Gulf Cooperation Council
Many developing nations are looking towards regional cooperation structures to accelerate their own economic development by enhancing horizontal links between the nations involved (Reyadh, 2007). Several of these regional cooperation structures attempt to promote economic integration with the hopes of hastening the rate of development within the region, ensuring the equitable distribution of the benefits of development, and guarantee a peaceful order in the region. Furthermore, collective action at the regional level is seen as a sure way of guaranteeing national interests and goals. One such association that promotes regional cooperation and economic integration is the Gulf Cooperation Council, otherwise referred to as the Arabian Gulf Cooperation Council.
The Gulf Cooperation Council is a political structure with member nations that are bound by shared culture, boundaries, religion, history, and geography (World Bank, 2010). The nations that border the Gulf’s Western shoreline have an important economic influence over the globe owing to the enormous volumes of world trade that occurs in these nations. More than a third of the world’s functioning oil reserves can be found in this particular region. Furthermore, these nations share a cohesive bond owing to their histories and geographical proximity to one another.
The GCC represents the interests of the member countries of the Gulf region and acts as a shield that protects the member nations from both regional and international developments and threats. This paper will highlight the factors that led to the creation of the Council, its mandate, structure, its achievements, and the challenges it has faced since its inception.
The heads of state of six Gulf countries namely Oman, Saudi Arabia, the United Arab Emirates, Bahrain, Kuwait, and Qatar met on May 26 1981 in Abu Dhabi (Aljazeera Center for Studies, 2014; Dar & Presley, 2002). The meeting resulted in the establishment of the Gulf Cooperation Council and the heads of state that were present in the meeting signed the GCC Charter. The Charter called for the integration and co-ordination of member nations in all fields, the harmonization of regulations, the creation of a common external tariff, and the establishment of a free trade area. Patrick (2011) asserts that the Gulf Cooperation Council was never created with the intention of it becoming a supra-governmental body and there is little chance that it will end up as one. The emphasis on economic cooperation and not security in the GCC charter was only done to appease Iran and Iraq.
The Iraq-Iran war that broke out in 1980 provided the biggest impetus for the six countries to form an association. The war also provided an opportunity to do so without antagonizing other neighbors within the region. The formation of the GCC was a reaction to the internal security scares created by two external aggressors. These two actors include the revolutionary Shia Islamist regime that had risen to power in Iran and the renewed enthusiasm for a Saddam Hussein government in Iraq by Arab nationalists. The Shia Islamist regime in Iran was seen capable of weakening Saudi Arabia and other Gulf states from within.
Saudi Arabia was concerned over the increased empathy for Arab nationalism in the region as well as Dubai’s impactful connection to Iran as these could result in Gulf leaderships looking to these other powerful regional players for protection (Patrick, 2011). In addition, political instabilities in East Africa and Afghanistan, as well as a new regime backed by the Soviet Union in South Yemen also compounded the threat to the stability of the Gulf States.
It is imperative to note that the trade and economic objectives of the GCC were detailed in the United Economic Agreement that was signed in November 1981 (Patrick, 2011; Dar & Presley, 2002). The objectives of the United Economic Agreement included free trade in industrial products, natural resources, agricultural products, and animal products that originated from member nations. Others included the introduction of integrated trade policies and a common external tariff.
It should be noted that when the establishment of the GCC occurred in 1981, the only country to have a government of popular representation was Kuwait. Majority of the citizens of the other nations had no clue that there was such an organization and public opinion was not consulted before the establishment of the Council.
Motivating Factors Leading to the Creation of GCC
1. Security Issues
Most experts on international relations argue that the main reason behind the formation of the GCC was security concerns. Saudi Arabia and Oman’s proposals in the meeting of heads of state that led to the establishment of the GCC had security as the most significant theme. Saudi Arabia’s proposal called for the sourcing of weapons for the Gulf nations represented in the meeting from one supplier. The proposal also recommended stronger co-operation between the national military forces of the member states. Moreover, the Saudis were calling for the establishment of a joint military force only when the sovereignty of a member nation was under threat. The joint military force would also be effective in maintaining order in the Gulf region as well as securing the independence of the member states.
On the other hand, the Oman proposal presented to the meeting called for the creation of a joint naval force that would strive to defend the water passages that border the region. Most importantly, the joint naval force would be mandated to protect the Straits of Hormuz, a water passage that was deemed a critical lifeline for the countries in the Gulf region.
