World Economic Forum On The Middle East 2007

World Economic Forum on the Middle East Putting Diversity to Work Dead Sea, 18-20 May 2007

Report

This publication is also available in electronic form on the World Economic Forum website at the following address: World Economic Forum on the Middle East report: http://www.weforum.org/summitreports/middleeast2007 (HTML) The electronic version of this report allows access to a richer level of content from meeting, including photographs, session summaries and videos of selected sessions. The report is also available as a PDF: http://www.weforum.org/pdf/summitreports/middleeast2007.pdf (PDF) Other specific information on the World Economic Forum on the Middle East, Dead Sea, 18-20 May can be found at the following links:

Meeting News Session Summaries Photographs Programme Interviews Partners Videos

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REF: 050607

Contents

Page 2 Preface Page 4 Summary Page 6 Industries of the Future Page 10 Peace, Stability and International Relations Page 14 Society and Change Page 18 Putting Diversity to Work in the WorkSpace Page 21 Acknowledgements

2 | World Economic Forum on the Middle East

Preface

The World Economic Forum Annual Meeting in Davos in January warned of the increasingly “schizophrenic” global economy, with strong growth being threatened by sharp imbalances and high risks. The same characterization could be applied to the Middle East in this crucial year for the region. An unprecedented and sustained oil boom is being leveraged to bring about dramatic growth and development, focused in the GCC countries, but spilling across much of the region. And yet, this astonishing economic success story is playing out in the shadow of, and often in close proximity to, the staggering violence in Iraq, a breakdown of law and order in the Palestinian territories and the growing tensions concerning Iran. How can we understand and reconcile these two faces of the Middle East? What are the current risks mitigation strategies being pursued by the regional and global leadership? How can the diversification of the region’s economies be better understood? How can cultural, national and religious diversity be turned from a source of tension into a source of strength? Such questions were at the heart of the discussions during this year’s World Economic Forum on the Middle East, which took place under the theme “Putting Diversity to Work”. The record number of participants themselves encapsulated this theme, being drawn from 56 countries, and including government, business, civil society and religious leaders, and youth. The programme was structured around three sub-themes: Industries of the Future; Peace, Stability and International Relations; Society and Change. The rapidly changing business environment in the region was reflected in a series of sessions that focused on the emerging high-growth and high-potential sectors. These include Islamic Finance, Insurance, Green Energy and IT. The discussions offered an insight into how the economies of the Middle East might look in 10-15 years time, as oil reserves diminish and diversification becomes key to economic survival, as it is already in many parts of the region. How to diversify successfully, led by the private sector, remains an important question for the region. The meeting took place against the background of renewed violence in the Palestinian Territories to the West, and continuing bloodshed in Iraq to the East. Jordan has arguably more at stake in promoting peace and stability than any other country in the region. As His Majesty King Abdullah II mentioned in his opening address: “We, in Jordan, are doing all we can to build the momentum for peace. We know success is not, and will not be, easy. But we also

know peace is attainable.” His Majesty paused the question that will be at the centre of attention for the coming decade: “What about the day after peace?” asked H.M. King Abdullah Ibn Al Hussein of the Hashemite Kingdom of Jordan These words resonated through all of the discussions that took place at the Dead Sea. The Forum fulfilled its purpose as a neutral platform for dialogue at a particularly sensitive time for the region. The participation of the Iranian government in discussions on Iraq and other issues at a senior level was a significant breakthrough. Senior Israeli and Palestinian representatives discussed the immediate needs of the situation on the ground. And the US was represented by a delegation of Senators and Congressmen who were offered the chance to exchange views face to face with leaders from the region. Learning to live together in a diverse region applies to the internal workings of societies in the Middle East as much as it does to international politics. The importance of education and the role of youth was once again emphasized. While the establishment of the Sheikh Mohammed Bin Rashid Foundation with a US$ 10 billion endowment took the headlines, important work was also advanced at the grassroots level through the active participation of organizations such as Injaz and groups of Arab students from across the region. Participants came away not only with a sense of optimism for the region, but also with the awareness of the need for sustained commitment to progress. Never has the Forum’s role in bringing communities and countries together, promoting understanding, and celebrating diversity been more vital for the future of the Middle East. The World Economic Forum would like to thank the CoChairs of the meeting: Hans-Paul Bürkner, President and CEO, The Boston Consulting Group; Fadi Ghandour, President and CEO, Aramex International; Khaldoon Al Mubarak, CEO and Managing Director, Mubadala Development Company; Saeed Al Muntafiq, Executive Chairman, Tatweer; Linda Rottenberg, Co-Founder and CEO, Endeavor Global; R. Seshasayee, Managing Director, Ashok Leyland; Sir Martin Sorrell, Group Chief Executive, WPP. Sherif El Diwany Director, Middle East

Daniel Davies Associate Director, Middle East

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Executive Summary

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I see the World Economic Forum on the Middle East as signalling to the world that the leaders from the region are ready to take their fate into their own hands. Klaus Schwab, Founder and Executive Chairman, World Economic Forum

The World Economic Forum on the Middle East returned to its home in Jordan, where the meeting was first held four years ago. More than 1,200 business, government and civil society leaders from 56 countries convened by the shores of the Dead Sea to discuss how to turn the region’s diversity – long a source of conflict and confusion – into a powerful advantage to achieve peace, stability and growth. Jordan’s King Abdullah Ibn Al Hussein called on participants to begin thinking about “the day after peace” when the Middle East will need to address such pressing issues as water management, infrastructure development and, most importantly, the creation of jobs for the 200 million people of the region who are under the age of 24. “I urge you to start the dialogue, a dialogue of action, that can inspire and lead our region forward,” the King said. “I urge you to ask yourselves: what about the day after peace?” Participants took His Majesty’s profound challenge to heart. In sessions that focused on industries of the future – private equity, technology, Islamic finance, renewable energy – they discussed how the Middle East could diversify its economies and create new wealth-generating opportunities beyond oil. Participants also examined the social changes playing out in the region, particularly those driven by the burgeoning ranks of young people, the emergence of entrepreneurs and the empowerment of women. By focusing on the future and the great potential of the days after peace, participants put the political issues – the lingering disputes and the seemingly intractable conflicts – in proper perspective. These still pose tremendous challenges of course but if there is the will and desire to achieve what all the people of the Middle East want, then they can be surmounted. Concluded Klaus Schwab, Founder and Executive 4 | World Economic Forum on the Middle East

