Times of Oman
May 25, 2017 Last Updated at 04:07 AST
Global shifts and stability challenges in the GCC region
May 2, 2017 | 3:25 PM
by Mohammed Mahfoodh Al Ardhi
Asia’s fast-paced economic growth over the past decades has turned the region into a key trading partner for Arab oil producers and a playground for intense competition in the pursuit of larger market shares for their hydrocarbon exports. Photo-Files
 
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The Arab region is experiencing fundamental geopolitical and economic shifts that have a strong influence on its fast-evolving environment. Amid a decline in the collectivistic approach inherent in our culture throughout the ages, nations, organisations and individuals are today increasingly driven by the pursuit of their own interests. However, if we are serious about ensuring a stable future for our region, we must redefine our priorities and join forces to work towards mutually beneficial goals while keeping an eye out for new opportunities.

Economic stability is the force that boosts political strength and enhances social harmony. Therefore, strengthening the economies of nations of the GCC region will help our society to grow even while enhancing regional security.

The greatest challenge we face in this context today is finding a way to adapt to the decline in oil prices, which have adversely impacted regional economies and budgets as well as the ability of countries to attract investments. We must be realistic in analyzing the current international political and economic landscape in order to devise action plans that are effective and easy to implement.

On a geopolitical level, the Brexit vote and the U.S. elections have unveiled an unprecedented shift in the global order, raising questions about core values in the West. Populism and protectionism are on the rise, while the conviction of the benefits of globalisation has seen a constant decline, threatening the future of international collaboration.

These sweeping changes will have serious ramifications on the role rising international powers play in the region. Allegiances tend to shift, prompting changes of agendas and interests, and causing uncertainty about the future security and stability of the region.

The Arab region is also at the heart of enormous geo-economic shifts. Of these shifts, the changing gravity centers across the oil supply map have the most direct impact. The surge of shale drilling in the U.S. has made the country the largest global oil producer generating more than 13.6 million barrels per day, with Russia remaining the dominant energy exporter in the near future. In addition to continuous advancements in renewable energy and rapid technological changes in transport systems, these developments will influence oil prices for years to come.

The rising economic clout of key emerging markets represents another fundamental geo-economic shift. According to the International Monetary Fund (IMF), the contribution of Asian countries to the global GDP outweighed that of the developed world at 55.4 per cent in 2016, up from 31 per cent in 1980.

Asia’s fast-paced economic growth over the past decades has turned the region into a key trading partner for Arab oil producers and a playground for intense competition in the pursuit of larger market shares for their hydrocarbon exports. With increasing dependence on imports in China and India, Asia is poised to become the world’s dominant energy-importing region.

A volatile economy could well be the trigger that drives the GCC region into crisis mode. Between 2015 and 2016, oil producers in the GCC region lost $173 billion of foreign exchange reserves, while their external current account balances registered a sharp drop from an average surplus of $223.9 billion in 2014 to a deficit of $51.2 billion in 2016.

Furthermore, fiscal balances of the six GCC countries swung into a cumulative deficit of 9.8 per cent of the GDP in 2016 compared to a surplus of three per cent of the GDP in 2014.

These deficits have caused the debt levels to rise rapidly, taking the cumulative gross public debt of GCC oil producers to 21.3 per cent of the GDP at end-2016 compared to nine per cent of the GDP at end-2014.

In parallel to the weakening of the sovereign balance sheet, the year-on-year economic growth plummeted to 1.7 per cent in 2016 – almost half of its 2014 level – as public spending came to an abrupt halt and banks put a stop to their generous lending policies.

The GCC region is bracing for a storm that could upset its stability at a fundamental level. Current developments may wreak havoc on the regional and global order as we know it. Potential shifts in political and economic gravity centers clearly indicate that we will need to leverage our own capacities to shape our political influence on the international map.

So, how can we forge our own path that aligns national with regional interests and concurrently maintains international relations? More importantly, how can we positively adapt to the oil price decline and the potential liquidity crisis? How can we maintain our economic stability that is the basis of our social and political stability?

Experience has proven that sustainability is an outcome of an economic model based on continuous structural reform, transparency, responsible use of resources and investments in economic sectors with potential.

Governments across the region have come to realize that the traditional responses of implementing countercyclical fiscal policies and drawing down on reserves are neither effective nor sustainable. Several countries have enacted energy subsidy reforms and are planning to introduce innovative revenue measures, such as a novel approach to taxation and diversification of national income.

The imperative is to diversify the economy phase by phase away from oil-based and oil-dependent activities, and towards a private investment- and export-led growth model that can sustain job creation, maintain the value of local currencies, boost scientific research and support local talent.

In this context, it is critical to carefully assess the extent to which the drop in oil prices could undermine intra-regional aid, financial and investment flows, and regional economic stability. Where needed, we must revisit existing regional aid arrangements, enhance cooperation with international financial institutions, as well as introduce innovative tools and mechanisms with the aim of moving from aid to empowerment.

If aid is putting pressure on GCC budgets, investments in infrastructure and food production can help the beneficiaries assume their development role in a way that enhances their socio-political stability and yields revenues for the contributing countries.

Countries of the GCC region must turn political challenges into opportunities to pursue their shared interests so that their combined economic power can contribute towards stability in the wider Arab region.

* The author is the Executive Chairman of Investcorp and an International Advisor to the Brookings Instituition. All the views and opinions expressed in the article are solely those of the author and do not reflect those of Times of Oman.



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