Arab Spring Raises Hope for Era of Cleaner Business

By Suleiman Al-Khalidi

Visitors look at models of the Saadiyat Island project during the Cityscape Abu Dhabi Exhibition in Abu Dhabi, in this April 18, 2010 file photo. When Abu Dhabi announced that it would delay establishing local branches of the Louvre and Guggenheim museums, it was an important signal of the emirate’s economic strategy as well as its cultural priorities.The company gave no new dates for opening the museums, which were originally scheduled to start operating between 2013 and 2014 as part of a $27 billion art and culture development on Abu Dhabi’s Saadiyat Island. But the message was clear: getting the projects right and ensuring public demand for them would be given precedence over rushing them out quickly to gain prestige.

AMMAN, Nov 9 (Reuters) – Gulf investor Omar Ayesh flew to Tripoli to meet Saif al-Islam Gaddafi when the son of Libya’s now-deposed strongman wanted to talk business, only to be caught in a web of bribery and crony capitalism.

A deal for a beachfront resort project on Tripoli’s seafront was signed with Muammar Gaddafi’s government and excavation work began, but it stopped after people linked to Gaddafi began asking for payoffs, the 43-year-old businessman says. Now, Ayesh is trying to revive the project.

“I didn’t expect influential figures within the regime would take over the project because it was lucrative. I just hope the new Libya will not repeat the mistakes of the past,” says Ayesh, chairman of United Arab Emirates-based Nobles Investments.

Across the Middle East and North Africa, the Arab Spring uprisings have hurt many businessmen. Economies have slowed sharply as political uncertainty deters investment, new governments focus on trying to restore social stability instead of reforming economic policy, and labor unrest disrupts production and drives up costs.

But Ayesh is one of a substantial number of businessmen who say the economic climate is already improving in an important way: it is becoming easier to do business without the involvement of corrupt politicians and officials.

“Corruption was a major hurdle before the revolution and now it’s much less. This has improved the business environment in Egypt. We are much more optimistic,” said Issam Hijazi, chairman of Hijazi and Ghosheh, a Jordanian meat processing firm with millions of dollars of investments in Egypt and the region.

Patronage

Many businessmen are not as positive as Hijazi. In Egypt, for example, some small company owners still report struggles with corrupt officials and parasitical government bureaucracies that only their larger, wealthier competitors have the money to overcome.

But to some extent, the ousting of president Hosni Mubarak has loosened the grip of a clique of politicians, officials and their businesses cronies on commercial opportunities and the licences and financing needed to exploit them.

Companies linked to the former regime face legal challenges over past deals and must operate under greater public scrutiny; this levels the playing field and allows a wider group of businessmen to compete. Egyptian trade with Sudan, for example, is no longer dominated by businessmen linked to the Mubarak regime; it has become more open and diversified, said a business consultant in Egypt, who declined to be named because of the political sensitivity of the issue.

Cases such as that of former Egyptian housing minister Ahmed al-Maghrabi have sent a chilling signal to officials and businessmen involved in improper deals. Maghrabi was sentenced to five years in jail in May over an illegal land deal in the Mubarak era; he and a businessman involved were ordered to return a total of 72 million Egyptian pounds ($12.6 million) to the state and were together fined a further 72 million pounds.

Much the same is happening in Tunisia, where members of the family of deposed president Zine al-Abidine Ben Ali once owned or controlled many of the country’s biggest companies, with interests in media, banking and telecommunications.

“The political support and access to funds that some of the leaders of private sector in the Arab world had has been lost,” said Walid Nassan, head of the Jordan operation of Egyptian investment firm EFG Hermes.

“They now need to present themselves on their own credentials and many are tarnished. Those who exploited the system can no longer do that so openly and blatantly.”

At a meeting in Istanbul last week between executives of international oil firms and Libyan officials, who discussed Libya’s plans to buy nearly $3 billion of gasoline, oil traders were struck by the change in how the Libyans operated. The newly appointed managers of Libya’s National Oil Corp refused invitations to lunch or dinner and kept to a tight schedule.

