In my corporate career as a strategist, I have seen a broad range of reactions when I tell people—especially my fellow Americans— that I help companies do business in the Middle East. The term conjures a set of images that relatively few outsiders equate with economic opportunity, and I am often dealt the question “Is the Middle East safe?”
The impetus of this inquiry stems from years of seeing war in the region: a series of conflicts with Israel, war between Iran and Iraq, Saddam Hussein’s invasion of Kuwait and the first Gulf War, and other occasions of violence. The long and drawn-out second war in Iraq, in which the United States and a small set of allies easily defeated Saddam Hussein in 2003 but struggled to manage the subsequent occupation, has left deep scars and deeper impressions of the Arab world. “Is there really any business there?” is another frequent question asked of me. Clearly, those who ask this have missed or ignored the series of corporate acquisitions undertaken by Middle Eastern firms, not to mention the images of sleek office towers in Dubai and elsewhere. Another interesting query: “Do they care about corporate strategy?” I’m baffled by the ongoing assumption that Middle Eastern businesses lack sophistication; as in any emerging market, there is a range of savvy that includes a number of top-notch global firms.
A large part of this confusion occurs because the term Middle East has always been a fuzzy one. Its definition varies widely depending on whom you ask, and its perimeter is redrawn as political sentiments shift. As historian Roger Adelson and others have rightly pointed out, the term is an invention of the Western powers—in particular, the UK—whose purpose was to define a region to their east but less remote than China and the Pacific. Whereas the French had coined the term “Near East” for the Ottoman Empire, the term “Middle East” first appeared in the UK’s National Review magazine in 1902, in an article authored by an American military strategist. A 1903 work used the term in its title—The Middle East Question of Some Problems of Indian Defense—but used it for a broad swath of territory including Tibet, Afghanistan, and other nations near India that few would count in the “Middle East” today. After this use in 1903, the term was no longer novel and ceased to appear with quotation marks.1
The term also includes a very diverse set of countries that share some common elements but are in many ways vastly different. Some are mainly desert, others have abundant agriculture. Some are riddled with conflict and are “hot spots” for war; others are highly stable. Some are wealthy; others are not.
In political circles, too, the term continues to be ill-defined. One classic definition of the “Middle East” is that it includes all Arabic-speaking countries plus Israel. Iran and Turkey, depending on whom you ask, can also be thought of as peripheral “Middle Eastern” states. In recent years, language referring to the United States’ “War on Terror” has often included Pakistan and Afghanistan—long seen as parts of South and Central Asia, respectively—within the rubric. Academic centers, including Harvard University, are not spared the confusion: Harvard’s academic department covering the region is called “Near Eastern Languages and Civilizations,” while an interdisciplinary center that studies the area (created later on) is called the “Center for Middle Eastern Studies.” Adding to the complexity, the Bush administration has introduced the term “Broader Middle East and North Africa,” for which it has defined policy initiatives.2 The United Nations, whose work in the social sector varies widely among Middle Eastern and North African (MENA) countries, uses the terms “Southwest Asia,” “West Asia,” and “North Africa.”
A more genuine approach, rooted in the indigenous differentiation within the region, is a three-cluster model. One cluster is the Levant—known as Bilad al-Sham in Arabic—which includes the Arab countries on the northern edge and northeast side of the Arabian Peninsula: Jordan, the West Bank and Gaza, Syria, Lebanon, and Iraq. A second cluster is North Africa, which spans from Morocco to Egypt and, for our purpose, includes the Arabic-speaking Sudan. Most countries of this region fall into the territory traditionally called al-Maghreb, which means “the West” and the place where the sun sets. Egypt is, in some ways, a cluster of its own due to its size, history, and complexity—but as our focus is elsewhere, we will include it in North Africa. The Gulf, called al-Khaleej, or “the Peninsula,” consists of the Gulf Cooperation Council (GCC) states and Yemen. Figure 1.1 shows the stark differences in income that characterize these three clusters.
Figure 1.1: GDP per captia varies greatly by cluster (Source: IMF data, CIA World Factbook estimates [Iraq, West Bank, Gaza])
The three-cluster model is indigenous to the Arab world, effectively grouping the MENA region into broad categories each with distinct histories and environments. Each region has its own characteristics—geographic, social, political, and economic—that create very different business environments. The Levant is well-endowed but (in recent times) rather volatile. North Africa is large and populous, with moderate GDP per capita, The Gulf is oil-producing, wealthy, and relatively stable, with the highest standard of living in the Middle East. As the Arabic language—the glue that binds the Arab world—originated in the Arabian Peninsula and spread east and west, the three clusters have become part of a single cultural complex while at the same time each has evolved its own unique identity (see Figure 1.2).
