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World Economic Forum on the Middle East 2006

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World Economic Forum on the Middle East 2006

  1. 1. WORLD ECONOMIC FORUM World Economic Forum on the Middle East The Promise of a New Generation Sharm El Sheikh, 20-22 May 2006 INSIGHTS
  2. 2. This publication is also available in electronic form on the World Economic Forum’s website at the following address: World Economic Forum on the Middle East report: http://www.weforum.org/summitreports/middleeast2006 (HTML) The electronic version of this report allows access to a richer level of content from the meeting, including weblogs, photographs and session summaries. The report is also available as a PDF: http://www.weforum.org/pdf/SummitReports/middleeast2006.pdf (PDF) Other specific information on the World Economic Forum on the Middle East, Sharm El Sheikh, 20-22 May 2006, can be found at the following links: http://www.weforum.org/middleeast/programme http://www.weforum.org/middleeast/webcasts http://www.weforum.org/middleeastprivate (participants/private site) The views expressed in this publication do not necessarily reflect those of the World Economic Forum. World Economic Forum 91-93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel.: +41 (0)22 869 1212 Fax: +41 (0)22 786 2744 E-mail: contact@weforum.org www.weforum.org © 2006 World Economic Forum All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system. REF: 200606
  3. 3. Contents Preface 3 Summary – The Promise of a New Generation 4 The Middle East Business Agenda 7 Investing for the Future 10 Global Integration 12 Youth and Understanding 15 Democracy, Peace and Security 18 Summit Outcomes 20 Acknowledgements 22 1 World Economic Forum on the Middle East
  4. 4. Preface The World Economic Forum on the Middle East 2006 set out to highlight the “Promise of a New Generation” against a background of profound challenges. Over 1,100 participants considered multiple issues, including the conflict in Iraq, the unresolved Israeli-Palestinian problem, heightened tensions over Iran’s nuclear programme, the impact of higher oil revenues, insufficient investment in essential infrastructure, slumping securities markets and, most important of all, an uncertain future for the region’s youth. The Summit was marked by a new optimism, with more open dialogue than ever before and a genuine commitment to increasing the role of the private sector. Participants focused on issues that the business world can credibly address. Moreover, the Summit generated real achievements on the steps needed to underpin economic success and invest for the future, and outlined a host of commitments for the future. The encompassing theme placed the challenges and opportunities of an increasingly youthful Middle East at the heart of the agenda for the first time. Every aspect of policy-making in the region, from job creation to peace and security affects young people. Strengthened partnerships between government and the private sector are essential. The Forum introduced students to young regional politicians to discuss the issues that mattered most to them. The Forum also launched the Egypt Education Initiative to benefit over 800,000 children. In addition, participants brought women’s issues to the fore through the Forum’s Women Leaders Programme by promoting a five-year action plan to implement private- and public- sector policies addressing the most pressing challenges women face. Participants concluded that the private sector has a key responsibility, not just for creating jobs for those entering the workforce, but also for ensuring that the workforce is productive, healthy and fairly treated regardless of the political climate. Governments can facilitate the work of the private sector by taking a long- term view on the investment of the current oil windfall and by allowing businesses more freedom to operate responsibly within global parameters. Indeed, participants took steps towards launching a private sector- funded branding campaign for the Middle East and agreed to consider amendments to the Egyptian Open Skies policy. As the largest companies expand beyond the Middle East, many countries in the region are seeking to deepen their economic and political engagement with the rest of the world. The global integration of the region, through trade, investment and political relations, formed an additional sub-theme in the programme. Leaders from business and government discussed the steps required to move away from relations based primarily on oil and security issues towards a more positive and multifaceted global role. Global integration and harmony must take place on a cultural, as well as economic and political, level. Enhancing common understanding between faiths and peoples is key to future peace and stability. Conflict and insecurity in the Middle East continue to pose serious threats to the welfare of the region’s people, with major global implications. A final series of sessions sought agreement on the essential next steps to strengthen dialogue and underpin long-term security in order to create an environment in which the next generation can flourish and prosper. Regional governments, business and civil society leaders, and especially youth, have taken bold initiatives to transform the region. The Forum is committed to facilitating these initiatives and actions over the coming years to uphold the promise of the new generation. Sherif El Diwany Director, Middle East and North Africa 3 World Economic Forum on the Middle East
  5. 5. Summary – The Promise of a New Generation “It is our conviction that “There must be a stronger education is a fundamental dialogue between politics human right and is and business to move the instrumental in fighting peace process forward.” poverty, eliminating gender inequality, as well as Shafik Gabr Chairman and Managing introducing democracy. Director, Artoc Group for Education is also the best Investment and Development, tool to fight ignorance, Egypt, and Chairman of the Arab dispel hatred and face Business Council terrorism. It has become a cornerstone for driving the economy forward.” Ahmed Mahmoud Nazif Prime Minister of Egypt Democracy, Peace and Security The tight security in Sharm El Sheikh starkly reminded participants at the World Economic Forum on the Middle East of the most difficult challenges facing the “This is an era where ground is shifting in the Middle region: the quest for peace and stability, particularly in East…and it is combined with changing forces of Iraq and between the Israelis and Palestinians. While globalization. We can help empower. We can help the process in terms of political engagement. But it has to the focus was on the “Promise of a New Generation” come from the people themselves.” and how to create the 80 million jobs needed over the next 20 years to stem resentment among youth, there Robert B. Zoellick US Deputy Secretary of State was no denying other significant problems, including tensions over Iran’s nuclear programme, widening