Jordan and Morocco: not the best match for GCC

Shawkat Hammoudeh

Jordan and Morocco are strong political allies of the Gulf Cooperation Council and have benefited economically from this strong mutual relationship. Any additional benefits of joining formally an enlarged GCC bloc by such candidates are not expected to be large. These countries expediently pass the political test, but there are other economic countries that can prudently pass the economic but not the political test. They are a better economic match, but the GCC is fundamentally a political bloc.

First, both countries have warmly welcomed GCC investment and tourism over the years, and this relationship is expected to continue as long their political systems are stable, regardless of the possible GCC enlargement. Not much will be gained in this regard from an enlargement by accepting Jordan and Morocco as new members.

Second, Jordan has a very small economy with a gross domestic product of $29 billion, compared to the current GCC GDP which exceeds $900 billion. It lacks resources and market depth and width. Morocco has more weight, with a GDP of more than $90 billion constituting about 10 percent of the current GCC GDP. However, unlike Jordan, Morocco has strong ties with the European Union, particularly in terms of exports and tourism. In fact, Morocco aspires someday to be a member of the EU. Its output correlates well with the EU GDP and follows the latter’s business cycle. These factors complicate any strong ties between Morocco and the GCC bloc. It is a fact that the GCC Union has passed the stage of customs union on the ladder of economic integration. Customs unions require that member countries to have a common tariff policy towards all countries that are not members of the customs union, including those of the EU. Morocco cannot be part of the prospective GCC Union while having strong ties with the EU.

Third, the GCC bloc aspires to have a common central banks and a common currency. The six GCC members are currently at a strong disagreement of how to achieve these goals. Jordan does not have a problem in this regard as its exchange rate is effectively tied to the U.S. dollar as most of the GCC exchange rates are. However, Morocco’ currency tracks the euro which fluctuates widely against the dollar. In international economics, it makes sense to anchor a country’s currency to those of its largest trading partners. But Morocco’s largest trading partners are France and Spain − not Saudi Arabia and UAE. This issue complicates the joining of Morocco to the GCC bloc. Morocco’s natural depth is the North Africa region and not the desert of Arabia.

Fourth, the GCC economy is vulnerable to the veracity of the fluctuations in the oil price and global financial crises. There have been times when these six members could not help each other − for example, during the 2008 global financial crisis and the collapse of the oil price. The Dubai debt crisis is a testimonial to that. Having more financial crises coming from new, financially shaken members will add more problems to this political union. We all have to draw lessons from Greece’s ongoing debt crisis and its impact on the EU economy.

Fifth, the economics of Jordan and Morocco do not qualify them to meet the convergence criteria of membership to a group of economic integration. Both countries are estimated to have, in 2011, a government budget to GDP ratio in access of -5 percent, a current account deficient to GDP ratio greater than 6 percent and unemployment rate of more than 10 percent (in fact, 14 percent for Jordan). To put these numbers in perspective, any of the ratios of GDP that exceed more than -4 percent raises a red flag.

In my previous posts on the GCC, I argued for an enlargement of the GCC to bring more economic integration among its members and transform it from a political union to a monetary, fiscal and political union. But Morocco is not the best economic match at the time, and Jordan should not bring in material economic benefits. In fact, the Jordan membership may impose political burdens on both sides. There are other Arab countries that are a better match economically because they can bring in market depth, significant resources and economic diversity. But the deserts of the Middle East politics usually override economics. However, things are changing now.

We are now in the age of the Arab Spring and populist revolutions which are highly contagious. Enlargement of the GCC will make it easier for the uprisings to spread. But as I argued in one of my recent posts which was published by Middle East Economic Survey, the end stage of the long march of Arab revolutions is the unification of the Arab countries into larger blocs or countries. It seems the GCC’s call for union enlargement is another way to have enlarged Arab countries. But eventually, the path of the populist uprisings will have the final word on the shape and configuration of the Arab unifications and enlargements.