Opportunities in the Middle East

The Middle East is now a part of the world characterized by peace, free trade, and economic growth. The main cause is political reforms that have not brought about democracy but significantly improved living conditions for millions of inhabitants.

With the exception of Israel, no countries in the region are democracies. The death penalty occurs here more than in any other region and country. Freedom of expression is limited, and by Swedish standards, there is much more to be desired and done. At the same time, conditions for citizens - men and women - living and working in these countries have improved significantly in a short time. In the wake of these reforms, increased freedoms in other areas are coming. Although it is not yet free to start national-level trade unions, for example, employee influence councils have been introduced in Saudi Arabia. Occupational health and safety requirements for foreign guest workers have significantly improved. There is a relatively lively Twitter opposition in Saudi Arabia. And the Muslim fundamentalists have largely fallen silent.

As economic integration and growth increase, the opportunities and space for despotic leaders to behave however they want towards their citizens decrease. Increased freedom, increased trade, increased tourism, and greater exchange with us are steps in the right direction that also pave the way for other reforms. Swedish companies, management, and values have an important contribution to make to continued reforms in the region.

Vision 2030 and the Abraham Accords

Ten years ago, The Economist had an incredibly interesting little fact box showing at what oil price the oil-producing countries' public finances broke even. For most oil countries, it would require an oil price of over a hundred dollars a barrel. For Saudi Arabia, years of lower oil prices meant that the budget deficit often stood at nearly 20 percent per year. Of course, this is completely unsustainable and has forced them and the other countries in the region to make all sorts of reforms to survive. Ultimately, it is about power: the leadership in the countries of the Middle East knows that if they cannot achieve long-term economic growth, they will not be able to remain in power.

Against this background, the Saudi government decided in April 2016 to begin Vision 2030, a comprehensive program covering thirteen central societal sectors. It is like the fall of the Berlin Wall; a Big Bang in how society should function. The enormous oil revenues are no longer primarily used to accumulate wealth among a number of princes, but to finance gigantic investments in everything from new technology and infrastructure to implementing reforms aimed at reducing dependence on the state and increasing entrepreneurship.

The tools used in the process have led to better living conditions for millions of people - especially women. Gone are the conservative states we previously associated with the Middle East. In Saudi Arabia, for example, the system of male guardianship is gone, the religious police are gone, the requirement for a veil has been abolished, and women are now flooding into the job market: female labor force participation has tripled in 7-8 years, and today the Saudi IT sector has a higher proportion of women than Silicon Valley. And women are becoming entrepreneurs: Saudi Arabia is now one of three countries in the world where more women than men start businesses.

This has of course had a great positive impact on productivity, which is now increasing significantly. As a direct result of increased investment and productivity, growth is also increasing sharply. Saudi Arabia will achieve 7-8% GDP growth this year, while growth in the United Arab Emirates is expected to be only a few percentage points lower.

In the shadow of these economic successes, other changes are also taking place. Saudi Arabia has stopped financing mosques abroad and all signals indicate a much more moderate interpretation of Islam than before. As someone who regularly reads Arab News, the state-owned English-language newspaper, I can confirm at least 40 positive articles about Judaism in recent years. Articles that remind us that it was the Jewish community in Medina that took care of and protected the Prophet Mohammed when he moved there from Mecca, articles that show excavations of synagogues around the Arabian Peninsula, and that also speak positively about Christians and other non-Muslims.

It was also Arab News that, several years ago, had an article about entrepreneurship in Saudi Arabia illustrated with six female entrepreneurs, three of whom did not wear a veil over their hair. That was when I truly realized the power of the changes that are taking place.

One of the results of these changes is the so-called Abraham Accords between Israel and most countries in the region. From having been enemies since the founding of the state of Israel in 1948, country after country in the Middle East has not only established diplomatic relations but also invested heavily in trade. For example, the United Arab Emirates and Israel have signed a free trade agreement that has created many new trade routes and investments in the region. Although Saudi Arabia itself has not signed an agreement with Israel, it has undoubtedly contributed to its creation, which in turn has created significantly less tension in this part of the world.

Opportunities for Swedish companies

For a long time, Saudi Arabia and the Middle East were only seen as a "source of funds", a place where the daring might possibly find investors for their projects in the West. Today, it is increasingly apparent that the region is an "investment destination" and a market in its own right. Saudi Arabia has 35 million inhabitants, of whom 25 million are under 30. Internet penetration is higher than in Sweden, and all major cities have fully built-out 5G networks.

But of course, there is still much to be done, where Sweden has a unique position. Saudi Arabia, for example, produces 53 million tons of household waste that is dumped straight into the desert. That is of course completely unsustainable, and there is now a major effort underway to introduce everything from deposit systems, recycling, weighing and pricing of waste to waste-to-energy solutions. Saudi Arabia, with all its oil, has set the bar: by 2060 at the latest, the country will be carbon neutral, and everything related to long-term sustainability is a top priority.

Swedish companies have a unique position here: Swedish innovation is known and appreciated, and Swedish businessmen find it easy to understand and get along with their Saudi partners. Take a company like Einride, for example. The urbanization currently underway in Saudi Arabia offers brilliant prospects for them in the region.

The capital Riyadh, for example, is set to double its population in ten years, from 7 to 14 million inhabitants. Riyadh's airport is set to become the world's largest by 2030 with 120 million passengers, and also become one of the largest in terms of air freight. And the Saudi mining industry is growing rapidly. In all these sectors, new technology is being invested in, especially in driverless transport solutions. Riyadh's subway, with its 85 stations and 176 km, will be the world's longest driverless traffic system when it opens. Einride has great opportunities here, where there is a lot of interest and customers can pay.

But also, the retail industry is facing major changes where smart environmental choices will play an increasingly important role. Here, even smaller companies have unsuspected opportunities. Companies like Agood Company with their environmentally friendly products and Storekey with their simple solutions for unmanned sales will be able to find markets worth millions in a region where shopping malls are the obvious meeting place for much of the population. With over 500 shopping malls just in Riyadh and over 3 million square meters of shopping space, the market is wide open.

The Middle East is currently one of the most interesting regions in the world when it comes to both investments and trade.

Stockholm on February 27, 2023

Sven Otto Littorin Partner, Stadsholmen Equity