Education's vital development role

It goes without saying that entrepreneurship and economic growth go hand in hand. But cultivating the elements of entrepreneurship is no simple task.

It is a fragile construct demanding innovation, leadership, determination and the confidence to take risks in charting new ground. It also requires a climate of political and social stability, and a large degree of regulatory flexibility to enable business to move with changing markets.

Perhaps the most important ingredient is education. The rise of economic powers throughout history, and indeed the pre-eminence of the Arab world in ancient times, can be traced to a corresponding expansion of the arts and sciences.

This critical relationship can be seen at the industry level. Stanford University in California is a critical talent pool for Silicon Valley, the global IT hub, while India's position as an IT leader has been fueled by astonishing levels of computer literacy in its higher and vocational education system. It's clear, then, that quality education, the availability of ready markets, modern infrastructure, sound economic policy and government support, and the steady injection of investment make an ideal recipe for budding entrepreneurs - at least on paper.

It is a five-point scale that is providing more food for thought than ever for Arab governments as they grapple with the twin challenges of developing the competitive skills of their rapidly growing indigenous workforce and transforming vital foreign direct investment (FDI) from a trickle into a flood.

At the kitchen table of FDI, the Middle East is making do with shockingly small helpings. The region attracted just 0.7 percent of global FDI in the 1990s, while business between member states of the region during the period was responsible for a mere eight percent of Middle East trade.

At least the parlous state of the Arab world as an investment destination is prompting a response. The publication of the UNDP Arab Human Development Report in 2002 highlighted the scale of the work needed to attract greater cash flow into the Middle East.

The consequences for business growth when the right economic conditions are not met are profound, and the comparative figures available make for a compelling read. In 1950, Egypt and South Korea shared the same per capita income. Today, average earnings in Egypt are barely 20 percent of its East Asian counterpart. Another Tiger economy, Malaysia, currently boasts three times the GDP of Morocco; 40 years ago, the two countries' GDPs were roughly the same.

The emerging status of many Middle East markets is little justification for underachieving on the FDI front; studies show that 75 percent of investment capital flows to developing countries. Naive economic policy, inadequate infrastructure and underdeveloped human resources are compounding the region's more publicized problems.

The predominance of government in Arab societies, in particular, is restricting moves towards greater flexibility in economic policy. Rather than fast-tracking efforts to promote liberalization, Lebanon has slowed the rate of its industry privatization. Syria, meanwhile, has shelved privatization plans as state enterprises undergo restructuring.

Political upheaval from Libya to Palestine has rendered much of the region an apparent investment no-go area, and discredited education systems - which promote learning by rote above personal development based on problem solving and initiative - are failing a young and growing population.

Is it any surprise that Arab contributions to the field of science and technology are conspicuous by their absence?

Much is made of the region's oceanic reserves of crude oil, but oil wealth can be its own barrier to wider prosperity. Cradle-to-grave welfare systems, established during the oil boom years of the 1980s, have led to unrealistic salary expectations among the new generation of Arab jobseekers, stemming the flow of much needed local talent into the private sector.

Some analysts claim that American efforts to tap Africa as a potential alternative for its oil needs will further dog the continent's painful march towards democratization and development, prompting corrupt ruling elites to fight to secure control of the juiciest contracts. Could this be a warning for the reconstruction of oil-rich Iraq?

Despite the alarm bells, the vast resources of some Middle East countries, fueled admittedly by oil, are well placed to kickstart an entrepreneurial revolution. The private wealth of high net worth individuals in the Gulf Cooperation Council (GCC) states is put at a staggering $1.4 trillion. In the UAE alone, one person in 67 is a dollar millionaire.

Much of this wealth currently heads into overseas investments, but an overdue re-evaluation of the region's economic potential could well turn the tide. Prince Walid bin Talal, the Saudi billionaire responsible for revitalizing the kingdom's banking sector; Abdul Majid Shuman, founder of the first Arab bank in Jordan; and Egypt's revolutionary scientist Farouk Al Baz are representative of a growing band of Arab entrepreneurs who are flying the flag for local industry, from IT to Islamic finance.

