How countries in the GCC can enhance and secure their citizens’ wellbeing

By shifting from social welfare to social investment, governments can deliver more effective services

by Fadi Adra, Marc-Albert Hamalian and Dima Sayess

March 22, 2021

The current model of social welfare in the GCC is financially unsustainable. Oil revenues have been volatile, and rapid population growth has led to increased spending on healthcare, education, and pensions, further amplified by the Covid-19 pandemic. Governments know that they cannot meet the current level of social expectations indefinitely. The model is also economically undesirable as it encourages a sense of intergenerational dependency among nationals. Instead, governments should move from social welfare to social investment, which focuses on human capital productivity to increase societal well-being and attain sustainable and inclusive economic growth.

Today, more than 80 per cent of GCC youth expect governments to subsidise their social needs, such as education, healthcare, housing, energy usage, and other benefits. In addition to direct spending, governments bear significant indirect costs under the current system. GCC countries do not levy income tax and have large public-sector workforces, the latter a means to reduce unemployment. In 2018, some 61 per cent of GCC nationals were employed in the public sector.

Social investment can maximise the impact and effectiveness of social programmes while reducing costs in the long run. This requires a mind-set shift from repairing social ills reactively to addressing their root causes proactively. Governments would still be fully responsible for the socioeconomic needs and well-being of their citizens. However, they could ameliorate societal issues and prevent future problems by encouraging social investments that blend the financial returns on investment with social returns. This means focusing on improving education, skills, and health early in life so that people can improve their employment prospects and their participation in the economy and society as adults.

There are four critical steps for a social investment approach:

First, governments should adopt a life-course portfolio approach through the delivery of cohesive policies that support citizens across all stages of life. A life-course portfolio approach focuses on the interdependence of all life stages as generations move from being welfare recipients during childhood and youth, to contributors during adulthood, to recipients again during old age. For example, investing heavily in early childhood leads over the long-term to savings in unemployment benefit. Pre-school enrollment will enhance children’s cognitive skills, which in turn will lead to higher educational attainment during school years; and consequently increased employability and adaptability potential to remain productive during adulthood. As such, increasing pre-primary enrollment for national students in GCC countries up to OECD levels has the potential to generate a return of $133 per $1 invested in the UAE and $25 per $1 invested in Saudi Arabia.

Second, the government should apply systems thinking to develop a holistic understanding of the dynamics and interdependencies among various social issues. This allows the government to invest in preventive measures early on. For example, it costs less to teach people to have adequate nutrition and exercise regularly – and thus reduce the incidences of diabetes and heart disease – than it does to treat those conditions after they are diagnosed. For example, providing healthy school meals has a return on investment of 1.6 in Saudi Arabia and 1.2 in the UAE. In addition to decreasing future health costs, instilling healthy eating habits will also decrease absenteeism by an average of five days per year per student.

Third, governments should evaluate the social and financial returns of various policy options. Governments conduct these assessments by defining the nature of the social issue at hand, the specific causal linkages that lead to this issue, and the desired results. They need to set clear and quantifiable social and financial indicators, including outcome and impact measures, along with targets. The government can then use these to compare various social investment proposals so that it can decide which will have the optimal combination of social and financial impact.

Fourth, governments should collaborate with the private sector and citizens on social initiatives. Citizens need to increase their sense of responsibility and gradually reduce their dependence on the state. The private sector can partner with governments and deliver some public services. In part, this can come through innovative financial tools known as social impact investments. These are financially sustainable mechanisms that address environmental or social issues while generating reasonable financial returns, to asset holders.

By shifting from social welfare to social investment, governments can deliver more effective services that better meet the needs of their residents, making them more productive and thus unlock economic growth. They can have a sustainable approach to social programmes, one that empowers their populations to thrive and be equipped with an adequate quality of life.

Fadi Adra and Marc-Albert Hamalian are partners with Strategy& Middle East, part of the PwC network, while Dima Sayess is a partner and the director of the Ideation Center, Strategy& think tank in the Middle East