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&
GCC COUNTRIES HAVE LONG APPLIED A GENEROUS MODEL FOR SOCIAL WELFARE.
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