income gaps resulting from sharply higher oil revenues, anger among the middle class following stock market The deteriorating situation in Iraq, the continuing slumps and the lack of infrastructure. conflict between the Israelis and Palestinians (particularly with the election of a Hamas-led Discussions were candid, and intense debate frequent, Palestinian government) and the rising tensions over as participants deliberated on five sub-themes: Iran’s nuclear programme confirm that democracy, Democracy, Peace and Security, the Business Agenda, peace and security remain elusive. Global Integration, Investing for the Future and Youth and Understanding. A highlight of the event was, of • While democracy, peace and stability cannot be course, the meeting of Israel’s Foreign Minister Tzipi achieved instantly, dialogue among relevant parties Livni and Palestinian Authority President Mahmoud must be stepped up. Abbas – the highest-level Israeli-Palestinian encounter • Arab countries must manage reform and in almost a year. liberalization while carefully maintaining stability, security and fairness. The Forum launched a number of projects during the • Businesses, politicians and members of civil society meeting, including the Egypt Education Initiative, a should deepen communication and cooperation. programme to develop an action plan to address the • Gender equality and youth security are key goals gender gap, and a private sector-funded branding that will enhance the prospects for democracy, campaign to counter inaccurate perceptions of the peace and stability in the region. region. Four major messages emerged. First, businesses must take the lead in Middle East renewal. “Reform is one of the priorities of the Arab world. All Next, the region cannot be competitive without equal countries and societies want to move ahead and have opportunities for men and women. In addition, their own views on how to move ahead. Reform is an democracy, peace and stability cannot be achieved item for all of us to support but we have to be cautious overnight, but hope for attainment rests with the because of the fragility of the security situation and uncertainty on the international scene.” region’s youth, whose future and security must be of paramount concern. Finally, dialogue must be Amre Moussa reinforced to lead to more successful cooperative Secretary-General, League of Arab States, Cairo action. 4 World Economic Forum on the Middle East
  6. 6. “We have to dig deeper “The forces of globalization through technology and create tension just as they innovation. We must bring create opportunities. These our people to the standard tensions must be of global players to compete managed.” internationally with the best of nations”. Nemir A. Kirdar Founder, President and Chief Executive Officer, Investcorp Mohammed H. Almady Vice-Chairman and Chief Executive Officer, Saudi Basic Industries Corporation (SABIC), Saudi Arabia The Business Agenda Global Integration Countries in the region must confront obstacles to Global integration will bring both advantages and economic growth such as bureaucracy, inadequate disadvantages to the Middle East. infrastructure and limited technological skills. • Impediments to the Middle East’s integration with • Tenacious reformers are rewarded with higher the global economy include the negative growth and more investment. perceptions of the risks investors face, the poor • The region’s labour markets need to be open and image outsiders have of the region and the lack flexible. of the systems and infrastructure needed to be a • To attract more foreign direct investment, global player. countries should focus on bolstering legal • While political and security risks are significant, frameworks and cutting red tape to enhance they should not hide the fact that the Middle East efficiency and productivity. compares unfavourably to other competing • Economic diversification, increased investment in regions. information and communications technology and • The private sector should spearhead efforts to the broadening of the energy sector will boost counter inaccurate perceptions of the Middle the region’s competitiveness. East, remedy its competitiveness shortcomings • Young people represent the Middle East’s most and convince people of the benefits of valuable asset. globalization. “We need to see more privatization. If you open “We have to instil values such as tolerance and respect for your markets and give human rights to make the process [of reform] sustainable, opportunities to both men successful and genuine.” and women, this region will do fantastically well.” H.M. Queen Rania of the Hashemite Kingdom of Jordan Member of the Foundation Board of the World Economic Forum Stelios Haji-Ioannou Chairman, easyGroup, United Kingdom 5 World Economic Forum on the Middle East
  7. 7. “We must grow the role of “We need a dialogue to the private sector. It is listen to the needs of the important that the private young so we can turn the sector not only speak out 'youth bulge' into assets we but it should also do can be proud of.” something.” Princess Lolwah Al Faisal Vice-Chair of the Board of William R. Rhodes Trustees and General Supervisor, Chairman, Chief Executive Effat College, Saudi Arabia Officer and President, Citicorp Holdings and Citibank, USA; Co- Chair, World Economic Forum on the Middle East Investing for the Future Youth and Understanding Thanks to revenues from high energy prices, many “How wonderful, how normal and how sacred it is when Middle East countries have an unprecedented we sit together as brothers.” opportunity to push forward reforms, while cushioning Rabbi Awraham S. Soetendorp the pain that comes with them. Jewish Institute for Human Values, Netherlands • The oil price windfall could support significant restructuring of the region’s economies and mitigate the negative effects of reform. The promise of a new generation is that they will break • The region must turn its high liquidity into tangible the cycle of conflict that has bedevilled the Middle East results, channelling funds to projects that promote for decades. growth with social equity. • Capital markets must be developed that allow easier • Education is a key driver of growth. Programmes access to capital, create more attractive investment must be devised to promote entrepreneurship and options and promote higher standards of innovation. transparency and governance. • Reforming education, particularly curricula, will instil • While the government’s role is to provide a good values in young people and encourage them to favourable investment climate, the private sector be tolerant and make peace. should lead the way to reform through corporate • Youth should be encouraged to be civic minded. social responsibility, sustainable practices and social Government efforts to stifle the use of new entrepreneurship. technology and communications as a tool of political activism are likely to prove costly and ineffective. The best approach is to let ideas flow. “We must have not only a formula to provide social services, but also a strong, competitive business model to survive. A social entrepreneur must integrate social objectives into the core business, bringing in all players in the value chain to create benefits for the environment and communities.” “Religion is crucial for the peace of the world; it can Helmy Abouleish Vice-Chairman and Managing Director, Sekem Group, Egypt either consolidate it or harm and destroy it.” Lord Carey of Clifton Former Archbishop of Canterbury, United Kingdom; Member of the Foundation Board of the World Economic Forum 6 World Economic Forum on the Middle East
