The GCC After The Arab Spring

Seven years ago, the Arab Spring posed the question whether prosperity can be achieved without an inclusive, democratic political process. In the North African and Levant countries, the answer was that this is very dangerous to ask this question, especially in poorer countries with repressive regimes.

The power transition in post-Mubarak Egypt resulted first in ineptitude under the Muslim Brotherhood and then a return to secular repression under General Abdel Fatah el-Sisi. Syria’s Bashar al-Assad has held on to power by ceding further influence to Iran and Russia and perpetrating genocidal atrocities in the country’s civil war. Only Tunisia emerged from the revolutionary movements sparked in 2011 with a democracy – however fragile – in which people now enjoy political freedoms. However, renewed protests will challenge the longevity of the current system unless it is able to rebuild institutions that can ignite economic growth.

However, it is unlikely that government apparatus in the GCC will achieve the higher levels of efficiency required since it will take a generation (or more) to upgrade the capabilities of public sector employees. In addition, unless GCC countries can avoid becoming embroiled in escalations of intra-regional conflict which necessitate further increases in defense spending, they will lack the fiscal capacity to make the necessary changes – especially if low oil prices persist. And without improvements in business-friendly regulations, infrastructure, and capabilities, it will be difficult to attract the foreign investment and know-how that the region desperately needs to move up the value chain in both oil and non-oil sectors.

Unfortunately, for the forseeable future, conflict and instability in the region is set to increase rather than decrease. The Iran-Saudi struggle for dominance in the region, conflated by the insurgency of non-state actors such as ISIS and al-Qaida, has generated tension with Qatar and outright war in Yemen, which now add to a region already embroiled in long-running conflicts in Iraq and Syria. In parallel, new moderate rulers in Iran and Saudi are in a race against time to solidify their grip on power while generating economic revival. During this period of regional instability, much of the shine has come off the region in terms of a stable destination for business activity and investment.

Given this backdrop, it is particularly important in the short-to-medium term, that nations keep their domestic macro-stability under control and that they execute a series of no-nonsense economic stimulus initiatives that build internal and external credibility. Debt and inflation management is fundamental, although it is proving difficult in Bahrain and Oman which have suffered recent credit downgrades and have the weakest balance sheets in the region. Timing and sequencing of reforms and new taxes is key to ensure predictability to business. The pursuit of food and energy security and the diversification of supply routes is another practical measure that increases economic resilience and perceived stability.

Foreign investors will draw comfort from the fact that natural gas supplies from Qatar to UAE have not been affected by the recent dispute between Qatar and Saudi/UAE alliance.

Nevertheless, the construction of UAE’s Fujairah gas terminal and expanding the Qatari ports are examples of the proactive diversification of supply routes that plays well with international business partners. But perhaps the most important economic lever to maintain stability is the ability to execute large, productive Capex projects (ideally non-oil) that create immediate construction jobs, engage a multitude of overseas business partners and investors, and lay the foundation for future revenues and monetization events. Countries such as Kuwait and Saudi would take a big step forward in domestic and foreign perception by demonstrating timely execution of several such projects.

In the medium-to-long term, the region’s success will rely on its ability to empower the next generation of its entrepreneurs. In many GCC countries, the formation of small-medium enterprises has gained traction in the digital economy as well as in the retail, F&B, tourism, healthcare and education sectors. The region is certainly home to great entrepreneurs and has proven itself capable of attracting capital for such ventures. As clusters densify around the region’s ports and industrial zones and regulations are streamlined, it is likely that we will also see an uptick of SMEs in industrial and service sectors. The biggest enablers of SME growth will be more business-friendly regulatory environments, more financing for small businesses, and greater support for budding entrepreneurs.

Throughout the region, there are initiatives to create more favorable regulatory environments such as the Fin-Tech sandbox in Bahrain. However, small business financing and incentives to draw young talent away from comfortable public-sector jobs remain elusive.

Seven years after Arab Spring, the counter-currents of socio-economic reform and regional conflict have whipped up a vortex of uncertainty across the GCC. If the rulers put the people first, the region should emerge as a focal point of development in the region. However, since Arab Spring never delivered its promise to give more voice to the people, the fate of region remains in the hands of a few.