Future of Emirati women often determined by parents

Parental attitudes can reduce the cultural barriers that keep Emirati women from entering the workplace.

https://www.thenational.ae/uae/education/future-of-emirati-women-often-determined-by-parents-1.687617

Melanie Swan | The National | January 29, 2014

A study polled 335 female citizens between the ages of 15 and 24 from across the country.

The research team was led by Dr Emilie Rutledge, associate professor of economics at UAE University, who presented their findings to academics at the Mohammed bin Rashid School of Government (MBRSG) on Tuesday.

“Parental influence has a significant role on a given female’s likelihood of seeking to enter the labour market post-graduation,” she said. “Parental support reduces what women perceive as cultural barriers to employment.”

Sixty-eight per cent of the women said their parents influenced their decisions about careers, and 80 per cent said they preferred to work in the public sector.

Forty-six per cent said they felt it was the Government’s responsibility to find them work in the public sector.

Working in education, the civil service and police were deemed the most culturally “acceptable” careers for an Emirati woman, although areas such as advertising, marketing and pharmaceuticals were deemed more “attractive”.

“However, if parents are engaged in the vocational decision-making process, the female is more likely to consider exploring opportunities in the private sector,” Dr Rutledge said.

For Emiratisation to be successful, there must be more emphasis on these other fields rather than banking, human resources and finance, which the women did not consider interesting or attractive, Dr Rutledge said.

“Being in a gender-segregated environment was not as important to the girls as the salary or the job being interesting was, even if society or parents as a whole object to this,” she said.

Dr Rutledge cited holiday time and maternity leave as important, both of which were more attractive in the public than private sectors.

Ensuring the women return to the workplace through flexible working times and better maternity benefits was vital.

“A lot of females leave the workplace when they have a family because of the poor provisions, so they simply don’t go back and in turn, they lose their skills,” she said.

A father’s level of education was key in determining how his daughters would be guided. Fathers with degrees are more likely to support and encourage women to seek employment.

“Private-sector career paths are more attractive if the parent already works in the private sector,” Dr Rutledge said.

“This is of importance as there is merit to incentivising more Emirati males into higher education for the long-term participation of Emirati women in the labour market.”

Women graduate at a 3 to 1 ratio from UAE federal universities.

Dr Maryam Salem Al Marashad has been a long-standing academic at UAE University since she graduated with the first batch of students in 1977.

She left her post as dean of students two years ago but is still active in academia. She said a husband’s influence could not be underestimated.

“We see many girls at UAEU get married in their third year, so by the time they are going to the labour market, it is not only the family but their husband – she is stuck with an answer from her husband that she can or cannot work here or there.”

Geography will also sway a woman’s choices, she said.

“In Fujairah when I go to my bank, the whole first row is full of Emirati women who are supporting their families and are interested to work,” she said. “In Abu Dhabi or Dubai where there are many more opportunities, they can afford to be more picky.”

MBRSG’s head of gender and public policy, Ghalia Gargani, said more research was needed for the long-term participation of Emirati women in the job market.

Only 9 per cent of the labour force is Emirati, a fifth of them women.

“We need to think of ways to have policies for both men and women to balance their work and life and the responsibilities that come with their culture here,” she said. “It’s very relevant to research we’re doing here on the family unit.”

Companies to be rated according to how ‘Emirati-friendly’ they are

Amna Al Haddad | The National | October 16, 2011

https://www.thenational.ae/uae/companies-to-be-rated-according-to-how-emirati-friendly-they-are-1.473096

A list is being compiled by the Great Place to Work (GPTW) institute in the UAE, which will conduct surveys to sort the best from the average.

1,400 teachers to lose their jobs by end of year Move is part of Emiratisation plan and will also see male teachers replaced with females in lower grades. Read article

GPTW-UAE is part of a global research and consultancy group that releases an annual list of the best places to work in the world, and in 45 countries.

The Great Places for Emiratis to Work index is a new sub-list of their annual survey, which will highlight companies with strong Emiratisation programmes in various sectors.

“We want to highlight the diversity of disciplines available to Emiratis,” said Dr Farrukh Kidwai, the chief executive of GPTW-UAE.

“This will broaden the avenue for them to participate in the private sector and hopefully boost the knowledge economy in the UAE.”

A paper by Ingo Forstenlechner and Emilie Rutledge from UAE University, published in the Middle East Policy Journal last summer, showed Emiratis account for only 4 per cent of the private sector workforce.

Nadia Salameh, a consultant who specialises in Emiratisation at Cobalt Recruitment, said Emiratis were most likely to take up private-sector jobs in human resources, marketing, engineering, business management and organisational development.

“Emiratis should believe from an early age they can work in any field,” Ms Salameh said. “Companies that encourage continued learning are the most successful in Emiratisation.”

