GCC Scenarios

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<ul><li><p>The GCC countries have benefited enormously</p><p>from oil and gas reserves and assets that have</p><p>generated significant financial liquidity in the six</p><p>years between 2001 and 2007. The present</p><p>wealth poses an interesting question for those</p><p>interested in the future of the GCC countries, and</p><p>one which these scenarios seek to address: How</p><p>can this wealth be put to use to ensure that the</p><p>GCC countries expand in affluence, while</p><p>overcoming the internal and external pressures</p><p>that could shift them from the path of sustainable</p><p>prosperity?</p><p>Key Questions for the Scenarios</p><p>From amidst the many drivers identified by</p><p>project participants, the scenario process</p><p>identified two focal questions that have the</p><p>ability to alter the fortunes of the GCC countries</p><p>in the next two decades:</p><p> Will leaders in the GCC countries bewilling and able to implement the</p><p>necessary economic and political reforms</p><p>and enforce the rule of law, both in public</p><p>and in private governance?</p><p> How can the GCC countries maintaininternal order and stability, in particular</p><p>vis--vis a complex and uncertain</p><p>regional situation?</p><p>As important as these questions are, more</p><p>crucial are the insights that can be gleaned </p><p>from considering what these questions imply. </p><p>In positing three possible futures which address</p><p>them in different ways, two key themes</p><p>consistently emerged as being crucial to the</p><p>future of the GCC countries:</p><p> Education and innovation: The GCCcountries face the challenge that their</p><p>collective oil reserves, while vast, will not last</p><p>forever. Nor are oil and gas always a reliable</p><p>source of wealth; there have been many</p><p>times where GCC budgets were in deficit</p><p>and public debt rose as a result of falling</p><p>energy prices. However, in attempting to</p><p>diversify away from oil, the GCC countries</p><p>face a major problem in that their existing</p><p>skill base for workers is low by world</p><p>standards and relatively little research,</p><p>development and innovation are occurring</p><p>in the region. This creates an impediment</p><p>to development and exacerbates other</p><p>problems associated with importing both</p><p>foreign workers and technologies. As a</p><p>result, the way in which education policies</p><p>are handled by GCC governments will be a</p><p>significant determinant of the regions ability</p><p>to develop as innovation-based economies</p><p>that do not wholly rely on natural resources.</p><p> Leadership and governance: The GCCcountries are ruled by traditionally-organized</p><p>family groups, with varying underlying</p><p>executive, legislative and judicial models.</p><p>Leadership and governance will therefore be</p><p>instrumental in determining the path that the</p><p>GCC countries will take over the next 20 years.</p><p>Although much is being undertaken today in</p><p>terms of reform to improve the efficiency and</p><p>openness of these systems, the strategies</p><p>chosen and the rates of change vary between</p><p>GCC countries. In managing both internal</p><p>stability and reforms, leadership plays a</p><p>critical role at all levels of GCC government</p><p>as well as in the private sector.</p><p>6</p><p>2</p><p>Se</p><p>ctio</p><p>nSection2:Executive</p><p>Summ</p><p>ary</p><p>Executive Summary</p><p>TheGCC</p><p>Countriesand</p><p>theW</p><p>orld:Scenariosto</p><p>2025</p></li><li><p>Scenario Paths</p><p>Three different paths for the GCC countries</p><p>through to 2025 are represented in figure 2.1,</p><p>displayed as movements through a matrix</p><p>defined by the focal questions above.</p><p>Will the GCC countries successfully insulate</p><p>themselves from ongoing regional instability in</p><p>order to respond to internal pressures, firmly</p><p>establishing the rule of law and achieving</p><p>effective governance and institutional reforms?</p><p>Oasis is a story where a focus on technocratic</p><p>governance and top-down institutional reforms</p><p>pays off in the form of a well-organized, cohesive</p><p>and prosperous regional grouping. The regions</p><p>economic growth, however, remains partially</p><p>constrained by over-regulation and less-inclusive</p><p>globalization. </p><p>Will GCC governments allow regional</p><p>tensions to spill over and affect their internal</p><p>security, resulting in a focus on short-term</p><p>solutions at the expense of tough reforms?</p><p>Sandstorm is a scenario in which dramatic</p><p>regional events and domestic unrest contribute</p><p>to the GCC countries failing to maintain</p><p>their momentum of reforms, with negative</p><p>consequences for the regions economic and</p><p>social development.</p><p>Will GCC governments succeed in taking</p><p>advantage of globalization in a more stable</p><p>regional environment through bold reforms at</p><p>the institutional and political levels? The Fertile</p><p>Gulf is a future where GCC governments invest</p><p>heavily in education and innovation in order to</p><p>create a healthy private sector while encouraging</p><p>reforms through a bottom-up process. This results</p><p>in a more socially integrated and economically</p><p>diversified region that occupies an increasingly</p><p>relevant position in the international scene. 