Deregulation opens Gulf economies up

While political tensions in the Middle East often grab international headlines, relatively little is written about a growing source of stability within the region - the rise of a diversified, open economy, no longer exclusively dependent on oil revenues.

Economic development continues to gain momentum, despite being largely unrecognised. If this economic oasis can flourish, the future of the Middle.

East is more hopeful - and more complex, than many realise.

Deregulation and privatisation have become tangible very recently, leading people to question: if this seeming mirage is real, then why now? What is spurring it?

Today, oil-producing countries, mainly those in the Gulf, use extra revenue to reduce foreign debt, boost liquidity, develop trade ties, and attract foreign investment. Governments are looking at a number of ways to achieve sustainable wealth. They realise they must develop a middle class, along with the sort of job base that can sustain it.

In a region where half of the population is below the age of 20 - and where the unemployment rates can be considerable - a sustainable middle class is an even more viable solution to long lasting economic expansion and political stability.

Those familiar with business in the Middle East will recognise a specific rhythm. Economic developments move with astonishing rapidity. The deregulation of the telecommunications sector in Saudi Arabia 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. Only four years later, the Saudi Telecommunications Company sold 30% of its shares in a public offering valued at around US$4bn.

Investors demonstrated the market's readiness by offering to buy US$9.6bn worth of shares. The desire to modernise rapidly is expressed in bold, creative decision making. Some leaders took brash actions to effect change and send signals to the private sector and society. The private sector then followed suit - The Palm Islands and other initiatives in the UAE are examples of daring actions that created momentum for change.

The Middle East's leaders are seeking to learn from the experiences of others, while adopting tailored solutions that will work best within their countries. Democracy is one such issue in which the region is consistently progressing. Some parts of the MENA region introduced universal suffrage early on, including Lebanon in 1952, Egypt in 1956 and Morocco in 1963.

Other countries are introducing gradual reforms. Saudi Arabia introduced elections at the municipal level in 2005. Women have begun to stand as candidates in these elections; they have been elected to membership in the chamber of commerce and industry in the city of Jeddah. In 2006, Kuwait allowed women to cast ballots and stand as candidates.

In a bid to attract foreign investment, a number of Middle Eastern countries have begun to allow non-nationals to own property, thus increasing the number of long-term residents who create wealth and add diversity to the population.

The Middle East may be developing a new type of economy, different from any other that has preceded it. This phenomenon is being spurred by a broad group of decision makers trying to build a bridge between Middle East culture and its economic potential. They understand that if the region is to thrive, they must foster the innate entrepreneurial spirit of their people. If they manage to create this unique economy, the oasis blooming today won't be a mirage, but an attractive, sustainable, fertile valley.

Karim Sabbagh is vice president of Booz Allen Hamilton.

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