View from the Street: Rethinking the Middle East

@IainGibson

View from the Street: Rethinking the Middle East

What is the first thing that enters your mind when you think of the Middle East? There are several potential answers, but I’ll wager few are particularly positive and, given the recent bloody developments in Gaza and the ongoing humanitarian catastrophe that is Syria, that’s understandable.

I’d also wager that ‘fintech hubs’, ‘smart cities’ and ‘space agencies’ didn’t feature near the top of your list either. Yet all are part of a new reality for the region suggesting, within reason, that it may be time for us all to think a little more positively about this varied part of the world – from where I have just returned after seven years.

It’s understandable that when people say Middle East”, they are generally referring to the Levant, which is the cluster of countries that border the Mediterranean Sea. But the Middle East is, of course, much bigger than that, taking in the Arabian Gulf, the Arabian Peninsula where another terrible conflict rages in Yemen — and even the top of North Africa, where countries such as Egypt, Algeria and Morocco have far more in common with other Arab nations than they do with the Sub-Saharan terrain nestling below them.

The wealth in the region is concentrated in the oil and gas-rich economies of the Gulf states, which boast the considerable capital needed to buy visibility and influence in other parts of the world. They do so in places where there are large Muslim populations (think the rest of the Middle East, North Africa, Central Asia, South East Asia and the Balkans), but also in countries where wealthier populations could be enticed to visit as tourists — if you support Arsenal, Manchester City, Paris St Germain, Barcelona, AC Milan or even Melbourne City Football Club then you know what I mean.  

Of course, that Arab countries buy influence is hardly revelatory. What is different now, however, is the rapid shift made by some nations over the past few years to make their economies truly viable for the 21st century. Driven partly by necessity after the tanking of oil prices (a process which itself has been turning around), and partly by the emergence of a new generation of young leaders, change is afoot. And one man, unknown outside his country until very recently, is at the forefront of this change.

The efforts being made by the 32-year-old Saudi Crown Prince Mohammed bin Salman (MBS to admirers and detractors alike), to radically reform the most powerful and influential country in the region will be a game-changer if he gets it right. His social reforms are the headline grabbers, and there is no doubt that curbing the incredible powers of the feared religious police, introducing more entertainment options such as cinemas (banned for over 30 years) and the gradual improvement of women’s rights are welcome first steps. But those are not the only changes being made.

Economically, the IPO of oil behemoth Aramco initially grabbed investor attention, but the Crown Prince’s tackling of his country's widespread corruption culture — although carried out unconventionally by western standards — his reduction of the generous subsidy system and his implementation of a formal tax structure, beginning with VAT in January 2018, are the more telling, and crucial, first steps in Saudi Arabia’s intended transition towards a sustainable economic model. These changes have won cautious support from the likes of the IMF and the World Bank, representing progress beyond the wildest dreams of anyone observing the country’s prospects when the previous King died in 2015.

Saudi Arabia is also now following the lead of its ally, the United Arab Emirates, in making big investments to build industry clusters — the UAE has, for example, been working with the likes of Boeing and Airbus for years to become an aerospace leader. No longer is Saudi development all about construction and military deals. The Saudi Public Investment Fund has billions to hand and it’s not shy about spending them — $45bn to Japan’s SoftBank Vision Fund for hi-tec investments, $20bn to Blackstone for an infrastructure assets fund, $3.5bn to Uber, the list goes on. A recent visit to the US by the Crown Prince unearthed another slew of deals, most notably an Aramco-Google partnership focused on cloud services. Lest I forget the $500bn smart city being built in the north-east of the country, and the ongoing talks with Amazon to open a large facility elsewhere in the Kingdom. I do wonder where UK companies feature in all of this and whether or not we are missing a trick, but that is a separate issue.  

Elsewhere, we have Abu Dhabi, Dubai and Bahrain competing to bring the best fintech talent to the region and become leading hubs in the field. The UAE is gearing up for its first mission to Mars by 2021 and work has begun on the Dubai-Abu Dhabi Hyperloop, backed by Elon Musk and Virgin, which aims to cut the journey between these two cities from 90 minutes to 12. Yes, much of this remains mere ambition, and there is scepticism over whether it will all be delivered, but the fact remains that this drive to the future is dependent on increasing global cooperation and the existence of modern, dynamic economies, which can only be a good thing.

My final argument for being a bit more optimistic about the Middle East is its people. They are younger than most other parts of the world —a staggering 70per cent of Saudi’s more than 20m citizens are under 30 and nearly three quarters of Egypt’s 80m population are under 25. Many more younger people in the Middle East have now lived and studied abroad than was the case even a few years ago. If they haven’t, they are certainly more aware of the world beyond their borders than their forebears, thanks to the technology at their fingertips. Most want to live modern lives, unencumbered by the myriad of complex, bloody political disputes that have dominated their existence thus far.

None of the above mitigates the serious issues that permeate the Middle East. Conflicts rage on. Iraq and Lebanon, two of the most culturally diverse countries in the region, struggle to form stable governments for exactly that reason. The relationship between Saudi Arabia and Qatar has deteriorated significantly in the past year. Human rights remain an extremely serious concern and much more change is required. Frankly, the reforms we are now seeing may be too late and not enough to ensure a happy ending. But they should certainly give us more reason to hope.