Chairman of the World Economic Forum: “I see the World Economic Forum on the Middle East as signalling to the world that the leaders from the region are ready to take their fate into their own hands.” They must. While dialogue can take time, the region does not enjoy that luxury. The plain fact is that across the region, people are dying from needless violence, destruction and disease. Action is of the essence. As King Abdullah put it: “This is our year of opportunity – opportunity to end violence, opportunity to make peace, opportunity to build the regional economic powerhouse of tomorrow. The future begins here and now.” The theme of the 2007 World Economic Forum on the Middle East was “Putting Diversity to Work”. Sessions and workshops were organized under three subthemes: Industries of the Future; Peace, Stability and International Relations; and “Society and Change”. Industries of the Future The Middle East is at an inflection point as several business trends are reshaping the economies of the Middle East. These include the growth of the Internet, the expansion of private equity investment, and the emergence of entrepreneurs who are driving diversification away from oil. • The future of the Middle East will depend on its people not on its oil. The key to the region’s success will be the creation of new jobs for the millions of young people entering the workforce. The region will need entrepreneurs and small companies to promote the growth of new, dynamic industries. • Educational reforms are essential to programme in important socioeconomic change that reduces the dominance of governments and family-run conglomerates.

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I urge you to ask yourselves: what about the day after peace? H.M. King Abdullah Ibn Al Hussein of the Hashemite Kingdom of Jordan

• The current oil boom, while generating spectacular wealth and swelling government coffers, is also fuelling the region’s transformation. Investment is coming into the region, not flowing out of it as in the past. • But many of the new jobs being created are lowskilled and labour-intensive, while too much new investment is going into real estate. The Arab world’s commercial culture remains stunted, based for the most part on patronage rather than merit. • The growth of information technology, private equity investment and Islamic finance could push economies in the Middle East to become more efficient and more equitable. Peace, Stability and International Relations It is impossible to discuss the Middle East without addressing its thorny politics. The Arab-Israeli conflict, the infighting among Palestinians, the civil strife in Iraq and Lebanon, and other clashes in the region have bolstered perceptions that the Middle East is in turmoil. • The Arab League’s reaffirmation of the Arab peace initiative in Riyadh, Saudi Arabia last March, signals a fresh attempt by Arab nations to offer a unified proposal for settling their conflict with Israel. An Israeli response could lead to progress in negotiations. • The emergence of Iran as a more influential player in the region may usher in a call for a comprehensive security regime that reflects the new balance of power. • The uncompromising political posture of paramilitary groups such as Hamas and Hezbollah pose enormous challenges to governments and peace negotiators on all sides of the Arab-Israeli conflict.

• Time is of the essence. If conflict continues, moderate voices will lose ground, allowing extremists to gain popular support. • The Middle East must look beyond its conflicts and disputes and consider plans and ambitions for the crucial days after peace. The region must turn its diversity into an advantage and follow the path of success that many emerging nations in Asia have followed. Society and Change Social change in the Middle East has often been undermined by fundamentalism and even extremism. To secure its future in the world of globalization, the region must progress towards more openness, tolerance and freedom. • The Middle East cannot become economically open while remaining socially closed. With a young population, economic inclusion and social empowerment of women, youth and those of diverse cultural backgrounds are critical goals. • All societies in the region must set themselves free from dogma and religious radicalism. • Businesses must play a more active role in defending pluralism. • Business, government and civil society actors should make fuller use of the region’s indigenous leadership to empower its women and its youth. • Greater investment in education and initiatives to support youth are essential to create new opportunities and promote the social transformation of the region.

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Industries of the Future

Rasheed Al Maraj, Governor of the Central Bank of Bahrain

The rapid growth of Islamic finance is just one of several business trends reshaping the economies of the Middle East. The explosion of Internet-enabled cellular phones among the region’s predominantly young population, as well as the disciplines imposed by private equity investors, is fuelling the rise of an Arab entrepreneur to challenge the dominance of the oil sheikh. “The Middle East is at an inflection point,” said Shirish Saraf, Managing Director at Abraaj Capital Limited, a private equity firm based in the United Arab Emirates. “The first was during World War I when the region’s boundaries were defined. Today we’re looking at an inflection point where social and economic change is going to take centre stage.” That the Middle East must diversify away from oil is no secret. “The future of this region will not depend on oil,” said Rachid M. Rachid, Minister of Trade of Egypt. “Oil will be the curse of this region; the future of this region will be its people.”

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If the Middle East is going to play a role consistent with its wealth, it needs to employ some of the techniques that have been employed by private equity in the West and make its companies and economies more efficient. If it fails to do so, then I’m afraid the Middle East will not play the role it deserves to play in the 21st century economy.

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The role of Islamic banking is to create value in society. It’s about venture capital, about making financing business opportunities into more meaningful economic activities.

