reference to the euro, concerted government publicity campaigns, which provided businesses with all information and preparatory guidance, began three years prior to the launch date. But even before that a widespread public debate on the pros and cons of a single currency took place. Many European business formed advocacy groups to campaign both for and against the adoption of the euro.
Some officials at the GCC Secretariat do not think a program for preparing businesses, or for that matter, the general public, needs to be implemented until 2007. But most businesses seem to feel differently. When asked whether they felt their governments should be providing assistance and information on preparing for the currency union, two thirds answered ‘yes’. The region’s policymakers therefore should take note and devise strategies for adequately preparing businesses for the transition sooner rather than later.
Preparing businesses for the currency union requires a concerted effort and involves a lot of time, but is crucial to ensuring a smooth transition to a single currency. The businesses will need to make certain that their information technology, accounting, marketing, pricing and payroll systems have all been adapted for the new currency. Putting in place new systems such as these may be time consuming for businesses.
Little Progress
Prior to preparing businesses for the currency union, various macro level decisions must be agreed upon between the GCC countries — for instance, the conversion rates between the old and new currencies and what mark ups are allowed in price setting. If the GCC leaders take too long sorting out such issues the timeframe for assisting business in the transition will be very short.
On a national and regional level there are differing views about the pace of preparations taking place. Government officials say that steady progress is being made and that an undisclosed timetable has been adhered to so far. There is a high-level technical committee that meets several times annually and are working on the various convergence criteria. But in November, the GCC leaders decided to postpone for a year any decision on convergence, even though the region’s central bankers had reportedly agreed upon them amongst themselves.
The European Central Bank has recently produced a detailed report — commissioned by the GCC — on the necessary preparations the GCC countries must make prior to the monetary union. The report stresses the importance of establishing consensus on key issues as soon as possible.
Yet from the point of view of many independent economists and academics in the region, as well as some central bank officials, the preparation process is taking too long. They point out a GCC Central Bank has yet to be created and little has been done to standardize and harmonize economic data across the GCC. Most seriously perhaps, many of these interviewees felt that there is an absence of political will to implement the necessary preparations and meet the required convergence criteria.
The key finding from the GRC business survey is that the policy makers will not have to go to great lengths to persuade the business community of the merits of a single ‘Gulf dinar’. Their European counterparts had to spend a great deal of money and time trying to convince many skeptical European businesses, who were vehemently opposed to a single currency, that the euro would be economically prudent.
As the GCC business community is firmly behind a single currency for the region it should make the work of the GCC policy makers easier, but should also encourage them to push ahead with the process of economic integration with even greater determination.
— Emilie Rutledge is an economic researcher at the Gulf Research Center in Dubai.