The normal GPTW-UAE list is drawn up according to two scores.

A “trust” survey is completed by all employees to measure aspects such as camaraderie, respect and pride, and accounts for two thirds of the final score. A second survey quizzes management and HR to gauge the corporate culture.

The Great Places for Emiratis to Work list will only take the corporate cultural audit into account, as many companies may not have many national employees but do have excellent Emiratisation programmes at management level.

“There are companies that have impressive programmes regarding Emiratisation and we want to communicate those to the wider public, as they are doing outstanding work,” he said.

Mohammed Hamza Al Qasimi said his experience in working for the French oil company Total helped him to develop many skills.

Mr Al Qasimi was recently sent to Paris to oversee a project related to a challenging oilfield in the Middle East. “The international experience I’ve gained from my assignment in Paris is not only beneficial on a personal level,” he said.

“I am really looking forward to more challenges in my career in France and by absorbing those challenges I will be able to return the favour to my country, and bring new and innovative ideas in the development of UAE oil and gasfields.”

Mr Al Qasimi was chosen for an internship while studying for his bachelor of applied sciences at the University of Waterloo in Canada. He did an internship at the Abu Dhabi office of Total in 2004.

“I was given a challenging project in the geosciences domain,” he said. “I was a bit worried but the confidence management placed in me made me realise I was up to the challenge.”

The company then offered him a scholarship to complete a Masters of Science at Institut Francais du Petrole in France before he joined Total full-time in 2009.

Suaad Al Hajri, 33, who has 12 years’ experience in the private sector and now works at a senior level in treasury and cash management for Aldar Properties, said the workplace was challenging at first because of the misconception private companies had about Emiratis.

“I tried my best to work hard and prove myself,” she said. “I was so lucky that my management noticed me and gave me all the chances to develop my career, motivate me and give me all the delegation I needed to get the job done.

“If you want to be successful in your career you have to take the charge of your own growth. Ask for specific and meaningful help and plot out your personally developed plans and goals.”

Companies older than two years that employ more than 50 people may register to be included on the GPTW-UAE list until October 31.

Government a draw for Emirati women

Many Emirati women prefer private-sector careers, but the allure of high-paying, stable government jobs is hard to resist, new research shows.

Asa Fitch | The National | October 6, 2011

https://www.thenational.ae/business/government-a-draw-for-emirati-women-1.428959

Emirati women often prefer careers in the private sector but see government work as more realistic and socially acceptable, according to new research from the UAE University and the Emirates Foundation.

The study by professors at the university in Al Ain asked 335 Emirati women with an average age of 21 to rank what they considered the most “attractive” and the most “appropriate” jobs.

The women put educational careers at the top of both lists, but listed jobs in advertising, sales, consumer goods and beauty therapy as the next most “attractive”.

Jobs near the top of the “appropriate” list included bastions of the public sector: civil service, the police force and health care.

“The public sector is considered much more appropriate and that’s still a major issue,” said Professor Ingo Forstenlechner, one of the academics who worked on the research project. “It’s not an unknown issue, but it’s a big one.”

The research, funded with help from the Emirates Foundation and Occidental Petroleum, comes as the UAE steps up its long-standing Emiratisation drive, which aims to bring more UAE nationals into the private-sector workforce as the country’s economy develops.

Surveys have repeatedly shown Emiratis would rather take government jobs because of the better pay, better benefits and shorter working hours they offer.

“Our findings add weight to the contention that the UAE’s labour market distortions are in no small part due to the national cohort’s desire to work in [the public] sector,” the UAE University research paper said.

“Irrespective of profession or occupational role, the public sector is a more realistic sector to pursue a career in because of the compensation packages and work-life balance it affords to national employees.”

The study, led by Emilie Rutledge, an assistant professor of economics, found that in addition to better pay and shorter hours, Emirati women considered government work preferable because it was more acceptable culturally.

“It’s not that they don’t want to work anywhere else [other than the public sector], it’s that it’s expected for them,” Prof Forstenlechner said. “There are some occupations they report as being attractive which simply don’t happen among Emirati women.”

The study’s authors also noted some of the sectors targeted by government Emiratisation bodies did not align with jobs women actually wanted.

“Of particular note to labour market policymakers in the UAE, it seems that the professions, industries thus far targeted for labour nationalisation quotas, particularly human resources and secretarial positions, are not in sync with the sorts of career choices Emirati women consider, be it in terms of [appropriateness] or attractiveness,” the study said.

Manar Al Hinai, an Emirati fashion designer and writer in Abu Dhabi, pointed to better pay packages in the public sector as a critical force behind the preference for government work.

Women had been moving into the private sector in greater numbers before the Abu Dhabi Government raised salaries across the board a few years ago, she said.

“Before Abu Dhabi increased the salary packages just a few short years back, many of my female friends preferred to work in the private sector,” she said.

