x Abu Dhabi, UAEMonday 24 July 2017

Forget politics, Gulf business leaders fear demographics

Rise in young population, not regional unrest, is the main concern for business executives in the Gulf.

Given the upheavals occurring across the Middle East, it might be seen as remarkable that business leaders in Saudi Arabia, the United Arab Emirates and Qatar report high levels of satisfaction in the economic environment in their countries and optimism about the future. This is despite the fact that some of the most difficult situations are right on their doorsteps.

This was one of the findings of a business confidence survey conducted by Zogby International and Oliver Wyman, querying 164 executives across these Gulf countries. Completed this month, this is the fourth in a series of biannual surveys measuring not only confidence but priorities for reform and satisfaction with government performance on a range of economic matters.

What we found is that six in 10 executives say business conditions have improved in the past year, and an even higher percentage (65 per cent in the UAE, 81 per cent in Saudi Arabia and 92 per cent in Qatar) expect conditions to get better in the next two years. While about a third expressed concern with political unrest in the broader region, less than one in seven were concerned that unrest would affect economic conditions in the three countries covered in the survey.

Of greater concern was the potential damage that might be caused by external macroeconomic shocks (such as another banking crisis or stock market collapse). More than half of those surveyed reported that concern.

Major factors contributing to these levels of confidence were the dramatic increases in oil and gas revenues, which have boosted regional economies, and business leaders' praise for the performance of governments' handling of economic challenges - specifically, the substantial stimulus package implemented by Riyadh and Abu Dhabi's intervention to address the financial crisis that rocked Dubai in 2009.

The survey did not address every issue confronting the economies of the region, and only considered the attitudes of a sample of senior executives, but it highlighted central problems for the business community. As we found in earlier surveys, executives say the continuing need to address labour and education reform are the two issues that require immediate attention - and threaten the region's long-term economic development.

In light of the political upheavals confronting some Arab countries, it is worth noting that the need for political reform received only scant mention as a threat by business leaders in these three countries.

A more significant concern was the "youth bulge", especially in Saudi Arabia, which needs to absorb an estimated 350,000 young people who will be entering the job market each year. On this issue there was a wide gap between attitudes expressed by expatriates and citizens.

A significant majority of all executives said the growing younger population was an issue, but only citizens indicated the need to give preference to hiring skilled young nationals. Despite their concern with youth unemployment, expatriate executives continued to prefer hiring other expatriates, especially if they could pay them less. And while most citizens supported government quotas for hiring, expatriates objected to them. In addition to pay, other reasons given in favour of expatriate hires was the difficulty of sacking nationals for underperformance and the perception that expatriates were more motivated.

But there was a contradictory set of attitudes and a problem: expatriate executives were more concerned with the potential for political unrest than their counterparts who were citizens. Most respondents from both groups agreed that the bulging young population was a problem, but only citizens were in general willing to take steps to address it.

Clearly this raises a set of policy issues that must be faced by governments and the business communities if the region's young people are to be employed. But what is also clear is that, in the long term, the problem cannot be resolved by governments as the employers of choice or of last resort. The private sector needs to be expanded through incentives to create more small-to-medium enterprises that create jobs.

Polling of broader public opinion may reveal other problems, although recent Gallup and Zogby International surveys indicate generally high rates of satisfaction and optimism. But whatever the current mood, the need to deal with the "youth bulge" looms large on the horizon. It is a problem that both governments and the business community must work together to solve.

 

James Zogby is the president of the Arab American Institute