RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD 2009

					RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD 2009
Making sustainable development count in regional markets

Foreword by Her Majesty Queen Rania Al Abdullah, Hashemite Kingdom of Jordan

May 2009
Authors

Sustainability Excellence Arabia
Supported by

Previous AccountAbility publications in this series
Corporate Responsibility and the Competitiveness of Nations, 2002 AccountAbility and the Copenhagen Centre

Responsible Competitiveness: Corporate Responsibility Clusters in Action, 2003 AccountAbility and the Copenhagen Centre

Responsible Competitiveness Index 2003: Aligning Corporate Responsibility and the Competitiveness of Nations AccountAbility and the Copenhagen Centre

Trading Accountability: Business, Trade and Investment Policy and Sustainable Development, 2004 AccountAbility

Responsible Competitiveness: Reshaping Global Markets through Responsible Business Practices, 2005 AccountAbility in association with Fundação Dom Cabral

Responsible Competitiveness in Europe: Enhancing European Competitiveness through Corporate Responsibility, 2006 AccountAbility, the European Policy Centre, the European Academy for Business in Society, ESADE, and INSEAD

The State of Responsible Competitiveness 2007: Making Sustainable Development Count in Global Markets, 2007 • AccountAbility in association with Fundação Dom Cabral • Spanish version in association with ReporteSocial • Chinese version in association with WTO Tribune.

Available to download from www.responsiblecompetitiveness.org

Examples of Responsible Competitiveness in the Arab World

Morocco Scaling up microfinance (over 1.3 million people accessed loans in 2008)

Lebanon Helping farmers to successfully bring organic Lebanese farm products to the market

Tunisia Created “National Union of Tunisian Women”, working to eliminate discrimination and foster solidarity

Mauritania Fostering political empowerment of women with high 20% quota

Algeria Tapping into the potential of thermal solar power, developing a firstof-its-kind hybrid solar and natural gas plant with plans to export to Europe

Egypt Developed the “Egyptian Code of Corporate Governance” in 2007; a first in the Arabic language

Key:

■ Gulf Cooperation Council ■ Maghreb ■ Mashreq ■ Low income economy

Syria Developed the “Village Business Incubator” to support female entrepreneurs

Jordan Working to build responsible competitiveness in the finance, tourism and construction/real estate sectors

Kuwait Investing in science and technology reform, as part of a US$131 billion five-year national development plan promoting a knowledge-based sustainable economy Bahrain Taking a leadership role in Islamic finance with nearly US$47,000 Shariah compliant assets per capita in national banks United Arab Emirates The eco-city, Masdar, is setting new standards for green infrastructure

Kingdom of Saudi Arabia Strong commitment to responsible competitiveness through the “10x10 strategy”, the Saudi Responsible Competitiveness Index and the annual Fast Growth awards

Qatar Building innovative human resources through strategic ICT investment

Yemen Equipping underprivileged women with IT-skills and expanding their participation and role in the public and private ICT-sectors

Oman Launched a US$135 million, ten-year venture capital fund to promote investment in science and technology in the Gulf region

TABLE OF CONTENTS

Table of Contents
FOREWORD Her Majesty Queen Rania Al Abdullah, Hashemite Kingdom of Jordan EXECUTIVE SUMMARY 7

11

RESPONSIBLE COMPETITIVENESS AND THE ARAB WORLD
1. Arab Competitiveness through a Responsibility Lens Alex MacGillivray, Darin Rovere, Simon Zadek 2. Progress Towards Responsible Competitiveness in the Arab World Alex MacGillivray, Darin Rovere, Mohammad Jebriel, Paul Begley, Ruba Fanous 19

39

KEY ISSUES IN RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD
3. Good Corporate Governance, Sustainability, and Responsible Competitiveness Abdulkareem Abu Alnasr, Chief Executive Officer, The National Commercial Bank 4. Responsible Values Frederic Sicre, Executive Director, Abraaj Capital 5. Masdar’s Role in Abu Dhabi’s Economic Diversification Dr. Sultan Ahmed Al Jaber, Chief Executive Officer, Masdar 6. Sustainable Agriculture, Food Security, and Responsible Competitiveness Helmy Abouleish, Managing Director, Sekem Group 7. Responsible Competitiveness and the Arab Human Resource Development Challenge Fadi Ghandour, Chief Executive Officer and Founder, Aramex

79

89

97

103

115

Responsible Competitiveness in the Arab World 2009 5

8. The Arab World Human Resource Challenge Rabea Ataya, Chief Executive Officer, Bayt.com 9. The Creative Economy: Implications for Arab Educational Systems Randa S. Ayoubi, Founder and Chief Executive Officer, Rubicon

121

129

ANNEX
Methodology Acknowledgements About the organisations About the authors 137 145 146 147

6

FOREWORD

Foreword Her Majesty Queen Rania Al Abdullah, Hashemite Kingdom of Jordan

❝

If you do what you’ve always done, you’ll get what you’ve always gotten” Anon.

If the current financial downturn has taught us anything, it is that old systems and behaviours have to change. We need to shake off old habits and find new ways of doing business that include: greater transparency, more accountability, better governance, and inspired leadership. In addition to this financial slump, we also face overwhelming social and environmental burdens: poverty that makes daily survival a struggle for families around the world; unemployment that hampers economic growth for individuals, communities, and countries; and, climate change that, left unchecked, could have catastrophic effects. If we are to secure our children’s futures, we must rethink our relationships with each other and with our planet. A new architecture for a sustainable global economy must be designed now; it must guide new business practices today. We are all stakeholders in this process. Global business leaders must help solve these daunting development issues by pursuing sustainable practices and creating new products and services. Governments must encourage responsible practices by instituting policies that build business-friendly environments. Civil society must spur business and government to action by raising awareness of social and environmental concerns. When we coordinate and complement these efforts, the rewards of sustainable development and business innovation are felt across society. And that’s not all. Done well, these innovations come with the promise of profit for businesses and greater value for shareholders. This is the essence of Responsible Competitiveness (RC). RC is about rewarding companies that address social, environmental and economic problems. It is about nations prospering when they combine conscience with competitiveness. It is about making sustainable development count in global markets. While business leaders everywhere must reorient their practices to survive and thrive, we, in the Arab World, have demographics that make that process all the more urgent: chronic water shortages… the highest
Responsible Competitiveness in the Arab World 2009 7

unemployment rate in the world… a burgeoning and youthful population… an out-of-date school system… high illiteracy rates… almost 6 million children out of school… considerable brain drain… and, not enough women participating in the workforce. That is why I am so pleased to introduce the first Arab Responsible Competitiveness Index (ARCI); it is evidence that the Arab World is responding to the challenge; it is an example that we can work together and find solutions. This report marks the first time that the concept of global Responsible Competitiveness has been examined at a regional level in the Middle East. The report has both expanded the number of Arab countries included in previous global RC surveys from seven to fifteen, and developed a more customized regional framework for assessing our progress. This year, the Index will focus on: ✸ How the financial crisis – as well as broader crises – are linked to RC, and the need for improved global governance; ✸ How national economic strategies are adapting in the face of the global transition to a sustainable marketplace; ✸ How to leverage the youth bulge and reduce widespread unemployment; ✸ How food security and sustainable agriculture can enhance the region’s responsible competitiveness. I hope that this report will stimulate debate about how an RC lens can help us overcome our toughest challenges and maximize our untapped opportunities. To kick-start this conversation, we have invited some of the region’s most talented business minds to share their perspectives and experiences in overcoming these hurdles. Their vision and ideas will, I hope, encourage more sustainable choices, and set our region on new paths that will increase our global competitiveness. This report’s preliminary findings are, at times, encouraging, often, quite sobering, but overall, thought-provoking, constructive, and hopeful. Even
8

FOREWORD

as we launch this collection of informative essays, the volume on the RC conversation is being turned up, with national level initiatives in Jordan, Egypt, Saudi Arabia, and the United Arab Emirates. I am also proud that ARCI is the first project of the Arab Sustainability Leadership Group (ASLG). This dynamic group brings together businesses, government agencies, and NGOs from a growing number of countries committed to sustainable practices. Thank you to all the members who contributed essays and funded this publication. I look forward to the development of a new narrative and the lessons we will learn as more Arabs join this important conversation. Because, not doing what we’ve always done might be the best thing we’ve ever done.

Rania Al Abdullah Founder, Arab Sustainability Leadership Group

Responsible Competitiveness in the Arab World 2009 9

Executive Summary

EXECUTIVE SUMMARY

Executive Summary
The Arab World has an abundance of resources – natural, human and economic. The region is implementing a wide range of initiatives that are enhancing competitiveness and strengthening prospects for sustainable development at the same time. Responsible competitiveness is advancing in the Arab World. This report contains a new assessment of this linkage between enhancing competitiveness and sustainable development. It covers 15 Arab nations. The assessment comes in three parts: 1. an overview of the situation of Arab nations against the global sample, using the Responsible Competitiveness Index (RCI) (Chapter 1); 2. an in-depth analysis of Arab issues and opportunities, using a new Arab Responsible Competitiveness Index devised for this report, taking into account more datasets of regional relevance (Chapter 2); and 3. detailed analysis of pressing challenges from seven sustainability leaders (Chapters 3 to 9), with concrete examples and recommendations of how Arab countries and businesses can raise their performance. The key finding is that responsibility and competitiveness are strongly positively correlated in the Arab World. The region can enhance its responsible competitiveness, achieving significant increases in national income and social benefits, by building on existing strengths in three areas: ✸ Policy drivers: countries such as the United Arab Emirates, Kingdom of Saudi Arabia and Bahrain are taking a lead in reforming policies, enforcing regulation, endorsing business excellence and brokering partnerships; ✸ Business action: Kuwait, Lebanon and Egypt are examples of countries embedding sustainability management systems, engaging with international standards and promoting good corporate governance; and ✸ Social enablers: Qatar, Morocco and Jordan are enhancing work readiness skills, upgrading social infrastructure, providing microfinance and engaging the media.

Responsible Competitiveness in the Arab World 2009 11

The report provides the first in-depth assessment of Responsible Competitiveness performance across the Arab World. The study is a project of the Arab Sustainability Leadership Group, and is sponsored by four of its members. It contains a new index, the Arab Responsible Competitiveness Index (ARCI). ARCI draws together the best available data on a range of important regional priorities, from water supply and energy security to promoting talent and Islamic finance. The 15 countries covered by ARCI account for 74% of the region’s population and 86% of its GDP.
Arab Responsible Competitiveness Index 2009 score United Arab Emirates Qatar Kuwait Lebanon Bahrain Oman Jordan Egypt Tunisia Kingdom of Saudi Arabia Morocco Algeria Syria Yemen Mauritania 64.3 64.1 63.0 62.5 62.1 60.8 60.0 59.4 58.6 58.3 57.9 57.3 56.9 54.3 54.2 Arab Responsible Competitiveness Index 2009 rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

The results show that responsible business practices are strongly correlated with competitiveness, human development, and innovation; though less so with environmental performance.

12

EXECUTIVE SUMMARY

The Arab Responsible Competitiveness Index and Competitiveness; Human Development; Innovation; and Environmental Performance
Growth Competitiveness Index 2007, WEF

6 r2=0.66

3

0

53

60.5 Arab Responsible Competitiveness Index 2009

68

1.0

r2=0.80

HDR 2008 (UNDP)

0.5

0.0

53

60.5 Arab Responsible Competitiveness Index 2009

68

Global Innovation Index 2008 (INSEAD/CII)

5.0 r2=0.75

2.5

0.0

50

60 Arab Responsible Competitiveness Index 2009

70

100
EPI 2008 (Yale/Columbia)

r2=0.18

50

0

53

60.5 Arab Responsible Competitiveness Index 2009

68

Responsible Competitiveness in the Arab World 2009 13

Comparing geo-economic performance in RCI for 116 countries
OECD high income

23 55 66 67 71 87 99
50 Revised Responsible Competitiveness Index 2007 rank 100

East Asia and Pacific

Arab World

Latin America and Caribbean

Eastern Europe and Central Asia

Sub-Saharan Africa

South Asia

1

= Average

= Each line represents one country

Building on the ARCI framework, the report identifies seven areas for policy and action, as shown in the Responsible Competitiveness Pathway (see below). In this graphic, each step is the difference between Arab World
Average performance of the OECD
Arab Responsible Competitiveness Index 2009

Engaged Stakeholders (3.9%)

Talent (3.7%)

Product and Service (2.6%) Governance (1.2%) Labour policy (1.5%) Environmental policy (2.1%) Responsible business climate (4.0%) Average performance of the Arab World

14

EXECUTIVE SUMMARY

performance and the average for OECD countries. Each 1% step towards the top bar is associated with US$1,000 of GDP per capita at the global level, giving policy-makers a ready guide to the value of enhancing performance. The four key conclusions of the pathway analysis are as follows: 1. The Arab World can readily close gaps in environmental policy, labour policy and governance systems, building on the momentum to date and from adopting existing good practice. Engaging in tackling climate change, embedding a culture of Environment, Health and Safety management (EHS) in all workplaces and adopting the best sustainability standards and systems are relatively easy wins. 2. Significantly greater challenges arise in promoting a responsible business climate and in engaging stakeholders from a vibrant civil society, but so potentially are the gains. Sustainable trade and investment strategies may be needed to harness the necessary commitments. 3. The Arab World can gain a unique competitive advantage in key sectors, such as Islamic finance, efficient desalination or large-scale green infrastructure. Here, the Arab World can become a global innovator with further investment and vision. 4. The region’s top priority is building talent for the near future. Existing initiatives look promising but need to be massively scaled up to meet the size of the challenge. The report concludes with a set of seven new essays contributed by influential Arab leaders in the sustainability space. These essays drill into many of the key issues and opportunities facing the region. ✸ Abdulkareem Abu Alnasr, Chief Executive Officer of The National Commercial Bank, identifies four major opportunities for financial institutions, and other companies, in the region: “strengthening adherence to the highest international and regional standards, considering the benefits of Islamic finance, integrating sustainability into corporate governance, and encouraging renewed emphasis on good corporate governance and sustainability in government policy and economic stimuli.” (see page 79). ✸ Responsible values, according to Frederic Sicre, Executive Director of Abraaj Capital, must be at the heart of the new opportunities for business, and notably private equity, particularly in the context of a wide range of
Responsible Competitiveness in the Arab World 2009 15

economic, environmental and social global challenges. Long term value creators must base their success on “trust, good governance, proper accounting and valuation methodologies”, he argues (see page 89). ✸ Abu Dhabi’s Masdar is a process of nation building, argues Dr. Sultan Al Jaber, Chief Executive Officer of Masdar. Its success relies on cultivating human capital; deploying renewable energy (Masdar has set up a number of innovative partnerships, with German solar energy companies and with MIT, for example); regional approaches to solving joint challenges; and above all the commitment of resources: time, effort, learning and sharing (see page 97). ✸ Sustainable agriculture should play a major role in the Middle East, says Helmy Abouleish, Managing Director of Sekem Group, in the final essay, because it tackles so many of the region’s challenges, from food security, water scarcity and climate change through to youth employment and access to global markets. To see sustainable agriculture fulfil its potential requires not just visionary businesses, but governments that take “decisive steps towards more sustainable practices.” (see page 103). ✸ Fadi Ghandour, Chief Executive Officer and Founder of Aramex, sets out an ambitious agenda based on public-private partnerships to raise educational performance, and calls for the RC index to measure “employability among graduates and gauge, at all relevant levels, the engagement of all sectors in the decision making process as well as public-private partnerships in education” (see page 115). ✸ Rabea Ataya, Chief Executive Officer of Bayt.com sets out a an array of human resources challenges that, he says, can only be tackled holistically, bringing an adequate IT framework together with a “sufficiently educated, skilled population” and the right legal, physical and socioeconomic infrastructure and apparatus in a direction that ensures economic development is healthy, robust, competitive and sustainable” (see page 121). ✸ Randa S. Ayoubi, Founder and Chief Executive Officer of Rubicon, argues convincingly for a wholesale transformation of Arab World education systems to ready them for future needs and opportunities. She sets out a clear if ambitious set of six building blocks to achieve it, incorporating the creative role that Information and Communication Technology (ICT) can play. (see page 129).
16

EXECUTIVE SUMMARY

In summary, the report proposes: 1. the Arab Responsible Competitiveness Index as a tool that can be taken up by Arab sustainability leaders for refinement, debate, annual benchmarking and policy development to help plan pathways towards sustainable economies and prosperous societies; 2. a systematic approach to celebrating, learning from and scaling up good practice – drawing on creative solutions from across the Arab World as well as globally, with further networking and capacity development between the wide range of organizations working in this space; and 3. tackling existing challenges proactively to convert them into significant opportunities, at the regional level – through coordination with existing pan-Arab bodies – and nationally, through the development of ambitious sustainable trade and investment strategies, the strengthening of institutions and a step change in experimentation with innovative partnerships.

Responsible Competitiveness in the Arab World 2009 17

Responsible Competitiveness and the Arab World

ARAB COMPETITIVENESS THROUGH A RESPONSIBILITY LENS

1 Arab Competitiveness through a Responsibility Lens
About the Authors
Alex MacGillivray is a Senior Partner at AccountAbility Darin Rovere is the President of Sustainability Excellence Arabia

Simon Zadek is Managing Partner and Director at AccountAbility and Senior Fellow at Harvard University’s Kennedy School of Government and Business

This chapter:
✸ Outlines key challenges facing Arab economies ✸ Introduces the concept of Responsible Competitiveness for the Arab World ✸ Presents evidence for 116 countries including 15 Arab states ✸ Indicates a three-step pathway towards more responsible competitiveness for the region ✸ Identifies promising interventions in the areas of public policy, business action, and social enablers

1.1. The Arab World: competitiveness challenges The Arab World faces a set of challenging competitiveness issues. These issues include economic diversification, a major human resource development challenge (including an enormous youth demographic and empowerment of women), food security, water management, good governance, climate change, and others. Each issue has been made more complex by the global financial crisis and economic slowdown.

Responsible Competitiveness in the Arab World 2009 19

Underlying each of these issues is a common theme. They suggest that if progress is to continue, the rapid economic development that has been unfolding in the region needs to be systematically integrated with improved social performance, ecological sustainability, and more equitable and diversified economic development. In short, competitiveness strategies need to be rooted in the principles of sustainable development. “Responsible Competitiveness” embodies this challenge. Responsible competitiveness is about making sustainable development count in global and local markets. It means markets that reward business practices that deliver improved social, environmental and economic outcomes; and it means economic success for nations that encourage such business practices through public policies, societal norms and citizen actions. Evidence shows that the performance of countries that incorporate responsible competitiveness-oriented strategies correlates positively with national competitiveness as traditionally measured. Responsible competitiveness needs stable institutions, productive businesses and creative populations. It is a winning combination of bottom-up business action and top-down policy drivers, supported by empowered citizens and demanding consumers. This report aims to explore the potential for increasing responsible competitiveness in the Arab World, through a diagnosis of the current state of performance in the region. It achieves this in three steps: ✸ A big picture review of Arab Responsible Competitiveness. This section uses the Responsible Competitiveness Index global methodology to compare Arab performance against global performance, comparing 15 Arab nations to a global dataset to unpack the linkages between responsibility and competitiveness at the policy, business action and civil society levels; ✸ A new customized Arab Responsible Competitiveness Index (ARCI) drawing on additional regionally-relevant datasets. This section drills down into seven key drivers of responsible competitiveness that incorporate the highest priority regional issues; and ✸ A set of seven essays from leading regional voices on the highest priority Arab issues, from financial sector governance and sustainable diversification to building human resources and sustainable agriculture, citing best practice, regional challenges and proposed actions.

20

ARAB COMPETITIVENESS THROUGH A RESPONSIBILITY LENS

Together, these three sections capture what is being done and what can be done to achieve the region’s full potential, with clearer pathways towards economic prosperity that are socially responsible and environmentally sustainable. The bottom line is that Responsible Competitiveness strategies can and do contribute to national competitiveness and development, and should be duly considered in the ongoing development of national competitiveness strategies in the Arab World. The next section reviews those strategic opportunities in more detail. 1.2. Arab competitiveness: challenges and opportunities

❝

Our global systems are needing to be redesigned from a governance and financial point of view, but also environmentally and socially.” Frederic Sicre, Executive Director, Abraaj Capital

The Arab region faces a set of collective competitiveness challenges and opportunities (see table below). Alongside these common threads, the Arab World is in many ways a region of contrasts. Economically, while leading companies are taking their places as global brands in the Fortune Global 500 list, hundreds of thousands of small and medium sized businesses still struggle against a myriad of obstacles to set up and survive in business.1 While many regional countries have profited tremendously and built up substantial financial resources through oil and gas revenues, other regional energy-dependent nations have until recently suffered under the weight of damaging energy costs. With dramatically shifting energy costs, the competitiveness strategies of both groups of countries are significantly impacted. Unprecedented economic development and investment in some Gulf states has created proportionate labour and environmental challenges. And despite evidence of recent progress, untransparent business dealings and nepotism remain issues in some parts of the region. As a comparison, in Latin America, the cost of corruption has been estimated at 10 percent of regional GDP. The Arab World may also suffer serious costs. Good corporate governance and transparent, ethical business practices are emerging as priority responses. On the social front, the human resource development challenge is front and centre in the competitiveness dialogue. In spite of impressive regional growth, productivity in the Gulf states actually fell (in the non-oil sector) between 1997 and 2007.2 Regarding youth, those aged 15-29 make up over
Responsible Competitiveness in the Arab World 2009 21

Table 1.1: Key challenges identified in Arab Competitiveness Strategies Many Arab countries now have comprehensive competitiveness strategies. Among the key issues identified in these reports are: Ensuring macro-economic stability Building talent and creativity Gaining access to attractive markets Developing the industries of the future Launching local, regional and economy-wide competitiveness initiatives ✸ Addressing the global energy security agenda ✸ ✸ ✸ ✸ ✸ For example, Algeria’s authorities are building a Labor Code that incorporates international standards, strengthening women’s rights and combating youth employment; and have created a National Micro Credit Agency and National Fund for Unemployment Insurance’. Egypt’s Competitiveness Report recognizes three crucial global challenges which will have implications on the economy in general, and competitiveness in particular. They are peak oil prices, water scarcity and climate change. Kingdom of Saudi Arabia’s strategy sets hugely ambitious goals for the country and focuses on issues like improving property registration procedures and creating a world-class education system.
Source: AccountAbility analysis

one third of the region’s population, an impressive resource of young, dynamic, and often well-educated talent. Yet the Arab World also has the highest rates of youth unemployment and youth underemployment in the world, demonstrating in many countries a major gap between education content and private sector skills requirements. “Unemployment in the Arab World amounts today to 14%”, says Ahmed Luqman, Director-General of the Arab Labour Organization. “This is a phenomenon that threatens the younger generation if not addressed
22

ARAB COMPETITIVENESS THROUGH A RESPONSIBILITY LENS

immediately.”3 Research suggests that the combined costs of youth unemployment for 11 countries in the region are as high as US$25 billion a year, or 2.3% of GDP. Over 100 million new jobs need to be created by year 2020.4 Regarding women, good progress in empowering women still hardly begins to address the enormous equality gap and corresponding economic and social losses. As a financial comparison, in South East Asia, the failure to attract women into the workforce results in a loss of US$40-60 billion a year according to the best estimates. With regard to the Millennium Development Goals, an ambitious set of targets covering global social issues and agreed by countries in 2000 to be achieved by 2015, many may already have become unattainable for a majority of Arab countries.5 Environmentally, all the evidence shows that the Middle East and North Africa will be disproportionately impacted by climate change.6 The Arab World has over 60% of the world’s oil, but only 0.5% of its renewable freshwater resources.7 The region faces a formidable array of other difficulties in improving its environmental performance. Food security and sustainable agriculture have emerged as critical issues, while growing issues of concern range from desertification and waste management to poor air quality in the big cities and impending sea level rise. Estimates of the potential economic losses associated with this latter problem range up to 6% of GDP for a country like Egypt. A comprehensive report launched at the first Arab Forum for Environmental Development (AFED) in Bahrain in late 2008 estimated the cost of environmental degradation in the Arab region as a whole at 5% of gross domestic product (GDP).8 The Arab World faces formidable challenges, then, on all three fronts: economic, social and environmental. Getting the right policies in place, engaging a critical mass of businesses, and harnessing the creative power of civil society, can lead to a substantial uplift in future regional income – potentially double digit GDP growth. This agenda – finding a culturally appropriate and policy-effective pathway towards responsible competitiveness – is increasingly the focus of competitiveness strategies for the region as a whole and in every Arab country that has the capacity for national competitiveness and sustainability strategies.9 The next section examines the broad evidence of Arab countries’ performance in responsible competitiveness.

Responsible Competitiveness in the Arab World 2009 23

1.3. Responsible competitiveness: the global picture

❝

A sustainable future means markets that reward long-term performance.” Honorable Al Gore10

Across the full range of sustainability and responsible competitiveness issues, there is wide variation in national performance worldwide, from countries that do not have the short-term capacity to gather reliable data, through to countries that are making these issues long-term strategic priorities. Globally, some countries design systems to reward lean and green enterprises, while others have punitive employment tax systems and fuel subsidies that encourage high emissions and low productivity. Some governments provide labour inspectorates with enough trained inspectors to enforce labour laws, because they know that healthy workplaces are productive workplaces. In other countries, business associations discourage their members from working together to solve common problems. In some sectors, collaboration is seen as the best way to overcome the first mover disadvantage in upgrading the global supply chain, while in others, each company tries to enforce its own standards in dozens of producer nations. According to international evidence from over 100 countries, successful economies are ones in which competitiveness, sustainability and business responsibility go hand in hand. AccountAbility, the non-profit global thinktank, has been a pioneer in driving this debate, and has worked since 2002 to examine how responsibility is driving value creation in industrial clusters, regions, sectors and nations. AccountAbility’s fourth global report ‘The State of Responsible Competitiveness 2007’ was launched at a Ministerial Roundtable at the UN Global Compact Leaders Summit in Geneva in July 2007. Regional responsible competitiveness studies have since been published in Europe, Latin America, China, and now in the Arab World. The global and regional responsible competitiveness reports use a metricsdriven framework to examine how countries can embed responsible practices at the heart of the economy and create markets that reward sustainable products and services.11 The 2007 global report quantified the performance of 108 economies (including 17 least developed countries) to deepen our understanding of the drivers of responsible competitiveness. The analysis uses 21 indicators – including hard and soft data – from authoritative sources like the World Bank and IFC, the World Economic Forum, and Transparency International, clustered into three primary domains:
24

ARAB COMPETITIVENESS THROUGH A RESPONSIBILITY LENS

✸ Policy drivers: analysing the strength of public policies and ‘soft power’ that encourage responsible business practices, from signing and implementing international conventions through to setting the framework for private sector employment of women; ✸ Business action: measuring the application of good corporate governance procedures, and social and environmental management systems; and ✸ Social Enablers: the role of civil society in encouraging and challenging businesses and government to build effective collaborations to reshape markets.

Table 1.2: Limitations of measuring responsible competitiveness Like all data-rich exercises, capturing the right pieces of information is difficult. Measuring responsible competitiveness is no different. This report presents two indices, using the best quality data available for the region. However, even these indicators have real limitations and caveats globally and particularly in the Arab World. These include: ✸ Poor country coverage. Few international data gatherers are capturing data across the whole region in a systematic way. ✸ Datasets have significant time lags and the most recent data available for indicators like carbon intensity may be three or four years out of date when they are released. ✸ Sporadic information on country performance, makes it difficult to assemble a full set of data and comprehensively assess progress towards responsible competitiveness for some countries. ✸ Quality of data collected. Many indicators are based on opinion surveys of business executives, and while their views may be more relevant than national citizens in some areas, they might not provide adequate insight across the full range of issues. Furthermore, this type of indicator can be further skewed if business leaders are particularly pleased with the current performance or if they have been prepared to respond to questions in a certain way.

Responsible Competitiveness in the Arab World 2009 25

✸ Relevance of information available. Globally, and particularly in the region, to date there has been no systematic collection of information on key issues like number of workers per labour inspector, which hinders the development of a comprehensive analysis. Caveats aside, this report provides the first systematic assessment of responsible competitiveness in the region. It uses third-party indicators from authoritative sources, each carefully selected to provide a broad insight into a particular theme. The indices are designed to be accessible, regularly updated and with the possibility of growing country coverage. Our hope is to work with civil society, researchers, businesses and policy makers to reduce the limitations to data collection and to develop a benchmark that can be used to help the Arab World promote sustainable development.

