GCC social services model unsustainable, says Strategy&

12 November 2019 Consultancy-me.com

With falling oil revenues and growing demand, the current social services model in the GCC is under pressure to adapt, contends a recent report from consultancy Strategy& – which forwards a number of remedies including the establishment of an index for corporate social innovation.

Strategy& has backed up its recent call for the Saudi government to incentivise personal savings among its citizens with a warning that the resource-subsidised state-delivered social services approach in the GCC in unsustainable. In a recent report, the strategy consulting firm reiterates the structural rather than cyclical nature of the Gulf’s fiscal crunch, and, with oil proceeds drying up and demand for public services growing, says that business-as-usual is not a viable option.

“Countries in the GCC region have long adopted a generous model for social welfare. The government has been the main provider of jobs for citizens, along with key services in areas such as education, healthcare, and social protection,” state the analysts from Strategy&. “Over time, however, the burdens of this model have led to a degradation in the quality of services. More troubling, the current model is unsustainable financially and operationally.”

Having previously raised the issue several years ago, Strategy& notes that certain demographic trends – an aging population, lifestyle shifts and generational divergence, and greater awareness and so expectations from younger citizens – are further compounding the problem. Coupled with an extended period of low oil prices negatively impacting state finances, many local governments, the firms says, simply cannot meet all the needs of all their constituents.

The key components for developing a not-for-profit ecosystem

“Given the current economic climate, it is apparent that the social services model we have in the GCC is not sustainable,” states Strategy& partner Fadi Adra. “Populations in the GCC 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 still continue to rely on expatriates for most skilled labour in the short to medium term.”

To evolve the regional social services approach to a more sustainable model, Strategy& looks outwards at successful mechanisms adopted elsewhere around the world to forward three particular levers for local government consideration; building an ecosystem of not-for-profit organisations, implementing a performance-based system for public sector contacts, and encouraging the private sector to shift from a CSR mind-set toward corporate social innovation.

The latter measure is in line with a contemporary rethink on traditional corporate social responsibility – as Strategy& frames it, ‘the alleviation of social misfortune’ – toward a broader focus on corporate societal impact. As the consultancy reemphasises, “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 dimensions.”

Here, Strategy& takes the approach one step further, with the concept of CSI, or corporate social innovation, described as working to solve social challenges as part of the company’s core operations. Rather than simply limiting the negative effects of an organisation, the firm says, CSI actively creates positive effects throughout a company’s operations and among its stakeholders – such as innovating to directly solve societal issues instead of simply donating to charities.

Creating a corporate social innovation index

Where the government fits in? To help establish a framework for measuring social innovation, potentially through a standardised CSI index, the adoption of which the government can then promote through a mixture of incentives and regulations. A CSI index would allow companies to see their strengths and deficiencies and priorities improvements while also granting external stakeholders such as regulators and investors greater transparency around social innovation.

For an index to work, Strategy& says, the government will need to outline the parameters for inclusion (e.g. which companies, projects, programmes, and whether they have to opt in to be counted) to define the index in the context in which it will be used and the objectives it will help to achieve. And this must be supported by standardising methodologies such as to weighting and scoring “to create a fair, side-by-side comparison using common language and benchmarks.”

Strategy& notes in the report that GCC countries consistently rank lower internationally across a range of indicators spanning key social areas such as education, employment, and healthcare. “It’s time for governments in the region to engage further with NPF organisations, as well as the private sector to be able to provide for its citizens without burdening the GDP,” concludes Adra. “While this will need concerted effort and change in regulations, it is, in fact achievable.”