There are three ways for GCC gov­ern­ments to share the grow­ing bur­den of so­cial ser­vices, write Fadi Adra, part­ner, and Sami Zaki, prin­ci­pal, at PwC’s Strat­egy&

CEO Middle East - - CON­TENTS -


Gov­ern­ments are the main provider of jobs for cit­i­zens, along with such ser­vices as ed­u­ca­tion, health­care and so­cial pro­tec­tion. To­day, that model no longer works. There is a grow­ing gap be­tween what gov­ern­ments in the re­gion can pro­vide and what their cit­i­zens re­quire. Given these shifts, coun­tries should adopt a coali­tion ap­proach to so­cial ser­vices, part­ner­ing with not-for-profit (NFPs) or­gan­i­sa­tions and pri­vate sec­tor com­pa­nies, and cre­at­ing new fi­nan­cial re­wards for suc­cess­ful per­for­mance. Other coun­tries al­ready use this model suc­cess­fully.

There is a need to im­prove ser­vices in the re­gion. GCC coun­tries can pro­vide higher qual­ity in terms of ed­u­ca­tion, em­ploy­ment and health­care. Part of the is­sue is the change in state fi­nances. For decades, oil rev­enues were plen­ti­ful enough to fund gov­ern­ment-backed so­cial ser­vices. How­ever, lower oil prices have af­fected the abil­ity of gov­ern­ments to meet all their con­stituents’ needs.

In the short term, slower eco­nomic growth will in­crease the ur­gency of find­ing a so­lu­tion. Over the long term, de­mo­graphic trends will com­pound the chal­lenge. Aging pop­u­la­tions and high un­em­ploy­ment rates among na­tion­als are in­creas­ing the strain on gov­ern­ment-funded ser­vices. At the same time, the younger gen­er­a­tion is more con­nected and more aware of so­cial ser­vice lev­els abroad, and is thus more de­mand­ing. In short, the cur­rent model among GCC gov­ern­ments is un­sus­tain­able fi­nan­cially and op­er­a­tionally.

Other coun­tries are al­ready ad­dress­ing this is­sue by recog­nis­ing that gov­ern­ments can­not be, and should not have to be, the sole provider of pub­lic so­cial ser­vices. In­stead, gov­ern­ments can work with not-for-profit or­gan­i­sa­tions (NFPs) and pri­vate sec­tor com­pa­nies to sup­ple­ment gov­ern­ment of­fer­ings – an “all of the above” ap­proach.

To ap­ply this ap­proach, GCC gov­ern­ments need to take three spe­cific steps.

1. Build an ecosys­tem of NFPs

In many coun­tries, gov­ern­ments are sup­ple­mented by a network of NFPs that de­liver spe­cific ser­vices, of­ten for dis­tinct groups of people. For ex­am­ple, an NFP may of­fer job train­ing to dis­abled in­di­vid­u­als, or help cit­i­zens with trou­bled back­grounds (such as ex-con­victs) in­te­grate eco­nom­i­cally, or help ed­u­cate children in un­der­served com­mu­ni­ties.

GCC coun­tries can also ben­e­fit from NFPs, but such or­gan­i­sa­tions are too few in the re­gion. Most GCC coun­tries have fewer than 2,000 NFPs, com­pared to nearly 1.5 mil­lion in the US (in­clud­ing pub­lic char­i­ties, pri­vate foun­da­tions and busi­ness and civic groups). Ac­cord­ingly, the first step is to build an ecosys­tem of these or­gan­i­sa­tions in the re­gion. Gov­ern­ments can­not cre­ate NFPs, but they can pro­vide the con­di­tions in which people can start and grow such or­gan­i­sa­tions.

To start, gov­ern­ments should des­ig­nate pri­or­ity ser­vices, such as poverty re­lief, ed­u­ca­tion, or health care, so that or­gan­i­sa­tions have a clear ob­jec­tive. Gov­ern­ments in the GCC can, and should, pro­vide more di­rect fi­nan­cial sup­port. In other coun­tries, NFPs have sev­eral sources of in­come, in­clud­ing gov­ern­ment fund­ing, which rep­re­sents any­where from 10 per­cent to 20 per­cent of NFPs’ to­tal rev­enues. In

GCC coun­tries, by con­trast, most fund­ing still comes through pri­vate do­na­tions, which of­ten go to char­i­ties rather than NFPs that ac­tively work on so­cial is­sues. GCC gov­ern­ments pro­vide min­i­mal fund­ing.

In some coun­tries, fundrais­ing for non­char­i­ties is legally pro­hib­ited.