This current report revisits the 2007 RCI to deepen insight into the Arab World. It includes expanded coverage from the original seven countries (UAE, Kuwait, Tunisia, Morocco, Jordan, Egypt and Mauritania) to cover 15 Arab World countries,12 the maximum currently possible given data constraints (see Table 1.2). This expanded country coverage, now accounting for 74% of Arab World population and 86% of regional GDP, enables Arab policy-makers better to benchmark their performance with international peers. The key finding is that responsible competitiveness shows a strong positive correlation with all the main measures of national competitiveness, such as the World Economic Forum’s Growth Competitiveness Index (see Chart 1.1), and World Bank/IFC’s ‘Ease of Doing Business’ index. While a positive correlation does not prove causality between the two variables, the research does establish that in general globally, and for the Arab World specifically, countries with a responsible business climate also tend to have competitive advantage. The top line results from this analysis are: ✸ The strong positive correlation between responsible competitiveness and growth competitiveness (established in 2007 with a sample of seven Arab nations) is maintained (R2=0.85) with the inclusion of an additional eight Arab nations. ✸ European countries, and the Nordic nations in particular, are most advanced
26

ARAB COMPETITIVENESS THROUGH A RESPONSIBILITY LENS

Chart 1.1: World Economic Forum’s Growth Competitiveness Index and the Responsible Competitiveness Index
7.0 Global sample (n=101) Arab World (n=15) r2=0.87
Growth Competitiveness Index

4.5

2.0 30

60 Responsible Competitiveness Index

90

in embedding responsible business practices at the heart of their economies. These leading countries are joined by Hong Kong, Japan and Singapore, Canada and the United States, and Australia and New Zealand in the Top 20. ✸ South Africa and other emerging economies like Chile, Malaysia and South Korea, perform within the top quartile, higher than some recent entrants to the European Union. ✸ Qatar, United Arab Emirates, Kuwait, Bahrain, Lebanon, Oman, Jordan, Tunisia, Kingdom of Saudi Arabia and Egypt lead the Arab World countries, all scoring over 50 points out of 100 on the RCI. ✸ Countries trailing in responsible competitiveness performance are drawn from Asia, Sub-Saharan Africa, Latin America and some Arab nations. The bar chart below (Chart 1.2) shows the results of the Arab World against other key groupings around the world. What is clear is that Arab World performance spans across a broad spectrum of other countries, from low scorers at the 40-50 level to higher scorers at the 60+ level. This is
Responsible Competitiveness in the Arab World 2009 27

Chart 1.2: Comparing geo-economic performance in RCI for 116 countries
OECD high income

23 55 66 67 71 87 99
50 Revised Responsible Competitiveness Index 2007 rank 100

East Asia and Pacific

Arab World

Latin America and Caribbean

Eastern Europe and Central Asia

Sub-Saharan Africa

South Asia

1

= Average

= Each line represents one country

consistent with the pattern in other regions and with the diversity in levels of development and scale of challenges across the region. But it is also possible to draw some conclusions about different patterns within the diversity, to which we now turn. 1.4. Different competitiveness strategies in the Arab World

❝

Our objective to diversify into a knowledge based economy by advancing the commercialization and deployment of renewable energy will mean that Abu Dhabi will be able to maintain and define its position as global energy leader for years to come.” Dr. Sultan Ahmed Al Jaber, Chief Executive Officer, Masdar

Globally and regionally, comparing higher-ranking countries with lowerranking countries provides limited policy insight. Examining clusters of countries at similar stages and following similar strategies is more useful. The RCI global analysis reveals that countries fall into four clusters which have differing priorities in achieving responsible competitiveness. This
28

ARAB COMPETITIVENESS THROUGH A RESPONSIBILITY LENS

cluster analysis demonstrates that there is no single pathway to building responsible competitiveness. Each cluster has a different strategic balance, combining business action, policy drivers and social enablers in the most effective and appropriate combination for their economic goals, natural endowments and socio-cultural parameters. This finding is particularly important in the Arab World, given its heterogeneous nature, where the 15 countries assessed fall into three of the four clusters. The following is a brief description of each cluster, including the placement of Arab countries in those clusters. From a policy perspective, the opportunity for each country is to consider how it might shift from one cluster into the next higher cluster, or even leapfrog into an even higher cluster. ✸ Starters: These countries may well have signalled a commitment to responsibility through signing and ratifying international treaties and conventions, but through budgetary constraints and other reasons, struggle to implement the basics, like worker health and safety. In 2007 there were 31 “Starter” countries internationally including Bangladesh, Zimbabwe and Russia. Starters in the Arab region include Yemen, Mauritania and Morocco. ✸ Compliers: Compliers are a large cluster of countries ranging from low to middle-income. From the Arab region it includes most of the Maghreb, Egypt, the Mashreq and some Gulf States. Global compliers include countries ranging from India and Brazil to Turkey and Mexico. Together, this group of countries accounted for over US$1 trillion of exports before the 2009 downturn in global trade. As markets become more competitive, compliers have to focus ever more clearly on demonstrating progress in meeting international quality, productivity, labour and environmental standards, in order to defend or recapture market share. ✸ Asserters: are countries seeking to seize new opportunities in responsible competitiveness. Some, like Chile and South Africa, actively promote international standards to gain competitive advantage, for example in responsible mining or ‘fair trade’ beverages. Other Asserters are focused on trying to build national ‘responsibility’ or ‘sustainability’ brands to attract foreign investment and build entrepreneurial culture rather than to establish global export brands. Kuwait, the United Arab Emirates, particularly Abu Dhabi’s ambitious Masdar initiative, and Qatar appear to fall in the latter category.
Responsible Competitiveness in the Arab World 2009 29

✸ Innovators: this most developed cluster of 20 countries is embedding responsibility in the core of innovation strategies, guided by welldesigned incentives, stretching regulations and demanding consumers. Competitiveness for innovators requires creative workers and responsive institutions. While Arab countries have yet to arrive within the ‘Innovator’ cluster, several have set their sights on becoming Innovators and have national strategies to achieve it. In some cases, Arab countries plan to leapfrog to responsible innovation straight from the ‘Compliers’ cluster. Given the strong correlations between responsible competitiveness and key economic, social and environmental variables, cluster upgrading is a compelling opportunity for the Arab nations. For each percentage point of progress towards responsible competitiveness, countries improve their prospects of achieving: ✸ A significant uplift in innovative capacity and worker motivation, with spin-offs for business productivity and entrepreneurship; ✸ Improvements in human development and environmental performance, with associated benefits on skills, health (eg from better air quality) and quality of life; and ✸ For national income, our analysis of responsible competitiveness in 108 nations in 2007, broadly showed a potential increase of over US$1,000 of GDP per capita, regardless of the level of current level of economic development.13 14 These are benefits well worth competing for. In the next section, we assess in broad terms how Arab countries can plan a pathway to move from their current cluster to a more rewarding one. 1.5. Responsible competitiveness strategies in the Arab World

❝

Our ultimate goal is to achieve a top 10 most competitive country ranking through a responsible and enduring way.” His Excellency, Amr Al-Dabbagh, Governor and Chair of the Board, Saudi Arabian General Investment Authority15

Responsible competitiveness, then, is about planning the transition towards markets that reward responsible business practices and promote sustainable development. While every country’s pathway will be different, this section identifies some common opportunities, organized according to
30

ARAB COMPETITIVENESS THROUGH A RESPONSIBILITY LENS

the three broad parameters of responsible competitiveness identified in section 1.3 above. Figure 1.1 illustrates the scale of the opportunity for the Arab World as a whole to move from its current performance to the level of the Asserter countries. The pathway analysis is broken down into policy drivers, business action and social enablers. For each of these three steps in turn, the following sub-sections draw on examples from across the Arab region demonstrating progressive practices than can provide learning, inspiration and possible policy recommendations. Figure 1.1: Responsible competitiveness pathway analysis for the Arab World to join the ‘Asserters’ cluster

Average performance of the ‘asserters’ Social Enablers (3.6%)

Business Action (2.0%) Policy Drivers (2.2%) Average performance of the Arab World

1.5.1. Policy drivers Policy is the strongest area of responsible competitiveness performance across the Arab World. There has been significant progress in Arab engagement in multilateral labour agreements, and environmental agreements including the climate change negotiations. Even less developed states like Djibouti are ready to sign up to international conventions. However, the potential of proactive strategies is still not fully appreciated by many policy makers in the region, whether due to traditional approaches to competitiveness, lack of inter-departmental coordination, insufficient advice, poor analytics or competency gaps. While the potential to achieve higher “Innovator” level performance is still, with the exception of a small number of regional countries, at an early level of understanding among regional policy makers, there are clear signs of progress.
Responsible Competitiveness in the Arab World 2009 31

Five policy interventions show particular promise in the region. These are: ✸ Reforming policy: Progress is evident on policy reform. For example, thirteen Arab economies introduced 29 reforms between June 2007 and June 2008 in the areas measured by Doing Business.16 With regard to gender issues and bringing women into the workforce, Lebanon’s Convention on the Elimination of all forms of Discrimination Against Women (CEDAW) is striving to eliminate laws, traditions, and customs that are intended to or otherwise result in gender-based17 discrimination. Lebanon currently has the highest female participation in the region, constituting around 28% of the workforce, the majority working in the private sector.18 19 ✸ Enforcing regulation: Although challenges remain with enforcement of regulation, there has been progress on several critical regulatory issues. For example, seventy-two percent of Middle East companies view anticorruption laws and regulations as being strongly enforced, according to Ernst & Young’s most recent anti-fraud survey.20 In Chapter 2, we further review progress in implementing health and safety regulations. ✸ Promoting a responsible business climate: The Saudi Arabian General Investment Authority (SAGIA) is one progressive organisation developing a climate for responsible business through a multi-year programme. In 2008, with a range of experts including Harvard University, the United Nations Foundation, AccountAbility, Next Economics and King Khalid Foundation, SAGIA launched a coordinated programme that is working to build responsible competitiveness in start-up companies, established firms and through high-level executive training.21 The first year of this programme finished in January 2009, and SAGIA has ambitious plans to scale-up the initiative to maximise impact in the Kingdom. ✸ Multi-stakeholder collaboration: The Environment Agency – Abu Dhabi established in 2008 the Abu Dhabi Sustainability Group (ADSG), a multistakeholder group comprised of government agencies, major local businesses, and local NGOs with the purpose of re-orienting Abu Dhabi’s policy platform from ‘Complier/Asserter’ mentality to that of ‘Innovator’, and advocating sustainability strategy and practices. All members are committed to adopting sustainability management and reporting. Several essays in this report also showcase interventions to develop talent through creative collaborations. ✸ Reinforcing economic diversification: Responsible competitiveness enables countries to identify new opportunities, manage risks and diversify
32

ARAB COMPETITIVENESS THROUGH A RESPONSIBILITY LENS

their economies. The 2009 global economic downturn could provide a unique opportunity for the economies of the Arab World to emerge on the international scene as entrepreneurial and vibrant markets. Clean technology could be one opportunity to do this, ranging from desalination plants in the Kingdom of Saudi Arabia, to water-efficient agricultural methods under development in Egypt. Abu Dhabi’s Masdar initiative to transition Abu Dhabi’s hydrocarbon wealth into renewable energy leadership is a stand-out regional example of Innovator practice in responsible competitiveness. How this is being achieved is further elaborated in the essay by Dr. Sultan Al Jaber. The region has a major opportunity to harness emerging practices and drive competitive advantage. 1.5.2. Business action Responsible business action is a relatively solid area for most Gulf States and some Maghreb countries, with more ground to cover in some Mashreq states and the least developed states. Overall, Arab states still have potential for further progress, as the pathway chart illustrates. In some countries, a strong example has been set by a handful of inspirational Chief Executive Officers and export-oriented large companies (recently listed on the capital market), supported by domestic initiatives like CSR awards and global programmes like the UN Global Compact. “There has never been a more defining moment than this for us to take action”, says Fadi Ghandour, President and Chief Executive Officer of Aramex International and an essayist in this report. “The stakes are too high for corporations to remain bystanders in the process of development. As business leaders we have the means, the leadership and access to powerful global networks that can transform the world.”22 Four areas stand out as effective interventions in promoting more business action: ✸ Scaling up sustainability management systems: A small but growing number of companies across the region are already committed to adopting sustainability management and reporting. This has created a breakthrough both in thinking about business opportunities relating to sustainability, and in transparency of corporate reporting across economic, environmental, social, and governance performance. The Arab Sustainability Leadership Group (ASLG), launched by Her Majesty Queen Rania of Jordan in May 2008, is the first of its kind from the region, with members committed to sustainability management and reporting. The network currently comprises 13 leaders of business,
Responsible Competitiveness in the Arab World 2009 33

government, NGOs and civil society and aims to accelerate regional uptake of sustainability management through leadership and advocacy and be the linkage between the Arab region and the rest of the world on key sustainability issues. The number of companies adopting sustainability management is expected to grow exponentially as a result of the successful experiences of these leadership companies, working singly or in networks like the Arab Sustainability Leadership Group and ADSG in Abu Dhabi (noted above). ✸ Promoting a culture of good corporate governance: in Egypt, a breakthrough came with the formation of the Institute of Directors and the publication of the region’s first Arabic language only code of good practice in 2005. As Chapter 2 highlights, a major opportunity for the Arab World is now to engage with family-owned businesses (including very large family-owned businesses) that can see sustainability management as an overly-costly, unnecessary, or even risky endeavour. Business associations, stock market boards and industry zone managers can also be provided with the remit and tools to support their members on the journey towards best practice corporate governance.23 ✸ Engaging with international standards: Successful launches of UN Global Compact networks in Jordan, Morocco, Syria, United Arab Emirates, Egypt and other countries, providing networking and learning opportunities for the 136 Arab World participants, both nationally and with 4,550 like-minded companies in 120 countries.24 In Chapter 2 below, we review further opportunities to learn from and influence relevant responsibility and sustainability standards, while the essay by Helmy Abouleish, Managing Director of Sekem Group, shows how a major opportunity has been created in organic agriculture in Egypt. ✸ Develop soft power standards to help companies’ access new international markets: 2009 presents an opportunity for the Arab World to reshape global markets in ways that reward its distinct ways of doing business. Alongside the opportunity to engage with existing international standards like the Equator Principles for financial institutions, or win certification from the Forest Stewardship Council that promotes the sustainable harvest of trees, companies in the region can develop new multi-stakeholder standards that reinforce their competitive advantages. One of example of this type of business action comes from China, where Chinese transnational corporations are using their own research and experience to explore how to develop these collaborative standards in ways that deliver competitive advantage in international markets.25
34

ARAB COMPETITIVENESS THROUGH A RESPONSIBILITY LENS

1.5.3. Social enablers The third broad parameter of the responsible competitiveness framework tends to be weaker in many Arab states, and as in other regions of emerging economies, can be controversial. However, the social infrastructure for growth is now becoming the subject of growing attention among Arab sustainability-minded leaders, who recognize that weak social enablers will become a limiting factor for further progress in responsible competitiveness and sustainable development – as the pathway analysis suggests. An interesting case here is Singapore, where the investment authority is now actively trying to attract international NGOs to locate on the island, to build a more vibrant home for its businesses. The risk is that civil society and labour organisations end up being overly focused on local service delivery, or alternatively too campaign-oriented (although less so in the Arab World), to the detriment of their ability to engage constructively and critically with businesses to achieve scalable solutions. The often small size of civil society itself in the Arab region also limits the extent of innovative collaborative engagement with business and government. However, international experience demonstrates that an investigative media, engaged youth and vigilant consumer groups all help hold companies to their commitments, and that civil society should not just be seen as a ‘watchdog’ but also as a source of inspiration for innovative products and services. The essay by Randa S. Ayoubi, Founder and Chief Executive Officer of Rubicon, shows how young people can be engaged in highly creative ways. Three social enablers appear as especially promising areas for investment by national competitiveness promoters in the region: ✸ Enhancing work readiness skills: particularly among high school students. The campaign "Empowering One Million Arab Youth by 2018", was conceived by INJAZ al-Arab, a confederation of national operations working with 10,000 corporate volunteers to train Arab students through hands-on programs in work readiness, in partnership with ministries of education. The initiative aims to empower one million Arab students by 2018 through the support of international and regional corporations who send their staff into local schools to share their professional experience with youth in a unique set of entrepreneurship programs. The program aims to be complementary to, and a catalyst for, accelerated educational reforms and greater private sector engagement, and is eminently replicable. ✸ Upgrading social infrastructure: The Madrasati (“My School”) project, managed by the Jordan River Foundation, is a multi-stakeholder
Responsible Competitiveness in the Arab World 2009 35

initiative aimed at repairing the 500 schools in Jordan in most need of upgrading. The program is primarily funded by businesses, who actively engage with their sponsored school and its stakeholders through school-based committees, in an effort to ensure enhancements are lasting, and to tap further into the businesses talent, resources, and competencies. Across the region, businesses are increasingly leveraging their long and strong traditions of philanthropy into social and environmental projects, working with NGOs and municipalities. ✸ Engaging the media: The success of Al Jazeera, founded in 1996 and often referred to as the CNN or BBC of the Arab World, as an independent news voice has not only recast the stage for media journalism in the Arab World, but has arguably been a catalyst for positive change that supports a responsible competitiveness orientation. In a number of countries, such as the Kingdom of Saudi Arabia, CSR groups are now offering awareness raising for journalists who are then more confident in covering responsible business stories. Hawkamah and Zawaya Dow Jones have developed a program which aims to develop regional journalists’ understanding of corporate governance issues, as well as to provide a platform to share knowledge and experience. It is now common to find such stories in the press and broadcast media across the region, including on blogs like http://memrieconomicblog.org. 1.6. Conclusion

❝

Responsible competitiveness is no longer a luxury for the rich. It is a development path that compels us to use our human, natural, and financial resources efficiently while moving forward to realize a prosperous life for all." Maged George, Minister of State for Environmental Affairs, Egypt

This chapter has presented a broad analysis of opportunities for the Arab World, based on a global assessment of responsible competitiveness incorporating fifteen Arab states. The key finding: in the region, responsible business practices are strongly correlated with the main measures of national competitiveness, with a number of countries moving from ‘Compliance’ strategies towards more proactive ‘Asserter’ status. The pathway analysis shows that action can be taken in three broad areas to advance Arab regional performance. Responsible competitiveness demands optimal combinations of policy drivers, business action and social enablers. When the three elements work effectively together, nations can
36

ARAB COMPETITIVENESS THROUGH A RESPONSIBILITY LENS

accelerate progress towards improved economic, environmental and social performance, both in the long and shorter term. Of course, it is for each Arab country to determine its own pathway to most effectively shift from one cluster to the next, or even leapfrog, to advance its responsible competitiveness. To gain a deeper insight into those opportunities, however, Arab policy-makers and business leaders need a more detailed framework and richer data on national performance in tackling key regional challenges (such as those identified in sections 1.1-1.3 above). To provide such insight, the report now presents a customized Arab Responsible Competitiveness Index (or ARCI), covered in some detail in Chapter 2. Using this customized regional index, even in pilot format, allows a drill down into seven key responsible competitiveness drivers within the broad responsible competitiveness policy, business, and social drivers framework. This allows many of the region’s most pressing issues to be more fully addressed than is possible with a global framework covering 115 counties. This more detailed analysis is followed by a series of essays that explore many of the highest priority regional responsible competitiveness issues in further detail. As highlighted at the beginning of this chapter, the goal is to stimulate dialogue, improve analytical capacity and catalyze action that can advance responsible competitiveness nationally and regionally.

Endnotes
1 In Fortune’s 2002 list, Etisalat was the first Arab World company to make the list. In 2007, only Sabic was represented in the G500, ranked at 301. The Arab World on average ranks 100th out of 181 economies assessed by the Doing Business team at the World Bank/IFC. www.doingbusiness.org/documents/DB2009_ArabWorld.pdf 2 3 4 5 http://memrieconomicblog.org/bin/content.cgi?news=3012. www.silatech.com/sub.news1.aspx. World Bank, Unlocking the Employment Potential in the Middle East and North Africa: Toward a New Social Contract (Washington: D.C.: World Bank, 2003). UNDP Arab HDR. Towards 2015: Achievements and Aspirations: The Millennium Development Goals – Progress in the Arab World, available at: http://www.undg.org/ archive_docs/3495-The_Arab_Regional_MDG_Report_-_English.pdf 6 7 Compendium of Environmental Statistics in the ESCWA Region, UN Economic and Social Commission for Western Asia, 2007. Compendium of Environmental Statistics in the ESCWA Region, UN Economic and Social Commission for Western Asia, 2007.
Responsible Competitiveness in the Arab World 2009 37

8 9

http://memrieconomicblog.org/bin/content.cgi?news=3017. AccountAbility analysis of national competitiveness plans. www.accountability21.net

10 The State of Responsible Competitiveness 2007 is available for free download at: 11 A full description of the global Responsible Competitiveness Index methodology can be found in the Technical Annex available to download from: www.accountability21.net/responsiblecompetitiveness 12 Djibouti, Eritrea, Iraq, Libya, Palestinian Authority and Sudan could not be included because data are not collected for them by one or more of the core data gatherers. 13 There is a difference in RCI score between the bottom and top clusters of 28.5% and a difference in GDP per capita (PPP) of US$29304 at Purchasing Power Parity, making the value of a 1% improvement US$1025. 14 There is a difference in RCI score between the bottom and top clusters of 28.5% and a difference in GDP per capita (PPP) of US$29304 at Purchasing Power Parity, making the value of a 1% improvement US$1025. 15 Taken from the Saudi Responsible Competitiveness Index 2008, available to download from www.accountability21.net 16 www.doingbusiness.org/documents/Press_Releases_09/ DB09_ArabWorld_English.doc 17 Allam, Rasha (2008) “Countering the Negative Image of Arab Women in the Arab Media: Toward a “Pan Arab Eye” Media Watch Project”, The Middle East Institute, Policy Brief, No. 15 June 2008 18 Fahimi-Roudi, Farzaneh / Moghadam, Valentine (2003) “Empowering Women, Developing Society: Female Education in the Middle East and North Africa”, Population Reference Bureau 19 Institute for Women’s Studies in the Arab World (1998) “Female Labor Force in Lebanon”, Al-Raida 15, no. 82 (1998): 12-23. 20 Ernst & Young’s 10th Global Fraud Survey: Corruption or Compliance – Weighing the Costs http://memrieconomicblog.org/bin/content.cgi?article=217. 21 The Saudi Responsible Competitiveness Index, Found at www.rci.org.sa 22 www.iblf.org/docs/BizYouthArab.pdf 23 Jen Maceyko, Advancing Transparency and Accountability: Egypt, Center for International Private Enterprise. 24 www.unglobalcompact.org/ParticipantsAndStakeholders/ search_participant.html?submit_x=page&pc=250&pn=1 25 Advancing Sustainable Competitiveness of China’s Transnational Corporations, G. Long, Zadek, S and Wickerham, J (2009), AccountAbility London. Available to download from www.accountability21.net

38

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

2 Progress Towards Responsible Competitiveness in the Arab World
About the Authors
Alex MacGillivray is a Senior Partner at AccountAbility Paul Begley is a Senior Principal at AccountAbility

Darin Rovere is the President of Sustainability Excellence Arabia

Ruba Fanous is the Project Coordinator and Associate Researcher of Sustainability Excellence Arabia

Mohammad Jebriel is a Consultant of Sustainability Excellence Arabia

This chapter:
✸ ✸ ✸ Outlines seven key drivers of responsible competitiveness in the Arab World Frames the top regional issues within these 7 drivers Assesses Arab progress and highlights leadership across these 7 drivers using the best available data and practical examples ✸ Summarizes a realistic pathway to transition Arab countries towards higher levels of responsible competitiveness

Countries need stable institutions, productive businesses and creative, healthy populations to ensure long-term prosperity. As Chapter 1 shows, to achieve responsible competitiveness, markets need progressive business actions and engaged stakeholders underpinned by far-sighted policy. It requires firms to respond to changing consumer demands, investors that support responsible practices, smarter legislation and regulation, and a supportive social environment. According to the international evidence, thriving economies have been those that combine business responsibility, sustainability and competitiveness.
Responsible Competitiveness in the Arab World 2009 39

As several of the essayists argue in Chapters 3-9 below, the global economic downturn in 2009 could be the catalyst for nations around the world to rebuild and create markets that comprehensively reward responsible business practices. It presents an opportunity for the Arab World to emerge as a coherent voice to support sustainable development around the world. This could be the year to influence and shape global markets in ways which build competitiveness and reinforce green enterprises, decent workplaces and vibrant communities in ways that support the local ways of doing business. Across the Arab World, from wealthy economies like Dubai, Qatar and the Kingdom of Saudi Arabia, to middle-income countries like Tunisia and Jordan, through to developing countries like Yemen and Mauritania, countries are beginning to devise responsible competitiveness strategies (see Figure 2.1). The challenge is to scale-up these initiatives and create coherent national strategies that deliver sustainable development. Although each country’s pathway will be different, to achieve it will always require an ambitious national strategy, the systems to implement it, and engagement with all stakeholders to achieve improved social, environmental and economic outcomes. Each country has an opportunity to devise new ways to create value by adopting responsible competitiveness practices. Chapter 1 presented the most comprehensive guide to responsible competitiveness around the world, the Responsible Competitiveness Index (RCI). While this global level index provides important comparability against countries from around the world, it will always have limitations when considering regional contexts and priority challenges. To address these limitations, this report presents the first systematic assessment of responsible competitiveness in a region, the Arab Responsible Competitiveness Index (ARCI).

40

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

Figure 2.1: Some responsible competitiveness initiatives in the Arab World

1. 3. 2.

4.

5.

6. 7.

8.

1. Morocco: Scaling up microfinance (over 1.3 million people accessed loans in 2008) 2. Egypt: Developed the “Egyptian Code of Corporate Governance” in 2007; a first in the Arabic language 3. Jordan: Working to build responsible competitiveness in the finance, tourism and construction/real estate sectors 4. Syria: Developed the “Village Business Incubator” to support female entrepreneurs 5. Kingdom of Saudi Arabia: Strong commitment to responsible competitiveness through the ambitious “10x10 strategy”, the Saudi Responsible Competitiveness Index and the annual Fast Growth awards 6. Bahrain: Taking a leadership role in Islamic finance with over US$34 billion Shariah Compliant Assets in national banks 7. Qatar: Building innovative human resources through strategic ICT investment 8. United Arab Emirates: The eco-city, Masdar, is setting new standards for green infrastructure

Responsible Competitiveness in the Arab World 2009 41

2.1 The Arab Responsible Competitiveness Index (ARCI) The Arab Responsible Competitiveness Index (ARCI) aims to be the best reference point for assessing progress towards responsible competitiveness in the region. It builds on AccountAbility’s current global RCI, expanding the existing global methodology to use 30 indicators arranged into a robust framework with seven equally-weighted themes, or drivers of responsible competitiveness (see Figure 2.2).1 Each indicator is chosen for relevance to responsible competitiveness, and the framework is designed to cover key areas of policy, business and civil society. ARCI includes 10 indicators that have been selected specifically for their relevance to the Arab World’s competitiveness challenges, with regional data on issues like industrial use of water, Islamic finance and local skill development from authoritative sources like Global Water Intelligence and the Financial Times (see Table 2.1). The Annex details these indicators and provides the criteria for selecting datasets. Challenges to creating such a regional index are extensive. Little information is systematically collected and aggregated at the national level for countries in the region, and where data is available, datasets are often not comparable or have poor geographical coverage across the region. This in itself is a crucial issue to be addressed by the region, particularly if the adage holds true that “what gets measured, gets managed”. The indicators used in ARCI have been carefully selected from over 600 data sources, interviews with companies across the region, and informed through discussions with the Arab Sustainability Leadership Group, an alliance of progressive businesses in the region, and engagement with this report’s essayists. The result is 30 insightful indicators that enable progress to be mapped across 15 countries on the key regional issues, spanning economic, environmental, and social impacts.

