Tuesday, May 31, 2011

Business Confidence In The Arab Gulf Countries

By James J. Zogby
This commentary was published in The Jordan Times on 31/05/2011 

Given the upheavals occurring across the Middle East, with some of the most difficult situations right on their doorsteps, it might be seen as remarkable that business leaders in the Kingdom of Saudi Arabia (KSA), the United Arab Emirates (UAE) and Qatar demonstrate high levels of satisfaction with the current economic environment in their countries and optimism about the future.

This is one of the findings of the most recent business confidence survey conducted by Zogby International (ZI) and Oliver Wyman among executives in these three Arab Gulf countries.

Completed in May 2011, this is the fourth in a series of bi-annual surveys measuring not only confidence, but priorities for reform and satisfaction with government performance on a range of economic matters. The series was launched in 2009 in the midst of the worldwide financial crisis and has been tracking trends in the attitudes of business leaders since then.

What we find in May 2011 is that six in ten executives say business conditions have improved in the past year, and an even higher percentage (65 per cent in UAE, 81 per cent in KSA, and 92 per cent in Qatar) expect conditions to get even better in the next two years. While about a third of the business leaders express concern with political unrest in the broader region, less than one in seven are concerned that such unrest will affect economic conditions in the three countries covered in the survey.

Of far greater concern is the potential damage that may be caused by external macro-economic shocks (such as another banking crisis or stock market collapse) - an attitude shared by more than one-half of those who were surveyed.

Major factors contributing to these high confidence levels are the dramatic increases in oil and gas revenues, which have boosted the region’s economies, and high praise given by the business leaders for the performance of the three governments’ handling of the economic challenges faced by each of these countries - specifically, the substantial stimulus package implemented by the Saudi leadership and the intervention by the government in Abu Dhabi to address the financial crisis that rocked the Dubai emirate in 2009.

While this survey did not address all of the issues confronting the economies of this region and only examined the attitudes of senior executives, it, nevertheless, is important in that it highlights some problems of central concern to the business community.

As we found in earlier surveys, executives cite the continuing need to address labour and education reform as two issues requiring both immediate attention and threatening the region’s long-term economic development. In light of the current political upheavals confronting some other Arab countries, it is worth noting that the need for political reform receives only scant mention by business leaders as an issue posing a threat in these three countries.

A major concern of those surveyed is the “youth bulge”, that is the need, especially in Saudi Arabia, to absorb that country’s estimated 350,000 young people who will be entering the job market each year. On this issue, a wide gap appears between the attitudes expressed by expatriate business executives in the three countries and the business leaders who are nationals.

Overall, while a significant majority of all executives say they are worried about the “youth bulge”, only those who are citizens indicate the need to give preference to hiring skilled young nationals. Despite their concern with youth unemployment, expatriate executives continue to prefer hiring other expatriates, especially if they can hire them for less pay.

And while executives who are nationals support government imposed quotas for hiring young nationals, expatriate executives object to such quotas. In addition to the pay differential, other reasons given for their preference in hiring non-nationals range from the difficulties in firing nationals for under-performance to the perception that expatriate hires are more motivated.

Regardless of these concerns, there is in all of this a contradictory set of attitudes and a problem: expatriate executives are more concerned with the potential for political unrest than their counterparts who are nationals; all executives agree that finding employment to deal with the “youth bulge” is a problem that must be confronted, but nationals are more willing to take steps to address the matter than expatriate executives.

Clearly, this raises a set of policy issues that must be faced by the region’s governments and the business community if the region’s youth are to be gainfully employed - and on this substantial issue the majorities of all executives agree. But what is also clear is that this matter cannot, in the long term, be resolved by governments being the employers of choice or of last resort. More private sector involvement is needed and expansion of this sector must be incentivised, encouraging the establishment of new job-creating small- and medium-sized enterprises.

Polling of the broader public’s opinion may reveal other problems of concern, although the recent Gallup survey of Gulf citizens and our own work at Zogby International establishes generally high rates of satisfaction and optimism among the region’s populace. But whatever the current positive mood, the need to confront the “youth bulge” looms large on the horizon. It is a problem that both government and the business community must work together to creatively solve.

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