“To them it was fun working in, for example, an advertising agency, or a TV network.

“However, now the salary packages have increased, many find it useless to work in an organisation that offers Dh6,000 [US$1,633] or less in comparison with the government sector that is secure, has shorter working hours and pays way higher.”

The UAE University study also looked at the role of parental influence on Emirati women’s career choices.

Those whose parents were well educated and in the workforce were more likely to follow suit. Those whose parents were less well educated were more likely to be discouraged from working.

“Parents also interfere when it comes to the job-selection process,” Ms Al Hinai said. “They know how much the government jobs pay and if they are going to allow their daughter to enter the workforce, then it might as well be worth their time.”

The push given by parents, however, was found to be a weaker factor than the pull of the public sector.

Fewer than 10 per cent of respondents to the survey said they planned to work within the private sector, while a full 28.4 per cent said they would not work at all unless they could get a government job.

Another 49.6 per cent said they would wait for a future government job rather than taking a private-sector job right away.

“We do observe, though, that the subsamples whose parents both have advanced levels of education or are both currently employed are on average more willing to consider private-sector career paths,” the study’s authors said.

“In addition, the sample members who had a parent working in the private sector were themselves significantly more likely to consider employment in this sector.”

Emiratis ‘must be steered into private sector’

The public sector employment market is reaching ‘saturation point’ and focus should be on education and subsidising the private sector.

https://www.thenational.ae/uae/emiratis-must-be-steered-into-private-sector-1.514367

June 6, 2010 | The National | Kareem Shaheen

The Emirati public sector employment market is reaching “saturation point” and the Government should focus on educational reform and the subsidisation of private sector wages rather than Emiratisation quotas, according to a new policy study. The state can no longer act as an employer of first and last resort and public sector jobs should not be part of the “social contract” by which the Government distributes oil wealth to its nationals, according to the radical report to be published later this year.

Instead, the Government should concentrate on diversifying the economy, greater career exploration in school and college, subsidising the salaries of Emiratis in the private sector and increased support of state-owned private companies. The study was compiled by researchers from United Arab Emirates University (UAEU) and will be published during the summer in the Middle East Policy journal. The authors present a range of solutions to boost employment and communicate the message that over-reliance on the Government for employment is not feasible, drawing on wide-ranging employment research.

Concern has been rising over Emirati unemployment, which has reached 14 per cent in the capital. In January, the director general of the Abu Dhabi Education Council called the figure “alarming”, saying it demanded urgent attention. Emiratis make up just four per cent of the private sector workforce, compared with 52 per cent of the public sector. “There is a growing realisation within the region that public sector bureaucracies have reached the saturation point. They can no longer act as an employer for first and last resort,” the study says.

Ingo Forstenlechner, assistant professor of human resources management at UAEU, and one of the paper’s authors said: “The dream of most of my students is to work in the municipality. That’s not going to help the country and it’s not going to be possible.” His co-author, Dr Emilie Rutledge, an expert on Gulf fiscal policy, is an assistant professor of business and economics at the same college. Feddah Lootah, the acting director general of Tanmia, the UAE’s employment agency, said the deep divide between the public and private sectors was to blame for Emiratis’ preference for government jobs.

Experts often argue that the higher wages, shorter working hours and greater job security of the public sector act as incentives that drive locals away from private companies. “Not only this, but they continue to encourage the private sector to import and recruit cheap foreign labour under the umbrella of competitiveness,” said Ms Lootah. Under-15s make up roughly 39 per cent of the Emirati population in the capital, and those between 20 and 40 constitute 40 per cent. Emiratisation experts argue that the public sector cannot absorb such large numbers.

This new approach is necessary because many long-standing employment policies have not reversed the absence of nationals in private companies, the paper says. Employers still lack confidence in the country’s education system. A survey by the Mohammed bin Rashid Foundation found that just half of Arab executives felt that nationals were competent enough to work in their industries. This was because the education system rarely adhered to the needs of private sector employers in the Gulf, said Ms Lootah, which “was at the core of these countries’ dilemma of importing expatriate labour to bridge the vacuum of qualified human resources”.

This gap was still contributing to the unemployment of new national graduates, she added. Almost double the number of students in Grade 12 in the UAE choose the humanities track instead of sciences, according to the Ministry of Education, contributing to this gap in expertise. Many attempts at diversification have met with limited success. Manufacturing is not viable because of the small size of Gulf markets, and job categories like hairdressing and waitressing are deemed inappropriate for the local population, the paper says.

Quota systems, which require private companies in some sectors to hire a set percentage of Emiratis, call into question the “region’s business-friendly persona”. Affinity towards the government sector had contributed to unemployment because many nationals preferred to stay out of work for years rather than work at a private company, said Dr Forstenlechner. One solution, he said, was to strengthen state-owned private companies. Another was to subsidise private sector employees from the UAE, “topping up their private sector salary” or giving them government pensions.

