New research points to real momentum in oasis economies

London, 11 March 2008 – The Middle East’s economy is no longer exclusively dependent on oil revenues and economic development is gaining momentum to become more diversified and open. This offers a promising future for the region, according to a new report by Booz & Company.

To reduce dependence on oil reserves and to assure the region’s future, decision makers are spurring fundamental change. Many government-controlled monopolies are being deregulated and exposed to competition and insularity is giving way to globalisation. A growing middle class is thwarting economic stagnation and political tension; research and development in high technology is booming, and enterprise zones have attracted companies such as Hewlett-Packard, Cisco Systems, and Microsoft.

Georges Chehade, partner at Booz & Company said: ”Signs are everywhere that “oasis economies” are blooming in the desert - from Dubai’s emergence as an international centre of business and recreation, to Abu Dhabi’s $200 billion of construction projects and Saudi plans to build six cities to attract investment.”

Scepticism and Sustainability

What is spurring this recent trend towards deregulation and privatisation? And why now?

Today’s Middle East is different. “The region’s leaders are committed to catching up to, and in many cases surpassing, the rest of the world in terms of economic vitality,” commented Richard Shediac, a partner with Booz & Company. “This is largely due to visionary individuals in positions of authority who are eager for progress and willing to move quickly.”

However, the region’s progress often goes unseen due to stereotyping and the region being misunderstood. Those familiar with business in the Middle East will recognise a specific rhythm. Economic developments move with astonishing rapidity - following a long period of incubation before a decision is finally made.

One example is the deregulation of the telecommunications sector in Saudi Arabia, which started in 1998. The industry operated like many other sectors in the Middle East, but Saudi Arabia decided to open up to competition, spurred by a desire to become more efficient and by an interest in joining the WTO. “Overall, the deregulation has had major effects on quality of service and pricing,” commented Karim Sabbagh, a partner with Booz & Company.

Risk Averse Yet Bold

The desire to modernise rapidly is expressed in bold, creative decision making. Palm Island and other initiatives in the UAE are examples of daring actions that created momentum for change. Bold decision making in one key project sets the course for others to follow.

The region is taking steps to improve education. One example is in Qatar where its leaders have prioritised creating a cutting-edge school system that harnesses technology for learning. The country’s Supreme Education Council (SEC) is playing an integral role in the development and implementation of major reform in the schools.

Traditional Yet Progressive

Decision makers in the Middle East are fundamentally progressive, despite the region being tradition- bound. Modernisation is valued within traditional bounds.

“The Islamic banking system guided by Sharia law highlights the tension,” explained Mr. Shediac. “Modern Islamic banking has emerged and the region is the incubator for this industry, which is growing at a global annual rate of 15 to 20 percent.”

Ambiguous Yet Determined

The Middle East’s leaders are seeking to learn from the experiences of others in their determination to grow economically, while adopting tailored solutions that will work best within their countries.

“Democracy is one such issue in which the region is consistently progressing,” Mr Shediac commented. Some parts of the MENA region introduced universal suffrage early on, including Lebanon (1952), Egypt (1956), Morocco (1963), and Jordan (1974).

Other parts of the region are gradually reforming, including in Saudi Arabia where municipal level elections were introduced in 2005 and women permitted to stand as candidates.

Oasis Economies - a report by Joe Saddi, Karim Sabbagh, and Richard Shediac, appears in the latest issue of strategy+business