David M. Rubenstein, Co-Founder and Managing Director, Carlyle Group, USA

More specifically, people with jobs. Renewable energy, tourism, call centres: all have been mentioned as possible alternatives for creating the 100 million jobs the Middle East needs by 2020. Whatever industries take root, the region will need entrepreneurs and small companies to make them grow. “We have to really have a strong focus on entrepreneurship, on creating the infrastructure for innovation,” said Gordon Graylish, Vice-President, Intel Europe, Middle East and Africa, Intel Corporation (UK), United Kingdom. Educational reforms offer a politically palatable way to programme in such socio-economic change. But the next generation of skilled job entrants is destined for disappointment if reforms are not accompanied by changes in the way information and capital flow. In the Middle East, this means reducing the dominance of governments and family-run conglomerates.

This transformation is already underway thanks to the region’s current economic boom. High oil prices and growing trade are generating spectacular wealth. Unlike in the last oil boom, much of that wealth is staying in the region, swelling government coffers and generating jobs that have pulled the unemployment rate down to 11% from 14% five years ago. “In the past, investment was going outward, but now investment is coming inward,” said Khaldoon Al Mubarak, Co-Chair of the World Economic Forum on the Middle East; Chief Executive Officer and Managing Director, Mubadala Development Company, United Arab Emirates. “It’s a dramatic change.” But even as average incomes have risen by 75% across the Middle East in the last five years, progress has been uneven. Many of the new jobs being created are low-skilled, labour-intensive jobs. Too much new investment is going into real estate. Inflation is high and inequities are growing. The Arab world’s commercial culture remains stunted. For many jobseekers, therefore, the civil service still offers the best option, reinforcing a sense of entitlement and sapping the region’s work ethic. “This whole notion of corporate culture requires the creation of an Arab cultural value system based on meritocracy,” said Saeed Al Muntafiq, Co-Chair of the World Economic Forum on the Middle East; Executive Chairman, Tatweer, and Chairman of the Board, Young Arab Leaders, United Arab Emirates, “rather than where you come from and who you are.”

Information technology has proved a great leveller of these kinds of divisions. And in the past six years, the Middle East has experienced among the world’s fastest rates of Internet adoption. But overall Internet usage remains below 20% and most Internet users are under 25 years of age. Arabic content on the Web is limited and governments routinely block content they deem politically or religiously objectionable. Some call for governments to promote Internet adoption by requiring students to have a personal computer or by subsidizing access. Others say the region is likely to bypass the PC altogether in favour of Internet-enabled cellular phones. In some countries, cellular penetration is already over 100%. “We see a leapfrogging taking place in faster growing markets through mobile technology,” said Sir Martin Sorrell, Co-Chair of the World Economic Forum on the Middle East; Group Chief Executive, WPP, United Kingdom. Islamic Banking Market Share by Country/Region GCC countries expected to play prominent role in Islamic banking

Islamic banking as percentage of all banking

Patronage networks must be supplanted by competitive financing so that wealth is allocated more efficiently and the disenfranchised are given opportunities to become part of a new middle class.

60%

50

40

30

20

10

0 GCC

2000

Bangladesh

2005

Pakistan

Malaysia

Indonesia

2010F

Source: Standard Chartered

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Khaldoon Al Mubarak, Co-Chair of the World Economic Forum on the Middle East; Chief Executive Officer and Managing Director, Mubadala Development Company, United Arab Emirates

Another catalyst for change comes from the private equity funds being lured to the Middle East by the latest boom. Once mistrusted as corporate raiders from the West, private equity firms found few opportunities in a region where families and governments were loath to sell for fear of losing face. Now governments are more receptive to privatization. And family-run conglomerates can use private equity firms to spin off non-core assets or navigate the transition from one generation of ownership to the next. Whatever the company, private equity firms can help it introduce more professional management or expand into unfamiliar markets.

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We see a leapfrogging taking place in faster growing markets through mobile technology.

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In the past, investment was going outward, but now investment is coming inward. It’s a dramatic change.

Sir Martin Sorrell, Co-Chair of the World Economic Forum on the Middle East; Group Chief Executive, WPP, United Kingdom

Private equity has another advantage: unlike bank financing, its direct investment approach jibes well with Muslim restrictions on usury. Shariah forbids paying or earning interest, so conventional banking has been off-limits to many Muslims. In the past decade, though, the advent of savings accounts and bonds that yield returns without interest has created a US$ 400 billion industry growing roughly 20% a year. Now Islamic institutions are also moving into private equity. Islamic Nations' Stock Market Returns The Saudi market has had some success but gave back gains in 2006

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700

Index (100=Jan 2003)

Most importantly, private equity firms provide a source of funding whose only prejudice is profitability. “If the Middle East is going to play a role consistent with its wealth, it needs to employ some of the techniques that have been employed by private equity in the West and make its companies and economies more efficient,” said David M. Rubenstein, Co-Founder and Managing Director, Carlyle Group, USA. “If it fails to do so, then I’m afraid the Middle East will not play the role it deserves to play in the 21st century economy.”

800

600 500 400 300 200 100 0 Jan 2003

Apr 2003

Jul 2003

Oct 2003

Jan 2004

Apr 2004

Jul 2004

Oct 2004

Jan 2005

Apr 2005

Jul 2005

Saudi Arabia (Tadawul All Share Index) Malaysia (KLCI composite) Indonesia (Jakarta SE Composite)

Source: Analysis based on data from Datastream and Bloomberg

Oct 2005

Jan 2006

Apr 2006

Jul 2006

Oct 2006

The Gulf Cooperation Council (GCC) countries and the World: Scenarios to 2025

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The future of this region will not depend on oil. Oil will be the curse of this region; the future of this region will be its people. Rachid M. Rachid, Minister of Trade of Egypt

Islamic finance is also promoting the Muslim middle class by popularizing Islamic insurance products that help free savings for more productive uses. Taken together, Islamic finance is helping to allocate capital more efficiently in the Muslim world. By hewing to Koranic virtues of enhancing social equity, therefore, Islamic finance stands to level the playing field in a more constructive way than the jihad ever could. “The role of Islamic banking is to create value in society,” said Rasheed Al Maraj, Governor of the Central Bank of Bahrain. “It’s about venture capital, about making financing business opportunities into more meaningful economic activities.”