He said the UAE’s significant investment in educational reform and new university campuses were good first steps. The country’s nuclear programme has won praise for including a development plan that ensures the deep involvement of Emiratis. Shaikha Eissa, a public sector employee at the Ministry of Social Affairs, who used to work for a private company, felt that concern that the public sector was “saturated” was overblown, but said she would not mind working for a private company again.

“Both types of jobs are enjoyable, I don’t know why people make a big deal out of it,” she said. “As Emiratis, we aren’t scared of the private sector. There is no constant worry that the company might fail, because our Government stands by us even if we are in the private sector.” She acknowledged that working in a government job could often be comfortable, but “work in the private sector is enjoyable and has creativity, and you can play a big role in the company”.

Ms Eissa said she preferred working at the private company as it had better long-term incentives and individuals were more likely to shine. While the public sector constantly needed new blood to replace its retirees, “if I had the chance, I would work in the private sector because it has a future.”

Time to rethink dollar peg

The UAE’s decision to opt out of the planned GCC monetary union is a fundamental setback to the planned Gulf single currency, and illustrates a deep concern at the heart of all monetary unions – that of ceding sovereignty over economic and monetary policy.

by Emilie Rutledge | May 20, 2009

The UAE’s decision to opt out of the planned GCC monetary union is a fundamental setback to the planned Gulf single currency, and illustrates a deep concern at the heart of all monetary unions – that of ceding sovereignty over economic and monetary policy.

The announcement from Riyadh that the Kingdom – already home to the GCC Secretariat – will host the GCC central bank, clearly illustrates its desire to exert control over the monetary union’s decision making bodies.

This, of course, is of particular concern to its smaller neighbours, as exemplified by Abu Dhabi’s response. It indicates that in a future monetary union, the Kingdom might attempt to steer future joint economic and monetary policy to suit its own domestic economy.

Objectively speaking, the UAE had the strongest case to host the bloc’s central bank. With its high standards of regulatory quality, excellent banking infrastructure and a critical mass of banking institutions and expertise, the UAE has justifiably earned its international reputation as the Gulf’s financial centre. Indeed, other central banks in the region, such as Kuwait, also appeared to favour the UAE as a ‘safe’ location.

Whether or not the loss of national control over economic and monetary policy is perceived as too burdensome by the smaller GCC states remains to be seen.

With Oman already out of the picture, Kuwait’s peg to a basket and Qatar’s on-off relationship with the Kingdom, could a Bahraini-KSA monetary union take place in 2010? Even this may be unlikely, recalling that Bahrain, not so long ago, forged ahead unilaterally with a US Free Trade Agreement.

For the UAE, the utility of its dollar peg is likely once again to resurface, for it is no longer a requirement of the GCC integration process. A move to a trade-weighted basket peg, à la Kuwait, would perhaps better serve the UAE’s economy.

Your dinar is in the oven

It now seems inevitable that the GCC’s monetary union (MU) project will be delayed. The ground has already been prepared, so to speak.

Emilie Rutledge | November 2, 2007

It now seems inevitable that the GCC’s monetary union (MU) project will be delayed. The ground has already been prepared, so to speak. The central bank governors of the bloc’s two largest economies, Saudi Arabia and the UAE, recently said that the 2010 deadline is “very ambitious” and that the project may be postponed to “2015 or beyond”.

Few will be surprised. In conjunction with the lack of tangible progress, there has recently been a series of setbacks. The first was Oman’s decision to opt out; clearly a psychological, if not economic blow. The second was Kuwait’s decision to revert back to a trade-weighted exchange rate peg. Between 2003 and mid-2007 it had aligned itself with all other states by officially pegging to the dollar (albeit with a small band of flexibility).

Potentially the most significant setback, however, was a collective decision in September which permitted member states to tackle inflation independently. If this translates into diverging monetary policies, it will jeopardise (even further) the stability of bilateral exchange rates, one of the few monetary convergence areas where the GCC has been doing well.

It may well be the case that the current oil price boom has dampened the desire (need) for economic integration and consequently a single currency – the pinnacle of integration – has been placed on the back-burner. The GCC’s commitment to MU was strongest in 2001 at the tail-end of a protracted period of low oil prices, lacklustre GDP growth and declining per capita incomes in many states.

It is possible that an announcement will be made just prior to or during this December’s GCC summit. Probable reasons for the delay include the fact that the timeframe is (now) too tight, and/or that diverging inflation rates of approximately 10 per cent – Qatar and Saudi Arabia’s official inflation rates were 11.8 per cent and 2.3 per cent respectively in 2006 -make the task of meeting this convergence criterion too difficult.

