Mideast better placed to ride out financial crisis

Dubai: While the rest of the world is scrambling to put together banking bailouts and economic stimulus packages, business leaders in the Middle East remain confident that their governments already have the plans and resources in place to carry the regional economy through the global recession.

Sharif Al Diwani, Head of the Middle East and Arab Business Council of the World Economic Forum (WEF), says: "The thing that comes across consistently is that there is no major concern about the threats, relative to the rest of the world, that this region faces because it still possesses a great deal of reserves." He was speaking in an interview with Gulf News.

"[There is] not too much of a panic as far as the economic conditions are concerned, no grand schemes of rescue or anything of the sort. There is always this underlying confidence that the government will step in whenever it's necessary [in the Gulf region]," he added.

Al Diwani has an usually good insight into the business mood in the Middle East. Ahead of the World Economic Forum on the Middle East, scheduled to be held in Jordan from May 15 to 17, he has been canvassing top business leaders who belong to the Middle East and Arab Business Council, about their priorities for the summit.

Al Diwani points out that, for now, the big problem in the Gulf countries is that the banks are not easily ending. But he describes this as a "crisis of confidence" rather than any fundamental economic difficulty in the region.

However, the result is that small and medium companies, among others, are struggling to get the credit they need to stay in business. "In the region, if there is something I would look at seriously, it's rescue packages for small and medium businesses, because they could be the ones who would be most severely affected by a lack of access to credit and they are the biggest employers."

But, for now, government interventions to boost confidence in the banking system - like the guaranteeing of customer deposits and providing capital support for banks - are not delivering the hoped for results, and the summit will look at what more can be done.

Across the Middle East, the global downturn has been felt in different ways. Countries like Lebanon, Morocco and Egypt, among others, are under significant pressure because of a drop in revenue from tourism and remittances and tight credit and investment markets. North African countries with oil and gas wealth, like Libya and Algeria, are in a much better position to ride out the economic downturn.

But, while more than half the summit will be spent looking at the impact of the global economic crisis on the Middle East, quite a bit of time will also be spent finding new areas of economic growth in the region, to help it through the global slowdown.

And, as the global economy is rebuilt, it must be made ready to meet the challenges of the future, like global warming.

"The big challenge today is not to rebuild the economy as it was before. I think we're really saying [that] with whatever we do to stimulate the economy, we steer it towards a green or post-carbon orientation," said Andre Schneider, managing director of the World Economic Forum.

The biggest opportunity for growth in the region is in goods and services for middle and low-cost sectors, said Al Diwani, explaining that during boom times, these markets had been overlooked as money was poured into projects for high-end users.

"Low-cost housing is an incredibly promising growth area," he said. Big players in the regional construction industry, like Emaar and Damac from the UAE, will be working with international experts to see how the market for low-cost housing in the region can be opened for investment. Property rights and land titles are among the issues that must be tackled.

Another growth opportunity for companies in the Middle East is investment in technology and research and development, by boosting ties between companies and research institutions. "Science in the industrial economies is pretty much linked to business," said Al Diwani, pointing out that this leads to innovation and new products and markets for companies.

But, investment in research and development in the region remains relatively low. The summit will look at how to bring the community of scientists in the Arab world, together with regional companies, to come up with local solutions to problems facing the economy in the Middle East; and how business can take on a bigger role in education.

Schneider is also excited about a project to identify 200 next-generation companies: businesses not listed on international stock exchanges, but that have products - driven by research and sustainable development - that will propel them into the big league. Many of these already have successful operations and products that can be taken to market.

Dubai The World Economic Forum on the Middle East is going to discuss the Gulf Cooperation Council (GCC) plans for a monetary union. Sharif Al Diwani, Head of the Middle East and Arab Business Council of the World Economic Forum, is concerned about reports that the timetable for the union, might be reviewed.

Careful not to be prescriptive in his concerns, Al Diwani, points out that there is increasing pressure towards international regulation and governance of the world financial system. He thinks the countries of the GCC must seriously consider if they want to be small individual players in the new global system, or be part of a union that has the "punch" of a much larger regional economy behind one currency. If the latter is the case, then the currency union must be launched as soon as possible.

The Middle East summit will be held just weeks after the Group of 20 (G20) countries that have a significant part in the global economy, meet in London. The G20 summit has put international regulation of the financial system, and tighter corporate governance measures, high on the global agenda.

The other big question is whether the new, single currency will be pegged to the US dollar. Al Diwani believes that despite all the questions being asked about the future of the dollar, right now, it is difficult to de-peg from the greenback as it is still perceived to be a safe haven in the midst of global economic turmoil.

Another point worth considering is that the US economic boom was financed by savings from across the world. The financial rescue packages that the US government is pumping into its economy is likely to also be financed through global savings. Despite murmurings from those countries who have saved mountains of dollars, to ensure that the wealth that has been pumped into the US does not disappear, they are going to have to continue to shore up the American economy.

And, despite the fact that governments will increasingly focus on the home front to keep domestic consumption and the banking system healthy, they will still need to diversify their investments, once local needs are met, to safeguard their wealth. US government bonds remains one of the safest options for this. The summit will look at how this can be dealt with in a session called "Saving for America".

Issue: Volatility poses problems

Low oil prices are not the problem for the energy industry, rather it is the volatility of the market. "If you have a fixed price, even if it is low, you can plan, you can manage the risk. It is very difficult to justify investment in [oil and gas when you don't know what the market is going to do], says Sharif Al Diwani, Head of the Middle East and Arab Business Council of the World Economic Forum.

However, he warns that unless there is investment in oil and gas infrastructure now, when the global economy recovers, there will be another bottleneck in supply and prices will spike again.

The difficulties of ploughing money into the volatile energy market could also limit investment into alternative energy. But Al Diwani points out that green energy is often produced locally and generates jobs, and thus creates immediate windfall benefits needed from an economic rescue package.

As a result, government funding for green energy, especially in Europe and the US, may counterbalance a fall in investment by private firms.