The GCC Countries and the World: Scenarios to 2025 Gulf Cooperation Council (GCC) countries are reaping benefits from oil and gas reserves that have generated considerable wealth from 2001 to 2007. Yet, with this wealth comes a host of challenges that could divert GCC countries off the path of sustainable prosperity. A new World Economic Forum report examined these internal and external pressures and presented the results in three scenarios – not predictions – representing possible paths for the GCC through to 2025. The scenarios are the utopian vision of the Fertile Gulf, the more realistic Oasis (with its built-in regional instability) and the grim Sandstorm. Participants in the World Economic Forum on the Middle East examined The GCC Countries and the World: Scenarios to 2025 in an interactive session. They were asked the same two questions which formed the basis of the study: 1) Can the GCC develop and implement a vision to steer itself towards economic diversification and sustainable prosperity? and 2) Can the GCC integrate effectively into the global context? The answers to these questions were examined against the backdrop of regional instability, and governance and reforms in the economies of Bahrain, Saudi Arabia and United Arab Emirates. From the best-case to worst-case scenario, they considered education reform fundamental to address the GCC’s weak skill base and its low level of R&D and innovation, as well as its dependence on oil. They also analysed the challenge of regional instability: How to best avoid pitfalls as the GCC passes through a potential “chaotic transition to uncertainty.” Khaldoon Al Mubarak, Co-Chair of the World Economic Forum on the Middle East; Chief Executive Officer and Managing Director, Mubadala Development Company, United Arab Emirates, said that GCC education reform will determine the region’s future. There is a concerted effort to create a transparent and competitive economy, noted H.E. Sheikh Mohammed Bin Essa Al Khalifa, Chief Executive, Bahrain Economic Development Board, Bahrain, and Young Global Leader. “Across the region, strong efforts are pushing diversification and investment. The more we link with the international economy, the more it will reduce our security concerns. We need to compete together as the GCC to show the world we don’t live in a war zone. The purpose of development is to improve people’s quality of life. Education gives people the tools to adapt and to make the right decisions to get there,” he said. The report is the result of an 18-month research process involving over 300 experts from the Gulf countries, and beyond, led by the World Economic Forum in partnership with the Economic Development Board of Bahrain, the Executive Affairs Authority of Abu Dhabi and the Olayan Financing Company in Saudi Arabia.

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Peace, Stability and International Relations

Amre Moussa, Secretary-General, League of Arab States, Cairo

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Iran was and is always a part of the solutions to the crises in the region. We are not talking about the elimination of any nation or country.

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Arab countries have adopted a unanimous and collective initiative offering the hand of peace to Israel.

Manouchehr Mottaki, Minister of Foreign Affairs of the Islamic Republic of Iran

It is impossible to consider the future of the Middle East without delving into its thorny politics. Passions run high on all sides. This was certainly evident at the World Economic Forum on the Middle East where some sessions were marked by fervent debate over the situation in the Palestinian Territories, the role of Iran, and US policy and management of the war in Iraq. Yet, even as participants amply demonstrated the value of open and constructive if often impassioned discussion, violent conflicts raged across the region – in Gaza, in Iraq, in Lebanon. Bloodshed too is not in short supply in the Middle East.

Amid the gloom and despair, can the Middle East resolve its conflicts and achieve stability? Wishful participants put a great deal of hope in the Arab peace initiative that was based on Saudi Arabia’s proposal in 2002 and reaffirmed by the Arab League at its summit in Riyadh in March 2007. The proposal calls for Israel to withdraw from disputed territories, to recognize an independent Palestinian state with East Jerusalem as its capital, and to agree to a “just solution” for Palestinian refugees. In exchange, the 22 Arab League countries would recognize and normalize relations with the state of Israel.

There were many opportunities for lively diplomacy at the Dead Sea – the gathering of the G11 middleincome developing nations, an informal meeting of political and economic leaders, and various sideline bilaterals that are part of any World Economic Forum meeting. Still, it was evident that the region’s internecine politics remain its biggest challenge. The Arab-Israeli conflict on all its fronts, the infighting among Palestinian factions, the civil strife in Iraq since the American-led invasion, and the Lebanese government’s clashes with militant Islamist groups – all these troubles make graphic headlines around the world, bolstering perceptions that the Middle East is in turmoil, if not chaos.

“Arab countries have adopted a unanimous and collective initiative offering the hand of peace to Israel,” said Amre Moussa, the League’s SecretaryGeneral. Israeli Vice-Prime Minister Shimon Peres, who was on a plenary panel with Moussa, announced that Israel would respond “as soon as possible” to the Arab plan. “We are ready to sit down with whomever you want – the Saudis, the Arab League – and we shall try to air out the differences between us,” Peres declared. But, he added, “you cannot send us a document and say take it or leave it.”

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Shimon Peres, Vice-Prime Minister of Israel

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If we leave things in this region to conflict and war and try to resolve issues through guns, then this region is doomed, and we will go through the 21st century in darkness.

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We are ready to sit down with whomever you want – the Saudis, the Arab League – and we shall try to air out the differences between us.

