Outlook 2007: From Great to Good (page 4 of 4)

While it is theoretically possible that each country carves out a niche - for example, the more Arabian culture and eco-friendly tourism offering in Oman - it is a stretch to believe that all will be world leaders in these spaces.

What has also surprised us that countries have not really focused on being an energy-provider. This may sound strange given the reliance of the economies on oil and gas and in turn the world's reliance on the region's hydrocarbon reserves. But looking into other areas of presumed competitive advantage in the energy space - for example, solar power - to our knowledge has not been explored in any strategic manner.

Meanwhile, the above fits into the issue of technology accelerators. Clearly, one of the biggest risks facing this region is that the world wakes up one day to a technological breakthrough that means the world requires much less oil. Research into more ecologically-friendly sources of energy has been spurred by 1) much higher energy prices and 2) greater awareness of the damage being caused by increased hydrocarbon emissions.

While the consensus is that we are at least 15-20 years away from such a breakthrough, by their very nature such breakthroughs are very difficult to predict. Indeed, in 1994, arguably one of the greatest corporate leaders of our time, Bill Gates, commented that he saw 'little commercial potential for the Internet for at least ten years', three years before Amazon.com went public. We are clearly not experts as to when a significant, cost-effective alternative energy source will emerge. However, given the amount that is at stake (between 33-85% of GCC economies) then there are three strategies that make sense. First, make hay while the sun shines by maximising oil revenues. Second, diversify economies away from their reliance on the hydrocarbon sector - either in alternative energy or different sectors. Three, invest in alternative energy source research so that they can benefit from the value of the resultant patents and hedge against the Killer technology for the energy producers.

But there is hope. While many worry that the pace of reform is painstakingly slow, the flywheel and the doom loop concept suggests most successful reform takes time. Those launching a bold revolution 'almost certainly fail to make the leap from good to great', according to Collins. Thus, those who criticise the slow pace of reform, ourselves included, should realise that bringing everybody along with reform is crucial. Too rapid a transformation could create too wide a dispersion between winners and losers that could breed discontent.

Overall, the scorecard on the journey from Good to Great is mixed and there are many apparent holes that mean the road from Good to Great is far from assured. But the main constraint to making this journey may ironically be the thing that generally makes most analysts bullish about the region's prospects: high oil revenues. The words with which Collins opens Good to Great resonate deeply in this region: 'Good is the enemy of Great'.