Each subsystem or element in the global value chain may provide all (or some) of its expertise, competencies and output to affect those items moving through the cycle on their journey to the customer. In basic terms, firms try to optimise their production processes by locating various stages across different international locations.
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Enough economics, already
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But enough economic theorising already -- even from this cursory overview we can start to think about how the GCC, the Middle East and every corner of the Arab League is now given a new set of trading opportunities in a new and far more connected global economy.
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The challenge when talking about the region as a single entity is that the Middle East includes high-income countries such as the United Arab Emirates and Saudi Arabia, middle-income countries with diversified exports such as Egypt and low-income countries such as Yemen. With each nation only capable of connecting at a different tension point on the global value chain, there will be no one-size-fits-all solutions here.
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Many questions arise based upon each nation’s interconnectedness (in both the transport and the Internet connectivity sense), their skilled based of labour, their degree of internationalisation, their access to finance and their natural resources.
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The UAE will also stand out as an unrivalled air transport hub within the region, so its potential to place itself more prominently upon the global value chain is maximised. Of course airports, seaports and transport are not the only factors here. The UAE’s labour force is, in total terms, more expensive that that of say countries across the Maghreb. For skilled and semi-skilled manufacturing production Egypt and Morocco are arguably better placed than any country in the Gulf.
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Engineering for international dispersion
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We know that the global value chain encompasses more than factory production. Firms are now looking to where they can engineer for the ‘international dispersion’ of value chain activities including design, production, marketing, distribution and more.
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So do Arab economies now have greater latitude to gain a footprint on the global web-connected trading map? Both neighbourly bilateral and international initiatives have sprung up, but solid challenges and obstacles do still exist.
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For example, the MENA-OECD Competitiveness Programme brought together anti-corruption policy-makers and practitioners from governments and the private sector in order to identify good practices to improve integrity in business across the Middle East and North Africa. Despite its existence, the OECD has pointed out that many SMEs in several MENA countries suffer from a structural lack of access to external finance.
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“Bank lending, the main source of formal finance, is constrained by the relatively poor quality of the legal and regulatory environment, the limited depth of financial markets and lack of competition among banking and financial institutions,” read the excerpt from a MENA-OECD working group meeting held in Dubai in March 2016.
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Developing disconnected Arab economies
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Herein lies a major challenge. To strengthen the Arab link in the global value chain we need entrepreneurial SMEs to become more international. Multinational enterprises don’t need quite the same boost, principally because they are already multinational enterprises.
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Workshops are being staged across the Arab League to finesse the mechanics of a more global economic marketplace. Work is being carried out in areas such as international investment treaties, investment disputes and arbitration. With this type of effort and investment across the Middle East, we can develop even the most disconnected and constrained Arab economies.
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Iraq for example suffers from a huge lack of diversity in its economy. The country’s reliance on its hydrocarbon sector is no surprise, but longer-term economic growth can only come from a more diverse trading base.
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Recurring themes for the future
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To continue to strengthen the Arab global value chain link we must work towards a set of recurring themes. Human capital development and economic empowerment for women is extremely important. As the OECD notes, “Despite impressive progress in education over the past decades, women’s labour force participation in the region remains among the lowest in the world at 24%, compared to 62% in OECD economies.”
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Business integrity and corporate governance are also of paramount importance. In our new and more digitised global value chain, Arab firms will need to be with a foot or interest in Europe will need to know what the European Union has in store for data management in terms of the European Union’s General Data Protection Regulation (GDPR).
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Writing recently on Forbes, information storage company Veritas has said that, “[Arab businesses] operating in Europe (or targeting European customers) now have twenty-four months to implement the guidelines outlined in the regulation. They need to lock down exactly who is accountable for data security and detail how data flows between EU countries and those outside the zone.”
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The Duke University Center on Globalization, Governance & Competitiveness (Duke CGGC) has said that MENA (Middle East & North Africa) nations urgently need sustainable approaches to economic growth that reduce vulnerabilities, create employment opportunities and promote an inclusive and competitive private sector.
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So the challenge here is a global one, a digital one and a web-connected one. But it is also a local issue, a domestic challenge and a matter of human workforce enablement. With one of the one of the fastest growing populations in the world, the Arab value chain link is a lifeline to future prosperity.
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Now is the time for concatenated interlocking continuity, both inwards and outwards.
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