Survey among executives analyzes the economic impact of the unrest in the Arab world on German companies

Roland Berger survey among executives analyzes the economic impact of the unrest in the Arab world on German companies – 3x3 economic scenario confirmed

• Around 43% of the surveyed companies have business activities in North Africa and the Middle East; 21.9% of them buy raw materials and supplies from the region while 18.8% manufacture locally
• Over 70% of the survey respondents are not directly affected by the unrest; by contrast, 16.7% of the companies have put their growth plans on hold
• Three possible economic development scenarios in the Arab world: over 53% of managers predict the mild "Sandstorm" scenario
• Roland Berger's 3x3 economic scenario for Germany remains valid despite the unrest in the Arab world

Against the backdrop of the political shakeup in the Arab world, Roland Berger Strategy Consultants has conducted a survey among 100 executives of German companies. The aim was to analyze the effects of the unrest in North Africa and the Middle East on the German economy and thus on Roland Berger's recent 3x3 economic scenario. In this scenario, the strategy consultancy predicted at least 3% economic growth in 2011 and 2012, following 3.6% growth in 2010. The results: Some 43% of the surveyed companies have strong business links in the MENA countries (Middle East and North Africa), especially with Egypt, the United Arab Emirates, Saudi Arabia and Bahrain. But most of those surveyed are not directly affected and expect things to continue to develop positively. Roland Berger predicts that the effects on the German economy will be minimal and this underpins the 3x3 scenario. Roland Berger's "Oasis", "Sandstorm" and "Desert" scenarios describe how the MENA region may develop in the long term.

"Most analyses of the current situation in the MENA region focus on the local political events," says Burkhard Schwenker, Chairman of Roland Berger Strategy Consultants. "Our survey of German executives aims to widen the focus to the economic consequences of the crisis. The Arab countries play an increasingly important role in our economy, not just as major oil suppliers but also as sales markets for German goods and services."

Some 43% of the companies surveyed do business in North Africa and the Middle East – especially with Egypt, the United Arab Emirates, Saudi Arabia and Bahrain. The percentage of German companies which sell goods and services in the MENA region is even higher, at 75%. So it is no wonder that almost 27% of survey respondents consider the MENA states to be of considerable economic importance. As many as half of the respondents expected the Arab world to continue to play an important role for them in the future.

Limited effects on the German economy

The impact of the current political upheaval in the MENA region on German companies is currently limited: over 70% of the executives surveyed said they were not directly affected. But business operations in Arab countries have become tough for over 17% of respondents over the past few weeks; around 10% have even had to suspend operations locally. Investment plans are also being scaled back at the moment: 16.7% of survey respondents said that they have put their growth plans in the MENA region on hold. "There is uncertainty among German companies about future developments in the crisis-hit countries," says Schwenker. "Although current business deals are going smoothly, companies are being fairly cautious about expanding business in those countries. How the situation develops in the Arab countries, and especially in oil-rich Saudi Arabia, will greatly influence German companies' growth strategies."

The executives surveyed do not expect the situation in the MENA region to stabilize soon. Over 86% of these instead predict that the protests will spread to other countries; 49.3% even fear the wave of protests will expand beyond the MENA region. Just under 55% think that Saudi Arabia may soon be affected by protests, while 70.3% expect negative effects on German economic growth in the short term.

Three scenarios for economic development in MENA

After comprehensive analysis, Roland Berger Strategy Consultants has designed three possible scenarios for economic development in the MENA region in the coming years:

Scenario 1 – "Oasis"
The "Oasis" scenario assumes positive economic development. New democratic structures are established in many parts of the MENA region as a result of the current unrest; a new middle class emerges with more purchasing power, the educational level rises and unemployment falls. This creates positive growth dynamics in Arab countries and opens up new opportunities for German companies that have business activities there.

Scenario 2 – "Sandstorm"
The "Sandstorm" scenario predicts that many things are shaken up, as if by a sandstorm, but little really changes. Power structures do not change and the protests do not lead to a lasting solution to regional problems – nor do they make things worse. For German companies this means that after the unrest they go back to business as usual relatively quickly and can continue to participate in the growth of the MENA region.

Scenario 3 – "Desert"
By contrast, the "Desert" scenario forecasts a very negative trend – both politically and economically. The protests affect the whole MENA region, social tensions worsen, authoritarian governments give way to chaos and increasing Islamization. Young people in particular see a lack of prospects and many quit the region for Europe as refugees. As a result of the dramatic situation, more and more German companies turn their backs on the MENA region.

Most expect positive development

The results of the Roland Berger survey show that German executives tend to expect positive development in the MENA region. 31% of those surveyed consider the optimistic "Oasis" scenario most likely. 53.6% expect the situation to develop as in the "Sandstorm" scenario. This means for German companies a continued economic growth of 4.5% or more per year.

"The optimism of German executives confirms our conviction that the German economy will continue to grow in the coming years," says Schwenker. "We must keep an eye on developments in the Arab states, but Germany's low trading volume with the MENA region and the fact that German companies are coping well with the current difficult situation give me cause for optimism. Our 3x3 growth scenario for Germany still stands: Germany will grow by over 3% in 2011 and 2012, following a growth of 3.6% last year."