7</p><p>Section2:Executive</p><p>Summ</p><p>aryThe</p><p>GCCCountries</p><p>andthe</p><p>World:Scenarios</p><p>to2025</p></li><li><p>8</p><p>Section2:Executive</p><p>Summ</p><p>ary</p><p>Oasis describes a scenario where regional stability</p><p>continues to be a challenge for the GCC countries, which</p><p>are nevertheless able to achieve substantial institutional</p><p>reforms. The GCC countries develop strong identities and</p><p>work together to coordinate diplomatic and economic policies</p><p>through technocratic governance and a strong internal</p><p>market. Over-regulation slows the process of globalization,</p><p>impacting the GCC countries; nonetheless, they are an oasis</p><p>of stability and prosperity in an otherwise troubled region.</p><p>The story is written as a press conference by a member</p><p>of the Kuwaiti leadership and a Saudi technocrat delivered</p><p>in Kazakhstan in December 2025.</p><p>Sandstorm describes a future where regional instability</p><p>is a defining factor, affecting the ability of GCC countries to</p><p>effectively carry out much-needed institutional reforms.</p><p>In a depressed global environment, reforms deflate or collapse</p><p>due to a lack of attention to the root cause of internal issues</p><p>and a tendency for governments to focus on short-term stability</p><p>at the expense of long-term solutions. Caught in a shifting,</p><p>violent environment, the GCC countries are blinded, unable to</p><p>navigate their way out of the sandstorm and identify</p><p>opportunities for prosperity for their populations.</p><p>This scenario is written as a transcript of a televised debate</p><p>on Arab satellite television, discussing the progress the GCC</p><p>countries have made from the vantage point of 2025.</p><p>The Fertile Gulf describes the rise of the GCC countries</p><p>as innovation hubs in a global environment characterized</p><p>by strong demand for energy and increasing globalization.</p><p>Regional stability gives the GCC countries the opportunity</p><p>to focus on enhancing their human capital at all levels,</p><p>investing heavily in education while proceeding carefully</p><p>with political and institutional reforms to support their growing</p><p>economies and societies. In this way, a fertile garden of</p><p>prosperity is established along the Persian Gulf.</p><p>Written as a business magazine interview, The Fertile Gulf</p><p>is an account of the experiences of a successful young</p><p>entrepreneur from the GCC region, who has taken advantage</p><p>of the changes between 2007 and 2025 to develop a range</p><p>of global enterprises.</p><p>Oasis</p><p>Sandstorm</p><p>The Fertile GulfThe</p><p>GCCCountries</p><p>andthe</p><p>World:Scenarios</p><p>to2025</p></li><li><p>2007-2012: Growing tensions and insecurity spur a seriesof multilateral conferences involving the leadership of GCCcountries; the problem of regional violence is addressed atpolitical and cultural levels, resulting in increased regional stability.At the same time, recognizing the importance of education andinnovation, a number of GCC governments decide to spend theirbuilt-up wealth on educating their people and jump-startingresearch and development in a radical and dramatic fashion.Encouraging entrepreneurship by creating more business-friendlyregulatory and institutional environments and establishing fundsfor the development of new business ideas, the GCC countrieseffectively begin to emulate the Silicon Valley model.</p><p>2013-2020: Less volatile, but still bullish, oil markets dont distractGCC countries from private, non-energy sector development,the success of which reduces national unemployment whilecreating an array of sought-after, highly skilled jobs for thosecoming out of the newly reformed education system. A series ofinternational bilateral agreements to financially support researchprojects in exchange for IP rights results in an innovation explosionin the GCC countries. Incremental improvements in institutions tomanage the burgeoning entrepreneurship combined with a moreinfluential business community further support regional development.</p><p>2021-2025: Political reforms, which have proceeded at differentstages across the GCC countries, find balance; Western democraticideals are not directly transplanted. Instead, governmentsgenerate their own models of participatory governance over aperiod of experimentation and increasing engagement with theirpopulations. After a sea change in both attitudes to and theprovision of tertiary education, Arab graduates are keenly soughtafter for positions in finance, engineering and medical sciencesin Europe, Asia and North America. The GCC countries emergeas an innovation hub, where the constraint of demographics isturned into a world-class asset.</p><p>9</p><p>Section2:Executive</p><p>Summ</p><p>ary</p><p>2007-2012: As tensions rise in the Gulf with regard to Iran andproblems persist with sectarian and insurgent violence in Iraq,the GCC progressively develops a coordinated regional economicstrategy to make the most of relatively high oil prices. There isa focus on building the private sector through targeted incentivesfor domestic and foreign investment. The skills shortage beginsto be addressed by educational reform aimed at enhancinghuman capital in strategic sectors.