The Gulf Cooperation Council lacks economic cooperationhttps://en.majalla.com/node/306961/business-economy/gulf-cooperation-council-lacks-economic-cooperation
The Gulf Cooperation Council lacks economic cooperation
Much more effort is needed if the bloc is to implement integration plans including a customs union and common market that its leaders first approved many years ago.
The 43rd Gulf Cooperation Council Summit at the King Abdulaziz International Convention Centre in Riyadh, 9 December 2022.
The Gulf Cooperation Council lacks economic cooperation
When the leaders of the Gulf Cooperation Council (GCC) countries met in Doha on 5 December 2023, the horrifying events in Gaza overshadowed the talks, but they were not the only thing discussed.
There is no doubt that economic issues related to the customs union and the implementation of the Gulf Common Market Agreement were raised either at the meeting or the preliminary meetings that preceded the summit.
For policy makers and planners, questions abound as to how these goals are realised without complication, considering their significance for Gulf economic integration.
Enacting a customs union
The idea of a Gulf Customs Union is over 20 years old. It was adopted at the 23rd summit held in December 2002 in Qatar, where delegates decided to implement the system from January 2003.
The plan is for a unified customs tariff for goods imported from outside the borders of GCC countries based on a single-entry point, after which no other customs taxes would be levied.
The Gulf Customs Union system would allow for the movement of goods between GCC countries without customs or non-customs restrictions, and treat the goods and products from one Gulf country as the domestic products of any other GCC country.
Finally, it also outlines the customs fee collection mechanism and its distribution among the relevant states.
There would be a unified customs tariff for goods imported from outside the GCC at a single-entry point, after which no other customs taxes would be levied.
The recent Gulf summit emphasised the need to implement the system and stressed the importance of redoubling efforts to fulfil the requirements of the Customs Union and complete the establishment of the Common Gulf Market.
The summit statement indicates that there has been a slowdown in progress towards achieving the Customs Union, as outlined in previous summit decisions, which suggests that the bureaucracy in Gulf countries still falls short of the required efficiency, hindering the unification process of customs and other economic systems.
This is important. The establishment of the Customs Union will be significant, not only because it will affect a significant volume of foreign trade connecting the Gulf to the wider world, but because it will enhance trade within the bloc, so the bureaucratic institutions of the Gulf states need to step up.
Their technological and infrastructure capabilities would allow GCC countries to re-export foreign goods to many countries in their region, especially to neighbouring states, which would add to their overall Gross Domestic Product (GDP).
The port of Dubai, for instance, extensively re-exports a significant amount of goods and commodities to Iran, while Kuwaiti ports were notable for their re-export operations to Iraq, particularly before that country's recent security and political complications.
More for common market
Yet the most important decisions taken by GCC leaders in recent times were not related to the Customs Union, but to the establishment of the Gulf Common Market, approved at a summit in December 2007, with implementation set for January 2008.
This envisaged the right of citizens of GCC countries in each state "to engage in all economic, investment, and service activities, practice professions and crafts, trade and purchase stocks, establish companies, work in both government and private sectors, own real estate, move capital, benefit from unified tax treatment, access educational, health, and social services, and move and reside freely".
While GCC countries have made some progress towards implementation (most notably on mobility, ownership of shares and real estate, and access to services), the momentum has not matched the motivation that led to leaders' agreement in 2007.
A family photo during the 43rd Gulf Cooperation Council Summit at the King Abdulaziz International Convention Centre in Riyadh, 9 December 2022
The conditions that would be needed to enact Gulf Common Market are still far from met. For one, Gulf countries do not see the large flow of people that would allow optimal utilisation of the agreement's provisions, as seen in the European Union.
By way of example, data from Saudi Arabia, which has a population of around 36 million, indicates that only 50,000 Kuwaitis reside in the Kingdom, and that there are few citizens from other Gulf countries.
Factors affecting integration
Gulf countries need to activate economic integration mechanisms. This will involve cooperation between private sector companies, especially those engaged in economically viable activities offering mutual advantages between countries.
Banks can also contribute to economic integration through mergers, updating work techniques, and establishing institutions with substantial assets and significant capital, in-line with the latest Basel banking regulations.
While GCC countries have made some progress towards implementation, momentum has not matched the motivation that led to leaders' agreement.
These banks must play a significant role in promoting sustainable development by financing projects in strategic sectors such as housing and infrastructure, as part of a wider structural reform project across different Gulf countries.
Some projects, like railways and electrical interconnection, are of particular importance to the Gulf and its economic integration, yet many are still in the design phase.
They need substantial funding through bank loans, private sector involvement, and government participation to boost progress.
The EU experience shows that integration works where it is proven to be beneficial and feasible for privately-owned companies.
Stimulating a Gulf workforce
Economists in the Gulf raise the issue of labour mobility between the region's countries and emphasise the need to enhance reliance on the bloc's own workers, instead of importing labour from places like Asia.
While the goal is laudable, could Gulf nationals fulfil the workforce needs of any GCC country? Demographic surveys show that expatriate workers constitute a significant percentage of the labour market in any Gulf state.
According to the latest GCC data, the total number of workers in these countries reached 22.2 million in the second quarter of 2021. Of this, 7.9 million were GCC nationals and 14.3 million were expatriates, meaning that national workers made up 35.5% of the total workforce.
The percentage varies between countries, with the national workforce accounting for 44.7% in Saudi Arabia, 36% in Oman, 8.4% in Bahrain, 16.3% in Kuwait, and 5.8% in Qatar.
Data shows that Gulf nationals make up 35% of the Gulf workforce. Expatriate workers make up the rest.
Significant efforts are needed across the region to increase the percentage of national workers and encourage Gulf institutions to employ Gulf nationals whenever possible. The movement of Gulf nationals between GCC countries must be considered.
Obstacles to freer movement include housing issues, high land prices, and the high cost of living in the host country, among other challenges, so systems may need to change in order for the region to better benefit from Gulf workers.
Alongside this, educational systems should be reviewed, to provide nationals with the professional skills needed to replace expatriate workers.
In summary, the GCC remains a sustainable framework due to its attentive leaders and the interaction among the region's peoples.
It is necessary to enhance the common economic frameworks that enable integration and consolidation in the coming years.
The continued importance of universities, research centres, and media institutions is evident in addressing the relevant issues and examining obstacles that impede progress towards greater integration.
Key issues such as education, private sector integration, and the development of financial and monetary policies to enable currency unification — as was the hope years ago — remain crucial.
This requires GCC elites to think through the problems, using scientific studies, to address all the issues that have arisen since the inception of the GCC in 1981.
These challenges are both important and necessary to provide the foundations on which GCC leaders can rely when making future decisions.
