The Business In The Middle East - Essay Example

The Middle East business region has a significant level of international commerce and investment. It has an estimated US $120 billion dollars in exports and the presence of nearly 1,200 foreign-affiliate firms, with approximately $29 billion in investments in the region. At present there are more than 1,200 foreign-affiliate firms in the region, employing over 120,000 people and owning property, plants, and equipment worth approximately $12 billion. Some examples are General Motors, IBM, Toshiba, Sharp, Caterpillar, and Honeywell. Iran, Saudi Arabia, and the United Arab Emirates (UAE), which compose the bulk of the population of the Persian Gulf states, have a rapidly growing export base, as evidenced by a 12 percent increase in exports between 1990 and 1994. The region's international airports--Tehran International, Dubai, Jeddah, and Riyadh International--experienced more than a 50 percent increase in international air passengers between 1988 and 1994. The number of weekly international flights at Tehran International, Dubai International Airport, and Riyadh International increased by 6.3 percent from 1983 to 1993 (Withiam, 1994). In addition, the number of international markets served by Tehran, Dubai, and Riyadh has increased from twenty-two to 102 destinations in more than fifty-seven countries around the world (Journal of Commerce, 1994). Between 1983 and 1993, the region accounted for a 2.1 percent global market share in air passengers, and for 2.3 percent of the world's revenue passenger-kilometers in 1991, In 1992 the port of Sharja in the UAE handled 37,400 ton-equivalent units (TEU), a 146 percent increase over 1991, and about fifty-five thousand TEU in 1993. There is an increased inflow of international investment in this region. The region's major international strengths include oil and natural gas, major international airports, ports along the Persian Gulf, high disposable income per household, an educated labor force, a growing high technology industrial base, and world-class financial centers. In addition, the region is home to many international and regional organizations. In the aftermath of the Arab-Israeli peace accord, people feel more confident about the stability of the region. The region has many weaknesses. These weaknesses include a lack of positive image, a serious need for surface transportation improvements, a lack of efficient and speedy bureaucracies, a perceived high cost of doing business, inadequacies in the workforce, and the absence of a single entity to promote the region internationally. The Persian Gulf region has neither the competitive international reputation nor the economic-development focus of other competing regions. As such, it is not a priority location choice for American and Western European investors. The region possesses the basic assets and intellectual talents to compete with any region on the globe. However, it must operate, harmonize, and engage its combined resources to move forward in a deliberate effort to improve its international competitiveness ( Porter, 1986). The Middle East must have a regional business policy which will be crafted by a regional international business council. This business council will be made up of public and private sector representatives. The business council needs to make a long-term commitment to increase the Middle East region's international competitiveness and to develop an integrated strategy for marketing it more effectively. In order to reduce uncertainty and provide greater economic stability, the Gulf countries must unite and develop a business policy that will diversify their economies. For this business policy to work, they need to focus on foreign investment and technology, subsequently enhancing the countries' ability to attract, absorb, and become globally competitive. There are three pending urgent actions that the Gulf countries need to undertake. One, develop a spirit of public and private partnership. Two, improve the region's international infrastructure. Three, there is a need to foster international awareness of the region as a business center. Global competitiveness, here, principally refers to the rapid developments in technology, transport, and information that bring the region to par with the more advanced parts of the world. One consequence of the global competitiveness process is to analyze the human resources of one hundred million people living in and around the Middle East. Like much of the rest of the world, the region has long been interconnected through international trade and economic interaction. International competitiveness is not necessarily a wholly novel phenomenon, unique to recent decades. As a process it is of considerable historical depth (Ahmed and Donnan, 1994). Another important characteristic of a regional policy is consistency. In most cases, the Gulf countries have different business rules as defined in manuals or other documents. Many Gulf countries rely on government technocrats to interpret business policies as business rules, which can be inefficient and lead to inconsistent application of rules. Hence, there is a need to set consistency parameters for the implementation of business rules in the Gulf region. There are three operating councils which also implements business policy in the Middle East. The first one is the Economic Cooperation Council. The Economic Cooperation Council's objective was to provide an early warning system to the Middle East countries on factors which accelerate shifts in economics, politics, technology, demographics, and culture that were poised to influence the business environment. The globalization process has made business processes even more complex, making the Council all the more relevant for the region's top CEO's and other business executives.The ECC delivers knowledge and analysis necessary to understand global trends and future external challenges. The second political and business council is the Gulf Cooperation Council. The Gulf Cooperation Council is promoting an investment boom in the landscape. The non-oil economy is benefiting from fiscal stimulus and sharp increases in capital spending. Skyscrapers of extraordinary height are being built in major cities. Flurries of mega projects worth over $1 trillion are either under way or at the advanced planning stage, aimed at modernizing basic infrastructure and diversifying the Gulf's industrial base. Project implementation will boost the construction, real estate, public utilities transport, information communications technology (ICT), tourism, finance, healthcare and petrochemicals, as well as the hydrocarbons sectors in the next five years. Rapid population growth especially in Saudi Arabia and UAE highlights the need for higher capital expenditure on housing. New roads, railways, ports and airports are being constructed and expanded to facilitate growing volumes of trade within and outside the region. Real economic growth in the Gulf countries averaged almost 6% a year during the 2000-05 period, according to the International Monetary Fund (IMF). That, in turn, resulted in large gains in per capita GDP. Average per capita income in the GCC region rose by two fifths from $12,000 in 2002 to above $17,000 in 2005. By country this ranges from $12,607 in Saudi Arabia, the Gulf's most populous nation, to $51,975 in Qatar. In fact, nationals of Kuwait and the UAE are wealthier than indicated by income per head in numbers--Kuwait ($30,321) and UAE ($28,840)--since both emirates have large expatriate workforces (mainly engaged in lower-paid jobs). The Gulf Cooperation Countries invest in other parts of the Middle East. The Abu Dhabi Investment Authority (ADIA), the Kuwait Investment Authority (KIA) and the Saudi Arabian Monetary Agency (SAMA) are run by professional teams of global fund managers. The head of investment strategy at ADIA, Jean-Paul Villain, is French. Recent estimates put global portfolios of ADIA at a staggering $500bn-$700bn; the KIA ($500bn); and the SAMA ($250bn). Dubai and Qatar are believed to hold about $100bn each under management The Arab Fund for Economic and Social Development Cumulative loan commitments, since the commencement of the Fund's operations in 1974 until the end of 2006, reached KD 5449.7 million. They have contributed to approximately 27.9% of the total cost of the projects they helped finance. Cumulative disbursements until the end of the year amounted to KD 3536.8 million, representing about 71.7% of the net amount of effective loans. Infrastructure sector projects represented the majority of loans extended during this period, comprising 65.5% of total loans, followed by productive sectors (23.9%), social services sectors (9.3%), and other sectors (1.3%). The Arab Fund for Economic and Social Development (AFESD) is an autonomous regional Pan-Arab development finance organization, ("the Fund"). Its membership consists of all states who are members of the League of Arab States. The pressing challenge facing the region is the 'demographic' profile, with one third of the population under 16 and hence the need for developing human resources and employment. A highly capital-intensive petroleum industry creates few jobs, while civil service jobs remain limited. In Bahrain, Oman and Saudi Arabia, unemployment among nationals is about 1520%. Therefore, the non-oil economy holds the key to future job creation. The three political and business councils must establish a business policy on managing human resources in the Middle East. The compensation package is becoming an essential factor for keeping and attracting the best people in the field. Companies are increasingly focusing on reshaping their compensation plan to be competitive in the market. It is important to encourage the nationals to study well and take on jobs in the crucial sectors of the economy. Youth unemployment in the Middle East is very high because there is a failure to translate educational gains into employment skills. This has to be addressed by the countries. One of the business policies implemented in the Middle East is privatization. The objective of privatization and trade liberalization in Egypt and Iran is to ensure the efficiency of resource allocation across sectors, across firms, and within firms. Such reform is also meant to encourage new investment in activities where the countries have greater comparative advantages and thereby improve the efficiency of investment. For resource allocation and restructuring to occur, firms must be both willing and able to adjust to changes. The Egyptian and Iranian firms' willingness to adjust to changes is based on their expectations about the sustainability of restructuring, and their ability to adjust depends on existing constraints or resource mobility. Egypt's oil and gas industry and parts of Iran's are now open to the private sector. Iran is expecting $100 billion of foreign investment in oil, gas, and petrochemicals by the year 2010. Egypt recently opened its oil sector to private investors for the first time, offering them a 35 percent share in the capital of a newly established crude refining and processing firm. Egypt both have moved to privatize parts of their telecommunication industry, including public switching systems. Nevertheless, the reaction of financial markets, both internally and externally, particularly in the case of Egypt, has been positive. Hence, the role of the governments in providing stability and continuity as well as ongoing support is crucial in the process. Business policies in the Middle East are primarily implemented by the three different business and trade councils. However, with the onset of globalization, there are still many windows of opportunities that remain open in this field. The countries in the Middle East have to focus on human resource development, tourism development, housing development, technology advancement and health services development in order to generate more foreign investment in the region. These countries can form additional business councils which can focus on technology, human resources, housing, telecommunications and health. Works Cited Ahmed S. A., and H. Donnan (Eds.) ( 1994). Islam, Globalization and Post Modernity. New York: Routledge. Kavoosi, Masoud. (2000). The Globalization of Business and the Middle East: Opportunities and Constraints. Westport CT: Quorum Books. Kavoossi M. ( 1988). "Islamic Interest Free Banking and Populist Islamic Ideology: Times of Transition." In R. Aggarawal and C. Crespy (Eds.), Midwest Review of International Business Research. Chicago: Academy of International Business. Porter M. (Ed.) ( 1986). Competition in Global Industries. Boston: Harvard Business School Press. -----. ( 1980). Competitive Strategy. New York: Free Press. Siddiqi, Moin. Gulf Cooperation Council Goes for Growth: High-Growth Gulf Economies Are Poised for Continued Robust Expansion in 2007 and beyond. The Middle East. Issue: 373. December 2006. Page Number: 40. Zarrouk J. E. ( 1992). "Intra-Arab Trade: Determinants and Prospects for Expansion." In El Najar Jaid (Ed.), Foreign and Intra-Trade Politics of the Arab Countries. Washington, D.C.: IMF. Read More