  8. 8. The Middle East Business Agenda The world’s greatest economies are led by businesses. Which view is correct? For many of the participants at Although the Middle East and North Africa (MENA) the Summit, the question has already been answered. countries face enormous obstacles to self-sustaining Where some see only risk, they see opportunity. Where growth, businesses can play a greater role in others see unemployment and despair, they see a new promoting reform and global competitiveness. The generation of workers and consumers, who only need economic reform movement is still in its infancy, and the tools to create wealth and improve their lives. entrepreneurship and investment are all too often strangled by bureaucracy, inadequate infrastructures “The region’s greatest asset is its young men and and limited technological skills. However, the seeds of women,” said Christiaan J. Poortman, Vice-President, change — and hope — are being planted. Countries Middle East and North Africa Region, World Bank, that have embraced reform have been rewarded with Washington DC. accelerated economic growth. A more pragmatic Realizing this promise, however, will take sweeping attitude on the part of government and private sector changes — political, social, economic, cultural and leaders has reduced conflict and encouraged psychological. Participants at the Summit focused on cooperation. This year’s World Economic Forum on the identifying the processes to effect such change. Middle East explored both the positive and negative Among the topics addressed were: aspects of the region’s business climate and developed realistic proposals for its improvement. • Labour market reform: Participants agreed that by reducing artificial job creation barriers and moving Seen from one perspective, the region seems deeply skilled workers from the public to the private sector, dysfunctional, torn by war and terrorism, badly lagging the region can unlock the creative energies of its on many key social and economic indicators and people while discouraging the growth of a dependent on a handful of resources — especially oil. permanent underclass of low-wage foreign workers in the more affluent countries of the Persian Gulf. From another point of view, however, the MENA “What the private sector needs are free, flexible and countries look like the classic investment bargain — full fair labour markets,” said H.E. Sheikh Mohammed of under-utilized assets and unrecognized value. As Bin Essa Al Khalifa, Chief Executive, Bahrain governments embrace market reform and develop Economic Development Board, Bahrain. their human resources, businesses and investors who move early could reap outsized returns. In other words, a turnaround story may be in the offing. 7 World Economic Forum on the Middle East
  9. 9. Box 1: Red Carpet In, Red Tape Out: • Economic diversification: Despite the region’s Rebranding the Middle East well-publicized security problems, travel and tourism hold great promise for future growth as some countries, such as Dubai, are already Egypt is a case study in Middle Eastern tourism. Rich in proving. However, governments need to clear culture, tradition and history, tourism is growing faster than away numerous obstacles, such as controls on the world average but overall receipts are slightly declining. property ownership, restricted national airline This is due mainly to Egypt’s under-developed transport markets and burdensome visa requirements (see networks, reliance on a few European markets and a lack Box 1). of tourism promotion spending compared to other resort destinations. • Information and Communications Tourism Authorities Annual Promotional Budgets Technology: As of 2004, only 41 out of every (US$ Million) 1,000 inhabitants of the MENA region were Internet users (see Figure 1). But that picture is changing, as telecom providers restructure or privatize and entrepreneurial activity accelerates. 114 However, they require compelling content to build a consumer base for broadband and other 86 services. “Does the Internet today provide 71 63 [Egyptian families] with the right content that 56 50 42 serves their needs in the local language? The 40 answer is probably no,” said Tarek Kamel, Minister of Communications and Information Technology of Egypt. Developing such content, Thailand Australia Singapore Ireland Malaysia Dubai New Zealand Egypt he added, is a task for the whole society, which is why Egypt is encouraging the convergence of its entertainment and Internet industries and 11 18 10 10 4 21 21 6 promoting the development of computer clubs Spend per Acquired Tourist (In US$) and other grassroots ICT organizations. Since these issues are pervasive in the Middle East, business leaders discussed the roles of marketing and Figure 1: Regional Internet Use branding in promoting the region as a destination for tourism and inward investment. During a WorkSpace session, participants considered how the image of the Only 41 of every 1000 people in the Middle East and North Africa Middle East might be revolutionized and proposed a were Internet users in 2004 number of innovative campaign ideas during the process. Internet Users in the Middle East and North Africa (per 1,000 people) 45 Participants made a commitment to create a task force of 40 stakeholders from the private sector to fund a marketing 35 30 campaign for the Middle East 25 20 under the banner “Red Carpet 15 10 In, Red Tape Out”. Furthermore, 5 there were private sector 0 2000 2001 2002 2003 2004 commitments to ensure that sufficient money is available to fund the campaign. To underpin the effort, participants suggested bringing Middle Eastern leaders together to help stakeholders better understand what the region offers and represents and project Middle Eastern opinion leaders onto the international stage. 8 World Economic Forum on the Middle East
