GCC summit focus on politics not inflation and revaluation

The leaders also announced the launch of the GCC Common Market from January 1 and a continued commitment to a common currency by 2010 without giving any information on how it might be implemented by then.

It was therefore ironic that no leadership was announced on the main economic challenge now facing the GCC: the declining value of Gulf currencies and imported inflation. Indeed, there now appears to be a tacit agreement that GCC states will go their own way on this crucial part of economic integration, probably moving their economies further apart rather than closer together.

The impact of the dollar-peg is more of an issue for the UAE and Qatar whose faster growing economies are largely dependent on increasingly skilled expatriate labor. Devaluing local currencies mean that GCC salaries are becoming less competitive in global labor markets and making it hard for local companies to find and retain staff from overseas.

Strikes

At the same time there have been strikes by local construction workers unhappy about having less money to send home to their poor families - due to US dollar devaluation - while the rich GCC countries are enjoying a boom. Given the millions of laborers now working in the Gulf this could become a serious public security issue if not tackled soon.

Inflation has also become a big economic issue for business and residents in the GCC, and threatens to spiral out of control. Inflation is typically bad for those on fixed incomes and damaging for corporate profits with input costs often rising faster than revenues.

This is particularly bad for countries pursuing the rapid diversification of their economies. Inflation is bad for inward investment and bad for business planning. It erodes confidence and distorts markets. The usual end to an inflationary boom is a big bust.

Those GCC countries that take a more proactive approach to economic management, using currency revaluation for example to dampen imported inflation and realign salaries with global levels will fare better than those which chose to stick to outmoded policies that are now damaging their national economic interests.

Common interests

For a GCC Common Market has to actually mean something. This is not merely a form of words to describe the cross border freedoms already existing for Gulf nationals and joint projects already underway like the energy grid. It is surely about harmonizing economic policies if nothing else.

Where the GCC summit in Doha did put on a show of unity was in its rapprochement with Iran whose president addressed the gathering. This distanced the bloc from the US policy to isolate Iran and will be welcomed by local business.

However, perhaps too much was expected from the Doha summit, and the real decisions on economic management have still to come.