Doing Business In The MENA Region – Analysis

What is the MENA region?

MENA is the acronym for “Middle East and North Africa”, regularly used in academic and business writings. It refers to a large region, from Morocco in northwest Africa to Iran in southwest Asia, which generally includes all the countries of the Middle East and North Africa. (1)

Indeed, the MENA region comprises 18 countries. It covers the area south of the Mediterranean, from Morocco to Egypt, and to the east, from Yemen to Iran, via the Arabian Peninsula. The heterogeneity of economic and political realities has taken into account the formulation of specific strategies for three sub-regions: North Africa (Algeria, Egypt, Libya, Morocco, and Tunisia); the Middle East (Iraq, Israel, Jordan, Lebanon, Syria, and Occupied Palestinian Territory); the Arabian Peninsula and Iran (Bahrain, Iran, Kuwait, Oman, Qatar, Saudi Arabia, UAE, and Yemen).

MENA has no standardized definition, and the region and its constituent territories differ from one organization to another. However, the list of countries belonging to it is generally as follows: Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syria, Occupied Palestinian Territory, Tunisia, United Arab Emirates and Yemen. (2)

The region holds a significant share of untapped human resources, with the highest youth unemployment rate and the lowest female labor force participation rate in the world. Most of the world’s oil reserves belong to MENA countries. Tourism, however, is another strong branch of their economy. (3)

The population of the Middle East and North Africa region is ethnically, religiously and linguistically diverse. With high unemployment, MENA’s human resources are a relatively under-exploited. However, these countries are increasingly focusing on education to overcome this handicap.

The region’s instability leads to serious conflicts, which counterbalance development efforts. This is particularly the case in Syria, Libya and Yemen. Infrastructure and people are paying a heavy price for these wars, and 15 million people have had to flee their countries to avoid atrocities. (4)

The MENA region is marked by historical conflicts resulting from the Cold War or arbitrary border demarcations in the wake of decolonization, the race for raw materials, intra-Arab and inter-religious conflicts, as well as the Middle East conflict. The spread of terrorist groups such as the “Islamic State” casts a shadow over the peaceful dynamics in certain countries, as well as their efforts to prepare their often-young populations for the challenges of the 21^st century. (5)

Ten years after the “Arab Spring”, (6) the results are disappointing: hopes of political renewal have not materialized. Instead, many countries in the region are suffering repression civil war and jihadism. (7) However, the protest movements marked a historic turning point that opens up new prospects for the future. (8)

Religions in the MENA region are historically diverse: beyond the three great monotheistic religions and their respective denominations stemming from the Abrahamic tradition, (9) many other religions have developed since antiquity, some of which are still practiced in the 21^st century. The Middle East is the cradle of religions practiced by more than 4 billion people worldwide, making it of great historical and cultural importance, and its role as a crossroads of civilizations between Asia, Africa and Europe attracts large numbers of pilgrims every year. Islam is the majority religion in all Middle Eastern countries except Lebanon, where the majority religion is Christianity, and Israel, where the majority religion is Judaism. (10)

Shifting regional alliances

Since 2011, the political, economic and cultural influence of the three MENA sub-regions and the relations between them have been changing. North African countries are increasingly becoming aware of their belonging to the African continent, which is reflected in their increased engagement within the African Union. On the other hand, cooperation within the Arab Maghreb Union has virtually come to a standstill, (11) particularly due to tensions between Algeria and Morocco over the Western Sahara issue. (12)

In recent decades, the countries of the Arabian Peninsula have dethroned Egypt and the Middle East as the economic hub of the MENA region, but they are losing stability due to their internal tensions (the war in Yemen, tensions with Iran).

New regional disputes have pushed the conflict between Israel and the Palestinian population into the background and, after years of informal rapprochement, that paved the way for the normalization of relations between Israel and the United Arab Emirates (UAE) and then Bahrain in the summer of 2020. The UAE and Bahrain are thus, after Egypt in 1979 and Jordan in 1994, the third and fourth Arab countries to have normalized their relations with Israel.

These events are a sign of the profound upheavals that the Arab world has been going through for years. They have created a new dynamic, so that it cannot be ruled out that other countries will make the same progress. Saudi Arabia and the UAE are playing an important role in the formation of new alliances and divisions that mark the region. In addition, armed non-state or semi-state actors (Hizbu Allah in Lebanon and the Houthis in Yemen) are undermining the stability of several countries.

The MENA region is characterized by a complex linguistic and cultural landscape. It features the coexistence of Classical Arabic, Modern Standard Arabic, various dialects of Arabic, Amazigh languages, Kurdish, Hebrew, Farsi, and foreign languages such as French and English. This multilingual environment influences cultural exchanges, media, and social interactions across the region and with the rest of the world.