Kuwait also presented a proposal that even though pointed out the political, cultural, social, and economic benefits of mutual co-operation, also stressed the need to have an organization that could protect member states from regional and international threats that were directed towards member nations (Aljazeera Center for Studies, 2014).
2. Global Factors
Other factors than security also encouraged the creation of the Gulf Cooperation Council. These factors may be grouped into Global factors, Arab Gulf factors, and regional factors. The global factors that motivated the Council’s creation include the invasion of Afghanistan by Soviet forces, which meant that the Soviet Union was nearing Gulf waters (Aljazeera Center for Studies, 2014). In addition, the oil producing countries were beginning to gain dominance in the global scene and coming together would secure their interests globally. The economic transformations of the 1970s and 1980s saw economic power shift from the major oil-consuming western nations to the oil producing nations in the Gulf region. Furthermore, the Gulf’s engagement in the Cold War also contributed to the formation of the Gulf Cooperation Council.
3. Regional Factors
The regional factors that prompted the establishment of the Gulf Cooperation Council include a weak Arabian league that did not advance the national and regional interests of the member nations. The Arab League decided to relocate its headquarters from Cairo to Tunis after the signing of the Egypt-Israel Peace Treaty in 1979 (Aljazeera Center for Studies, 2014). The Gulf countries saw this move as a collapse of the collective security that Arab nations had come to enjoy and heavily rely on for development in the region. A security vacuum had been created and the most amicable solution for the Gulf States was to create a regional organization to foster the security of their region.
In addition, a compromised Arab national security caused a lot of insecurity in the region from external forces (Aljazeera Center of Studies, 2014). The Egypt-Israel peace treaty of March 1979 also caused panic in the region necessitating the Gulf nations to form stronger alliances with each other.
4. Arab Gulf Factors
The Arab Gulf factors that precipitated the formation of the GCC include the homogenous nature of the member nations involved. These countries shared similar cultural, economic, social, and political values and goals. On the economic front, the member nations were striving to diversify their economies and reduce their heavy dependence on their oil reserves.
Other Arab Gulf factors include the Iraq-Iran war and the domestic revolution in Iran, which caused a tilt in the balance of power in the Gulf region. The Islamic revolt resulted in the collapse of the Shah regime in Iran further complicating the fragile geo-strategic scenario in the Gulf region. The Iran-Iraq war began in 1980 and continued until 1988 creating serious security challenges in the region. The war would likely lead to major losses for the two warring and formidable countries as well as for the other nations in the Gulf region if the other nations did not co-operate in creating an organization that could protect them from the losses of a protracted war.
The GCC Charter that was signed in May of 1981 highlighted the major objectives of the Gulf Cooperation Council. Article 4 of the Charter states that the GCC was established to promote integration, coordination, and interconnection among the member nations and develop strong systems that could ensure unity in the region is achieved. This Article of the Charter provides an outline of the major objectives of the Gulf Cooperation Council.
In this paper, cooperation is used to refer to coordination and interchange between the member nations in relation to policy formulations and intentions, as well as economic developments. The concept of integration can be described as the cumulative efforts to change the nature of the relationships between the member nations to guarantee the viability of every nation involved. Integration in the GCC is voluntary, stems from the apex of power, which in this case is the GCC Supreme Council, and is an open-ended process.
The basic objectives of the Council included:
ü Strengthening the relations between the member countries to achieve unity in the region
ü Realizing coordination and integration of the member nations in a diverse range of fields
ü To promote the implementation of similar policies and regulations in a number of fields including education, commerce, economics, financial regulation, communications and customs.
ü Promoting cooperation within the Council especially in policy development.
ü The unification of arms sources in the Gulf region
ü Creating a joint army to protect the region especially the Strait of Hormuz
ü Encouraging the sovereignty and independence of member states
ü Eliminating future foreign military alliances
ü Inspiring scientific and technological advances in the region especially in industry, scientific research, agriculture, private sector, as well as animal resources. Furthermore, the GCC should strive towards the establishment of common projects within the member nations as well as engage the private sector in these projects for the good of all the nationals of the member nations.
ü Encouraging pluralism to secure the national interests of the member countries
ü Removing any impediments to co-dependence among member states.
STRUCTURE OF THE ORGANIZATION
The organizational structure of the GCC prioritizes national governments as the main parties involved in the integration process. This is opposed to recognizing the supranational bodies as the main actors in the GCC. The organizational structure of the GCC consists of:
a. The Supreme Council
The Supreme Council consists of the heads of state of the member nations of the GCC. It is the highest authority in the GCC (Reyadh, 2007). The presidency of the Supreme Council is taken in turns by each nation according to the Arabic alphabetical order. The Council meets twice every year to provide directions on policy matters.
