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 / Spring 2008 / Issue 50(originally published by Booz & Company)


Oasis Economies

Surrounded by tension and unnoticed by many observers, the nations of the Middle East are building their own kind of sustainable prosperity.

Five years ago, Dubai’s Palm Island didn’t exist. Where there are now three human-made land masses — the largest the size of a major city — arranged in the shape of a tree, five years ago there was merely the sparkling blue water of the Arabian Gulf. Then the government of Dubai decided to accelerate the diversification of its economy, from a purely oil- and trade-based system to a business and recreation hub designed to lure investors and tourists.

Dubai’s Madinat Jumeirah resort. The Palm Island development can be seen extending into the Arabian Gulf.

Photograph © AFP/Getty Images

A few miles south, Abu Dhabi, the capital of the United Arab Emirates (UAE) and the world’s wealthiest city, is experiencing an even more dizzying rate of growth. The US$3 billion, gold-domed Emirates Palace hotel was completed in 2005, ready to welcome visitors to the scores of world-class museums, universities, and hospitals that are slated for construction, at an esti­mated cost of $200 billion over the next 10 years. These fast-paced developments are part of the UAE’s reinvention of itself as the cosmopolitan crossroads of a sleek new Middle East.

All this is one piece of a still broader story. In the past five years, the Middle East region has consistently been transforming into a hotbed of new private enterprise. The government-controlled monopolies of the past, such as the Saudi Telecommunications Company, are being deregulated and exposed to competition. Research and development in high technology is booming; enterprise zones have attracted the likes of Hewlett-Packard, Cisco Systems, and Microsoft. Local companies are investing in streaming video and other technological applications. Manufacturing, too, is on the rise. Driven in part by growing demand from China, the region’s petrochemical sector is exploding, with more than 190 projects currently operating across the Gulf; its $28 billion biotechnology and pharmaceutical manufacturing industry has enjoyed double-digit growth each year. Many consumer packaged goods companies are opening factories in the region, in part to serve its growing middle class and in part to export goods to Europe and the rest of Asia. In short, the region — once an end consumer in the world market — has begun to transform itself into a supplier. All of this translates into unprecedented opportunities for investment.

Although political tensions in the Middle East often grab international headlines, relatively little has been written about a growing source of stability within the region: the rise of a diversified, open economy, no longer dependent exclusively on oil revenues. Thus far, signs of this shift have been like a view of a far-off oasis in the desert. An observer may fairly wonder, Is the growth that we see the result of visionary leadership or haphazard planning? Is this a fertile, sustainable oasis — or the deceitful promise of a mirage? Indeed, it may be difficult to reconcile military actions surfacing just a few hundred miles away with a newly opened factory, a just-built hotel, or an emerging middle-class community. What does it mean to the prospects of economic development? And yet, despite being largely unrecognized and underrated, the region’s economic development continues to gain momentum. If this economic oasis can flower in the desert, it suggests the future of the Middle East is perhaps more hopeful, and certainly more complex, than many people suspect.

Skepticism and Sustainability
Many of the changes we see — especially those concerning deregulation and privatization — have been talked about in the abstract for some time, but seem to have become tangible only in the past four or five years. If this seeming mirage is real, then why now? What is spurring it?

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  1. Reza Aslan, No god but God: The Origins, Evolution, and Future of Islam (Random House, 2005): The story unfolds from Mohammad to today’s reform movement, including implications for the next phase of Middle East culture.
  2. Barney Gimble, “The Richest City in the World,”, March 12, 2007: Anatomy of Abu Dhabi’s growth trajectory.
  3. Zamir Iqbal and Abbas Mirakhor, An Introduction to Islamic Finance: Theory and Practice (Wiley, 2006): Overview of new banking and financial market innovations emerging from the Middle East.
  4. John Irish, “The Quiet Reformer: King Abdullah’s Reform Agenda Has Been Slowly Progressing behind the Scenes,” Middle East Economic Digest (MEED), December 8, 2006: Profile of Saudi Arabia’s monarch and his “ambiguous yet determined” approach.
  5. Charles Issawi, An Economic History of the Middle East and North Africa (1984; Routledge, 2005): A 200-year view of the evolution of the region’s economy, from pre-industrial trade and knowledge hub to oil provider and beyond.
  6. Hatem Samman et al., “How to Succeed at Education Reform: The Case for Saudi Arabia and the Broader GCC,” Booz Allen Hamilton Ideation Center, Working Paper, 2008: Experience-based guide to this critical type of social improvement.
  7. Seth Sherwood, “Is Qatar the Next Dubai?New York Times, June 4, 2006: Western traveler’s view of the remarkable economic expansion in Qatar and other Gulf states.
  8. World Economic Forum on the Middle East, “Putting Diversity to Work,” May 18–20, 2007, World Economic Forum Report: Overview of the region’s economic prospects, based on its diverse culture, from a seminal conference held in Jordan.
  9. World Economic Forum on the Middle East, “The Promise of a New Generation,” May 20–22, 2006, World Economic Forum Report: The education, innovation, regulatory, and foreign relations needs for the future, according to regional leaders.
  10. The World Bank: Middle East and North Africa Region, “2007 Economic Developments and Prospects: Job Creation in an Era of High Growth,”: Focuses on the link between sustainable prosperity and long-term job growth in the region.
  11. Saudi Arabian General Investment Authority Web site: Describes the “economic cities” strategy and other pro-business initiatives and prospects.
  12. For more business thought leadership, sign up for s+b’s RSS feed.
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