High marks for Gulf states but real tests still lie ahead

A recent Zogby International research conducted in Saudi Arabia, the UAE and Qatar showed education, labour and transparency are high on the list of issues for those polled.

Ed Koch, the colourful and often controversial former mayor of New York City, made it a practice as he walked the streets of his city to stop and ask average citizens: "How am I doing?" It was an effort to learn how they viewed the performance of his administration and its delivery of services. In the aftermath of the global financial crisis, the obvious performance-related question in the Gulf is how countries weathered the storm. The recent Zogby International survey of business executives in Arab Gulf countries provides some of the answers, with data that back up common assumptions and some additional insights as well. And, as in any case when questions are asked and the answer is carefully listened to, sometimes the results can be surprising.

The survey found that optimism has returned to the business community in the Gulf, a sign that the region may have turned the corner following the economic downturn of 2008-2009. Overall, six in 10 executives say that business conditions have improved in their countries, with more than eight in 10 expressing confidence that conditions will improve even further in the next two years. These are but a few of the findings from the survey of chief executives in Saudi Arabia, the UAE and Qatar. Zogby International conducted the study on behalf of Oliver Wyman, an international management consulting firm with a strong presence in the Middle East. It is the second in an ongoing series of semi-annual measurements of business confidence in the Gulf region.

The mood was positive in all three countries covered in the survey, with the most notable changes occurring in the UAE. Business leaders here were especially hard hit by what one prominent Emirati businessman referred to as the "bursting of Dubai's utopic bubble". In our October 2009 survey, 57 per cent of respondents in the UAE reported that the economy was in decline; today that figure has dropped to just 39 per cent. In October, only 45 per cent of business leaders here anticipated an improvement in business conditions in the country over the next two years. Now 74 per cent are optimistic.

Most executives expressed satisfaction with their governments' response to the 2008-2009 crisis. Those in Saudi Arabia, Qatar and Abu Dhabi indicated strong confidence in their governments' performance; in Dubai there was a somewhat negative mood with more than 50 per cent of respondents reporting that their attitude towards government had been undermined by the handling of the crisis. When asked to identify the areas where GCC countries could most improve competitiveness, almost one-half of the business leaders pointed to countries' need to diversify their economies.

Four times as many executives identified greater opportunities in deepening ties with the emerging economies of China and India than with their traditional partners in the developed West. Some said that they saw China's dramatic growth and the perceived ease of doing business in that country as obvious attractions, especially in the face of the uncertainties now facing Europe. In the recent survey, as in our earlier October effort, labour and education reform were identified as the greatest challenges to the region's competitiveness. Especially noted in Dubai and Saudi Arabia's eastern province, executives urged greater transparency, while reducing bureaucracy was a major concern in Abu Dhabi.

In all three countries, executives highlighted the difficulty of starting new businesses in terms of excessive regulations and problems obtaining loans at reasonable rates. This survey, and others of its sort, serve a two-fold purpose. On the one hand, business leaders have an unofficial sounding board where they can voice their concerns. On the other hand, just like Mr Koch's downtown walks, governments get a baseline sense of the mood and needs of a critical sector of society that will drive future growth and development.

And so getting back to the New York mayor's question, in the Gulf the performance review would be "quite good". The bottom line is that business confidence is up, and significantly so when compared to many other regions of the world, including the US. And no wonder. The region weathered a difficult worldwide downturn with governments wisely using reserves both to insure stability and promote growth.

Nevertheless, concerns remain in important areas. Singled out for attention were the region's dependence on foreign labour; the challenge of modernising the educational system (especially in the areas of primary education, basic maths and science skills and technical training); and easing the way for entrepreneurs to start new businesses, which is key to needed job creation. These are issues that the business leaders say must be addressed to ensure continued prosperity and future competitiveness. James Zogby is the president of the Arab American Institute.