Figure 1.2: The Middle East and North Africa (Note: Yemen, a Gulf state, is not a member of the GCC.)
THE LEVANT: WELL-ENDOWED BUT CONFLICT RIDDEN
The area known as the Levant is home to one of the world’s oldest and richest civilizations. The ancient civilization of Mesopotamia, admired by historians for its institution of the world’s first known written legal system, is often the starting point for the study of human cultural and political history. The Levant includes the area known as the Fertile Crescent, where flowing rivers, rich soil, and human technology enabled early farmers to harvest crops in excess of their needs. The excess crops could be stored, traded, and used to support artisans, officials, priests, and other groups of people who helped craft this early civilization.
The Levant is also home to the “Holy Land,” where many of the most revered religious sites of Jews, Christians, and Muslims are located. Many prophets of the monotheistic tradition, including Abraham and the prophets of Israel, are believed to be from the Levant. In the Jewish tradition, the Levant is home to the Promised Land, and it is also where Jesus is believed to have been born and preached his message while facing Roman persecution. Jerusalem, a sacred city for the three great monotheistic traditions, is the spiritual center of the Levant. The region is the birthplace of the world’s—and the West’s—religious systems and value frameworks and, as such, has shaped Western and global civilization at the core.
Quickly after the spread of Islam into the Levant in the seventh and eighth centuries, it became the seat of the Islamic caliphate. Damascus (under the Umayyad dynasty) and then Baghdad (under the Abbasid dynasty) had the political, commercial, and educational infrastructures needed to sustain leadership of the Muslim world. Both cities were renowned for their scholarship, art, sophistication, and cultural development. In fact, the sack of Baghdad by Mongol invaders in 1258—during which the rivers reportedly ran black from the ink of books that had been dumped there by the uneducated invaders—is considered one of the greatest losses of human knowledge in history. To this day, the Levant has a relatively high level of literacy, averaging almost 80 percent, comparable to the far-richer Gulf’s level of 82 percent.3
Iraq is the most important—and certainly the most prominent—modern state in the Levant. Iraq’s population is close to 27 million and includes Shiite Arab, Sunni Arab, and Kurdish populations.4 The three communities were united as a single modern state in the wake of World War I and held together under a monarchy and then under Saddam Hussein’s military dictatorship. Hussein’s dictatorship was marked by much violence, both domestic and international, and after a decade-long war of attrition with Iran in the 1980s, during which Hussein enjoyed US and Arab support, Iraq took an expansionist posture. Hussein’s 1990 invasion of Kuwait—an oil-rich region to which Iraq had laid claim for decades but which was upheld as a separate, sovereign state by the UN—led to the first Gulf War. Iraq was defeated by a United States-led coalition that included all six GCC member states. Claiming that the Hussein regime had weapons of mass destruction, the United States, the UK, and a limited number of allies invaded Iraq in 2003, quickly defeated the regime, and began a long and complex occupation that has been characterized by sectarian violence and a lack of national unity. The future of the Iraqi state, at the time of this writing, remains tenuous.
From an economic perspective, however, Iraq is well-endowed. Its oil reserves are vast, and potential for prosperity is high. Unlike other oil states—in particular Saudi Arabia, whose population is roughly the same size as that of Iraq—Iraq has an education system that has been well developed for decades. The Iraqi intelligentsia—including physicians, lawyers, teachers, and other professionals—has long been an important pool of trained talent in the region, and many expatriate Iraqis have been successful in other Arab (and in GCC) countries. Iraq also enjoys substantial industrial and agricultural successes that were fostered under internal state direction and have not been directed outward for decades. As astute observers have noted, a stable Iraq has all of the qualities of a highly attractive market; namely, natural resources, a well-endowed economy, a large domestic market, and a sophisticated consumer base. Expect to see hot competition for market access in Iraq when it achieves some measure of stability.
Syria, with a population close to 20 million, is another large market that would be highly attractive for multinational firms if not for its political turmoil.5 It has a large domestic market and has achieved a degree of industrialization under a state-controlled economy. Like Iraq, Syria spent many years under the secular dictator Hafiz al-Assad and is now so under his son Bashar al-Assad. Syria is on the watch list of Western powers as a potential security threat, and investor confidence in the country is very low. Although Syria lacks the massive oil reserves that Iraq has, it does have some oil capacity, as well as a Mediterranean coastline that gives it access to European Union (EU) markets. More important, it could be a reasonably favorable market for business and for
23 Apr
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