Report Summary

For centuries, trade has been integral to most countries that constitute the Middle East and North Africa (MENA) region. As momentum in global business shifts towards greater intra-emerging market (or “south-south”) trade and investment, the MENA economies are well positioned to benefit. But how far and fast the MENA region integrates into these new economic relationships will depend on how it is viewed by executives from other emerging markets, and how such perspectives may differ from those of their peers in the developed world.

According to the survey conducted for this report, there are striking differences in the ways that respondents from different regions view the MENA region as a place to do business. Of course, there are similarities too. Most companies plan to expand significantly in the region, especially in the Gulf states. And most cite concerns over political risk, bureaucratic red tape and, in particular, a perceived lack of transparency in the region.

However, there are major differences in the way that executives from different regions view the prospects for democracy in the Middle East and the likely implications for their own businesses. The culture and norms of respondents’ home markets also seem to influence their attitudes towards such factors as volatility in the business environment, corruption and diversity, to name but a few.

The key findings from the research include the following:

• The Middle East region will benefit strongly from accelerating “south-south” business.
  Our survey confirms the trend of increasing trade between and among emerging markets. While executives from all regions expect the Middle East to feature more strongly in their global business plans over the next five years, it is among Latin American firms, followed by those from Asia-Pacific and North America, where this trend is most pronounced.
• Businesses’ views on the potential impact of the “Arab Spring” on trade and investment are divided.
  While the outbreak of pro-democracy movements across the Middle East is broadly welcomed by investors, the upheavals of the Arab Spring create short-term political risk that can dent business confidence. Almost one-half of all respondents agree that the current unrest in the region is likely to have an adverse effect on their business in the near future.
• The UAE is the most favoured destination in the Middle East.
  For most survey respondents, expansion plans centre on the wealthy Gulf states, probably reflecting the beneficial impact of high oil prices on the economic outlook for these countries. The Gulf states are also favoured because of the perception that political risk is lower than in other countries in the region. The UAE is by far the most popular investment and trading location, cited by 63% of respondents overall. Latin American executives also showed strong interest in Egypt and Morocco. Emerging-market firms are more likely to focus activities on less saturated markets and sectors.
• Latin American firms are less worried about the impact of political turmoil on business in the Middle East than respondents from any other region in the world.
  A total of 55% of respondents from Latin America say that the political upheaval seen this year in the region is unlikely to affect business adversely in the medium to long term, compared with 43% of respondents from both North America and Asia-Pacific. This could reflect the fact that many Latin American countries have come through their own transitions from authoritarian or military rule to democracy in the past 25 years. Nevertheless, a majority of investors, unsure how to handle rapid change, say that if forced to choose, they would prefer stability to democracy.
• Corruption is less of a concern for emerging-market firms than it is for businesses from developed markets.
  Corruption is a relatively minor concern for emerging-market investors in the Middle East, especially among Asian and Latin American companies (cited by around 30% from these regions). However, for European and North American firms, corruption is cited by 51% and 42% respectively as having a major impact on operations, possibly reflecting tighter anticorruption legislation in their home markets.
• Cultural factors present major concerns for emerging-market businesses.
  The view that businesses and workers may face discrimination on the basis of gender, race or nationality in the Middle East is cited by a significant minority of respondents from all regions as a major issue. An average of 41% of respondents across all regions agree with the statement that “attitudes towards women and ethnic minorities significantly hold back the economic development of the region”. Almost one-half (48%) of Latin American businesses also feel that the business culture of the Middle East is more suitable for firms from other emerging markets than it is for firms from developed markets, far exceeding the responses from other regions (except for those in the Middle East itself). Some emerging-market  investors also express concern that their goods, services or employees are not treated on par with those from Western countries.
• The burgeoning youth population that is demanding political change in the Middle East is also valued as an economic resource.
  Demographics are seen as at least as important as oil and gas resources when it comes to driving opportunities for business in the Middle East. Nearly 50% of all respondents expect business opportunities to emerge from the growth of a new middle class, while 41% cite the growing young population as a source of opportunities. Respondents from Europe are particularly likely to value the region’s demographics, probably reflecting concerns about slowing population growth, ageing populations and market saturation in their home markets: 52% of European respondents
  cite the growing and young population as a source of opportunities, compared with just 33% who cite commodities.