Opinion: How to fix the Gulf's social services problem

What is needed is a move away from the mindset that social development should only involve the government
Opinion: How to fix the Gulf's social services problem
When governments create social-impact bonds, they invite third-party investors to fund some of the costs of a specific project. In exchange, the investors receive a steady stream of payments from the government when the target outcomes are achieved.
By Fadi Adra and Sami Zaki
Wed 17 Jul 2019 08:39 AM

GCC countries have long applied a generous model for social welfare. Governments are the main provider of jobs for citizens, along with services in areas such as education, healthcare, and social protection.

Today, that model no longer works. Population growth, fiscal pressure and other factors have led to a decline in the quality of services.

If governments are to meet the needs of their citizens, they will need to partner in creative ways with not-for profit organisations (NFPs) and private-sector companies—an approach already in use by other countries.

What is needed is a move away from the mindset that social development should only involve the government. Instead, success requires focusing on three potential mechanisms. First, governments should develop an ecosystem of NFPs, which can share the burden by delivering specific services to specific groups of people.

For example, a NFP could offer job training to disabled individuals, or could help educate children in underserved communities. Currently, the GCC countries have fewer than 2,000 NFPs each, compared to nearly 1.5 million nonprofit organisations in the US (including public charities, private foundations, and business and civic groups).

Priority services

To increase the number of NFPs, GCC governments should designate priority services, such as poverty relief, education, or health care. Governments can also give financial support to NFPs through funding and fees—especially early in their life cycle. They can also boost awareness among the public and streamlining some of the bureaucratic processes to launch new organisations.

The second potential mechanism for governments is to recruit the private sector to assist in social development. Many companies in the region still have a simplistic mindset about corporate social responsibility. They may donate a portion of their revenue to charities, or launch a green product line or two.

The coming challenges in GCC countries call for a bolder approach: corporate social innovation (CSI).

Rather than simply minimizing social ills, CSI requires that companies do good proactively, such as by creating more innovative products and services that improve the well-being of customers and by working with suppliers from vulnerable groups and communities.

A challenge with CSI, however, is that it can be tough to measure objectively. Accordingly, governments can develop a CSI index with standard metrics so that organizations can be compared on a fair basis, 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.

The third potential mechanism for GCC governments is to rethink the way social projects get funded. Traditionally, governments contract for public services and pay vendors a preset amount, in much the same way that governments buy tangible products such as vehicles or office supplies. Instead, governments need to start assessing the quality of social services and programs that vendors deliver, and pay more for projects that have better outcomes.

This approach, known as performance-based payments, can be even more powerful if countries tap into funding sources from the private sector through a mechanism called a social-impact bond.

When governments create social-impact bonds, they invite third-party investors to fund some of the costs of a specific project. In exchange, the investors receive a steady stream of payments from the government when the target outcomes are achieved. This approach harnesses market forces and transfers some of the risk of specific projects to the private sector, which is often better equipped to analyse that risk.

Offering social-impact bonds means that the most promising initiatives to address a social issue will receive the funding they need to thrive. And if they succeed, they will generate a greater stream of government payouts, resulting in higher payouts to investors.

On the other hand, projects that fall short of their objectives will not receive performance-based payments from government, leading to lower returns for investors. The result is more innovation in solving problems, with greater scrutiny from investors on the front end and, in the end, higher-quality services for beneficiaries.

The current approach to social services is not working, and governments in the GCC need to take action. Each of the three mechanisms discussed here represents a significant change from how governments in the GCC currently fund and deliver social services. These mechanisms have all been successfully applied elsewhere. In that way, they offer a tested approach to helping countries in the region better meet the social development needs of their citizens.

Fadi Adra, partner, and Sami Zaki, principal, with Strategy& Middle East, part of the PwC network

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