It’s Time for Big Investments in the Middle East
December 19, 2011 Editor 0
2011 will be remembered as the year of the Arab Spring, when a generation found its voice on the streets of Tunis and Cairo. Less discussed is the fact that this political awakening is unfolding against a backdrop of rapid social and economic transformation. The Middle East and North Africa (MENA) is a rapidly diversifying, entrepreneurial, and globally connected business region. It saw 5% annual growth for nearly a decade before the global recession, and the International Monetary Fund reports that it’s growing strongly again — about 5% in 2011. And this healthy growth is despite the uncertainty following the Arab Spring. More importantly, the IMF predicts strong 4% growth for the region in 2012 and Gulf Cooperation Council countries could set a torrid 7% pace.
Over the next decade, the world will add a billion new middle-class consumers in emerging markets, and the MENA region will have 60 million of these new shoppers. As consumers move into the new middle class (a group that typically spends $10-$100 per day), consumption of all consumer goods increases markedly. If companies want to catch this wave of consumption, the time to invest and prepare is now.
Populations are also growing — another sign of a healthy and sustainable economy. Every single country in the Middle East and North Africa saw its population grow 1% or more this year. This is a demographic dividend that, if managed properly (more on education later), can give the region an advantage for years to come. A rapidly growing population means a strong youth market; new ideas, innovations, and business models; entrepreneurship; and even new ideas about governance.
It’s also getting easier to do business across the region. According to the IFC/World Bank’s 2011 Doing Business survey, Saudi Arabia is now the 12th easiest place on the planet to do business — one spot ahead of Canada. Moreover, it ranks first in ease of registering property. Five other countries — UAE, Qatar, Bahrain, Oman and Tunisia – were in the top 50.
With the exception of Saudi Arabia and the UAE, these are not major oil producers (combined they produce less than 3% of the world’s daily oil output), and they are working hard to make it easier for companies to create jobs and grow economies. Saudi Arabia is the world’s second-largest oil exporter, but it’s clearly looking ahead to the day when oil is not the prime driver of growth and exports. In 2011, the UAE received more foreign direct investment than Poland; Saudi Arabia got more than South Korea.
Of course, doing business in the Middle East is not without its challenges. The business climate is uneven — Jordan and Egypt both fell in this year’s Doing Business survey, from already low rankings to the 98 and 110th spots respectively (out of 183).
Labor force participation, at about 45%, is the lowest in the world and well behind other fast growers like sub-Saharan Africa and East Asia. No economy that keeps half of its talent at home can live up to its full potential. The workers who are available often do not have the skills to compete in a high-tech economy. Combined with population growth, this skills gap is one reason why regional unemployment has averaged about 12% for more than two decades (and it’s more than twice that among youth) despite strong economic performance.
If the region is to thrive in the 21st century, creating an environment where economic and job growth are both encouraged must be a top priority. The ingredients for MENA tigers exist — growth is already robust, standards of living are rising, and populations are young and entrepreneurial. And today we are proving that multinationals see these trends and want to invest, grow local economies, and help the region diversify away from petroleum.
An example from my own company, Coca-Cola: today we announced a nearly $1 billion investment in Aujan Industries, the region’s largest juice, fruit drinks and cordials company. It’s the largest fast-moving consumer goods deal in Middle East history and our partnership will give Coke a majority stake in the juice portfolio in the Middle East and a minority stake in Aujan’s bottling operations.
This kind of investment coupled with continued reforms across the region should bode well for MENA throughout this decade and beyond. As long as governments continue to make the way easier by streamlining regulation and investing in education, the region’s future will be bright.
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