The Council is responsible for the naming and appointing of the Secretary General of the Secretariat. The Supreme Council is also mandated to appoint the members of the Commission for Settlement of Disputes. The Commission was established through Article 10 of the GCC Charter. Its purpose is to provide recommendations to the Supreme Council on how to resolve disputes between member nations as well as to provide correct interpretations of the founding charter.
The Advisory Commission otherwise referred to as the Conciliation Committee for the Supreme Council, was set up in 1997 to provide advice to the Supreme Council on matters referred to it by the Council. The Commission is composed of 30 individuals with qualifications and experience in a variety of specific fields. The members of the Commission hold their positions for a period of three years. The seats of the Commission are shared equally amongst the six member nations of the GCC. There are times when the Advisory Commission functions as a mediator to the Supreme Council when a dispute breaks out between member nations. Every decision made by the Commission is binding and considered a correct and true interpretation of the GCC founding charter.
Meetings of the Supreme Council are only valid if they are attended by at least two-thirds of the member nations. Each attendee has one vote. Substantial matters need a unanimous vote from the heads of state to become resolutions while procedural issues only require a majority vote. The agreements made within the Supreme Council are usually classified as non-mandatory or mandatory. It is also important to note that the decisions of the Supreme Council are legally binding and it can issue rules that are applied in all the member states.
b. The Ministerial Council of the Foreign Ministers of the Gulf States
The Ministerial Council consists of the foreign affairs ministers of the member nations or their representatives who act on their behalf in their absence. This Council is mandated with the responsibility of proposing policies for the GCC and recommending future endeavors and solutions to current challenges (Reyadh, 2007).
The Ministerial Council also studies the reports of the Secretariat regarding the workflow and the problems it faces. The Council then offers solutions to the Secretariat on how to go about the said problems. The Council holds meetings on a quarterly basis but can select to meet for an extraordinary session at the request of a member state, which should be seconded by another (Reyadh, 2007). It is imperative to note that this Council cannot make legally binding decisions. Its only prerogative is to issue announcements on foreign policy issues as well as set a guideline for cooperation within the GCC.
The council also has a number of committees that include the Health, Social Affairs, Financial and Economic Cooperation, Labor, and Education Councils among others. The Ministerial Council submits its proposals and recommendations to the Supreme Council. The Financial and Economic Cooperation Committee is in charge of monitoring the common market (Patrick, 2011) and suggesting its recommendations to the Supreme Council for possible implementation.
c. The GCC Secretariat
The GCC Secretariat functions as the executive and administrative unit of the Gulf Cooperation Council. The Secretariat is mandated to prepare meetings for both the Supreme and Ministerial Councils as well as provide research materials, studies, and background materials (World Bank, 2010). The Secretariat also functions as the monitoring arm of the GCC as it monitors the implementation of past decisions. The organ is a separate and independent entity from the councils mentioned above and its budget is shared equally among the member states.
d. Specialized Agencies
The GCC also has specialized agencies that perform a variety of tasks including commercial arbitration, designing technical standards and implementing them, as well as keeping a record of registered patents (World Bank, 2010). Each of the specialized agencies is led by representatives from the member nations, and the representatives have their own permanent staff. Examples of the specialized ages include the Technical Telecommunications Bureau in Bahrain, the Standardization and Metrology Organization stationed in Riyadh, and the Regional Committee for Electrical Energy Systems located in Qatar. The Standardization Committee was created in 2011 to handle the disparities that resulted from different product regulation policies and practices within the GCC member nations (Patrick, 2011). The GCC Patents Office enforces the issuing of single patents throughout the GCC, a market that is constantly proliferated with counterfeit goods.
HOMOGENEITY OF GCC
As mentioned in other sections of this document, the member nations of the GCC have many things in common, which makes the unification process and co-operation between member states easier. The homogeneity of the countries is evidenced predominantly by the fact that all of these nations have a heavy reliance on oil export (World Bank, 2010). The dependence on oil is not equal as Kuwait, Saudi Arabia, and the UAE are more dependent on oil exports than Oman and Bahrain. Qatar has a thriving natural gas industry making it also less dependent on its oil reserves.