Saeb Erekat, Head of Negotiations Department, PLO, Palestinian National Authority, Palestinian Territories

There were other pointed exchanges that highlighted the urgency of a substantive dialogue to find the course to stability throughout the region. Some expressed concern over the role of Iran and more specifically its position on a two-state solution to the Palestinian-Israeli conflict, Tehran’s influence with militant groups in Iraq and other countries, and its relations with its neighbours across the Gulf were also matters of strenuous debate. “We want neither an American hegemony nor an Iranian hegemony,” said Abdulaziz O. Sager, Chairman of the Gulf Research Center in the United Arab Emirates. “Iran is a country without aggression,” Iranian Minister of Foreign Affairs Manouchehr Mottaki maintained. “Iran has always been part of the solution in the region.” At the meeting, Mottaki proposed that Gulf countries join in a regional security arrangement. He also said that Iran is willing to share its atomic energy technology with its neighbours to allay fears that the nuclear programme is for anything other than civilian purposes. Chief Palestinian negotiator Saeb Erekat put the stark challenge as passionately as anybody. Warning that the prolonged conflict was tearing apart the Palestinian social fabric, he stressed that the lack of progress in the peace negotiations was quickly and severely undermining the authority and support of

moderates such as Palestinian Authority President Mahmoud Abbas. “Get rid of the occupation if you don’t want to see Al Qaeda and extremism,” Erekat advised. “If we leave things in this region to conflict and war and try to resolve issues through guns, then this region is doomed, and we will go through the 21st century in darkness.” But that grim fate need not be inevitable. Jordan’s King Abdullah Ibn Al Hussein pointed out one powerful and irrefutable truth: the people of the region want peace. He proposed a bolder, more compelling approach to solving the decades-old political puzzles that have prevented peace. “Israelis and Palestinians from all walks of life tell us they need and want an end to violence,” said King Abdullah. “There is a new international will to resolve the crisis; it is no longer just a regional problem. It is in the interest of this entire region – and indeed the world – that we succeed. As we look to that day, we need to begin asking a new question: what about the day after peace?”

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Hamid Karzai, President of Afghanistan

Indeed, it is perhaps by looking beyond peace that the region will achieve it. Peace should not be an end but a beginning. And neither should its elusiveness be an obstacle to social and economic progress. New industries and enterprises are emerging that are driving the diversification and restructuring of economies and creating new opportunities for entrepreneurs and young people who want change and openness rather than the status quo and stubborn radicalism. These developments are the main source of the optimism that led many participants to predict that, despite the conflicts, the Middle East is on the verge of renewal. Rather than dwell on the clashes that arise from diversity, they contend, many are turning diversity to their advantage. Meeting Co-Chair Sir Martin Sorrell, Group Chief Executive, WPP, United Kingdom, reckoned that the Middle East has not reached the point where the momentum of economic progress is irreversible. China, India and other emerging markets such as

Our Palestinian brothers have to stop fighting not just with each other; I would also call them to stop fighting Israel with military methods. It is a shame that we point our wrath and anger at our fellow Arabs and Muslims in a more deadly manner than we do at our enemies. H.R.H Prince Turki Al Faisal Al Saud, Chairman, King Faisal Center for Research and Islamic Studies, Saudi Arabia

Russia and Brazil have achieved such a take-off, with no way to go but forward, he argued. “In the Middle East, I’m not sure we’ve got there yet.” Sorrell’s prescription: more optimism and ambition. “It’s about will and desire,” he concluded. In much of Asia, while enmities from history may still lurk in every corner, the will and desire for economic growth, peace and order, and the eradication of poverty have for the most part overwhelmed the poison of politics. Can the Middle East follow the same path to success?

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For the first time, the Arabs have taken control of the peace agenda. The Israelis should understand that the Palestinians do not represent a threat to them. It is the Arab states that hold the key to security in Israel.

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We could not have been able to achieve what we have in Afghanistan in the last five years without the presence of the international community and the cooperation of our neighbours

Marouf Bakhit, Prime Minister and Minister of Defence of the Hashemite Kingdom of Jordan

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COMMITTED TO IMPROVING THE STATE OF THE WORLD

Middle East@Risk

A Global Risk Network Briefing in collaboration with the Gulf Research Center

Middle East@Risk report released at World Economic Forum on the Middle East

World Economic Forum Launches IsraeliPalestinian Business Council

The Middle East is a focal point for global risk and its mitigation. This is true of geopolitical risks, but also other risks that define our era – energy security and climate change – and of risks relating to global economic imbalances. Participants examined the impact of global risks at the Middle East meeting. The new Middle East@Risk report, released by the Forum’s Global Risk Network in collaboration with the Gulf Research Center, provided the basis of the discussion at the Dead Sea.

The World Economic Forum launched the Israeli-Palestinian Business Council in a special ceremony at the World Economic Forum on the Middle East at the Dead Sea. The Council, consisting of some of the foremost business leaders in Israel and Palestine, will advance the relationship between the two business communities and, ultimately, assist the region to move towards durable peace and coexistence.

The report looks at potential consequences of several major global risks on the Middle East and deep dives into four: a global asset price collapse, a Chinese economic hard landing, a retrenchment from globalization, and geopolitical and geostrategic instability. None of these are predictions, but plausible scenarios for the future.

“The World Economic Forum has always believed that social progress goes hand in hand with economic development – the two are inextricably linked. Bringing business communities together in this region is a crucial step in helping to bring about and cement peace in the longer term,” said Sherif El Diwany, Director and Head of Middle East at the World Economic Forum.

While a global asset price collapse might negatively impact commodities markets, Mustapha K. Nabli, Chief Economist and Director, Middle East and North Africa, World Bank, Washington DC, argued that it is unlikely that such a collapse would be precipitous, nor would it have a significant impact on domestic markets. Domestic markets in the region would even survive if the dollar collapsed. However, increasing inequality between and within MENA countries poses a real but under-observed threat. China’s economic health impacts that of the region as a whole, said Abdulaziz O. Sager, Chairman, Gulf Research Center, United Arab Emirates, and others. The panel agreed that China and India’s growth, along with increasing oil consumption, is good for the MENA countries. But there was worry over a sudden slowdown hurting the region. Certainly, the geopolitical problems posed by the conflicts in Iraq and the Middle East, along with US-Iranian tension, threaten to stunt MENA growth. Mahmood Sariolghalam, Professor of International Relations, National University of Iran, Islamic Republic of Iran, downplayed his country’s extraterritorial intentions and claimed that the so-called “Shia Revival” is often overestimated. Any tension with the US, he claimed, would largely be played out in Iraq, and not extended to other countries in the region.

