Gulf Cooperation Council: Current and Future Prospects

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Table of Contents

Introduction
The Business Environment in the GCC
Current Business Environment in the GCC
Future prospective of GCC
Conclusion
References

Introduction

Gulf Cooperation Council (GCC) is a socio-economic and political pact, which consists of six of the Middle East nations including Saudi, the United Arab Emirates, Qatar, Bahrain, Arabia, and Oman. Founded in Riyadh Saudi Arabia on May 1981, the GCC has been keen on safeguarding the interest of its member states both domestically and internationally (Windecker & Sendrowicz 2015, p. 2). All the current GCC member states are monarchs with Kuwait, Qatar, and Bahrain subscribing to constitutional monarchy while Oman and Saudi Arabia are absolute monarchies. United Arab Emirates is under federal monarchy with seven member states separately under an Emir.

Windecker and Sendrowicz (2015, p. 5) note that numerous proposals had been floated regarding the future incorporation of Morocco, Jordan, and Yemen to the union to expand GCCs its political, military, and economic power as of 2011. The same proposal aimed at transforming the GCC under a new name, the Gulf Union, which is expected to have tighter economic, military, and political coordination meant to counterbalance and check the influence of Iran in the region (Colombo 2014, p. 25). Though objections to these proposals have been raised by some member states, others hold the view that the prevailing events in the region underscore the need to act on the proposals.

The Business Environment in the GCC

In the just concluded fiscal year 2015/2016, the World Bank 2014 report indicated that the Gulf trade area presented a robust business environment. According to Kronfol (2015), this steady economic presentation was attributed mainly to the wide fiscal surplus enjoyed by the Gulf nations. The Gulf Union remains the leading worlds suppliers of oil and its products. Notably, due to high demand for oil and energy products, the fiscal surplus of the GCC continues to widen due to the booming oil market. Besides, it is widely anticipated that the Gulf would maintain a bigger market share between 2016 and 2018. According to Subran (2015, p. 7), the key economic driver in the upcoming years would revolve around investment on infrastructure, which would follow suit after Dubai and Qatar secured an opportunity to host the 2020 World Expo and the 2022 World Cup respectively.

The two main global events, which are expected to take place in the region, would make the global market to focus attention on the GCC. The World Expo, for example, is likely to attract approximately 30 million people from different parts of the world. Cumulatively, the event would bring about $25bn investment in Dubai market during the period (Iyer 2014). While the majority of the GCC countries are pretty well on course in terms of market scope, other countries such as Saudi Arabia and Bahrain are not faring well owing to the perpetual internal political instability, which continue to stifle the business environment. Other countries with adequate political systems such as Qatar are doing tremendously well in the market. The 2015 World Bank ranking places Qatar in the 21st category out of 82 nations considered to have the highest market positioning.

Current Business Environment in the GCC

The current business environment prevailing in the GCC is robust. This is due to the fact that the trade area is apparently insulated from the prevalent global market concerns (Azmat 2011, p. 208). The fluctuation in oil prices has been a great concern and will likely continue to shape the performance of the GCC both at present and in the future. Currently, the drop in energy prices has elicited an unsustainable subsidy and tax mechanisms across the Gulf countries. This scenario hits back the GCC when it spilt over to the MENA region, which is a key aspect of the GCC business environment. While the GCC countries have adequate capacity to support their internal economies, there are adequate measures to guarantee efficient budgetary standards in the region, hence its competitiveness. The GCC authorities are currently reviewing the regions capital expenditure plans, with the view that various projects would be downsized or delayed to conform to the prevailing market trends.

In the fiscal year 2017/2018, spending cuts are expected to take center stage across the GCC countries with additional targeted downsizing of energy subsidies and a rise in taxes. According to Newswire Association LLC (2016), for GCC to stand strong in the market, it must continue to monitor the capacity of its members to widen their tax base, including a reinstatement of VAT. These market initiatives demand a concerted coordination among the Union member states. Currently, it is somewhat early to be overly preoccupied by the Unions medium-term prospects. Whilst some of the Unions member states are highly susceptible to low fuel prices than others, monetary shortfalls in key oil producing members such as Saudi Arabia are comparatively lower than those in the United States or Europe (Newswire Association LLC 2016).

Future prospective of GCC

The GCC currency analysis against the US dollar, the Sterling Pound, and the Euro offer a major economic orientation for GCC business environment. At the same time, the fluctuating market trends and the Unions predisposition to diversify funding sources while building robust financial systems are pointers that there will be greater market positioning for the GCC countries in the coming months (Galal 2016). However, the eventual impact of liquidity fall would be on capital cost, which will stab the GCC market. Stock market liquidity characterizes itself by the fact that the stock turnover quotient in the region has registered a fall in recent years. Arguably, these market features are characteristic of the prevailing global financial crises.

Even though the market friendly events including the inclusion of the GCC members such as Qatar and UAE in the Morgan Stanley Capital International (MSCI) index and the opening up GCC market for direct foreign investment have taken place, liquidity in the region continues to be low compared to the historical graphs. To check on the unfavorable market trends in the market, the GCCs local governments and economic institutions have fronted proactive steps aimed at moderating the regions dependency on oil and energy products. For example, the GCC may scale its market opportunities by expanding its industrial diversification and through promotion of the service sector (Sedik & Williams 2011, p. 5). Overly, the current economic situation that presents itself to the GCC is an opportunity for the Union to forge ahead with diversification of the entire market factors.

Conclusion

Gulf Cooperation Council consists of major producers as well as exporters of oil, gas, and its products. Over the years, the CGG countries have had a robust market positioning; however, the recent downward pressures on energy prices are clearly detrimental to the Unions economic performance. Plans are underway by the GCC authorities to moderate the regions dependency on oil and energy products to expand the Unions market. Global activities like the expected Dubai World Expo 2020 and the World Cup 2022 in Qatar are key pointers to the future growth of the region.

References

Azmat, G 2011, The effect of business environment on trade in Gulf Cooperation Council countries, Journal of International Trade Law and Policy, vol. 10, no. 3, pp. 200 212.

Colombo, S 2014, Bridging the Gulf: EU-GCC relations at a crossroads: Volume 14 of IAI research papers, Edizioni Nuova Cultura, Roma, Italy.

Galal, M 2016, The strengths of GCC business environment, Khaleej Times, Web.

Iyer, S 2014, Challenges remain for doing business in GCC, Arabian Gazette. Web.

Kronfol, M 2015, Market analysis: Smart moves by the GCC in a volatile environment, The National.

Newswire Association LLC: GCC companies growing despite challenging business environment 2016.

Sedik, T & Williams, T 2011, Global and regional spillovers to GCC equity markets issues 11-138 of IMF working papers, International Monetary Fund.

Subran, L 2015, GCC rebound: 4 Dubai business opportunities to consider: GCC region in 2016 will generate an economic rebound.

Windecker, G & Sendrowicz, P 2015, Cooperation between antagonists: The complex relationship between the Gulf States and Iran.

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