Amidst the ongoing crisis of plummeting oil prices, the GCC (Gulf Cooperation Council) terrain has become a haunt of economists and financial analysts to tackle the ongoing challenges in the region. GCC constituents are gearing themselves with a robust political will that they hope could result in a turnaround of their economy by adopting a policy of economic diversification in non-oil-based sectors. With this background supported by extensive qualitative scan of literature pertaining to the reforms proposed by the six members of the GCC to drive the economy forward amidst ongoing economic crisis, the research paper seeks to underscore the prospect of a shared initiative by the GCC constituents in institutionalizing a GCC bank as a potent innovative solution which may serve to provide an edifice for pushing forth the region’s economy in non-hydrocarbon segments contingent upon the individual needs of the GCC constituents.
Conceding that the GCC region has been engulfed by the monetary policy shocks thereby resulting in a declining purchasing power, there has been a concomitant drop in the oil prices over the years from $110 per barrel in early 2014 to below $50 in 2017 (International Monetary Fund). Owing to the dent of the GCC economy, the GCC countries have been conceiving of measures to facilitate an economic diversification of their economy by increasing productivity, creating more well-paying jobs for the locals, improving the education systems and boosting entrepreneurial ventures and the private sector as a whole. In this backdrop, the role of a robust banking sector needs to be acknowledged for sustaining the growth of the region.
The banking and financial sector of the GCC remains the second major prospect after the oil and gas sector and it is important that a long-range strategic planning of consolidation be initiated by the banks to overcome the recessionary economy. In this vein, the possibility of a regional financial integration in the GCC is being proposed. Furthermore, there are similarities across the GCC constituents in terms of the structural and economic fundamentals (sustainable growth, price stability, and exchange rate stability) and with an appropriate approach towards economic diversification; the probability of an economic and monetary union seems possible. Besides, it has been underscored that banking concentration in developing countries may leave a positive impact on the overall economy of the region if the GCC members have similarity in inflation and business cycles. With the ongoing attempts at economic reforms to steer the economy in non-oil sectors, a major state innovation in the financial sector which could transcend local boundaries is via establishment of a GCC bank which would function as a crisis-handler besides monitoring the overall financial and monetary system in the GCC region.
The GCC bank is a major innovation in a bid to facilitate the GCC region to turn around the regional economy into non-oil-based sectors. The GCC regional heads need to take a tough stand and identify the areas of commonality and diversity in terms of their needs besides appreciating their strengths and weaknesses. Implicitly, the member countries must forge a united front to come up with the ways and means in which the bank might propel their local initiatives into spearheading their economy away from oil into other sectors. Therefore, the identification of the major and minor sectors contingent upon the unique or common needs of the GCC constituents assumes immense significance.
The first requirement for the institutionalization of a GCC bank relates to the requirement of a desired political will to move ahead with the formulation and implementation of the idea itself. The significance of politico-administrative will while introducing any government reform in the context of economic diversification has been deemed to be very much relevant in the GCC case where the society and administration are closely intertwined. Therefore, the required political will for the institutionalization of a GCC bank includes the selection of the headquarters of the bank at a mutually convenient and unanimously agreed upon location that is easily accessible to all and has the required infrastructure to ensure the long-term sustainability of the bank.
The second condition pertains to the contribution of the partner countries in terms of the overall construction and maintenance of the bank. Therefore, right from the conceptualization stage until the final functioning of the bank, it needs to be ascertained as to what are the divisions of the bank, what are the minor and major requirements for the successful operation of the bank and what is the human resource planning in line with the overall aim and purpose of the bank. Given the impetus on financial automation and innovation in conventional banks, the GCC bank also needs to remain committed to institutionalize the culture of innovation in every activity. Finally, the conceptualization and implementation of the idea should find favour with the international community at large. This is in keeping with the trade and socio-political links with other countries across the globe.
Stuti Saxena and Aflah Said N al Hadhrami argue for instituting a GCC bank to facilitate the economic diversification of the GCC region
(The authors of the research paper “Do we need a GCC bank to facilitate the economic turnaround of the GCC region?”, published in the leading academic journal, “Digest of Middle East Studies” (Vol. 26 No. 2) are Stuti Saxena (Member, American Political Science Association and Researcher (Political Science), Central University of Haryana, India) and Aflah Said N al Hadhrami (Member, Oman Society for Petroleum Services and Vice-President [Supply Chain], Occidental, Oman).