42

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

Table 2.1: The findings from the Arab Responsible Competitiveness Index 2009.
Arab Responsible Competitiveness Index 2009 score United Arab Emirates Qatar Kuwait Lebanon Bahrain Oman Jordan Egypt Tunisia Kingdom of Saudi Arabia Morocco Algeria Syria Yemen Mauritania 64.3 64.1 63.0 62.5 62.1 60.8 60.0 59.4 58.6 58.3 57.9 57.3 56.9 54.3 54.2 Arab Responsible Competitiveness Index 2009 rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Responsible Competitiveness in the Arab World 2009 43

Figure 2.2: Indicators in the Arab Responsible Competitiveness Index

Arab Responsible

Policy Drivers

Responsible Business Climate

Environmental Policy

Labour Policy

Responsible Tax Index

Signing and Ratification of Environmental treaties

Signing and Ratification of Basic Labour Treaties

Ethical Behaviour of Firms

Stringency of Environmental Regulation

Rigidity of Employment

Corruption Perception Index

Climate Cooperation

Labour Inspectors

Microfinance

Water Costs

Fuel Subsidies

Green Infrastructure (eg LEED certified projects)

Pilot Arab Responsible Competitiveness Index 2009 Desired indicators

44

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

Competitiveness Index

Business Action

Social Enablers

Governance

Product and Service Innovation

Talent

Engaged Stakeholders

Efficacy of Corporate Boards

CO2 Emissions per Billion Dollars

Staff Training

Press Freedom

Strength of Audit and Accounting Standards

ISO 14001 / 9001 ratio

Wage Equality for Similar Work

Orientation of Consumers

Disclosure Index

Impact of Clean Air and Water on Business

Private Sector Employment of Women

Civil Liberties

Corporate Governance Practices

Industrial Water Usage per Billion Dollars

Occupational Fatalities

Environmental Education

Density of Business Associations /Networks Working to for Sustainable Development (eg UN Global Compact)

Islamic Finance

Graduates per ‘000 People / STEM Graduates for ‘000 People

NGO Membership and NGO Density

Fertiliser Use

Willingness to Delegate Authority

Responsible Competitiveness in the Arab World 2009 45

Table 2.1: Indicators in the Arab Responsible Competitiveness Index Responsible Business Climate: ✸ Responsible Tax Environment (the number of tax payments required and the time needed by a business to comply) (World
Bank/International Finance Corporation)

✸ Ethical Behaviour of Firms (World Economic Forum) ✸ Corruption Perception Index (Transparency International) ✸ Number of Microfinance grants (Sanabel Microfinance Network of the
Arab Countries)

✸ Fuel Subsidies (Deutsche Gesellschaft fur Technische Zusammenarbeit
(GTZ) GmbH)

Environmental Policy: ✸ Signing and Ratification of Environmental Treaties refers to four key international treaties: the United Nations Framework Convention on Climate Change in New York in 1992, the Convention on Biological Diversity in Rio de Janeiro in 1992, the Kyoto Protocol to the United Nations Framework Convention on Climate Change in Kyoto in 1997, and the Cartagena Protocol on Biosafety was signed in Cartagena in 2000 (United Nations Development Programme) ✸ Stringency of Environmental Regulation (World Economic Forum) ✸ Climate Cooperation Index (Environmental Science and Policy)2 ✸ Water subsidies (Global Water Intelligence) Labour Policy: ✸ Ratification of Basic Workers Conventions covers eight treaties: Freedom of association and collective bargaining (conventions 87, 98); Elimination of forced and compulsory labour (conventions 29, 105); Elimination of discrimination in respect of employment and occupation (conventions 100, 111); Abolition of child labour (conventions 138, 182) (International Labour Organisation) ✸ Rigidity of Employment Index, which encompasses three sub-indexes: a difficulty of hiring index, a rigidity of hours index and a difficulty of firing (Doing Business) Governance: ✸ Efficacy of Corporate Boards (World Economic Forum) ✸ Strength of Auditing and Accounting Standards (World Economic Forum) ✸ Disclosure Index (Doing Business)

46

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

✸ Corporate Governance Practices (Hawkamah and the International
Finance Corporation)

Product and Service Innovation: ✸ Carbon Dioxide Emissions per US$ billion Gross National Income
(International Energy Agency)

✸ The uptake of environmental management systems (Ratio of ISO
14001 to ISO 9001 certification) (International Standards Organisation)

✸ Impact of Clean Air and Water on Business Operations (World
Economic Forum)

✸ Industrial water withdrawals (Aquastat) ✸ Extent of Islamic finance (The Banker) ✸ Fertilizer use (Food and Agricultural Organisation) Talent: ✸ Extent of Staff Training (World Economic Forum) ✸ Wage Equality for Similar Work (World Economic Forum) ✸ Private Sector Employment of Women (World Economic Forum) ✸ Occupational Fatalities (International Labour Organisation) ✸ Graduates per 000 people and Graduates in Scientific, Technology, Engineering and Mathematics per 000 people,
(United Nations Educational, Scientific and Cultural Organisation/United Nations Educational, Scientific and Cultural Organisation)

✸ Companies’ willingness to delegate authority (World Economic Forum) Engaged Stakeholders: ✸ Freedom of the Press (Reporters Without Borders) ✸ Civil liberties: the existence of basic political rights and civil liberties, gauged by relevant portions of the Universal Declaration of Human Rights, (Freedom House) ✸ The Degree of Customer Orientation (World Economic Forum)

The findings from the first ARCI show that: ✸ There is a strong relationship in the Arab World between national responsibility and the main indicators of competitiveness, human development and innovation (see Figure 2.3); ✸ However, there is a weak connection with Yale’s Environmental Sustainability Index, a measure of how nations are faring in the battle to save the environment.
Responsible Competitiveness in the Arab World 2009 47

Figure 2.3: The Arab Responsible Competitiveness Index and Competitiveness; Human Development Index; the Global Innovation Index; and Environmental Performance Index
6

Growth Competitiveness Index 2007, WEF

r2=0.66

3

0

53

60.5 Arab Responsible Competitiveness Index 2009

68

1.0 r2=0.80

HDR 2008 (UNDP)

0.5

0.0 53
48

60.5 Arab Responsible Competitiveness Index 2009

68

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

5.0

Global Innovation Index 2008 (INSEAD/CII)

r2=0.75

2.5

0.0 50

60 Arab Responsible Competitiveness Index 2009

70

100

r2=0.18
EPI 2008 (Yale/Columbia)

50

0 53 60.5 Arab Responsible Competitiveness Index 2009 68

Responsible Competitiveness in the Arab World 2009 49

✸ Across the region, progress towards responsible competitiveness is being made in all countries and there is a relatively modest 10% difference between the highest performer, the United Arab Emirates (64.3) and Mauritania, the trailing country (54.2); ✸ Counties in the Gulf Cooperation Council like the United Arab Emirates, Qatar and Kuwait, are the consistently strongest overall performers in the region. Other countries like the Kingdom of Saudi Arabia and Egypt score strongly on some of the key drivers but are held back in other areas; ✸ The Mahgreb region are starting to consider the responsible competitiveness agenda seriously, but strategies are just beginning and are often fragmented across the seven areas of the framework; ✸ With the exception of Egypt, smaller countries score well on the ARCI. This contrasts with the findings from the global responsible competitiveness index, but highlights the difficulties for large countries to coordinate action between local, regional and national government and to build responsible business practices across more businesses. Based on this combination of indicators and key issues, our analysis shows that countries from across the Arab World perform well across many of the seven areas of the framework. Responsible competitiveness is helping progressive countries across the region to seize opportunities to diversify their economies. From Bahrain to Baghdad, and from Dammam to Damascus, business leaders are accessing new markets through ambitious policy goals, engaged businesses and strong systems for sustainable development. Yet each country analysed has the potential to enhance their responsible business practices, with each country having a steep policy and action pathway to implement if it wants to make tangible improvements in performance. The next section of this chapter considers the seven responsible competitiveness drivers in turn, throwing more light on national performance and practical opportunities for countries in the region. It does this through careful assessment of the best data available and anecdotal evidence where no credible, region-wide data is available. Each section provides observations on existing progress and promotes best practices, while also emphasizing the importance of improved measurement of the issue – both so that the ARCI can be improved over time, but most importantly, to improve understanding and management of the issue.
50

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

Table 2.3: Economic diversification through Responsible Competitiveness The global economic downturn presents an opportunity to reassess national diversification strategies in the Arab World. Until now, some countries have diversified into manufacturing industries by attracting energy intensive industries with the incentive of low cost energy. However, the downside risk of these strategies is higher during times of economic downturn, and higher in the longer term as the world’s climate change negotiators prepare to design a low-carbon economy in Copenhagen in December 2009. This type of regional diversification practice undermines competitiveness as: ✸ Subsidised energy leads to inefficiency in industry and undermines the ability to export established business practices internationally; ✸ Energy – intensive industry is putting stress on national infrastructures, requiring further national expense towards infrastructure that might not otherwise be required; ✸ Heavy industry is typically water intensive, putting pressure on already limited water supplies and requiring further expense towards costly and carbon intensive desalination facilities that also may not otherwise be required; ✸ Increased national carbon emissions reduce global competitiveness and increase costs in the emerging low-carbon global economy. Our analysis across the seven areas of the responsible competitiveness framework shows that the Arab World has major opportunities to diversify their economies and emerge as international leaders in areas like clean technology, energy-efficient design and water desalination. 2009 is the opportunity to reset diversification strategies, invest in those sectors that will flourish in a global economy increasingly focused on more responsible and sustainable development, and create vibrant, diverse and competitive markets across the region.

Responsible Competitiveness in the Arab World 2009 51

2.2 Responsible business climate

❝

Good rules that are efficient, transparent, and accessible make it easier, especially for small and medium enterprises, to do business in a fast-changing world. Otherwise, businesses can be trapped in the unregulated, informal economy, where they have less access to finance, hire fewer workers, and workers lack the protection of labor law. Arab economies recognize this and are taking action to reform their business regulatory environments.” Dahlia Khalifa, co-author, Doing Business 2009 in the Arab World3

Fostering National Responsible Competitiveness Initiatives Policy makers and businesses work together to spur entrepreneurship, build strong institutions and create markets conducive for responsible business practices. The Saudi Arabian General Investment Authority (SAGIA) is one progressive organisation developing a climate for responsible business through a multi-year programme. In 2008, with a range of experts including Harvard University, the United Nations Foundation, AccountAbility, Next Economics and King Khalid Foundation, SAGIA launched three interlocking programmes to build responsible competitiveness in start-up companies, established firms and through high-level executive training.4 Responsible and Efficient Tax Regimes A responsible tax regime is a key indicator of a responsible business climate. If the tax or the paperwork are too onerous, non-compliance becomes an option for businesses. In Egypt, according to accountants PricewaterhouseCoopers and the World Bank, it takes nearly two hours a day for the whole year to conform with the requisite tax requirements. In contrast, the Gulf states have reduced this burden enormously (see Chart 2.1). Mauritania, Algeria and Morocco also fail the ‘hour a day’ tax test. The G20 London Summit emphasised the importance being placed on strengthening financial supervision and regulation. Included in this, G20 leaders noted the OECD’s work on combating harmful tax practices, including an annual review of progress towards responsible tax in 83 countries. Bahrain agreed to cooperate with the OECD on establishing the principles of transparency and effective exchange of information on tax matters back in September 2001, while UAE is now judged to have substantially implemented the internationally agreed tax standard.5 While other Arab
52

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

Chart 2.1: Paying taxes survey 2009 (PWC)
Egypt Mauritania Algeria Morocco Syria Iraq Yemen Tunisia Lebanon West Bank & Gaza Kuwait Djibouti Jordan Kingdom of Saudi Arabia Oman Qatar Bahrain United Arab Emirates 0 200 711 696 451 358 336 312 248 228 180 154 118 114 101 79 62 36 36 12 400 600 800

Time to comply with tax regime (hours per year)

countries are not subject to the Global Forum on Tax assessment, it seems likely that tax issues will become more central to the responsible business environment in all countries going forward. Availability of Microcredit Microcredit loans are another example of how countries are developing a responsible business climate. The leading country in the region is Morocco, who are providing loans to just over 1.3 million people each year and supporting entrepreneurial activity. In Jordan, nearly 2% of citizens are receiving microcredit loans, while over three-quarters of a million disadvantaged communities access loans across Egypt, Tunisia and the Palestinian Territories.6 More can be done in supporting microcredit. A regional assessment of microfinance challenged the banking sector to adopt sustainability management and further incorporate microcredit offerings within that framework: “Institutions must incorporate sustainability as an essential element of their business plans and commit to improved financial
Responsible Competitiveness in the Arab World 2009 53

management and pricing strategies. Some have already signed on to such changes and are leading the region towards a new phase. The challenge now is to ensure that no institution is left behind.”7 Enhancing Economic Diversification Strategies As highlighted in the text box in the preceding section (see Table 2.3), a Responsible Competitiveness lens casts new light on economic diversification strategies. In some cases it may reinforce progressive pathways being adopted within nations, while in other cases it can highlight previously unforeseen risks or under-considered opportunities. Abu Dhabi’s commitment to transition its hydrocarbon wealth into global leadership in renewable energy symbolizes an economic diversification strategy that builds on current energy leadership while preparing to excel in a forthcoming low-carbon global economy (see essay Chapter 5). Nations across the Arab World are beginning to consider how to improve efficiency, create alliances and reinforce national aims by building responsible business climates. Cases addressed in Chapter 1, like the Saudi Responsible Competitiveness Index demonstrate how government interventions are building a groundswell of understanding in countries. The real challenge across the region is how to scale up these activities, strengthen public institutions and create entrepreneurial markets that comprehensively reward responsible business practices. 2.3 Environmental policy

❝

Environment should cease to be considered in isolation from macroeconomic policies. It should be regarded as a necessary prerequisite for sustainable development and as an opportunity rather than as a constraint for development.” Arab Forum for Environment and Development, 20088

Policy makers need to design and implement robust frameworks that support environmental protection and smart use of resources. This is important in the Arab World where mega-infrastructure projects are threatening to transform local environments over unprecedented timeframes, and increasingly it requires authorities to consider the direct implications of their policies. This is emerging as key to the area of climate change. Climate Change World Bank experts recently highlighted the significant impacts to be expected from 1-5m sea level rises across the region. Scientists increasingly
54

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

see a one meter rise as being likely by the end of the century.9 Impacts will be especially severe in some countries. For example, the loss of land will be most significant in Qatar, United Arab Emirates, Kuwait, Tunisia and Egypt. Egypt, United Arab Emirates and Qatar’s populations will be most impacted. GDP loss would be greatest in Egypt, Tunisia, United Arab Emirates, Qatar, Kuwait and Libya. United Arab Emirates, Egypt, Libya and Tunisia will suffer the greatest losses to the urban extent, while Egypt will be the major loser in terms of agricultural extent, as noted in the essay below by Helmy Abouleish. It is worth noting that sea level rise is by no means the only cost associated with climate change, which will place pressure on water availability, agriculture, cooling systems, healthcare, energy and transport costs, among other impacts identified by the Stern Review. Table 2.4: Forecast impacts of sea level rise in the Middle East and North Africa10
1m sea level rise % of land area impacted % of population impacted % of GDP impacted % of urban area impacted % of agricultural land impacted 0.25 3.20 1.49 1.94 1.15 2m sea level rise 0.34 4.21 2.16 2.65 1.70

Greening infrastructure One area of particular relevance to the Arab World is the energy efficiency of the major new infrastructure projects under development. The United Arab Emirates emerges as the leading country in this area, with over 400 building projects registered to the ‘Leadership in Energy and Environmental Design (LEED) Green Building Rating System™’ and fourteen times more LEED professionals than any other country in the Arab World. It is also one of the few countries with more accredited projects than the number of registered local professionals (see Table 2.4). Progress to green infrastructure projects is being made – as the essay by Dr Al Jaber demonstrates. Despite this, however, the Emirates and Kuwait still underperform their global peers, and the region needs to further enhance performance in this area if it wants to establish brand leadership in green cities.11
Responsible Competitiveness in the Arab World 2009 55

Table 2.5: Uptake of LEED across the region12
Number of LEED accredited professionals Bahrain Egypt Jordan Kuwait Lebanon Oman Qatar Kingdom of Saudi Arabia United Arab Emirates 5 12 21 28 11 1 27 6 402 Number of LEED registered projects 3 3 8 2 1 7 19 16 427

Effective environmental policy is needed to realise the potential social and environmental benefits of greening infrastructure. “Policies should be designed to utilize the environment, its ecosystem and the services it provides as an opportunity to access markets and promote trade, create jobs and advance development and human welfare”, say Mostafa Tolba and Najib Saab, editors of AFED’s 2008 report Arab Environment: Future Challenges. “Sectoral ministries should be encouraged to take environmental considerations into account. To support this approach, capacities of environmental authorities should be strengthened to provide technical assistance on environmental issues to line and sectoral ministries, and to increase their ability to address environmental priorities. In addition to increased effectiveness in achieving environmental and sustainable development objectives, adopting such an integrated approach will also reduce the financial burden on ministries of environment.” Promoting water conservation The potential for reduction in water consumption in the industrial sector is from 40 to 90%, according to the Emirates Center for Strategic Studies and Research, while in the agricultural sector, the percentage is 10 to 50%.13 A 2005 study of water demand management and cleaner production in the Moroccan beverages sector showed both economical and ecological benefits, concluding that “processes can reduce water intake substantially
56

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

and minimise resource input and the subsequent waste thereby reducing pollution of finite fresh water resources.”14 One of the challenges in implementing greater water conservation is the low water tariffs that have historically applied across the region. According to Global Water Intelligence and the OECD, 2008 prices range from zero in Iraq through to US$3.30 per cubic meter for users consuming 10m3 a month, with the majority of countries surveyed charging substantially under US$1.00 per thousand litres. With price signals such as these, incentives for water conservation are limited compared to OECD countries.15 Chart 2.2: Water costs across the Arab World16
Egypt United Arab Emirates Oman Palestine (Ramallah) Qatar Morocco Jordan Algeria Bahrain Syria Kingdom of Saudi Arabia Iraq (Baghdad) 0.0 0.5 3.3 2.16 1.53 1.34 1.21 0.69 0.49 0.09 0.07 0.06 0.04 0 1.0 1.5 2.0 2.5 3.0 3.5

Water cost ($US/10m3 a month)

Fortunately, the region has recently seen the creation of new organizations dedicated to sharing best practice. The Arab Integrated Water Resources Management Network (AWARENET) is one example, an independent, impartial regional network of training and research institutes, NGOs, government authorities and water experts working on integrated water resource management. It currently has over 80 members in 18 countries. At a regional workshop in 2008 at the Dead Sea, participants committed themselves, among other policy initiatives, to “the application of economic principles in assessing and recovering the cost of pollution across sectors as well as in implementing pollution control measures.”17

Responsible Competitiveness in the Arab World 2009 57

2.4 Labour policy

❝

Most of the Arab countries do not have regular statistics, while some are sporadic; others are annual and often inaccurate. I would like to stress the importance of reporting and recording all occupational accidents and diseases to improve the situation in any country.” Dr. Sameera Al-Tuwaijri, Program Director of Occupational Safety and Health and the Environment, International Labor Organization (ILO)18

How well do policy-makers support sustainable development through local employment policies? Key indicators include the signing and ratification of the International Labour Organisation’s (ILO) Basic Workers Conventions, as well as a country’s ability to balance rigidity and flexibility in employment regulations. The Arab region is facing the challenge to create 100 million jobs by 2020. Creating a strong and resilient labour market framework can support meeting the challenge. The Arab World has many challenges in this area, but many of them are poorly quantified or discussed. This short section emphasises three key areas where the region has the potential to drive performance. A fourth area, of labour migration, is discussed in detail by the Chief Executive of BAYT.com, Rabea Ataya in the essay on page 121. Labour Market Flexibility 2009 will see companies around the world restructuring and unemployment levels increase. Evidence from the worst hit economies in Europe and North America demonstrates that labour market flexibility is crucial, and those economies that can keep skilled workers in good employment are more likely to build competitive advantage.19 Countries like Oman and Lebanon, according to our analysis, are building strong labour conditions and creating flexible employment patterns which will underpin these long-term wins. Arabization Since the 1990s some countries, especially in the Gulf region have introduced “Arabization” policies to increase the employment of nationals. This is achieved mostly through a quota system and penalties for not adhering to them e.g. eligibility for government contracts.

58

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

The rising unemployment rate especially among youth; low ratio of employment to population rate; increasing unwillingness of governments to subsidize unemployment and decreasing financial capacity to do this; as well as the decrease of capability of the public sector to absorb new entrants have led to this policy formulation. “Arabization” policies still need to be evaluated for their success and impact. For all countries across the region, improving the employability of nationals is vital in making this strategy a success. Labour standards The inflow of migrants especially from South-East Asia working in domestic work, construction, manufacturing and agriculture is steadily been increasing in the region and has met the high demand for cheap labour. While the majority of migrants work and live under decent conditions – a significant number of incidents of abuse of migrant workers have been reported and in 2006/07 the United Arab Emirates experienced a number of labour strikes. Chart 2.3: Number of workers per labour inspector – regional averages

Industrial countries Transition countries MENA Asia and the Pacific Latin America Sub-Saharan Africa 0 20000 40000 60000 80000 100000

Major issues include: recruitment agencies demand high fees so that the migrant is highly indebted on arrival; payments are lower than promised, no payments, work overload and difficult working and living conditions. A strong labour policy framework can help protect migrants and a strong monitoring system can protect the region’s reputation. But this analysis comes with caveats: relevant data in this area is particularly difficult to obtain. The ILO estimate that inadequate occupational safety and
Responsible Competitiveness in the Arab World 2009 59

health costs countries around 4% of GDP, yet there is little information in the public domain about the frequency of trained labour inspectors and the number of violations of labour policy at the country level. Provisional information from the ILO suggests that across the Middle East and North Africa, there are over 30,000 workers per labour inspector (see graphic); underperforming Latin America but well ahead of Asia and the Pacific. There is an opportunity for this to change behaviour and the countries of the Arab World could be the world’s first to systematically provide data on the number of labour inspectors they each employ and the frequency that they check worksites and identify violations. The ILO has worked across the Arab World on helping improve workplace health and safety, for example with Gulf Cooperation Council (GCC) countries on the revision and updating of GCC members’ legislative decrees concerning Occupational Safety and Health (OSH), with targeted programmes such as the production of a technical guide on OSH in the oil and petrochemical industries.20 Bahrain for example has recently commenced a three-year programme to train 200 Bahrainis as OSH inspectors.21 The GCC has also initiated the HSE Excellence Awards, in collaboration with the American Society of Safety Engineers, to recognize ‘leadership, excellence and encourage exceptional performance’ in private sector companies in the Gulf region in the field of Health, Safety and Environment.22 2.5 Governance Corporate Governance

❝

We agree to endorse and implement tough new principles on pay and compensation and to support sustainable compensation schemes and the corporate social responsibility of all firms”. The London Summit of G20 Leaders, April 200923

This is a period where major changes have taken place in corporate governance systems in the Arab World, spurred on by internal drivers for reform, structural changes like the emergence of vibrant stock exchanges and public floatations, and the application of standards and guidelines emanating from the OECD, UN and other bodies. As noted previously, 136 Arab companies have taken active involvement in the UN Global Compact. In some countries, high profile launch events have led to significant numbers of companies becoming signatories. There is also the development of a home-grown culture of promoting corporate governance.
60

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

Chart 2.4: Corporate Governance across the Arab World
Kingdom of Saudi Arabia Egypt Jordan Kuwait United Arab Emirates Oman Tunisia Bahrain 0 17.6 15.4 14.6 14.4 14.3 14.1 13.3 13.2 5 10 15 20

Corporate Governance Performance IFC and Hawkamah 2008

In 2005, a working group on improving corporate governance met in Amman, Jordan. The group confirmed the importance for all the countries of the region to bridge the corporate governance gap to improve competitiveness. This was the origin of Hawkamah, the Institute of Corporate Governance. In 2008, Hawkamah and the IFC published a major review of the corporate governance practices of listed companies and banks across the region. The key finding was that good practices were embedded across the region, though with discernible difference in average performance between some countries, between the finance sector and other quoted companies, and with some considerable gaps in some family owned firms. “A majority of participating banks and listed companies are unable to properly define corporate governance”, say the authors. “What's more, only 3% follow good practice and none follow best practice, while 56% of boards have no more than one independent director, a situation that makes proper oversight difficult.”24 Uptake of international management systems According to McKinsey, “There is a growing, increasingly persuasive, body of evidence suggesting that companies with superior overall environmental management are better-managed companies overall, and thus enjoy aboveaverage profits and stock performance.”25 Companies in the Arab World are recognising the value also, and applying the management systems skills they have gained on the road to ISO9000 quality management. Between 2005 and 2007 (the latest data available), there has been an increase of 22% in take-up of ISO14001 across 13 Arab countries, with 60% of certified companies being found in Egypt and the United Arab Emirates.26

Responsible Competitiveness in the Arab World 2009 61

Arguably, there has been slower progress with sector-specific schemes, such as those designed to ensure responsibility in financial institutions. In January 2009 the Arab African International Bank adopted the Equator Principles, becoming the first Egyptian bank to do so. This adoption is part of the banks wider strategy to move away from traditional CSR and to incorporate ESG issues into their core business strategy. Bank Muscat (Oman) is also a supporter of these principles designed to improve the sustainability of project investment. To date, there are few or no Arab based investment management or asset owning signatories to the UN Principles for Responsible Investment.27 The experience from other regions, such as Latin America and East Asia, suggests that leading financial institutions will begin to join these and other international standards-based initiatives. Alternatively, regionally-grown or new variants of these schemes may emerge to reflect the distinct culture of the region. One area that has received a lot of attention is corporate governance. In their essays, Abdulkareem Abu Alnasr and Frederic Sicre outline how the Arab World can contribute to creating new financial rules and regulations and improved governance in the post-credit crunch world. 2.6 Product and Service innovation

❝

Innovation and how best to encourage it is one of the most important issues affecting the economic and social future of the Arab World.” Rasha Al Saleh, Managing Director, Young Arab Leaders28

Innovation is critical for the success of businesses and nations. Companies and nations are constantly battling to create the next range of ‘must have’ products, and aiming to provide consumers with quality services and more memorable experiences. The ability to innovate new products and services will help the Arab World countries diversify their economies, move to high wealth creation and move towards sustainable development. As noted previously, many Arab countries are looking at how to invest their hydrocarbon-related revenues into other economic development opportunities that will help diversify and strengthen their national economies and ensure competitiveness in a responsible way. Conditions in countries like Qatar, Kingdom of Saudi Arabia and Bahrain are supportive of entrepreneurial activities and innovation. With wealthy, young populations of demanding consumers, well-endowed institutions and a proven-ability to attract world class minds, these countries have the possi62

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

bility to emerge as market shapers. To capitalise, countries will require farsighted policies, good systems and incentives and high-levels of engagement. Our research shows a range of sectoral initiatives, prizes and incentives (see Table 2.6) and the creation of new, profitable sectors that are enabling countries to create value and drive competitiveness. Meeting international energy demands Algeria is looking to work with Europe to scale-up sustainable energy. In 2002, the government created New Energy Algeria (NEAL) to develop its renewable resources. NEAL has inaugurated the construction of a hybrid solar thermal power plant that is expected to generate 150 megawatts by 2010 and has plans to increase capacity to 6,000 megawatts by 2020. The “potential in thermal solar power” says Tewfik Hasni, NEAL’s managing director, “is four times the world's energy consumption so you can have all the ambitions you want with that".29 In Abu Dhabi, Masdar’s efforts to become a global leader in renewable energy are captured in Dr. Al Jaber’s essay. Promoting responsible sectors The question of ‘how sectors compete?’ is increasingly under scrutiny, and it has led to a wealth of industries around the world looking at ways to drive productivity through responsible competitiveness. In Jordan, AccountAbility and Sustainability Excellence Arabia are working to embed responsibility in three key sectors; finance, construction/real estate and tourism. In Morocco, the MFA Forum, an alliance which includes trade unions, companies, international non-governmental organisations and local experts, is working to promote ‘responsible textiles’.30 Another good example in the region is Palestinian Initiative for Responsible Tourism (PIRT). It is a multi-stakeholder collaboration involving local trade unions, the Ministry of Tourism and Antiquities and the Arab Hotel’s Association to promote Palestinian (Holy Land) tourism and to ensure that the positive economic and social affects of this tourism are disturbed evenly throughout the country and among the population. It was founded in mid 2007 and has an ambitious goal to create a model of tourism based on their own code of conduct that benefits all stakeholders and fosters mutual respect and understanding.31

Responsible Competitiveness in the Arab World 2009 63

Table 2.6: Incentives for innovation Jordan has devised good systems to spur entrepreneurship. The Queen Rania National Entrepreneurship Competition is proving successful at nurturing local talent and converting ideas from academia and citizens into real business plans. Now in its third year, the award aims to recognise the next generation of entrepreneurs who can solve problems for society.32 As other incentives for the uptake of responsible innovations, policymakers have encouraged the development of awards schemes, a number of which have recently launched in the region. Among these initiatives: ✸ Egypt: The Ministry of Trade and Industry’s Global Trade Matters, with the Cairo and Alexandria Stock Exchanges (GTMCASE) hold annual excellence awards, and of the six awards, two are related to responsibility business: the Best Corporate Governance Award (winner Egypt Telecom) and the Best Corporate Social Responsibility Award (winner: CEMEX).33 ✸ Kuwait: the Corporate Social Responsibility Awards are given across 10 different sectors, chosen by a high-profile judging panel.34 ✸ United Arab Emirates: The Arabia Corporate Social Responsibility Awards are organized by the Emirates Environmental Group’s CSR Network, supported by the UN Global Compact.35 ✸ Kingdom of Saudi Arabia: The Saudi Responsible Competitiveness Initiative (SARCI) was initiated in 2008 by the General Investment Authority to engage companies across all sectors, share good practice, provide performance benchmarking and identify recipients for the King Khalid Awards.36

Islamic Finance Islamic Finance is now within the fastest growing financial segments in the international financial system, with an estimated average annual growth of 15% to 20%.37 Demands for these services are growing across the Muslim world, and there is increased demand from non-Muslim countries. One reason for this, according to the essay by Abdulkareem Abu Alnasr of The
64

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

National Commercial Bank, is that these investments appear to be resilient in times of economic downturn. Chart 2.5: Shariah compliant assets under management (US$)
Bahrain Qatar Kuwait UAE Kingdom of Saudi Arabia Jordan Sudan Egypt Palestine Authority Tunisia Yemen Lebanon Syria Algeria 0 46,757 23,358 22,549 10,226 3,444 540 135 74 73 61 59 51 32 24 10,000 20,000 30,000 40,000 50,000

Shariah compliant assets per capita

Countries that are building expertise and institutions which offer suitable packages are building competitiveness. Banks headquartered in the Kingdom of Saudi Arabia have just under US$90 billion invested in Shariah compliant assets, over 30% more than Kuwait, the second most significant investor in the Arab World. Financial institutions in Bahrain too are emerging as world leaders in providing these investments with the equivalent of nearly US$47,000 per citizen in Islamic finance (see Chart 2.5).38 There are real opportunities for the Arab World to innovate for societies’ broader goals in areas from financial services to sustainable agriculture. Countries that managed to take new products and services to market at scale can carve out competitive advantage and reinforce broader social and environmental goals.