Little preparation
While the first argument may now be true, it is only so because so little has been done to prepare for the monetary transition; for instance, no agreement has yet been reached on the mandate and role of a GCC central bank let alone its location, neither have convergence criteria/targets been officially agreed upon and endorsed.

The second argument holds more weight, but if regional commitment to MU were strong enough, inflation rate differentials could be tackled. In the years prior to the euro’s launch there was also considerable inflationary divergence, but post-Maastricht this decreased rapidly from a high of 20 per cent to around 1 per cent by 1999.

Although most participating states have outsourced their monetary policy to the Federal Reserve and subsequently aren’t able to use interest rates to reign in inflation, there are other ways. These include holding back on fiscal spending (staggering government financed infrastructure upgrades), implementing more extensive price controls (for instance rent-caps) and absorbing liquidity through the issuance of bonds.

If and when an announcement does come, it is more likely to be a deferral than a complete abandonment. This will partly be for face-saving reasons, but primarily because GCC MU has been such a long-standing ambition, first mentioned in 1982 and more recently recommitted to in the New Economic Agreement of 2001.

Turning to the question of whether a delay matters, in many respects the short-term answer is no. A postponement will not harm current levels of economic growth and neither will it deter capital retention. In addition, many analysts argue that a GCC MU would only have marginal utility, because a) intra-regional exchange rates are already reasonably stable, and b) intra-regional trade is seen to be limited. Thus, participating economies would only see small gains from two key MU advantages: the elimination of exchange rate risk and the reduction of transaction costs.

Nevertheless, even if the potential trade benefits arising from a GCC MU are initially small, they should not be discounted. If hydrocarbons are factored out, intra-GCC trade is not as insignificant as often assumed – it stands at around a fifth of the total. In addition, trade gains resulting from currency unions are often considered “endogenous” – trade will increase as a result of the union, regardless of its level prior to the union.

In addition to the direct (as a consequence of MU) benefits there are a range of indirect (as a result of the necessary preparations and policy reforms in the lead-up to MU) benefits, and it is these that will be bring the most advantages to the GCC.

Indirect benefits will arise from the creation of a GCC common market, establishing a pan-GCC economic data-gathering institution, tasked with collating and standardising national statistics in order to measure monetary and fiscal convergence, and the implicit need for budget transparency and accountability. Many of these institutional and policy reforms necessary in the lead-up to MU, or the process of preparing for it, are likely to enhance business sector confidence, encourage greater levels of intra-state investment, deepen financial markets and encourage more FDI. These outcomes would all be beneficial for the GCC’s economic diversification endeavours.

Not seeking to downplay the prudent investment and diversification measures all states are making with their current oil windfall revenues, private sector job creation remains one of the biggest challenges facing the region. In order to defuse the “unemployment time-bomb”, hundreds of thousands of non-oil dependent private employment opportunities will need to be created during the next decade.

Therefore any policy including MU that is seen to aid and abet private sector confidence and growth should be seriously entertained. Of course a GCC common market and statistical agency could exist without there ever being a “Gulf dinar” in circulation. But if the intention to form a single currency acts as a catalyst, a carrot on a stick if you will, why not use it?

Comment: A bubbling pot

– Andrew Shouler, Deputy Managing Editor

For governments of the region struggling with declining currencies and domestic inflation, there are decisions on the table. “Given the UAE’s rapid and sustained economic growth, nominal appreciation of the dirham is required to allow the real exchange rate to move towards equilibrium value,” says Syed Basher, a regional economist. Simply, that means revaluation. The arguments about the dollar peg have been simmering for some time, given that exchange and interest rates seem too low for the region’s hothouse conditions. In an HSBC survey issued last week, 39 per cent of regional executives were reported as saying that removing the dollar peg would have a beneficial effect, compared with 18 per cent saying the opposite. A Gulf News poll last week produced results suggesting that 62 per cent of residents want a GCC single currency.

Of course, that doesn’t necessarily mean the issue is coming to the boil. Saudi Arabia this week tightened banks’ reserve requirements while cutting official interest rates in line with the Fed. It was a demonstration of a monetary dilemma which, obscure as it might seem, impacts all those working in this region. But we all know what they say about those who can’t stand the heat.

Single currency at a crossroads

Oman’s decision late last year to opt out of the GCC currency union was undoubtedly a political setback, but Kuwait’s unilateral decision early last week to revert back to an undisclosed basket peg represents a potentially far more complicated technical obstacle.

Emilie Rutledge | May 26, 2007

A GCC single currency minus Oman would be, and could still be, a perfectly viable and potentially advantageous union. Oman only contributes five per cent of the GCC’s total GDP. However, Kuwait’s decision to peg to a basket of currencies weighted by the country’s main trading and financial partners could complicate the bloc’s monetary convergence process.

