Home > Free Essays > Business > Case Study > The Arab Awakening & International Business

The Arab Awakening & International Business Problem Solution Essay

Exclusively available on IvyPanda Available only on IvyPanda
Updated: May 31st, 2019


International trade is quickly becoming an acceptable business practice in most countries. Since researchers have proven that international business improves the economic and social welfares of different societies, many countries are now fixated on attracting and securing foreign investments.

However, several environmental factors undermine this quest. For instance, political instability has significantly undermined international investments in the Middle East and North Africa states (MENA). The future of this region in securing foreign investment has therefore been shaky.

After considering the legal, political, social, and economic dynamics of the region, this paper proposes that MENA countries should demonstrate a strong commitment to safeguard foreign investments to ensure they continue to attract foreign investments, even in the wake of political turmoil. This paper also suggests that the willingness of MENA states to uphold bilateral and international trade treaties should support this commitment.


Introducing the Project

Middle East and North Africa (MENA) is a strategic region for many international investors. The main economic driver of the region has traditionally been the oil industry, but recent years have seen the diversification of MENA economies to include construction and tourism sectors (Zengyu 2013).

Despite the tremendous economic potential of the region, ongoing political instabilities have characterised MENA’s economic outlook (Zengyu 2013). These instabilities caused many investors to worry about the future of their investments in the region. Consequently, foreign direct investments (FDI) in most MENA countries have declined.

This paper focuses on the declining investor confidence as a challenge for MENA countries to uphold FDIs in the region. To have a comprehensive insight on this phenomenon, this paper explores several political, social, and economic aspects of the MENA region.

In detail, this paper explores the MENA marketplace, MENA legal environment, and the political environment of the region. Additionally, a theoretical analysis of FDI investments in the region leads this paper to explore the influence of capital market theories and other FDI theories in explaining the declining foreign investments in the region.

The Middle East and North Africa (MENA)

MENA is an acronym used to refer to the Middle East and North Africa states. Since many experts use this term for academic purposes, it is crucial to mention the scope of MENA. MENA stretches from Morocco to Iran (Zengyu 2013). This region also encompasses most Middle East and Maghreb countries. Generally, a conservative estimate of MENA’s population shows that the region hosts about 400 million people (Devlin 2010).

Perhaps the most distinguishing feature about MENA is its vast oil reserves and natural gas. According to Devlin (2010), about 60% of the global oil reserves are located in the MENA region. Furthermore, more than 40% of the world’s natural gas comes from MENA states (Devlin 2010).

The centralisation of the world’s oil and natural gas in the MENA region therefore explains the reason eight of the 12 member states of the Organisation of the Petroleum Exporting Countries (OPEC) come from the MENA region. From the endowment of petroleum and natural gas, the economy of most MENA countries depends on the petroleum industry.

The Main Issues of the Project

When the Arab uprising started in 2010, there were widespread fears among economic analysts that the unrests would affect foreign direct investments (FDI) in the region (Zengyu 2013). This happened. Certainly, FDI investments in the region decreased from about $61 billion to only about $38 billion (O’Sullivan & Böhmer 2013). This decline happened in the years 2010 and 2011 respectively. Albeit this decline was significant, there were equally significant variations of the decline among MENA countries.

For example, the FDI investments in Egypt declined from about $6.4 billion to about $500 million, within the same period (O’Sullivan & Böhmer 2013). The decline of FDI investments continued throughout most parts of 2012 (albeit slowly). Economic analysts project that the FDI investments are likely to remain stagnant in most parts of 2013 (O’Sullivan & Böhmer 2013).

Many factors led to the decline of FDI investments in the region (like labour unrests and a weakened Euro zone), but generally, the decrease could be attributed to a loss of investor confidence. O’Sullivan & Böhmer (2013) say the loss of investor confidence happened because of the political instability of the region. The instability also destabilised most industries in the region including agribusiness, petroleum industry, construction industry, renewable energy, and other significant economic sectors.

A recent perspective that, as by Apaydin (2009), proposes that political stability is the key to the improvement of FDI in the MENA region. However, stable political transitions and comprehensive democratic reforms may be a long shot for most democracies in the region.

At best, it may take many years for such countries to be fully democratic and stable. Indeed, even as political instability declines in most Arab states, the level of investor confidence is still low. Many investors also feel discontented about the political and legal environments in most MENA states (O’Sullivan & Böhmer 2013). For example, foreign investors have filed at least six arbitration cases against the government (since 2011) (O’Sullivan & Böhmer 2013).

