GCC countries, along with other oil-dependent economies, are experiencing dual shocks: the Covid-19 pandemic and lower oil prices.
In response, the region must act swiftly to contain and minimise the disruption, mitigate risks, build capabilities for the eventual recovery, and adapt tactics for economic transformation and sustainable growth.
The dual shocks, and the necessary containment measures, have halted the GCC’s economic life, which are highly dependent on imports.
Supply-side problems and disruptions to global value chains are hindering production. Closures and travel bans are making matters worse —reducing productivity, employment, and output.
Dependent on oil, state revenues are dropping significantly – by around $500m a day should prices persist at around $20 per barrel.
The GCC can contain the crisis and mitigate risks with three sets of action: mobilising against the pandemic, stabilising through economic lifelines, and strategising for the recovery.
First, governments should mobilise proactive and reactive warning and monitoring systems to improve public health by testing, containing, and treating the effects of Covid-19. Along with medical interventions, governments can reward those on the healthcare frontline, and use behavioural interventions that “nudge” citizens to adopt healthy behaviours.
Second, governments should stabilise the population, businesses, and financial institutions through economic lifelines – so far stimulus packages worth $122bn have already been announced. GCC governments have already initiated income protection measures for households. They are enhancing consumer protection by prohibiting price increases. For businesses, governments should extend immediate help to firms in the most affected sectors, such as retail, banking, air transport, hospitality, and non-food manufacturing.
However, stabilisation measures must be consistent with long-term economic priorities. There must be conditions on financial assistance to reinforce social safety nets.
So while governments are helping firms out of the credit crunch and seeking to prevent insolvencies, they must avoid subsidies with little impact on output, or that help uncompetitive sectors, or that will persist after the crisis. Funds should be conditional on business recovery plans that sustain employment and social protection, ensure business continuity and increased outputs, prepare for the recovery, and lead to impact, innovation, and resilience.
Governments must also continue reforming their governance as this makes extending assistance easier. Processes must become more flexible and procurement faster, so government bodies can mobilise demand and resources faster. This applies in particular to established funds for small firms, industry, and rural areas. Of course, small companies need more than money; they would benefit from sector specific advice (such as on retail operations during containment) and access to digital services and platforms.
Third, governments must strategise for a sustainable recovery. Their short-term response must be consistent with medium-term plans, in particular through developing their macroeconomic, fiscal, trade and labour growth policies, fostering innovation, and encouraging private sector participation. GCC governments must lower barriers to enterprise and industrial development to promote localisation of supply chains.
The GCC states must re-focus their national priorities, reform their agendas, and reconsider expenditures and investments. They should establish post-crisis innovation funds and build links between small firms and research organisations. They should encourage urban innovation and experimentation labs, and enhance national competitiveness by promoting sectors such as renewable energy, life sciences, digital, and intelligent automation in industry.
The recovery process must also be institutionalised. This starts with setting up a post-crisis recovery unit with a clear mandate, that is empowered to take action, has access to sustained funding and to the highest level of decision-makers.
An important part of strategising is building foresight capabilities so that they can anticipate any potential emerging issues. They need data surveillance and analytics that will enhance decision making. These will ensure that initiatives are well-targeted. To judge the efficacy and impact of recovery programmes, governments also need impact assessment capabilities.
Above all, governments must engage more effectively with their constituents.
By acting now, GCC governments can prepare for the recovery and keep their long-term economic development on track.
Yahya Anouti and Raed Kombargi are partners with Strategy& Middle East, part of the PwC network