Responsible Competitiveness in the Arab World 2009 65

2.7 Talent

❝

Education and investment in human resources have always ranked high among national priorities. No wealth can equal the dividends we reap from investment in human resources." Shaikh Khalifa bin Salman Al Khalifa, Prime Minister of Bahrain

The Arab region has immense opportunities for driving responsible competitiveness through empowering and utilizing the available talent. A skilled, inclusive workforce and the jobs to engage it are therefore critical social enablers of competitiveness. The region has the highest levels of unemployment globally, meanwhile facing the highest annual Labour force growth rates.39 This combination of growth and unemployment is the root of the urgent call to action for the region to create 100 million jobs by 2020.40 Youth, aged 15-29, make up over one third of the region’s population, representing a tremendous asset. However, this demographic, which comprises half of the region’s working age-population,41 are facing considerably higher rates of unemployment than adult unemployment rates.42 The rate of unemployment amongst the educated in the region is more than a matter of job creation, but also suggests a mismatch between education and the needed skills of the labour market. Across the region, countries from the Kingdom of Saudi Arabia and Bahrain, to Jordan and Tunisia to Yemen and Libya are looking to diversify their economies and move up the value-chain. As they do so, skill shortages will emerge. One assessment of how countries are equipped to deal with this is the annual Heidrick and Struggles Middle East Talent Index (see Chart 2.6). Chart 2.6: Quality of talent across the Middle East43
Kuwait United Arab Emirates Kingdom of Saudi Arabia Bahrain Qatar Jordan Egypt 0 37.8 38 39.5 42.8 44.7 44.9 49 20 40 H&S Middle East Talent Index 2012 60

In some countries there are more women graduating for university, but still a minority of women in the workforce in these fields. The following is a brief overview of the state and initiatives of more specific pieces of talent as a
66

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

driver. Our essayists, Fadi Ghandour, Rabea Ataya, and Randa S. Ayoubi will further explore and elaborate these themes. Youth Research suggests that the combined costs of youth unemployment for 11 countries in the region are as high as US$25 billion a year, or 2.3% of GDP. And the issue of youth unemployment is not simply a caveat of the greater job creation challenge. This calculation, which quantifies costs including school dropouts and migration, may be a severe underestimation, as this does not include less easily quantifiable costs such as social or psychological costs arising from unemployment or exclusion.44 Exclusion of youth in active participation in society can lead, among other things, to “rising levels of frustration demoralizes youth and undermines social cohesion, leading to aggravation of social problems such as poverty, crime, violence, and extremism.”45 While youth apathy and exclusion in the region is a problem accompanying youth unemployment, the government and youth themselves can play a big role in reversing this trend: ✸ In Jordan, King Abdullah II has created an Award for Innovation and Achievement.46 The annual Award gives applicants the opportunity to win a $50,000 grant to support winners with education and training, or the opportunity to pursue a specific venture or project. ✸ Egypt has seen young people start their own initiative, such as the Alashanek ya Balady Association for Sustainable Development.47 Founded in 2002, this youth run NGO aims to “create awareness about development and increasing youth participation in the transformation of Egypt.” It provides programs in micro-credit, illiteracy eradication, human development for children and teens, art expression for children teens, vocational training, health awareness, and tutoring for teens. Education and Skills Development In the 1960s the region had one of the lowest educational indicators in the world. Since then it has achieved tremendous improvements. “Over the last 40 years, MENA countries on average dedicated 5 percent of GDP and 20 percent of government expenditures to education, which is more than other developing countries at similar levels of per capita income.”48 Literacy rates and gender equality in primary and secondary education are steadily increasing. Meanwhile, unemployment is “increasingly concentrated among the educated youth. One study shows that of the 1.6 million young Egyptians out of work, 95 percent have attained a secondary education or higher”.49 In
Responsible Competitiveness in the Arab World 2009 67

addition to the call for job creation, this suggests a mismatch between the labour market demand and supply, manifested, among other indicators, in the national, regional, and global migration. It suggests needed educational reform; reform in the curriculum, but in some cases, also in employment expectations. The legacy of high public sector employment and wages, especially in the Gulf, make private sector wages less attractive. The level of entrepreneurship is relatively low regionally. And there is an overall disdain for manual work and the service sector in the region. There are promising initiatives in the region to address the misalignment with the education and skill set of youth with the demands of the labour market: ✸ At the regional level, the Middle East Youth Initiative was launched in 2006 to bring together academia, government, the private sector and youth to shape the agenda for youth inclusion. Another initiative is INJAZ Al Arab, a regional public-private partnership between national operations and ministries of education. ✸ The private sector too, has become actively involved in the training and developing of youth. Shell’s Intilaaqah program, established in Oman, aims to encourage young people to consider the option of becoming business owners, and most importantly, equips them with the training and skills to do so. To date, 2,825 youth have participated in this program in three Arab countries, 358 of which have started their own businesses, and 200 jobs have been created through these new business. Women

❝

Women in the Arab states continue to face discrimination and inequality. The 2005 Arab Human Development Report (AHDR), Towards the Rise of Women in the Arab World, identified gender inequality as one of the most significant obstacles to human development in the Arab region... stereotypical gender roles are deeply entrenched, limiting women’s employment and decision-making opportunities, which are still the lowest in the world.” UNDP: Women Empowerment50

While there has been significant improvement in the education of women, the growth in their economic participation and opportunities has not been complimentary. Particularly in the middle of the global downturn, the world
68

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

and region are presented with the options of regressing by reducing headcount, and moving to command and control bare bones leadership where there is little room for new ideas or innovation; restructuring decisions which have already been seen to disproportionately impact women in the United States and Europe.51 Alternatively, the global economic downturn could be a stimulus for companies to innovate and transform their businesses, leveraging women as new perspective and voices in the firm.52 This opportunity for growth and the advancement of the value and role of women is appearing in cases across the region and give indications of paths of progress. There are women in the region who are not only role models amongst women, but also amongst men – with Salma Hareb and Maha al Ghunaim, for example, ranking amongst the top most influential Arabs.52 Indeed, from the first ever hired female marriage registrar in Egypt last year, Amal Soliman, to King Abdullah’s appointment of Nora al-Fayez as deputy minister responsible for girls' education within the Ministry of Education this year,54 the value of women’s participation can be attested to first hand. Women-run businesses are also presenting a new market opportunity and source of job creation. In Riyadh, the Luthan Hotel and Spa opened: a hotel exclusively for women, by women. The hotel staffs almost exclusively women. There are also now shopping malls designed and run by women, with plans for 20 more such malls in the future in the Kingdom of Saudi Arabia. Such ideas also contribute to fostering entrepreneurship and economic diversification. 2.8 Engaged stakeholders

❝

Arab civil society organizations are blossoming, anti-corruption activities are dramatically increasing and Arab governments are open more than ever to the possibilities of change.” Arab Archives Institute, 200655

Civil Society Organisations Civil society organizations play an important role in promoting accountability in the business as well as the public sector and there are encouraging signs of growing capacity across the region to play this essential role. Morocco’s dense networks of NGOs (one for every 667 inhabitants according to one estimate), Lebanon’s enabling legislative environment and Bahrain’s comprehensive policy framework are noteworthy examples of strengthening civil society. The emergence of strong consumer groups in several countries is also evidence of the capacity of citizens to drive up business performance.
Responsible Competitiveness in the Arab World 2009 69

Chart 2.6: Membership and density of NGOs
Bahrain Lebanon Jordan Qatar United Arab Emirates Kuwait Tunisia Mauritania Egypt Kingdom of Saudi Arabia Oman Morocco Syria Algeria Yemen 0 45.9 40.5 36.1 14.8 11.3 10.7 6.4 4.3 2.2 2.0 1.9 1.8 1.8 1.1 0.6 10 20 30 40 50

NGO membership and density per 1,000,000 people

However, regional experts like the Arab Archives Institute have identified a range of polices that could significantly improve NGOs’ ability to play a still greater role in building responsible competitiveness. The Civicus Civil Society Index found that NGOs in Egypt and Lebanon were “much stronger in their service provision function than in their advocacy role”.56 In some countries, even business associations do not have a confident policy voice; in others, funding constraints or lack of independence from the public sector re the key hindrances facing NGOs. An investigative media The media plays a key role in promoting responsible competitiveness, as noted with the example of Al-Jazeera in Chapter 1 above. The World Bank has identified that a free media can help prevent corruption, while there is strong evidence that the media is crucial for increasing environmental and social awareness. A 2006 AFED survey of over 3,000 citizens across the Arab World (see Chart 2.7) shows that newspapers, television, magazines and internet are the key media.57

70

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

Chart 2.7: Favourite way of getting environmental information
Daily Newspaper Television Magazines Specialised Internet Books Lectures General Magazines Radio 0% 71 64 45 41 20 19 16 16 20% 40% % of survey respondents 60% 80%

Recent years have also seen a rise in the number and quality of National Competitiveness Councils or comparable bodies, with many of them regularly reporting on their strategies for economic and social development. There is other progress too, with companies like Aramex and The National Commercial Bank and charities like the Jordan River Foundation are providing annual reports. This trend is likely to continue, with evidence showing that a welter of firms are beginning to measure and report on their sustainability performance, some using international guidelines like the Global Reporting Initiative, and others developing home-grown approaches.58 The seven areas of the framework cover the main competitiveness challenges facing the Arab World. While it has not always been possible to quantify progress on each issue, it is clear from our analysis that countries across the region are taking leadership roles in each area. Whether it is the Kingdom of Saudi Arabia’s approach to building a groundswell of responsible entrepreneurship, Bahrain’s approach to Islamic finance, Morocco’s largescale access to microcredit, or Algeria’s efforts to build competitiveness by meeting Europe’s growing energy demands, it is clear that countries across the region are enhancing productivity through accessing new markets.

Responsible Competitiveness in the Arab World 2009 71

Table 2.7: Upgrading Responsible Competitiveness metrics in the Arab World Our analysis identifies 5 action areas that would improve the quality of information and the tracking of responsible competitiveness in the region: 1. Expand the geographical range of data gathering. This project presents insight into 15 countries in the Arab World, yet data limitations prevented our analysis from extending into countries like Yemen and Iraq. To deepen insight across the region, there needs to be a concerted effort to ensure that good quality data is being collected in all countries and territories. 2. Improve the timeliness of key data sets to enhance understanding and allow for an annual benchmarking of responsible competitiveness. In part, this is a capacity issue: databases like the International Energy Agency (EIA) work on CO2 emissions could reduce lag time with increased funds. But it is also an issue of institutional commitment. On issues like labour standards or pollution intensity, international bodies need to invest more in data acquisition. 3. Focus more resources on key issues. We are under-informed, for example, on the strength of collaborative initiatives, the levels of national participation in voluntary sustainability standards and real progress on green buildings. We are also ignorant on key aspects of the effort to battle gender and racial inequalities in the workplace. These and other datasets on the progress towards responsible competitiveness could quite easily and affordably be generated, and our research team is committed to helping that happen. 4. Identify the key issues of responsible competitiveness. This can be done through combining three tactics: to empower a new research agenda of credible, independent experts to gather data in a systematic and consistent way; to lobby institutions like the World Bank and the World Economic Forum to upgrade their coverage of responsibility issues in their existing research; or, to develop a bottom-up approach of performance metrics in national competitiveness reports which are consistently reported and independently assured.

72

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

5. Resolve the issues of causality. The ongoing goal is to better understand the mechanisms by which responsibility strategies and economic performance work together. How much relies on innovative market and political leadership; how much depends on collaborative approaches to reshaping markets? To answer these questions, the RCI exercise needs to be supplemented by detailed studies of cities, regions, sectors and countries that are gaining competitive advantage and improving their responsibility. In the following section, leading experts address exactly these questions, giving practical examples of strategic efforts to make sustainable development count in tomorrow’s markets.

2.9 An Agenda for the Arab World: the need for individual country pathways Our analysis with the Arab Responsible Competitiveness Index is a first contribution towards diagnostics and opportunity identification for the Arab World. These are several technical challenges in upgrading the index to understand progress on responsible competitiveness (see Table 2.7). There is also the need for a series of national and regional debates on the proposed framework and its interpretation. This report is intended as a contribution to those debates. In its pilot phase, the ARCI demonstrates how the Arab region can drive economic and sustainability performance through responsible competitiveness analysis. All 15 countries surveyed, regardless of cultural setting or levels of development, have the potential to enhance productivity through building responsible markets. Figure 4 presents an overall pathway for the 15 countries as a whole to achieve the responsible competitiveness performance typical of the OECD nations. AccountAbility’s global research, as noted in Chapter 1, suggests that each 1% improvement in RCI score is broadly associated with an increase of just over $1,000 in GDP per capita, which gives a rough guide to the importance of each step on the pathway. It must be stressed that each country or subregion will want to devise its own appropriate pathway, balancing the momentum from building in areas of strength versus the reassurance of tackling areas of greatest risk. We hope to support countries with Responsible Competitiveness pathway planning as the ARCI project develops.

Responsible Competitiveness in the Arab World 2009 73

Figure 2.4: A responsible competitiveness pathway for the Arab World
Average performance of the OECD
Arab Responsible Competitiveness Index 2009

Engaged Stakeholders (3.9%)

Talent (3.7%)

Product and Service (2.6%) Governance (1.2%) Labour policy (1.5%) Environmental policy (2.1%) Responsible business climate (4.0%) Average performance of the Arab World

For the region as a whole, Figure 4 suggests four key conclusions that could become priorities for debate, deeper analysis and policy development: ✸ Firstly, the Arab World can rapidly move to close remaining, relatively-modest gaps in environmental policy, labour policy and governance systems, building on the momentum already built up and on good practice occurring in specific countries. Crafting a consistent approach to climate change, embedding a culture of Environment, Health and Safety issues in all workplaces, adopting and engaging with the best international standards and transferring good practice on corporate governance and sustainability management from leading firms into the family-owned and small and mediumsized enterprises sectors could be the next priorities. ✸ Secondly, some countries in the region may now want to move to tackle more significant gaps –notably in the responsible business climate and in proving the economic value of engaged stakeholders from a vibrant civil society. Here, the challenges are generally larger, but so potentially are the gains. Bringing these areas under the remit of a national sustainable trade and investment strategy is one promising way of harnessing the commitments necessary. ✸ Thirdly, there have been rapid developments in the region in terms of product and service innovation, where the Arab World
74

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

has a unique competitive advantage, whether in Islamic finance, desalination or the development of large-scale green infrastructure. Here, the Arab World can become a global innovator with further investment and vision. ✸ Fourthly, most countries and the region as a whole is correct to focus on the vital importance of building talent for future sustainability, where the region’s real wealth will be its people, not its natural resources. Here, the key priority is to understand how the exciting initiatives under development can be scaled up – by approximately a factor of 10 – to be proportionate to the size of the challenge. To understand in more detail how these priorities are being and can be taken forward, we now turn to the essays by seven regional leaders.

Endnotes
1. The next full global Responsible Competitiveness Index will be launched in late 2009. 2. ‘Measuring countries’ cooperation within the international climate change regime’, Michele B. Baettig, Simone Brander, Dieter M. Imboden, Environmental Science and Policy, 2008. 3. www.doingbusiness.org/documents/Press_Releases_09/ DB09_ArabWorld_English.doc 4. The Saudi Responsible Competitiveness Index, Found at www.rci.org.sa 5. www.oecd.org/dataoecd/57/36/1898037.pdf, www.oecd.org/dataoecd/ 38/14/42497950.pdf 6. The Mix Market, (Sanabel – Microfinance Network of the Arab Countries), 2009. Found at: www.mixmarket.org/en/partners/partners.print.profile.asp?ett=931 7. Benchmarking Arab Microfinance, Information eXchange Microfinance 2005, www.sanabelnetwork.org/files/2005_Arab_Benchmark_Report[1].pdf 8. www.afedonline.org/afedreport/Full%20English%20Report.pdf 9. http://news.bbc.co.uk/1/hi/sci/tech/7935159.stm. 10. The Impact of Sea Level Rise on Developing Countries: A Comparative Analysis, Susmita Dasgupta, Benoit Laplante, Craig Meisner, David Wheeler & Jianping Yan, World Bank Policy Research Working Paper 4136, February 2007, www.wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2007/02/09/ 000016406_20070209161430/Rendered/PDF/wps4136.pdf 11. Own calculations, taken from the US Green Building Council; The Environmental Sustainability Index, cited in Newsweek July 14th 2008. 12. Data taken from the US Green Building Council on 24th April 2009. It should be
Responsible Competitiveness in the Arab World 2009 75

noted that the registered project list is continuously being updated with project managers feeding back regularly to the GBC on the state of progress on their build. 13. www.mafhoum.com/press7/214P52.htm 14. ‘Industrial water demand management and cleaner production potential: a case of beverage industry in Marrakech – Morocco’, E. Ait Hsine, A. Benhammou & M-N. Pons, www.afriquescience.info/docannexe.php?id=189 15. www.globalwaterintel.com/archive/9/10/need-to-know/tariff-survey-download.html. 16. Taken from Global Water Intelligence 17. Statement from the Regional Workshop “Protecting Drinking Water Sources from Pollution: Policy Options and Practical Solutions” made at the Dead Sea on June 3, 2008, www.awarenet.org/Uploaded/80.PDF. 18. www.srfo.org/detailed_srv.asp?ID=5&ln=en 19. Findings from the ANCOBEST project, a 10 partner study of 10 European Countries. For more information, please log onto www.accountability21.net 20. http://actrav.itcilo.org/library/english/00_ILO/gb/gb291/pdf/esp-4.pdf 21. www.ameinfo.com/179665.html 22. http://kuwait.asse.org/index.php 23. www.londonsummit.gov.uk/resources/en/news/15766232/communique-020409 24. Corporate Governance Survey of Listed Companies and Banks Across the Middle East & North Africa, Hawkamah / IFC, July 14, 2008, www.zawya.com/viewFullPdfStory.cfm/sidpdf_060808075244 25. Climate Change and the investor, McKinseydigital, February 2009. Found at: http:// whatmatters.mckinseydigital.com/climate_change/climate-change-and-the-investor 26. Own calculations based on data from the 2007 ISO Survey 27. www.equator-principles.com/index.shtml; http://www.unpri.org/signatories/ 28. www.ameinfo.com/137863.html 29. http://newenergynews.blogspot.com/2007/08/algeria-will-sell-sun-to-europe.html 30. The MFA Forum is a not-for-profit, participation-based open network established in early 2004 to address concerns that were predicted with the end of the Multi-Fibre Arrangement. It is a collaboration of brands and retailers, trade unions, NGOs and multi-lateral institutions in the textile and garment sector. Find out more at: www.mfa-forum.net 31. The Palestinian Initiative for Responsible Tourism (PIRT): www.toursinenglish.com/2008/01/code-of-conduct-for-tourism-in-holy.html; Alternative Tourist Group: www.atg.ps/index.php?page=1178694470.1227355353; A Code of Conduct for Tourism in the Holy Land: http://1547005092468590339-a1802744773732722657-s-sites.googlegroups.com/site/toursinenglish/top-files/code -of-conduct-Palestine-tourism.pdf?attredirects=0&auth=ANoY7conyp4syBCHV5lvY 127_mESjQWqwxRwxfGGBYGWv3KGXOVBdnkHB_YZATeImYi1WP1VfwDqAJiREc8OrT swyUfBd-f9NnpPJ6gXF5h7I5y2mmOypmaxRIcZ5oDs2VvonePkPMkPUWtg_OnhuZO tdBm4o1-Ry3FfjTPZrFDY4Q8rZcflTll9jQy9H72zg-9X4ZRQDkMzXHNTTFRSpqbehX FQVR-xnUbRSeX4xFm3rXq9zSoc3WIm38gOAMkBdfYm2XHz3F7r
76

PROGRESS TOWARDS RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD

32. The Queen Rania National Entrepreneurship Competition, found at: www.qrce.org/?page_id=22 33. www.globaltradematters.org/news.asp 34. www.csraward.com/default.aspx 35. www.arabiacsrawards.com/index.php 36. http://rci.org.sa/ 37. Understanding Islamic Finance: Local Innovation and Global Integration – Policy Q & A, Asia policy, number 6 (july 2008),pp. 1–14 38. Own calculations, based on data from The Banker. 39. ILO Global Employment Trends January 2008 40. http://siteresources.worldbank.org/INTMENA/Publications/20262209/Empoverview.pdf 41. www.brookings.edu/opinions/2009/0130_middle_east_dhillon.aspx?rssid= economic+development 42. http://www.brookings.edu/opinions/2009/0130_middle_east_dhillon.aspx?rssid= economic+development 43. Mapping Middle Eastern Talent, Heidrick and Struggles and the Economist Intelligence Unit. 44. www.brookings.edu/opinions/2008/0626_middle_east_economics_dhillon.aspx 45. The Millennium Development Goals in the Arab Region 2007: A youth lens. UN and League of Arab States. Pp28-29. 46. www.kaayia.org/Public/MainEnglish.aspx?Lang=3&page_id=26&page_id2=27&site_ id=1&Menu_ID=5 47. www.ayb-sd.org/successful.html 48. The World Bank 2008: “The Road Not Traveled: Education Reform in the Middle East and North Africa”. http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/ MENAEXT/0,,contentMDK:21617643~pagePK:146736~piPK:226340~theSitePK:25629 9,00.html 49. The Millennium Development Goals in the Arab Region 2007: A youth lense. UN and League of Arab States. Pp28-29 50. United Nations Development Programme, Women's Empowerment taken from: http://arabstates.undp.org/subpage.php?spid=10 and Accessed 1st May 2009 51. One example of the impact of the credit crunch on different genders is the November 2008 ANCOBEST report, available to freely download from www.accountability21.net 52. Gender in Crisis: Cut or Innovate, Al Jazeera, 8th March 2009 53. www.arabianbusiness.com/power100 54. World Citizen: Arab Women Progress on Rights, but There is Far to Go”, Feb 2009 – World Politics Review 55. www.alarcheef.com/studies/againstCorruption.asp 56. www.civicus.org/new/media/ICSI%20paper.pdf. 57. www.afedonline.org/en/inner.aspx?contentID=88. 58. Based on interviews with over 40 companies in the Kingdom of Saudi Arabia.
Responsible Competitiveness in the Arab World 2009 77

Key issues in Responsible Competitiveness in the Arab World

3 Good Corporate Governance, Sustainability and Responsible Competitiveness
About the Author

GOOD CORPORATE GOVERNANCE, SUSTAINABILITY AND RESPONSIBLE COMPETITIVENESS

Abdulkareem Abu Alnasr is Chief Executive Officer of The National Commercial Bank (NCB), the most prominent of Saudi banks and the second largest bank in terms of assets in the Arab World.

Short term orientation and failed governance is at the heart of the global financial crisis. Significantly improved corporate governance – including a focus on a wider range of economic, environmental and social risks and opportunities – will be essential to recovery. This is also simply good for business, and when applied by large numbers of companies and supported by government policy, can result in enhanced national and regional competitiveness. Governance and the Financial Crisis The current economic crisis is having an enormous global economic and social cost in terms of millions of lost jobs, personal savings lost, impoverishment, and loss of trust in financial institutions and participants. Its effects have spread to the Arab region, impacting different countries, cities, and companies to differing extents. Although some Arab countries will likely be among top performing global countries during this crisis, all Arab countries have and will continue to be significantly negatively impacted. How did this happen? The crisis is the result of several failures, but ultimately they come down to a failure of governance systems and ethics, both at the corporate level (and in particular, financial institutions) and at the institutional level. Writing about good governance as a financial institution at this time is therefore both a humbling and daunting task. But now is also the time to consider what went wrong, what needs to be done to address it, and how we can assure those changes will be successfully implemented. A recovery requires an improved system, in which people can better trust.

Responsible Competitiveness in the Arab World 2009 79

Corporate governance and its intended benefits Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled.1 It is based on the principle that companies are accountable for their actions. It provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance. It includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management, and the Board of Directors. Other stakeholders include labour (employees), customers, creditors (e.g. banks, bond holders), suppliers, regulators, and the community at large.2 Corporate governance, when practiced effectively within an individual company should yield: ✸ Improved risk management: A key role of good governance is to ensure mechanisms are in place to systematically monitor and analyse risks facing an organisation, and to take appropriate action where necessary. It also offers an additional layer of risk analysis and fresh perspective beyond that of the management team. ✸ Improved overall accountability and management focus on results: An independent Board of Directors holds a company’s management team accountable to shareholders, and ensures the interest of the shareholders and other relevant stakeholders are the focus of the company’s efforts. The Board is also typically responsible for establishing and overseeing the system of performance assessment – individually and organisationally – of the company, and for the senior management team. ✸ Access to capital: The degree to which corporations observe basic principles of good corporate governance is an increasingly important factor for investment decisions. Evidence shows that in a globalised economy, investors have a variety of markets to choose from, and good corporate governance can enhance the attractiveness of one country’s financial markets relative to another, as well as enhance the attractiveness of one company’s stock relative to another within the same market.3

80

GOOD CORPORATE GOVERNANCE, SUSTAINABILITY AND RESPONSIBLE COMPETITIVENESS

✸ Lower cost of capital: Better corporate governance standards make banks and rating agencies see companies in a better light, since they usually have better risk management systems. This means lower borrowing costs for well-governed firms4 and higher efficiency in the use of resources which makes possible to improve business competitiveness. ✸ Better long-term financial performance: Well-governed companies, as a result of systematic management of both short and long-term risks and a heightened focus on organisational performance and ongoing business value, should be better positioned to achieve solid financial performance over the long-term. ✸ Premium valuations: The results of a survey by McKinsey focused on emerging economies, showed that investors are looking for high standards of good governance and will pay a premium for shares in companies that meet these standards. Companies in the sample could expect, on average, to experience a 10-12% increase in their market valuation.5 ✸ Healthier marketplace: When good governance is practiced effectively across an economy as a whole, it should help provide the degree of confidence necessary for the proper functioning of a market economy. Governance under fire As we now know, the appearance of good governance does not ensure its reality. Part of the challenge we now all face is that those countries and companies assumed to have some of the highest standards of governance are precisely those that have failed worst. The basic principles of good governance include rule of law, ethics, integrity, disclosure, transparency, accountability, not only to shareholders but to all stakeholders. The current crisis has shown that there were implementation problems at least in four areas of governance: Board practices, risk management, remuneration and the exercise of shareholder rights.6 According to the OECD, corporate governance processes did not serve their purpose to safeguard against excessive risk taking in a number of financial companies which were thought to be sophisticated institutions but which presented severe weaknesses in their risk management systems. Deficiencies in risk management and distorted incentive systems resulted in deficient board oversight, a problem detected also in a number of non-financial companies.
Responsible Competitiveness in the Arab World 2009 81

Opportunities for Improvement Our challenge now is to learn from these mistakes and shape an enhanced international and regional governance system. Four important opportunities follow. 1. Strengthen adherence to the highest international and regional standards As a starting point at the regional level, we should aim to ensure that we meet the highest international standards such as the recommendations of the Organization for Economic Co-operation and Development (OECD).7 While many of the worst offenders of the financial crisis may have professed to be using these standards, it is in most cases a failed application of the standards rather than the quality of the standards themselves. These are a good starting point and companies such as ourselves at NCB have found them to be of significant value having systematically integrated them into our business over the past two years. At the same time, we must continuously review these recommendations and in particular, focus on means to ensure their implementation. In the Kingdom of Saudi Arabia the Saudi Arabian Monetary Agency (SAMA) has played a leadership role in promoting corporate governance standards and a governance culture within the banking industry.8 As early as 1981, SAMA issued an important circular entitled “Powers and Responsibilities of the Board of Directors of Commercial Banks in Saudi Arabia”. In 2004, SAMA issued a circular addressing the qualifications and requirements for appointments to senior positions in banks within the Kingdom. More recently SAMA has issued additional circulars pertaining to governance that have aimed at providing guidance to banks on issues such as Internal Controls, Know Your Customer, Anti-Money Laundering and Combating Terrorism Financing and Prevention of Fraud. The roles of external audit, internal audit and compliance are regulated by SAMA who furthermore require that all banks apply the International Financial Reporting Standards and that two firms of external auditors conduct an annual audit. Furthermore, SAMA has required that banks in the Kingdom of Saudi Arabia meet the corporate governance guidance emanating from the Basle Committee on Banking Supervision and more recently from the Islamic Financial Services Board (IFSB).