Regardless of the fact that member nations rely heavily on the production and sale of oil, most of the oil produced in these nations is exported. This means that the competition between member countries for oil sales is negligible fostering further cooperation amongst themselves. In addition, the countries have given each other priority when it comes to supplying their respective oil needs (Aljazeera Center for studies, 2014). The nations exchange crude oil, petrochemicals, and natural gas to fulfill local demands in the Gulf area.
The GCC countries also share similar economic policies including exchange rates that are pegged to the United States dollar and open economies that allow free capital movements and trade (World Bank, 2010). It is important to note that the degree of openness of trade varies from one country to another. This degree is predicated by the ratio of total exports and imports to the specific nation’s GDP. For instance, in Kuwait, the ratio is 73% while in UAE it is 158% indicating that the UAE is more economically open than Kuwait.
Another common element binding the GCC countries together is the fact that all six are Islamic nations with most of their citizens practicing the Islam faith. The acceptance of other faiths depends on the country in question. For instance, the United Arab Emirates allows Christian expatriates to build churches and other religions are allowed to build their places of worship. Unlike the UAE, Saudi Arabia does not allow the construction of other religious buildings other than mosques. Thus, the degree of religious tolerance and religious diversity in the country is extremely low.
Furthermore, the GCC countries have established their legal, administrative, and political systems based on Shariah law. Shariah law is applicable to all the citizens of the GCC member nations. However, sometimes the law is not applicable to expatriate residents. It is also clear to see that the member nations operate as monarchies with autocratic systems in place (World Bank, 2010). The governments of the member nations are usually unelected although there has been a growing trend among the member nations of introducing democratic elements in their governing systems. Examples of these democratic tendencies include the establishment of the Federal National Council in UAE, the Council of Representatives in Bahrain, and the National Assembly of Kuwait. Individuals must be elected to by the citizenry to join these representative bodies.
Most of the citizens of the GCC member nations are Sunni Muslims. However, there is a significant proportion of Shia Muslims in all the countries with Bahrain having the majority of Shia Muslims in the GCC. Oman has the highest number of Ibadhi Muslims within the GCC. Owing to their Muslim faith, most of the citizens of the GCC member nations share similar dress codes including the black abaya for the women and the white dishdasha for their male counterparts. In Oman, the dishdasha comes in a variety of styles and colors.
The Gulf Cooperation is made up of six Arabic countries that are in close proximity to one another in the Gulf region. These countries include Bahrain, Oman, Saudi Arabia, United Arab Emirates, Qatar, and Kuwait. Saudi Arabia is the largest and most dominant member nation of the GCC (Reyadh, 2007). The nation is superior in terms of both material resources and territorial area. Furthermore, Saudi Arabia has the largest human resources in the GCC compared to the other member nations and possesses the globe’s largest oil reserves.
As the world’s largest oil exporter, Saudi Arabia has gained both international and regional economic significance allowing it to dominate the politics and policies of the Gulf region. Her key strategic position has also buoyed her significance in the GCC and in the entire Middle East region. In addition, the nation has gained religious and political prominence globally owing to the location of significant Muslim holy places within her national boundaries.
The Gulf Cooperation Council has existed for more than three decades. It is safe to say that the GCC has accomplished several of the objectives it set out to achieve when it was established. These gains cannot be ignored even though they were achieved at a snail’s pace.
Collective security was one of the major objectives of the creation of the Gulf Cooperation Council. The member nations have strived to achieve collective security over the years since the inception of the GCC. The Gulf Security Agreement was signed in December 2000 in Manama leading to the move from calling on member nations to co-operate on defense matters to a call for collective self-defense. In the Agreement, the member nations concurred that any external aggression against a member nation would be considered a threat to all the member nations. The other member nations would provide support in various ways to the victim of the external aggression including sending military force to the particular nation.
The progress towards collective self-defense is clearly evidenced by the creation of a Peninsula Shield Force, which was the center of the GCC military force (Aljazeera Center for Studies, 2014). The Peninsula Shield Force played a crucial role in the eventual liberation of Kuwait in 1991. The Shield Force consists of armored carriers, foot soldiers, as well as artillery support materials. In 2009, the Shield Force was additionally strengthened by the incorporation of the Rapid Intervention Force. The GCC has also instituted joint military training and exercises, strengthened the local arms industry to increase the capacity of member nations to defend themselves and one another, as well as implementing integrated defense policies.
The member nations of the GCC cannot ignore the threat of Iran’s missile capacity that includes long-range cruise missiles and ballistic-missile technology (World Bank, 2010). The GCC is working towards the development of anti-missile systems that have the capability of intercepting and destroying any ballistic missiles that target any locations within the GCC.
