A Very Public Debate
As we have all witnessed in the past year, economic downturns have a tendency to unearth all the nasty bits that may be hidden on the balance sheets of major banks. Challenging times also reveal some of the deep policy schisms that stand in the way of rapid decision making.
While this region was booming and cash piles were building, airing the family laundry was kept to a minimum. That is changing. In the past few weeks, I have chaired panels at the World Economic Forum in the Dead Sea and again this week at the London Business School Middle East Day. Both events brought together top shelf ministers, policy decision makers and business leaders. They are not seeing the future through the same lens.
Governments right across the region have been reforming for the past five years, some of course at a faster pace than others. There were a half trillion dollars of investment poured into hard and soft infrastructure last year alone in an effort to play catch up for the lack of foresight and/or funds over the previous twenty years.
When the downturn took hold, there were fears that government leaders would retrench and not continue with their reforms or their spending plans. So far that has not been the case. One needs to look just at Saudi Arabia and its $400 billion dollar, five year plans to illustrate the point. The slowdown will certainly stretch out projects by three to seven years, but I don’t see the shutters coming down.
The real question is, will barriers to trade and market opening measures go up? We found out at the G20 Summit that 17 members of the group have been using existing rules of the World Trade Organization to protect some of their prized sectors. The so called “name and shame” game put forth by WTO Director General Pascal Lamy has helped put those genies back in their bottles, but we should take a closer look at who has led the charge to put up the barriers.
Rachid Rachid is now the Minister of Trade and Industry, but for years ran the MENA operations for consumer goods giant Unilever. In front of an audience of 800 or so peers, he wanted to clarify that he thought it was business not government that is holding back the train of reforms today.
For the past few years, businessmen through groups like the Arab Business Council (Minister Rachid was a founding member as a private sector man) have lobbied their governments to accelerate the pace of change, reform labor laws and lower taxes. They were clear in saying that 100 million jobs need to be created by 2020 to basically tread water, since the youth population continues to explode. If we want stability, want to create opportunity for the next generation, then they said let business do what it does best.
By and large, that is what government has done. But according to Minister Rachid, certain elements of the business community are privately lobbying for protection of their particular sector or to at least slow down the pace of change. This prompted a fairly civil but heated debate amongst panellists representing business.
Within the global community, the concept of public-private-partnerships (PPPs) has been in vogue along with corporate social responsibility initiatives. The concept is for government and business to approach some of the most challenging issues for example healthcare, education or poverty together. In the region, this partnership is showing signs of strain.
Two other participants on these panels, who have taken the opposite route from Minister Rachid and left government to join the private sector, have a different take on the challenge. While they admit the large trading families of the region have lived for too long with cosy dominance in their home markets, they expressed that there remains an underlying issue of government mistrust. Business leaders have seen governments go down the path of reform in the past, only to apply the brakes when public popularity begins to wane in the face of high unemployment from difficult reforms.
The attitude of mistrust these businessmen suggested is holding back the appetite for risk and to reinvest in their own companies to expand. Research and development spending, a good barometer of a company’s desire to break new ground, remains woefully low in the Middle East. According to consultancy Booz & Company that is running at point three percent, only a fraction of the three-four percent in OECD countries.
The business community is looking for assurances that “big brother” (the government) will not change course. Government for its part needs to reduce the role it plays in providing employment in the public sector.
Most importantly the two sides need to close the gap on what is needed for the future. Right across the region, there is constant complaint that today’s graduates are lacking the skills to fill the roles needed by the leading private sector innovators. It is the primary reason youth employment remains stubbornly high at 20-25 percent, depending on the market.
Public debate is always healthy. It was sorely missing in the region a decade or so ago. But as one observer at these meetings suggested, we can argue over what is wrong forever. It would be wiser to bring back the PPP – public-private-partnership.
ABOUT THIS BLOGJohn Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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