The Gulf Cooperation Council
A Look Back at a Forty-Year Union
By Rashed Albinali
Forty years ago, the leaders of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) gathered in Abu Dhabi to sign an agreement to create what is now known as the Gulf Cooperation Council (GCC). Its goal was to effectively coordinate decision-making and promote collective interests and development. The GCC’s founding followed a regionalist movement that swept across the globe and peaked in the Arab World after the Second World War. Cohesion amongst the six came relatively easily as they share language, religion and culture which ultimately created a unified identity with purpose. These states also shared a similar composition in political and economic institutions. As young economies, building a cooperation council boosted their political and economic bargaining power and ushered in a period of rapid development and urbanisation. The GCC remains an instrumental part of the region’s economic and political landscape, but many experts have since criticised its ineffectiveness, brandishing it as a failed or incomplete union of states that no longer share common interests. This work traces the GCC’s greatest achievements and setbacks throughout its forty-year history to better understand its historic trajectory and likely futures.
To best understand the GCC, it is essential to know the foundations of its developmental model. The six countries were relatively underdeveloped prior to the discovery of oil and, even after discovery, took considerable time to fully exploit this valuable resource. Even so, the limited national population could not produce enough labour to realise some important plans. Thus, labour importation became a large part of what drove (and to an extent continues to drive) economic growth. The GCC’s GDP increased by 490% from $278 billion (USD) in 1983 to $1.64 trillion (USD) in 2019. Increased output, investment and income have led to the rapid modernisation of the GCC that not only made it a global competitor, but also led to a dramatic increase in human development. According to the United Nations Development Program’s (UNDP), human development increased from a GCC average of 0.671 (classified as medium development) in 1981 to 0.844 (classified as very high development) in 2019.
How much of this can we attribute to the formation of the GCC? Well, depending on which country is being examined, and the metric being deployed, a great deal. In Bahrain, for instance, over 70% of all tourists are intra-regional and according to national data derived from the Information and eGovernment Authority, the investments by the GCC make up roughly two thirds of Bahrain’s total foreign direct investments (FDI), most of which are concentrated in the financial and real estate sectors. Attracting FDI has been the Bahraini government’s main strategy following the launch of Bahrain’s Economic Vision in 2008, and FDI stock has remained integral to the economy ever since, making up over 80% of GDP. The GCC also founded the Gulf Investment Corporation (GIC) in 1982, with the goal of investing in the region’s development in order to foster both economic growth and diversity. The GIC manages tens of billions of dollars in investments and is equally owned among the GCC members. The Gulf Organisation for Industrial Consulting (GOIC), in a similar vein, evaluates proposals for and promotes joint industrial projects between GCC members. Since its founding, it has identified over 400 new industrial opportunities and has published hundreds of industrial reports and feasibility studies. Some of the GOIC’s most recent studies include overviews of the ammonia and urea industries in the region, pharmaceuticals, and the feasibility of an automotive industry in the GCC.
The GCC has also benefitted from cross-country projects like the GCC interconnection power grid overseen by the GCC Interconnection Authority (GCCIA), which not only secures the GCC’s energy needs, it is forecasted to save each member over $5 billion in electricity costs. The power grid can also provide energy exporting opportunities for the members, especially with regional partners like Iraq and Yemen. Another major multibillion-dollar initiative currently underway is the railway project that aims to link the GCC countries. The project is scheduled to be completed by 2023, covering more than 2,100 kilometres that links domestic to regional tracks.
In parallel, the GCC initiated economic integration mechanisms starting with the Free Trade Agreement in 1983 and including the Customs Union in 2003 and the Common Market in 2008. Over the same period, many supporting institutions were created to foster a more cohesive system. An Independent Arbitration Centre was created in 1993, an Accounting and Auditing Commission in 1998, a standardisation organisation in 2002, and several common laws have been proposed and ratified such as the Common Trademark Law in 2012. The GCC created these institutions, and enacted these reforms, with the objective of eliminating non-tariff barriers that may exist between member countries. Trade statistics however, show that these strides have had only a mild impact on intraregional trade.
Researchers often use gravity models (which take into consideration the following components: GDP, GDP per capita, population, geographical distance and similarity in language) to measure successful integration. Most believe that high GDP and GDP per capita, close geographical proximity, and a common language would lead to higher intraregional trade. However, intraregional trade only increased from about 5% in 1982 to 7% in 2002 and 10% in 2016 . GCC trade arrangements have been unable to create trade because signatory states have so far been unable to substitute goods and services previously imported from outside the region. The GCC’s economic and industrial composition is simply not diverse enough to be able to complement each other. In other words, GCC countries tend to import the same goods. It is clear that diversification measures and initiatives are important towards achieving greater intraregional trade. However, as Al-Ubaidly and Jones (2018) [2] point out, there has been a form of homogeneity in the diversification plans that have been laid out in the national visions of GCC members. This could significantly hamper, or indeed threaten, intraregional trade. Therefore, to more efficiently utilise the benefits of trade agreements, the GCC should seek diversification measures that give them more of a comparative advantage within the region.
Politically, researchers like Mishrif (2020) [1], Legrenzi (2006) [2], Kshetri and Ajami (2008) [3] also seem to agree that there is much to be desired from increased cohesion. Legrenzi (2006) for instance, argues that the lack of a supranational organisation with actual authority has allowed divergence in domestic policy that has restricted integration efforts. Differences in foreign policy, for instance, was, ultimately, the basis of the Qatar crisis in 2017. Fundamentally, the GCC Secretariat General (GCCSG) has been ineffective in pressuring states to implement joint agreements in a timely manner (such as VAT), it has also been unable to hold accountable the states that only partially implement other agreements (like the common market). A reevaluation of the status quo is necessary to realign the GCCSG with the goals of member states. A supranational organisation may no longer be desirable, and it may not be necessary, to promote collective agenda.
It is apparent now that the conversation is in fact more nuanced than some would argue. While it is true that the practice of autonomy within the larger apparatus of the GCC has definitively stalled its integration process, this should not discredit the meaningful steps the grouping has taken in the past. Despite the derailment of some proposed plans and initiatives, the GCC continues to be an integral part in promoting cooperation in the ever-changing geopolitical landscape of the region. If nothing else, this year’s Al-Ula Decelaration shows that member states remain as committed to the GCC today as they were during its founding, and its needs are no less pressing. Even with forty years under its belt, the GCC remains relatively young and if the last four decades are a testament to its potential to transcend the traditional restrictions of growth and cooperation, then the next forty years look even more promising.
References
1 International Monetary Fund. (2018, December). Trade and foreign Investment—Keys to diversification and growth in the GCC. https://www.imf.org/en/Publications/Policy-Papers/Issues/2018/12/04/pp120618gcc-trade-and-foreign-investment
2 Al-Ubaidly, O., & Jones, E. (2018, August). GCC economic integration: Opportunities and challenges. Derasat. https://www.derasat.org.bh/wp-content/uploads/2019/02/GCC-Economic-Integration.pdf
3 Mishrif, A. (2020). The GCC’s unsettled policy for economic integration. The Muslim World. https://onlinelibrary.wiley.com/doi/epdf/10.1111/muwo.12373
4 Legrenzi, M. (2006). Did the GCC Make a Difference? Institutional Realities and (Un)intended Consequences. EUI RSCAS. https://cadmus.eui.eu/handle/1814/3924
5 Kshetri, Nir & Ajami, Riad. (2008). Institutional reforms in the Gulf Cooperation Council Economies: A conceptual framework. Journal of International Management. 14. 300-318. 10.1016/j.intman.2008.01.005.