2. Economic Co-operation
The GCC Charter has clearly outlined that the main aim of economic integration within the GCC is to arrive at economic unity. The Charter calls for economic cooperation in all economic affairs including transportation, finance, customs, and trade among others. For majority of the GCC nations, economic integration is a means for them to achieve economic security.
The GCC’s objectives of economic cooperation and integration were detailed in five separate official documents that were all adopted by the GCC’s Supreme Council. These documents include the Common Objectives and Policies for Development Plan, the Unified Economic Agreement, the Unified Industrial Strategy, the GCC Charter, and the Common Agricultural Policy.
The GCC nations have made various attempts to align their economies in order to gain economic dominance in the region and protection from international economic turbulence. A customs union was established in 2003 and a common market was created in 2008 (Sikimic, 2014; World Bank, 2010). The customs union was fully equipped with customs legislation, congruent procedures, and standards. The establishment of the customs union was necessitated by the desire for the GCC to attract a free trade agreement with the European Union, and it came naturally for the GCC owing to the long-standing free trade agreement amongst the member nations for the GCC.
The Union was formed on the basis of a 5% tariff to external trade (Patrick, 2011). Tariffs were waived for goods of GCC origin that have a minimum of 40% local added value and a 51% local investment. The goods that do not meet this criterion face tariffs that are similar to those applied to goods that come from outside the region. Furthermore, the GCC nations agreed to remove tariff escalation, and instead agreed to the application of exemptions of intermediate inputs imports for domestic production and export companies.
To enhance the performance of the customs union, the GCC members agreed to form the GCC Commercial Arbitration Center in 1993 (Reyadh, 2007). The purpose of this unit was to settle any disputes between member nations over trade as well as to arbitrate any disputes between the member nations and foreign nations or companies.
The establishment of the joint market created a unified economic territory unencumbered by customs or trade barriers. The joint market led to the elimination of customs restrictions on the movement of goods, people, and capital across the six nations (Aljazeera Center for Studies, 2014). This meant that all of the citizens of the member nations of the GCC can own property and conduct business within the six nations as if they were natural-born citizens of these nations. In addition, the citizens also have the right to social protection, social services, education, and health regardless of whether they are natural born citizens of a particular member country or not.
Both of these ventures materialized due to the need of encouraging cross border investment among the member nations of the GCC. The creation of the Monetary Council, proposed by Qatar, Kuwait, and Saudi Arabia in 2009 was supposed to be a precursor to the creation of a common currency for the region. The creation of a common currency remains one of the biggest aspirations of the GCC (Jadresic, 2002). Prior to the creation of the council, the member nations had agreed to peg their currencies to the US dollar (Khan, 2008).
By 2003, all the member nations had successfully pegged their currencies on the US dollar. Pegging their currencies against the dollar acted as nominal anchor for monetary policy for the GCC nations. The peg anchored inflationary expectations as well as providing certainty about the future of exchange rates (Espinoza, Ananthakrishnan & Oral, 2010). Within this framework, the GCC nations had the capacity to manage loan to deposit rations, as well as liquidity and credit through reserve requirements and interest rates.
A common currency presents several benefits to the GCC nations, most importantly, the elimination of foreign exchange costs when trading within the region (Jadresic, 2002). In addition, a common currency will lead to a reduction in the accounting costs for firms that have operations in more than one nation in the GCC and quite possibly a reduction in the time and cost of making cross boundary payments. Furthermore, the common currency can remove any uncertainty pertaining to the bilateral exchange rates within the region.
It is important to note that the elimination of the costs related to intraregional foreign exchange will contribute to not only further economic integration within the region, but also the development of a diversified non-oil economy for the member states (Jadresic, 2002). The elimination of these costs will also lead to a boost in the volume of intraregional trade and investment, further strengthening the economy of the GCC.
The GCC states laid down standards that were a necessity for economic integration with the introduction of a common currency (Aljazeera Center for Studies, 2014; Espinoza, Ananthakrishnan & Oral, 2010). The standards highlight the specific key economic indicators that every nation has to maintain. The standards include a national debt that could not exceed 60 of a nation’s GDP. Furthermore, the national budget deficit should never exceed 3% of a nation’s GDP. The national inflation cannot exceed 1.5% of the average inflation of all the GCC member nations. Lastly, long-term interest rates for member nations should never go beyond 2% of the average interest rates of the entire GCC.
