GCC save the day: Heavy Gulf spending 'preserved region's economic stability’
Heavy spending by Gulf Cooperation Council (GCC) countries through the economic crisis and the Arab Spring managed to preserve the region’s economic stability, according to The Economist Intelligent Unit report.
The report, which was released on Monday and was sponsored by Merck Serono, a pharmaceutical and chemical company, highlighted that most GCC countries had ensured their stability through heavy spending on infrastructure, health care and education — a strategy with long-term economic consequences that resulted in the current positive business environment in the region.
Based on this report, Trevor McFarlane, Contributing Editor, Middle East and Africa at the Economist Group, highlighted that the response of GCC markets to the financial crisis and the challenges posed by the Arab spring was very efficient.
“GCC countries reacted in a very positive way towards the challenges of financial crisis and the Arab spring tension by inflating their economies into investments, mainly building infrastructure especially in the health care and education,” he said.
McFarlane, however, believes that these countries will not be able to sustain this level of spending in the long run and called on them to find ways to get returns on their investments.
According to the report, the region is becoming an even more lucrative prospect to attract further investment, pushed by Dubai’s successful bid to host the World Expo 2020 and Qatar hosting the Fifa World Cup in 2022.
A further incentive has been the substantial regulatory reform effort of GCC countries over the last decade, which include improvements to the ease of doing business, a relaxed tax policy and 100 per cent foreign ownership of companies in free zones — measures which have improved the global perception of doing business in the region.
According to the report, efforts to encourage nationals to join the national labour force should continue. The Arab Spring focused the attention of GCC policymakers on high youth unemployment and the social and political unrest these might cause.
Today, all GCC states have launched a slew of programmes to encourage or mandate specified levels of local employment, the report released.
“Local youth should be observed in the market, especially in Saudi Arabia as the unemployment rate is on increase,” McFarlane said.
He added that nationalisation was a private sector responsibility.
Legal infrastructure remains as one of these challenges in the face of economic growth across GCC countries, according to the report.
McFarlane pointed to the need for bankruptcy law and enforcement of commercial law reforms.
Dream Samir, managing director for the Middle and Near East at Merck Serono, believes that the findings are not only a measure of the current investment mood, but an indicator of what is to come.
“In 2012, Merck Serono partnered with the UAE manufacturer Neopharma in the first alliance of its kind to locally produce Merck-branded medication for distribution across the Middle East. We have first-hand experience [in] conducting corporate business in the UAE and identify completely with the report’s conclusions. The ease of business, the growing culture of consistency and the ever-increasing transparency provides an ideal investment environment.”