Nothing can knock regional economies

DR DANIEL THORNIELY, senior vice president of the Economist Group and a no-holds-barred speaker at the upcoming Arabian Hotel Investment Conference, takes a brave gaze ahead at the region’s business outlook in this exclusive for TTN

HISTORY shows that multinationals outside the energy sector have bypassed the Middle East. But times are changing.

As sales and profits in the developed markets become tighter, alert groups are fast eyeing emerging markets. Clarity hit as recent business results shied away from double digit topline growth to a stodgy three to six per cent. The wise fast decided to upgrade doing business in this burgeoning region.
On entry, many attempted second-hand marketing tools imported from developed markets. This failed.
Companies are now spending on local marketing communications. They have opted to upgrade and often change distribution systems and looking to engage enhanced human resources.
However, attracting, then retaining, the right staff is a challenge as locals are in the learning mode and the region suffers generally from a reactive human resource pool compared to Russia and Central Europe.
And, as the Middle East as a whole rides high, there are winners and losers. Companies must be prepared to manage the balance. Turkey is reporting excellent business results despite a spring 2006 dip. The Levant is in a sorry state. Egypt has seen a massive positive turnaround – until 2004 it had been the worst performing market for a decade but the new government has changed the playing field and goals are being scored. Elsewhere, North Africa is a mixed bag, but Algeria is worth watching.
In the Gulf, Saudi Arabia has long since been operating below par but this too has changed – companies report double digit growth as an overall expansion soars.
The smaller Gulf states such as Bahrain, Kuwait, Oman and Qatar are doing well for non-energy companies but the markets are generally compact; combined they equal the region’s shinning star, the UAE, with Dubai at the centre.
With a population of just five million, the UAE has a GDP 50 per cent bigger than Egypt’s and imports larger than Saudi Arabia. With an 80 per cent expatriate mix, Dubai is standing firm as the unequalled hub for companies working in the Middle East. Its ruler, Shaikh Mohammed bin Rashid Al Maktoum, who is also vice-president of the UAE, has just braved the announcement of a stonking, quadruple, nine-year growth strategy.
But costs are rising; competition is more intense with the internationals in situ feeling pressure from low-price Asian firms; again the job market is extremely tight; the infrastructure is tenuous and traffic congestion infamous. However, despite the woes,  there are few viable alternatives. Low risk security is clearly a major positive and Dubai is viewed as the ‘Switzerland of the Mid East’.
Not surprisingly, however, the ‘hot’ question is: is this all sustainable?
For 20-30 years? Who knows? One could ask where will the EU be and not reach a consensus.
But in the medium term, the horizon looks bright. Clearly if oil prices collapse below $30 per barrel, some of the bubble will pop. But despite the recent price downturn, demand from China and the US looks like holding price above $55-60 for quite a while. At this ticket, liquidity will continue to flow, funding diversification. Several markets are reporting ready success.
Government policy also looks better with petro-dollars being used to successfully boost economies, not individual pockets.
Flush liquidity did see a regional stock market bubble pop last year with little global impact; singed investors were predominately local Arab.
But the political outlook is of particular concern. Iraq is a quagmire of death, while the Palestine-Israel war does not look likely to end.
While more locals will question the legitimacy of Arab regimes and the levels of corruption, little will change.
Despite the West’s continuing pressure on Iran, Russia and China will ensure that extreme sanctions are not imposed, and with the US (in Iraq) and Israel (in Lebanon) having both taken a bloody nose, there is less likelihood of military action against Iran in the short-term.
In summary, the Middle East business outlook for 2007-2010: business great, politics awful.
Companies look set for three good years of business but the political background will do them no favours.
That said, the region has lived with this kind of risk for many years. Even with the very slight chance of a major implosion, while likely to take a knock, the positive business outlook remains ever manageable.

AHIC is jointly organised by The Bench and the Middle East Economic Digest (MEED). It will run from April 28-30, 2007 at Dubai’s Madinat Jumeirah Convention Centre. To register, visit