In 2007, SAGIA unveiled plans to build six economic cities that would test-drive this concept: If the cities are successful, the more relaxed regulations would be implemented nationally. The first planned city, King Abdullah City, is slated for $30 billion in initial investment. It will feature an industrial zone with steel and aluminum processing plants, a seaport, a central business district, a resort district, an education zone, and residential communities; it is projected to create 500,000 jobs. These economic oases also promote the development of power, water, and transportation infrastructure, all of which are key to the development of a middle class.
Egypt is embarking on a comparable path and seeking to reform its business environment. The efforts deployed by Egypt’s General Authority for Investment and Free Zones (GAFI) have earned accolades from the World Bank and have attracted increased foreign investments. In fact, the World Bank named Egypt the top reformer in its 2008 Doing Business report with a ranking of 126 — 39 places higher than the year before.
In some ways, this progress remains unseen by outsiders because the region continues to be stereotyped and misunderstood. What may appear mystifying to some is actually the result of several innate paradoxes governing the mind of the Middle East decision maker. For someone coming to the region to do business, these paradoxes are essential facets of the region’s business culture. For a businessperson or government leader from this region, this description of the attitudes and assumptions that shape the way business is conducted may make it easier to understand the long-term opportunities and navigate the challenges that lie ahead.
Late Yet Eager
Many people who do business in the region recognize a rhythm to economic development. First is a long period of incubation, sometimes lasting years, during which considerable dialogue takes place about potential directions. And then, once a decision is made, development moves with astonishing rapidity.
The overall deregulation of the telecommunications sector in Saudi Arabia started in 1998. At that time, Saudi Arabia’s telecommunications industry operated like many other sectors in the Middle East, as a tightly controlled government monopoly. However, spurred by a desire to become more efficient, and by its interest in joining the WTO, Saudi Arabia decided to open up the sector to competition.
Just four years later, the Saudi Telecommunications Company sold 30 percent of its shares in a public offering valued at around $4 billion. Investors demonstrated the market’s readiness by offering to buy $9.6 billion worth of shares. In 2004, the Saudi Arabian government issued licenses to new telecommunications service providers. The deregulation of the telecommunications sector has had major effects on quality of service and pricing. The industry had been characterized by high prices and poor service, but since deregulation, the Saudi Telecommunications Company has dramatically raised its service levels and defended its market share. The number of cell phone subscribers and Internet users is expected to double between now and 2012.
Although the Saudis may have started slowly, they moved much faster than the U.S. did when deregulating its own telecommunications sector — in four or five years instead of decades. This type of momentum is a testament to the country’s eagerness to catch up. And telecommunications isn’t the only sector to deregulate. The power, water, and insurance sectors are preparing for a similar evolution. The government is creating a set of new regulatory authorities.
The “late yet eager” mentality held by regional leaders may reflect their desire to avoid laissez-faire economics at the outset. They have seen trial-and-error deregulation elsewhere prove costly and disruptive. Thus, they are concentrating first on legislation that would enable a smooth transition, and restructuring their incumbent state-owned companies. They then use these changes as stepping stones to sanction other operators or service providers. This managed approach has ensured that privatization efforts are generally successful and that new entrants can enter the market at a favorable time.