From the political and economic uncertainties of the region, the main question that manifests for most MENA countries stem on how they can reassure potential investors about the region’s commitment to safeguard their investments. Moreover, many MENA countries have to ponder how they can increase the level of FDI (compared to what they previously enjoyed).

Besides ensuring that the basic environmental requirements for doing business exist, many MENA countries also face an uphill task of ensuring there is adequate macroeconomic security, rule of law, and integrity in public governance in their countries. These issues hinder the growth of MENA’s economy.


  • To establish strategies for Increasing FDI in the MENA region
  • To ascertain the extent that political instability affects international investments in MENA
  • To find out the impact of MENA’s legal environment for international investments in the region


The methodology for this report mainly relies on the political discourse analysis method. This research methodology seeks to investigate the prevailing social systems, which lead to the creation of reality.

The political discourse analysis method has widely been used in many political spheres, such as, the identification of suitable policies for the creation of practical solutions to solve social problems (Raftopoulou 2010). In practice, people have used the political discourse analysis method to understand political systems around the world and their impact on the society and the economy (Raftopoulou 2010).

Linkage to Theoretical Discussion

International investment categories

There are different types of international investment categories including commercial inflows, foreign direct investments, and foreign portfolio investments. Commercial inflows are normally associated with governments and institutions in the host countries.

Many developing nations receive these commercial inflows as development assistance for infrastructure development and other projects (Stepien 2012). Comparatively, foreign direct investments occur when foreign investors have a “lasting” interest in a foreign company. These interests may manifest as the processes of buying or constructing factories in foreign countries.

Economists calculate FDIs in a manner that includes capital contributions and reinvestments in property or stocks (Stepien 2012). Unlike foreign direct investments, foreign portfolio investments are temporary (Stepien 2012). The purchase and sale of bonds provide one example of a portfolio investment.

Many theories explain the level of FPI in different countries. For example, the capital market theory explains that interest rates define the attractiveness of a market to foreign investors (this is among the oldest theories that explain FPIs in the world) (Krichene 2012).

If we were to apply this theory to the attraction of FPI in MENA, it would be correct to assume that foreign investors would be attracted to markets that offer a high return on their investments (compared to the imminent risks of trading). However, this theory is mainly applicable to foreign investors that would want to invest in the capital markets of MENA (Weber 2002).

Comprehensively, the main difference between FDI and FPI is the source of funds. Indeed, while most FDIs come from large corporations, FPIs come from small organisations that invest their disposable funds. Such funds may include pensions, mutual funds, or similar investments (Stepien 2012). Interest payments and dividends are just a few examples of rewards that arise from FPIs.

Changes in Political Environment

Since the start of the Arab spring, the political future of the MENA region has remained uncertain (Al Khattab 2012). Indeed the political unrests that started in Tunisia and Egypt quickly spread to other countries in the region.

The extents of these political uprisings have created a significant degree of change in most MENA countries, including the complete change of regimes in Egypt, Tunisia, Libya, and other countries. Other monarchies in the region have also started significant political reforms because of the sweeping demand for change in the region. These changes aim to make MENA more democratic and attractive to foreign investments (Al Khattab 2012).

The Marketplace of Africa and the Middle East

As mentioned in earlier sections of this report, the MENA region has a population of about 400 million people. This population provides a good market for international investors to sell their goods and services. In addition, since a Muslim population mainly characterises the region, traders need to sell “religiously sensitive” goods and services (Devlin 2010).

MENA is also an emerging regional powerhouse, in terms of global economics. Therefore, an emerging middle class in the region has a high propensity to spend. The consumer purchasing power in the Middle East is therefore relatively high and many international companies would find this market to be profitable.

The MENA region also has a highly youthful population. In fact, more than 60% of the population is comprised of people who are under 24 years (Devlin 2010). This population is mainly unemployed. This dynamic provides a favourable analysis of the MENA economy because it signifies the availability of labour and possibly the availability of cheap labour for foreign investors.

This population dynamic also shows that the youth comprises a vibrant market for the purchase of goods and services. However, at this point, it is important to acknowledge that MENA’s history has sidelined women and the youth (economically).

