From October 26 to 28 leaders and decision makers from around the Middle East and North Africa will descend on Marrakech for the 2010 World Economic Forum (WEF) on the MENA. The theme of the conference is “Purpose, Resilience and Prosperity.” To get an idea of what will be on the agenda; Executive had a chat with the World Economic Forum’s Middle East and North Africa Senior Director Sherif el-Diwany to get his insights on the issues affecting regional development.
E The WEF Competitiveness Index shows wide disparities between oil producing nations and non-oil producing nations in the Middle East. What is the root of this problem and can the difference ever be made up as long as oil continues to provide the bulk of the region’s wealth?
One has to point out the fact that the Gulf states — but not all oil rich countries because you have Libya and Algeria at a different level — have actually gone through two booms and busts before, in the 1970s to 1980s and the recent crisis. The final one was an indication that the second time around they learned the lessons better than the first time. As a result of that, when we looked at the various indices such as infrastructure, healthcare and productivity, quite substantial investments have been made in these improvements, which brings them up the ladder of the index. Some countries that had been ahead in the region because of human resources costs, like Egypt, have made a number of tight adjustments over the past couple of years which have brought them, not exactly in line with global [labor] prices, but relatively higher than it used to be five or 10 years ago. This means that if there is no commensurate or simultaneous increase in productivity — which comes from education — to match the increase in the costs of labor, then obviously competitiveness suffers and this was the case in some of the countries. Education seems to be the most powerful explanatory variable in where countries stand in the Arab world on the competitiveness index.
E Do you think oil producing nations are willing to diversify away from oil as much as Dubai has, or do you think it is too important for them as a percentage of GDP?
There is not one single country in the Gulf that will not confirm to you or to me that diversification is an important strategic objective for them for the next five years, a decade, or more. The challenge is how do you realize that? The markets now have become so global and you have new players that have enormous weight in the global economy, size-wise and also in terms of productivity and quality. To be able to diversify an economy you must look at yourself within a global perspective and [find out] what lever you have to pull to bring you into the global market where you can compete.
Diversification also cannot be geared toward the domestic market; it has to be geared toward the global market. Abu Dhabi is trying to position itself in technology, but if you ask me it is a long shot. It is quite an interesting strategy when you use the capital you have and make strategic acquisitions around the world and you own important players in the global market with the understanding that this creates a diversified economy.
How do you actually imagine that this investment will come back to the national GDP? In a way that this will offset the bias toward oil as a share of domestic economy? It is not clear yet and one thing I was told when I asked this question is that you will have a home to the managerial and technological talent that will then shape the future of the industry and become a knowledge-based economy; it makes perfect sense. But how do you attract those people to your country, how much innovation or research capacity can you have in the country? Not every country can have this, and not any single player in the world actually has a monopoly on such capacities — they have some of it and they integrate with others around the world.
It remains to be seen if the United Arab Emirates can link itself globally, to leverage itself using strategic investments but it’s a very important story to watch.
E The Gulf Cooperation Council has once again failed to impose common measures on customs and a monetary union looks as unlikely as ever. Do you think the MENA should now look to bilateral agreements instead of multilateral ones and be realistic about it?
It is imperative that the Gulf states’ regional integration plan be realized at some point — the sooner the better. Given what you just described: the obstacles, the delays, the unexpected disagreements by certain countries on how they want to move forward on a monetary union and movement of goods, it may take time.
To look at history internationally and to learn how such building of regional integration took place, then one obviously points to Europe. The two heavyweights of Europe, Germany and France, were the beginning of the… union as it is today. If this scenario takes place in the Gulf states, one can imagine an alliance between, for example, Abu Dhabi and Riyadh, where this becomes the anchor of the future GCC union when it comes around. Obviously, this will have to be done with the explicit intention that this is a point of departure to then open up to others, who will come on board and proactively seek the enlargement of this nucleus bilateral agreement. I think it is an important way to consider seriously as an alternative for this current, extended, non-fruition of the union.
E What is the effectiveness of the WEF conference beyond being a networking site for the rich and powerful?
The next stage of development and reform has to be ‘multi-stakeholder.’ This is where the WEF comes in because we have members from the region and all over the world that have a certain approach to their business model and strategies, within the framework of enlightened self interest through helping governments, media, labor unions and all players in the game to improve and understand their point of view, while doing the same themselves.
During the crisis we had the highest attendance ever of government and business leaders in Davos because every single decision maker from every part of the world, who knows what is happening to the world, wants to know who is thinking what.
All these players have leaders — those leaders and institutions have a certain philosophy and approach. So if you and I do not know how we are going to react to the problem, the chances are that we will both take longer to get out of it than if we can align and calibrate.
E There have been piecemeal efforts to address the issue of corruption and governance in the region through the UN and some regional parliamentary-based groups but little on the ground has changed. Do you think this is possible to address as long as most Arab countries remain autocratic or don’t have a broad-based inclusive approach to their residents?
The most important country in the Arab world that can actually set the pace of progress on that particular point is Saudi Arabia. There is explicit attention and outreach to those segments of the Saudi society excluded in one way or another, either by mistake or bad design, in the development process of the last three or four decades. There are also very significant developments on the status of women. You can see in Saudi Arabia that the current king is giving this issue a healthy degree of attention and navigating through the cultural sensitivities and the social consensus in terms of how things should be done to push it in the right direction.
The consensus in a society that is pointing toward women being unequal or denied certain rights or access to certain privileges, such as protection and opportunity in terms of economic development, is different than a society that is actually empowering their entire population and providing equal opportunities for progress, education and self fulfillment of women and men on equal footing. The type of leadership in that society is different than one where this does not exist.