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Gulf Cooperation Council (GCC)Group 06 Presentation

for Managing Multinationals (8401) Course

Group Members

1. N064  – Koduri Srikant2. N066  – Sunil Tyagi

3. N070  – Vijay Singh

4. N072  – Vinay Kr. Jaiswal

5. N074  – Vivek Gaur 

6. N075  – Vivek Kumar 

7. N078  – Ramakant Yadav

8. S033  – Manoj Kumar 

9. S067  – Shiv Shankar 

10.S077  – Sukhdeep Singh

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Gulf Cooperation CouncilBackground and Basic Information

Members States – All Arab states of the Persian Gulf except for Iraq. Member states are

•   Bahrain•   Kuwait

•   Oman

•   Qatar 

•   Saudi Arabia

•   United Arab Emirates (UAE)

•   Yemen (in process of being added)

Key Characteristics of the GCC & its Members –

•   Political and Economic Union

•   Very powerful and effective politically.

•   All states are absolute monarchies and are oil rich.

•   Combined Population: ~51 million (2014 est.)

•   Combined Nominal GDP: ~$1,665 billion

•   All six currencies are pegged to the US dollar 

•   Very weak economic integration. Intra-member trade at 10% of exports (less than 5% of GDP).

•   Poorly diversified and mostly centralized economies with marginal private sector though changing of late - UAE, Bahrain, and Oman.

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Gulf Cooperation CouncilOrigin & Objectives

Origin –

•   Established in Abu Dhabi on 25 May 1981•   the original union comprised the Persian Gulf states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia

and the United Arab Emirates

•   The unified economic agreement was signed on 11 November 1981 in Abu Dhabi

Stated Objectives –

•   Formulating similar regulations in various fields such as religion, finance, trade, customs, tourism,

legislation, and administration

•   Fostering scientific and technical progress in industry, mining, agriculture, water and animalresources

•   Establishing scientific research centers

•   Setting up joint ventures

•   Unified military (Peninsula Shield Force)

•   Encouraging cooperation of the private sector 

•   Strengthening ties between their people

•   Establishing a common currency

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Gulf Cooperation CouncilEconomic Profile

Internal Market –

•  Common Market launched on 1 Jan 2008 with plans to realize a fully integrated single market.

•   However, implementation lagged behind due to economic crisis.

•   Common Market further integrated in Jan 2015 allowing full equality among GCC citizens (socialinsurance and retirement coverage, real estate ownership, capital movement, access to education,health and other social services in all member states)

•   Coordination of taxation systems, accounting standards and civil legislation are still acting as barriersin full integration

Monetary union –

•   Bahrain, Kuwait, Qatar and Saudi Arabia working towards single currency

•   UAE and Oman withdrew their membership from single currency due to 2008 financial crisis

•   A nominal GCC single currency already exists (Businesses trade using a basket of GCC currencies).

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Gulf Cooperation CouncilPolitical Profile

General Political Profile –

•  All six member states are absolute and hereditary monarchies with varying but limited politicalparticipations

•   All leaders can issue decrees with no institutional constraints

•   Their respective Judiciaries are simply extensions of the Executives

Other GCC Features –

•   All GCC countries have small populations with exception of Saudi Arabia (25.8 million)

•   Both public and private sectors rely heavily on expatriate workforce (at various degrees) with morepronouncement in the private sector 

•   On average 95% of domestic workforce is employed by the public sector 

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Gulf Cooperation CouncilRationales for GCC

Rationales for the GCC regional integration –

•  Joint security given the instability of the region

•   Collective external threats

•   Economic rationale

•   Political, institutional, and cultural similarities

Collective Security Rationales –

•  The onset of Iranian Islamic Revolution of 1979

•   The invasion of Kuwait by Iraq in 1990 with the subsequent first Gulf War 

•   The US invasion of Iraq in 2003 and the concern for instability to spill-over to the GCC countries

•   Offshore Islands dispute between Iran and the UAE

•   The massive presence of western military forces in the GCC countries

Economic Rationales –•   Endogenous optimum currency area (OCA) argument   – increase in trade following the adoption of 

fixed exchange rate

•   Elimination of transaction costs and risks associated with flexible exchange rates

•   Collective bargaining power on negotiating trade agreements with other regional integrations andcountries as a block

•   Allow for easy capital movement and efficient resources allocations

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Gulf Cooperation CouncilGCC Vs Monetary Union

EMU Criteria GCC Agreed Criteria

Average rate of inflation

over the previous 12

months

Must not exceed by more than 1.5percentage points of the three bestperforming member states

Weighted average of the sixcountries plus 2%

Deficit   Should not exceed 3% of the GDP

Should not exceed 3% of the GDPalthough some flexibility will beallowed to account for wildfluctuations in states revenues

Gross public debt   Should not exceed 60% of the GDP

Should not exceed 60% of theGDP

Interest rates  Average of the lowest six countries

plus 2% Average of the lowest sixcountries plus 2%

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Gulf Cooperation CouncilGCC and India

Economic Relations –

•  During 2011-12,

 India’s exports to GCC were $45.36 billion

•   The bilateral two-way trade during the period was $145.72 billion, marking a 24.13% increase over the previous year 

India’s Trade with GCC Countries ($ Billion)

Strategic Relations –

•   The Gulf constitutes the “immediate” neighbourhood of India separated only by the Arabian Sea

•   India and GCC share the desire for political stability and security in the region

•   Last year, at $70 billion, India was the largest recipient of remittances from its diaspora abroad of 

any country in the world and of that about $38 billion came from the GCC countries only

Country2009 – 10 2010 – 11 2011 – 12

Imports Exports Total Imports Exports Total Imports Exports Total

KSA   17 3.9 21   20 4.7 25   31 5.7 37

UAE   19 24 43   33 34 67   36 36 72

Oman   3.5 1.0 4.5   4.0 1.1 5.1   3.3 1.3 4.6

Kuwait   8.2 0.8 9.0   10 1.9 12   16 1.2 18

Qatar    4.6 0.5 5.2   6.8 0.4 7.2   13 0.8 14

Bahrain   0.5 0.3 0.8   0.6 0.7 1.3   0.9 0.4 1.3

Total 53 30 84 75 42 117 100 45 146

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Gulf Cooperation CouncilObstacles and Challenges

Economic Challenges –

•  Low factor mobility within GCC countries

•   Low economic diversification

•   Low intra - GCC trade

•   Mixed macroeconomic convergence

•   Some members economies are getting more diversified than others

Political and Institutional Challenges –•   Political will to abdicate national sovereignty on economic policy responses to shocks

•   Harmonization of existing institutions before moving forward with GCC integration

•   Agree on the extent of powers of a supra GCC institution

•   The role, influence, identity and power of the hegemon

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Gulf Cooperation CouncilConclusion

•   On regional integration as a whole some objectives are achievable and others may not be

•  Security agreements and alignment on foreign policies have been some what successful

•   Some steps towards full integration have been implemented and others have not

•   Lack of institutional convergence and the fear of losing sovereignty on economic policies havehindered the progress towards the full integration

•   A number of basic OCA criteria have yet to be met and convergence criteria are yet to be met or implemented

•

  Regional disputes hinder the progress towards GCC MU•   Neither costs nor benefits are expected to be large for the GCC MU