  10. 10. “Companies don’t yet know what is required in terms of transparency. Everybody is in the learning process.” Mohamed A. Alabbar Chairman, Emaar Properties, United Arab Emirates; Member of the Executive Committee of the Arab Business Council H.E. Sheikh Mohammed Bin Essa Al Khalifa Chief Executive, Bahrain Economic Development Board, Bahrain • Energy: With oil prices hovering close to US$ 70 The economic picture presented at this year’s Summit per barrel, the energy sector would seem to be the was far from rosy — both in terms of current business least of the region’s worries. However, most oil- conditions and future growth prospects — although producing countries have not yet stimulated the there is no cause for despair. The Summit revealed development of related industries — such as both sides of the picture — the dark as well as the exploration, oil field support and professional light. In the end, it will be up to the region’s policy- services — that can boost investment and makers, business magnates and people to decide employment. “This is one of the most important which one will prevail. unfulfilled economic potentials in the whole region,” said Vahan Zanoyan, President and Chief Executive Officer, The Petroleum Finance Company, Switzerland. Box 2: The Women Leaders Programme • The Role of women: The MENA countries can never hope to escape the trap of poverty and The Women Leaders Programme of the World technological backwardness if over half the Economic Forum gathered leaders - both men and population is excluded from meaningful economic women - from government, business and civil society activity. Participants debated how to reconcile the to examine the region's gender gap. For the first time, need to empower women with the region’s prevailing the Forum brought together women ministers from legal and cultural norms (see Box 2). across the region to construct a five-year action plan for public- and private-sector policies to address the region’s gender gap. The action plan will be a publicly available resource, aimed primarily at promoting greater cooperation and best practice exchange among the region's governments in their efforts towards greater gender equality. 9 World Economic Forum on the Middle East
  11. 11. Investing for the Future “How much is the Arab Box 3: Challenges in the Evolution of world investing in research Capital Markets and development? Much less than the rest of the world. We’re not thinking of Asset managers, regulators, market operators and private- our grandchildren or our equity specialists found a common purpose when they neighbour’s grandchildren. Investing in the future is met for a WorkSpace session to find ways to enrich and key.” strengthen Middle East capital markets. Much of the estimated US$ 2 trillion that has accumulated in the region Khalid Abdulla-Janahi has been invested abroad due to an inadequate Chairman of the Executive investment infrastructure. Despite this, participants shared Committee, Shamil Bank of a vision of more transparent, better-regulated, globally- Bahrain, Switzerland; Vice- Chairman of the Arab Business integrated markets and strong regional asset managers Council acting as intermediaries for private investors. The oil price windfall offers countries in the Middle East Despite Great Regional Wealth Much Of It Is the opportunity to promote and support genuine Invested Abroad reform. But investing for the future may not be easy, given the deficiencies in capital markets and the perceived high-risk business environment. To varying Geographic distribution of assets, 2005 Percent, USD trillions degrees, countries are stepping up governance $1.3 – 1.5 $0.5 – 1.1 $1.8 – 2.6 standards, transparency, disclosure and enforcement 100% of regulations. At this stage, the focus of investments Outside should be on projects that will promote growth with 70 Gulf 80 85 social equity. While governments should provide the right climate, businesses should take the lead in driving 30 investments and pushing for reforms in what could Gulf 20 15 prove to be a significant period of transition for the Private Institutional Total region. Wealth held largely outside due to The unprecedented oil price windfall has led to a sharp • Insufficient local investment opportunities • Diversification of portfolios rise in liquidity in the Middle East, as well as increased • Concerns about region’s stability government revenues in oil-producing countries and some budget surpluses. The sharp increase in private *Total wealth defined as investable assets in the form of cash and equivalents, deposits, equities, bonds, real estate and other alternative investments (e.g. hedge equity funds from US$ 400 million in assets under funds or private equity). management in 2000 to more than US$ 1 billion today Sources: McKinsey analysis; Capgemini and Merrill Lynch World Wealth Report 2005; — some reports claim the actual figure is five times BCG Global Wealth 2004; expert interviews. that — indicates how much of the region is awash with cash. Unlike the petroleum boom of the 1970s, much Participants looked forward to capital markets fully integrated into global markets and enjoying high levels of of the capital is staying in the region, although some local investor participation. One vision was of an Arab estimate that US$ 800 billion or more of Arab money is economic zone, underpinned by a single monetary policy invested outside the region (see Box 3). and a single currency; another was of a regional stock exchange, with sector diversity and high levels of “In the Middle East,” lamented Aladdin Saba, transparency and liquidity (perhaps a Union of North Chairman, Beltone Financial, Egypt, “we have a African markets). problem of too much money chasing too few deals.” However, participants recognized that the region needs to This should not be the case, but the lack of deals that overcome significant obstacles, such as weak legal are attractive to private investors only highlights the systems, poor regulatory framework, inadequate corporate shortcomings of a region where there is much that governance and underdeveloped financial institutions, in order to implement any of these visions. In particular, they needs to be funded. Indeed, this embarrassment of identified a lack of investor education as a prime cause of riches could turn into a tragic shame if the region fails recent volatility in stock markets. to take full advantage of the oil boom to speed up its 10 World Economic Forum on the Middle East
  12. 12. global integration and support its transformation — Participants agreed that there are priorities for in short, to pay for real structural reform and investing. Petroleum producers must abandon their cushion its pain. overriding focus on oil and diversify, even if the US$ 70 per barrel price is an incentive to do otherwise. There are three concerns about investing — how to The danger is that the errors made during the raise capital, where to put it and how to retrieve it 1970s boom will be repeated and the windfall along with earnings. The Middle East is deficient in wasted. At that time, extra revenues were parked all three aspects. For investors, the entry and exit outside the region, with little deployed for domestic paths are limited; there is no pan-regional stock development. exchange of a scale comparable to financial hubs in Europe, North America and Asia. Regional In one session, Egypt’s Minister of Finance Youssuf markets lack the disclosure standards and Boutros-Ghali warned that, in times of transition regulatory discipline afforded by world-class and restructuring, the rich often get richer more financial centres such as New York and London. quickly. The challenge is ensuring that