“We are mindful of the deep rift and difficulties governing the relationship between Palestinians and Israelis. However, the business community has a lot at stake if a political stalemate continues,” said Walid Najjab, Palestinian Co-Chair of the Business Council. “Our people expect us to continue investing in our national economy and create more jobs; we have social and economic responsibilities, we cannot ignore our responsibilities, and we will highlight these responsibilities to our partners in the Council and the international community at large via the World Economic Forum,” added Najjab. “The business community in Israel is sensitive to all issues in our environment. As business people, we are not dealing with political issues and solutions, yet we feel an urge to be positive elements of change and hope. If the World Economic Forum helps us to continue to be more active on the world stage, our message should not then be ignored or belittled,” said Amos Shapira, Israeli Co-Chair of the Business Council. The Business Council consists of 10 Founding Members from both the Palestinian and Israeli business communities. It is expected to attract a wider membership base of business leaders from both communities in the weeks and months ahead.

The region’s primary risk is a “triple deficit,” said Sundeep V. Waslekar, President, Strategic Foresight Group, India. A deficit of democratization combines with a deficit of development and all lead to a dignity deficit, often manifested in instability and violence.

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Society and Change

H.M. Queen Rania of the Hashemite Kingdom of Jordan, Member of the Foundation Board of the World Economic Forum

Too often in the Middle East and North Africa, societal change has met with resistance, and resistance has quickly devolved into ideological radicalism. For the region to enjoy peace and prosperity in an increasingly interconnected world, it must progress towards openness, tolerance and freedom. “It is not enough to look over the development indicators each year and to exclaim in surprise at the region’s situation and the fact that it ranks among the lowest positions at the international level,” said H.H. Sheikh Mohammed Bin Rashid Al Maktoum, VicePresident and Prime Minister of the United Arab Emirates, Ruler of Dubai. “We have to arm ourselves with courage and work quickly and seriously, to tackle the reasons that put our region behind the rest of the world and our era.” The Middle East cannot become economically open while remaining socially closed. Most of the region’s people are under age of 30, most are female and, increasingly, many are immigrants. Therefore, the economic inclusion and social empowerment of women, youth and those of diverse cultural backgrounds remain vital goals. “We are on the brink

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It is not enough to look over the development indicators each year and to exclaim in surprise at the region’s situation and the fact that it ranks among the lowest positions at the international level. We have to arm ourselves with courage and work quickly and seriously, to tackle the reasons that put our region behind the rest of the world and our era.

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Multiculturalism needs more than a nudge, and multinational corporations are well positioned to give a shove. Doing so is not just morally correct – although it is – but is also profitable.

H.H. Sheikh Mohammed Bin Rashid Al Maktoum, VicePresident and Prime Minister of the United Arab Emirates, Ruler of Dubai

of new Middle East – new, young, entrepreneurial, empowered,” said Khaldoon Al Mubarak, Co-Chair of the World Economic Forum on the Middle East; Chief Executive Officer and Managing Director, Mubadala Development Company, United Arab Emirates. “The social fabric is changing.” Yet, many changes still need to occur. Open societies begin with open minds. The converse of openness, radical Islam, at times seems ascendant. While some participants drew from Islam’s history to prove that the faith can accommodate progressive thought; others called on leaders to resist the lure of religious nationalism. “If society is not secular, it is unhealthy for religion,” said David Rosen, President, International Jewish Committee for Interreligious Relations, USA. “If you do not have freedom of choice, then the religion itself is not worth the principles upon which it was

Youth employment lags in the Middle East and North Africa 1995

2005

80% 70 60 1995 2005

50 40 30 20 10

East Asia

Sub-Saharan Africa

South-East Asia and the Pacific

World

Latin America/Caribbean

0

Developed Economies and EU

“It’s happening so fast, it’s breathtaking,” said Nimah I. Nawwab, Poet and Writer, Saudi Arabia; Young Global Leader. “Not many people know about it; it is not being reported in the media. But it’s happening.”

Youth Employment is a Global Issue

South Asia

Business, government and civil society actors must also make fuller use of the region’s native labour pool. MENA countries have the world’s highest rates of female and youth unemployment. According to an Al Arabiya survey, 71% of Arab youth are forced to look abroad for job opportunities. For the region’s women, 40% of whom are illiterate, development indicators have recently inched forward – with the notable exception of Iraq; but retrograde gender attitudes stunt real progress. Still, a few brave women hold out hope – and some already see change.

As was the case at the 2006 World Economic Forum on the Middle East, participants expressed consensus that the MENA youth bulge represents the largest challenge – and the biggest hope. 180 million young people trump even the Gulf’s hydrocarbon reserves as the region’s most impressive – and volatile – resource. “They are the new roots of everything that is growing in the region and we need to involve them in everything we do,” said H.R.H. Princess Lolwah Al Faisal, Vice-Chair of the Board of Trustees and General Supervisor, Effat College, Saudi Arabia. Sadly, Al Faisal added, “young people are looking at death instead of life.”

Central and Eastern Europe (non-EU) and CIS

The economic benefits of inclusive societies are manifest, and the private sector must play an active role in defending pluralism. “Multiculturalism needs more than a nudge, and multinational corporations are well positioned to give a shove,” said H.M. Queen Rania of the Hashemite Kingdom of Jordan, Member of the Foundation Board of the World Economic Forum. “Doing so is not just morally correct – although it is – but is also profitable.”