The fixing of bilateral exchange rates is a relatively minor issue compared to other currency union prerequisites. Establishing a common market and a pan-GCC central bank is going to take concerted effort and political will. So too will working towards and sticking to a set of commonly-agreed convergence targets for inflation, fiscal deficits and debt. Yet stable bilateral exchange rates – all six pegging to the dollar – had been one of the GCC’s few currency union related success stories. The latest decision by Kuwait seems to have jeopardised even this one.

However, before the currency union is written off, several factors need to be considered. The first is this: for many years, even before Kuwait’s move to a dollar peg in 2003, all GCC currencies had been remarkably stable vis-a-vis one another. It is not given, therefore, that Kuwait’s move will cause its dinar to fluctuate widely against the bloc’s other currencies. Secondly, the European Monetary Union (EMU) countries only insisted on bilateral exchange rate stability two years prior to the electronic launch of the euro. The GCC, therefore, still has time to reach a consensus on the issue. Therefore, the appreciation of the Kuwaiti dinar does not necessarily preclude achieving stable exchange rates in preparation for monetary union – a key criterion for monetary union. Nevertheless, it indicates Kuwait’s desire to remain flexible and to retain national autonomy over its exchange rate policy.

Whose interest?
Again we must ask, as we did after Oman’s surprise announcement, will Kuwait’s move be a catalyst for other states to put their own sovereign interests before the bloc’s ‘common interest’? Before Kuwait’s unilateral decision, the GCC central bank governors meeting in Riyadh last month had highlighted the diverging interests on how to proceed with their respective and ‘collective’ currency peg(s). With the dollar hitting an all-time low against the euro and pound, the issue of a collective revaluation was said to have topped the agenda.

However, leaders were unable to agree on how much their currencies should collectively revalue by, and as a consequence, agreed to keep exchange rates unchanged. Obviously, and with the benefit of hindsight, this was much to the disappointment of some participants. But it is not only Kuwait that seems to be questioning the utility of attempting to act collectively.
According to one official at the recent Riyadh meeting, the decision to maintain the status quo was to safeguard the stable bilateral exchange rates in preparation for the currency union.

However, if all states had agreed to, say, a 15 per cent revaluation, this would have meant that bilateral exchange rates would still have been stable. A more likely reason for keeping rates the same was disagreement on the merits of a revaluation per se.

The discord is in large part due to the increasing divergence in inflation rates within the GCC and differing economic development strategies. According to some estimates, Saudi Arabia’s inflation rate was only 2.3 per cent in 2006 while Qatar’s was 9.2 per cent.

Criteria
The GCC had provisionally agreed to accept EMU-style convergence criteria back in 2005. Part of this necessitates keeping inflation rates within two per cent of the best performing economies. But now even these are being increasingly questioned.
His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, said on his trip to Seoul that the UAE government would have to reassess its commitment to the currency union if it were deemed not to be in the best interests of the national economy.

Qatar is now arguing that the bloc should instead focus on core inflation, which strips out the impact of soaring rents, rather than headline inflation – the conventional measure. Kuwait’s decision has again highlighted the bloc’s diverging interests and differing priorities. It seems clear that finding consensus on joint monetary policy is becoming more, not less difficult as the 2010 deadline draws nearer. There is a strong possibility that Qatar and the UAE will at some point revalue; until then the jury’s out.

An inconvenient truth

A historical analysis of GCC economic performance reveals little evidence of any economic convergence taking place. Inflation differentials between the five economies remain high, and in fact have widened since the beginning of the recent oil price boom.

Emilie Rutledge | May 5, 2007

At the summit of GCC central bankers held last month in Riyadh, little progress was made in terms of making preparations for the Gulf common currency. Despite the 2010 launch date fast approaching, all the central bank governors could do is urge GCC leaders to expedite the process.

In reality, as Saudi Arabia’s central bank governor Hamad Saud Al Sayyari recently admitted “the original target [date]…has become tight.” In fact there has been little tangible progress since the signing of the 2001 GCC New Economic Agreement. The policy preparations for establishing a viable currency union.

Customs union
In 2003 a milestone in GCC economic integration was reached with the launch of the customs union, harmonising external tariffs to five per cent and removing intra-regional ones. However, the signing of bilateral free trade agreements (FTAs) with the US by Bahrain and Oman meant that the final stage, involving the abolition of customs collection functions at intra-GCC border offices, could not take place as scheduled at the end of 2005. The issue has yet to be resolved, and the finalisation of the customs union was set back by two years.

The final communique of the 2006 summit said that a common market would be in place before the end of 2007. Without the common market, many of the benefits of a single currency will not be realised. Despite the fact that GCC leaders are taking some pro-active steps, such as enacting legislation to facilitate the free movement of labour and capital, it is doubtful whether it will come into being this year.

