This report focuses on its economic initiative that underlies the management of its health system, evaluates challenges and considers future options.

As a global pandemic looms over the world, Covid-19 has highlighted the strengths and weaknesses of health systems and policies from sovereign countries. The Gulf Cooperation Council (GCC) states have shown resilience in fighting coronavirus and managing the health crisis so far. This report focuses on its economic initiative that underlies the management of its health system, evaluates challenges and considers future options.

The pandemic has forced countries to implement necessary lockdown measures to tackle the disastrous human consequences, which has inevitably led to the lowest demand the energy sector has witnessed in years. Hence, the GCC countries are experiencing an economic crisis that is two-fold, geared by the plummeting prices of oil and by the Covid-19 pandemic. 

The six countries of the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) have taken steps that are precautionary, sensible and communicated efficiently to the public (Yousef, 2020). More importantly, they have implemented rigorous testing and quarantining, while maintaining the availability of basic goods and services through online portals. 

“the GCC countries are experiencing an economic crisis that is two-fold, geared by the plummeting prices of oil and by the Covid-19 pandemic.”

Although the GCC has better healthcare systems and public resources compared to the rest of the MENA (Middle East and North Africa) region, proven useful during the coronavirus crisis, these resources are also starting to experience the pressure of the regional economic instability. The probability of an economic collapse in the region largely hinges on the duration of Covid-19 and on the economic policies. Not only is this economic crisis rooted in the sudden plunge in domestic demand but it is largely aggravated by the fall in export demand from its main trade counterparts in Europe and Asia. Having China as their biggest economic partner has made the GCC economies increasingly vulnerable since the economic slowdown in China affects them directly (Haizam Amirah, 2020).

This consequence is part of a larger trend in this region, which is the over-reliance on energy exports and the hydrocarbon market. A staggering 85-90% of budget revenues for Gulf states come from hydrocarbon exports, and 67% of those exports are directed to East Asia. This has been continuously identified by many experts as a weakness for the Gulf economies and the current pandemic has only amplified it. Unlike the rest of the MENA region, where Chinese products make up a huge part of the markets, the GCC-China trade relation is generally in favour of the GCC. This acts as a huge advantage for the region a majority of the time, but during this pandemic, it means the loss of the large Chinese consumer market, which severely hurts the GCC economies (Fulton, 2020)

Burj Khalifa metro station

Another major industry that is gravely affected by the coronavirus pandemic in the Gulf region is the aviation industry. While the three largest carriers – Etihad Airways, Emirates and Qatar Airways – have managed to stay afloat, they have all faced financial challenges in recent years. In a pre-pandemic world, as national carriers, their governments would provide aid and rescue them. However, the adverse pressure on the GCC economies due to the fall in oil prices could curtail future subsidies (Yousef, 2020).

Economic diversification is becoming increasingly necessary in the GCC. Even though most GCC states have long term vision programs in place to veer them away from being rentier states, this transformation needs to be accelerated and made a reality as soon as possible. Nonetheless, this is easier said than done because these programs depend on energy exports for revenue in order to build a post-hydrocarbon economy. Therefore, the drop in oil prices due to this pandemic puts these initiatives in a strain. Dubai is one of the rare economies that rely on its tourism and hospitality industry more than the energy exports, which still fails to put them in a better position as they have seen the lowest average daily rates at hotels since 2003, experiencing a huge crash in those sectors (Yousef, 2020). In order to minimise the after-effects of this pandemic in the region, GCC governments must act in a timely manner with aims of containing the disruption, mitigating the risks and rebuilding their economic structures to make their growth more sustainable, in order to safeguard them from future crises (PwC, 2020).

“They have also taken steps to provide social safety nets by having fee exemptions and extensions on loan repayments and residency renewals.”

The GCC governments have already allocated stimulus packages, these packages may provide economic lifelines to the population, businesses and financial institutions and help in stabilizing the economy. They have also taken steps to provide social safety nets by having fee exemptions and extensions on loan repayments and residency renewals. Private-sector salaries for the next few months have also been secured by the governments. They have also taken various actions for consumer protection like banning price gouging and profiteering on high demand goods (PwC, 2020). 

Most importantly, the road to recovery needs to be sustainable. The actions and steps taken during the time of crisis response need to act as a foundation for a sustainable growth that progressively works towards diversifying the economy and getting rid of the weaknesses present in it. 

By Farzana Hussain

A contributor and member of the Cov360 team

25 April 2020

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