82

GOOD CORPORATE GOVERNANCE, SUSTAINABILITY AND RESPONSIBLE COMPETITIVENESS

2. Consider the Benefits of Islamic Finance The current financial crisis was triggered by excess of leverage, by the complexity of financial products which made it difficult to identify the financing with the underlying asset (for example, toxic investments backed by risky subprime mortgages), and by a neglect of risk that was thought to be diversified and mitigated throughout the financial system via new financial instruments. Looking specifically at the financial sector, evidence shows that Islamic banks seem to have been less affected by the crisis than their Western counterparts, very likely because they have been more conservative, mostly due to Shariah law regulations, which restricted debt transactions or investments in toxic assets since they are based on debt trading.

Principles of Islamic banking Islamic banking is based on Shariah law. Shariah law is Islam's legal system. It is derived from a combination of sources including the Qur'an (the Muslim holy book that contains the word of God), the Hadith (the narrations about the sayings and conduct of the prophet Muhammad PBUH) and Consensus and Analogy (expressing the interpretations of Shariah Scholars). Shariah differs to other legal traditions in that it governs every aspect of the life of Muslims. Islamic finance is based on two principles: prohibition of Riba and Gharar, which are defined as Haram or impressible activity, that affect common financing and investment practices. ✸ Prohibition of Riba (interest) which is seen as a form of usury. Islamic law promotes the use of equity financing over debt financing. This encourages the classical forms for equity financing (Mudarabah and Musharakah) which require partnership and profit sharing, to which venture capital in conventional banking systems can be compared. This precludes the use of conventional debt financing such as interest-bearing loans unless they adopt the form of asset sales (Murabaha) and leases (Ijara) and lenders receive a share of profits as return on capital instead of interest. This discourages high leveraged operations.

Responsible Competitiveness in the Arab World 2009 83

✸ Prohibition of Gharar (trade in financial risk or sale of something that may not exist at the time of the trade) which is seen as profiting from another person’s uncertainty. This discourages speculation, precludes short selling and limits the use of conventional derivatives (forwards, futures and options) and of insurance policies, unless they adopt the form of Islamic insurance (Takaful). Shariah law restricts the activities of individuals and companies to be within permissible boundaries, and strictly prohibits dealing in non-permissible activities such as alcohol and pornography.

These regulations have made Islamic banks more resilient to the current financial turmoil. The evidence provided by some recent reports seems to support this view. According to Standard & Poor's Ratings Services,9 Gulf Islamic financial institutions, while not immune from the crisis, are being less impacted than conventional financial institutions for the reasons mentioned above. Reinforcing this conclusion, Moody’s Investor Service, the rating agency, said at the end of March that, “although the Islamic finance industry has been hit by the fall in oil prices, it can now demonstrate a track record of resilience and may even emerge stronger from the crisis provided some conditions are met, namely, more innovation, enhanced transparency, more robust risk-management architecture and culture, and better training”.10 While the data is still not definitive and the crisis is ongoing, these preliminary findings are relevant both regionally and globally and at minimum demonstrate that discussion is warranted over the merits of the practices of Islamic banking and how those practices might inform international reforms. 3. Integrate sustainability into corporate governance As we seek out solutions to this urgent and pressing financial crisis, we need to simultaneously take into account a wider set of pressing economic, social and environmental risks that are predicted to potentially have similar or greater financial impact on the global system over the medium to longerterm. If we do not, we may find ourselves in an even worse position two, five, ten, or twenty years from now. Leading businesses around the world are adopting sustainability management – the integrated management of economic, environmental and social performance for the purpose of enhancing value for both shareholders and society (i.e. all stakeholders). The underlying premise of sustainability management is that companies who can
84

GOOD CORPORATE GOVERNANCE, SUSTAINABILITY AND RESPONSIBLE COMPETITIVENESS

better identify, understand, and respond to a wider range of material economic, environmental and social risks and opportunities will outcompete those companies who do not. This will be especially true as social and environmental trends (such as global warming) continue to strengthen. At NCB, we have committed to sustainability management and reporting, and were the first company in the Kingdom of Saudi Arabia and the first bank in the Arab region to issue a GRI-checked Sustainability Report.11 Our commitment is not only reflected in our reporting but also finds expression in the structures, processes and programs that have been established to promote and progress our sustainability agenda. We have committed to reviewing our risk management processes in the context of gaining a better understanding of the sustainability risks and opportunities we may be encountering in our lending portfolio. 4. Encourage renewed emphasis on good corporate governance and sustainability in government policy and economic stimuli When practiced properly by large numbers of companies, good corporate governance can enhance the attractiveness, effectiveness, and competitiveness of national markets. Good corporate governance that incorporates sustainability management should therefore further strengthen those national markets. Several governments in the region are already exploring this linkage under the banner of Responsible Competitiveness, the focus of this report. These countries include Jordan, Egypt, and the Kingdom of Saudi Arabia. In the Kingdom of Saudi Arabia, the Saudi leadership has recognized that Responsible Competitiveness has the potential to contribute significantly to Saudi’s ambition of becoming one of the Top 10 most competitive nations by 2010. As such, they have launched the Saudi Arabia Responsible Competitiveness Index, an initiative that explores the take-up of sustainability business practices by 40 Saudi companies and the correlation to national competitiveness. Other countries in the region should also be encouraged to consider the link between widespread uptake of good corporate governance, sustainability management, and national competitiveness, and to modify government policy and regulatory frameworks accordingly. NCB is also a founding member of the Arab Sustainability Leadership Group (ASLG). Under the leadership of Her Majesty Queen Rania Al-Abdullah of Jordan, the ASLG is comprised of a group of companies, government agencies, and non-profit organizations from across the region that have firmly committed to adopting sustainability management and reporting. Beyond policy and regulatory revisions that will undoubtedly arise from the
Responsible Competitiveness in the Arab World 2009 85

current financial crisis, governments have another major opportunity to promote sustainability-oriented governance and risk management. It is fair to say that most governments worldwide have not taken into account a long-term sustainability-oriented perspective that fully considered economic, environmental and social development. This has included embracing an economic development model that is now well understood to not adequately account for negative environmental and social impacts. In recent years, the Arab region has seen dramatic investment and economic development, much of which followed a similar path of increasing, but still inadequate, regard to environmental considerations and their associated financial impacts. As the global economic slowdown hits the region, governments are expected to step in with stimulus funding of major infrastructure projects. For example, the Kingdom of Saudi Arabia alone is expected to invest $400 billion dollars in national projects over the coming five years.12 For all regional investment, there is an opportunity to achieve immediate progress in further factoring the wider range of environmental and social risks into these projects, so that we can implement projects which contribute to global stability over the long-term and do not risk leading us towards new crisis. In the most recent G20 stimulus package, for example, more than $400 billion of the $2.6 trillion committed is being targeted towards stimulus relating to environmentally clean technologies and associated industries, innovation, and work opportunities.13 This will be the largest ever infusion into clean technologies and the Arab World must consider both the potential implications of such a financial injection in terms of mid to longterm energy scenarios, but also the extent to which the Arab World itself will integrate a wider range of environmental and social risks and opportunities into its own upcoming mega-investments. Towards Responsible Competitiveness Failed governance is at the heart of to the global financial crisis. Now is the opportune time to rebuild governance models and then focus on rebuilding confidence in the improved models. While we can start with the best elements of existing governance models, there is a real opportunity to consider the merits of Islamic banking practices and to incorporate sustainability-oriented risk and opportunity oversight at the corporate governance level into these new models. As NCB, and as the Kingdom of Saudi Arabia’s largest bank, we commit to doing our own work to continuously improve our governance processes, to
86

GOOD CORPORATE GOVERNANCE, SUSTAINABILITY AND RESPONSIBLE COMPETITIVENESS

integrate sustainability at the governance level. We will be pleased to work together with partners who also wish to enhance their sustainability governance and management practices, and we will be pleased to engage government in dialogues on integrating good governance and sustainability to the greatest extent in policy, strategy, investments and practice. In so doing, we can collectively, in the Kingdom of Saudi Arabia and the region, contribute to greater competitiveness – a more responsible competitiveness – that leads us to a sounder global system and a more prosperous and sustainable tomorrow.

Endnotes
1. Knowledge@Wharton (2007): The Impact of Good Governance on International Investing: The 'Home Bias' Effect and Other Issues. Knowledge@Wharton, July 25, 2007, http://knowledge.wharton.upenn.edu/article.cfm?articleid=1781 2. IFC (2006): The irresistible case for good governance. International Finance Corporation, Investor and Corporate practice, http://www.ifc.org/ifcext/pepse.nsf/ AttachmentsByTitle/IrresistibleCase4CG.pdf/$FILE/IrresistibleCase4CG.pdf 3. Nevell, R. and Wilson, G (2002): A premium for good governance. The McKinsey Quarterly, 2002, Nº 3, http://cnv1.conaval.gob.pa/Gobierno%20Corporativo/Premiumforgoodgovernance.pdf 4. Kirkpatrick, G. (2009): The corporate governance lessons from the financial crisis. Organization for Economic Cooperation and Development: Paris, http://www.oecd.org/dataoecd/32/1/42229620.pdf 5. Nevell, R. and Wilson, G (2002): A premium for good governance. The McKinsey Quarterly, 2002, Nº 3 http://cnv1.conaval.gob.pa/Gobierno%20Corporativo/ Premiumforgoodgovernance.pdf 6. Kirkpatrick, G. (2009): The corporate governance lessons from the financial crisis. Organization for Economic Cooperation and Development: Paris. http://www.oecd.org/dataoecd/32/1/42229620.pdf 7. OECD (2004): OECD Principles of Corporate Governance. Organization for Economic Cooperation and Development: Paris. http://www.oecd.org/dataoecd/32/18/31557724.pdf 8. Al-Sayari H. (2007): Corporate governance for banks in the Kingdom of Saudi Arabia. Speech by His Excellency Hamad Al-Sayari, Governor of the Saudi Arabian Monetary Agency at the High-Level Roundtable Discussion for Bank Executives on “Corporate Governance for Banks in the Kingdom of Saudi Arabia, Institute of Banking, Riyadh, 22-23 May 2007. http://www.bis.org/review/r070724b.pdf 9. Standard & Poor's (2009): Rated Gulf Islamic Financial Institutions And Takaful Companies Have Shown Resilience To Global Market Dislocation, But They Are Not Risk Immune. Standard & Poor's Ratings Services, Friday, 27 February 2009, http://www.islamicfinance.de/?q=node/334
Responsible Competitiveness in the Arab World 2009 87

10. Billing, S. (2009): Moody's backs Islamic banks to emerge stronger. Arabian Business.com, Thursday, 26 February 2009, http://www.arabianbusiness.com/ property/article/548040-moodys-backs-islamic-banks-to-emerge-stronger 11. The GRI is the Global Reporting Initiative. We used the GRI’s G3 Guidelines for sustainability reporting, the most widely used guidelines for sustainability reporting in the world. 12. Spinetto, J. P and Carey, G. (2009): Saudi Arabia to Spend $400 Billion on Infrastructure Projects. Bloomberg, February 1, 2009,http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ahSSvlvJIpmA 13. Scott, M (2009): CleanTech Investment Takes a Hit. Businessweek, April 1, 2009,http://www.businessweek.com/investing/green_business/archives/2009/04/cl eantech_inves.html#more; and Cleantech Group and Deloitte (2009): Clean technology venture investment falls to $1 billion in 1Q09: Governments step up to support clean technology with $400 billion in global stimulus spending. Cleantech Group and Deloitte, Press release, April 1, 2009, http://cleantech.com/about/pressreleases/040109.cfm

88

RESPONSIBLE VALUES

4 Responsible Values
About the Author
Frederic Sicre is Executive Director at Abraaj Capital, the premier investment firm specializing in private equity investments in the Middle East, North Africa and South Asia (MENASA) region.

As the world struggles to respond to the global financial crisis and economic downturn, a growing number of voices are urging that we use this opportunity to simultaneously address the next wave of threats facing our global community. The fact that the excesses of the past are causing leaders from all walks of life to question basic assumptions is an opportunity to be seized. The future will be different for all of us, no matter what industry we are in. Yet one common denominator is already emerging, and will be increasingly felt as we move forward: namely the notion of responsible values. Indeed, we should see it as a good thing that this crisis is forcing values to be redefined, placing new norms and responsibilities at the core of corporate agendas with renewed vigour. This is the opportunity to be seized, else further devastating shocks that are currently in the making will surface, perhaps dispensing destruction of even greater proportions than we have witnessed over the last year. What are these impending crises, what kind of response do we need to shape, and what can be the role of private equity in this new societal framework? Will we heed the warning? This global financial crisis was not without warning. There were a few voices that raised concerns, which recognized that American consumers were living beyond their means, and the financial system was acting irresponsibly to support that habit. A few saw the writing on the wall, but they were ignored and short term thinking and greed took over without regard for the unsustainable and harmful nature of the systems and human failures at play. If we are to look for lessons in this crisis, one that might be found is that we must pay careful attention to thoughtful multi-disciplinary insights and warnings regarding national, regional and global issues. Technology and globalization have certainly interconnected our societies and economies like never before, providing an effective medium for rapid contagion as we
Responsible Competitiveness in the Arab World 2009 89

saw for example with the Asian crisis in the 1990s. Systemic risks will continue to exist as our world further integrates and our planet effectively becomes smaller. So what of the often mentioned issues: access to clean water, climate change, new energy sources, functioning of cities, growing urbanization, food scarcity and security, and adequate livelihoods? Are we going to ignore the well documented and researched warnings that now face us, or are we corporations going to use this current crisis to place at the centre of our production systems and economic activities the notion of responsible values which can cohabitate alongside profit generation and stakeholder value creation? The impeding crisis Of the multiple emerging global challenges, at least six are particularly poignant in the Middle East, North Africa and South Asia (MENASA) region. Water scarcity: Perhaps the most significant environmental challenge in the Arab region is scarcity of water. Of the 20 countries in the world with the lowest internal renewable freshwater supply, 15 are in the Middle East and North Africa (MENA) region.1 Per capita renewable water resources in the region are currently estimated at 1,100 m3 per year, compared to a global average of 8,900 m3 per person per year. The ratio is expected to drop to 547 m3/yr by the year 2050,2 with current consumption exceeding long-term resources across the region. Impacts of climate change: Many countries in the region will be disproportionately impacted by climate change. The MENA region is expected to face an increase of 2°C to 5.5°C in the surface temperature by the end of the 21st century. This increase will be coupled with a projected decrease in precipitation of up to 20%, along with other harmful impacts. The global energy transition: Arab countries hold 61% of the world oil reserves and 26% of the world gas reserves; they produce nearly 30% of world oil production and 11% of gas production.3 At the same time, the region holds enormous potential for renewable and clean energy production. Innovative regional initiatives like Masdar in Abu Dhabi are seeking to take advantage of these opportunities by transitioning hydrocarbon wealth into global leadership in renewable energy. The market opportunity is vast: the International Energy Agency estimates that total additional investment needs in renewable energy for the
90

RESPONSIBLE VALUES

period 2010-2050 amount to US$45 trillion4 – and that is on top of the investments in a business-as-usual scenario. Building liveable cities: Globally, about one-third of the population of urban regions lives in extreme poverty, and, if nothing is done, this proportion will increase to about two-fifths within the next quarter of a century.5 Some cities in the Arab region face similar challenges. At the same time, whole modern cities are rising from the Arab sands. Two decades ago, only 30% of the Arab population lived in cities. By 2020, an estimated 70% of the region’s population will be urban, an additional 86 million people.6 Cities like Abu Dhabi alone have more than $208 billion factoring in only the city’s top ten civil projects.7 The design and enhancement of these cities to create vibrant social communities, economic prosperity without poverty, and ecological sustainability can become a source of tremendous innovation that can eventually be replicated elsewhere. Food security: MENA countries rely on imports to meet about 50% of their food needs, while Gulf countries are importing 100% of their staple foods.8 The agricultural sector also consumes over 83% of the water in the region while its contribution to gross domestic product is quite low, ranging from 0.3% to 34% with a regional average of 12.5% in 2005.9 While conventional intensive farming methods currently result in environmental damage and declining rates of agricultural productivity,10 regional success stories in organic agriculture such as Sekem Group in Egypt demonstrate both more responsible techniques and exciting, scalable business opportunities. Job creation and the demographic challenge: The Arab region currently has approximately 104 million jobs. To keep pace with population growth and the youth demographic, the region will have to create a staggering additional 100 million jobs by 2020.11 A new framework: Responsible Competitiveness Our global systems require a redesign from a governance and financial point of view, but also environmentally and socially. We are already seeing the beginnings of this with the emergence of the G20 as a more representative and equitable forum for political leaders to discuss these challenges and possible actions. Many more changes to our global governance systems are needed, and this crisis may just be the catalyst for this to occur faster.
Responsible Competitiveness in the Arab World 2009 91

Taken from a private sector perspective, our central questions could be: How are we as business organizations going to comprehensively emerge stronger from this? Will we have emerged in a way that strengthens our ability to increasingly contribute to addressing these forthcoming global challenges? Looking forward, private equity has an important contribution to make in the shaping of this new world, particularly in re-centring responsible values at the core of business operations. Private equity as we at Abraaj have been applying it can become an agent of change. We are long term value creators, with our success based on trust, good governance, and proper accounting and valuation methodologies – many criteria that have been sorely missing in the world of the last few years. Private equity firms can also have a multiplier effect in that their holdings and investments span numerous businesses and touch far more employees and stakeholders than just inside the firm itself. Globally, it is estimated that private equity manages more than $2 trillion worth of assets.12 In the MENASA region, Abraaj alone has a portfolio of 26 companies with 30,000 employees which, if we succeed to constructively engage them on these issues, can really make a difference. The challenges, and opportunities, for private equity in playing its part can be divided into five major buckets and fortunately, we are already seeing innovative developments across all of these opportunity areas. Transparency and good governance Improved transparency is a fundamental starting point. The lack of transparency and accountability in the global financial system was a key contributor to the current crisis. To be part of the solution that rebuilds confidence in the market and commerce, private equity must significantly improve its own transparency. This can include voluntary submission to regulation, quarterly reporting as per British Venture Capital Association (BCVA) guidelines and increased non-financial reporting, i.e. explaining private equity functions and how they create real value. For example, in 2006 Abraaj voluntarily came under the regulation of the Dubai Financial Services Authority, and, in doing so, became one of the first private equity firms to be regulated anywhere in the world. Private equity can have a material market impact in the application of good governance through its portfolio companies. By insisting on good practices in governance, transparency, and accountability, private equity can immediately raise the governance standard of hundreds of influential, privately-held companies worldwide. There is a reward for good governance among
92

RESPONSIBLE VALUES

portfolio companies. McKinsey reported that companies moving from worst to best in corporate governance can expect on average roughly 10 to 12 percent increase in their market valuation.13 This is derived from improved performance resulting from stronger management, and the reputation benefits associated with well-run, well-governed companies. This premium will increase as a result of the financial crisis. Appropriate private equity business models Highly leveraged financial entities and market actors – from banks to consumers – have also been a key contributor to the financial crisis. There is a lesson to be learned here, in the virtue of good old-fashioned growth, based on real goods, real services, real demand, and real revenues. To be part of the solution, private equity can focus on low-leverage models that concentrate on enhancing the operations of their portfolio companies, and on providing growth capital to help address market demand for an important good or service. In our view, this is the most constructive way to contribute to economic and social development. At Abraaj, we have been practicing this approach. Up until now, it has served us and our investors well, and it has kept us in a position of relative strength even as many in our sector have come under enormous strain in this crisis. Herein lies the real opportunity in the MENASA region: demographics and historic low levels of investment in soft and hard infrastructure have created a pent up demand. This means that the business sector urgently requires successful companies to dramatically ramp up capacity. Sustainability screens and the sustainability performance of portfolio companies Private equity has, as have public investors, increasingly recognized the importance of evaluating a wider range of environmental and social risks and opportunities when considering investment opportunities. And as the world transitions towards a low-carbon, sustainability-oriented marketplace, these factors will become even more critical. In February 2009, the Private Equity Council (PEC) announced that its members had adopted a set of comprehensive responsible investment guidelines that they will apply prior to investing in companies and during their period of ownership. The guidelines cover environmental, health, safety, labor, governance and social issues. The guidelines grew out of a dialogue between PEC members and a group of the world’s major institutional investors, which took place under the umbrella of the United Nations-backed Principles for Responsible Investment (PRI). Private Equity
Responsible Competitiveness in the Arab World 2009 93

Council President Douglas Lowenstein stated: “Private equity is all about investing for growth and maximizing returns to our investors. To accomplish that today requires considering a range of environmental, governance, human capital, and social issues. Today’s announcement explicitly and formally affirms PEC members’ commitment to fully integrating these responsible investment guidelines into both our pre-investment and postinvestment processes.” Just prior to the PEC announcement, Abraaj had finalized its own “Ethical Framework for Investments” (EFI): developed independently, drawing on international best practice in sustainability screening, and customized for the region. The purpose of the EFI is to both inform Abraaj’s investment decisions, while also providing a framework for the responsible operations of Abraaj’s portfolio companies. In early February Abraaj brought together its portfolio companies to review and sign-off on this Ethical Framework. These frameworks, at the global, regional, and firm-level, must now be rigorously applied and continuously enhanced to address the growing range of global challenges and their corresponding performance impacts on portfolio companies. Investing in sectors that take a region or society to its next level of development Of all the potential roles it can play, the most important and substantial impact private equity can make is through targeting a portion of its investments into our world’s most pressing challenges. These investments can also be seen as exciting business opportunities. For example, in the area of education, the low quality of schools and educational systems in the region, combined with the massive youth demographic, create not only an urgent need but a phenomenal business opportunity for private schooling that can target all income levels. Our investment in GEMS is aimed at taking a private schooling model that has demonstrated tremendous success in terms of student achievement, and uses our growth capital to scale up GEMS to hundreds of schools in the MENASA region. This is in addition to taking over the management of many public schools from governments, in order to improve curricula and teacher qualifications. In the area of health care, quality services are also an urgent need, a growing challenge, and a huge business opportunity. Private equity investors in our region recognise this. Our investment in Acibadem (affiliated to Harvard
94

RESPONSIBLE VALUES

Medical School), Turkey’s leading private healthcare group, adopts a similar “platform” strategy, where we take a national success story and scale it up to a regional level. Our goal with Acibadem is to become the premier healthcare group in the MENASA region. Staying connected with society Underpinning all of the above is the need for private equity to be more closely connected to the society in which it operates. This means being engaged in critical multi stakeholder discussions, supporting NGO’s and entrepreneurs and looking to create durable solutions for those who are underprivileged. At Abraaj, we stringently adhere to a code of conduct that shows respect and appreciation to the communities in which we and our partner companies operate. Our community partnership program is funded by 5% of our management fee income and we encourage all our employees to contribute annually as well, both in terms of financial commitments and volunteer time which is covered by the firm. We are particularly pleased with both our financial donations and our employee involvement with the Injaz program, a regional initiative focused on creating business smarts and fostering entrepreneurialism amongst Arab youth directly in the school place. If we can start planting the seeds of entrepreneurship amongst these youth, we can help take tomorrow’s society to the next level. The challenge for private equity firms worldwide is that businesses increasingly understand that responsible competitiveness is emerging at the core of business strategy, products and services. Globally, our industry has perhaps been lagging behind the rest. Private equity can be an enormous force to both rebuild market confidence and re-shape businesses and markets to uphold strong responsible values at the core of their operating systems. The advance and progress of our global society depends on every one of us to do their bit… ignoring the writing on the wall and the opportunity heralded by this current crisis will be done at our peril.

Endnotes
1. http://www.ifad.org/operations/projects/regions/pn/factsheets/WWF_factsheet.pdf

2. http://www.ifad.org/operations/projects/regions/pn/factsheets/WWF_factsheet.pdf 3. http://www.un.org/esa/sustdev/csd/csd14/escwaRIM_bp2.pdf 4. http://www.iea.org/textbase/techno/etp/fact_sheet_etp2008.pdf 5. Sheeran, Josette (2008) “On Environment and Sustainability”. Summit on the Global Agenda Dubai, United Arab Emirates 7-9 November 2008. 6. World Bank website on Urban Development
Responsible Competitiveness in the Arab World 2009 95

7.

“Top ten Abu Dhabi projects worth $208bn” March 9, 2009 http://www.ameinfo.com/187781.html

8. Food Crisis in the Middle East and North Africa, World Bank June 2008. Found at: http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/MENAEXT/0,,contentMD K:21840570~pagePK:146736~piPK:146830~theSitePK:256299,00.html 9. http://www.ifad.org/operations/projects/regions/pn/factsheets/WWF_factsheet.pdf 10. http://www.ameinfo.com/186599.html 11. World Bank, Unlocking the Employment Potential in the Middle East and North Africa: Toward a New Social Contract (Washington: D.C.: World Bank, 2003) 12. The 2008 Global Private Equity Review 13. Nevell, R. and Wilson, G (2002): A premium for good governance. The McKinsey Quarterly, 2002, Nº 3 http://cnv1.conaval.gob.pa/Gobierno%20Corporativo/ Premiumforgoodgovernance.pdf

96

MASDAR’S ROLE IN ABU DHABI’S ECONOMIC DIVERSIFICATION

5 Masdar’s Role in Abu Dhabi’s Economic Diversification
About the Author
Dr. Sultan Ahmed Al Jaber is Chief Executive Officer of Masdar, a wholly owned subsidiary of the Mubadala Development Company. Masdar is Abu Dhabi’s multi-faceted initiative in the development and commercialization of innovative technologies in renewable and sustainable energy.

