GCC is keeping its shadow economies in check: Report

 Gulf Today / Staff Reporter

The Gulf Cooperation Council(GCC) countries are leading the battle against the shadow economy in the Middle East and North Africa (Mena) region by implementing effective policies.Gulf Cooperation Council nations boast a remarkably small shadow economy, with informal businesses accounting for just 18 per cent of gross domestic product (GDP), according to a report titled “Delivering Inclusive Growth.” Arthur D. Little (ADL), the world’s first management consulting firm, released an exclusive viewpoint report titled “Delivering Inclusive Growth.” The report outlines recent initiatives and presents innovative strategies designed to further diminish the shadow economy and bolster small and medium-sized enterprises (SMEs) by enhancing economic and financial inclusion.

It is estimated that shadow activity accounts for 15 per cent of gross domestic product in Saudi Arabia, 17 per cent in Bahrain, 22 per cent in Kuwait, and 24 per cent in the UAE and Oman.

This is significantly below the global average of approximately 28 per cent and closely aligns with Organisation for Economic Co-operation and Development (OECD) countries, which stand at around 15 per cent. Building on this strong position, integrating shadow businesses into the formal economy remains a top priority across the GCC. New report unveils initiatives and strategies for reducing the shadow economy and empowering SMEs through enhanced economic and financial inclusion.

Stephane Ulcakar, Principal at Arthur D. Little, Middle East said: “By integrating key enablers such as streamlined regulations, enhanced tax oversight, accessible financial services, and a level playing field, the GCC region can establish a robust foundation for the growth and development of the formal economy. These concerted efforts not only reduce incentives for individuals and businesses to operate in the shadow economy but also foster a more inclusive and sustainable economic landscape. As GCC countries continue to demonstrate remarkable progress, these strategic measures will further empower SMEs as vital drivers of economic growth, innovation, and resilience, ultimately contributing to the long-term prosperity of the entire region.”

The GCC is spearheading the battle against the shadow economy in the Middle East and North Africa (Mena) region by implementing effective policies and ideas that incentivise shadow businesses to participate in the formal economy. Measures include improving tax enforcement, promoting the formalisation of small businesses, advancing digitalisation, fostering transparency, and boosting financial inclusion through the provision of financial services and greater access to credit.

In the UAE alone, SMEs employed more than 86 per cent of the private sector labour force as of mid-2020 and accounted for over 60 per cent of GDP. Meanwhile, Saudi Arabia aims for SMEs to contribute 35 per cent by 2030, and Bahrain set a target of 50 per cent to be achieved by the same year.

Inclusive Growth: To ensure a robust enabling SME ecosystem, governments must lead with an orchestrated and coordinated approach and offer solutions that harmonise design, technology, and data. Moreover, such an ecosystem requires that various ministries and government entities establish shared objectives to circumvent siloed approaches.

Key enablers of this ecosystem include a strong legal framework, straightforward and transparent taxation, artificial intelligence and digital solutions, access to finance, investment, market access, lucid and effective labour laws, comprehensive infrastructure, and education and awareness.

GCC countries are forging a path toward achieving what has eluded virtually every government in the last century: state-driven economic transformation with a citizen-centric approach. But there is more to do; the region’s leaders recognise the need for a thriving and sustainable SME sector to guarantee growth and resilience for the entire economy, and they have positioned this need at the heart of their policies.

Arthur D. Little has been at the forefront of innovation since 1886. The consulting firm is an acknowledged thought leader in linking strategy, innovation, and transformation in technology-intensive and converging industries. The firm navigates  clients through changing business ecosystems to uncover new growth opportunities.

The company also enables its clients to build innovation capabilities and transform their organizations. The company’s consultants have strong practical industry experience combined with excellent knowledge of key trends and dynamics. ADL is present in the most important business centers around the world. The company serves most of the Fortune 1000 companies, in addition to other leading firms and public sector organisations.