Missing the wood for the trees? Western businesses must understand – there is no single “Middle East”

The picture of the Middle East that one might get from reading most Western media coverage of the region is likely to be overly simplistic and, more often than not, negative. This huge and diverse region is typically presented as an alien, violent and chaotic landscape, characterized by religious and political strife, terrorism and intolerance, not to mention huge inequalities of wealth and power.

Dubai city panorama – sunrise

The picture of the Middle East that one might get from reading most Western media coverage of the region is likely to be overly simplistic and, more often than not, negative. This huge and diverse region is typically presented as an alien, violent and chaotic landscape, characterized by religious and political strife, terrorism and intolerance, not to mention huge inequalities of wealth and power.

But this view is incomplete and inimical to Western diplomatic, political and cultural interests and understanding. More importantly, it often has an outsized and distorting impact on the attitudes and actions of Western business interests towards the region. To operate successfully in this misunderstood terrain, businesses need to look beyond the headlines and conventional wisdom, and recognize several fundamental truths… and some increasingly positive underlying trends.

There is no single, monolithic “Middle East”

Those of us who live and do business here understand that it is a complex and fragmented landscape, which defies simplistic classification – whether by language, religion or culture. Nonetheless, in trying to understand the region, it perhaps helps to map three distinct economic and geographic sub-regions within the “Middle East”:

  • North Africa – which is anchored in some respects by its largest country, Egypt, but includes smaller, dynamic and promising economies such as Morocco, Tunisia and Algeria.
  • The Levant – which includes Lebanon, Syria and Jordan, countries that are especially vulnerable to the region’s shifting geopolitical and sectarian issues.
  • The resource-rich nations of the Gulf Cooperation Council (GCC) – which include Saudi Arabia, Oman, UAE, Bahrain, Qatar and Kuwait. The GCC’s largest member, Saudi Arabia, after years of waiting, is about to open its equities markets to foreign investment, a move that will almost double the size of GCC capital markets overnight.

This already broad assessment of what defines the Middle East as we know it does not even include Turkey or Iran, both large and populous nations with lengthy histories often tied to the wider region.

To add to this complexity, whilst there are many similarities between these Middle East countries and regions, there are also important social, cultural and linguistic differences. There are some strong commonalities between nationals, such as Egyptians and Bahrainis, but there are also equally quite stark and multiple differences between these peoples, in the same ways as there are differences between the Irish and the English or Spanish and Portuguese. In fact, some would argue that these differences are even more divergent than the examples given. Thus, one description or label most certainly does not fit all.

Understanding the local and historical context is crucial, even within the sub-regions such as the GCC, where differences between an Emirati and the Omani national “next door” can also be substantial.

Business is booming

Commerce in the wider region is thriving, with vibrant, often quite sizeable economies with huge untapped potential and economic growth rates that Western and other developed countries can only dream of.

  • Morocco’s GDP, for example, is roughly the size of Ireland’s, and its annual growth rate hovers around 4 percent, according to the International Monetary Fund.
  • The Saudi economy is forecast to triple in the next 35 years and will move into the Top 20 of the world’s largest economies, according to PWC.
  • Egypt’s annual growth rate is forecast to increase to over 4 percent while its budget deficits continue to fall. Furthermore, its IPO market is currently one of the most dynamic amongst its global emerging market peers.
  • The UAE’s economy has shown consistent growth over the last several years and rose to over 5 percent last year.

However, this latent economic dynamism often gets buried under the weight of negative newspaper headlines focusing on politics and turmoil – and rarely on some of the brighter developments taking place in the region. (We understand of course that the progress of workings of a society working ‘normally’ are not often front page news.)

It’s also easy to forget – whether reading about ISIS, revolutions or oil prices – that many of the region’s countries have been steadily trying to develop and diversify their industrial bases and economies. Egypt has businesses with histories spanning 100 years and more. A Jeddah or Kuwait City businessman who has been running his own bottling plant since the 1970s (and earlier) is just as savvy in regard to what makes his plant, competitors and customers tick as someone running a similar business in Des Moines, Iowa.

