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Question of the Day
As political unrest and violence continue to flare across the Middle East, the U.S. capital is seeking its own oases in the desert.
Hotels, restaurants, and tourist-oriented transportation industries in countries that have thus far avoided major unrest — the United Arab Emirates, Saudi Arabia, Morocco, and Oman — are either thriving or expected to pick up new business in the near future. The oil industry in Persian Gulf countries such as Kuwait, UAE and Qatar are also likely to benefit as production is curtailed in other countries.
“Some of these markets and cities are doing incredibly well,” said Jonathan Worsley, spokesman for the Arabian Hotel Investment Conference. “You’re either in the thick of things, or you’re doing well by not being in it.”
But for major U.S. companies doing business in such long-established markets as Egypt and Tunisia, the future is far more uncertain. Old relationships have crumbled with old regimes, and much uncertainty hangs over economic policy as the new governments struggle to get organized.
Business groups say the turmoil is the Middle East and North Africa is nothing new for American companies operating there.
The region has long suffered from political and civil unrest that undercut their bottom lines. But veteran U.S. investors say they knew the risks they were taking when they went in. Most American investors plan to stay the course and help rebuild the economies under new regimes, according to Lionel Johnson, vice president of Middle East and North Africa affairs for the U.S. Chamber of Commerce.
“The U.S. companies that are there have been there for a long time, they’re planning to be there in the future, and they’re trying to do everything they can to help,” Mr. Johnson said. “You’re not seeing disinvestment. You’re not seeing companies shutting their doors and pulling out operations. They’re continuing to be there.”
There are few U.S. companies in Libya, said Mohsin Khan, a senior fellow at the District-based Peterson Institute for International Economics, lessening the impact on American business investment there. American businesses have faced more difficulties in Egypt, where longtime U.S. ally Hosni Mubarak was driven from power by a popular revolt less than two months ago.
Some had to close at the height of the unrest. Kraft Foods, which has operations across the Middle East, was forced to suspend operations in Egypt and Bahrain for several days, but has since reopened its facilities.
The new regime in Egypt and those in other countries throughout the region could turn a cold shoulder to foreign businesses that flourished under the previous rulers, Mr. Khan warned. That could mean price controls that would cut into profits. U.S. producers like Kellogg’s and Coca-Cola are among those who could be at risk.
“If you’re in that business, your prices could be controlled,” Mr. Khan said. “The profits there will be reduced. That, to me, is a serious risk.”
A more pressing concern for Mr. Khan is whether these countries will blame foreign businesses for their struggles. Western analysts say Mr. Mubarak made a major move to overhaul the country’s lagging economy in 2004, appointing a slate of reform-minded ministers to key economic, tax, labor and trade posts.
More insular, protectionist regimes could turn to tariffs and other barriers to trade as a way to protect local producers.
In recent years, economies across the Middle East were taking steps in the right direction, Mr. Khan added, but they could spiral backward.
Egypt, for example, once ranked near the bottom of the World Bank’s list of 183 nations with business-friendly climates. But it had surged to No. 94 in the 2011 survey, before the fall of the Mubarak government.
“These economies were really opening up to the world,” he said. “But I think there’s going to be a pushback now. My hope is that they won’t reverse directions, but that they simply won’t push further ahead.”
The uncertainty doesn’t sit well with businesses in these countries. Tunisian officials reported last month that foreign investments in the country fell by 17.9 percent in January 2011 compared with January 2010, with major revenue declines in tourism and petroleum.
For those with a port in the storm, the picture is much brighter.
Hotels occupancy in Dubai, the largest city of UAE, and Riyadh, Saudi Arabia, has stayed strong at 82 percent and 70 percent, respectively, slight increases from a year ago, as displaced travelers flood there. Occupancy rates in Abu Dhabi are up to 67 percent from only 43 percent a year ago. In Muscat, the capital of Oman, they are up to 68 percent, a 12 point increase.
But these jumps in tourism come at the expense of other Middle Eastern spots that are crippled with unrest. Hotel occupancy for Cairo in Egypt is down to 40 percent from 67 percent a year ago, and Beirut in Lebanon also is down to 40 percent from 62 percent.
The troubling outlook has caused some to leave the area for a short time. But experts expect them to return.
“We find that hotels bounce back pretty quickly,” Mr. Worsley said. “It’s a long-term investment. I’m sure they’re going to be back in there as soon as things settle down.”
© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.
About the Author
Tim Devaney is a national reporter who covers business and international trade for The Washington Times. Previously, he worked for the Detroit News, Grand Rapids Press, Portland Press Herald and Bangor Daily News. Tim can be reached at email@example.com.
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