the benefits Even public companies are unwilling or unable to of investments and public spending become provide adequate and reliable information to equitable. That means concentrating on basic investors, giving rise to volatile performance on public goods that promote growth and benefit as regional bourses (see Figure 2). many people as possible. “The absolutely key items are institution building, Figure 2: Middle East Equity education, infrastructure and health,” said Forum Indices: Volatile times Co-Chair William R. Rhodes, Chairman, Chief Executive Officer and President, Citicorp Holdings and Citibank, USA. “Companies must have a culture of corporate social responsibility where they react when there is a need — for example, after a natural disaster — but also a proactive process involving ongoing engagement with community organizations,” reckoned Mazen S. Darwazeh, Chairman, Hikma Pharmaceuticals, Jordan. Good citizenship among Arab enterprises is still developing and investing for the future should not be the sole responsibility of government. Source: Thomson Financial As Rhodes stressed, “We must grow the role of the private sector [from the empowerment of women to To attract more institutional investors and promote remedying the infrastructure deficit]. It is important stability, markets in the region need tighter that the private sector not only speak out but also regulations, stricter enforcement and dependable do something.” rule of law. “Companies don’t yet know what is required in terms of transparency,” explained “If nobody else can do it, then government should. Mohamed A. Alabbar, Chairman, Emaar Properties, But it’s not their job to manage,” reckoned Arif M. United Arab Emirates; Member of the Executive Naqvi, Vice-Chairman and Chief Executive Officer, Committee of the Arab Business Council. Abraaj Capital, United Arab Emirates. Government should set the right conditions, but should neither “Everybody is in the learning process,” added take a lead role in running ventures nor tell Shaikha Al Bahar, Group General Manager, National enterprises where to invest. Indeed, the private Bank of Kuwait SAK, Kuwait. “All of us here are sector is leading the current oil boom. There is no against government intervention to influence prices, reason to turn back: let the power of business and but the government should lay out the rules.” the markets drive the Middle East’s renewal. 11 World Economic Forum on the Middle East
  13. 13. Global Integration “To integrate into the global economy is a challenge for For the Middle East, the touch of globalization has every country in the to become an embrace. There has been progress region.” — with eye-catching successes in Dubai, Jordan and Egypt, among others — but the basic Rachid M. Rachid Minister of Trade and Industry of impediments remain: negative perceptions of risk, Egypt the one-dimensional image outsiders have of the region and the lack of infrastructure, capacity and the bricks-and-mortar facilities needed to be a productive and plugged-in member of the global economy. According to the United Nations, the Middle East’s share of global foreign direct investment rose to The integration of the Middle East into the global 1.5% in 2004, up from 1% the year before. This economy will deliver both benefits and was far behind China (9.3%) and Southeast Asia disadvantages. To make the most of globalization, (4.0%). The trade picture is more troubling. In 1981, the region must overcome obstacles including the Arab world accounted for 10.7% of world negative perceptions of risk, the poor image of the exports. Today, its share is down to 4.4%. Take region and the lack of capacity and necessary away oil and that figure drops to 1.7%. infrastructure to be a productive part of the global system. Focus on political and security risks should Image is a problem; many Arab leaders are decried not obscure the fact that, even without those as inflexible, rich autocrats, their kingdoms impediments, investors are likely to unfavourably atrophied. H.E. Sheikh Mohamed Bin Mubarak Al compare the region to other emerging markets. Khalifa, Deputy Prime Minister of Bahrain, The private sector must lead efforts to rebrand the complained that the Arab world is unfairly tagged Middle East, address its competitive deficiencies as a source of oil and terrorism. He has a point, but and convince people that global integration is worth Zachary Karabell, Senior Vice-President, Co- the risk. Portfolio Manager and Senior Economic Analyst, Fred Alger Management, USA, made a more Integration into the global economy is a challenge compelling one. The hard truth is that, even if the for anyone who dares to buy into the promise of political and security risks disappeared, many globalization and contend with its risks. There are investors would unfavourably compare the region potential pitfalls — investment losses, income gaps against other emerging markets, particularly in and diminished competitiveness. But isolation and the status quo are not acceptable. As Anoush Ehteshami, Head, School of Government and International Affairs, University of Durham, United “A fate worse than globalization is to not to be touched by it.” Kingdom, concluded, “a fate worse than globalization is to not to be touched by it.” Anoush Ehteshami Head, School of Government and International Affairs, University of Durham, United Kingdom 12 World Economic Forum on the Middle East
  14. 14. terms of key investor concerns such as infrastructure, markets. Indeed, the Forum’s platform for Global ease of access to capital, bureaucratic efficiency and Growth Companies showed heavy interest in global education (see Figure 3). expansion by Middle East companies (see Box 4), but called for greater efforts to create policy measures to Certainly, other regions want to deepen links with the Box 4: The Community of Global Middle East. The presence in Sharm El Sheikh of the Growth Companies Prime Ministers of Malaysia and Pakistan, as well as Twenty leaders of the most rapidly expanding Figure 3: The Most Problematic companies in the Middle East convened to discuss Factors for Doing Business challenges faced by Global Growth Companies. Global in the Middle East and North Growth Companies are companies that have Africa Countries demonstrated a clear potential to become leaders in the global economy within five years. The companies enjoy a strong industry or regional market presence 14.9% Inefficient government bureaucracy access to financing 13.1% and have both the desire and ability to become a 10.4% Inadequately educated workforce global champion. 