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The rich get richer

Yesterday’s conference on investment prospects in the wake of the Arab Spring over at the World Bank’s Multilateral Investment Guarantee Agency (MIGA) was a lively couple of hours–these economic types are briefer and more to the point than their political counterparts–but the bottom line was gloomy:  the GCC states and Iraq are likely to attract the lion’s share of investment while Egypt and Tunisia (Syria, Yemen and Libya weren’t even mentioned) go begging in the short term.  There was disagreement on longer-term prospects, with Ian Bremmer registering a strong minority view that the geopolitics are unfavorable, both because of Iran and the Israel/Palestine conflict.

An upbeat and indefatigible Afshin Molavi started off underlining that we live in a world of surprisingly interconnected risk, that there is a lot of diversity in what we should not really label “Arab Spring,” and that the Middle East and North Africa region (MENA) has a young population, many unable to get married because of the lack of jobs and looking for “dignity.”  Growth has now slowed, hurting their prospects.

Citibank’s Hamid Biglari said investors have adopted a wait and see attitude toward the more revolutionary part of the region and are shifting their attention towards the GCC and Iraq, whose prospects are good if Baghdad can get security under control.  Multinationals are not pulling out.  Egypt is a larger and better known market than Tunisia, which however is more homogeneous, more secular, more middle class and better educated.  Tunisia is more likely to succeed economically, but Egypt is the bigger prize.  The immediate concerns of investors are about legitimacy and whether the new governments will treat the old elite decently, but it will be a decade before “equilibrium” returns.

Ian Bremmer of Eurasia Group admitted enthusiasm for the Arab Spring (“it feels good”) but noted that Ukraine and Georgia felt good at first too.  Tunisia seems to be moving in the right direction, Egypt less so but will likely muddle through.  Iraq is the most exciting investment opportunity in the region.  U.S. influence is declining, and Saudi influence is increasing.  Saudi policy objectives and conditionality will differ from those of the U.S.  Overall though the immediate political risks have been overvalued.  The problem is in the longer term, both because of Iran and the Israel/Palestine conflict.  Europe and the U.S. will increasingly be occupied with other problems.

Cairo-based Walid Bakr of Riyada Enterprise Development, Abraaj Capital, was more optimistic in the medium and long term.  Egypt’s big market and tourist attractions are not going away.  Half the population is under 24, well educated and internet savvy, with lots of entrepreneurial spirit.  The revolution has unleashed strong feelings of national pride and dignity.  Youth is the engine of growth and can contribute to the all-important creation of small and medium enterprises so vital to job creation and wealth distribution.

Dubai-based Yasar Jarrar of PwC Middle East underlined that we are still at the beginning of the changes in the Middle East, which suffered a long period of stagnation (not real stability).  The GCC countries are moving well to kickstart job creation for youth, major infrastructure investments and dialogue between their governments and the citizens.  But it is going to be a long spring in a region that really does matter.  Philip Haddad of Mubadala Infrastructure Partners agreed that we need to take the long view, but in the meanwhile as much as $38 billion is being invested in infrastructure, which is not bad.

The Omani ambassador, Hunaina Sultan Ahmed al-Mughairy, led off with a very upbeat assessment of the Sultanate’s prospects.  The message was “yes, we can” reform ourselves, if we put our minds to it.  Jean Francois Seznec of Georgetown said he was very pessimistic about Bahrain, where the basic issue is governance.  In recent weeks, only 5% of the hotel rooms in Bahrain have been occupied.

There was a good deal of agreement that the issue everywhere is at least in part governance.  Citizens did not feel they were benefiting under the old regimes, because of a lack of accountability.  Political and economic reform need to go together, but it is not clear that new parliamentary democracies will credit competence and choose economic reform, which is discredited because it is associated with the old regimes.

Wrapping up, Ravi Vish of MIGA confirmed the importance of governance, addressing social inequality and the income gap, and job creation, mainly through a stronger and more entrepreneurial private sector.  He also reviewed MIGA’s portfolio of political insurance products, for which demand is naturally rising in the region.