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.
The Potential Power of Peace
But imagine business without these extra precautionary measures and nuisance. Imagine business with the potential power of peace.
The hurdles to leap are higher than ever. Israel’s Prime Minister Benjamin Netanyahu seems like the reluctant bachelor who does not want to commit to marriage. The phrase “two-state solution” seems to be the no-go zone for him. It seems unlikely at this juncture that citizens of Iran will swing to the center during their mid-June elections. And Hamas and Fatah seem just as far apart now as they were when they first sat down for talks in Cairo.
However when I posed the idea of all those elements coming together to a senior advisor to King Abdullah II of Jordan, he quickly replied that the payoff would be “huge”. Barriers to movement, barriers to business and barriers to peace would tumble. Iran would find it difficult to play the role of spoiler if a two-state solution took hold. Imagine a world where Saudi Arabia, Qatar and Egypt all read from the same page.
In an interview with Gamal Mubarak while at the Dead Sea for the World Economic Forum, the Egyptian President’s son urged Israel not to go back in time.
“If we are going to be held hostage every couple of years after a change in government, on either side, that decides to start all over again, that decides to say, you know, ‘I'm not going to be committed to what has been agreed to before and let's start all over again’, we're never going to get anywhere.”
Senior Arab officials privately hold out more hope than they are publicly willing to share these days. They believe that Americans, especially Jewish Americans, have shifted in the past year and as a whole want to see peace take hold. One regional official involved in the process says the new U.S. President is sensing that change in sentiment.
After sizing up the different discussions at the Dead Sea and thereafter in Amman, one should not hold one’s breath for an overnight shift in the tectonic plates of the Middle East, but as Washington’s ambassador to the United Nations recently stated, the parties involved don’t want to be seen dithering either. There are plenty of fuses burning in the region, as well as in Afghanistan and Pakistan and action is needed.
Prior to our video reportage in Amman, I bumped into the chief executive of leading mobile group Zain Telecom, Saad al-Barrak. He was in Jordan to finalize a deal for Paltel, the Palestinian telecom group and swap shares in its Jordanian holdings. He is not letting the uncertainty of an elusive peace deal hold up business. Goodwill, al-Barrak says, is built during these difficult times, that when security arrives will pay dividends for years to come. It is the same strategy Zain has implemented in Iraq and 18 other countries.
Though doing business is not easy in red-alert zones for mobile operators, the freedom of movement and goods are not essential. One can make phone calls even when are hindered by road blocks and security checkpoints in the West Bank. Shipping hard, perishable goods is another story.
So businessmen on the ground are looking for movement from the new leadership in Israel. As Gamal Mubarak noted, “If we don't give the Palestinians some hope, a track - it's going to take time, obviously - I don't think this is going to be a positive or an encouraging start.”
As the temperature dropped on what was an unseasonably warm day in Amman, a leading businessman shared his enthusiasm for peace: with no checkpoints, and no security barriers the drive from Amman to Jerusalem would take less than an hour.
A year ago, I attended the Palestinian Investment Conference where a standing room only crowd to expressed their support for peace and invest in the territories. There has been a lot of water under the bridge since then, but that has not stopped businessmen from visualizing the potential power of peace.
Green Shoots in the Sand
After a buoyant global market rally and the passing of the so-called bank stress tests in the
Followers of history would have us think again. During the Great Depression investors were head-faked into believing that the initial recovery would be a lasting one -- and they licked their wounds for another four years thereafter.
This week I had the chance to co-chair the Arabian Hotel Investment Conference in
Both in their half hour appearances on stage gave candid assessments of where we are today. The chairman of Dubai World said he would complete all the projects under construction but would delay any new developments, including the one kilometer tower designed to surpass the world’s tallest tower, the Burj Dubai. Sultan bin Sulayem trimmed the sails of his property group Nakheel by cutting 15 percent of the workforce. “Everything that cannot be currently financed will be delayed,” said the development veteran.
Marios Maratheftis of Standard Chartered told the hotel developers that the
Having taken the business temperature as the heat surged in
That, unfortunately, is at the heart of the challenge. Next year is not looking so bright, with credit still scarce and government and corporate debt coming due starting in the autumn. Government officials expressed their confidence that the $10 billion bond offering will go well -- and Sultan Bin Sulayem shared that view for Dubai World, with more than $4.5 billion in need of refinancing in the next year.
The region has been tested before and worked through the challenges. While touring his beach hotel complex via an electric powered abra (boat), Gerald Lawless, the Executive Chairman of Jumeirah Group, compared this economic challenge to the rapid response needed after 9/11 and the Gulf War.
Lawless, a 30 year veteran of the region, said
Beyond the staff cuts, Dubai Inc. has had to respond in force to get visitors in place. Hoteliers like Lawless teamed up with Emirates Airlines to put forth bundled offers. Lawless says that his beach resorts had 97 percent occupancy in April -- but this came at a price, with revenue per available room down 20 percent in the first quarter.
The Jumeirah Group has big expansion plans, but the owner-operator of the iconic Burj Al Arab hotel is also taking a more measured pace. The first of six hotels planned for
After the conference, I took an hour to take in “The Walk” at
At the start of this stroll, I stopped to take in an unusual scene in the Gulf. It was a crane with a giant wrecking ball tearing down an “old” structure. This prime location was being cleared for what seems to be another residence. It was a rare burst of new activity in a city which has been in a big rush for the past two decades, and is taking a pause to spot the green shoots of recovery in these desert sands.
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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