Another achievement of economic integration is the fact that during times of economic upheaval in the region, the wealthier states have often come to the rescue of the poorer members of the GCC. In the past, Saudi Arabia, and UAE have bailed out both Bahrain and Oman. Abu Dhabi, the wealthiest emirate, has consistently provided cash to poorer nations in the region including Dubai.
Economic cooperation has also made the GCC a global force to be reckoned with. In 2013, the combined economy of the GCC nation was ranked twelfth with an approximate GDP of $1.62 trillion. The group of nations was rated fifth globally in terms of foreign trade in 2013 with approximately $1.42 trillion worth of foreign exchange. In the same year, the GCC was ranked the fourth largest exporting nation with $921 billion in exports. The GCC was placed tenth in terms of import value with $514 billion in imports. These figures demonstrate the significant bargaining power that the GCC has as an economic bloc and how attractive it is for additional foreign investment.
3. Financial Integration
Financial integration in the GCC is improving at a significant rate due to the streamlining of financial policies and objectives of the GCC nations. Bahrain and Kuwait invest heavily within the GCC, with majority of their respective foreign investments going into the region (Espinoza, Prasad, and Oral, 2010). The development of different stock markets within the GCC has also increased financial integration in the region.
Still on the matter of financial integration, Espinoza, Prasad, and Oral (2010) discovered that convergence does exist within the GCC financial structure from studying interest data in the region. In addition, the interest rate differentials within this structure are surprisingly short-lived compared to other emerging market regions that share a common currency such as the ECCU. The scholars also studied equities data from the region, which demonstrated that the stock markets within the GCC are well integrated, although further financial integration is constrained by market illiquidity.
4. Infrastructure Development
The cooperation in GCC has led to extensive infrastructure development across member states. The transport systems are well developed facilitating cross border trade and movement of capital and people. There are also efforts to coordinate the development of infrastructure in the railway, gas, and power sectors (Dar & Presley, 2001). An impressive road network links majority of the GCC nations to each other and to other Arab countries. A lot of progress has been made towards the unification of vehicle specifications, traffic controls, fees, and road safety rules.
The air transport industry of the GCC has experienced exponential growth since the inception of the council. The airlines of member nations have become global players in long-haul aviation, and have managed to grab a big portion of the Western and Eastern market for air transport. The booming air transport industry of the GCC has enhanced the connectivity of the region, which had previously relied on European hubs for intercontinental movement of goods and people.
Furthermore, the GCC nations are working towards the completion of the plan to interconnect the electricity grids of member nations, which will enable them to be able to exchange electricity amongst themselves (World Bank, 2010). The goals of this interconnection project include increasing the reliability of electricity supply, sharing the reserve capacity with other member nations, and decreasing the need for investing in new generation electricity production.
Due to the integration of the infrastructure developments within the member nations of the GCC, the countries of the GCC are better connected with international markets compared to other countries in the Middle East (Dar & Presley, 2001).
ü Depletion of Oil Reserves
The enormous oil reserves and the resultant wealth of the GCC member nations have always been a significant bargaining chip for the GCC with the rest of the world. The Council also uses these resources to control a number of pressure groups within the member nations of the GCC. However, the massive depletion of the oil and gas reserves and the surge in populations within the member nations has seen these countries attempt to shift from energy production to other sectors of the economy. Such sectors include the likes of construction, tourism, and finance. These attempts to diversify their economies have not been thoroughly successful (Sikimic, 2014) as was evidenced by the economic turmoil the member nations faced during the 2008 financial crisis.
The GCC nations have been forced to look at alternative means of energy sources in order to shift their economies from the heavy dependence on natural gas and oil. These alternative sources of energy include wind power, solar power, and nuclear power. These sources could be used to meet the local requirements for energy and electricity (Shahan, 2013). The GCC can then have more oil and natural gas resources to export, boosting their annual revenues.
In 2006, the GCC announced to the region that it had commissioned research into the development of nuclear power plants (Patrick, 2011). The GCC has made it clear that the nuclear programs commissioned are specifically for civil use to dissuade fears that the GCC is arming itself with nuclear power to be used to threaten other nations.
