Whether we realize it or not, the process of monetary union in the Gulf has already begun. Four Gulf countries – Bahrain, Kuwait, Qatar and Saudi Arabia – will set aside their currencies and merge. While maybe not as momentous as the introduction of the Euro, the Gulf’s very own monetary union has the potential to dramatically change our retail landscape.
The introduction of the Euro had a major impact on the continent. For the first time, consumers were able to indulge in price harmonization. In plain English, they’d be able to compare prices more easily than ever across borders.
Greater price competition
The hope goes that this will lead to greater price competition for the four countries in the GCC monetary union, and that this price competition will benefit consumers by lowering prices. There will be no need to change currencies and no need to calculate exchange rate differences.
Along with the dismantling of customs unions, a single currency should also boost trade between the four countries and drive competition between national industries as well as on a retail level. The potential for consumers to benefit is obvious.
There could be negative implications, however. Soon after the Euro began circulating in Southern Europe prices for a number of basic commodities and services didn’t drop, but instead rose to match those of more expensive countries in Northern Europe.
Reduced costs for retailers
There may be less chance of this happening in the Gulf region; Gulf governments actively intervene in their economies through a series of measures including subsidies and regulation. However, the risk is there that manufacturers will use the opportunity of an economic shake-up to raise, rather than lower, prices.
What does this mean for retailers? For those companies that are regional, the likes of Al Hokair and Al Shaya, a unified currency will reduce overheads and costs. However, how will these retailers manage their pricing, especially in an age where it’s easier than ever to compare prices online.
Will retailers pass on savings to the consumer, or when you turn over the price tag will you be surprised by the price difference between those countries which are part of the monetary union?
Similarly, will consumers take advantage of a single currency to pressure retailers into lowering costs? Today’s social media channels have enabled consumers to engage, speak with one voice and express their approval or disapproval of retailer behaviour. There’s no doubt that a monetary union in the Gulf can transform the retail landscape, for better or for worse.
While the date for the monetary union is still unknown, work has begun on forming the organization in Riyadh. For those whom a monetary union will affect the most – me, you and the region’s retail industry – we need to start talking about what we want to see from this process and ensure that we all benefit from a single currency across the Gulf’s four countries.
Monetary union is a long path, but it’s one which we have already set out upon and we need to know where we’re going to make monetary unification a success for consumers.
Alex Malouf has been a journalist, writer and columnist in the Gulf for over a decade. He speaks both Arabic and English and has lived in Bahrain, Jordan, Lebanon, Saudi Arabia and the UAE. He blogs at alexofarabia.com.