Countries in the Arabian Gulf are struggling to meet the changing and complex needs of their citizens. As fiscal and demographic challenges grow, these governments can no longer be the sole provider of public social services. Instead, government offerings can be supplemented by working with not-for-profit organizations (NFPs) and private-sector companies, moving social development beyond sole reliance on government. These concepts are already generating positive results in other markets, and they represent a clear opportunity for governments to offer higher-quality services to their populations, with more efficient delivery, and lower government outlays.
The Gulf countries have long provided a generous social welfare model. The government has been the main provider of jobs for citizens, along with key services in areas such as education, healthcare, and social protection. This model is unsustainable financially and operationally.
An extended period of low oil prices has negatively affected state finances, and many governments simply cannot meet all the needs of all their constituents. The quality of services has declined recently, and these countries consistently rank poorly across a range of indicators spanning key social areas such as education, employment, and healthcare. Demographic trends compound the challenge, including an aging population and younger generations that are more demanding.
Yet government need not bear the entire burden of social welfare. In many other countries, social services are provided through an integrated approach in which NFPs and the private sector supplement government services. Technology is a key enabler of this new approach. Governments in the Gulf region can apply a similar “all of the above” approach, in which the government, public-sector providers, the private sector, and NFPs combine forces to offer public services.
Moving social services beyond government requires a focus on three key goals. The first a thriving NFP ecosystem. Around the world, governments are supplemented by a network of NFPs that deliver specific services and/or focus on specific groups of people. For example, a NFP may offer job training to disabled individuals, or help economically integrate citizens with troubled backgrounds (such as ex-convicts or people with a history of substance abuse), or help educate children in underserved communities.
Gulf countries can use this approach as well, but they are starting from a relatively undeveloped state. The number of NFPs in any Gulf country is in the range of 1,000 to 2,000. By comparison, there are more than 1.5 million nonprofit organizations in the U.S., including public charities, private foundations, and business and civic groups.
Accordingly, the first step is to create the right conditions for an ecosystem of these organizations. Governments can create these conditions by designating priority areas for new NFPs such as poverty relief, education, healthcare and wellness (including for those with disabilities), and community development. Governments can also increase state funding to NFPs, provide sufficient education and resources for newly formed entities, and establish a streamlined regulatory framework with the minimum oversight and restrictions needed to ensure proper governance, monitoring, and reporting.
The second goal is to engage the private sector. The ambitious national plans of the GCC-region countries all have roles for the private sector to help address social needs through innovation. Contributing in this way is more than an obligation, it is good business.
The challenge, however, is that many companies still use simple, or ad hoc, approaches to corporate social responsibility. They may donate a portion of their revenue to charitable causes, or they may launch a green product line or two. The looming social issues in the GCC call for a more comprehensive approach — corporate social innovation (CSI). CSI entails working to solve social challenges as part of the company’s core operations. Rather than simply limiting the negative effects of an organization, CSI actively creates positive effects throughout a company’s operations and among its stakeholders, including suppliers, employees, customers, and the community at large.
Governments in the Gulf could make use of two distinct characteristics to encourage the shift to CSI. One is that there are many large, family-owned businesses in the region, with a deep sense of social responsibility. We estimated in 2017 that the 100 largest Gulf family businesses had annual philanthropic capital of at least $7 billion. The other characteristic is that the largest corporations are state-owned companies. The government, as the owner, can direct these state-owned enterprises to use the CSI approach. For family-owned companies and state-owned firms, the government can promote the adoption of CSI through a mixture of incentives and regulations.
The third goal is to reconsider financing strategies. Governments typically use a traditional model for contracting public services. They pay vendors a set amount. The vendors then provide services to the beneficiaries. The government rarely evaluates outcomes. Governments use the same approach to buy tangible services. However, this model no longer suffices. Governments must start measuring impact and outcomes rather than simply output.
Impact investing, a forward-thinking approach, can have a stronger influence and cost less. In this approach, governments structure the vendor contract for providing social services around performance-based payments linked to outcomes. Governments put precise criteria in place to assess and validate social outcomes in terms of public savings and non-financial social benefits. Stronger performance against social objectives leads to higher payments from government.
This approach harnesses market forces to solve social issues. Promising approaches will receive the funding necessary to thrive. Those that do not achieve their objectives do not receive performance-based payments, leading to lower returns for investors. The result is innovation in solving problems, with greater scrutiny from investors and higher-quality services for beneficiaries. Moreover, delivery and financial risks are transferred from governments to the private sector, which is often better equipped to analyze it.
The current approach to social services provision in GCC-region countries is unsustainable. Instead, countries can change their approach to move social development beyond the government by creating a vibrant ecosystem of NFPs, encouraging a change in the private sector from corporate social responsibility to corporate social innovation, and financing public services through outcomes-based commissioning models.
Sami Zaki WG09 is a partner with Strategy& Middle East, part of the PwC network, and a member of the government and public sector practice. He specializes in public-sector governance. He has led projects in GCC countries to modernize the whole-of-government structure, design and empower centers of government, transform core government functions, and reform the civil service.
Fadi Adra is a partner with Strategy& Middle East, part of the PwC network. He is a member of the government and public sector practice, and a board member of the Ideation Center, the leading think tank of Strategy& Middle East. He has deep expertise in social services, human capital development, government governance, and the restructuring and transformation of public-sector entities.