ü Common Currency Challenges
The GCC has also been on a mission to establish a common currency for the member nations. However, the move has been met with serious opposition as countries such as the UAE and Oman opted out of establishing a common currency for the time being (World Bank, 2010). Oman opted out of being a part of a common currency stating that her economy could not achieve the stringent requirements for the common currency. The UAE rescinded its participation in the common currency because Abu Dhabi was denied the opportunity to host the GCC central bank. In 2007, Kuwait also refused to peg its currency against the dollar because of the fluctuations of the US dollar, and chose to peg its currency against a currency basket (Espinoza, Prasad, and Oral 2010). The four remaining countries decided to establish the Monetary Council to continue the process of establishing a monetary union.
Despite the fact that the establishment of a common currency will bring tremendous microeconomic benefits to the union, the GCC will still have to deal with some macroeconomic challenges once a common currency is set up. The main challenge to be faced is the fact that the nations have to surrender the ability to unilaterally change the value of the currency being utilized (Jadresic, 2002).
Furthermore, the central banks of individual member nations will have to surrender their use of independent monetary policy (Jadresic, 2002). With an independent currency, central banks can resort to printing money during financial crises. However, with a common currency, this ability is severely curtailed.
The member nations will also have to contend with the fact that a currency union will force stable nations to suffer negative monetary spillovers from macroeconomic imbalances in less stable nations in the region. Nonetheless, the adoption of a common currency can be a worthwhile venture that can deepen regional integration and co-operation, as well as hasten the development of a non-oil economy.
According to Khan (2008), the member nations may also have to decide whether pegging their currencies to the dollar remains ideal for the Monetary Union. The US dollar peg as the anchor for monetary policy had served the GCC member nations well for a couple of years. However, the fiscal crisis of 2008 coupled with the fluctuating depreciation of the US dollar against major currencies as well as the different economic cycles and implemented economic policies have sparked criticism as to whether it remains prudent to still maintain the US dollar peg. Furthermore, the just concluded American elections that saw the election of Donald Trump has also sparked fears in the Gulf region about the macroeconomic stability of the region with the US dollar peg. Trump has often made disparaging remarks about Muslims during his campaign for presidency. His election saw the dollar fall considerably against other currencies as well as poor performances of major stocks across the board.
ü Expatriate Labor
Majority of the GCC nations possess a structural dependence on expatriate labor, a challenge that has hampered significant economic growth and development within the nations. The number of expatriates in the region can be as high as 80-90% in countries such as the UAE and Qatar (World Bank, 2010). All of the member nations of the GCC have open immigration policies that make it easier for expatriates to find temporary work in these countries at the expense of the local population, who continually have to suffer through high rates of unemployment.
Privatization within the Gulf Cooperation Council member nations has proceeded at a very slow rate (World Bank, 2010). The slow pace can be attributed to continued government subsidies, the institutional weakness to monitor and regulate the behavior and quality of private industries, as well as the lack of budgetary concerns over national labor. Much of the privatization efforts in the region have seen the government retain a majority share in ownership of industries, restriction of private accessibility to the service sector and imposition of strict rules pertaining to the national labor quotas.
For instance, rather than let private companies enter the telecommunications sector, the UAE decided to establish the Emirates Company for Integrated Telecommunications (World Bank, 2010). The new entity was created to end the monopoly of the Emirates Telecommunications Corporation that had been in operation for more than thirty years. The result was the move from a monopoly to a duopoly structure within the telecommunications industry.
The member nations of the GCC are constantly facing an increasingly worrisome shortage of sustainable water supplies. Four of the GCC member nations are in the list of top ten nations that are vulnerable to extreme water scarcity. These countries are Kuwait that tops the list, UAE, Qatar, and Saudi Arabia. In addition, it is estimated that Bahrain and Qatar are using 1.5 and 2.8 times than their available water supply respectively (World Bank, 2010). The water sources in the entire GCC region are dwindling owing to minimal precipitation, high evaporation rates, and the scarcity of natural water resources. The problem is further exacerbated with the scarcity of renewable water supply and limited arable land.
Human factors including rapid urbanization and the exponential increase in the human population have also worsened the water insecurity for the six GCC nations. Furthermore, the enormous agricultural and industrial projects undertaken by the nations have put a serious strain on the limited available water resources. The demand for water has increased by a whopping 140% since the beginning of the 21st century.
The GCC nations have had to turn to alternative water sources including desalination plants. The output of these plants accounted for approximately 70% of the world’s desalinized water output as of 2014. However, the nations’ heavy reliance on these desalinized plants has placed a significant burden on the national budgets of respective member nations of the GCC (World Bank, 2010). Furthermore, their reliance on this alternative water source has wreaked havoc on both regional and local ecosystems.
