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June 23 2009. The Gulf Region of the Middle East and its Relevance to Global Business. The “Middle East” is highly diverse. Atlantic Ocean. L e v a n t. Mediterranean Sea. N o r t h A f r i c a. Persian Gulf. G u l f s t a t e s. Red Sea. Indian Ocean.

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Presentation Transcript
slide1
June 23 2009

The Gulf Region of the Middle East

and its Relevance to Global Business

slide2
The “Middle East” is highly diverse

Atlantic Ocean

L e v a n t

Mediterranean Sea

N o r t h A f r i c a

Persian

Gulf

G u l f s t a t e s

Red Sea

Indian Ocean

Note: Yemen, a Gulf state, is not a member of the GCC.

slide3
GDP per capita varies greatly by “cluster”

GDP per capita ($’000)

(PPP, 2006)

Source: IMF data, CIA World Factbook estimates (Iraq, West Bank, Gaza).

the gcc s opportunity formula drives its dynamism
The GCC’s “Opportunity Formula” drives its dynamism

Attractive demographic shifts

Sustained prosperity and growth

Ongoing regulatory reform

Economic opportunity

=

+

+

gcc per capita income is three times china s and five times india s
GCC per capita income is three times China’s and five times India’s

GDP per capita ($’000)

(PPP, 2006)

Source: EIU, CIA World Factbook, 2007

gcc countries have high birth rates and high expected population growth
GCC countries have high birth rates and high expected population growth

Source: Population Reference Bureau

gcc countries have growing workforces
GCC countries have growing workforces

Population Aged 15-64 (%)

Qatar

UAE

Bahrain

Kuwait

Saudi Arabia

Oman

Workforce boom

Source: UN, medium variant

regulatory reform is creating opportunities
Regulatory reform is creating opportunities

… and all GCC members have joined the WTO

“Ease of doing business” ratings are favorable…

Source: Heritage Foundation, 2007

but high oil and gas income is stimulating economic activity across all sectors
“Not all about oil”… but high oil and gas income is stimulating economic activity across all sectors

International investment

Increase GCC importance in global markets

International spending

Government surpluses and private wealth

High oil and gas income

Local investment

Stimulate local economy and promote additional private sector investment

Capital deployment

Local government spending

Local consumption

not all news is good half of gcc states have double digit unemployment
“Not everyone is rich”Not all news is good: half of GCC states have double-digit unemployment

Unemployment

rate, 2006

Source: CIA World Factbook, 2006

most gcc college students are women
“Women matter”Most GCC college students are women

Female first-year students

in university-level

programs

(% of total students)

Source: GCC government data

slide14
“Gulf customer does not ‘hate us’”

Bilingual packaging is the norm in for consumer goods

slide15
“Gulf customer does not ‘hate us’”

McDonald’s customizes its message (and its menu)

marketing strategies take four degrees of adaptation
Marketing strategies take “Four Degrees of Adaptation”

3

1

2

4

Adapting the message

Non-customization

Adapting the portfolio

Custom product design

Fully leverage global branding and marketing

Customize marketing messages and language

Customize mix of product and services based on local needs

Create market-specific products and services

half the gcc states are majority expatriate
“Not only Arab”Half the GCC states are majority expatriate

Expatriate and local (National) populations

as % of total, 2005

Local / National

Expatriate

Majority expatriate

Source: GCC government data and CIA World Factbook, 2006

prosperity without institutions the back fill imperative
Prosperity without institutions: the “back-fill” imperative

GCC development experience

“Classic” development model

GDP per capita

(illustrative)

GDP per capita

(illustrative)

Imperative to build institutions

Sustained institutional development

Oil boom

Time

Time

effectively engaging the gulf market has its challenges
Effectively engaging the Gulf market has its challenges

Market challenges

Execution challenges

Economic

Awareness

Regulatory

Institutional Will

Social

Resources

Engaging the Gulf brings challenges and rewards

the engagement spectrum market entry strategies range widely
The “Engagement Spectrum”: Market entry strategies range widely

“High engagement”

Direct market entry:

Organic or acquisition-based

Joint ventures and partnerships

“Moderate engagement”

Simple distribution agreements

“Shallow engagement”

“Shallow engagement” has been the norm for leading MNCs

the current crisis is deeply impacting the opportunity formula
The current crisis is deeply impacting the “Opportunity Formula”

Attractive demographic shifts

Sustained prosperity and growth

Ongoing regulatory reform

Economic opportunity

=

+

+

  • Oil price is down over 50% from its 2008 peak
  • Equity markets down over 60% in 2008
  • Budget surplusesare at serious risk, especially in KSA and Bahrain
  • Long-term trends remain in place, with remarkably young populations and increasing social capital
  • Demographic pressures felt more acutely as economies struggle
  • Opening of markets increasingly recognized as needed
  • Protectionist pressures already, however, gaining strength
  • Key test cases: Kuwait Bourse and KSA Economic City
gulf decision makers have severe constraints regarding economic policy
Gulf decision makers have severe constraints regarding economic policy

Fiscal policy

Monetary policy

  • Government investment has a degree of flexibility, particularly in regards to large projects
  • State benefits are quite inelastic due to expectations and pressures
  • Income tax is absent, although fees and other mechanisms are used to generate supplementary income
  • Dollar peg remains firmly in place in all countries but Kuwait
  • Maintaining the peg is important for both economic and political reasons
  • Effect of peg is that the Gulf’s interest rates are effectively set by the US and driven by US domestic needs

Key driver is the global energy market

Key driver is the US Federal Reserve

for gulf decision makers the imperative is on the real
For Gulf decision makers, the imperative is on the “real”

Institutional development and the “back-fill imperative”

1

Equity-based financial systems and investments

2

Domestic investment to stimulate the “real economy”

3

Budget rationalization and prioritization of initiatives

4

Diversification of public revenue sources

5

Crisis is an opportunity for decisive action

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Stay in touch!

Aamir A. Rehman

www.rehmaninstitute.com

[email protected]

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