The transformation of Abu Dhabi over the last 30 years is remarkable evidence of the Emirate’s capacity for growth and the leadership’s vision for the future. Undeniably, this growth was fuelled by the Emirate’s substantial oil resources and its emergence as a global leader in the hydrocarbon industry. Today, the leadership of the Emirate has again recognized that we are in a time that is ripe for growth and change: global energy demand is rising, climate change threatens people and the environment, and Abu Dhabi has the opportunity to offer resources beyond oil. The Government of Abu Dhabi has laid out a comprehensive plan that will diversify the economy by 2030, ensuring the Emirate’s sustained prosperity. Central to this plan is the development of Abu Dhabi as a knowledge, innovation and technology hub in the region. Mubadala Development Company (Mubadala) is a catalyst that is facilitating this by harnessing expertise and resources through building businesses, clusters of expertise and whole new industries. Wholly owned by Mubadala, Masdar is one of those businesses, a multi faceted initiative that will move innovation closer to the forefront of the Abu Dhabi economy. Masdar’s objective, to help diversify Abu Dhabi’s knowledge based economy by advancing the commercial viability and deployment of renewable energy, will mean the Emirate will be able to maintain and define its position as a global energy leader for years to come. Masdar’s investments, partnerships, and developments, will change the economic landscape of Abu Dhabi, thus creating new opportunities that will help the Emirate reach its vision for a sustainable future. Cultivating Human Capital In today’s world, knowledge is the currency of the global economy and is situated at the heart of growth. Without knowledge, companies, communities and countries are destined to find themselves left behind in a world that is rapidly advancing.
Responsible Competitiveness in the Arab World 2009 97

For Abu Dhabi, knowledge is not a commodity in which we have traded heavily in the past. To truly compete on a global platform and to achieve our ambition of becoming a world leader in renewable energy, a thriving knowledge economy that fuels continual innovation is essential. Building the next generation of energy leaders requires a focused and serious investment from both the public and private sectors. It is crucial to fully understand the global competitive landscape for knowledge and innovation capacity. In the past several years, GCC nations have facilitated the expansion of private higher education institutions as the solution to their educational deficiencies. Some of these institutions are purely local and funded by private investors, while others are either joint ventures with foreign universities or satellite campuses of the latter. The United Arab Emirates, the first GCC country to authorize private higher education, is developing private institutions that are beginning to eclipse established government universities. The government of the UAE has set aside tracts of land in order to create establish universities. In Abu Dhabi, we are in the process of developing the infrastructure required for technically-literate population to grow and flourish. Central to this is the need for world-class scientific research institutions that will yield a workforce of highly skilled scientists and engineers. Masdar has taken the lead on this by establishing the Masdar Institute of Science and Technology: Masdar’s intellectual centrepiece, which is located at the heart of Masdar City. The Masdar Institute, developed in partnership with the Massachusetts Institute of Technology (MIT), is a graduate-level researchdriven institution that will progress the knowledge to drive innovation in advanced energy and sustainability. It will harness and generate the research and educational capacity needed to catalyse the development of intellectual property to begin positioning Abu Dhabi as a technology developer. Our partnership with MIT has been essential in bringing the Masdar Institute to life. With MIT’s assistance we have implemented our administrative framework as well as our research curriculum to focus on strategic areas of study. Current research streams include energy waste, grid technology, sustainable materials, fuel cells, system integration, and performance of solar PV: all areas that require extensive research to develop their potential. The student population of Masdar Institute, comprising of its graduate and post-graduate programs, is steadily approaching 1000. Many of these
98

MASDAR’S ROLE IN ABU DHABI’S ECONOMIC DIVERSIFICATION

talented students will, on completion of their degrees, make their way into businesses, enterprises and industries in Abu Dhabi and the United Arab Emirates. Although this number may seem trivial, Masdar Institute is only one of the many universities Abu Dhabi is establishing to contribute to the development of its population. Deploying Renewable Energy At the time of Masdar’s establishment, we recognized that growth in the global renewable energy industry would increasingly depend on the industry’s success in overcoming the fragmentation between technology financing, research and full-scale deployment. Eliminating this form of fragmentation will ensure a successful and concrete foundation upon which the new renewable industry can establish itself in Abu Dhabi. As a result, Masdar was designed to address the full life cycle of renewable technology. From research and development, venture capital and commercialization to large-scale deployment, Masdar is able to take a technology from the lab to the marketplace with less exposure to industry barriers common in the sector. In essence, this vision of a more seamless journey to the adoption of renewable energy technologies is a key element of what makes Masdar so significant, both as a company, and as a stakeholder in the future of Abu Dhabi. The success of the technology cluster model, demonstrated by Silicon Valley, will be adapted and recreated in Abu Dhabi in the field of renewable energy: where scale and capital will create unprecedented opportunities for the most promising energy technologies to be put into practice as quickly as possible. The Masdar Institute in Masdar City will be the source from which technology will germinate, where research and testing will be conducted within the laboratories and the city itself. Masdar City, a model for future cities, is already the most unique testing ground for the world’s most advanced technologies in the renewable energy and clean environmental technology sector. The integration of existing renewable technologies, whether it be introducing smart grids or integrating electric transport, is a significant technical challenge that will ultimately determine the viability of these solutions. Further down the technology life cycle, following the research and development stage, is the critical phase of financing. Masdar has demonstrated unprecedented support thus far, backing a basket of mature technologies
Responsible Competitiveness in the Arab World 2009 99

from across the complete renewable energy and sustainability spectrum. Especially during the current economic climate, financing plays a critical role in ensuring the efficiencies and viabilities of technologies continue to develop. Masdar will maintain its direct investments both individually and through its joint funds. The Masdar Cleantech Fund, in partnership with Siemens, Credit Suisse and Consensus Business Group, has already committed $250 million. The launching of an additional fund of a larger sum will soon be deployed. Financing has been biggest hurdle technologies face; we are providing as much support as possible to facilitate this transition, especially with technologies valuable to the region. As Abu Dhabi is situated on the world’s Sunbelt, solar technology is one of the most efficient and viable renewable energy solutions for deployment in the region. Accordingly, we have made significant investments and established our own manufacturing capabilities to accelerate the development and deployment of the solar power industry. In May 2008, Masdar established Masdar PV, a thin-film PV manufacturing facility in Germany, which will use advanced production technologies to bring PV closer to grid parity. In addition, the facility will act as a knowledge transfer base where UAE nationals will have the opportunity to acquire the necessary technological knowhow to operate a similar PV manufacturing plant in Abu Dhabi. Later this year the construction of a larger facility in Abu Dhabi will commence, introducing a supply of mature technology for deployment in the region for the first time. Furthermore, in support of advancing the adoption and full-scale deployment of these technologies, we have taken the first steps to introduce renewable energy on utility-scale. We will soon

Laboratory

Venture Capital

Mature Technology

STAGE 1 • Masdar Institute of Science and Technology
100

STAGE 2 • Masdar Clean Tech fund • Direct investments

STAGE 3 • Masdar investments • Industries and manufacturing • Deployment

MASDAR’S ROLE IN ABU DHABI’S ECONOMIC DIVERSIFICATION

break ground on Shams 1, a 100MW concentrated solar power plant that will provide Abu Dhabi with a reliable source of energy using one of our most abundant resources. Notably, Masdar connected a 10MW solar plant to the Abu Dhabi municipal grid in May this year, providing the residents of the Emirate with their first source of renewable energy. By playing a role throughout the entire technology lifecycle, from its early stages of research through to the financial support and maturation, Masdar has a clear vision to continue to take new and existing technologies and provide the resources that will lead to their increased adoption in Abu Dhabi, the region and globally. The Challenges The task of instituting a new economic sector is not straightforward or simple, nor can it be achieved within a short period of time. Our commitment to this undertaking is long-term; and although we have established a comprehensive plan that recognizes the synergies necessary to ensure its success, we are conscious of the inevitable challenges that lay ahead. Many of the challenges being faced are not unique to Masdar and Abu Dhabi, but are faced by the renewable energy industry worldwide. Of those challenges, the most pressing is reaching grid parity: the point at which renewable power is equal to, or cheaper than conventional grid power. In Abu Dhabi, although the thriving hydrocarbon industry can be considered a disadvantage to reaching grid parity, our abundance of sunlight plays a significant role in the long-term viability of solar energy. Moreover, it is important to note that the established hydrocarbon sector is providing the financial capital and energy expertise needed to establish the renewable energy industry. Nevertheless, for the technology to reach grid parity, mass deployment is crucial. This can be significantly facilitated via supporting government policies similar to those employed by Germany. Financial incentives, such as investment subsidies or feed-in tariffs, are the type of government policies needed to make renewable energy lucrative. The Abu Dhabi Government is currently studying the implementation of such policies. However, the Government has already demonstrated its support for clean energy by pledging that by 2020 renewable energy sources will account for 7 percent of the Emirate’s total power capacity. This commitment is estimated to yield a renewable energy market valued at $67 billion over the next ten years. This is a bold and progressive step being taken by a major hydrocarbon producing nation.
Responsible Competitiveness in the Arab World 2009 101

Although Abu Dhabi has taken, and continues to take, steps in embracing renewables and continues to do so, the success and feasibility of the industry, especially in the Middle East, cannot be dependent on one nation’s drastic shift in energy focus. There needs to be a unified approach, one that brings the Gulf Cooperation Council (GCC) countries or Arab League under one scheme. Such a scheme could be similar to the European Union’s “Climate Action and Renewable Energy Package”, in which Member States have pledged to reduce their carbon emission by twenty percent and increase the share of renewables in energy use to twenty percent, both by 2020. This is the type of unified initiative required: one that not only ensures the expedient deployment of renewable energy sources, but one that recognizes the need to reduce carbon emission as well. Conversely, incentives and subsidies can only support renewable energy for a limited time. After all, we must acknowledge the need of a technology to support itself without the crutch of government policy. Masdar seeks to provide that support through investments in education and human capital, and through applying resources on a scale large enough to drive down the costs of the technology, regardless of the price of oil or the availability of incentives. We represent a long term commitment that will confront the challenges, because we recognize the importance of this industry and the added value it will have on our economy in the long term. Looking Forward Many have questioned our direction. Although the hydrocarbon industry is the antithesis of its renewables counterpart, the wealth and resources accumulated by Abu Dhabi are the driving force behind our ability to see our initiative materialize. As our renewable energy industry develops and Masdar City continues to reach completion, cleantech companies, entrepreneurs and researchers will find that Abu Dhabi is gradually becoming a centre of technological innovation and development. The first step in any journey is always the most difficult. We recognize that our journey to establishing a renewable energy economic sector in Abu Dhabi is a nation building exercise that will undoubtedly require time and a vast amount of effort and resources. Masdar is Abu Dhabi’s model to creating a renewable energy sector; we will learn from our experiences, embracing both the challenges and the accomplishments. This knowledge we will share with the rest of the world to assist in the large scale adoption of renewables.
102

SUSTAINABLE AGRICULTURE, FOOD SECURITY AND RESPONSIBLE COMPETITIVENESS

6 Sustainable Agriculture, Food Security and Responsible Competitiveness
About the Author
Helmy Abouleish is the Managing Director of Sekem Group, which manages the largest organic farms in Egypt. Sekem received the “Right Livelihood Award 2003” for sustainable development, better known as “Alternative Nobel Prize and he has represented Sekem in World Economic Forum meetings.

❝

A narrowly focused ‘seed and fertilizer’ revolution will not avert recurrent food crises under these conditions” United Nations Environment Programme, 2008

Introduction In 2008 rising food prices threatened the food supply of the poor and caused social turmoil in many countries. This brought agriculture back on the agenda of governments around the world. Although today prices have decreased, Food and Agriculture Organisation (FAO) and the World Bank expect them to rise again. Food supply will remain one of the most urgent issues of this century. According to FAO, there are still 856 million people undernourished today. Further, the world’s population is expected to grow from 6.5 to 9.2 billion in 2050, and raising standards of living lead to shifts in diet that increase the demand for animal products. At the same time, we lose 5-12 million hectares1 of agricultural land annually due to degradation, much faster than new ones are created. All of this strongly suggests that the challenge to feed the world will continue to increase. Unfortunately, decisive actions are yet to be taken by governments around the world to tackle this challenge. In the last century the "green revolution" dramatically increased the agricultural yields, mainly through large scale application of inorganic fertilizers and pesticides, excessive irrigation, and high-yielding varieties which were often planted as mono-crops. However, it becomes increasingly obvious by the day that the current path will not suffice to address the food challenge. Firstly, latest data shows that the yields of modern agriculture are stagnating, while at the same time production problems are rising. Secondly, current practices are not sustainable due to the fact that they undermine future cultivation. A complete shift in paradigm is thusly needed to guarantee sufficient food supply today and in the future. Fortunately, an
Responsible Competitiveness in the Arab World 2009 103

alternative is available. Sustainable practices (such as organic and biodynamic agriculture) offer an alternative which reduces the negative impact on the environment, helps to rebuild depleted ecosystems, and, at the same time, increases long-term competitiveness. Sustainable agriculture is a holistic approach not only maximizing present yields per hectare but rather considering all short and long term interests. Table 6.1: Environmental and Economic Impact of Sustainable Agriculture according to the author’s experience
Practice Sophisticated irrigation Environmental Impact Medium Economic Impact After initial investment, continuous reduced expenditures on water. Organic fertilizer Medium After a transition phase in which outputs per yield may decrease slightly, the same yields can be achieved with organic fertilizers. No chemical pesticides High After a transition phase in which outputs per yield may decrease slightly, the same results can be achieved due to sophisticated cultivation. Soil management High While costs for training and labour increase, raises in soil quality increases outputs and reduces vulnerability to whether conditions.

Scarce and costly natural resources All plants depend on a variety of minerals (nitrogen, phosphorus, potassium and others) for growth which can not be substituted or artificially created. Industrial agriculture increased its yields by generously providing these minerals through inorganic fertilizers. Within the Middle East, fertilizer usage increased by more than 500% since 1970.

104

SUSTAINABLE AGRICULTURE, FOOD SECURITY AND RESPONSIBLE COMPETITIVENESS

Figure 6.1: Fertilizer Consumption in the Middle East Region2
7
Million Tonnes Nutrients (kg/ha)

6 5 4 3 2 1
1970 1975 1980 1985 1990 2000 1995

0

Source: IFA 2002

Figure 6.2: Consumption of phosphorous in the Middle East agriculture3
Phosphorous production (million tons per year)
30 Actual Modelled

25

20

15

10

5 0 1900 1920

1940

1960 1980 2000 2020 2040 2060

2080 2100

2120

Based on Cordell, Dranger and White

Current practices waste these minerals by excessive fertilizing. Further, they cause great environmental problems. Plagues of algae, caused by increased availability of nutrients, withdraw oxygen and thereby kill all other life. Since the resources are globally on decline, these practices can not be maintained. The prices for phosphate fertilizers in the U.S. already have risen by more than 300% in the last five years, and will continue to rise.4 Phosphate can not be substituted by other minerals. Therefore, all farming which continues to depend on inorganic phosphate input will soon be faced with a global battle for this scarce resource.
Responsible Competitiveness in the Arab World 2009 105

However, inorganic fertilizers are not necessary for successful cultivation. Sustainable agriculture, to a large extent, relinquishes dependence on fertilizers and instead maintains the nutrient cycle within eco-systems. This can be achieved using compost or manure as an organic fertilizer, and by building active soils which store nutrients much longer. While these practices cause much less environmental problems, they also reduce the fertilizer input costs, which can amount today up to 40% of on-farm production cost.5 Bearing in mind the issue of declining resources, phosphor in particular, this brings great competitive advantages. Water for life The Arab region is situated in the driest region of the world, accounting for only 1.2% of the worlds renewable water reserves. Most countries in the region already suffer from severe water shortage (less than 1,500 cubic meters per capita) and the situation is set to deteriorate in all countries. The regional population growth of about 2.5%, and a raising living standard in most Arab countries, will ensure that water remains the central issue of the next decades. Figure 6.3: Water stress in the Arab Countries6
3000 I 2003 2500
Water (m3/capita/year)

I 2013

I 2025

2000 1500 1000 500 0
Kingdom of Saudi Arabia United Arab Emirates Palestine Lebanon Qatar Syria Bahrain Jordan Yemen Kuwait Oman Egypt Irag
Water stress Water scarcity Severe water scarcity

Agriculture is by far the largest water consumer, with about 80% of total water use in the Arab countries.7 Its contribution to the GDP, meanwhile, is below 20%. However, as reported in many studies, such as the World Bank (2007) Making the Most of Scarcity, water efficiency for agricultural use in the region is rather low, mostly not exceeding 40%.8 The Kingdom of Saudi Arabia for example, a country which faces severe water scarcity today,
106

SUSTAINABLE AGRICULTURE, FOOD SECURITY AND RESPONSIBLE COMPETITIVENESS

produces milk domestically. This is despite the fact that it would be much cheaper to import. Excessive water usage, particularly the depletion of groundwater levels, causes severe impact to ecosystems. Rivers can run dry in summer’ saline levels in soil can exceed sustainable levels and the increased ratio of brackish water affects water quality. Today, water resources are excessively consumed in all Arab countries, mainly due to ineffective agricultural practices. Agriculture, therefore, not only undermines its own development but also reduces the available per capita ratio. Figure 6.4: Excessive withdrawal of renewable water resources.9

Total renewable water stock, 2000
Exessive water use No Data Source: FAO, Aquastat 2007 0% 10% 25% 50% 75% 100%

Various government regulations (mainly subsidies on water and electricity) set incentives for excessive irrigation, thereby causing high public expenditures. Egypt spends 3.3%, Morocco 3.6% of its GDP for water;10 public expenditures on water range between 20% and 30% of most MENA countries.11 Ultimately, the current practices can not be maintained: sustainable agriculture is the only way to address water scarcity in the Arab World. Changes in incentive structures are absolutely necessary. Techniques are already available to dramatically reduce water use in agriculture although some of them, including sophisticated irrigation systems, require high initial investment. Others, such as changing soil and water management towards sustainable practices, are easily and cost effectively implemented. Soils maintained by sustainable agriculture methods have an increased water holding capacity of up to 40%.12 These shifts towards more sustainable practices not only increase long run
Responsible Competitiveness in the Arab World 2009 107

competitiveness tremendously, but reduce running costs from the outset. Integrated water management has a positive effect on soil quality, which is the most important resource for agriculture. Taking into account the necessary changes in pricing structures, which will make water more expensive for agricultural users; early movers will gain a great advantage over their competitors. Finally, the demand for water must be considered when choosing a method of cultivation. The “water footprint” differs tremendously between various foods. Arab countries must maximize their yields per unit of water with respect to national food security and the economical value of their crops. Figure 6.5: Return to Water Use in the MENA Region, by crop13
Product Water (m3/ton) Revenue (US$/ton) Return to water use (US$/m3 water) 0.50 0.08 0.05

Vegetables Wheat Beef

1,000 1,450 42,500

500 120 2,150

However, no country can afford to rely completely on agricultural imports which have volatile world market prices, particularly after the food crisis in 2008. Thus, the shift towards sustainable agricultural practices is an issue of national interest in the Arab World. Energy dependency and raising prices Although agriculture is a relatively small user of energy, the whole food system including fertilizers, transportation and production, represents a major part of total energy use. In the U.S. it accounts for about 19%.14 Inorganic fertilizers are a major drain of energy in conventional farming. The production of one ton of nitrogen fertilizers requires about one and a half tons of petrol.15 In the UK, for example, nitrogen fertilizer usage accounts for 37% of total farming energy use. The same holds to a lesser degree for the use of pesticides which also contribute to the energy demands of the farming industry. As outlined above, sustainable agriculture largely resigns from the use of inorganic fertilizers and pesticides, thereby reducing the energy demand vastly. Further, the higher water holding capacity of sustainable agricultural soils reduces the energy demand for irrigation, which therefore reduces overall energy usage even further. In times of raising and highly volatile energy prices, this represents a substantial competitive advantage when compared to conventional agriculture. These
108

SUSTAINABLE AGRICULTURE, FOOD SECURITY AND RESPONSIBLE COMPETITIVENESS

facts are widely acknowledged: a recent study16 reports of 33% less energy demand in organic and 56% less in biodynamic systems per hectare of maize. Any discussion of sustainable agriculture must take into account the issues of transportation and storage, which can greatly increase the energy use of production. Localized food systems vastly reduce overall energy consumption, while increasing food security and the income of residents in urban areas. From a national perspective, especially in countries where energy is subsidized, the benefits are even higher since also the need for investment in power generation and transportation are reduced The threat of climate change Climate change has vast impacts on the future of agriculture. Sea level raises (SLR) decrease the available arable land; extreme storms wash the soil away; droughts and temperature raises foster desertification and reduce the available water due to increased evaporation. The Arab World is particularly affected due to its vulnerability to SLR and its low water availability. According to a recent study,17 a rise in temperature of 3°C causes drops in maize yield in MENA of 15-25%. One meter would affect almost 10% of Egypt’s current population and about 12.5% of its agricultural extent.18 According to Mohamed el Raey, a professor for environmental studies at Alexandria University, a SLR of 50 centimeters cause 194,000 future job losses in Alexandria alone.19 Figure 6.6: The potential impact of a meter sea level rise in the Nile Delta20 Population: 6,100,000 Cropland (Km2): 4,500

Responsible Competitiveness in the Arab World 2009 109

However, agriculture is not only a major victim of climate change; it contributes significantly. According to the intergovernmental panel on climate change, agriculture is responsible for 10-12%21 of total anthropogenic greenhouse gas emissions. Methane (CH4) is produced when organic material is decomposed in oxygen-deprived conditions such as fermentative digestion or flooded fields, it accounts for about 3.3 gigatonnes of carbon dioxide equivalent (GtCO2 – eq). Nitrous oxide (NO2) is produced by transformation of nitrogen in soils, especially when the N level exceeds the requirements of the plant. It is responsible for about 2.8 GtCO2-eq/year. The net flux of carbon dioxide CO2 is roughly balanced. By switching to a more holistic approach, the carbon dioxide emissions of agriculture can be reduced by up to 60%. Figure 6.7: Emissions of the agricultural sector22
Manure handling CH4 and N20 7% Fertilisers N20 38% 5.1 – 6.1 Gt CO2 eq yr -1

Paddy Rice CH4 12% Biomass burning CH4 and N20 12%

Enteric fermentation CH4 32%

Further, with the right management practices, agriculture can even sequester carbon and thereby reduce atmospheric CO2 levels. Global soils contain about 2,500Gt23 of carbon, compared to around 800Gt24 in the atmosphere. In the last 150 years global soils lost about 78Gt, mainly due to land use change and the unsustainable practices described above. Numerous approved studies25 show that with the right management practice, the carbon level in soil can be increased. This is one of the easiest ways to tackle climate change: the global potential for soil sequestration is
110

SUSTAINABLE AGRICULTURE, FOOD SECURITY AND RESPONSIBLE COMPETITIVENESS

estimated as potentially 4.8Gt annually. The current clean development mechanism model does not currently support carbon soil sequestration, but voluntary markets are emerging. Carbon soil sequestration can potentially offer a great source of income for farmers. Depending on the soil and climatic conditions, up to 700kg carbon per hectare could be sequestered annually. Even with current carbon prices of US$10-20, this could form a valuable further income for farmers, while at the same time increasing soil fertility. Although voluntary markets are in place already, it is of crucial importance that carbon soil sequestration and sustainable agricultural practices are fully acknowledged in the Post-Kyoto-Negotiations in Copenhagen at the end of the year. Soil fertility – the most precious resource Since all human life ultimately depends on fertile soils, global soils are our most precious resource. However, currently 5-12 million hectares26 of agricultural land are lost annually due to degradation. Land-use-changes lead to erosion; excessive fertilizing fosters acidification; excessive groundwater use causes desertification and salinization. At the same time, mono-crops are depleting soils' nutrients and causing ecosystems to become much more vulnerable to pests and diseases. Sustainable agriculture considers soil under a much broader perspective. Healthy soils are rich in living organic matter such as earthworms, ants and fungi which dissemble old organic matter and thereby supply the best fertilizer free of charge. Further, the improved water-holding capacity of healthy soils is a much better flood protection than dams. The practices outlined above canal have the potential to actually increase the quality of the soil. Sustainable agriculture is, therefore, the best way to improve the arable land necessary to satisfy the demands of the growing population – especially in the Arab World. Business perspective A shift towards more sustainable agricultural practices offers great business opportunities. The reduced need for external input, such as fertilizers, pesticides, energy and water, decreases costs and brings great competitive advantages. Further, at the moment a vast amount of valuable organic material is thrown to landfills where it is not only wasted but contributes to climate change by emitting CH4 and CO2. Collecting it to produce compost helps to solve the increasing waste problems of municipalities while
Responsible Competitiveness in the Arab World 2009 111

producing at the same time a valuable resource. From many perspectives, compost is a more efficient input for farming when compared to conventional inorganic fertilizers. Furthermore, there are already in existence approved methods to capitalize on the reduced greenhouse gas emission of sustainable agriculture. Finally, due to the raising consumer awareness of health, and environmental problems caused by conventional agriculture, a new market segment has emerged for 'green products', with growth rates of 20-30% in recent years. In the Arab World this market segment remains relatively low. This offers excellent business opportunities for the first movers in this trend to invest in assessments and reductions of their product or corporate 'footprints' ahead of the pack. Recently large retail chains in Europe and the US have started to demand carbon footprints from their suppliers, and to introduce 'Trace & Tell' systems. Failing to shift towards greener production today will undoubtedly lead to decreasing market shares in the future. Government policies From a macro perspective, sustainable agriculture is even more advantageous since it addresses several problems simultaneously. It saves scarce and expensive natural resources; it reduces energy and water needs; it mitigates climate change; and it offers great benefits, especially for the rural population. However, despite all these advantages, sustainable agriculture has not mainstreamed in the Arab World. Various regulations have set perverse incentives which foster unsustainable practices, waste money and undermine future food supply in the region. Water and energy subsidies foster excessive usage; subsidized credits for agriculture do not consider practices and long-term impacts on local eco-systems; import and export barriers, as well as subsidized foods, often do not support the most efficient usage of available water. Governments, particularly in the Arab World, must take decisive steps towards more sustainable practices. In the long run, prices must come into line with real costs, and take into account externalities accruing to the community. Poverty, lobbies, former investments and budget restrictions continue make any potential change difficult, unfortunately. Even so, there are steps which can be taken. When granting land concessions or credits in the agricultural sector, the potential impact on the environment should be taken into account. Even when not representing whole real costs, prices must discourage excessive water usage. Inorganic fertilizers and pesticide usage have to be discouraged, and awareness about sustainable practices should be fostered.
112

SUSTAINABLE AGRICULTURE, FOOD SECURITY AND RESPONSIBLE COMPETITIVENESS

Finally, government officials must take action to ensure that agriculture is more thoroughly respected in the Post-Kyoto protocol. Ultimately, there is no question that we have to shift towards a more sustainable agriculture. The current practices not only fail to feed the current population, they undermine future food production. They waste depleting resources; they destroy ecosystems and make them more vulnerable to pests and diseases; they waste water due to unsustainable soil management and irrigation practices; they waste energy and they contribute substantively to climate change. A shift towards sustainable practices as outlined in this article provides solution to all aspects of the problem, a solution which will help to ensure food security and improve long run competitiveness.

Endnotes
1 2 3 4 5 6 7 8 9 Scherr (1999); “Soil Degradation: A Threat to Developing-Country Food Security by 2020?” Tolba, Saab (2008); “Arab Environment Future Challenges” Cordell (2008); “8 reasons why we need to rethink the management of phosphorus resources in the global food system” United States Department for Agriculture FAPRI (2007), FAPRI-MU Report #15-07 – Crop Production Cost and Outlook Tolba, Saab (2008); “Arab Environment Future Challenges” Tolba, Saab (2008); “Arab Environment Future Challenges” Tolba, Saab (2008); “Arab Environment Future Challenges” Joel Benoit (2009). UNEP/GRID-Arendal Maps and Graphics Library.

10 World Bank (2007); “Making the most of Scarcity” 11 Tolba, Saab (2008); “Arab Environment Future Challenges” 12 FAO (2007); “Organic Agriculture and Food Security” 13 World Bank (2003) 14 David Pimentel, 2006: Energy Ins and Outs, taken from: http://www.organic-center.org/reportfiles/Energy_SSR_Cons_Summary.pdf 15 FAO (2007); “Energy Use in Organic Food Systems” 16 FAO (2007); “Energy Use in Organic Food Systems” 17 Warren et al (2006); “Understanding the regional impacts of climate change” 18 Dasgupta (2007); World Bank Research Working Paper 4136; “The Impact of Sea Level Rise on Developing Countries” 19 Mohemed el Ray (2007); “Climate change and Egypt”; in Al Ahram Weekly Issue No. 873 20 Taken from Nile Delta: Potential Impact of Sea Level Rise. (2002). In UNEP/GRIDResponsible Competitiveness in the Arab World 2009 113

Arendal Maps and Graphics Library. 21 IPCC (2007); Agriculture. In Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the IPCC 22 Smith, et al (2007); Agriculture. In Climate Change (2007): Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the IPCC 23 FAO (2008); Information Note: The carbon sequestration potential in agricultural soils 24 Paul Hepperly; “Organic Farming Sequesters Atmospheric Carbon and Nutrients in Soils” 25 FAO (2009); “Low Greenhouse Gas Agriculture” 26 Scherr (1999); “Soil Degradation: A Threat to Developing-Country Food Security by 2020?”

114

7 Responsible Competitiveness and the Arab Human Resource Development Challenge
About the Author

RESPONSIBLE COMPETITIVENESS AND THE ARAB HUMAN RESOURCE DEVELOPMENT CHALLENGE

Fadi Ghandour is the founder and Chief Executive Officer of Aramex, one of the leading logistics and transportation companies in the Middle East and South Asia, the first company from the Arab World to go public on the Nasdaq stock exchange.

