About Matthew Spivack

Matthew Spivack

Matthew Spivack is the head of research for the Middle East and North Africa. His responsibilities include writing research that allows senior executives to make tough decisions amid volatility in the MENA region and moderating client discussions on key business activities, including strategic planning, distribution management, and government engagement. Prior to Frontier Strategy Group, Matthew worked for the National Democratic Institute on programs involving local government officials and journalists in Gulf Cooperation Council countries as well as anti-corruption initiatives, parliament, and political parties in Yemen. He also spent two years as a paralegal at the U.S. Department of Justice where he was the Victim Witness Coordinator for the Enron Task Force and worked on the largest FCPA case in U.S. history. Matthew has a master's degree in Middle East Studies and Conflict and Conflict Resolution from George Washington University's Elliott School of International Affairs.

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Recent Posts

Preparing Your Business for Post-Sanctions Iran [Infographic]


International negotiations involving Iran’s nuclear program were extended until November 24, which is good news for Western multinationals. Senior executives should use this extra time to lay out plans for entering or expanding in the Iranian market. Today, FSG released a report for our clients that outlines actions to take in order to prepare for major challenges and capitalize on huge opportunities in post-sanctions Iran.

Many companies are preparing to enter or expand in post-sanctions Iran, and 40% of FSG clients surveyed already view it as a priority market. A comprehensive nuclear deal and the subsequent opening of the Iranian market would represent the biggest shake-up to the MENA portfolio since the Arab Spring erupted between late 2010 and early 2011. Iran’s population is the second largest in MENA, and its oil and gas reserves are the 4th and 2nd largest in the world, respectively.

Before committing significant resources to overcome operational challenges in Iran, senior executives must first determine whether their organizations are even willing to take the risk by reassessing market potentialsanctions exposure, and indirect vulnerabilities, such as reputational risk. Iran’s opportunities will not outweigh the risks for every company. However, pharmaceuticals, medical devices, and consumer goods companies are especially likely to prioritize post-sanctions Iran given its attractive demographics and future spending power.

For companies focused on entering or expanding in post-sanctions Iran, it is imperative to prepare for the top three challenges identified by FSG clients in a recent poll: a lack of access to bank services, compliance risk, and difficulties in becoming a first mover ahead of competition. FSG clients can read our report on post-sanctions Iran to learn about actions for overcoming these challenges and many others.

FSG Poll Results

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Iraq Crisis: Reacting Rashly to Instability Could Hurt Your MENA Business

Photo: Iraq Crisis: A Kurdish soldier with the Peshmerga keeps guard near the frontline with Sunni militants on the outskirts of Kirkuk, an oil-rich Iraqi city on June 25, 2014.  Spencer Platt, Getty Images

Right now all eyes are on the conflict in Iraq. However, political instability is the regional norm, as seasoned senior executives can attest. Companies must avoid making rash decisions in response to regional volatility. Otherwise, there is a danger of cannibalizing long-term prospects for MENA growth.

Senior executives must be proactive in controlling the conversation with their corporate office to counteract the steady stream of negative media attention that is focused on the region. Despite the terrible human toll from the Iraq crisis, and increasing links to the devastating Syrian civil war, only 11% of MENA GDP is derived from markets that are highly exposed to spillover from the conflicts.

Senior executives should assess how deteriorating stability in Iraq impacts their MENA strategy, but a measured response is required. FSG suggests considering three actions for your regional business:

1. Course-correct your MENA strategy, but do not waste resources on a complete overhaul.

Risk-tolerant companies can gain long-term market share as others freeze investments or pull out of Iraq and surrounding countries. At the same time, MNCs can focus on a profitability-driven strategy in stable countries such as Saudi Arabia and the UAE. Our clients can use FSG’s market prioritization tool to aid in reassessing where to concentrate regional resources. They can also track signposts in our Iraq report and updates from FSG’s MENA Monthly Market Monitorto help decide when changes are appropriate.

2. Leverage local partners to maintain a foothold in affected areas in the MENA region.

Risk-averse companies can maintain a foothold in unstable markets by relying on local partners to reduce financial and security risks. It will be important to work with partners to monitor changing regional perceptions of Western brands if there is a sustained Iraq conflict in which foreign intervention is possible. Clients can review FSG’s Managing Distributors in MENA for additional strategies.