In 2014, the GCC became a forum for Saudi Arabia and Qatar to air their grievances with each other. In March of that year, Saudi Arabia, Bahrain, and the UAE made the decision to remove their ambassadors from Qatar, claiming that the country was interfering with the internal affairs of GCC member nations. The grievance originated from Qatar’s support of the Muslim Brotherhood, which Saudi Arabia claims is a terrorist organization (Sikimic, 2014). Oman remained neutral during the feud while Kuwait tried to mediate the situation that is widely considered as the biggest rift in the GCC.
Border disputes are also a major challenge facing the GCC. The border disputes have sprung up in the coastal waters shared by the nations wreaking havoc among Qatar, UAE, Bahrain, and Saudi Arabia. According to The World Bank (2010), these border disputes have resulted in the stalling of the plan to build bilateral infrastructure projects including pipelines and bridges in the coastal waters.
Public opinion was hardly sought during and after the establishment of the GCC. Most of the citizens in the region view the GCC as a toothless organization that cannot stand up to the trials of the region. They are of the view that the GCC has hardly delivered any tangible benefits to the citizens in the region. It seems the Council is only capable of handling relatively simple matters such as improving the mobility of citizens across the region and giving GCC citizens special privileges in airports. Majority of the citizens now believe that the official cooperation of the GCC countries is due to the need of enhancing internal security, which mostly involves exchanging lists of suspicious activities and suspects.
The public perception of the GCC continues to suffer as the years go by. More nations are becoming less enthusiastic about sending high-level delegates to the GCC meetings. The GCC has rarely done any business in front of all the heads of state, sultans, princes, and kings of the GCC member nations.
Yemen has been on the waiting list to join the GCC as a full member for several years. In December 2001, the GCC members agreed that Yemen would only be admitted to the Social Affairs Committee and the Health and Labor Committee. The GCC also allowed Yemen to participate in the Gulf Football Cup, an invitation that has always been extended to Iraq, a non-member of the GCC. The refusal to grant Yemen full membership is based on the fact that Yemen does not share in the ‘common characteristics’ inherent in the other GCC members (Patrick, 2011). This is despite the geographical proximity of Yemen to the Gulf nations and some common social characteristics.
In addition, the constant threat of civil war in the country has resulted in the GCC treating her as a security issue that needs to be addressed rather than a country that could be admitted to the organization. Even if an internal political compromise could be made in Yemen, her number of competing political groups would still make it an unattractive choice for GCC full membership.
Iraqi officials have also called for a chance to be a part of the Gulf Cooperation Council. They have also made pleas to have a more open trade platform with the nations of the GCC. However, the member nations of the GCC have resisted any efforts to associate themselves with a post-Saddam Iraq (Patrick, 2011). It is important to note that one of the contributory factors to the creation of the GCC was to offset the pressures mounted by Iran and Iraq. Even with a change in regime, Iraq is still seen as a threat owing to its increased presence within the region as well as its activities in Iran.
In 2011, Jordan and Morocco had applied to join the Gulf Cooperation Council. Their inclusion would have transformed the GCC from just a regional organization to one that was based on joint value systems of the autocratic regimes. The two nations had been invited for accession talks with member nations. However, Kuwait remained adamant that she would not allow Jordan’s entry into the GCC owing to the latter country’s backing of Iraq during the 1991 Gulf crisis. UAE has also resulted in coming up with excuses to delay the accession talks.
As discussed in previous sections of this paper, the formation of the GCC was due to several regional and international factors. The underlying reason for the formation of the Council is the security and military challenges. Even though the charter that established the council only mentioned shared values and culture, historical bonds, and similar social and political systems, the issue of security seemed to be the predominant concern for the creation of the Gulf Cooperation Council. It is also safe to assume that external factors, both regional and international, played a bigger role in the formation of the GCC than the internal factors found within the Gulf region.
The GCC has made tremendous progress in promoting and fostering the integration of the member nations since its inception in 1981. The integration can be seen through the establishment of the Customs Union in 2003 and the joint market in 2008. Plans are still underway to establish a common currency for the union but this plan has been met with considerable resistance from some member nations. The member nations have also eliminated tariffs for locally produced goods, streamlined external tariffs and done away with some trade restrictions.
Membership expansion of the GCC is still a thorny topic owing to the political friction between GCC nations and their neighbors. For instance, the GCC has not yet approved Yemen’s request to become a full member owing to her often-volatile internal political situation. In addition, both Kuwait and UAE have blocked the admission of Jordan and Morocco into the union owing to past political tensions.
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