Of the many challenges the Arab World faces today, none is more daunting than the 100 million jobs that need to be created by 2020 to maintain current unemployment rates. These are already among the highest in the world, especially high among people under the age of 24, who make up almost 60% of the Arab population.1 However, to date, neither our educators nor our economic strategists have absorbed the dire implications of this problem and moved to pre-empt them. Sadly, in spite of the region’s relatively healthy expenditures on education, achievements in this sector have been less than reassuring. MENA governments spend, on average, more per student at all levels of education than does a sample of comparative governments.2 During the period 1965-2003, MENA countries spent an average of 5 percent of their GDP on education, a somewhat higher commitment than the 3% spent by a sample of East Asian and Latin American countries. Moreover, in recent years, the proportion of GDP spent as a whole by the Arab region exceeded that of East Asia and Latin America by about 1.5 percentage points. For all this financial investment, however, our dropout rates are perceptibly high, and our scores on international tests are distressingly low. According to the World Bank Report on Education Reform in the Middle East and North Africa,3 in 2003, the MENA region scored an average of 401 on Trends in International Math and Science Study—TIMSS: well below the international average of 489.6 and much lower than the top performing Singapore, whose average score was 617. Furthermore, according to a McKinsey survey conducted in 2005 on 400 private sector companies in the GCC, new university graduates lacked core skills: 63% lacked problem solving, 57% lacked practical skills, 48% lacked written communications, 48% lacked people management, and 47% lacked teamwork.4 No less significant a shortcoming cited by the survey is the waste in our talent resource: “Part of the human capital accumulated in the region is either wasted, in the form of high unemployment among graduates, or underutilized, mostly in
Responsible Competitiveness in the Arab World 2009 115

government jobs. The region can no longer afford such a disconnect between education outcomes and labour-market demands”.5 The Way to a Better Future Taken in isolation, these harsh statistics are frightening. Placed in the context of responsible business practices, plus focused, well-studied educational reforms and visionary partnerships between key sectors of society, however, they signify a critical shift in developmental strategies, a main component of which would necessarily be a capable and innovative workforce. The working model that could most effectively translate such strategies into positive realities is Responsible Competitiveness. This strategy proposes to bring together prudent corporate schemes, progressive public policies, and an engaged civil society whose singular purpose is to create a highly skilled, dynamic workforce that will push the Arab World towards sustainable and balanced development. Public-Private Partnerships in Education By embracing Responsible Competitiveness, I am not recommending a ground-breaking approach. Public-private partnerships in education have been forged in many countries around the world. The private sector knows that profit maximization on its own will not lead to long term growth, and it knows that companies need to focus less on share values and more on “shared values”: value for both business and society.6 The public sector and civil society have long benefited from the knowledge, expertise and knowhow of corporations in reaching their own goals. Education and Human Resource Development are not exceptions to this rule. In fact, when it comes to identifying the market’s needs in terms of education, training, skills and opportunities, there is no sector better positioned than the private one to help gauge these. In the Arab region, education reform must focus on two outcomes: employability and innovation. Improvements that do not pursue Early Stage Intervention will not succeed in achieving these two vital goals. The emphasis, therefore, should be on the primary and secondary stages of education: where creativity and innovation should be encouraged, critical and analytical thinking should be nurtured and curricula and teaching methodologies should be revised. Active partnerships between government, the private sector, and civil society organizations can then easily build upon such reforms. To this end, programs and guidelines that foster Corporate Social Responsibility, conscientious public policies, and
116

RESPONSIBLE COMPETITIVENESS AND THE ARAB HUMAN RESOURCE DEVELOPMENT CHALLENGE

community-wide efforts should be strengthened. For example, corporations can be incentivised to provide training, internships, career path development, mentorship and guidance. The creation of INJAZ Al Arab, a regional public-private partnership and an Early Stage Intervention model, is a very promising sign that the Arab World is embracing these terms of reference in its reform processes. INJAZ is a confederation of national operations which coordinate very closely with ministries of education. Each operation is led by a national board of business leaders who send their staff to schools to share their experiences with students, and offer “educational opportunities that strengthen their innovation, deepen their understanding of the business world, and give them professional qualifications to enable them to start up and operate their own independent companies”.7 Another approach worthy of note is the South African National Black Economic Empowerment Act, a Late Stage Intervention initiative which succeeded in integrating South Africa’s black workers into the labour market.8 Under it, the government provided incentives, such as public procurement, and also enforced several CSR related laws to ensure the private sector’s involvement. Meanwhile the latter, in partnership with the Department of Trade and Industry and other governmental institutions, was encouraged to concentrate its efforts on capacity building for the black community. Putting Our Talented Youth to Work The biggest challenge, of course, is to make the best use of the talent pool which these inventive reforms are sure to produce. Employability is a concern that most countries around the world have been struggling with for the past few years, only to see the situation worsen due to the enormity of the current economic crisis. In my opinion, this problem is yet another opportunity in camouflage. With the right policies in place, we can transform many job seekers into job generators. Innovation in the shape of entrepreneurship would go very far in putting our younger generations to work, and through the joint efforts of the public and private sectors, entrepreneurship can become a centrepiece of our government’s development plans. While the private sector can provide mentorship, guidance, capital, knowledge, experience and a vast network, the public sector can facilitate the entry of small and medium enterprises into the market through a wide
Responsible Competitiveness in the Arab World 2009 117

variety of measures. These include: tax incentives, lower registration fees, recognition and encouragement of innovation, the promotion of incubators in universities and research labs, and the adoption of anti-trust laws that protect new and small businesses. For their part, civil society organizations can provide support through capacity building, network opportunities, and linkages to universities, firms and research centres. Sramana Mitra, a technology entrepreneur and strategy consultant in Silicon Valley, emphasizes the importance of business, government and universities working together to encourage innovation.9 “It is an intricate dance – this tango between industry and academia – with the government playing DJ in the background. Few have learned to dance it well. MIT, Stanford, Berkeley and Carnegie Mellon belong in an elite list of about a dozen universities that do a truly professional job of consistently bringing university-led innovation to market. Examples abound from those schools. Google from Stanford. Cadence from Berkeley. Akamai from MIT”.10 It is time that this often discussed public-private partnership model is put into action. This can be achieved through clearly defined and mandated institutions that involve all concerned stakeholders: educators, multinational institutions (such as the World Bank), governments, businesses and civil societies. Moreover, we should develop a Responsible Competitiveness Index that measures employability among graduates, and gauges, at all relevant levels, the engagement of all sectors in the decision making process as well as public-private partnerships in education. Conclusion It is crucial that we all take an active role as citizens in working towards aligning our corporate and individual objectives with public goals. We have the most important resource in the world: a very young population with a tremendous reserve of talent. Our youth need guidance, nurturing, and, most importantly, support. Developing their capabilities is no longer a matter of choice; it is a question of surviving and thriving in the twenty-first century knowledge economy.

Endnotes
1 2 World Bank (October 24, 2008) Narrowing the Education-Employment Gap in the Arab World. World Bank Report (2008) The Road Not Traveled : Education Reform in the Middle East and North Africa
118

RESPONSIBLE COMPETITIVENESS AND THE ARAB HUMAN RESOURCE DEVELOPMENT CHALLENGE

3 4 5 6

ibid McKinsey Survey (2005) Private Sector Survey World Bank Report (2008) The Road Not Traveled : Education Reform in the Middle East and North Africa Harvard Business review 84 (12): 76-92 (2006) “Strategy and Society: the Link between Competitive Advantage and Corporate Social Responsibility”, Porter, Michael E. and Mark R. Kramer.

7 8 9

www.injazmillionyouth.org/pages/About.html The CSR Navigator report: Public Policies in Africa, the Americas, Asia and Europe: Analysis of CSR public policy profiles for 13 countries Forbes magazine (April 3rd 2009) Key to Innovation: Universities, Sramana Mitra

10 Forbes magazine (April 3rd 2009) Key to Innovation: Universities, Sramana Mitra

Responsible Competitiveness in the Arab World 2009 119

120

THE ARAB WORLD HUMAN RESOURCE RESOURCE CHALLENGE

8 The Arab World Human Resource Challenge
About the Author
Rabea Ataya is Chief Executive Officer and Chairman of Bayt.com, the Middle East's leading e-recruiting company, which currently serves more than 3.25 million job-seekers and in excess of 30,000 employers across the Middle East and North Africa.

The Arab World’s human resource development challenge is multi-faceted, complex, and quite significantly varied in the weights of its individual constituents, if not in its general composition across the Arab World. Generally, the human resource challenge can be categorized by its four primary components. These currently include barriers to business entry; limited access to information on employment opportunity and talent in the marketplace; labour integration and mobility issues; and finally, preparedness of talent for the evolving needs of the market. Compounding this are issues related to high unemployment levels, skills shortages and the current youth demographic. By 2020, the Arab World must create another 100 million jobs, compared to 104 million that exist currently.1 In light of these issues and the absence of a concerted Responsible Competitiveness planning and analysis framework that is embraced by both the public and private sector, it is as yet unclear if the overall challenge can be met efficiently, holistically, and in a manner that is both optimal and sustainable. While the Arab human resource challenge in its various facets has frequently been subjected to the scrutiny and subsequent policy moulding of the public and private sector alike, it has rarely been addressed through the discerning lens of Responsible Competitiveness with the reframing, reprioritising and subsequent re-strategizing that implies. Our view is that, approached through the unrelenting lens of Responsible Competitiveness, a short-term impetus, intermediate term momentum and long-term sustainability can be built into the regional Human Resource Challenge remedial framework that will sow the seeds for self-propagating long-term success. Policies that have hitherto had varying degrees of success in addressing the human resource challenges of the day may not be optimal, effective or even desirable for effecting necessary intermediate, let alone long-term, change. For socio-economic policies to be both optimal and sustainable they need to be both competitive and responsible; any policymaking that is not sufficiently forward-looking is likely to be severely limited in the range and durability of its success.
Responsible Competitiveness in the Arab World 2009 121

The Challenges Key challenges to be tackled by both government and the private sector when approaching the Arab human resource challenge from a Responsible Competitiveness lens include the following: ✸ Barriers to business entry: The existence of opportunities is facilitated by low barrier-to-entry economic policies which promote efficient allocation of resources to areas of comparative advantage. If the lifeblood and most vital resource of a healthy economy is its human resource, the veins and capillaries of the system must surely be the intricacies of the business environment, and the extent to which existing policy and regulatory frameworks are both business-friendly and conducive to growth and investment. Transparency, corporate governance, the rule of law and the legal system, in addition to taxation and other fiscal policies, all play a role in rendering an economic system sound from this perspective. The overriding political framework is also subject to scrutiny to the extent that it interferes with the clockwork mechanisations of a laissez-faire system protected by the rule of law and bolstered by sound regulation. While certain Middle Eastern countries have of late made tremendous headway in promoting competitive low barriers to entry business policies, this has certainly not been the case across the board; and in many Arab countries today protectionism and isolationism remain, to varying degrees, de rigueur as the economic policy of the day. World Economic Forum Arab Competitiveness Reports still rate most Arab World countries poorly in key metrics, such as number of procedures required to start a business, time to start a business, and prevalence of foreign ownership. ✸ Access to information on employment opportunity and talent in the marketplace: Access to information regarding opportunities must be unhampered for labour markets to operate efficiently, yet this free flow of information has traditionally been obstructed in many parts of the Arab World. This is due to geographic spread, limited uptake of information technology solutions, inadequate traditional media reach measured on a pan-Arab basis, and relatively parochial human resources strategies. The recent proliferation of dedicated leading local and regional internet job sites such as www.bayt.com, as well as the accelerating migration of companies to both their own online platforms and external ones for recruitment purposes, plus the migration of traditional careers media online, have all contributed to facilitating job seekers’ access to current job opportunities on a free and real-time basis. Moreover, removing information barriers via advanced and targeted IT
122

THE ARAB WORLD HUMAN RESOURCE RESOURCE CHALLENGE

solutions has reduced time-to-hire and cost-to-hire metrics from both a job seeker and employer perspective. These measures have resulted in a great improvement in the health and robustness of regional employment marketplaces on a macro level, and a maximization of employers’ ROI on a micro level; leading to the significant ensuing economic advantages that entails. ✸ Freedom of movement and matching of talent and opportunity: Labour mobility issues must be addressed effectively and with long-term competitiveness ramifications in mind in order that talent can freely access relevant opportunities in a timely and efficient manner and on a non-discriminatory basis. This area is ripe with its own set of challenges as it encompasses issues such as the particular barriers to entry, growth and equal participation that face women in certain areas of the Middle Eastern workplace, in addition to issues of age discrimination, issues of mobility of expat labour between companies and industries, issues of visa status for expat labour, and issues of inter-Arab cross-border labour flows to fill skills shortages and address unemployment and/or unemployment. The term ”responsible competitiveness” is particularly important here, as it weighs on the social consciousness as well as the empirical framework of past economic evidence and theory, to advocate policies that favour sustainable long-term win-win solutions in the HR domain that help society as a whole. These “responsible competitiveness” policies are in contrast to purely protectionist or isolationist short-term policies that may close off a system from the gains made possible and accessible in a relatively open, IT-driven world. ✸ Preparedness of talent for the challenges of the generation: Finally, skills training is essential to enable the region’s human resource capital to advance to a level of economic activity that is competitive globally, as well as to increase their range of skills and thereby allow advancement in new areas with hitherto unexplored potential for responsible competitive advantage. Today, chapters can be written about the issues of regional educational institutions churning out inadequately trained graduates, graduates in subjects that are irrelevant to the needs of the marketplace and graduates lacking in “soft skills” and technical skills required to succeed in a corporate or other specialized environment. Today’s sophisticated advanced economies have largely embraced the idea of “lifelong learning” as a desirable and necessary commitment, a precursor to career success at the individual level, and economic success and competitiveness at the macro level. This mentality and commitment, however, has yet to penetrate the Arab World to a meaningful degree.
Responsible Competitiveness in the Arab World 2009 123

Strategic Direction The challenges, while they exist, provide opportunities for businesses and/or the government to independently generate sustainable global competitive advantages. Fulfilling these opportunities would require the pursuit of a few promising strategic directions: ✸ Leverage technology and IT jobs to overcome physical, informational and structural barriers: Firstly and most importantly, there can be no substitute for harnessing the power of the internet and advanced information technology solutions as a human resource policy stimulus, and as an area to garner sustainable competitive advantage. This is particularly true in the sense that the IT sector is a rich source of opportunity for new job creation and, at a relatively low level of capital expenditure, it enables a systematic migration of the labour force to higher levels of employment along a “knowledge economy” trajectory. It is also true in the sense that jobs in the IT industry are amenable to overcoming many of the barriers that have traditionally impeded regional labour market developments, such as discriminatory human resources strategies, by the very nature of the roles and responsibilities in the IT sector, as well as by virtue of the fact that these jobs can allow for flexi-time, telecommuting and distance work. Finally, access to information on available job opportunities must be widely and easily accessible in order to immediately and effectively broaden and improve the human resource opportunity set an individual business has access to, and ensure egalitarian and optimal sourcing, screening and compensation strategies. To expand on the latter point, by tapping into a wider and more educated candidate pool via the internet, a business can enhance productivity, reduce turnover, and maximize its recruitment ROI by hiring the best talent the first time round from the largest choice candidate pool. Increasingly, the internet has dominated the job market and regional job sites have been attracting top calibre talent at every career level, from entry level to seasoned senior executive professionals and skilled workers. Many companies have chosen to substitute or supplement activities on leading recruitment sites with their own corporate websites on which their own vacancies are posted, as well as by advertising, networking and headhunting on the largest and/or most regionally prominent social networking sites and portals. Whatever the means or method, the online realm in general and advancements in HR information technology pioneered by the leading regional job sites in particular, have made the opportunity cost of failing to tap into this realm very high and increasingly prohibitive.
124

THE ARAB WORLD HUMAN RESOURCE RESOURCE CHALLENGE

✸ Reject discriminatory practices: Corporations seeking to maximize ROI from both a financial and social responsibility perspective are well advised to abandon “discriminatory” policies and embrace a culture where the best talent thrives regardless of gender, background, or other personal characteristics. In order to enable this optimally at the macro level, they must also be able to embrace a culture where talent is mobile: it is not held against its will via restrictive contracts or company visa policies, nor is it prevented from finding employment elsewhere due to company bans or other restrictive procedures currently enacted by some companies. Free movement of labour benefits all stakeholders and increases the efficiency of the system in the long run. Inclusive business policies must include allowing women to enter the employment system on an egalitarian basis, receive equal pay, training and benefits, and compete with men on an egalitarian platform for raises and promotions. They must also address issues of diversity in the workplace in terms of age, race and background, and any form of discrimination on any of these grounds must be subjected to a notolerance policy in order that the talent needed to enable growth and productivity is respected and thrives. ✸ Promote Skills Advancement: Companies must take the initiative and lead when it comes to providing an environment where skills training is enabled, encouraged and executed at a very innovative, engaging and sophisticated level. This can happen as part of a CSR initiative, by setting up local schools to bolster the skills of the workplace as well as the immediate environs. It can also happen as a purely business endeavour, where a skills training budget is set and generic training plans are followed by all workers, customized soft and hard skills training plans are engineered for individual workers, or some combination thereof is cascaded through the organisation. Poll after poll conducted by the Middle East’s #1 job site Bayt.com on a regional professional talent pool have indicated that professionals view skills training and opportunities for long term career development as equally, if not more, important than immediate pay issues in winning their loyalty to, and satisfaction with, their work organisation. In a Bayt.com June 2001 poll, for example, when professionals were asked what would attract them most to a new job, the vast majority at 36% indicated “possibilities of advancement” as the main motivator, versus 29% selecting “higher salary”. Moreover, in a November 2003 poll, professionals when asked ”what do you consider the most important factor when evaluating a job opportunity?” overwhelmingly favoured “opportunities to grow within the organisation” at 46% of all respondents, over “salary” at 20%. Further, in a
Responsible Competitiveness in the Arab World 2009 125

December 2006 online Bayt.com poll, 40% of professionals in Jordan (the majority), when asked what would most induce them to “quit their job” indicated “lack of growth opportunities”, versus 29% who selected “low salary”. More recently, in November 2008, in a Bayt.com poll asking respondents “what would cause you to change your current job”, 28% of the 2773 pan-regional respondents (the majority), indicated “a better salary” followed immediately by 26% selecting “more career progression opportunities”. Clearly, there is no substitute for training and development opportunities in motivating staff and driving loyalty and engagement in the Workplace. A Governmental Perspective From a regional governmental perspective, the implications and opportunities of viewing the Arab Human Resource Challenge through a Responsible Competitiveness framework are not all that different from the business perspective. The ramifications and opportunities for leverage and for speedy and impactful macro change, however, can be magnified when the government assumes the role of facilitator of change and mentor in change management. Moreover, certain changes “responsible competitiveness” would seem to prescribe can only be fully successfully effected at the governmental level, or with some government intervention. These include removing barriers to entry in certain industries by discouraging monopolistic/oligopolistic behaviours; abandoning protectionist or isolationist policies; allowing the free flow of information, resources and licensing; implementing business-friendly regulatory and legal apparatuses; and encouraging a culture where “responsible competitiveness” penetrates every fibre of society, from the education system to government policymaking in areas such as immigration, fiscal policy and infrastructure. Progress Areas In many areas significant headway has already been made by the public and private sector in addressing some of these human resource challenges, however this progress has varied tremendously by country and by social demographic in the Arab World. In terms of promoting women in the workplace for example, the Bayt.com YouGovSiraj 2008 Women in the Middle East Workplace Survey2 revealed that 76% of women surveyed indicated there were already women present in the senior ranks of their companies, and only 22% of women surveyed indicated that their gender has affected their career prospects negatively. An
126

THE ARAB WORLD HUMAN RESOURCE RESOURCE CHALLENGE

equal number suggested that their gender has affected their career prospects positively, and 43% indicated that their gender has not affected their career prospects at all. A full 67% of women surveyed indicated that prospects had improved for women in their country of residence, and only 3% indicated prospects had not improved at all. However at the same time, the survey revealed that 41% of women across the region still believe they have a lower chance of being promoted than their male counterparts even though 84% of women surveyed feel they are equally or more ambitious than their male counterparts, and 51% would like to continue working till an equal or later age than their male counterparts. A full 80% of regional women respondents indicated that their working life as female employees would be extended significantly if employers provided more benefits for working women, and 72% of respondents indicated that given a choice, they would rather work than not work, with only 9% indicating they preferred not to work. Obviously, much more can be done to fully integrate this vital segment of society into the workplace and ensure longevity and optimal working conditions. In terms of the availability of training opportunities and IT systems, there is also significant room for improvement. As recently as September 2006 in an online Bayt.com poll, over 50% of respondents indicated that their employer did not invest in training at all and 17% indicated that there was training available to them but it was “insufficient”. The Bayt.com YouGovSiraj 2008 Middle East Loyalty Survey3 revealed that at least 38% of a wide pool of pan-regional survey respondents were dissatisfied, and 39% were satisfied, with 16% feeling fairly ambivalent about the spectrum of training opportunities available to them. The Bayt.com YouGovSiraj 2008 Middle East Loyalty Survey also revealed that with regards to the availability of IT and systems in the place of work, 61% of survey respondents across the MENA region were satisfied and 21% were dissatisfied, indicating that there is still ample room for the advancement of IT systems in the workplace. In Conclusion Through a concerted strategy led by the public sector with the private sector sitting as friendly co-pilot and occasional substitute, the elements can be put in place to steer the Arab World human resource challenge onto a path of optimal returns. This holistic approach is essential as no one part of this challenge can be addressed optimally or in a sustainable fashion in isolation of the other factors. To tackle the skills issue alone, for example, by importing vast quantities of skilled labour on prohibitive contracts may
Responsible Competitiveness in the Arab World 2009 127

not address productivity issues, social responsibility or gender issues, diversity and discrimination issues, or issues of under-employment and unemployment in other segments of the economy. “You can bring the farmers to the farm but you can’t force them to farm it – nor can you guarantee the land can support it” is our spin on an old livestock adage that brings home productivity issues inherent in sub-optimal hiring practices, working conditions, expectations and infrastructure. However, in today’s ITenabled world, a sufficiently educated, skilled population given the right legal, physical and socio-economic infrastructure and apparatus, adequate information technology framework, can create its own jobs (or “farms”) at an optimal pace, in an optimal manner and in a direction that ensures economic development is healthy, robust, competitive and sustainable.

Endnotes
1 2 3 World Bank (2003)” Unlocking the Employment Potential in the Middle East and North Africa: Toward a New Social Contract”. Bayt.com (2008) YouGovSiraj “Women in the Middle East Workplace”, www.bayt.com Bayt.com (2008) YouGovSiraj “Women in the Middle East Workplace”, www.bayt.com

128

THE CREATIVE ECONOMY: IMPLICATIONS FOR ARAB EDUCATIONAL SYSTEMS

9 The Creative Economy: Implications for Arab Educational Systems
About the Author
Randa S. Ayoubi is the founder and Chief Executive Officer of Rubicon – a Jordanian software development company specialized in the use of CGI Technology in education and entertainment.

Now that the ‘Industrial Economy’ has given way, and the ‘Creative Economy’ has become well-entrenched, individuals, companies and entire countries are at a crossroads. Attributes that may have made them prosper in the 20th century could cripple them in the 21st. To survive, let alone prosper, they have to change dramatically. In today’s knowledge-based global economy, we need people who can think critically and creatively, who are willing to take calculated risks, and who can lead their companies and their countries to higher levels of productivity through innovation and entrepreneurship. In the Arab World we have in the past exhibited a tendency to focus on avoiding failure rather than on building success. The Creative Economy represents yet another defining moment in our history. It has become incumbent upon us to make choices about our region's future role in the world. We must decide whether we have the will and the aptitude to do what it takes to fully participate in the new global economy, or whether we’re going to largely miss out on it as we did with the Industrial Economy. Workforce development is one of the greatest challenges that the Middle East region faces in this globally competitive economy. Businesses rely upon the productivity, knowledge, creativity and problem-solving abilities of their employees to retain their competitive edge. Countries rely on prosperous companies to ignite economic growth, create jobs and give rise to a high and sustainable standard of living. The competitiveness and innovation of companies and economies are thus a direct goal of their people. While the current generation of Arab business leaders and professionals struggles to keep abreast of developments around the world, harnessing the new technologies that continue to crop up from outside of our region, and plugging the short-term skills gap, the least that we can do is ensure that our children, who will be the region’s future leaders in an increasingly challenging global environment, are better
Responsible Competitiveness in the Arab World 2009 129

equipped for the world of tomorrow than the great majority of us were for the world of today. Many have argued for some time that most, if not all of the Arab World’s educational systems are ‘failed’ systems: systems that have deteriorated over time and must be re-energized and reshaped. I will venture to say that, given that these systems are actually still fulfilling their historic mission, this may not be a very accurate reading of the situation. The problem is that, while most of our educational systems have been making incremental progress, the surrounding environment has witnessed exponential change. What is required, therefore, is a wholesale transformation of these educational systems: not necessarily because they have failed, but because their mission has shifted. Our educational systems are built around an industrial model of society that no longer matches the current state of the world, let alone that of the future. They are also built on the idea of a closed classroom that has little direct connection to the outside world. As such, they are simply failing to equip most of our children with the requirements of today’s higher education systems and those of the job market. We therefore need to reconsider, from the ground-up, what a school-level educational system should look like. From the ground-up because we cannot just change one thing (e.g. introduce ICT classes) without reconsidering the system as a whole. What we need, as a first step, is to connect our educational systems, particularly at the Secondary/High School Level, to the real world. We must continuously expose our students (and their teachers) to vocational developments around the world, study where the latest specialization demand is and what are its requirements, and consider how to prepare for and take advantage of that demand. When students start to make connections outside their classrooms, an entirely different world will reveal itself to them. Even if their current curricula do not prepare them for these vocations, they will at least be able to recognize that fact. We must also try to anticipate what the world will look like 10 or 20 years from now. We should try and predict what our children will need, to be able to work and make a living. We have to try to foresee what kind of careers and career choices will be available to them. This of course is a formidable, if not an impossible task.

130

THE CREATIVE ECONOMY: IMPLICATIONS FOR ARAB EDUCATIONAL SYSTEMS

In light of our inability to predict the future with any accuracy, we must at least ensure that our educational systems can equip our children with sufficient skills in order to make them adaptable enough to compete in an increasingly knowledge-based and globalized economy. We need a system that will allow them to be self-sufficient individuals in possession of the tools necessary to thrive, prosper and contribute effectively to their societies. The fact is that today’s global economy is offering vocations that simply did not exist a decade ago. According to the U.S. Department of Labor, the anticipated top ten jobs of 2010 did not even exist in 2004. A Middle School student today should be thinking about a career in an area that didn't exist when he/she entered school. Younger generations should be thinking about entering fields that do not exist even today. So how do we prepare our children for occupations that do not yet exist? I have summarized six elements, or building blocks, whose realization by our educational systems would prepare our students well for whatever career path they may choose to follow. The first building block is for our students to recognize that learning is itself a skill, whose fulfillment requires adaptability and open-mindedness. They must also know that learning is an on-going process and that they should never stop learning. The educational system should impress upon them that if they stop learning they will quickly become irrelevant. And irrelevant is just another way of saying unemployed, or worse still unemployable as individuals and as a nation. The second element is to teach our children how to think, not what to think. This may sound simplistic, but the truth is that if a person can't reason and analyze, that person cannot make sound decisions and cannot solve problems. The introduction to our educational curricula of analytical skills and problem-solving modules, real projects to work on in various disciplines, and case studies to analyze and make decisions on has become a survival issue. Engineers & technologists are today developing, testing, and using technologies that have never existed before. They are taking raw concepts and turning them into real technology by being inventive, curious and determined. They are succeeding by learning, thinking, working, failing, relearning, starting over, and persevering, until they succeed. If they don’t, someone else will pick up from where they left off.
Responsible Competitiveness in the Arab World 2009 131

The third element is the need to embrace change. In today’s world it is no longer sufficient to adapt to change. Our children must therefore learn to embrace it. Why embrace change? Again, according to the U.S. Department of Labor and based on research conducted by many futuristic-visionaries, it is generally accepted that by the time they reach their 3rd year, 50% of what today’s college students learn becomes obsolete. Our children can look forward to re-learning their career requirements five or six times by the time they are 38. Isn't that exciting?! This is the main difference between this coming generation and past generations. They need to learn from those of us already in the working world that change is a good thing. They must learn to take advantage of the opportunities that change represents, to question, learn new things, do new things, experience new things, and to change things. Above all else, they must believe that it is change that makes progress possible. The fourth building block is the need for higher levels of literacy and communication skills. The global economy has moved from a ‘have versus have not’ world to a ‘know versus know not’ world. Information, now, represents the new ‘Wealth of Nations’. Literacy is defined as the ability to understand, employ and convey information in daily activities, at home, at work and in the community to achieve one's goals, and to develop one's knowledge and potential. This begins with literacy in at least one extra language. In today’s global economy a higher level of multi-language literacy is simply a must. But literacy implies more than vocabulary and learning by rote. Students must also become literate in the understanding of visual messages. They must learn how to spot a stereotype, isolate a social cliché and distinguish facts from propaganda. More than anything else, literacy also requires critical thinking and strong communication skills. Therefore, to be truly literate, a student must also be able to recognize when information is needed, and to have the ability to locate, analyze, utilize and disseminate this information effectively. Last, but not least, it is just as important for science and math students to study communications, as it is for arts student to have a basic grounding in math and science, for both sets of students to become well-rounded individuals.

