According to a new report by Strategy&, part of the PwC network, there is an opportunity for GCC governments to evolve their social services model in the long-term. GCC governments can work with not-for-profit organizations (NFPs) and private-sector companies to supplement government offerings, moving social development beyond merely the government as a provider.
Good intentions notwithstanding, the current model is unsustainable financially and operationally. For decades, the region’s oil economy has paid for the provision of government-backed social services delivered by the public sector. However, an extended period of low oil prices has negatively affected state finances, and many governments simply cannot meet all the needs of all their constituents, stated the report.
Also, moving social development beyond the government will create more innovative products and services that improve the well-being of customers.
Commenting on the findings of the report, Fadi Adra, partner with Strategy& Middle East, said: “Given the current economic climate, it is apparent that the social services model we have in the GCC is not sustainable; it’s time for governments in the region to engage further with NPF organizations, as well as the private sector to be able to provide for its citizens without burdening the GDP. While this will need concerted effort and change in regulations, it is, in fact achievable.”
“Demographic trends compound the challenge. Populations in the GCC region are aging, due to improved healthcare and increased longevity, putting a strain on government-funded services. The unemployment rate among nationals of these countries is often high, as countries continue to rely on expatriates for most skilled labor in the short to medium term,” further added Fadi Adra.
The Strategy& report outlines three potential mechanisms that have not yet received attention in the region, which Gulf countries could focus on:
1. Build an ecosystem of NFPs, by clarifying what services are needed, making NFPs more financially sustainable, developing organizational capabilities, increasing awareness among the public, creating linkages with the private and public sectors, and putting the right regulatory environment in place.
2. Encourage companies to develop from corporate social responsibility, or the alleviation of social misfortune, to corporate social innovation — the creation of a positive agenda, through more capable internal operations and more innovative products and services.
3. Implement performance-based payments by the public sector to reward favorable outcomes, including proven mechanisms such as social impact bonds, which bring investors to the market for the most promising social initiatives.
Sami Zaki, principal with Strategy& Middle East, added: “This model has been used successfully in several western countries and can in fact be replicated in the Middle East. We believe that change can be affected by easing regulations as the current NFP ecosystem is vastly underdeveloped in the region. Today, any GCC country has around 1,000 to 2,000 NFPs – contrast that with, say, a country like the United States which has about 1.5 million nonprofits, and the disparity is apparent.”
According to the report, the success of western examples can be replicated in the GCC region through four approaches:
1. Strengthening social investment channels. Governments can start large social investment funds and encourage them to invest in entities that solve societal problems in new ways, such as NFPs and social businesses. Another approach is to create a government-backed social investment fund that generates initial momentum, such as the U.K.’s Big Society Capital.
2. Formalizing the status of social enterprises. Governments can designate social enterprises as a separate legal entity or as a special category of for-profit company (provided they are engaged in some form of social impact).
3. Updating government procurement rules. Currently, public procurement regulations in Gulf countries are strictly limited to a traditional model of payment for a specific product or service. Updating those regulations will allow governments to use more innovative approaches, such as scaling payments based on successful outcomes.
4. Fostering trust. Governments can encourage and organize standard metrics to gauge performance among social enterprises, along with reporting requirements to boost transparency.
The report concluded that the current approach to social services provision in GCC region countries is unsustainable. Instead, countries can change their approach to move social development beyond the government by creating a vibrant ecosystem of NFPs, encouraging a change in the private sector from corporate social responsibility to corporate social innovation, and financing public services through outcomes-based commissioning models.