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June 23 2009
The Gulf Region of the Middle East
and its Relevance to Global Business
Aamir A. Rehman | 1
The “Middle East” is highly diverse
Atlantic
Ocean
Mediterranean Sea
Levant
North Africa
Gulf states
Indian
Ocean
Note: Yemen, a Gulf state, is not a member of the GCC.
Aamir A. Rehman | 2
GDP per capita varies greatly by “cluster”
25
GDP per capita ($’000)
(PPP, 2006)
20
15
10
5
0
GCC
N. Africa
Levant
Source: IMF data, CIA World Factbook estimates (Iraq, West Bank, Gaza).
Aamir A. Rehman | 3
The GCC’s “Opportunity Formula” drives its dynamism
Sustained
prosperity
and growth
+
Attractive
demographic
shifts
+
Ongoing
regulatory
reform
=
Economic
opportunity
Aamir A. Rehman | 4
GCC per capita income is three times China’s and five times
India’s
50
GDP per capita ($’000)
(PPP, 2006)
45
40
35
30
25
20
15
10
5
0
US
Japan
EU
GCC Portugal Saudi
Arabia
China
India
Source: EIU, CIA World Factbook, 2007
Aamir A. Rehman | 5
GCC countries have high birth rates and high expected
population growth
100%
Expected
population
growth,
2006 – 2050
UAE
Saudi Arabia
Kuwait
Qatar
80%
60%
Bahrain
Oman
40%
United States
20%
0%
1
2
3
4
5
Lifetime births per woman
Source: Population Reference Bureau
Aamir A. Rehman | 6
Gulf “age pyramids” contrast starkly with the US
Aamir A. Rehman | 7
GCC countries have growing workforces
Population Aged 15-64 (%)
85
80
75
Qatar
70
UAE
65
Bahrain
Kuwait
60
Saudi Arabia
55
Oman
50
1980
1985
Source: UN, medium variant
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Workforce boom
Aamir A. Rehman | 8
Regulatory reform is creating opportunities
“Ease of doing business” ratings are favorable…
Country
United States
… and all GCC members have joined the WTO
Freedom %
82.0
Year of Joining WTO
Bahrain
68.4
Oman
63.9
Country
Bahrain
1995
Kuwait
63.7
GCC average[1]
62.7
Brazil
60.9
Qatar
60.7
UAE
60.4
Saudi Arabia
59.1
India
55.6
China
54.0
Russia
54.0
Kuwait
Qatar
1996
UAE
Source: Heritage Foundation, 2007
2000
Oman
2005
Saudi Arabia
Aamir A. Rehman | 9
Mineral wealth is the core source of prosperity…
Aamir A. Rehman | 10
“Not all about oil”
… but high oil and gas income is stimulating economic activity
across all sectors
High oil
and gas
income
Government
surpluses
and private
wealth
Capital deployment
International
investment
International
spending
Increase GCC
importance in
global markets
Local
investment
Local
government
spending
Local
consumption
Stimulate local
economy and
promote
additional
private sector
investment
Aamir A. Rehman | 11
“Not everyone is rich”
Not all news is good: half of GCC states have double-digit
unemployment
16%
14%
Unemployment
rate, 2006
12%
10%
8%
6%
4%
2%
0%
B ahr ai n O man
Saud i F r ance I nd i a
A r ab i a
EU
US
UK
C hi na Q at ar
U A E Kuw ai t
Aamir A. Rehman | 12
Source: CIA World Factbook, 2006
“Women matter”
Most GCC college students are women
80%
Female first-year students
in university-level
programs
(% of total students)
70%
60%
50%
40%
30%
20%
10%
0%
Qatar
Kuwait
UAE
Bahrain
GCC
total
Saudi
Arabia
Oman
Source: GCC government data
Aamir A. Rehman | 13
“Gulf customer does not
‘hate us’”
Bilingual packaging is the norm in for consumer goods
Aamir A. Rehman | 14
“Gulf customer does not
‘hate us’”
McDonald’s customizes its message (and its menu)
Aamir A. Rehman | 15
Marketing strategies take “Four Degrees of Adaptation”
Noncustomization
Adapting the
message
Adapting the
portfolio
Custom
product
design
Fully
leverage
global
branding and
marketing
Customize
marketing
messages
and language
Customize
mix of
product and
services
based on
local needs
Create
marketspecific
products and
services
Aamir A. Rehman | 16
“Not only Arab”
Half the GCC states are majority expatriate
100%
Expatriate and
local (National)
populations
as % of total,
2005
90%
80%
70%
60%
50%
40%
Local / National
30%
20%
10%
Expatriate
0%
UAE
Qatar
Kuwait Bahrain
GCC
total
Oman
Saudi
Arabia
Majority expatriate
Source: GCC government data
and CIA World Factbook, 2006
Aamir A. Rehman | 17
Prosperity without institutions: the “back-fill” imperative
“Classic” development model
GCC development experience
GDP per
capita
GDP per
capita
(illustrative)
(illustrative)
Imperative to build
institutions
Sustained institutional
development
Time
Time
Aamir A. Rehman | 18
Effectively engaging the Gulf market has its challenges
Market challenges
Execution challenges
Economic
Awareness
Regulatory
Institutional Will
Social
Resources
Engaging the Gulf brings challenges and rewards
Aamir A. Rehman | 19
The “Engagement Spectrum”: Market entry strategies range widely
“High
engagement”
Direct market entry:
Organic or acquisition-based
“Moderate
engagement”
Joint ventures and partnerships
“Shallow
engagement”
Simple distribution agreements
“Shallow engagement” has been the norm for leading MNCs
Aamir A. Rehman | 20
The current crisis is deeply impacting the “Opportunity
Formula”
Sustained
prosperity
and growth
 Oil price is
down over 50%
from its 2008
peak
 Equity markets
down over 60%
in 2008
 Budget
surpluses
are at serious
risk, especially
in KSA and
Bahrain
+
Attractive
demographic
shifts
 Long-term
trends remain
in place, with
remarkably
young
populations and
increasing social
capital
 Demographic
pressures felt
more acutely as
economies
struggle
+
Ongoing
regulatory
reform
=
Economic
opportunity
 Opening of
markets
increasingly
recognized as
needed
 Protectionist
pressures
already,
however,
gaining strength
 Key test cases:
Kuwait Bourse
and KSA
Economic City
Aamir A. Rehman | 21
Gulf decision makers have severe constraints regarding
economic policy
Monetary policy
Fiscal policy
 Dollar peg remains firmly in
place in all countries but
Kuwait
 Government investment has
a degree of flexibility,
particularly in regards to large
projects
 Maintaining the peg is
important for both economic
and political reasons
 State benefits are quite
inelastic due to expectations
and pressures
 Effect of peg is that the
Gulf’s interest rates are
effectively set by the US and
driven by US domestic needs
 Income tax is absent,
although fees and other
mechanisms are used to
generate supplementary
income
Key driver is the US
Federal Reserve
Key driver is the global
energy market
Aamir A. Rehman | 22
For Gulf decision makers, the imperative is on the “real”
Institutional development and the “back-fill imperative”
Equity-based financial systems and investments
Domestic investment to stimulate the “real economy”
Budget rationalization and prioritization of initiatives
Diversification of public revenue sources
Crisis is an opportunity for decisive action
Aamir A. Rehman | 23
Stay in touch!
Aamir A. Rehman
www.rehmaninstitute.com
[email protected]
Aamir A. Rehman | 24