A new generation is coming into the picture

Possibly the most important trend seen across most emerging markets is that many Middle Eastern countries possess young, rapidly growing populations with burgeoning middle, consumer classes. These are people who are eager to acquire mortgages, car loans, quality healthcare, private school, iPads and other “consumer staples” that we take for granted in the West.

For example, Egypt has a population of 87 million, of which roughly half is under 25, while approximately 30 percent of Saudi Arabia’s 27 million population is under 15. As these countries further accelerate their development and become more prosperous, the demands and expectations of their (mainly young) people will also evolve. Astoundingly, and again, often overlooked, is that the population growth in the region is one of the highest in the world, surpassing that of India or China. Western observers usually describe this demographic bulge in sinister terms – as a fertile ground for discontent and violence. That is, unquestionably, a concern and why job creation is the number one policy priority for nearly all regional governments.

As digital and internet technology becomes more ubiquitous, these young, growing populations are moving online, reflected in some of the highest rates of smart phone penetration and mobile internet usage in the world. It’s possible that the Arab World’s colonization of cyberspace may present some of the biggest e-commerce opportunities in the years to come. In the West, however, Arabic cyberspace is often viewed only as a terrorist bazaar.

Where all roads converge

Finally, the Middle East remains, as it has for millennia, at the cross-roads of global trade. For centuries its merchants enabled the growth and flow of the Silk Road, linking East to West, and in the age of globalization, the region’s role as a gateway to Africa, Asia and Europe is on the rise again.

Dubai International Airport stands as a testament to this new world. Home to one of the world’s largest and fastest growing airlines – which was founded only 30 years ago – it recently became the world’s busiest airport for international traffic, surpassing global airports such as Heathrow, for so long the pivot between the United States and Europe. The gravity of world travel is shifting further to the south and east of the globe.

Not surprisingly, local companies, often funded by large petrodollar investment, are growing their own footprints beyond the Middle East and onto other continents. Some of the largest Arab world companies such as Saudi Basic Industries Corp (SABIC), Qatar National Bank, Etisalat and Ooredoo now all possess significant international operations, and, moreover, are often focused on other emerging and frontier markets, such as Nigeria, Myanmar, Morocco and Tunisia. Emirates Global Aluminium, based in the UAE, is one of the world’s largest aluminium producers, while DP World is the fourth-largest marine terminal operator in the world by throughput. There are hundreds of billions of dollars of capital that are amassed in some of the GCC’s sovereign wealth funds, which are only really now looking to deploy across the wider region, as well as Africa.

Geography and demographics will remain a powerful driver of future economic and business opportunity for the region. The sum of exports and imports between the Middle East and Asia exceeded $1 trillion in 2011 and is expected to rise by 12 percent a year until 2020, reaching $2.7 trillion. Intra-African FDI is forecast to grow from $2 billion in 2011 to $15 billion by 2020, a compound annual growth rate of 25 percent. Such “East-East” and “South-South” trade will continue to grow directly with, or transiting through, the Middle East.

The bigger picture is that the West and others, such as China, Russia, Japan, and Korea – through investments in businesses, services provision, infrastructure, training, regulatory support, and trade – can become bigger and better partners to the businesses already operating here and who are themselves looking to meet the growing needs of tens of millions of new consumers coming into the market.

Similarly, the capital, expertise and infrastructure required by many regional governments here presents a significant opportunity for Western businesses. It is no surprise, therefore, that the region has started to see a small but steady increase in investment by American, European and Asian businesses, as well as global private equity firms attracted by the underlying economic and demographic trends outlined here, not just in the energy- and oil-related sectors, but in the consumer and healthcare sectors also.  Moreover, large global and mainstream asset management firms are also starting to take notice – especially in opportunities such as the large, liquid and mature Saudi stock market.

This is all positive news that you normally won’t see in your morning newspaper or your latest news feed – or will be overlooked in the welter of negative news. As witnessed in other emerging markets, such as Africa, Latin America and Asia, you often need to look past the headlines, politics and short term events in order to uncover the exciting business and investment opportunities that lie not beneath but on the surface, and in the lives of the people who live there and want to prosper.