In addition to the delay in the customs union at the 2004 summit, it was agreed by the GCC leaders that the deadline for completing a unified pension and social security system could be as late as 2010.

It is hard to envisage how a single monetary policy and currency for a regional bloc can be implemented without a single central bank. In 2005, after consultations with the European Central Bank, the GCC announced their intention to establish a regional central bank. However, more recently they seem to be backtracking to their original plan to retain national central banks and for governors to convene on a regular basis to decide on monetary policy for the bloc.

Controversial
The establishment of pan-GCC institutions requiring the devolution of some national decision-making powers, also appears to be a sticking point. Even the potential location of a GCC central bank seems to be controversial.

The IMF considers the creation of a GCC Statistical Agency to be of serious urgency for the currency union project. Yet, creating a ‘Gulfstat’ is not even on the agenda.

Without improved and harmonised data for the region, it will be hard to judge any progress in meeting convergence criteria and to make monetary policy decisions based on the economic conditions across the bloc. At a meeting of GCC central bank governors in 2005, it was provisionally agreed that they would adopt convergence criteria mirroring those of Eur-ope’s Maastricht criteria. However, they have yet to be officially endorsed. Instead, the GCC leaders called for more time at the 2005 summit, and disagreement over the targets remains. The fiscal and monetary convergence criteria include inflation and interest rate convergence targets, capping budget deficits at three per cent of GDP and keeping government debt to below 60 per cent of GDP.

While there are no problems in terms of exchange rate stability and interest rate convergence – not surprising considering the long standing de facto pegs against the dollar – there would have been difficulties in meeting all the other criteria. A historical analysis of GCC economic performance reveals little evidence of any economic convergence taking place.

Inflation differentials between the five economies remain high, and in fact have widened since the beginning of the recent oil price boom. Analysis shows that there are two inflationary blocs within the GCC, experiencing significant inflation rate differentials: a low-inflation bloc (Bahrain, Oman and Saudi Arabia) and a high-inflation bloc (Qatar, Kuwait and the UAE).

Here, the onus will be on Qatar and the UAE in particular to tackle their respective inflation rates – somewhat hard without independent interest-rate setting powers. Qatar now argues that it is better to use core inflation as a convergence target, rather than headline inflation CPI, which does not include the soaring price of property and rents.

Some of the inflationary pressures in the UAE, Qatar and Kuwait are due to the collective peg against the dollar, which is dropping fast against other international currencies, many of which are important trading partners for the region, like the euro-zone. Controversy over the dollar peg has appeared to suggest disharmony, with the UAE and Kuwait calling for a more flexible exchange rate regime, but Saudi Arabia and Bahrain preferring to stick to the dollar peg.

Uncertainty regarding the future choice of exchange rate regime for the region was undoubtedly a factor in Oman’s decision to opt out of the currency union.

Deficits
In the past budget deficits have frequently breached the three per cent to GDP ratio, sometime reaching double digits. Only in the case of Saudi Arabia did this translate into large levels of public debt, reaching as high as 102 per cent of GDP in 1998. Since then, Saudi Arabia has used its recent oil windfall to pay back a lot of debt, and it is now well within the criterion, but the cyclical nature of GCC fiscal policy leaves government budgets highly vulnerable to oil price swings.

The GCC states must adopt prudent policies if they are to be able to meet such convergence criteria. Meeting convergence criteria as well as creating pan-GCC institutions will inevitably require concerted political will. The degree of political commitment among GCC leaders with regard to the process of economic integration and the single currency may have come into doubt.

Indeed, issues such the slow progress to date, the signing of bilateral US FTAs and Oman’s opting out tend to suggest a lack of political motivation. It seems that as oil prices have risen, like so many times before, economic reforms are put on a back burner, particularly those that will inevitably entail some adjustment costs.

Yet, without the aforementioned policy preparations, the viability of the currency union project as a whole may be called into question. The self-imposed deadline is quickly approaching. The GCC leaders may choose to acknowledge that, in order to ensure a viable and sustainable currency union, a more realistic timetable and credible launch date for the single currency needs to be adopted. Otherwise, the economic integration project would be vulnerable to losing considerable credibility, and confidence in the economic policymaking of the region could be affected.

Gulf monetary union is a cracking project?

Although few observers will be surprised if the GCC’s planned single currency (perhaps ‘Gulf Dinar’) doesn’t come into circulation on schedule in 2010, most will have been by Oman’s decision to unilaterally opt out.

Emilie Rutledge | December 16, 2006

Although few observers will be surprised if the GCC’s planned single currency (perhaps ‘Gulf Dinar’) doesn’t come into circulation on schedule in 2010, most will have been by Oman’s decision to unilaterally opt out. This is primarily because Oman, the poorest member of the bloc, looked set to reap considerable dividends from entering into a monetary partnership with its economically larger and wealthier neighbours.