North Africa

The three main challenges facing the North African region, and thus the three priority thematic areas are: structural economic reforms to encourage employment and investment, the implementation of good governance principles, and safe and orderly migration. (13)

On the impact of good governance, legal system and economic freedom on foreign investment in the MENA region, Nada Kobeissi writes: (14)

“Within MENA countries, enhancing economic freedom in terms of trade, the financial sector and property rights is of absolute importance if the region is to attract more foreign investments. According to a World Bank report (World Bank, 2003), foreign investment could be five to six times what they are today, if exports other than oil were higher and were in better investment climates. Inefficient and costly services provided mostly by the public sector, raise the cost of MENA merchandise exports and limit attractiveness to investment (World Bank, 2003). The financial sector is controlled by state owned banks which dominate banking activities (up to 95% of assets in several countries in the MENA region) resulting in poor services, high costs, and weak financing of new investments and trade (World Bank, 2003). Due to a complete lack of faith in its domestic economic infrastructure, the Middle East holds the largest share of wealth abroad in the world, with $350 billion currently collecting interest abroad, rather than in local financial institutions.’’

North Africa is located in the immediate neighbourhood of Europe. The French language is also a link. In the south, North Africa borders countries in the Sahel region, characterised by a high level of poverty and instability. (15) It is in Europe’s interest for North Africa to be stable, prosperous and organised according to the rule of law.

The main factors that led to the “Arab Spring” protests, (16) namely the lack of economic prospects, youth unemployment, the repressive practices of national security agencies and limited opportunities to participate in political life, remain major challenges today. Some of North Africa’s shortcomings include: high population growth, (17) unequal participation in economic development and, to some extent, low resilience of the economy due to a lack of diversification, as well as the existence of youth training programmes (18) that are often ill-suited to the needs of the labour market. (19)

Excessive bureaucracy and technological backwardness are factors that explain the high unemployment rate among young people and the persistent unequal distribution of income and wealth in many countries. The lack of political and economic integration in the region is a hindrance to its development dynamics. (20)

Due to its cheap labour and geographic proximity, North Africa is an attractive production location. In response to the coronavirus crisis, Europe is also seeking shorter supply chains, for example in the agricultural or textile sectors.

With a total population of over 200 million, the region is already one of the most important export markets for Europe on the African continent. This is also why Europe is working to promote inclusive economic development in the Greater Maghreb, (21) which can open up horizons for younger generations.

In Libya, the overthrow of the former regime led to an internal armed conflict that is still ongoing. However, the “Arab Spring” also brought about positive developments. In Tunisia, a democratic process took place. (22) In some countries, despite the repression, there is also an active civil society that is mobilised in favour of civic and political freedoms.

Other ongoing developments may be of some importance. Indeed, several areas are directly threatened by the effects of climate change (23) and by the lack of access to fresh water. In addition, rapid urbanisation is a major challenge for cities such as Algiers, Casablanca and Cairo. In these areas, support is need based on innovative solutions. (24)

Middle East

The three main challenges facing the Middle East region, and thus the three priority thematic areas are: armed or political conflicts, economic development, and governance. In addition, successful start-ups occupying a leading position on the international stage are developing in several countries in the region, which opens up interesting prospects.

The Israeli-Palestinian conflict, which has been raging for more than 76 years, has crystallised around territorial claims. After the Second World War, the mandate for Palestine that had been entrusted to Great Britain by the League of Nations ended. In 1947, the UN adopted a partition plan providing for the division of Palestine under the British mandate into a Jewish state and an Arab state. The State of Israel was founded in 1948. (25) The Israeli-Arab conflict broke out the same year; It has led to a refugee crisis that is still ongoing. An estimated 750,000 Palestinians were on the run in 1950. (26) As refugee status is passed down from generation to generation, and because of the lack of a political solution and demographic changes, (27) there are now more than 5.5 million Palestinian refugees, according to statistics from the United Nations Relief and Works Agency for Palestine Refugees in the Near East, UNRWA. (28) Some of these people are stateless and others are citizens of other Near Eastern states. They live in the Occupied Palestinian Territory, Jordan, Lebanon and Syria. One third of them reside in locations officially recognized as refugee camps. The essential services provided by UNRWA are of crucial importance to Palestinian refugees. Since they rarely have access to the labour market, they are unable to develop long-term prospects and remain dependent on the system.

The Middle East continues to face major economic, social and political challenges. The population boom, restrictions on fundamental rights and difficult economic conditions are leading to high unemployment and protest movements. The young generation is particularly affected by the lack of economic prospects, which can foster the emergence of violent extremism (Jihadi Salafism). (29) The protest movements that have been shaking Lebanon since the end of 2019 and the reactions to the explosion in Beirut in August 2020 reflect a significant political awareness, but also the frustration of the population.

The acceleration of economic, financial and migratory exchanges, as well as the desire for genuine international governance, are making it urgent to create a new generation of managers. They must manage inequalities in development, the multiplicity of forms of exercising power and cultural diversity, firstly to prevent differences from becoming grounds for confrontation, and secondly to contribute to the dialogue of civilizations.

The Mediterranean and the Middle East together form a unique observation area for this type of challenge. A meeting point between Europe and the Muslim world, this region, marked by the Israeli-Palestinian conflict, the “Arab Springs” and their aftermath (the Syrian, Libyan and Yemeni crises), is dominated by major political, economic, energy,  environmental and migratory issues. It is also a zone of complex political influences and repeated military interventions, offering countless examples of unexpected conflicts or, conversely, surprising cohabitations of identities, which constantly put to the test the universal character of democracy and the rule of Law.

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