As the global financial crisis begins to show signs of ebbing, some of the Gulf Cooperation Council (GCC) countries – Saudi Arabia, Oman, United Arab Emirates, Kuwait, Qatar, and Bahrain are beginning to look ahead towards resuming healthy growth in 2010. It is too early to consider the crisis a thing of the past, but the GCC countries may be able to start finding a silver lining in that they were able to preserve their competitive position with the potential of emerging in a position of even greater relative strength. The GCC countries have shared a common storyline in their economic history. After becoming wealthy through their huge endowments of natural resources, the governments recognized the long term danger of being economically one-dimensional and have been diversifying into new manufacturing and services sectors. At the same time, the leaderships saw the need for economic reforms and liberalizations and have been making positive efforts to open up in recent decades. With oil prices and demand marching to all-time highs in the years leading up to 2008, the GCC states were able to underwrite ambitious infrastructure projects. Additionally, the oil revenues allowed the states to set up some of the lowest tax regimes in the world. Politically, some of the governments ably used their positions of stability and power to enforce reform and liberalization efforts. The result was that the GCC economies steadily improved their competitiveness and have been able to largely maintain their position in the aftermath of the economic crisis. In the 2009-2010 Global Competitiveness Report (GCR) compiled and released by the World Economic Forum on 08 September 2009, the GCC countries all sit in the top third of the world rankings. The more successful reformers such as Qatar, the United Arab Emirates and Saudi Arabia place in the top tier of the emerging markets by ranking 22nd, 23rd and 28th respectively out of a total of 133 countries. Of the components of the competitiveness rankings, the GCC countries generally scored highly in key categories such as tax regime (holding all top five spots in the ‘total tax rate' category), infrastructure, and macroeconomic stability. A theme of the rankings is that in many key indicators, the GCC countries were able to improve or hold ground while other countries weakened due to the economic crisis. For the pillar of macroeconomic stability, countries like Qatar (19 in 2008 to 13 in 2009) and Bahrain (20 to 5) made significant jumps in rankings while every other GCC country except Kuwait (dropped from 1 to 3) either stayed unchanged or made small gains. Notably, all of the countries except for Bahrain actually saw their raw score drop, but they were able to leapfrog other countries such as Hong Kong (dropped from 3 to 16) that faced deeper problems. Qatar had the best overall ranking in the Middle East by jumping four positions from last year's edition of the report as it continues to weather the economic crisis well. Qatar is moving in the right direction in many areas of competitiveness. The upgrading of the institutional framework continues (9th), and goods and labor markets are more efficient than in previous years, ranked 21st and 14th, respectively. In addition, the country has made great strides in harnessing the latest technologies, such as mobile telephony (2nd) and broadband (37th), and in opening up to foreign investment (it is ranked 13th on the restrictiveness of rules and regulations on FDI). Likewise, the UAE occupies the 23rd position in this year's GCR, building on the positive trend of the past few years despite worries about its public finances and exposure to the downturn in finance, tourism, and trade. But in a year when the ripples of the economic crisis were felt widely, UAE made its gains by doing relatively better than many other competitive countries. Despite the ability of the GCC countries to maintain or improve on their competitive status in the most recent GCR, they must continue to make structural improvements to their economies in order to continue their progress. The macroeconomic stability of the GCC countries has been key in allowing them to build up hard infrastructure and shield them from the worst of the downturn, but in order to sustain their competitiveness as the rest of the world emerges from the economic crisis, they must improve on the “soft” infrastructure that is still lagging. In order to transition into an innovation economy, the education system is an important means to increase the competitiveness of human capital. The GCR rankings for the quality of the educational system for the GCC countries were generally in the middle of the pack, with exceptions being Qatar ranked 10 and UAE at 20. However, looking at primary enrollment, which is important for the supply of quality labor, the GCC countries except for Bahrain (20) all fall far to the bottom half with Qatar (73), UAE (83), Kuwait (98), Saudi Arabia (109), and Oman (120). Saudi Arabia has been proactive in investing in education, with a ranking of 7 in education expenditure. However, that spending has not yet yielded significant results as its rank for primary enrollment lags at 109. Other countries like Oman and Kuwait rank low for education expenditures at 73 and 98, respectively and across the GCC, education investment and access needs to be increased and improved so that there is a competitive supply of local human capital. The ease of doing business also needs to be addressed in many of the GCC countries. The GCC countries have become well known for having streamlined a lot of the processes for setting up companies and investments, but on the opposite end of the business life cycle, the lack of proper bankruptcy laws makes it difficult to liquidate companies, which can be a disincentive for risky innovation, can ossify inefficient sectors of the economy, and can increase the cost of borrowing. According to the International Finance Corporation's “Doing Business” survey 2010, the GCC countries all rank relatively poorly in closing a business. Across the GCC, it takes an average 3.4 years to close a business and creditors recover 39 cents on the dollar, compared to averages of 1.7 years and 69 cents to the dollar in OECD countries. In order to improve on these measures, the GCC countries must undertake a comprehensive review and reform of their bankruptcy policies. Another common problem is that contract dispute settlement processes can be inefficient. According to the Doing Business survey, the GCC countries average 47 procedures and 590 days to resolve a sale of goods dispute, compared to 30 procedures and 462 days for OECD countries. Such inefficient processes can suppress transaction volume and create higher costs for companies doing business. These problems can be dealt with by implementing effective commercial arbitration mechanisms in addition to general reform of the legal process. The GCC countries have experienced tremendous success in increasing their competitiveness through investment and reform. While many other developing countries have been set back by the economic downturn, the GCC has held up relatively well and a few have actually been able to enhance their standing through investing fiscal stimulus into new infrastructure. As we enter the post-downturn world, the GCC countries have an opportunity to build on their position of strength by further improving their education and ease of doing business.