In 2005, the Sultanate’s GDP per capita income was 63 per cent of the GCC average and its economy constitutes just five per cent of the GCC’s total GDP. Evidence from the euro zone reveals that increased intra-regional FDI, combined with structural grants and subsidies, fostered a process of catch-up, which has helped reduce income disparities between member states.

Indicating that the general lack of preparation was behind Oman’s decision, Deputy Economy Minister Abdullah Al Hinai said that the 2010 deadline was unfeasible because key prerequisites such as a common market have yet to be established.

However, last week’s final GCC summit communique stated that leaders had agreed to finalise the customs union and ensure that all requirements of a common market will be fulfilled by the end of 2007. Furthermore, the main reason for the delay in the finalisation of the customs union was the unilateral decision by Oman, preceded by Bahrain, to sign a free trade agreement with the US. Bahrain’s move in particular was met with considerable disquiet, and was considered to be against the spirit of previously signed GCC economic agreements.

The imperative to diversify is much stronger in these states nevertheless and, if one looks at the time it is taking the GCC as a bloc to negotiate an FTA with the EU, their decisions to act unilaterally are more understandable. Policymakers in Muscat cannot afford the luxury of taking years to implement economic reforms.

In many respects, Oman’s announcement was the only concrete decision made regarding currency union at last week’s summit. GCC leaders did not officially approve the euro-style convergence targets which central bank governors had agreed upon amongst themselves. Nor was any decision reached on the mandate for, or location of, a GCC central bank.

At the 2001 GCC summit convened in Muscat, leaders set out in unambiguous terms their intention to establish a currency union, yet apart from Kuwait’s move to the dollar-peg and the launch of the customs union in 2003, little progress has taken place.

Oman is perfectly justified in not wanting to join an ill-prepared monetary union, but instead of opting out altogether it could have set preconditions; not committing to join, for instance, until a common market was successfully up and running.

Decision timing
Why then, has it made such a decision now?

Earlier this year the GCC states provisionally agreed on several convergence targets, including capping budget deficits at three per cent of GDP, public debt at 60 per cent of GDP and all states holding enough foreign exchange reserves to cover four months’ imports. It is hard to see how any of these targets could have contributed to Oman’s decision, as it was unlikely to face any serious difficulties in meeting them.

In 2005, Oman’s fiscal surplus stood at 11 per cent of GDP, public debt is well under the limit, and its foreign exchange reserves covered more than five and a half months’ imports. The Oman-US FTA, signed in late 2005, demonstrated Muscat’s desire to integrate further into the global economy and diversify its economic base. It also revealed that Oman is unwilling to compromise what it perceives as its optimal national economic interests. It indicates that the loss of some economic policy-making sovereignty, necessary for a viable currency union, may be too high a cost for it to bear. The most likely reason why Oman has opted out now, however, is a conflict of interest on the future choice of exchange rate regime for the unified currency. Oman’s economic diversification strategy going forward may well be best served by a relatively weak currency.

On the other hand, states such as Kuwait and Qatar are suffering from “imported inflation” due to the declining dollar, and are likely to want any future unified currency to strengthen vis-à-vis the dollar. By being part of a stronger unified currency, Oman’s nascent non-oil export oriented industries will suffer because its products will be less competitive. And as a tourist destination, Oman will be less attractive to higher-end European visitors if euros buy fewer Gulf Dinars than they currently do Omani riyals.

There is, of course, a real danger that by opting out Oman could ultimately lose out. Oman has significant trade levels with several GCC states, and if a Gulf Dinar does come to fruition, it will continue to face transaction costs and exchange rate risks, regardless of it being a member of any future common market. Last year, Oman received just 3.6 per cent of the total GCC FDI inflows. It may receive even less in the future, as international investors are likely to buy Gulf Dinar-denominated assets as a hedge against the possibility of the currency being used to invoice oil and gas sales.

Likely union
A currency union among the other five states remains a distinct possibility, and would be economically viable. They are on the way to meeting many of the optimal currency area criteria conditions which economists argue are necessary for a given region to be suitable for currency union. Yet, and as with the euro zone, political commitment is by far the most important criterion. As the deadline approaches, necessary reforms which will involve devolving some decision-making powers to pan-GCC bodies, coordinating economic policies, improving data transparency, exercising fiscal restraint and opening up budgetary plans to outside scrutiny, may be deemed politically unpalatable.

Consequently, Muscat’s move may become a catalyst providing a convenient excuse for other states to follow suit. A more likely eventuality is a collective agreement to defer the launch date by a few more years. Following Oman’s announcement, Saudi Arabia’s Finance Minister, Ebrahim Al Assaf, declared that the five remaining states could “extend the 2010 deadline if faced with more obstacles.”