The Arab World
The Market, Which Unfortunately All Miss
> Amor Dhaouadi
On my last flight to Tunis an older couple from the canton of Zug in Switzerland sat next to me in the plane. We talked for long about the weather in Switzerland and the fact that it was better to relax away from home and enjoy a nice and sunny weather. My neighbor on the plane also told me that she and her husband were concerned about the security situation in Tunisia. She was worried because every European is bombarded almost every day with pictures from the Arab world, which cover disguised oppressed women, terror and wars. She and her husband have nevertheless decided to fly to Tunisia, not because they act negligently, but because they do not believe everything that is reported and written in the media.
In fact, many companies in the industrialized countries of the Western world are avoiding the Arab countries in their explorations of opening up and / or investing in new markets. They prefer to consider distant countries like India or China, while the Arab countries are only a few hours away from the main European cities. But why should the companies be thinking of these markets? What are the potentials of these markets? What do you have to consider if you want to engage in these markets? In this article we will try to give answers to these questions.
Economic power of the Arab world
In order to understand the market potential of the Arab countries, we should take a closer look at the economic power of these countries compared to other major economies.
From a macroeconomic perspective, if we were to take all Arab countries together, we would total a gross domestic product (GDP) of $ 2,873 billion (2014). In the list of the world’s strongest economies, the Arab world would therefore be in sixth place. Only the USA, China, Japan, Germany and the United Kingdom have higher GDP. Other industrialized countries such as France and Italy, but also the emerging countries such as India, Brazil, South Africa and Russia, all of them would come after the Arab world.
In terms of the population as a whole, the Arab world also comes third behind China and India, with almost 392 million inhabitants. This is a huge market, especially for companies operating in the B2C (business to consumer) area.
The attractiveness of the Arab market becomes very clear when we look more closely at private household spending in relation to GDP. On average in these countries, Arab private household spending accounts for 44.6 per cent of the GDP. In comparison, US citizens spend approximately 68.4 per cent of their GDP, while EU citizens come to 55.9 per cent of GDP (all figures from 2014). The Indians come to 58.0 percent. These values indicate that private households in the Arab countries have much more spending potential than others in the world.
If the Arab countries were to be further subdivided, for example, into the rich and less rich, the business potential for consumer goods manufacturers is still much greater than in some Western markets. The countries of Saudi Arabia (32.2 percent), Oman (30.8 percent), Qatar (14.2 percent) and Kuwait (28 percent) possess a huge potential for the consumer goods industry.
Arabs are all the same – or perhaps not!
The general picture in Western countries about Arabs or Muslims is very shaped by terrorism, wars, oppression of women, fanaticism, lack of freedom and human rights. That is why, in my discussions with many managers, I also notice skepticism and restraint when it comes to doing business in the Arab world. Nevertheles, most well-informed companies know that the media tend to exaggerate and provide a distorted picture of the Arab world.
On events I visited last year and this year in Germany and Switzerland, I have met some managers who are already active in the region. In their speeches they report on hospitality, mutual respect, women in management positions, discipline at work, educated youth and much more.
Vijay Mahajan, a marketing professor in Texas / USA, has reported in his book “The Arab World Unbound” about his visits to the countries of the Arab world. Mahajan believes that Arab consumers are very diversified. This is true not only in the Gulf region, where Indians, Pakistanis, Asians and expats from most industrialized countries live together. Also in Lebanon, Jordan or North Africa, where many people live a European lifestyle, consumers are as diverse as in Western countries. Mahajan is convinced that these markets are still undeveloped for Western and global brands and present a huge business opportunity to compensate for falling demand in the industrialized countries.
The demographic dividend of the young generation
In the three decades after 1980 the population in the Arab region has doubled. According to recent estimates by the US Census Bureau, the proportion of young people below the age of 25 is with 52% twice as high as in Western Europe (26%), and higher than in China (30.4%), India (45.7%) and the US (32.3%).
|Population under age 25|
The young people in the Arab world are well educated and have a broad knowledge of worldwide news and new products and services. In contrast to the past, young people are very well networked and get their information from online portals. They are much more cosmopolitan than the generation of their parents. So they know all the well-known brands of this world. It is not surprising in many Arab countries to find young people who use a smartphone from Apple or Samsung, drive a car from Toyota, wear a Rolex watch or Nike shoes or a fragrance from Armani, or drink Coke at McDonald’s. The longing for world brands is enormous.
Bessma Momani, professor of political science at the University of Waterloo in Canada, writes in her book “Arab Dawn” about the demographic dividend that the young educated people in the Arab world bring with them. According to Momani, the young people are much more cosmopolitan than their parents, travel a lot around the world, are willing to accept Western values in their lives while maintaining important traditional Islamic values. The young Arab generation from Casablanca to Dubai will no longer be determined by their parents, governments and sovereigns. They want to have a say about their future, they also do not want to leave their destiny to chance and are much more active and think entrepreneurially.
In a world where we have more and more elderly people and less economic growth in the industrialized countries, companies in Europe have the opportunity to take a closer look at the markets of the Arab world and to develop appropriate strategies for their development. Many see a pure consumer market without added value in the Arab markets.
In order to successfully tap these markets, companies should adapt their products to the local wants and needs of consumers. Today’s entrepreneurial thinking and well educated generation of young Arab people plays a decisive role in product design, marketing and innovation. According to conducted surveys, the Arab youth is no longer critical of western values and forms of life, as it was the case predominantly with their parents. Western companies can benefit from this in order to position their products and services successfully and profitably in the market.