8.9% Restrictive labour regulations Poor work ethic in national labour force 8.2% 7.7% Tax rates The assembled executives highlighted the following 7.1% Tax regulations Inadequate supply of infrastructure 6.9% challenges that they face in their continued expansion 0% 2% 4% 6% 8% 10% 12% 14% 16% and internationalization: Percent of responses Source: 2005 World Economic Forum’s Executive Opinion Survey Source: World Economic Forum's Executive Opinion Survey 2005 To reach the critical size required to access financial markets and build strong brands, the Middle East will ministers and senior officials from Japan, India, need to become a less heterogeneous market. Singapore, France and the US, was testament to this goodwill and outreach. Local management courses and Masters programmes must be developed to address the lack of However, investors’ perceptions matter. “A lot of management talent and brain-drain. dollars are no longer going to the Middle East now that Hamas [won the elections in the Palestinian During the next year, the World Economic Forum will Territories],” Khalid Abdulla-Janahi, Chairman of the conduct workstreams to address some of these issues Executive Committee, Shamil Bank of Bahrain, and will develop a specific thematic track for Global Switzerland; Vice-Chairman of the Arab Business Growth Companies at our next meeting in Jordan, in Council, conceded. “Perception and reality are not May 2007. always different.” Distribution of Global Growth Companies To make sure that they do match, participants at the Summit took initial steps to launch a private sector- funded branding campaign for the Middle East under the banner Red Carpet In, Red Tape Out. The move is appropriate since the private sector must shed its complacency. The recent growth of private equity firms and funds in the region is evidence that business is stirring. “For the first time, we have seen a boom in this region led by the private sector,” said Arif M. Naqvi, Vice- Chairman and Chief Executive Officer, Abraaj Capital, United Arab Emirates. Businesses are looking outward, applying pressure on governments to open up Source: World Economic Forum 13 World Economic Forum on the Middle East
  15. 15. assist them. This (in part) explains the growing “When you talk about globalization, it does not number of regional and bilateral free trade necessarily attract a lot of people,” Rachid agreements that Arab countries are forging even as acknowledged. “The challenge is how to take the they participate in multilateral negotiations. Saudi people with us.” To shift mindsets will require Arabia’s accession to the World Trade Organization integrating global values to turn the new generation was a recent milestone. into promising globalization-ready citizens. As H.M. Queen Rania of the Hashemite Kingdom of Jordan Business is also promoting initiatives, such as put it, “We have to instil values such as tolerance National Competitiveness Councils, to assess and and respect for human rights to make the process benchmark competitiveness. Efforts that are [of reform] sustainable, successful and genuine.” underway to raise standards of governance, transparency and accountability must be stepped up. Governments, meanwhile, are eager for Box 5: Scenarios for the Gulf Cooperation companies to go global — and enterprises are Council (GCC) Countries responding. “This is the first time I have seen my government support me,” Naguib O. Sawiris, The private workshop held in Sharm El Sheikh was a Chairman and Chief Executive Officer, Orascom key event in the process of developing scenarios Telecom Holding, Egypt, declared. examining the evolution of GCC countries within the Middle East regional and global context. Participants The makeover of the Middle East, however, has to started with about 50 key drivers identified in a be designed and driven by the private sector. This preliminary research phase and initially grouped in 10 requires corporate citizenship and daring clusters (see below). Each driver was introduced and leadership. Fortunately, the region is blessed with a debated among participants and, based on the large pool of skilled managers and workers. There discussion, additional drivers were introduced while is also a growing willingness to adopt a others were re-grouped. The objective was to reach a management mentality that emphasizes human common understanding of all the relevant drivers resource development and equal opportunity. affecting the region. Yet business and government leaders will have to The central questions that the scenario project convince citizens that the benefits of globalization attempts to answer are whether the region will be able outweigh the risks. Developing a regional scenario to develop and implement a vision to steer itself road map may help; indeed, the Forum’s private towards economic diversification and prosperity, and meeting on the evolution of Gulf Cooperation whether Council (GCC) countries addressed the critical the GCC countries can integrate effectively into the uncertainties underpinning issues of a fully global context. diversified, prosperous economy within the global Top-level clusters of key drivers for context (see Box 5). GCC Countries 14 World Economic Forum on the Middle East
  16. 16. Youth and Understanding Soraya Salti Senior Vice-President, Middle Suzanne Mubarak East and North Africa, JA First Lady of Egypt Worldwide, Jordan More than half of the Arab world is under 18 years of “Governments must not be afraid of free thinkers,” said age; over a third is under 13. This demographic poses Soraya Salti, Senior Vice-President, Middle East and tremendous challenges but also offers great North Africa, JA Worldwide, Jordan. Classes should be opportunities for the Middle East and North Africa. reformed to encourage critical thinking and dissenting There is little indication that the region will make up the viewpoints. Arab societies too often stifle creative and 80-90 million new jobs that will be required over the entrepreneurial impulses among young people. next two decades. However, with new education initiatives, better inter-generational dialogue and The Forum, which this year included a quorum of innovative technologies, the youth of today can youth from the region, launched the Egypt Education become the region’s civic-minded leaders of tomorrow. Initiative whose first phase will benefit 820,000 children in 2,000 schools and over 300 colleges. Other Education initiatives include INJAZ, which teaches students about Improving educational systems remains a crucial the needs of the private sector by bringing students imperative. According to a 2005 World Economic into contact with the companies themselves. Forum survey, an inadequately educated workforce consistently ranked among the most glaring obstacles Peacemaking to doing business in the Middle East and North Africa. Reforming education to improve job prospects will aid While unemployment is a huge problem, many in a second youth-oriented goal: creating a generation companies in the region lack appropriately-skilled of peace-builders. Youth who see a future to live for employees. Existing programmes must be overhauled will be less likely to seek out a cause to die for. Today, to incorporate private sector input and vocational young people’s expectations for future employment are training in order to reduce the current skills gap. lower in the Middle East than in any other part of the Benchmarks for achievement are needed, as are e- world. learning programmes, peer-to-peer counselling initiatives and “second-chance” safety nets so that every student has ample opportunities to learn and develop vocational skills. 15 World Economic Forum on the Middle East
