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Published: May 26, 2009

 
 

The Challenges of Balance

Business ownership is another arena where Gulf states have made steady progress. Bahrain allows 100 percent foreign ownership in some business categories; Qatar, too, allows 100 percent foreign ownership (with special government approval) in sectors including agriculture, health, education, tourism, energy, and mining, although foreign ownership in other sectors is limited to 49 percent. Foreigners have similar independence in the UAE’s free zones, where they can own 100 percent of commercial ventures, although they must partner with a local business outside these zones.

Pension reform will also be critical. Expatriates are generally excluded from government-run pension plans; some private companies, however, have made provisions for employees who are not nationals. Allowing more expatriate participation in pension plans would not only make the region a more attractive work environment, but would increase contributions overall, which will be necessary as the population of the Gulf states ages.

But financial reform alone cannot create cultural and emotional ties. To create these bonds, GCC countries have, for instance, begun to provide Arabic language classes for expatriates, which will boost their career prospects and enable them to communicate more easily with neighbors and co-workers. Abu Dhabi has taken steps to make expatriates feel welcome with measures like the newly built Construction Village on Saadiyat Island off the emirate’s coast. Construction Village will house the workers building attractions, such as the Louvre and Guggenheim museums, on Saadiyat Island. The Tourism Development and Investment Company (TDIC) has invested $258 million in the village, which includes residence halls, parks, dining areas with multiethnic offerings,  tennis courts, basketball courts, a cricket pitch, shops, Internet access points, and laundry facilities. TDIC CEO Lee Tabler said, “One of the core rationales behind the decision [to create] the village is to foster a sense of home and community for the workers on the island.”

Growth and Balance
For decades, countries around the world associated the GCC countries strictly with oil. Now, when they look at the Gulf, they can see a rapidly emerging center for trade, finance, tourism and recreation, and even technological research — with expatriate businesspeople flocking to newly vibrant cities, reforms in education and training, more free market decision making, and tremendous amounts of sovereign capital invested in diverse industries throughout the world.

But they can also see a region coping with wild fluctuations in stock markets and real estate values, national labor forces that are not yet up to the task of growing key industries, and such daunting challenges as regulating privatized businesses or managing expatriates.

The indicators of exuberant growth and the complexities inhibiting it must both be seen as part of the Gulf’s natural evolution. Ultimately, the ability to manage the challenges of balance will be the single most critical limiting factor —more important than capital or markets — affecting the pace and quality of the region’s development. These capabilities don’t come easily; they take time to develop. But they do come reliably, so long as the leaders of an emerging region recognize their importance.

Reprint No. 09202

Author Profiles:

  • Joe Saddi is the chairman of the board of directors of Booz & Company and leads the firm’s business in the Middle East. His work covers multifunctional assignments in the oil, gas, mining, water, steel, automotive, consumer goods, and petrochemical sectors; it includes policy formulation, corporate and business strategies, organization, and governance.
  • Karim Sabbagh, a Booz & Company partner based in Dubai, leads the firm’s work for global communications, media, and technology clients. He is a member of the firm’s Marketing Advisory Council and the chairman of the Ideation Center, the firm’s think tank in the Middle East.
  • Richard Shediac is a partner with Booz & Company based in Abu Dhabi. He specializes in financial-services and public-sector projects and has led and participated in strategy, operations improvement, and organization projects in the Middle East, Europe, and Asia.
  • This article was produced with research from the Booz & Company Ideation Center and contributions from Hatem Samman, the director of the Ideation Center and a senior associate with Booz & Company, and Hana Habayeb, an associate with Booz & Company.
 
 
 
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