Saeed Al Muntafiq, Co-Chair of the World Economic Forum on the Middle East; Chairman, Tatweer; Chairman of the Board, Young Arab Leaders, United Arab Emirates

Middle East and North Africa

founded.” Olivier Roy, Senior Researcher, Centre National de la Recherche Scientifique (CNRS), France, agreed: “In a pluralistic society, social equality should be based on citizenship.”

Youth employment as a percentage of yourth population (aged 15-24)

David Rosen, President, International Jewish Committee for Interreligious Relations, USA

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Optimism, urgency and a sense of responsibility are sentiments I walk away with. This is our opportunity to take this optimism and try to do something about it.

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If society is not secular, it is unhealthy for religion.

Source: ILO

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The biggest challenge of all will be to fill the predicted deficit of 80-90 million jobs over the next two decades. Increasingly, those young people who have the ability to leave go to the West; those who cannot emigrate are often left in hopeless poverty and explosive frustration. “Young people want to meet their basic needs, like buying a house, getting married: but even this is not being achieved,” said Abdullah Al Fouzan, University Professor, King Saud University, Saudi Arabia. “We are facing a time bomb.” The World Economic Forum on the Middle East in Jordan yielded several thoughtful strategies – and a pair of royal commitments – to harness the potential of the region’s youth. While consensus emerged that regional educational facilities need to be improved and made more business-friendly, many participants called for the next step: connecting young people with jobs that keep them at home. Rick R. Little, President and Chief Executive Officer, ImagineNations Group, USA, explained one such model in South Africa. There, his organization, through local partners, has set up what he called “one-stop shops” throughout the country, where young people can be advised by a counsellor, and assisted in finding suitable jobs. Young entrepreneurs can even access microcredit. Such a programme, Little said, would be ideal for the Middle East, where a survey showed employment is youth’s top concern. Putting a good deal of his money where participants’ mouths were, His Highness, Sheikh Mohammed bin Rashid Al Maktoum announced the establishment of the Mohammed Bin Rashid Al Maktoum Foundation. The US$ 10 billion dollar initiative – the largest of its kind in the Arab world – will fund research universities and centres, provide scholarships to worthy students, and support media and publishing in the region.

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Finally, closing the meeting, Bassem Awadallah, Director of the King’s office and Deputy Chairman, King Abdullah II Fund for Development, announced the creation of the King Abdullah II Award for Youth Accomplishment, which the King will first bestow when the Forum returns to the Dead Sea in 2009. “Optimism, urgency and a sense of responsibility are sentiments I walk away with,” concluded meeting CoChair Saeed Al Muntafiq, Chairman, Tatweer; Chairman of the Board, Young Arab Leaders, United Arab Emirates. “This is our opportunity to take this optimism and try to do something about it.”

Youth and Opportunity (% of population under 15) Yemen West Bank/Gaza Iraq Saudi Arabia Syria Jordan Oman Egypt Iran Libya Lebanon Bahrain Israel Qatar Kuwait UAE Source: The World Bank

48.7 46.1 41.4 39.1 38.3 38.0 37.2 35.2 32.6 31.3 29.6 29.2 27.9 26.6 26.1 25.8

Education and Youth With 180 million youth, the human reserves of the Middle East are even more impressive than the hydrocarbon reserves. Yet, to harness the potential of this resource, leaders stress that considerably greater investment in education and employment opportunities must be made. Two answers to these calls were made during the World Economic Forum on the Middle East at the Dead Sea. The first was the groundbreaking announcement by His Highness, Sheikh Mohammed bin Rashid Al Maktoum, VicePresident and Prime Minister of the United Arab Emirates and Ruler of Dubai. In a special address to participants, he launched the Mohammed Bin Rashid Al Maktoum Foundation, a US$ 10 billion initiative to promote human development and provide hope and opportunity by investing in education and the development of knowledge in the region. The Foundation will source and manage research programmes and centres and provide scholarships, leadership programmes and research grants. “The Foundation’s mission is to invest in knowledge and human development focusing specifically on research, education and promoting equal opportunities for the personal growth and success of our youth,” said His Highness.

The second answer was the creation of the King Abdullah II Award for Youth Achievements in the Arab World. “The award embodies His Majesty King Abdullah Ibn Al Hussein of Jordan’s vision to enhance the potentials of the Arab youth and support their innovations, excellence and creativity,” a Royal Court statement said. The first award will be presented to the winners at the World Economic Forum on the Middle East in 2009 at the Dead Sea. It will then be awarded on an annual basis. A board of trustees – including Klaus Schwab, Founder and Executive Chairman of the World Economic Forum; Khalid Toukan, Jordanian Minister of Education, Higher Education and Science Research; Arif Naqvi, ViceChairman and CEO of Abraaj Capital; Al Muntafiq, CEO of Tatweer Saeed; and Carly Fiorina, Chairman of the Fiorina Foundation – will determine the winner. Photo: http://www.pbase.com/forumweb/image/79002979 http://www.pbase.com/forumweb/image/78973712 OR http://www.pbase.com/forumweb/image/78973751

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Putting Diversity to Work in

WorkSpace

The WorkSpace – the workshop with a difference – draws out the collective intellect and creative capabilities of participants to explore concrete opportunities for improving the state of the world.

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What is in store for the day after peace in the Middle East?

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reason is not enough.

You have 50 million dollars in cash. Which idea will you invest in?

