Oasis Economies
Five years ago, Dubai’s Palm Island didn’t exist. Where there are now three human-made land masses— the largest the size of a major city — arranged in the shape of a tree, five years ago there was merely the sparkling blue water of the Arabian Gulf. Then the government of Dubai decided to accelerate the diversification of its economy, from a purely oil- and trade-based system to a business and recreation hub designed to lure investors and tourists.
A few miles south, Abu Dhabi, the capital of the United Arab Emirates (UAE) and the world’s wealthiest city, is experiencing an even more dizzying rate of growth. The US$3 billion, gold-domed Emirates Palace hotel was completed in 2005, ready to welcome visitors to the scores of world-class museums, universities, and
hospitals that are slated for construction, at an estimated cost of $200 billion over the next 10 years. These fastpaced developments are part of the UAE’s reinvention of itself as the cosmopolitan crossroads of a sleek new Middle East.
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All this is one piece of a still broader story. In the past five years, the Middle East region has consistently
been transforming into a hotbed of new private enterprise. The government-controlled monopolies of the past, such as the Saudi Telecommunications Company, are being deregulated and exposed to competition. Research and development in high technology is booming; enterprise zones have attracted the likes of Hewlett-Packard, Cisco Systems, and Microsoft. Local companies are investing in streaming video and other technological applications. Manufacturing, too, is on the rise. Driven in part by growing demand from China, the region’s petrochemical sector is exploding, withmore than 190 projects currently operating across the Gulf; its $28 billion biotechnology and pharmaceutical manufacturing industry has enjoyed double-digit growth each year. Many consumer packaged goods companies are opening factories in the region, in part to serve its growing middle class and in part to export goods to Europe and the rest of Asia. In short, the region—once an end consumer in the world market — has begun to transform itself into a supplier. All of this translates into unprecedented opportunities for investment.
Although political tensions in theMiddle East often grab international headlines, relatively little has been written about a growing source of stability within the region: the rise of a diversified, open economy, no longer dependent exclusively on oil revenues. Thus far, signs of this shift have been like a view of a far-off oasis in the desert. An observer may fairly wonder, Is the growth that we see the result of visionary leadership or haphazard planning? Is this a fertile, sustainable oasis—or the deceitful promise of a mirage? Indeed, it may be difficult to reconcile military actions surfacing just a few hundredmiles away with a newly opened factory, a just-built hotel, or an emerging middle-class community. What does it mean to the prospects of economic development? And yet, despite being largely unrecognized and underrated, the region’s economic development continues to gain momentum. If this economic oasis can flower in the desert, it suggests the future of the Middle East is perhaps more hopeful, and certainly more complex,
than many people suspect.
Skepticism and Sustainability
Many of the changes we see—especially those concerning deregulation and privatization — have been talked about in the abstract for some time, but seem to have become tangible only in the past four or five years. If this seemingmirage is real, then why now?What is spurring it? The answer depends, in part, on understanding a culture that often appears ambiguous or intimidating to outsiders, in part because outsiders haven’t fully recognized the paradoxical tensions that underlie the sensibility of many Middle East leaders. Commentators in the West often view the Middle East as a homogeneous region, lumping together countries as culturally, politically, and economically distinct as Lebanon and Yemen. And to be sure, the Arabic language and Islamic culture that dominate within the region have created a shared cultural heritage, and people’s shared historical experience has to a certain degree strengthened a regional collective consciousness. But there are also enormous differences both within and among the countries of the Levant (Jordan, Lebanon, and Syria), the Gulf (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, and Yemen), and Egypt and other countries of North Africa. This mix of similarities and differences makes it difficult to predict the direction of the region as a whole, for at any given moment, different countries
will pursue different interests, particularly in the economic sphere. (See Exhibit 1.)
One of the most important matters affecting all the countries of the region is oil prices.The oil booms of the 1970s were often characterized by inefficient spending sprees and limited fiscal management. But in today’s boom, even as prices reach $100 a barrel, Middle East leaders have not forgotten the lessons of the oil bust of the 1990s. That bust, which saw oil prices dip below $20 a barrel, challenged the once-shielded producers of the Gulf Cooperation Council (GCC) — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates — to think about ways to reduce their heavy dependence on oil revenues. Today, oil-producing countries are using their extra revenue to reduce foreign debt, boost liquidity, develop trade ties, and attract foreign investment. They are determined to build wealth for themselves and make the current oil boom pay off in the long run. (Although non-oil-producingMiddle East countries operate within a different framework, crude wealth has trickled across their borders in the formof aid and investment; the oil bust had a sobering effect on them as well.)
Governments now realize that in order to achieve sustainable wealth, they must develop a middle class, along with the sort of job base that can sustain it—even if the development of that class requires them to relinquish a bit of control. In a region where half of the population is below the age of 20 — and where the
unemployment rates are considerable in many countries — a sustainable middle class becomes an even bigger deterrence to economic stagnation or political tension. People with a stake in the future of their families are less likely to tear down the fabric of their countries. This recognition is reflected in a willingness and desire to build private enterprises within many Middle East countries and to welcome new forms of partnership.
Article index
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Exhibit 1: The Middle East/North Africa (MENA) Region
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Exhibit 2: MENA Businesses Go Global
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Late Yet Eager
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Risk Averse Yet Bold
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Traditional Yet Progressive
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Focussed Yet Flexible
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Exhibit 3: Labor Force Growth, by Gender, in the MENA Region
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Ambiguous Yet Determined
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Exclusive Yet Diverse
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The Road to Oasis
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Resources
Author Profiles
Joe Saddi, is chairman of Booz & Company based in the Middle East. He focuses on information and communication technologies and leads the firm’s related engagements in the region. He advises multinational and local clients on industry-level policies, regulations, business strategies, partnership and alliances, and operating and governance models.
Karim Sabbagh, is a partner with Booz & Company based in the Middle East. He focuses on information and communication technologies and leads the firm’s related engagements in the region. He advises multinational and local clients on industry-level policies, regulations, business strategies, partnership and alliances, and operating and governance models.
Richard Shediac, is a partner with Booz & Company based in Abu Dhabi. His work focuses on the public sector and the health industry, and includes policy formulation, corporate and business strategies, organization and governance, and implementation.
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