132

THE CREATIVE ECONOMY: IMPLICATIONS FOR ARAB EDUCATIONAL SYSTEMS

This brings us to the fifth element of the educational requirements; the need for higher levels of science and mathematical skills. There are global shortages today of qualified workers in high-skill occupations such as engineering technologists and technicians, computer systems analysts and programmers, animators, machinists and pattern-makers. What do all these occupations have in common? They require a strong background in math and science. It is those who possess a strong grounding in math and science, coupled with the ability to apply that knowledge to produce innovative and new technological products and services who are transforming the world as we know it today. For example, within probably less than a decade, the word ‘game’ will mean something completely different. Instead of the PlayStation, we will soon have complex alternative universes where we could have lunch with a friend across a continent, or integrate ourselves into a football game, and it will all seem as real as everyday life. The people we meet there will look and feel almost as real as the ones we encounter during our waking lives. Impossible? No, inevitable. The final skill is one that I'm sure goes without saying in this day and age, but let’s say it anyway: computer literacy. No one should even think about entering today’s workforce without basic computer skills. The computer, in its various current and emerging forms, is the great enabler of the 21st century. It is connecting people and organizations, allowing them to work together, to find solutions, exchange ideas, concepts and information like never before. Computers will be even more prevalent in every occupation in the future: farmers, painters, teachers, athletes, translators, doctors, engineers, and the list goes on. Every occupation, from the highest tech to the lowest tech, will depend more and more on computers for productivity and efficiency. We do not really know what exactly our children will be doing for a living. What we do know, however, is that there is a very good chance that they will be educated for careers that do not yet exist. They will learn and employ technologies that are not yet invented. And they will have to solve problems that the current generation does not yet recognize as problems. The chances are that most of our children’s careers will be in the services sector. This is not to say that the manufacturing sector will not remain important in the future. It will be. But as productivity improvements and higher operating efficiencies are achieved, it will continue to become less labor-intensive and more knowledge-intensive.
Responsible Competitiveness in the Arab World 2009 133

The services sector, on the other hand, currently accounts for roughly 60% of global employment; and it is still growing. It is a sector that covers a very wide spectrum of professions, from transportation and communications to wholesale and retail trade, from banking and insurance to healthcare, and from education to public administration, entertainment, travel and tourism, and business management. As diverse as these professions are, there is one characteristic that they all share: their dependence on information and technology. All are information-intensive. All are increasingly technology rich. And that reality will only intensify in the future. So what do we need to teach our children to succeed? It starts with a positive attitude towards life-long learning and with embracing change as a means of progress. This must be reinforced with teaching them such skills as finding, comprehending, and then disseminating/communicating information. On top of that, they will need a big dose of critical thinking skills in order to analyze the information, mold it into new concepts and contribute to future progress. It does not end there, however. It has been repeatedly said that ‘success favours the bold’. We must, therefore, teach our children to take calculated risks and to overcome their fear of failure. This may again sound too simplistic, but the truth is that it requires not only a transformation of our educational systems, but also a cultural and societal change. For example, it is a well known fact that American students score below many other countries in standardized math and science exams. What is often overlooked, however, is the fact that many of these low-scoring students grow up to become the entrepreneurs and inventors, who continue to keep America a world leader in technology. This is because these same students who show limited interest in academics demonstrate great skills and confidence in creating new concepts. It is the creation of new concepts and technologies, as opposed to mastering the old ones, that motivates entrepreneurs and inventors. This requires a culture that encourages experimentation, however, and looks upon failure as a learning experience. If experimentation were frowned upon rather than encouraged, and failure condemned rather than accepted as one possible outcome of many an experiment, the chances are that many of these young Americans would think twice before attempting to change or invent anything. Unless we transform our educational systems to ones that equip our children with the skills and the tools that they need to fully participate in the world of tomorrow, and transform our national psyche to one that seeks to
134

THE CREATIVE ECONOMY: IMPLICATIONS FOR ARAB EDUCATIONAL SYSTEMS

create progress rather than merely follow that created by others, we are condemning ourselves and our future generations to never again become leaders in the global game of nations.

Responsible Competitiveness in the Arab World 2009 135

Annex

ANNEX

Methodology
Responsible Competitiveness in the Arab World 2009 is the product of an in-depth study by AccountAbility and Sustainability Excellence Arabia with support from the Arab Sustainability Leadership Group. It introduces the Arab Responsible Competitiveness Index (ARCI), the first quantifiable assessment of how markets in the Middle East are aligning to support sustainable development. This Annex aims to explain the methodologies behind the global indexes used in the report and to direct interested readers towards more material about responsible competitiveness. The Global Responsible Competitiveness Index AccountAbility’s Responsible Competitiveness Index (RCI), a biennially assessment of responsible business practices around the world, has been growing since its launch in 2003. The last global index, presented in the State of Responsible Competitiveness 2007 report, analysed performance in 108 countries and covered over 96% of global GDP.1 It is a composite index that uses 21 indicators across three themes with data coming from credible, international sources like the International Labour Organisation, the World Economic Forum and Transparency International (see Figure 1). These are arranged into three simple themes each with seven equally-weighted indicators: 1. Policy drivers: indicators demonstrating government commitment, such as the signing and ratification of international treaties and measures to reduce gender inequality; 2. Business Action: at the firm level, responsible management systems will include issues like staff training, occupational health and safety and reducing environmental impacts. 3. Social Enablers: A strong social fabric is necessary to support progress towards responsible competitiveness including a culture of transparency, a free and inquisitive press, an intolerance of corruption and a dense network of non-governmental organisations. AccountAbility’s work with regions and nations over the last 6 years has illustrated that the role of each of these themes changes with the level of development, with the role of public policy and business action being more important in developing economies. As such, the RCI uses an intelligent weighting system, based on robust statistics, to help countries find a practical pathway towards responsible markets.
Responsible Competitiveness in the Arab World 2009 137

Figure 1: Driving Responsible Competitiveness POLICY DRIVERS: • Signing and Ratification of Environmental Treaties • Ratification of Basic Worker’s Rights • Rigidity of Employment Index • Stringency of Environment Regulation • CO2 Emissions per Billion Dollars • Private Sector Employment of Women • Responsible Tax Environment BUSINESS ACTION: • Efficacy of Corporate Boards • Ethical Behaviour of Firms • Wage Equality for Similar Work • Strength of Audit and Accounting Standards • Extent of Staff Training • Ratio of ISO Certification • Occupational Fatalities SOCIAL ENABLERS: • Corruption Perception Index • Customer Orientation • Press Freedom • Transparency of Transactions • NGO Membership • Civil Liberties • Impact of Clean Air and Water on Business Operations

RESPONSIBLE COMPETITIVENESS INDEX 2007 108 countries

More details about the global RCI methodology can be found in the Technical Annex which is available in English at www.accountability21.net. The Arab Responsible Competitiveness Index (ARCI) The Arab Responsible Competitiveness Index (ARCI) aims to be the best reference point for assessing progress towards responsible competitiveness in the region. It builds on the current global Responsible Competitiveness Index (RCI), using AccountAbility’s international experiences and
138

ANNEX

Sustainability Excellence Arabia’s local knowledge, to expand the existing global methodology to use 30 indicators arranged into a robust framework with seven equally-weighted themes, or drivers of responsible competitiveness.2 Each indicator is chosen for relevance to responsible competitiveness, and the framework is designed to cover key areas of policy, business and civil society. ARCI includes 10 indicators that have been selected specifically for their relevance to the Arab World’s competitiveness challenges, with regional data on issues like industrial use of water, Islamic finance and local skill development from authoritative sources like Global Water Intelligence and the Financial Times. Each indicator is screened to ensure that they are: 1. Relevant to commonly-accepted models of responsible business practice; 2. Explainable through established theory or empirical evidence (e.g. countries that can maximise human capital endowments through providing opportunities for women in the workforce are likely to be more competitive); 3. Independent yet complementary of one another; 4. Publicly-available from credible sources and calculated using strong, transparent methodologies; 5. Indicators must be broad in geographical scope and regularly produced; 6. Indicators should be responsive and capture real country performance. 30 indicators used in ARCI have been carefully selected from over 600 data sources, interviews with companies across the region, and informed through discussions with the Arab Sustainability Leadership Group, an alliance of progressive businesses in the region, and engagement with this report’s essayists. Indicators were selected to combine hard data (where indicators can be measured) and soft data (such as executive opinion work), as well as regional-relevance, replicability and quality insight into national markets.

Responsible Competitiveness in the Arab World 2009 139

Indicators are normalised and then arranged into seven equally-weighted themes, each an established driver of responsible competitiveness. Indicators in these themes are: 1. Responsible Business Climate: ✸ Responsible Tax Environment (the number of tax payments required and the time needed by a business to comply) (World bank/International
Finance Corporation)

✸ Ethical Behaviour of Firms (World Economic Forum) ✸ Corruption Perception Index (Transparency International) ✸ Number of Microfinance grants (Sanabel Microfinance Network of the Arab
Countries)

✸ Fuel Subsidies (Deutsche Gesellschaft fur Technische Zusammenarbeit (GTZ)
GmbH)

2. Environmental Policy: ✸ Signing and Ratification of Environmental Treaties refers to four key international treaties: the United Nations Framework Convention on Climate Change in New York in 1992, the Convention on Biological Diversity in Rio de Janeiro in 1992, the Kyoto Protocol to the United Nations Framework Convention on Climate Change in Kyoto in 1997, and the Cartagena Protocol on Biosafety was signed in Cartagena in 2000 (United Nations Development Programme) ✸ Stringency of Environmental Regulation (World Economic Forum) ✸ Climate Cooperation Index (Environmental Science and Policy)2 ✸ Water subsidies (Global Water Intelligence) 3. Labour Policy: ✸ Ratification of Basic Workers Conventions covers eight treaties: Freedom of association and collective bargaining (conventions 87, 98); Elimination of forced and compulsory labour (conventions 29, 105); Elimination of discrimination in respect of employment and occupation (conventions 100, 111); Abolition of child labour (conventions 138, 182)
(International Labour Organisation)

✸ Rigidity of Employment Index, which encompasses three sub-indexes: a difficulty of hiring index, a rigidity of hours index and a difficulty of firing (Doing Business) 4. Governance: ✸ Efficacy of Corporate Boards (World Economic Forum) ✸ Strength of Auditing and Accounting Standards (World Economic Forum)
140

ANNEX

✸ Disclosure Index (Doing Business) ✸ Corporate Governance Practices (Hawkamah and the International Finance
Corporation)

5. Product and Service Innovation: ✸ Carbon Dioxide Emissions per US$ billion Gross National Income
(International Energy Agency)

✸ The uptake of environmental management systems (Ratio of ISO 14001 to
ISO 9001 certification) (International Standards Organisation)

✸ Impact of Clean Air and Water on Business Operations (World Economic
Forum)

✸ Industrial water withdrawals (Aquastat) ✸ Extent of Islamic finance (The Banker) ✸ Fertilizer use (Food and Agricultural Organisation) 6. Talent: ✸ Extent of Staff Training (World Economic Forum) ✸ Wage Equality for Similar Work (World Economic Forum) ✸ Private Sector Employment of Women (World Economic Forum) ✸ Occupational Fatalities (International Labour Organisation) ✸ Graduates per 000 people and Graduates in Scientific, Technology, Engineering and Mathematics per 000 people, (United Nations Educational,
Scientific and Cultural Organisation/United Nations Educational, Scientific and Cultural Organisation)

✸ Companies’ willingness to delegate authority (World Economic Forum) 7. Engaged Stakeholders: ✸ Freedom of the Press (Reporters Without Borders) ✸ Civil liberties: the existence of basic political rights and civil liberties, gauged by relevant portions of the Universal Declaration of Human Rights, (Freedom House) ✸ The Degree of Customer Orientation (World Economic Forum) The result is a pilot ARCI framework and index that enables progress to be mapped across 15 countries on the key regional issues, spanning economic, environmental, and social impacts. Country Coverage Challenges to creating such a regional index are extensive. Little information is systematically collected and aggregated at the national level for countries in the region, and where data is available, datasets are often not comparable or have poor geographical coverage across the region. This in itself is a
Responsible Competitiveness in the Arab World 2009 141

crucial issue to be addressed by the region, particularly if the adage holds true that “what gets measured, gets managed”. The pilot ARCI presents insight into 15 countries in the Arab World. The choice of countries is not trivial and every effort has been made to expand the geographical coverage across the region. However, there are serious constraints due to the availability of relevant indicators. Countries like Libya, Iraq and Djibouti quite simply do not make reliable and regular data on key issues like staff training, corruption perception or the freedom of the press available. Data Caveats ARCI, then, uses the best quality data available. However, it is noteworthy that there are real impediments to systematically collecting this information and there are caveats associated with both the global RCI and ARCI: ✸ Firstly, there are time lags in some datasets, with some of the metrics calculated using data that may already be three or four years out of date. One glaring example is carbon dioxide emissions, where the most geographically wide-ranging dataset from the International Energy Agency is for the year ending 2005. ✸ Secondly, countries with a large SME or informal sector can sometimes be disadvantaged in indicators, particularly in issues like the uptake of ISO 14001 Environmental Management Systems. ✸ Thirdly, a high number of datasets are based on expert opinion surveys, where questionnaires are completed by samples of business executives. In some questions, these responses can expected to be more reliable answers on some questions that the general public, while in other areas their impartiality may be questioned.4 Another skew in this type of data may emerge if business leaders are particularly pleased with the current performance of the economy or have been prepared to answer the questionnaires in a particular way. ✸ Fourthly, even the most credible and legitimate sources may simply fail to secure accurate data. A case in point is the data on occupational accidents where it is estimated that only 3.9% of the estimated number of accidents are report to the International Labour Organisation.5 These impediments exist for the global picture, but the problem is even
142

ANNEX

more pronounced in the Arab World. More data is slowly coming available at the firm level, particularly from Arabian Businesses’ focus on corruption, Hay Group’s Most Admired Company, and a series of home-grown business awards on issues like best employer. However, few resources are deployed to measure the cumulative impact of responsible business practice at the national level. Of existing national-level studies, many have a thematic focus, such as human rights, corruption or child labour, are pilot exercises or have limited resources and a small country sample. Data in many crucial areas remains absent or unacceptably poor. Improving Measurement of Responsible Competitiveness Understanding how nations compete and the role of responsible business practices is crucial for policy makers and companies to build competitive advantage. Concerted action is needed to improve the quality of data available and deepen our understanding of how the markets are gearing up to support responsible business practices. Further investment into this agenda is needed, particularly across the Arab World. This can be done in five ways (see side bar). 1. Expand the geographical range of data gathering. This project presents insight into 15 countries in the Arab World, yet data limitations prevented our analysis from extending into countries like Yemen and Iraq. To deepen insight across the region, there needs to be a concerted effort to ensure that good quality data is being collected in all countries and territories. 2. Improve the timeliness of key data sets to enhance understanding and allow for an annual benchmarking of responsible competitiveness. In part, this is a capacity issue: databases like the IEA work on CO2 emissions could reduce lag time with increased funds. But it is also an issue of institutional commitment. On issues like labour standards or pollution intensity, international bodies need to invest more in data acquisition. 3. Focus more resources on key issues. We are under-informed, for example, on the strength of collaborative initiatives, the levels of national participation in voluntary sustainability standards and real progress on green buildings. We are also unaware of key aspects of the effort to battle gender and racial inequalities in the workplace. Nor is there currently a mechanism to pool the results of thousands of factory inspections undertaken by dozens of inspection bodies worldwide. These and other datasets on the progress towards responsible competitiveness could quite easily and affordably be generated, and our research team is committed to helping that happen.
Responsible Competitiveness in the Arab World 2009 143

4. Identify the key issues of responsible competitiveness. This can be done through combining three tactics: to empower a new research agenda of credible, independent experts to gather data in a systematic and consistent way; to lobby institutions like the World Bank and the World Economic Forum to upgrade their coverage of responsibility issues in their existing research; or, to develop a bottom-up approach of performance metrics in national competitiveness reports which are consistently reported and independently assured. 5. Resolve the issues of causality. The ongoing goal is to better understand the mechanisms by which responsibility strategies and economic performance work together. How much relies on innovative market and political leadership; how much depends on collaborative approaches to reshaping markets? To answer these questions, the RCI exercise needs to be supplemented by detailed studies of cities, regions, sectors and countries that are gaining competitive advantage and improving their responsibility.

Endnotes
1 2 3 The State of Responsible Competitiveness 2007 is available for free download at: www.accountability21.net The next full global Responsible Competitiveness Index will be launched in late 2009. ‘Measuring countries’ cooperation within the international climate change regime’, Michele B. Baettig, Simone Brander, Dieter M. Imboden, Environmental Science and Policy, 2008. 4 6 Endnote Aaron Chatterji and David Levine, Breaking Down the Wall of Codes, California Management Review, 2006 Päivi Hämäläinen, Jukka Takala and Kaija Leena Saarela, (2006) Global Estimates of Occupational Accidents, Safety Science 44, pp. 137 – 156.

144

ANNEX

Acknowledgements
The production of Responsible Competitiveness in the Arab World 2009 is a global collaboration, involving dozens of researchers, reviewers and discussants from several countries. We are deeply grateful to all of them for taking time to contribute to this report. The report was made possible by generous support from our lead sponsors Abraaj Capital and Aramex and our sponsors HBS International Ltd and Jordan Aircraft Maintenance Limited (JorAMCo). In addition to all our essayists, we would like to thank all members of the Arab Sustainability Leadership Group. We would also like to thank: Fernanda Polacow, Kate Ives, Cara Gallen, Elena Zayakova, and Soraya Dean from AccountAbility; Barbara MayerScholl, Shirley Ma and Hayat Shammas from Sustainability Excellence Arabia; Raji Hattar from Aramex; Jennifer Blanke from the World Economic Forum; His Excellency Governor Amr Al-Dabbagh from the Saudi Arabian General Investment Authority (SAGIA); the Saudi Responsible Competitiveness Index team, Princess Bandari from the King Khalid Foundation; Salman Khan and Serene Al Shirawi, Olayan Group; David L. Richards from CIRI Human Rights Data Protect; Suther Guruswamy from the Financial Times; Claire Davis and Elisabeth Marx from Heidrick and Struggles; Robert Huggins from Robert Huggins Associates; Gisela Helberling from the International Standards Organisation; Johann Graf Lambsdorff from Transparency International; Jukka Takala from International Labour Office Safework; and Antonio Vives from Cumpetere. Any mistakes, omissions or errors are the sole responsibility of the authors.

Responsible Competitiveness in the Arab World 2009 145

About the Organisations

AccountAbility (www.accountability21.net) works to promote accountability innovations for sustainable development. AccountAbility, founded in 1995, is a global, not-for-profit self-managed partnership with bases in Beijing, Geneva, London, São Paulo and Washington D.C., and country representatives in Brazil, Canada, China, Jordan, Spain, Sweden and the US. AccountAbility is a global network of leading business, public and civil institutions working to build and demonstrate the possibilities for tomorrow’s global markets and governance through thought leadership and advisory services.

Sustainability Excellence Arabia
Sustainability Excellence Arabia (www.sustainabilityexcellence.com) provides corporate responsibility services to businesses, governments and civil society in the Arab World. It works with many of the pioneering organisations adopting sustainability management in the region. It is also AccountAbility’s lead regional partner, collaborating to deliver Responsible Competitiveness and related programs.

The Arab Sustainability Leadership Group (ASLG) is a regional network of leaders of business, government, NGOs and civil society, launched May 2008 by Her Majesty Queen Rania Al Abdullah. The group aims to accelerate regional uptake of sustainability practices through leadership and advocacy, and to be a link between the Arab region and the rest of the world on key sustainability issues. Currently spanning 5 countries with 13 organizations, the group plans to expand to include all Arab countries in the near future.

146

ANNEX

About the Authors
✸ Alex MacGillivray is a Senior Partner and a Director at AccountAbility and leads the
Responsible Competitiveness programme, including the annual Responsible Competitiveness Index. Alex has been central to the development of a broad range of sustainability metrics projects, from the Index of Sustainable Economic Welfare to the Living Planet Index. His client list includes major corporations, SME clusters, sector associations, non-profits, investment authorities, innovation incubators and city and national government in dozens of countries, from Finland and Canada to China, The Kingdom of Saudi Arabia, Brazil and Turkey. He is a board member of the Global Cool Foundation.

✸ Darin Rovere is the President of Sustainability Excellence Arabia. Darin has over 15
years experience working with senior management teams around the world on sustainable development strategies and innovation. Several clients have ranked first in the world in their sector or in their countries. He has served on the advisory councils of numerous corporate responsibility initiatives. Darin also serves as Managing Director – Arab Region for Cleantech Group.

✸ Simon Zadek is Managing Partner and Director at AccountAbility, a Senior Fellow at
the Centre for Government and Business of Harvard University’s Kennedy School, and an Honorary Professor at the University of South Africa’s Centre for Corporate Citizenship. He sits on the International Advisory Board of Instituto Ethos, the Advisory Board of Generation Investment Management, the Boards of the International Centre for Trade and Sustainable Development and the Employers’ Forum on Disability, the Council of GAN-NET and the founding Steering Committee of the Global Reporting Initiative. In 2003 he was named one of the World Economic Forum’s ‘Global Leaders for Tomorrow’. Simon has supported many business’ efforts around the world in driving accountability innovations into their strategies and practices. His work has increasingly focused on facilitating businesses and their stakeholders in developing mutual understanding and collaborative initiatives, with recent clients including Alcoa, The Coca Cola Company, General Electric, Maersk and Nestle.

✸ Paul Begley is a Senior Principal at AccountAbility and has been working with firms,
sectors, regions and nations to improve productivity through responsible business practices. He works on the Responsible Competitiveness programme, with a special focus on the Country Climate Competitiveness Index – the first systematic effort to quantify the opportunities for 110 nations in a low carbon economy – and the Saudi Responsible Competitiveness Index. Paul has also worked on the AccountAbility Rating™, an annual assessment of corporate accountability that uses publicly-available information to determine how companies are embedding responsible business practices into the way they do business.

Responsible Competitiveness in the Arab World 2009 147

✸ Ruba Fanous is the Project Coordinator and a Researcher at Sustainability Excellence
Arabia for the Arab Responsible Competitiveness Initiative and Jordan Responsible Competitiveness Sector Study. Ruba holds an MBA, cum laude, in Energy and Environmental Management from the University of Twente in the Netherlands, along with a Bachelor’s of Physics. She has worked on water management and energy consultancy projects in Jordan and the Netherlands. Ruba also serves as SEA’s Clean Technology Services Manager.

✸ Mohammad Jebriel is a Consultant at Sustainability Excellence Arabia where he has
worked on the sustainability reports of some of the region’s most progressive sustainability reporters Previously, Mohammad was a Lead Social Compliance Auditor for various industrial sectors, providing services in testing, inspections, auditing and certification as an independent third party.

✸ Abdulkareem Abu Alnasr is the Chief Executive Officer of The National Commercial
Bank (NCB), the most prominent of Saudi banks and the second largest bank in terms of assets in the Arab World. Dr. Abu Alnasr is an active member of the Board of Trustees and Executive Committee of the Union of Arab Banks. He received top recognition for his outstanding contributions to the banking industry as the recipient of the Banker Middle East Best Lifetime Achievement Award category in 2008. NCB has also received the first King Khalid Responsible Competitiveness Award in the Kingdom of Saudi Arabia in 2009.

✸ Frederic Sicre is the Executive Director at Abraaj Capital, the premier investment firm
specializing in private equity investments in the Middle East, North Africa and South Asia (MENASA) region. He has over 19 years of experience in global issues, regional development agendas and community building. Before his appointment as Managing Director, he established the activities of the World Economic Forum (WEF) in Africa and the Middle East and was responsible for the Extraordinary Annual Meeting in Jordan at the Dead Sea in June 2003. He is the Editor of “South Africa at Ten” and initiated the first Africa and Arab World Competitiveness reports and oversaw the creation of the Arab Business Council.

✸ Dr. Sultan Ahmed Al Jaber is the Chief Executive Officer of Masdar, a wholly owned
subsidiary of the Mubadala Development Company. Masdar is Abu Dhabi’s multi-faceted initiative in the development and commercialization of innovative technologies in renewable and sustainable energy. Dr. Al Jaber is also an Advisor to the Mubadala Development Company, a board member of ALDAR Properties PJSC; the Young Arab Leaders Organization; and the Advanced Technology Investment Company. He is a steering committee member of the REN21 and a member of the Advisory Board of the College of Business and Economy at the UAE University. He is also a member of the executive committee of the designated National Authority in the UAE.
148

ANNEX

✸ Helmy Abouleish is the Managing Director of Sekem Group, which manages the
largest organic farms in Egypt. Under his stewardship of its commercial arm, Sekem received the “Right Livelihood Award 2003” for sustainable development, better known as “Alternative Nobel Prize and he has represented Sekem in World Economic Forum meetings. He is the chair of the Egyptian National Competitiveness Council and IMC Chair of the Management Council, the biggest development fund in Egypt aiming at improving competitiveness of Egyptian enterprises.

✸ Fadi Ghandour is the founder and Chief Executive Officer of Aramex, one of the
leading logistics and transportation companies in the Middle East and South Asia, the first company from the Arab World to go public on the Nasdaq stock exchange. Ghandour is a Founding Partner in Maktoob.com, the world’s largest Arab online community, is a member of the Board of Abraaj Capital, and serves on the Advisory Board of the Suliman S. Olayan School of Business at the American University of Beirut. He is the founder of Ruwwad Development, a region-wide corporate social responsibility initiative and is a Member of the Board of the “National Microfinance Bank” in Jordan.

✸ Rabea Ataya is the Chief Executive Officer and Chairman of Bayt.com, the Middle
East's leading e-recruiting company, which currently serves more than 3.25 million job-seekers and in excess of 30,000 employers across the Middle East and North Africa. Rabea has spent the last 11 years building profitable companies as an entrepreneur in the Middle East. Rabea is also the recipient of Middle Eastern E-Entrepreneur Award given by Sheikh Mohammad Bin Rashid Al Maktoum, Crown Prince of Dubai for his outstanding contributions to the region’s “knowledge economy.”

✸ Randa S. Ayoubi is the founder and Chief Executive Officer of Rubicon – a Jordanian
software development company specialized in the use of CGI Technology in education and entertainment. She has received Entrepreneur of the Year Awards in 2000 and 2003 from the Jordanian Young Entrepreneurs Association and the Crown Prince of Dubai, Sheikh Mohammed Bin Rashid Al Makhtoum. She is one of the founding members of the Information Technology Association of Jordan (Intaj), having served on its board and as Head of its Human Resources Development Committee. She is a founding member of the International Women's Forum – Jordan.

Responsible Competitiveness in the Arab World 2009 149

Notes

150

Responsible Competitiveness in the Arab World 2009 151

152

RESPONSIBLE COMPETITIVENESS IN THE ARAB WORLD 2009
Making sustainable development count in regional markets

Responsible Competitiveness in the Arab World 2009 has been compiled by AccountAbility and Sustainability Excellence Arabia in association with the Arab Sustainability Leadership Group. We would like to thank Aramex, Abraaj Capital, Jordan Aircraft Maintenance Limited – JorAMCo, and HBS International Ltd for their generous support of this project. May 2009 © AccountAbility, Sustainability Excellence Arabia 2009

Designed by Alex Chilton Design, www.alex-chilton.co.uk Cover image by Grafica, Jordan

This document should be referenced: Zadek, S., MacGillivray, A., Rovere, D., (2009) “Responsible Competitiveness in the Arab World 2009”, AccountAbility, London Throughout this report, the terms country, nation and territory do not in all cases refer to a territorial entity that is a state as understood by international law and practice. Instead, these terms cover well-defined, geographically self-contained economic areas for which statistical data is collected on an independent basis. ISBN: 978-1-901693-61-4

Responsible Competitiveness in the Arab World 2009
Responsible Competitiveness is the leadership, policies and practices that build sustainable development. Countries, cities, sectors and businesses are recognizing that responsible approaches to doing business are routes to new sources of value creation, improving reputation, managing risks, enhancing productivity and unlocking both product and process innovation. Responsible Competitiveness in the Arab World 2009 is the first systematic assessment of regional progress towards sustainable economies and prosperous societies. It provides regional pathways, practical case studies and policy recommendations to outline how the Arab World can convert societies’ existing and emerging challenges into profitable opportunities. The report analyses progress through three interlocking elements: ✸ An overview of the Arab World against 100 global peers through the Responsible Competitiveness Index; ✸ A new Arab Responsible Competitiveness Index, customized to provide in-depth analysis of regional performance on issues such as water security, green buildings and Islamic finance; ✸ Insightful essays from regional thoughtleaders on pressing challenges such as food security and human resource development. Responsible Competitiveness in the Arab World 2009 aims to provide a bold strategy to combine collaboration and innovation to create responsible markets. With seven essays from regional thoughtleaders on topics including the financial crisis, economic diversification, sustainable agriculture, and the human resource development challenge, it is a must-read report that outlines how the Arab World can build competitive advantage in global markets.

Lead sponsors

Sponsors
HBS International Ltd.


				
DOCUMENT INFO
Shared By:
Stats:
views:1436
posted:6/19/2009
language:English
pages:154
Description: The Arab World has an abundance of resources – natural, human and economic. The region is implementing a wide range of initiatives that are enhancing competitiveness and strengthening prospects for sustainable development at the same time. Responsible competitiveness is advancing in the Arab World. This report contains a new assessment of this linkage between enhancing competitiveness and sustainable development. It covers 15 Arab nations.