Optimism grips wary Middle East

Dead Sea: Cautious optimism, but with cautious underlined," describes the mood among some of the delegates to the World Economic Forum (Wef) on the Middle East, says Joe Saddi, chairman of Booz and Company, a Lebanese consultancy.

The forum is meeting at the Dead Sea in Jordan to discuss the impact of the international economic crises on the region.

Saddi points out that three months ago the mood at the global World Economic Forum in Davos, Switzerland, was bleak. In Jordan today, the atmosphere is not as gloomy as elsewhere, although Saddi warns that: "I don't think anybody has a case to be super-optimistic."

His note of caution was emphasised in some of the many separate discussions being held at the forum. Government and business leaders have been saying that there is no way of knowing whether the recovery of the international economy was six or nine months away - or even more.

"We still have to get through the pain," was their message.

However, it was also emphasised that many countries in the Middle East are in a relatively strong position and are recording growth rates of three and four per cent, at a time when economies are shrinking in other parts of the world.

Yesterday, at a discussion on the "right rescue package for the Middle East", Arif Naqvi, group chief executive of Abraaj capital, was emphatic that there had not been an economic collapse in the Gulf despite the difficulties experienced by the region.

He described the fundamentals of the regional economies as "solid". For Naqvi, the basic problem in the region is a lack of consumer confidence.

Governments need to "talk" people back into feeling good, then economies and asset values can grow on the back of increased consumer confidence.

There has also been agreement at the forum that countries in the Middle East should focus on continuing the economic reforms - like the deregulation of markets and the introduction of sustainable macro-economic policies - that have worked in recent years, rather than being "distracted" by the present crises.

"This is not about a rescue package," said Rachid M. Rachid, Minister of Trade and Industry of Egypt.

"The real big story is reform, change and managing the transition. What we have been doing in the past years is seriously driving a reform programme and making clear that, unless successful, we will not be able to meet the challenges of the world.

"If we would not have reformed, we would have been in a terrible situation today," he told leaders at the meeting.

Saddi pointed out that the economic crises had hit individual industries and countries in very different ways and as a result it was difficult to speak of a regional response to the international situation.

Another problem highlighted was that banks in the region need to get back to lending money to consumers and businesses.

It was repeatedly raised in discussions that while there was now enough liquidity in the banking system, bankers were being too conservative when it came to lending - to protect their balance sheets - and this was proving a drag on economic growth.

Khalid Abdullah Janahi, the chairman of Ithmaar Bank in Bahrain, defended the caution of banks, saying they had a duty to protect the interests of depositors, as well as shareholders.

Saddi said the ideal package to help countries will stabilise economies by supporting local banks and business that are in trouble.

He also said that by cleaning up their balance sheets, for example, this will make them continue their investment in critical infrastructure development.

He added that governments must remain committed to long-term economic development and reform, "without getting distracted by the downturn".

Smart and effective regulation - not heavy handed enforcement - of financial services industry is also likely to emerge as a key part of the post-crises business environment.

The need for investment and reform in education to equip the young people of the region to meet the needs of the labour market, help grow the regional economy and secure the future of the Middle East, was a mantra in many discussions.

Abdullah Janahi, said that Dubai was likely to be one of the first places in the region to benefit from a recovery in the international economy because it had invested in infrastructure that was attractive to business.

Karen Adams, chief executive of banking group HSBC in Jordan, shared the view that there was a mood of cautious optimism among the delegates.

She pointed out that rather than just dealing with the international economic crises, leaders in the region are being challenged to find and exploit new business opportunities being created.

"The message that is coming through very strong is that the Middle East is an emerging market with many opportunities for development, while a massive transfer of wealth from the developed world is happening because of the region's energy resources," says Adams.

She points out that in Jordan the fundamentals of the economy remain strong.

Government and business leaders are confident that the region will get through the present international crises - they just don't know how long it will take.