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What does it take to kick-start an entrepreneurial initiative in the Middle We need smart VCs East? Participants just as much as good addressed this question in the interactive entrepreneurs. WorkSpace session “Empowering Entrepreneurs”. Participants created new venture capital (VC) companies in their breakout groups before evaluating several business cases and making investment decisions. The viability, sustainability and industry of a business were the most popular criteria used by the VCs to evaluate potential investments. As a group, participants discussed the importance of the ecosystem of entrepreneurship, in particular the impact of entrepreneurs as role models and the signals that VCs send to society through the investment choices they make. The moment of great

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Among the highlights from the WorkSpace was the breakthrough experience of designing We have to be and filming a session fit responsible for what for television. The World we can do in our own Economic Forum, in space. I’ll go back and collaboration with BBC World, designed and try and do a bit more ran the workshop “A about making the world New Middle East – Is It Possible?”, which was a better place. facilitated by the BBC’s Main Presenter Nik Gowing. The session was filmed for future broadcast to the network’s 200 million viewers. In co-designing a WorkSpace session instead of the usual debate, BBC World encouraged the free flow of ideas and exchange among peers in an informal and uncensored environment. Gowing pushed participants beyond their comfort zone not only to imagine a Middle East of 2015 that would be steady and thriving economically, but also to explore the things they could do differently now to reach that goal. Participants worked in breakout groups to define their vision of the future of the region for 2015 in the political, economic and social arenas. After sharing their group work and engaging in a dynamic discussion with Gowing, participants agreed the unique process was worthwhile, highlighting that they appreciated having “a chance to dream a little and think of steps on how to implement the dream.”

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We have the ability to In a dynamic simulation exercise in hurry history and not the WorkSpace take 100 years to go session “Leadership in Diversity”, leaders somewhere. from business, politics and society explored the emotional dynamics of negotiations to gain insights into leading more effectively in a diverse world. Participants were divided into groups, or “clans,” and then entered into a negotiation to find a solution to save the world. The If in a silly game the representatives of each world explodes then clan vigorously we are in deep defended their positions, but after trouble. three rounds of negotiation, they failed to reach an agreement. During the debrief, participants analysed their experience from an emotional perspective, discovering the need to acknowledge and address not just feelings in conflict management but also the strategies that can help resolve conflicts In a negotiation, more effectively.

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At the World Economic Forum on the Middle East this year, participants in the WorkSpace were given the chance to think outside the box, stretch boundaries and “put diversity to work” in a series of four workshops. Participants were encouraged to explore new ways to approach some of the most pressing issues they face in the region: becoming better leaders amidst diversity, encouraging an entrepreneurial spirit, and nurturing the talent of tomorrow. They were also asked to envision the Middle East in 2015.

A High-Stakes Negotiation

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It is the year 2020 and the Middle East has the best education ecosystem in the world. In the highly interactive WorkSpace session “The Future of Talent”, business leaders, Our destiny depends education ministers, on strengthening educators and students engaged in a scenarioeducation in the driven exercise Middle East. designed to encourage new thinking on ways to improve education in the region. During the

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workshop, participants were thrown into the future and asked to imagine a time when the Middle East ranked the highest in the World Economic Forum’s Global Competitiveness Report on Education. Encouraged to “think big and dream,” participants worked in groups to describe this bright future from different perspectives of education levels and stages of development of the education system. The groups also reflected on possible ways to reach this future vision, discussing the main barriers and the strategies to overcome them. In the final group discussion, participants brainstormed the critical success factors required to move towards their vision for 2020. They Our future system agreed that a critical prepare a better milestone will be to overcome the challenges to citizen, a global the implementation of thinker. proposed strategies. By the end of the session, the group had bonded over their common passion for education, and together they strongly urged for a strong commitment, across the Arab world, of governments and other leaders to place education at the top of their agendas.

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surprise occurred when participants found out that the entrepreneur from one of the cases they evaluated was among them. His participation gave the Trying things out is group the unique important. Allow for chance to discuss the real implications of some things not to entrepreneurship in the work and then try region, complementing again. their experience during the scenario exercise.

will

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Acknowledgements

The World Economic Forum wishes to thank the following companies as Partners or Supporters of the World Economic Forum on the Middle East, Dead Sea, 18-20 May 2007:

Strategic Partners ABN AMRO Bank Bahrain Economic Development Board Booz Allen Hamilton BT The Boston Consulting Group CA Cisco Dubai Holding HP Intel Kudelski Group Lehman Brothers McKinsey & Company Merrill Lynch Microsoft Corporation Nike PepsiCo Saudi Basic Industries Corporation (SABIC) Siemens SK Group UBS WPP

Regional Partners Abraaj Capital Agility Alghanim Industries Arab Bank The Carlyle Group EFG-Hermes Emaar Properties National Bank of Kuwait The Olayan Group PADICO Saudi Oger

Meeting Supporters Alshaya Group Aramex International Consolidated Contractors Company (CCC) International Bank of Azerbaijan Orascom Telecom Holding

Official Carrier Royal Jordanian Airlines

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Contributors

Peter Torreele is Managing Director of the World Economic Forum. Sherif El Diwany is Director, Head of Middle East, at the Forum. The World Economic Forum on the Middle East was under his direct responsibility, with Daniel Davies, Associate Director, Global Leadership Fellow, Middle East; Denise Burnet, Principal, Head of Events and Meeting Coordinator; Amal Mbarki, Community Relations Manager, Middle East.

Samantha Tonkin, Senior Media Manager at the World Economic Forum worked with Wayne Arnold, Alejandro Reyes and Benjamin Skinner to produce this report. The World Economic Forum would like to express its appreciation to the summary writers for their work at the meeting. Session summaries are available at www.weforum.org. Associate Principal, Editing: Nancy Tranchet Design and Layout: Kamal Kimaoui, Associate Principal, Production and Design Photographs: Bashar Bakhit, Zahran Zahran, Atallah Mousa, Nader Daoud

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The World Economic Forum is an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas. Incorporated as a foundation in 1971, and based in Geneva, Switzerland, the World Economic Forum is impartial and not-for-profit; it is tied to no political, partisan or national interests. (www.weforum.org)