To make NFPs more vi­able, gov­ern­ments should in­crease fund­ing to these or­gan­i­sa­tions, ei­ther through do­na­tions or by pay­ing fees for spe­cific ser­vices – par­tic­u­larly in the early stages of the de­vel­op­ment of the ecosys­tem. Over time, the goal should be to al­low NFPs to be­come self-sus­tain­ing, in part by re­lax­ing fundrais­ing rules to al­low NFPs to ac­cess pri­vate fund­ing and do­na­tions.

Just as crit­i­cal, gov­ern­ments can elim­i­nate bur­den­some reg­u­la­tions and sim­plify some of the bu­reau­cratic pro­cesses re­quired to launch new or­gan­i­sa­tions. In­stead, reg­u­la­tions should be conducive to new NFPs, with the min­i­mum re­quire­ments to en­sure proper gov­er­nance, mon­i­tor­ing, and re­port­ing, along with sen­si­ble laws re­gard­ing fund­ing.

2. En­list the pri­vate sec­tor

Pri­vate com­pa­nies are im­por­tant al­lies in this new ap­proach. Sim­i­lar to the dis­par­ity in NFPs, pri­vate-sec­tor or­gan­i­sa­tions in the GCC re­gion do too lit­tle in terms of so­cial de­vel­op­ment. For ex­am­ple, com­pa­nies in the re­gion of­ten have a trans­ac­tional ap­proach to cor­po­rate so­cial re­spon­si­bil­ity, in which they do­nate a por­tion of their rev­enue to char­i­ties, or launch a green prod­uct line or two.

The scope of the chal­lenges in GCC coun­tries calls for a bolder ap­proach: cor­po­rate so­cial in­no­va­tion (CSI). Rather than min­imise so­cial ills, CSI re­quires that com­pa­nies do good proac­tively. This can in­volve cre­at­ing more in­no­va­tive prod­ucts and ser­vices that im­prove the well-be­ing of cus­tomers or by work­ing with sup­pli­ers from vul­ner­a­ble groups and com­mu­ni­ties.

Con­tribut­ing in this way is more than an obli­ga­tion, it is good busi­ness. Com­pa­nies that pro­mote so­cial impact through their prod­ucts and pro­cesses show bet­ter per­for­mance in sev­eral ar­eas.

They can tap into a con­sumer base that is more aware of sus­tain­abil­ity is­sues and is will­ing to pay for cleaner and greener prod­ucts. It is no­table that the am­bi­tious na­tional plans of GCC coun­tries all have roles for the pri­vate sec­tor to help ad­dress so­cial needs through in­no­va­tion, in­clud­ing New Kuwait 2035, Saudi Vi­sion 2030, and UAE Vi­sion 2021.

A chal­lenge with CSI, how­ever, is that it can be tough to mea­sure ob­jec­tively. Ac­cord­ingly, gov­ern­ments should stan­dard­ise met­rics and in­dices so that or­gan­i­sa­tions can be com­pared fairly us­ing com­mon bench­marks. That al­lows com­pa­nies to see their strengths and weak­nesses so that they can pri­ori­tise im­prove­ments, and it gives ex­ter­nal stake­hold­ers more re­li­able in­for­ma­tion about which providers are gen­er­at­ing real change in so­cial ar­eas—and which providers need to im­prove.

3. Cre­ate fi­nan­cial in­cen­tives

GCC gov­ern­ments can cre­ate fi­nan­cial in­cen­tives to solve so­cial prob­lems, in part by re­design­ing how so­cial projects are funded. Tra­di­tion­ally, gov­ern­ments buy pub­lic ser­vices in a fash­ion sim­i­lar to how they buy tan­gi­ble goods like ve­hi­cles or of­fice sup­plies: by pay­ing ven­dors a pre­set amount. That ap­proach fails to ac­knowl­edge the wide range of qual­i­ta­tive dif­fer­ences in how ser­vices are de­liv­ered. In­stead, gov­ern­ments need to as­sess the qual­ity of so­cial ser­vices and pro­grams that ven­dors de­liver, and link pay to per­for­mance.

These kinds of per­for­mance-based pay­ments can be even more pow­er­ful if coun­tries use in­no­va­tive fund­ing mech­a­nisms such as so­cial impact bonds, which al­low third-party in­vestors to fund some of the costs of a spe­cific project. The pay­out for those bonds to in­vestors varies de­pend­ing on how well the project per­forms against pre­de­ter­mined cri­te­ria.

All three of these mech­a­nisms may seem cut­ting-edge, but they are al­ready in use in other coun­tries and gen­er­at­ing pos­i­tive re­sults. In that way, they of­fer a tested means by which GCC gov­ern­ments can im­prove the qual­ity of their so­cial ser­vices.

Con­sul­tant Fadi Adra has deep ex­per­tise in pen­sions, mu­nic­i­pal­i­ties, labour and so­cial ser­vices

Prin­ci­pal Sami Zaki has 15 years of strat­egy and busi­ness de­vel­op­ment ex­pe­ri­ence in the Mid­dle East

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