Accelerating the reform agenda in the GCC: A road map for COVID-19 times

As the citizens of the Gulf Cooperation (GCC) countries take stock of their lives in the future, how will they evaluate us, the policy makers of today?  Will they blame us for their misfortunes, or thank us for their well-being?  I ask myself these questions all the time.  I think about the 18-year-olds of 2038, who will be graduating from secondary school then, but who in 2020 have just smiled their first smiles, learned their first words, and taken their first steps.  What future are we building for them?

It is hard to focus on the future when the present so urgently demands our attention.  Muted oil prices have reduced fiscal space, limiting options for policy makers, while the COVID-19 pandemic has taken a toll on human health and exacted a steep economic price.  It is admittedly difficult to see these twin crises as opportunities, but those future secondary school graduates demand that we do just that: Use this time to continue the work that policy makers in the region have already begun, in order to imagine a new future for these children.  In this future, the region will be far more resilient in the face of the next crisis and its citizens, well-prepared for the future of jobs, and will have an array of promising opportunities to choose from.

To reach this future, GCC policy makers might consider this piece as a road map focusing on five areas where continued and accelerated reforms will deliver the most impact for future generations: Investing in human capital, reducing reliance on the public sector, diversifying the region’s economies, encouraging the robust development of the private sector, and prioritizing green growth.

Take first human capital, where the GCC has made great progress, especially when it comes to health.  Decades of investment in maternal and child health have yielded notable dividends: 99 percent of children born today in the GCC countries will survive to age 5.  And over 90 percent of children aged 15 will survive to age 60 in all six GCC countries.  The health outlook for our 2038 graduates is looking already better than ever before.

To ensure that those graduates are ready for jobs of the future, policy makers would need to focus on education outcomes to close the gap with comparable high-income countries.  The UAE, for example, has successfully used a private sector-driven model to expand early childhood education. Therefore, it is important for policy makers to also continue to focus on improving the quality of education by ensuring that the time students spend in the classroom is effective, focusing on boosting performance in reading, mathematics and science, and linking schooling to in-demand skills, while adopting innovative education approaches..

The next priority area is to continue to take steps to reduce reliance on the public sector, especially when it comes to employment.  While Bahrain and Oman do better than the other GCC countries, still most nationals of the GCC work for the government or government agencies as compared to an OECD average of 18 percent.  Redirecting government spending from public sector wages also allows for the exploration of other options to support the socioeconomic well-being of both GCC nationals and the region’s non-national workers, such as modernized social safety nets, or investment in human capital.    

Reducing reliance on the public sector would also support the third priority area—encouraging the development of a robust private sector—since high public sector wages attract the majority of nationals.  Saudi Arabia has already started this process, forming a committee to study all forms of financial benefits paid to the public sector as part of a more strategic labor reform agenda under their Vision 2030. Oman and Kuwait are doing the same. For those industries, like tourism, that have been hit especially hard by the pandemic, it may be necessary to reinvent them under a completely new “low-touch” paradigm, using technology such a facial recognition to speed travelers through airport security and hotel check-ins.  Policy makers who find creative ways to support companies looking to make such technology upgrades would ensure that future generations have a robust tourism sector to choose from as a potential employer.   

The fourth priority area, closely linked to supporting the private sector, is continued diversification of the region’s economies.  In 2019, accelerated economic activity in the non-oil sector, including travel, retail, construction and services, drove the majority of the region’s positive growth outcomes.  Such diversification efforts can help cushion the region, to an extent, from the twin impacts of COVID-19 and muted oil prices, while also developing an attractive jobs market for the region’s youth and our graduates of 2038.  Continued diversification will require increased productivity and  more productive investments. 

One of those potential investment areas is the fifth and final priority: green growth.  Measures to diversify toward lower-carbon industries and sectors are already beginning to yield results, with investments in renewable energy helping to meet rising domestic power demand across the region, for example, with the UAE and Saudi Arabia taking the lead in renewable energy investment.  The current work to create the Pan-Arab Regional Electricity Market (PAEM) is also a significant step toward more efficient resource utilization and sustainable growth, and transition to low-carbon power systems in the future.  Continuing to focus on ensuring environmental sustainability as part of the overall diversification program will leave a valuable quality of life legacy to the graduates of 2038.

The double crisis of the coronavirus pandemic and the collapse in the price of oil have hit the GCC countries hard.  As I have argued here, however, within the challenges posed by these crises lies the opportunity to reshape both the direction and speed of future economic recovery and the economic diversification agenda in the region.  These countries have provided the impetus to think about the future we are building for those who will come of age in 2038 and beyond.  Policy makers’ obligation to this future generation is clear.  This opportunity to reshape the future of the GCC is timely and cannot be missed. 

World Bank