Posted on March 06, 2006 in Washington Watch

Despite conflicts and political developments brewing just beyond their borders, Arab business leaders in the Gulf are confident that their current economic boom is sustainable and will help accelerate progressive changes taking place within their countries.

It’s not that they are unconcerned with Iran’s aggressive posture, the dangers posed by instability in Iraq or the tension emanating from the continuing Arab-Israeli conflict. Rather, the optimism of Gulf business leaders appears to be based on the confluence of several positive developments occurring within their region.

In preparation for a presentation I was invited to make at a McKinsey and Company-sponsored panel at the recent World Economic Forum meeting in Davos, I surveyed Arab business leaders to see how they viewed the Gulf’s current and future prospects.

I found broad agreement that the region was in the midst of what some termed a “renaissance,” which most attributed to more than the “oil boom.” My respondents pointed to their region’s maturation after decades of social and economic development. One, for example, termed current advances as the “payoff for past investments in the economic and social infrastructure.” A number of business leaders also pointed to the liberalization that has opened up many of the Gulf’s economies, creating new opportunities that have empowered and energized the private sector, fostering, in many countries, a “new partnership” between government and the business community.

As a result of theses changes, my respondents largely agreed that oil revenues were being used more wisely than they were in the 1970s and 1980s. But concerns were expressed as well.

Some were troubled that the region remained too dependent on oil and gas and required greater diversification. And there was general consensus that liberalization of the region’s economies, more citizen participation, greater efforts to empower women and more investments in 21st century education were needed if the region’s promise of a renaissance was to become a reality.

Given the Gulf’s longstanding and substantial economic ties with the US, it was not surprising that there was broad agreement that the US would continue to wield significant political and economic clout in the region. But some struck a cautionary note. A few businessmen, for example, noted that policies pursued by the Bush administration had a negative impact on attitudes in the region and may, if sustained over the term, affect business decisions in the future.

As evidenced by King Abdallah bin Abdul Aziz’s recent successful visit to China, India, and Southeast Asia, many Arab Gulf business leaders are “looking east.” This is not to say that Asia is expected to replace the US as the locus for future Arab investment. But there is broad agreement that China and India, in particular, will, in the near future, compete for their share of Arab investment dollars.

By far and away, the single greatest threat to the businessmen I interviewed was the current situation in Iraq and the instability in the region resulting from the US invasion. There is the worry that a destabilized Iraq has empowered and emboldened Iran. One businessman, for example, noted that, for decades, the problem posed by Iraq was that of its regime–a short-term threat. The problem posed by Iran, on the one hand, was that of a long-term strategic threat compounded by the extremist ideology and its regional ambitions.

There is concern, as well, for the impact the potential fragmentation of Iraq may have on the region–with the likelihood of regional conflict continuing for years to come. Finally, there is the concern that in pursuing this war, the US has further harmed its position in the region. This has complicated the situation of America’s Gulf Arab allies who have relied on the US for security assistance, making these governments more vulnerable to extremist anti-Americanism. Some worry, this may also have a longer-term effect on US-Arab business partnerships, and “selling the American brand in the region.”

All that being said, most remain quite optimistic, confident that progressive changes will continue to unfold in their countries and that oil revenues will be wisely invested, producing still greater social and political benefits. And they are hopeful that the next US administration will bring a change in policy toward the Arab world, enhancing stability and reducing the threats posed by extremists in their region.

(I finished this article before Dubai Ports World controversy erupted in the US. The intensity and harshness of the anti-Arab rhetoric that has characterized a considerable part of this debate may have an impact on future plans of some business leaders in the Arab world. Optimism will remain, but the direction of investments may change.)

For comments or information, contact James Zogby

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