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What could the Arab Spring mean for business?

The revolutions in the Middle East will have implications for business. They could usher in opportunities for those in the right place. Research by the Economist Intelligence Unit  (EIU) has found that prospects are not looking that good for the countries where violence has been widespread. On the other hand, the EIU says it’s great for the big oil exporters. Significantly, the EIU is optimistic about growth for Egypt and Tunisia, largely because of the relatively peaceful nature of the revolutions and the lack of damage to the country’s infrastructure and state institutions. 

Because the revolutions are occurring in Northern Africa, some commentators say they might spur on businesses in that coninent, the African lions. According to the United States Geological Survey, Africa holds 90% of the globe’s cobalt, 90% of platinum, 64% of manganese, 50% of gold, 98% of chromium and 33% of its uranium. Africa also tops the world in its reserves of bauxite, industrial diamonds, phosphate rock, vermiculite and zirconium.

Hydrocarbon reserves in Africa are estimated at 80-200 billion barrels. The current value of sub-Saharan Africa’s mineral reserves has been put at $1.2 trillion. Africa needs investment in down-stream processing of mineral resources, agro-industrial and agribusiness supply-chain development, pharmaceuticals and infrastructure and energy. But to achieve that, regimes there need to lower the cost of doing business. They need to end corruption, promote transparency in mining deals, and channel natural-resource revenues in ways that enhance economic diversification and competitiveness.

This can only be done with support from governments around the world, to ensure money is delivered to where it is needed. The potential following the overthrow of corrupt regimes and the swelling of democratic sentiment in Northern Africa, the Arab Spring, provides the backdrop for these developments, creating opportunities for business and executives in Africa and the Middle East.

Still, while the fire has been lit in the Middle East, no one knows yet how it will burn. It may well singe some of the West’s own interests in the region and it could have implications for relations with Israel and with Iran, which could face similar uprisings. But, after decades of repression, there are opportunities for democracy and entrepreneurialism.

Significantly, the Arab revolutions could represent a potential shift in orientation. For decades, Arab governments blamed the Israelis and their American backers, for their woes. And for centuries before that, they blamed the Crusaders, Ottomans, Persians, British and French colonialists, Americans and the Jews. With the Arab Spring, the focus has shifted to their own societies and their political regimes. “For the first time, it is not about us,” a senior Western diplomat told The Wall Street Journal. “For the first time in 700 years, it is not some outsider who is to blame.”

Given that the secular revolutions in Tunisia and Egypt were created by food shortages and economic problems, leaders regardless of their religious orientation would not want to bring in laws that cut jobs. This is why Egypt and Tunisia have asked the powers at the Group of Eight (G8) summit of wealthy nations for financial aid to help smooth the political transitions and avoid economic quicksand. They cannot do it without support from governments around the world.

Significantly, there is some recognition of the potential. At the Kent State/King Saud University Entrepreneurship Program in Riyadh, for example, American guest lecturers are teaching business ideas to create a future beyond oil production. It means introducing new services that Saudi Arabia does not have, such as road-side assistance and home PC repair, or new and exciting inventions. While some countries in the Arab world seem to be on the brink of chaos, universities in that part of the world are teaching students how to set up businesses to support themselves and expand the economy.

At the same time, the region has profound economic issues. The big problem has not changed: these countries are still not democratic and this limits opportunities. Easy money from oil leaves few incentives to build strong political institutions and spread the tax burden to create a dynamic economic infrastructure. Economists say these countries are unlikely to recover. They will not be thriving for some time.

But they can do it if they reform state controlled industries and create private sector wealth. They need to develop genuine democratic systems, deliver essential services, such as education and skill creation and build the pool of entrepreneurial talent. They need to look to Asia and develop the raw dynamism found in that part of the world.

Without that, they will continue to have bloated bureaucracies, weak legal enforcement of property rights, and obstacles for starting businesses, particularly for those with no political influence. The potential is there but it will require hard decisions and support from the West.

With backing from the world’s governments, the opportunities are there for companies to try and work with these regimes. For executives and managers, it can offer new territory to explore.

Leon Gettler

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