1. Aamir A. Rehman | 1 The Gulf Region of the Middle East and its Relevance to Global Business June 23 2009

2. Aamir A. Rehman | 2 The “Middle East” is highly diverse Atlantic Ocean Mediterranean Sea N o r t h A f r i c a L e v a n t G u l f s t a t e s Indian Ocean Red Sea Persian Gulf Note: Yemen, a Gulf state, is not a member of the GCC.

3. Aamir A. Rehman | 3 GDP per capita varies greatly by “cluster” GDP per capita ($’000) (PPP, 2006) Source: IMF data, CIA World Factbook estimates (Iraq, West Bank, Gaza).

4. Aamir A. Rehman | 4 The GCC’s “Opportunity Formula” drives its dynamism Sustained prosperity and growth Economic opportunity = Attractive demographic shifts Ongoing regulatory reform + + + +

5. Aamir A. Rehman | 5 GCC per capita income is three times China’s and five times India’s GDP per capita ($’000) (PPP, 2006) Source: EIU, CIA World Factbook, 2007

6. Aamir A. Rehman | 6 GCC countries have high birth rates and high expected population growth Source: Population Reference Bureau

7. Aamir A. Rehman | 7 Gulf “age pyramids” contrast starkly with the US

8. Aamir A. Rehman | 8 GCC countries have growing workforces Qatar Source: UN, medium variant Population Aged 15-64 (%) UAE Kuwait Bahrain Oman Saudi Arabia Workforce boom

9. Aamir A. Rehman | 9 Regulatory reform is creating opportunities CountryFreedom % United States82.0 Bahrain68.4 Oman63.9 Kuwait63.7 GCC average [1] 62.7 Brazil60.9 Qatar60.7 UAE60.4 Saudi Arabia59.1 India55.6 China54.0 Russia54.0 Source: Heritage Foundation, 2007 “Ease of doing business” ratings are favorable… Year of Joining WTOCountry 1995 Bahrain Kuwait 1996 Qatar UAE 2000Oman 2005Saudi Arabia … and all GCC members have joined the WTO

10. Aamir A. Rehman | 10 Mineral wealth is the core source of prosperity…

11. Aamir A. Rehman | 11 … but high oil and gas income is stimulating economic activity across all sectors High oil and gas income International investment International spending Local investment Capital deployment Local government spending Government surpluses and private wealth Local consumption Increase GCC importance in global markets Stimulate local economy and promote additional private sector investment “Not all about oil”

12. Aamir A. Rehman | 12 Not all news is good: half of GCC states have double-digit unemployment Unemployment rate, 2006 Source: CIA World Factbook, 2006 “Not everyone is rich”

13. Aamir A. Rehman | 13 Most GCC college students are women Female first-year students in university-level programs (% of total students) Source: GCC government data “Women matter”

14. Aamir A. Rehman | 14 Bilingual packaging is the norm in for consumer goods “Gulf customer does not ‘hate us’”

15. Aamir A. Rehman | 15 McDonald’s customizes its message (and its menu) “Gulf customer does not ‘hate us’”

16. Aamir A. Rehman | 16 Marketing strategies take “Four Degrees of Adaptation” Fully leverage global branding and marketing Customize marketing messages and language Customize mix of product and services based on local needs Create market- specific products and services Non- customization Adapting the message Adapting the portfolio Custom product design 1 1 2 2 3 3 4 4

17. Aamir A. Rehman | 17 Half the GCC states are majority expatriate Expatriate and local (National) populations as % of total, 2005 Source: GCC government data and CIA World Factbook, 2006 Local / National Expatriate Majority expatriate “Not only Arab”

18. Aamir A. Rehman | 18 Prosperity without institutions: the “back-fill” imperative GDP per capita ( illustrative) Time Oil boo m “Classic” development model GCC development experience Sustained institutional development GDP per capita ( illustrative) Imperative to build institutions

19. Aamir A. Rehman | 19 Effectively engaging the Gulf market has its challenges Economic Market challenges Regulatory Social Awareness Execution challenges Institutional Will Resources Engaging the Gulf brings challenges and rewards

20. Aamir A. Rehman | 20 The “Engagement Spectrum”: Market entry strategies range widely Simple distribution agreements Joint ventures and partnerships Direct market entry: Organic or acquisition-based Direct market entry: Organic or acquisition-based “Shallow engagement” “Moderate engagement” “High engagement” “Shallow engagement” has been the norm for leading MNCs

21. Aamir A. Rehman | 21 The current crisis is deeply impacting the “Opportunity Formula” Sustained prosperity and growth Economic opportunity = Attractive demographic shifts Ongoing regulatory reform + + + +  Oil price is down over 50% from its 2008 peak  Equity markets down over 60% in 2008  Budget surpluses are at serious risk, especially in KSA and Bahrain  Oil price is down over 50% from its 2008 peak  Equity markets down over 60% in 2008  Budget surpluses are at serious risk, especially in KSA and Bahrain  Long-term trends remain in place, with remarkably young populations and increasing social capital  Demographic pressures felt more acutely as economies struggle  Long-term trends remain in place, with remarkably young populations and increasing social capital  Demographic pressures felt more acutely as economies struggle  Opening of markets increasingly recognized as needed  Protectionist pressures already, however, gaining strength  Key test cases: Kuwait Bourse and KSA Economic City  Opening of markets increasingly recognized as needed  Protectionist pressures already, however, gaining strength  Key test cases: Kuwait Bourse and KSA Economic City

22. Aamir A. Rehman | 22 Gulf decision makers have severe constraints regarding economic policy Monetary policy  Dollar peg remains firmly in place in all countries but Kuwait  Maintaining the peg is important for both economic and political reasons  Effect of peg is that the Gulf’s interest rates are effectively set by the US and driven by US domestic needs  Dollar peg remains firmly in place in all countries but Kuwait  Maintaining the peg is important for both economic and political reasons  Effect of peg is that the Gulf’s interest rates are effectively set by the US and driven by US domestic needs Fiscal policy  Government investment has a degree of flexibility, particularly in regards to large projects  State benefits are quite inelastic due to expectations and pressures  Income tax is absent, although fees and other mechanisms are used to generate supplementary income  Government investment has a degree of flexibility, particularly in regards to large projects  State benefits are quite inelastic due to expectations and pressures  Income tax is absent, although fees and other mechanisms are used to generate supplementary income Key driver is the US Federal Reserve Key driver is the global energy market

23. Aamir A. Rehman | 23 For Gulf decision makers, the imperative is on the “real” Institutional development and the “back-fill imperative” 1 1 Equity-based financial systems and investments 2 2 Domestic investment to stimulate the “real economy” 3 3 Budget rationalization and prioritization of initiatives 4 4 Diversification of public revenue sources 5 5 Crisis is an opportunity for decisive action

24. Aamir A. Rehman | 24 Aamir A. Rehman www.rehmaninstitute.com aamir.rehman@rehmaninstitute.com Stay in touch!