</p><p>2013-2020: Nuclear proliferation causes regional concerns andincreases the volatility of the oil price. Efforts to accelerateeconomic diversification continue with strategic R&amp;D investments,capturing more of the energy value chain, and increasing the worldmarket share of associated industries. Educational standards areestablished across the GCC countries to create a deeper, regionallabour market. A particular focus is the creation of public affairsmanagement colleges to educate a generation of technocratsin order to increase the effectiveness of the public sector.</p><p>Political reforms progress slowly, with pressures from localpopulations managed through a combination of financial incentivesand partial inclusion through (mostly symbolic) consultative bodies.</p><p>2021-2025: Governance structures in 2025 are profoundlydifferent from those in 2007. A generation of talented, nationallyeducated technocrats ensures that, for the most part, GCCnational institutions are efficient and effective. Ruling familiesprimarily act as occasional advisors rather than executive leaders,and there is a strong meritocratic culture throughout the publicand private sectors. Governments are focused on refining theirindustry policies, which occasionally fail, but which have beenfairly successful in a global environment characterized by solidgrowth. Oil continues to be the primary source of budget revenuefor the GCC countries due to the fact that oil prices are robust.</p><p>2007-2012: The Gulf region is thrown into chaos in 2009when the US undertakes a military strike against Iraniannuclear sites, provoking Iranian missile attacks on US basesin GCC countries along the Gulf and helping to precipitatea global recession. In addition, populations in GCC countriesreact strongly, resulting in a period of internal instability.GCC governments scramble to head off internal andexternal threats to their authority.</p><p>2013-2020: In a depressed global environment, reformsdeflate or collapse due to a lack of attention to the rootcause of internal issues and a tendency for governmentsto focus on short-term stability at the expense of long-termsolutions. What oil revenue exists is diverted, in attemptsto ensure regional security through extensive armspurchases, investment in non-productive assets and capitalleakage to Europe. A series of terrorist attacks causes Gulfpopulations to carefully consider their internal security.</p><p>2021-2025: The GCC countries are caught in a trap ofneeding to control their populations out of fear of furtherunrest, but being thereby unable effectively to create theconditions for renewed growth, despite rising oil revenues.Thanks to resilient populations making the most of theglobalization of communication, a new sense of identityemerges although the broader humanitarian cost isconsiderable and at least partly avoidable. Succeedinggenerations hope to make a better start in 2025, but theyhave far less to work with than they might have had.</p><p>TheGCC</p><p>Countriesand</p><p>theW</p><p>orld:Scenariosto</p><p>2025</p></li><li><p>10</p><p>Section2:Executive</p><p>Summ</p><p>ary</p><p>Comparing the three scenariosThis table provides a comparison of some of the most import aspects of the scenarios, with more</p><p>analysis presented in section 6.</p><p>Exploring the Future of the GCC countries and the WorldThese storylines were developed by the project team in conjunction with approximately 80 thought leaders,</p><p>workshop participants and experts. The scenarios are supported by detailed economic and energy modelling</p><p>provided by our research partners. Boxes on selected topics have been included within the scenarios, and</p><p>presented in creative formats to further illuminate the key drivers that will shape the GCC countries as well as</p><p>provide depth to the stories. </p><p>We now invite you to turn the pages, travel through time, and see for yourself what the future of the GCC</p><p>countries and the world may be like over the next 20 years.</p><p>TheGCC</p><p>Countriesand</p><p>theW</p><p>orld:Scenariosto</p><p>2025</p><p>Oasis</p><p>Globalization continues, temperedby security concerns. Morecoercive rules and regulationslead to less integration betweendifferent cultures and societies.</p><p>Solid economic growth issupported by robust oil pricesand a focus on diversificationthrough industry policy. Incomedisparity widens.</p><p>Unbalanced development.Social discontent managed byeffective institutions andcontinuation of the welfare state.</p><p>Effective relations with Asiaand the West are driven bycohesiveness within the GCCcountries. Regional instabilityremains a challenge.</p><p>Strong institutional governancesupports current rulers. Minimaldemocratic reforms, despitegreater consultation.</p><p>Sandstorm</p><p>Security issues, domesticconcerns and national focusdominate.</p><p>Low oil prices due to a pricecrash in 2011 create budgetand debt problems for GCCgovernments. Private and non-oilsectors languish in anunfavourable regional andglobal environment.</p><p>Significant social tensionsexacerbated by threat ofterrorism, breakdown of thesocial welfare system andincreasing income inequality.</p><p>Continued reliance on the USfor security, driven by regionalinsecurity and reactive externalrelations.</p><p>Insecure leaders focus on short-term stability. Institutionaleffectiveness and long-termvision neglected.</p><p>The Fertile Gulf</p><p>Heightened globalization.More cohesive societies andintegrated cultures.</p><p>High oil prices, strong globaldemand, market mechanismsand significant investment ineducation and innovationproduce rapid GDP growth ande...</p></li></ul>