For investors and businesses, doing business and investing in frontier and emerging markets is all about assessing risk, and pricing it.  In some ways, risk is in the eye of the beholder, and risk premia differ depending on who is doing the pricing.  But to be able to price risk, one first needs to understand the underlying risk dynamics – deconstructing event clusters and filtering out noise in the process.  What we are left with, we hope, is a bare-bones take on an otherwise complicated reality.

The Middle East is rich in resources and human capital.  And for those investors and businesses who are able to work with and in this region as it moves to realize its potential, rich returns will be realized.  Fashioning an appropriate risk management and mitigation strategy is a prerequisite to such success.

Majd Shafiq

Risk can be viewed through more than one prism. Today’s Middle East exhibits elements of risk related to politics, economics, religion, language, development policies, culture, and history.

Lack of democratic practices and traditions; a major monotheistic religion going through reformation; a language that refers more to itself than to reality; poverty, unemployment, economic inequality and a lack of an economic level playing field; the legacy of colonialism; a culture that suppresses and oppresses; and development policies that push agrarian communities into the information age bypassing an industrial prerequisite – add all of the above conditions and drivers together, in one region, at the same time and we begin to understand the confluence of dynamics that is gripping the Middle East today and will continue to do so for the foreseeable future. 

The Arab Spring heralded a new era for the region and the genie that is out of the bottle is that of reform:  political, economic, religious, cultural, and linguistic reform.  And if world history is to provide any clues as to what will happen next in this region, the first couple of decades of reform will indeed not be easy. 

Competing schools of religious thought, not just along the Sunni–Shi’a divide but also within each camp, will drive reformation movements as different economic models and political formulae get tested and retested, as cultural givens are challenged, and as Arabs begin to struggle with their language in an attempt to have it serve their needs rather than assume a life of its own. 

Perhaps no other recent statement of principles is more relevant to the Middle East today than President Obama’s interview with the Atlantic Magazine a few years ago.  Reading the interview, one comes away with several conclusions, chief among them are that advances in energy technologies have lessened the dependence of world economies on Arab oil; that democracy cannot be exported to or parachuted into the region – it has to be homemade; and that large-scale military intervention in the Middle East is no longer something the US will consider.  The downgrading of Islamic terrorism as a national security threat by the Biden Administration as it focuses on Russia, China, and home-grown nationalist terrorism is another reason the Middle East is no longer the priority it used to be.

The Obama interview was not the parting words of a departing President; these principles shall come to define US and Western attitudes and policies in the Middle East for decades to come.  President Trump may have tried to alter tactics but did not move far from this strategy. 

When people are ready for change, they tend to grab the nearest ideology and run with it.  It is not ideology that causes change; it is people who utilize and use (sometimes abuse) ideology to catalyze and realize change.

Since the collapse of the Ottoman Empire and the ensuing years of colonialism and Cold War, peoples of the Middle East tried to realize progress by utilizing different imported “ism-s”.  Nationalism, socialism, and capitalism were used and abused and as a result are mostly discredited today by the region’s populations.  The only ideology that has not been fully tested yet as a tool for change and progress in the Middle East is one based on religion.  The rise of Political Islam is inevitable, given the lack of legitimacy that other ideologies have suffered in the Middle East.  And the current intellectual void. 

But what kind or, more accurately, kinds of Political Islam?  Will Islam-based political movements be militant or peaceful?  Will reform, liberal, and conservative Islamic schools of thought be able to co-exist on one terrain?  Will Middle East Muslim-based political movements secularize over time – like the Christian Democrats did in Europe, for example? 

Majd Shafiq

The struggles within this major monotheistic faith will impact the world for decades to come.  In his interview with the Atlantic Monthly, President Obama pointed out the need to rebalance US engagement with the rest of the world by tilting towards Asia, given China’s global ascent and rising aspirations.  China has a sizeable Muslim population, centered mainly in the northwest part of the country; an area that is less developed and which has traditionally supplied a significant number of soldiers in the Chinese army.  Which ideology will China’s Muslims grab and run with as they seek change and progress?  Will it be that of the Chinese Communist Party, where decades of economic reform resulted in a political core in search of new meaning and philosophy?  Or will it be one version or another of Political Islam at a time when this religion is in the throes of reformation? 

In this geopolitical context, and others throughout the world where religion could play a big role in conflict escalation and where weapons of mass destruction could end up in the wrong hands, it may not be the flutter of a butterfly’s wing but the flapping of an Arab cloak that will cause a typhoon halfway around the world. 

Islam’s presence in Asia, Southeast Asia, North America and Europe means that as this religion undergoes reformation and as the reformation process impacts and is impacted by political, economic, cultural and linguistic dynamics in the Middle East, Western engagement in this region will continue to be paramount to the individual and collective national security interests of Western powers. 

The language of President Obama’s interview with the Atlantic Magazine indicates that as the US reconfigures its mode of engagement with the Middle East, it will pursue the most effective approaches with the least possible cost structures.  President Trump was hard pressed to alter this orientation.  The Biden Administration will continue and amplify on this strategy.

Language is important and perhaps nowhere more so than in Arab lands, given the history and culture of the place.  Canvassing commentaries in the Middle East at the time, it is interesting to note how the words of the Obama interview were interpreted and understood.  President Obama’s emphasis on the need for the peoples of the region themselves to undertake the needed reforms was viewed by some as an act of abandonment.  His mention of the concept of tribalism as a dynamic inhibiting progress was understood to mean tribalism in its narrow sense – the extended family and the main social unit in many Arab societies; not tribalism as a state of mind – an allegiance to ideas and modes of behavior that impede progress. 

It was the writings of Wittgenstein that underscored the importance of language and its relationship to development and reform by posing the question of whether language refers to itself or to reality.  Languages go through cycles; at times referring more to themselves than to reality; at others, they refer more to reality than to themselves.  Reform efforts are usually aided and augmented when a language refers more to reality than to itself. 

The ability to transcend the religious metaphor, a key element in any religious reformation, cannot be easily realized if the language within which that religion is based is referring more to itself than to reality – as Arabic language is today.  This was not always the case – when Arabic referred more to reality than to itself it powered the civilizational ascendancy of Arabs and Muslims. 

As these dynamics unfold over the coming decades, those with vested interests in the Middle East should pay close attention to the reformers – individuals who are fashioning and providing the intellectual underpinnings for new change ideologies, challenging violence and subjugation in the Arab and the Muslim worlds. 

Majd Shafiq

During Europe’s Dark Ages, it was the Muslim Civilization that housed and nurtured the works and intellectual achievements of Western thinkers, providing a vital link between Europe’s neglected past and its future enlightenment.  Now, Western Civilization needs to undertake a similar effort – not just for the sake of enlightenment but also for the sake of world peace.

In 1882, Nietzsche wrote “I greet all the signs that a more manly, warlike age is coming, which will, above all, bring valour again into honour! For it has to prepare the way for a yet higher age, and assemble the force which that age will one day have need of – that age which will carry heroism into knowledge and wage war for the sake of ideas and their consequences. To that end many brave pioneers are needed now…”.

It is a good description of what is happening in the Middle East today.  We need to find those brave pioneers and provide them with enabling environments.  And that is a big part of what we all can do.

Majd Shafiq is head of the Middle East at Audere International. He is an Arab public policy and capital markets expert. Majd advises clients on corporate finance and capital market issues, Middle East economies and political structures.

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