  17. 17. “In the Arab world, we Box 6: Communicating across the have a lot of seeds that are region: The Council of 100 not blooming.” Leaders (C-100) Nimah I. Nawwab Sharm El Sheikh, Poet, Saudi Arabia; Young Global Leader Egypt, provided an excellent venue for fruitful discussions among the Council of 100 Leaders’ West- Islamic World Dialogue community. Prime Minister Rabbi Awraham S. Soetendorp, Jewish Abdullah Ahmad Institute for Human Values, Netherlands Badawi of Malaysia Too often, the skills to get ahead involve networking addressed the C-100 community in their private meeting, stressing the need for dialogue to be “effective, alone, and those not born with access are quickly focused and fruitful, leading to frameworks for concrete alienated. Labour markets must be opened to action.” encourage entry into the private sector rather than the bloated and non-meritocratic public sphere. The continued sense of commitment and enthusiasm Students must be taught the skills for a new was clearly visible in all the meetings and the economy. Entrepreneurial training and ground-level discussions were open, engaging and productive. The job programmes can work, but must be scaled up. objectives of the meeting were many but included how to place the C-100 as a hub of knowledge and “If we want peace,” said Suzanne Mubarak, First information on the state of West-Islamic dialogue and Lady of Egypt, “we must teach peace.” Curricula continuing discussions on the work of the Education must be reformed to embrace diversity and teach sub-group to further develop the C-100 Education Project. the common values of all religions, rather than the values of one over another. Certain young people Members fully endorsed the proposals for using the C- need to be particularly targeted. A Palestinian youth 100 as a knowledge hub and as a platform for projects leaving an Israeli prison is at risk of succumbing to on education, as well as continuing its role as a intolerance as is his counterpart leaving the Israeli clearinghouse for action-oriented projects that advance army. But efforts to teach peace must extend to all understanding and cooperation. There was tremendous segments of all societies. Islam has a long history support for many activities, including highly practical of embracing common humanity, and learning from commitments, such as technical help for creating a and respecting followers of other faiths. Historically, website and support in organizing local fund-raising scientific advancement came with cultural events in several cities around the world. tolerance. Citizenship “We should revive values that make this civilization A recent study revealed that young people are great,” said Ismail Serageldin, Director, Biblioteca more politically active in developing countries than Alexandrina, Egypt. Educational reform should in the developed world. In a variety of ways, the encourage a dialogue between cultures rather than youth of today are already leading the charge a clash of civilizations. In support of this impulse for toward free societies in the Middle East and North cross-cultural understanding, the World Economic Africa. How the next generation behaves as citizens Forum agreed to assist developing, under the will depend on education, but also on how Council of 100 Leaders (C-100), a web-based governments, schools and families listen to young information portal and local communities people, as well teach them about their rights and supporting its work in the West and Islamic worlds obligations (see Box 7). (see Box 6). 16 World Economic Forum on the Middle East
  18. 18. Gamal H. Mubarak Mostafa El Gendy Head, Policy Secretariat, Member of Parliament, People’s National Democratic Party, Assembly of Egypt, Egypt Box 7: Meet the Young: Youth “Young people have a very big heart,” said Mostafa El Participation in Middle East Gendy, Member of Parliament, People’s Assembly of Egypt, “and are much more open to change than previous generations.” All too often, however, To better governments approach youth as a threat rather than a understand the resource. This leads to mutual mistrust, and means needs of the new that states squander the political energy of the next generation in the generation. Middle East, the World Economic Pushing this change is the spread of Information Forum invited a Technology. From blogs to SMS messaging, new number of young forms of communication mean that millions of young students from the people can connect instantly across boundaries of region to culture and nationality. In 2004, only 4% of residents of participate in the the MENA countries were Internet users. Today, the two-day meeting. Saeed Al Muntafiq, Chairman of the Board, Young Arab Leaders, number has grown slightly and demand for the Internet By actively engaging regional United Arab Emirates is booming. politicians from the Forum’s Young Global Leaders community and participating in various sessions (including New Approaches to Further Education, or the Revolution will be Televised), these students were able to share their vision for the future, their expectations from current leaders and their concrete plans for moving the youth agenda forward. One key area for youth is education. In this context, launching the Egyptian Education Initiative will help improve schooling through Information and Communication Technologies. The initiative will focus on different levels of education (pre-university, higher education, lifelong learning and e-learning industry development), and in its first stage will impact 820,000 students in 2,000 schools and over 300 colleges. 17 World Economic Forum on the Middle East
  19. 19. Democracy, Peace and Security Because of the many challenges facing the Middle While results may be slow in coming in some East today, political and business leaders attending countries, there is overall agreement that reform is the Forum expressed a strong desire to move necessary and should include participation from all faster on political participation and dialogue so that facets of civil society, including non-governmental issues related to democracy, peace and security organizations, women and youth. can be advanced. While acknowledging that democracy has been gaining momentum in the According to the IMF, more than half of the Arab Arab world, many leaders emphasized that change world is under 18 years of age. In the next 15 had to come from societies themselves— on their years, the school-age population of the Middle East own terms and at their own pace. Much of that will increase by 19% to 13.6 million people. How change, they said, needs to come through the will they define the future? participation of civil society. “If we empower civil society to fill the political In the Middle East, democracy, peace and security vacuum, the next generation will have choices and seem as elusive as ever; compared to other can exercise their freedom. This