Slow progress stalls GCC integration

30 December 2010

As the GCC nears its 30th anniversary, the six-member bloc has few achievements to celebrate. A lack of consensus has prevented most joint initiatives from being implemented

In 2011, the GCC will celebrate its 30th year in existence, yet despite containing some of the world’s fastest growing economies, the bloc has achieved little in the way of integration between its neighbouring nations.

Founded in 1981, the GCC sought to bring the six member states – Saudi Arabia, the UAE, Qatar, Bahrain, Kuwait and Oman – closer together to improve security and encourage economic growth and development within the region. But while many decisions have been made on a range of issues aimed at fostering closer cooperation between the Gulf states, aside from the integrated electricity grid, little of substance has been implemented.

Slow progress

“If one were to draw a balance sheet concerning the accomplishments of the GCC, the outcome of the assessment would be meagre at best,” wrote Christian Koch, director of international studies, Gulf Research Centre, on the eve of the 30th GCC summit in Kuwait in December 2009. “While things look good on paper and appear to be moving in the right direction, implementation at all levels has lagged considerably behind the stated intentions of the GCC leaders.”

The GCC has set itself some important deadlines to meet over the next decade, including 2015 for the introduction of a single currency and 2017 for the completion of the GCC rail project. It has also made improving the efficiency of the customs union a priority for the coming years.  However, there is a lot to be done if it is to meet these targets. In the past, the unwillingness of individual member states to compromise and cede any national interests for the benefit of regional objectives has meant that many of the plans discussed in GCC summits have failed to come to fruition.

Implementation at all levels has lagged considerably behind the stated intentions of the GCC leaders

Christian Koch, Gulf Research Centre

The economies of the GCC member states have expanded rapidly over the past 30 years, primarily due to the abundance of natural resources in the region. The bloc’s nominal gross domestic product (GDP) has grown from $422bn in 2000 to an estimated $1.021 trillion in 2010, according to figures from the Washington-headquartered International Monetary Fund. But while some individual economies have flourished – at about $80,000 per capita GDP, Qatar ranks among the highest in the world – there has been little progress with initiatives to integrate trade and economic policy.

Chief among these is the GCC common market. Launched in 2008, it was intended to encourage greater trade between member states and to improve freedom of movement and capital transfer easier, but little progress has been made on detailing its specifications and regulatory frameworks. Moreover, due to each of the six states being oil exporters, the majority of GCC trade is with the US, Asia and Europe. In 2008, the bloc exported $21.8bn of goods to states in the EU. There is little trade between the member states. Figures from the European Commission show that in 2009, 15.9 per cent of GCC trade was with EU countries, 12.6 per cent with Japan and 8.2 per cent with the US. By comparison, the UAE made up only 2.1 per cent of total trade with the GCC.

Unified Gulf currency

Similarly, progress with the GCC customs union, created in 2004, has been limited as member states have argued over the distribution of tariff revenue and barriers facing local exporters at border points. At the 31st GCC summit in Abu Dhabi in December 2010, the Supreme Council encouraged members to speed up work on developing the customs union and the removal of barriers to facilitate trade among member states and with other foreign countries.

The UAE is expected to sign a deal with the US in mid-2011 to acquire a $7bn missile defence system

A unified GCC currency – dubbed the Khaleeji – has been under discussion for the duration of the GCC’s existence. But following an aborted plan that would have launched the single currency on 1 January 2010, the council has now set a deadline of 2015 for its introduction. With both the UAE and Oman having withdrawn from the plans though, it is unlikely that the Gulf will have a monetary union by 2020.

Even if the GCC is able reach consensus on a single currency, experts question whether monetary union will increase trade in the oil-rich Gulf. “The structures of the economies are so similar that I don’t know how much you’re going to promote intra-regional trade by adopting the single currency,” Randa Azar Khoury, chief economist at the National Bank of Kuwait, told MEED in May.

It is clear that a great deal will need to be done if the Gulf is to have an effective common market and unified currency by 2020. The same can also be said about a regional security policy.

Gulf foreign policy

The threat of Iran was one of the main driving forces behind the creation of the GCC almost 30 years ago, and the Persian state remains a major foreign policy preoccupation. In their closing statement at the 31st GCC summit in December 2010, the council’s leaders expressed disappointment that repeated efforts to communicate with Iran had not produced any positive outcomes. 

According to US diplomatic cables recently leaked by the whistleblowing website Wikileaks, Saudi Arabia, Bahrain and Abu Dhabi all encouraged the US to curb Iran’s threat to the region’s security. In November 2010, Saudi Arabia signed an estimated $60bn arms deal with the US, one of the largest single arms deals in history. The deal was for 84 fighter jets and 178 helicopters. Meanwhile, the UAE is also expected to sign a deal with the US in mid-2011 to acquire a $7bn missile-defence system.

But while Gulf member states have used some of the capital from their vast natural resources to improve their military capabilities, there has been little in the way of unified policy. Plans for a collective GCC security pact, which were first agreed on in 1994, have failed to materialise, and sporadic border skirmishes between Qatar and Bahrain, and Saudi Arabia and the UAE, mean it is unlikely that a unified military body will be formulated in the next 10 years.

Bahrain will assume leadership of the GCC from Qatar in April 2011 for nine years, and it has its work cut out to push the economic and security policies leading up to 2020. There is unlikely to be any further expansion of the GCC’s membership, with Yemen’s bid to join the council in 2015 facing with stiff resistance from current members.

 Bahrain’s main challenge will be encouraging member states to look further than their own national ambitions and work together to develop and implement integrated policies. The fact that the GCC has specified few deadlines for implementing policy is another issue that needs to be addressed. Setting out firm timelines for decision making would help to keep policy initiatives on track.

Not all plans have stalled though. The bloc is moving ahead with the $30bn GCC rail network. The project was high on the agenda at this December’s GCC summit, and Abdul Rahman Hamad al-Attiya, secretary general of the council, said the railway could be finished by 2017. The 2,200 kilometre of track will pass through all six member countries and will be essential to integrating the states and strengthening trade.

Sporting events in the Gulf

There have been other positive developments in 2010 that bode well for increased intra-regional cooperation in the years up to 2020. Qatar’s successful bid to host the football World Cup in 2022 will create opportunities for closer cooperation and trade between the GCC states.

Qatar has pledged to spend almost $60bn on developing its infrastructure over the next 12 years, and this will open the door for increased trade of capital and services between neighbouring states. The buzz surrounding Doha’s win firmly puts the world’s focus not just on Qatar, but on the Gulf region as a whole. Along with other sporting events, such as the Formula 1 being held in Bahrain and Abu Dhabi, Qatar’s hosting of the World Cup could trigger tighter GCC integration and help boost the bloc’s reputation and future economic standing.

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