FRAN MCELWAINE

"Is population growth rocking the cradle of civilization?"

Fran McElwaine
Managing Director, Capital MSL Middle East

Many commentators and Middle East pundits ignore the single most salient fact that will impact the Middle East in years to come.  Far more significant than either the advent of al Qaeda or the Arab Spring is the simple truth that the population of the region will have doubled by 2030. Growing at an average of 2.7% per annum, this means that within only ten years, 75% of the population of the Middle East will be under the age of 35 (and 36% under the age of 15).   It is not difficult to see that the social, political and environmental consequences of this are significant.

For some, a population explosion of this magnitude is a demographic time-bomb, presenting as it does major problems for the infrastructure and sustainability of the region.  Many of the economies in North Africa and the Levant are fragile and for a region that is already a net importer of food and struggling to find ways of effectively managing its limited water resource, the burden of additional mouths to feed will not be an easy one to shoulder.

Couple this with research done by the Department of Middle East Studies at the US Census Bureau which suggests that the higher the ratio of 15-29 yr olds to 30-54 yr olds, the higher the probability of 'instability and disruptive regime change', you begin to wonder why the region is still perceived as being both competitive and dynamic.  Link this to the notorious lack of predictability and consistency in all emerging markets and it is hard to understand what it is that makes the Middle East such a compelling investment proposition.

Whilst the obvious answer to this is petro-dollars, it would be simplistic to suggest that this was the only source of the region's buoyancy.  With huge oil and gas reserves across the region from North Africa to the Gulf and forecasts for Crude suggesting it will soon hit and hold the $100 per barrel soon (Brent is already well over that at nearly $117), it would be easy but naive to conclude that the Arab world has little to do but sit back and bank those dollars.

But what makes the Middle East so compelling is the almost total absence of complacency.  For years now, most regimes across the region have been embarking on a new renaissance, systematic programmes of soft and hard infrastructural development that not only prepare them for a future without oil but also buffer them against the likely impact that an inflated oil price will have on Western economies, and therefore ultimately on their own.  Clearly some Middle Eastern governments have either the inclination or the incentive to move this process along quicker than others, but everywhere you go across the region you see a new emphasis on education and culture and the instigation of initiatives that will revitalize economies and generate employment in the years to come.

Witness the development of urban areas in Morocco such as the Bab Al Shams development in Rabat, financed in part by Abu Dhabi's Sovereign Wealth, the massive infrastructure development in Aqaba in Jordan, the educational leadership presented by Qatar Foundation's world class universities and the quality of long term thinking that has been applied to the development and economic diversification of Abu Dhabi and Dubai with projects such as the Khalifa Industrial Zone.  Whilst these, and many other initiatives are impressive and designed to stimulate long term growth, it is frankly essential that this should be the case in order to take full advantage of the huge opportunity presented by a youthful demographic - enthusiastic, energetic people, globally minded and internet friendly, making choices based on secular, not religious, grounds and all looking for meaningful employment in the immediate future.

Traditionally the Middle East has operated on a low cost / low productivity model that has been dependent on importing (mostly low-cost) foreigners to turn the wheels of economic development.  However, in the future things will change not only because they have to but because they can.  A new emphasis on education is already producing Nationals who are both productive and engaged, contributing significantly to the new and correspondingly important economic diversity of the region.  And the increasing focus of governments across the region to recognize, enfranchise and empower the economic force of this young population - whether brought about by foresight, as in the case of Abu Dhabi, or necessity as in Egypt - means these governments will have an increasingly clearer mandate for the future.

It is worth noting in this context that, on a day (August 4^th 2011) when trillions were knocked off stock markets in the US, Europe and Asia, stock markets in the region, from Tunisia to Oman, recorded a rise (albeit a small one), fuelled no doubt by some powerful Q2 results posted by regional banks such as Emirates NBD and ADCB as well as service providers such as the Telcodu .  These results clearly suggest a degree of buoyancy in Middle East markets that is harder to find elsewhere in the world.