The Legal Environment

Some analysts say MENA’s legal environment is complex because every state has its unique laws (Eversman 2012). Moreover, there is a lot of legal diversity in MENA’s business laws. For example, many analysts regard the civil code basis of Saudi Arabia as the most complicated because every emirate has its unique laws that govern business practices within the jurisdiction (Eversman 2012).

Nonetheless, there are existing laws that affect foreign investors (specifically), while there are other laws that affect general international business transactions.

Laws Affecting International Business Transactions

While the MENA region remains an attractive market for many international investors, the diversity of the region, coupled with the changing economic and political environment, creates a very diverse legal environment for the region. The influence of Sharia law, for example, influences most business practices in some MENA states.

Certainly, the influence of Sharia law on the Saudi Arabian business environment is profound. Different laws have been formulated for different purposes, and often, they need to comply with Islamic teachings (according to the Prophet Mohammed) (Eversman 2012).

Laws Directed Against Foreign Firms

In some MENA states, laws do not protect international business agents. For example, the Saudi Arabian law does not protect foreign business agents. Comparatively, the UAE offers sufficient protection to international business agents (Eversman 2012). Kuwait also has its special legal dynamics such as the prohibition of corporate branches. Instead, the country proposes that international companies should have corporate agents, or alternatively, create new companies.

MENA countries also have varying laws regarding business ownership, especially when new companies start new businesses in the region. For example, Saudi Arabia provides that new investors may fully own new enterprises (Eversman 2012). This provision contrasts with other countries in the MENA region, which require majority local ownership.

For instance, some MENA countries like the UAE and Qatar require 51% of foreign companies to be locally owned (Eversman 2012). Comprehensively, the legal environment of the MENA region is highly characterised by the different rules and regulations that govern business activities in every state.

Dispute Resolution: Arbitration

Historically, the dispute resolution structures of MENA states have been problematic because there was an unpredictable enforcement of legal rights, lack of standardisation of arbitration rules, and the enforcement of arbitration laws that did not meet international standards (Eversman 2012).

The need for a review of dispute resolution mechanisms has therefore been dire. However, recent years have painted a glimmer of hope for international investors because there have been considerable reforms in the past years (Abu Sadah 2009). The influx of many western construction firms in MENA brought these reforms (Eversman 2012).

Since most MENA states practiced arbitration in the early years of Islam, there has been a significant influence of Islamic laws in shaping arbitration laws in the region.

Perhaps to show the main difference between arbitration laws in the Middle East and the rest of the world is the understanding that arbitration cases in MENA involve disputes between “brothers,” while arbitration cases in other parts of the world involves “adversaries.” The arbitration process in MENA is therefore more peaceful and less confrontational than other states around the world (Abu Sadah 2009).

The adoption of Islamic principles in arbitration is however not automatic for all MENA states. Some countries do not share this philosophy. Such countries practice arbitration based on the principles of sharia law. They may therefore prohibit, for example, any business transactions that contradict Islamic principles, such as the inclusion of interests in contractual agreements (Abu Sadah 2009). Here, the sharia law may also dictate if awards are binding to all parties.

The Political Environment

The MENA region has had its share of political instability. Unfortunately, many experts still say the region lacks comprehensive political reform to sustain more FDI (Abu Sadah 2009). Corruption, cronyism, favouritism, and the lack of legal standardisations explain some of the main concerns, as expressed by these experts (Zengyu 2013). Abu Sadah (2009) recommends that many MENA countries need to change their political systems to improve the region’s attractiveness to international business.


This paper shows that MENA states are suffering from low investor confidence because of political instability and the lack of comprehensive economic reforms. While these issues remain pivotal in understanding the economic fortunes of the region, this paper also shows that international companies may still exploit the lucrative economic opportunities that exist in the region (because MENA is an emerging powerhouse that has a lot of business opportunities to offer international investors).

Above all, this paper suggests that MENA is undergoing significant political and economic reforms that are set to elevate the region to be a global economic investment hub.

Future Investment Attraction – The Possible Solutions

The political and economic instabilities that characterise most MENA states provide significant challenges for governments in the region to assure international investors of the security and profitability of their investments. However, because the MENA region is still a lucrative market for international investors, governments in the region need to show they are committed to making international investments profitable for foreign investors.

They can do so by honouring bilateral treaties and other international trade agreements. Since international investors are also keen to see how MENA countries handle international trade disputes, MENA countries should reaffirm their commitment to adhere to internationally accepted rules of arbitration, especially regarding the confiscation of assets and the expropriation, or cancellation, of contracts.