is the way to regions, the challenges of reform are great. democratization,” said Mona S. Zulficar, Attorney- However, many political and business leaders are at-Law, Shalakany Law Office, Egypt. making decisions that are defining a long-term vision of stability and prosperity for their countries Zulficar and others underlined the importance of and region. With much of the dialogue at the World gender equality, noting that there can be no Economic Forum on the Middle East focused on democracy without women sharing fairly in the unrest in Iraq, the unresolved Israeli-Palestinian process. According to the Inter-Parliamentary conflict and growing fears of a nuclear Iran, there was a sense of urgency for countries to increase Box 8: Dialogue on Peace and Security the dialogue in a changing Arab world (see Box 8). During the World “The challenge is to make change irreversible and Economic Forum sustainable,” stated M. Shafik Gabr, Chairman and on the Middle East, Palestinian Managing Director, Artoc Group for Investment & Authority President Development, Egypt: Chairman of the Arab Mahmoud Abbas Business Council; Co-Chair of the World Economic announced an Forum on the Middle East. Gabr and others see internal dialogue democracy, peace and security as interconnected, aimed at unifying the Palestinian but that achieving these objectives will take time. It political landscape was widely acknowledged that reform is taking in light of Palestinian Authority President Mahmoud place in the region, but that there is no “one-size- increasing friction Abbas and Israeli Deputy Prime Minister Tzipi fits-all” approach. and violence Livni between rival parties. The challenge in the Arab world is to manage change in a way that preserves the best in society, “The dialogue is about unifying political positions,” said giving ordinary people greater freedom and choice President Abbas. While announcing the dialogue, while ensuring security and protection from Abbas reiterated his determination to seek a two-state injustice. Many in the region realize the scope of solution, reject violence and resolve the Palestinian- Israeli conflict through a peace process, in particular, these challenges and many governments are by implementing the UN-supported roadmap. already taking important steps towards economic, social and political reform; others are following. “We have no way before us but to continue the peace process,” said Abbas. “Israel should accept our call to “There are going to be problems and setbacks, but return to the negotiating table.” A meeting between Israeli Deputy Prime Minister Tzipi in any reform process leaders will have to make Livni and Palestinian Authority President Mahmoud difficult choices,” said Gamal H. Mubarak, Head, Abbas took place during the Summit, the first high- Policy Secretariat, National Democratic Party, level meeting between the two sides in eleven months. Egypt. “Any political party or leader has to change how they communicate if they want to convince “The meeting was very important,” Livni said. “A meeting between Israel’s Prime Minister and Abbas will people about the importance of a vision. People be the next step.” need to see results.” 18 World Economic Forum on the Middle East
  20. 20. “Home-grown decisions are unifying the Palestinian political landscape in light of lasting. Imposed decisions increasing friction and violence between rival parties. will not stand the test of time.” On the subject of Iraq, some participants at the Shaukat Aziz Summit looked at the formation of the new Prime Minister of Pakistan government in Iraq — which includes the three main factions: Shiites, Sunnis and Kurds — as progress, despite ongoing violence. However, other participants remained unconvinced that democracy, peace and stability would move forward as long as occupation continued. “Despite the conflicts that still afflict this region, the Union, women hold only 6.8% of parliamentary seats in future appears bright and full of promise,” concluded the Arab states. At the Summit, the Women Leaders Egyptian President Hosni Mubarak. “Multilateralism Programme of the World Economic Forum brought and democratic international conduct are needed to together, for the first time, women regional ministers, foster collective security and peace.” who made a commitment to develop a five-year action plan for public and private sector policies to address the region’s gender gap. Box 9: Global Risks and the Middle East Democracy in the Arab world has been gaining momentum, but many acknowledge that the process Before the Summit, the Global Risk Programme of the has to be “home-grown” if it is to succeed. World Economic Forum surveyed business participants about their perception of the broader strategic risk “All [Arab] countries and societies want to move ahead environment in which they lead their corporations. and have their own view on how to do so,” explained Amre Moussa, Secretary-General, League of Arab Most respondents identified the escalation of violence States, Cairo. “Reform is something that we support, in the Middle East and the rise of terrorism as key but we have to be cautious because of the fragility of concerns. Violence and terrorism are a major concern the security situation and uncertainty on the for almost 80% of those responding, supporting the international scene.” argument that Middle East economies and business communities can only prosper in a more stable political This view is supported by the World Economic Forum’s environment. survey on the Middle East, which showed that 41% of participants said escalating violence in the Middle East Over 25% of corporate leaders spend more than 10% was a major strategic concern for business (see Box 9). of their company’s budget on ensuring business Other participants echoed the sentiments of the Arab continuity and attempting to diversify activities across League Secretary-General, stressing that resolving locations in order to balance their risk portfolio. Over conflicts in the region — particularly the situation in Iraq 25% of business leaders turn to the World Economic and the Palestinian-Israeli conflict — is important if Forum to identify broader strategic risks when faced democracy in the Arab world is to move in the right with a strategic decision for their company. direction and to mitigate some of the effects of How concerned is your company about instability. these potential threats? Although conflicts in the region are far from being resolved, there were positive signs of movement in the Escalating Violence 41% right direction. The Forum brought top Palestinian and Terrorism Israeli leaders together for the first time in eleven 38% months, which may pave the way for the President of Nuclear proliferation 26% the Palestinian Authority and the Prime Minister of Israel Protectionism 21% to resume political negotiations. In addition, the 0% 10% 20% 30% 40% 50% President of the Palestinian Authority, Mahmoud Abbas, major strategic concern announced the launch of an internal dialogue aimed at 19 World Economic Forum on the Middle East