Jordan's unfortunate predicament as the geographical wedge between the flashpoints of Palestine and Iraq has distracted attention away from some astonishing local business success stories. Employing over 4,000 people, the kingdom's pharmaceutical sector boasts capital investment of more than $400 million and meets nearly half of the demand of the domestic market. Exports account for 70 percent of sales.

As if finally coming to terms with decades of missed opportunities, regional authorities are taking the private sector much more seriously. Since the creation of the Saudi General Investment Authority in 2000, Saudi Arabia has adopted a more ambitious foreign investment law, extending the number of industry sectors open to international players. Qatar and Kuwait now allow up to 100 percent foreign ownership, and Lebanon and Morocco have significantly relaxed restrictions on the operations of foreign enterprise.

Though relatively small in scale, UAE initiatives such as Dubai Internet City, Dubai Media City and The Knowledge Village are helping to transform the image of the Gulf as a place to do business. Tourism is playing its part too, while a more sophisticated understanding of marketing is positioning Arab brands such as Emirates and Aramex as genuine global business contenders.

Dubai is also looking to reap significant investment as a consequence of hosting the annual meeting of the World Bank and International Monetary Fund this month. As the most prestigious such gathering ever held in the Arab world, Dubai 2003 will act as a showcase for the emirate and will enable the potential 16,000 visitors at the event to experience first-hand the state-of-the-art infrastructure in Dubai.

The introduction of foreign real estate ownership in Dubai and the runaway success of the Emaar developments have further advertised the UAE's investor potential. And analysts view the creation of the Dubai International Financial Center as another example of Dubai's uncanny sense of business timing.

International investors, they claim, are rubbing their hands at the prospect of a genuine stock market hub between the bourses of Europe and Hong Kong.

Public institutions are also coming under the spotlight as moves towards greater financial transparency, legal protection and more effective arbitration gather pace. And, just as importantly, regional investment in human resources is starting to receive the priority it deserves.

Middle East business leaders signing the CEO Charter for Digital Development in September last year pledged 20 percent of budgets allocated to community or 'corporate citizenship' projects to promoting greater computer literacy. Jordan has modeled itself as an IT education leader and recently announced a unique partnership, titled the 'Jordan Education Initiative,' between local authorities and business to reinforce information and communication technology learning in its schools.

Nearly 100 Jordanian schools have been identified as 'test beds' for the scheme and 20 corporations, including the likes of Cisco and Microsoft, have pledged their support. Its patron, King Abdullah II, says that the program aims to nurture a culture of self-discovery and invention with the potential to transform the way in which Arab society harnesses the potential of its youth. Clearly, the implications for Jordanian and Arab entrepreneurship in general are profound.

There are an estimated 3.5 million Internet users in the region and the figure is expected to exceed 5 million by 2004. Twelve million people will be logged on by 2005. The UAE, in particular, is making its mark as an IT player and is ranked 19th for Internet penetration and 34th for PC usage in global ratings.

UAE business is capitalizing on this advantage. Dubai Internet City's Knowledge Village is tying up with local and international institutions to offer world-class vocational IT education as part of efforts to harness the economic potential of local IT literacy. Other GCC countries are adopting similar information technology education schemes.

Though proper education will sow the seeds of Arab entrepreneurial invention, adequate protection and representation is needed to ensure that fledging businesses grow. The creation of the Arab Business Council (ABC) at the World Economic Forum in June was a considerable step forward in improving the international profile and competitive edge of Arab industry. Grouping together more than 50 of the region's business leaders, the ABC will enhance cooperation and the sharing of ideas within the Arab corporate sector, and prepare the community for full integration within the global economy.

Road signs. Though there is a long way to go, the signs are encouraging. Investment flows within the Arab world increased by $2.4 billion in 2001, roughly half of all FDI into the region the year before. Though tragic, events in Iraq have served to focus the world's attention on the Middle East with a level of seriousness never seen before. This augurs well for investment, modernization and development, and the ultimate resolution of decades-old conflicts and injustices.

Cynics often describe Palestine as a country that never misses an opportunity to miss an opportunity, but the criticism arguably applies to much of the Arab world. When one considers the potential, resources and heritage of the region, it is tempting to ponder what might have been.
But as global leaders attending the World Economic Forum on the Dead Sea concluded, there is compelling evidence to show that the Middle East has begun a new and exciting chapter. Changing market conditions have made this progress imperative. There is no turning back.