“Before, everything was done under the table and with bribes. Now I haven’t heard anything about bribes, and tenders are being used to buy and sell,” one trader said.

In countries that have not seen their governments overthrown, the change in the business climate has been less dramatic. But here too, the Arab Spring appears to be increasing popular pressure for more transparency and an end to political patronage of business — pressure that governments cannot entirely ignore.

In Morocco, King Mohammed has ordered that the antitrust authority be given more powers to enforce transparency and good corporate governance. The authority’s head said it would be even-handed in dealing with firms owned by the monarchy, the biggest private stakeholder in the economy — although it may have to wait until late 2012 to obtain the power to intervene.

Usama Fayyad, executive chairman of Oasis 500, a Jordan-based investment firm which finances start-up firms in the region’s information technology sector, said governments had become more careful about appearing even-handed towards companies, even in countries that have been relatively untouched by the Arab Spring.

“Abuse of authority by government entities has definitely decreased. I see it applying even to countries that don’t have protests,” he said.

“It doesn’t mean it’s disappeared, but it means that they are more careful and this holds true in Lebanon, Iraq and in the Gulf in Saudi Arabia, where people are more afraid of exercising undue influence because scrutiny is coming. They know there will be more scrutiny, definitely more than before and that creates more diversified economic opportunities.”

He said big companies as well as governments had become “afraid of exercising their old methods of intimidation, influence peddling and corruption. This is helping local companies that previously were marginalized.”

Omar Bitar, head of Middle East emerging markets at consultants PricewaterhouseCoopers, said bidding processes for government contracts in the region were becoming more stringent and transparent, to the point that the award of some contracts was slowing down.

It is not clear how lasting these changes in the region’s business environment will be. New networks of corruption and economic patronage may form as post-uprising governments become more stable; public indignation over crony capitalism may fade as governments around the region buy off the public with subsidies and increased welfare spending.

Some businessmen suggest that in the short term at least, the cleaner commercial environment is actually hurting economies by making it more difficult for deals to get done.

“Legitimate business is being hurt by the perception of impropriety and few people dare to exercise their authority for fear of a witchhunt, and this is paralysing business,” said one Middle Eastern banker, who requested anonymity.

“Graft has an economic value as you measure the cost of corruption — monetary versus facilitation of business…Although companies now don’t have to buy the deal from some guy, it takes longer to secure the deal, plus the political risks have shot up.

“Business in Tunisia and in Egypt, at least on the surface, is not as tidy. You used to know someone who would facilitate business. Now it’s a big muddle.”

In the long term, though, a cleaner, fairer business environment could, even more than other economic reforms such as deregulation and fiscal policy changes, help to solve one of the Arab world’s biggest problems: job creation.

A more level playing field could spur the growth of small and medium-sized firms, which according to a World Bank study contribute only 20 percent of the region’s gross domestic product but employ 70 to 80 percent of its work force.

These firms could in turn create the tens of millions of new jobs that the Middle East and North Africa, with 65 percent of their 355 million people currently below the age of 25, will need in the next decade to avoid social disaster.

“There is no chance that the jobs needed in the years to come are going to come from government or from large businesses, because they don’t generally generate jobs. So it all has to come from entrepreneurs and new companies,” said Darin Rovere, president of Amman-based Sustainability Excellence, a management consultancy.

He said there were already signs that the Arab Spring was encouraging the growth of a new group of young, entrepreneurial businessmen.

“I think it’s exploding around us. These are all kids, young kids. It’s tech-related and you look at their ideas…and so many people just did not feel empowered or a sense of active citizenship. They are feeling different and feel an opportunity now,” said Rovere.

Fayyad at Oasis 500 agreed: “The desire to launch businesses is stronger than before and as far as start-ups and new companies go, private sector entrepreneurs are seeing more opportunities. More closed systems are now open.” (Additional reporting by Jessica Donati in Istanbul; Editing by Andrew Torchia)

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