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GCC Expansion Could Create "Monarch's Club"

The discussions surrounding a possible expansion of the Gulf Cooperation Council (GCC) come at a strikingly turbulent time for the Arab World, and raise profound questions about unity in the region.

Souk Waqif at dusk Doha, Qatar.
Charles Bowman | Getty Images
Souk Waqif at dusk Doha, Qatar.

The GCC members include Saudi Arabia, Qatar, Kuwait, Bahrain, Oman and the UAE. They bring together a GDP of over $1 trillion and a relatively low population of almost 40 million people.

During my 2008 visit to the GCC Economic Summit in the Omani capital of Muscat, leaders were debating the prospect of adding Yemen. That has been going on since 1999, and officially the case is still being studied. Then there’s the dream of a common currency, widely dubbed the "Khaleeji," which remains on the backburner.

The announcement that the GCC is considering the inclusion of Jordan and Morocco was a surprise. But it’s all very vague at the moment.

“I think this proposal is very tentative. There’s nothing certain at this point in time,” Farouk Soussa, Chief Economist for the Middle East at Citi, told CNBC.

You can argue that the bloc is more powerful than the 22-member Arab League on a practical level, especially in terms of economic fundamentals. Sure, the implementation of the customs union has been delayed until 2015. Yet the GCC enjoys free movement of labor and there are no visa requirements to travel between countries.

You could then, assuming the latest two candidates do join, just jump in a car and drive from Bahrain across the vast Saudi Arabian desert to your holiday home in Amman, see the ancient city of Petra, then fly on to explore the delights of the souks in Fez. That’s on the weekend, of course.

After all, tourism is cited as one of the bloc’s strengths and “is already benefiting from the growing Chinese middle class”, according to a special report by the Economist.

Asia is expected to become the most important emerging-market region for the GCC. And that’s not just because of rising demand for oil, but also as a result of an expected shift towards domestic demand.

Following the GCC meeting in Riyadh, Secretary General Abdullatif Al-Zayani told reporters that talks would be held with respective foreign ministers to “complete required procedures”.

Why These Two?

Why Jordan and Morocco then? The former may make geographic sense, but the latter, by mainstream definition, is not considered part of the Gulf. It’s hard to ignore the fact that these are the only two remaining monarchies in the Arab World that are not part of the GCC.

Soussa argues that the case for greater Arab unity is “something that’s going to come out of the recent unrest in the Middle East”.

Skeptics will struggle to lend credence towards a genuine economic rationale for such a step. Many see the prospect of an expanded GCC more as a Monarch’s Club, as a growing alliance in the face of regional upheaval and pro-democracy movements.

That in turn may send the wrong signal to investors hoping for the gradual liberalization of the Gulf political landscape. The two smallest GCC members by the size of their GDP, Bahrain and Oman, have witnessed waves of unrest this year. In the case of Bahrain, GCC forces were sent in to protect the monarchy. A $20 billion aid package was also launched for the two back in March.

Apart from their political structure, there is not much more that binds the GCC with Jordan and Morocco, Simon Williams, Chief Economist at HSBC Middle East, told CNBC.

“I can see why the Gulf states might seek to improve ties with the other monarchies of the region, but actual membership of the GCC strikes me as unlikely,” Williams said.

He added that the sharp differences in their economies would also signify that any alliance would “necessarily be a very loose one”.

The members of the GCC are predominantly petrodollar economies, while the two new candidates are fundamentally different, and poorer. Their addition would almost double the GCC’s population to 77 million, mostly young and growing rapidly. Migrant flows, among other issues that come with the aforementioned disparities, will likely pose onerous policy challenges.

Nonetheless, it would be a step outside the box, a clear sign that the GCC is keen on playing a broader regional role, politically and economically, in the Middle East and North Africa.

Soussa agrees. “We have already seen overtures made towards Iraq in joining. I think that the narrow definition of the GCC will be expanded going forward”.

Contact Europe: Economy

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