Alongside the above measures, MENA countries should also demonstrate their commitment to protect international investments by abolishing discriminating practices and upholding transparency when doing business with foreign countries. This may occur through institutional reforms. FDI theories that focus on institutional reforms provide a more practical analysis of this strategy because they emphasise on institutional reforms and political stability as the main factors that attract FDI (Abu Sadah 2009).

Therefore, if we used these theories to understand the decline of FDI in the MENA region, it would be correct to say, if MENA states adopted significant institutional reforms, FDI inflows would be high. This way, many MENA countries may benefit from renewed investor confidence.


After weighing the findings of this paper, it is correct to say, the economic future of MENA largely depends on their commitment to reform their economic and political institutions. So far, most states are undertaking significant political and economic reforms, but still, some states lag behind in this process.

Such reforms need to be comprehensive to include even legal challenges that face many foreign firms. Furthermore, it would be unfortunate to overlook the influence of political stability in improving the economic outlook of the region because international investments cannot increase under uncertainties. Comprehensively, MENA states have tremendous potential in changing their economic fortunes for the better.


Abu Sadah, M 2009, ‘Philosophical basis of the legal theory underlying international commercial arbitration in the Middle East region’, Journal of International Trade Law and Policy, vol. 8 no. 2, pp. 137 – 158.

Al Khattab, A 2012, ‘Executives’ perception of political-legal business environment in international projects,’ International Journal of Commerce and Management, vol. 22 no. 3, pp. 168 – 181.

Apaydin, M 2009, ‘Analyzing FDI trends in emerging markets: Turkey vs CSEE and the Middle East’, International Journal of Emerging Markets, vol. 4 no. 1, pp. 72 – 97.

Devlin, J 2010, Challenges of Economic Development in the Middle East and North Africa Region, World Scientific, New York.

Eversman, S 2012, Legal perspectives on Doing Business in the Middle East. Web.

Krichene, N 2012, Islamic Capital Markets: Theory and Practice, John Wiley & Sons, London.

O’Sullivan, A & Böhmer, A 2013, Columbia FDI Perspectives: Perspectives on topical foreign direct investment issues by the Vale Columbia Centre on Sustainable International Investment, Vale Columbia Centre, Columbia.

Raftopoulou, E 2010, ‘The political role of government-sponsored social marketing campaigns’, European Journal of Marketing, vol. 44 no. 7, pp. 1206 – 1227.

Stepien, E 2012, ‘International portfolios and currency hedging: viewpoint of Polish investors’, Managerial Finance, vol. 38 no. 7, pp. 660 – 677.

Weber, B 2002, ‘The link between unemployment and returns to education: evidence from 14 European countries’, Education + Training, vol. 44 no. 4, pp. 171 – 178.

Zengyu, V 2013, ‘Managing in Uncertain Times – A Critical Juncture for Research in the MENA region’, Journal of Strategy and Management, vol. 6 no. 2, p. 12-19.

This problem solution essay on The Arab Awakening & International Business was written and submitted by your fellow student. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly.
Removal Request
If you are the copyright owner of this paper and no longer wish to have your work published on IvyPanda.
Request the removal

Need a custom Problem Solution Essay sample written from scratch by
professional specifically for you?

Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar

certified writers online

Cite This paper
Select a citation style:


IvyPanda. (2019, May 31). The Arab Awakening & International Business. Retrieved from https://ivypanda.com/essays/the-arab-awakening-international-business/

Work Cited

"The Arab Awakening & International Business." IvyPanda, 31 May 2019, ivypanda.com/essays/the-arab-awakening-international-business/.

1. IvyPanda. "The Arab Awakening & International Business." May 31, 2019. https://ivypanda.com/essays/the-arab-awakening-international-business/.


IvyPanda. "The Arab Awakening & International Business." May 31, 2019. https://ivypanda.com/essays/the-arab-awakening-international-business/.


IvyPanda. 2019. "The Arab Awakening & International Business." May 31, 2019. https://ivypanda.com/essays/the-arab-awakening-international-business/.


IvyPanda. (2019) 'The Arab Awakening & International Business'. 31 May.

More related papers
Psst... Stuck with your
assignment? 😱
Psst... Stuck with your assignment? 😱
Do you need an essay to be done?
What type of assignment 📝 do you need?
How many pages (words) do you need? Let's see if we can help you!