Thursday, March 10, 2011

Middle East & North Africa unrest - a perspective

Over the recent weeks many friends, mostly Europeans and North Americans called me to get an opinion about what has been happening in the Middle East and North Africa.
I have refrained from publicly sharing any of my views since events were unfolding very fast and needed some time to analyze them and formulate an opinion.

The following is a summary of my thoughts and humble opinions hoping to be nothing more than a perspective from someone that has been operating in these markets for years and that has a first-hand appreciation for the commonalities and the differences that these diverse cultures share.

Let's get out of the way few important notions:

  • Origins of conflict: first and foremost with the exception of Bahrain the events in Tunisia, Libya, Egypt, Saudi Arabia and Oman have been driven by socio economic factors and not religious ones.
  • Oman: secondly, Omani protesters haven't requested for a change of the ruling family but rather a set of changes that improve the ability of employment and changes in some of the government posts.
  • Bahrain: remains an exception because we have a Sunni government in country that is vastly Shi'ites and some of protests took a religious connotation especially after the clashes that took place about 10 days ago.

The risk of simplifying an analysis and group all these countries together, while useful for some reasons and to certain people, does not represent reflect the truth about the profound diversities among these countries.

Tunisia, Libya and Egypt saw a long deterioration of the conditions of the masses leading up social unrest that took many years in the making. Take Egypt as an example: the economy has been growing fast over the past few years in spite of the global recession: 5.3% in 2010, 4.6% i 2009 & 7.2% in 2008, unfortunately such growth didn't benefit the fast growing population: 20% of the population remains below poverty line, and this looks like a rather conservative estimate. It is not by chance that the majority went to the streets asking for radical changes and that the protests turned violent.

While regime changes were long in the making in Tunisia and Egypt, the unrest in some of the other Middle Eastern countries may have taken some of their governments by surprise. 

Unemployment rates among the local population breeds unrest, especially youth unemployment. At sign of first trouble the answer given by the ruling families in Saudi Arabia, Oman, Bahrain has been to prepare a package of handouts in form of government salaries increases, and to create new government jobs (Bahrain: 20,000 new jobs promised -, in a country of 1,000,000 approximately it is a significant increase). King Abdullah of Saudi Arabia returned home and immediately implemented a $37 billion social welfare package: pay rises, unemployment benefits and affordable housing.

Notably out of the lot during these troubled times have been the United Arab Emirates, Kuwait and Qatar where there was little to no sign of discontent. 
These countries have been able to share in a relatively less inequitable way the wealth of the country and last but not least the population is differently composed: a majority of expatriates workers at every level of society together with a 15-20% of passport holders.

Without getting deeper in the analysis of each single case I would like to highlight some of the risks on hand and some of the opportunities:

  • Egypt controls the Suez canal and therefore the traffic of oil derivatives and container into the Mediterranean. It is essential to have a stable Egypt to guarantee free flowing of the goods. Further Egypt is one of the most populous countries of the Arab League and presents phenomenal opportunities for growth: large and young population, need for infrastructure and good combination of agriculture and services industries;
  • Saudi Arabia: any unrest in this country would send oil skyrocketing to levels never seen before. Saudi Arabia has acted as additional supplier in times of need for the West. Since the second oil shock Saudi Arabia has intervened with additional oil supply any time there was necessity to stabilize the market.
  • Some forces in the West could characterize the current situation along religious lines further exacerbating the contrapposition between Islam and Christianity that seems so useful to some lobbies.
  • Gulf countries: some of the measures that have been put in place to quell the unrest may prove harmful in the long run. Government jobs and subsidies hardly seem the way to create long term competencies much needed in these countries. Government jobs may prove a way to employ the youngsters short term and a way to redistribute the wealth coming from natural resources (oil & gas) but it breeds inefficiencies and promote bureaucratic tendencies. It is known in the UAE for example that many Emirati passport holders don't like to work in private enterprises and hold out of the work force to be employed by the government which provides a secure job, indexed salaries and easy advancements.
  • Since the USA and many European allies actively sustained many of the families ousted during this last round of discontent it is possible that the new forces shaping up to take control in these countries may be less friendly than their predecessors towards the West. (Remember: US 6th fleet is anchored in Bahrain, Saudi Arabia is a key ally of the US, Egypt received armaments and economic support from the US and allies: Italian Prime Minister Mr. Berlusconi called him one of the wisest leaders in the world just two weeks prior of him leaving Egypt for good).

  • Increased internal development: this unrest is a stepping stone in the development of a country. This could be seen as an alarm bell for many ruling families in the region that could put additional resources in the development of the country and in the creation of a better leveled field for its citizen. This in turn can create a virtual circle of business opportunities for all: locals and foreign investors alike;
  • SME sector: a more balance redistribution of wealth in certain countries could mean an accelerated development of economic sectors other than the one of the natural resources which in fact has been on the agenda of many Gulf countries for many years. The next step is promoting the development of a strong private sector independent from the government owned conglomerates that have been fueling the development already for many years.
  • UAE as the most stable country in the region: what may be an issue for some it can be an opportunity for others. Capitals as well as tourist require stability. Since Egypt has proved unstable all tourists have been redirected to the UAE resorts: try booking a room in Ras Al Khaimah these days… Let's look at relative advantages to uncover opportunities.
Useful marco-economic data:

Country Ranking GDP per capita GDP per capita (PPP) GDP Ranking Nominal GDP Population
Tunisia 82 9,488 76 43,863 10,549,100
Egypt 103 6,367 40 216,800 79,890,000
Saudi Arabia 39 23,742 23 434,440 27,136,977
Oman 34 26,197 68 53,782 2,694,094
Bahrain 33 26,807 96 21,733 807,000

Macroeconomic Data from:
  • CIA World Factbook;
  • International Monetary Fund;