As oil prices continue breaking records on an almost daily basis, leaders at the World Economic Forum on the Middle East debated whether the region’s oil-cushioned tycoons have invested enough in their own communities, namely in non-oil producing countries.
In particular, they questioned if leaders in the Middle East are translating the gains of the oil boom into long-term growth for the entire region.
“For the last five years, the region has accumulated an additional $1.3 trillion in oil wealth, but investments are not really enough. They don’t address current challenges in the region, said Mustapha Nabli, the World Bank’s senior adviser on development economics.
He pointed out that more countries in the Middle East needed to invest in basic infrastructure, such as schools, healthcare and transport. “There has been a significant increase in investment but I would like to argue that these investments are not really enough and are not part of a vision – a coherent vision – to deal with the fundamental problems of the region.
He explained that Middle East policymakers have not done enough to promote sustainable growth or further diversify their economies. Investment policies, he added, are both quantitatively and qualitatively deficient.
“Quantitatively, investment rates in the region have increased to an average of 15-17 percent of GDP, from just 12 percent a few years ago, he said. This still lags behind the investment rates typically seen in successful developing countries, he continued.
While foreign investment has increased in the region, only a modest fraction of those inflows are directed to poorer, non-oil producing countries. “Thus, investment remains below what is needed and below expectations, he said.
Qualitatively, Nabli added, too many of the jobs created are in low-wage and low-skill occupations. “We’re beginning to see some promise, but we are still far from where we need to be.
In rebuttal, Mohamed Alabbar, chairman of Emaar Properties, said the region’s oil-wealthy leaders are indeed committed to investing in the region and helping to alleviate its challenges. The Middle East, he clarified, has learned its lessons from the oil booms and busts of the past; and steps have been taken to invest in the long-term growth of the region.
“I’m a good example of what the region did, he said. Real estate and construction conglomerate Alabbar, who heads an empire that stretches across some 16 countries, pointed out that he was educated by the region, implying that this shows commitment of stewards of the region’s oil wealth in human development.
“The leadership that you see in the Middle East is a leadership of change. From the capital markets, to education, to transparency, rules, regulations, governments have changed. Governments are not what they used to be, he added. “The Gulf is investing over $70 billion in the MENA region and another $70 billion in developing countries.
Still, to feel this incredible change, he said that the region’s oil-rich countries need to focus on development of more liquid and flexible capital markets, greater regulatory transparency, privatization of state-owned industries, and liberalization of rules governing foreign investment.
But Yasser El-Mallawany, CEO of regional investment bank EFG-Hermes, begs to differ. He argued that the Gulf continues to impose restrictions on non-national investment.
“[Non-nationals] are not free to grow in the region. The Saudi market, for example, is closed to outsiders. We need to [perceive] the Middle East as a one economic block, said El-Mallawany
Other participants in the debate cited the emergence of a widening gap between what they called the two Middle Easts: wealthy, oil-rich countries of the Persian Gulf versus poorer, heavily-populated countries such as Egypt.
“The GCC [Gulf Cooperation Council] is leaving the rest behind, argued one panellist.
Experts also underscored the necessity to empower the region’s youth with educational and training resources.
“Imagine yourself 20 to 30 years in the future where we have a Middle East that is highly productive, everybody is working, and we have peace. In order to get there you have to acknowledge that today, we collectively have failed to serve our people and failed in equipping them with the right skills, said Sheikh Mohammed bin Essa Al-Khalifa, chief executive of Bahrain Economic Development Board.
He stated that authorities are not doing enough in a region where 60 percent of the population is under the age of 30 “with their productive lives ahead of them.
“In order for us to give these people the opportunities they need, we have to increase investment in education. He continued to say that regional leaders need to learn from the successes of Ireland, Switzerland, Singapore, and Japan – all countries with relatively few natural resources that were able to grow wealthy by boosting productivity and human capital.
“The Middle East needs to move away from manual labor and move towards jobs that create better skills and better future, he added.
On this note, Egypt’s Minister of Trade and Industry Rachid Mohamed Rachid said, “This is not about the money because we always had the money. This is not about the intention because we always had the intention. We failed because we did not have the right environment in place. Today.the economic models have changed, the political systems are changing, the cultural systems are opening up.
“Education is not going to be the responsibility of the government alone. The private sector, civil society, and families have to [take their responsibilities], he said.