3. Count on de facto or de jure Kurdish independence, which brings opportunities and risks.

Kurdistan’s capture of oil-rich Kirkuk puts it on an accelerated path toward de facto or de jure independence. Kurdistan could become even more of an investment destination as a result. But manage expectations, as there are new challenges, including potential fuel shortages as a result of disruptions to the Baiji oil refinery and Erbil’s exposure to a rise in terrorist attacks. Clients can read our Iraq Frontier Market Access report for more on Kurdistan and use our monthly MENA report to track developments.

(Image courtesy Getty Images, Scott Platt: A Kurdish soldier with the Peshmerga keeps guard near the frontline with Sunni militants on the outskirts of Kirkuk, an oil-rich Iraqi city on June 25, 2014.)

MNC Insight: Five things I learned during my 10-day visit to Dubai

I met with more than a dozen Dubai-based senior executives from multinational companies across several sectors. Five important issues emerged during our conversations:

1. Improving performance in Africa is the focus of MEA strategic planning 

During my visit to Dubai, 70% of the companies that I met were focused on improving their performance in Africa. Interestingly, most of the companies use Dubai as a hub for Sub-Saharan Africa. The UAE is already an established regional hub for the Middle East, because of the advanced commercial infrastructure, air travel links to rest of the world (Gulf flights can reach 2/3 of world’s population in 8 hours), access to skilled, albeit expensive expatriate labor, and relative ease of anticipating local costs.

2. MNCs are frustrated increasingly by the procurement process in Saudi Arabia 

Many executives cited an extended and unclear procurement process as an obstacle to business growth. There are new procedures and staff in many ministries, in part to ensure compliance, and this has led to more delays in the approval process. SAGIA, Saudi Arabia’s investment agency, recently announced a new fast-track option for processing foreign investor applications and I will investigate how it is being implemented during my upcoming visit to the market.

3. Executives are still mystified by MENA’s frontier markets, particularly Algeria and Iraq

In Algeria, companies often work through a local partner, but have underperformed due to a difficult operating environment. Many are watching whether President Abdelaziz Bouteflika’s fourth term will usher in an era of growth or support stagnation. In Iraq, most companies do not have enough info to navigate the market appropriately and find it difficult to make the case for resources given dramatic headlines that appear in Western news outlets every day.

4. Investment in Iran is still a taboo topic for many despite the market’s huge potential

Iran has the 2nd largest population in MENA and among the largest oil and gas reserves in the world. Yet the market opportunity still seems too far off for many MNCs, especially those with US headquarters. Interestingly, I met with a consumer-oriented Danish company that is trying to get expansion plans approved by their board. The executives are worried about rising competition from American companies if a nuclear deal is reached in July.

5. Companies are not worried enough about MENA’s vulnerability to a Chinese slowdown

China’s growth trajectory was not a concern for many executives until I connected the dots to the overall health of MENA economies. The Middle East supplies nearly 50% of China’s oil. Strong Chinese demand drove an oil price surge that increased GDP in GCC countries by $1 trillion between 2003 and 2013. In addition, 15% of MENA exports go to China and Chinese-based companies are major foreign investors in the region. As a result, executives need to factor into their strategic plans how a slowdown in China (below 7% annual growth) would hurt economic activity in MENA.

The GCC’s long-term economic interests should encourage resolution of political crisis

Intraregional competition among GCC countries is normal and it has benefited foreign companies due to its encouragement of infrastructure upgrades in finance, ports, and tourism. However, the decision by Bahrain, Saudi Arabia, and the UAE to withdraw ambassadors from Qatar is an unprecedented move and it is a big deal. The political divide is over regional security, particularly Qatar’s ongoing support for Egypt’s Muslim Brotherhood and accusations of meddling in “internal affairs directly or indirectly” of other GCC states.

An extended diplomatic row between Qatar and other GCC states would have significant ramifications on the business climate, because of trade ties and the drive towards further economic interdependence within the region. For example, Asia is the top destination for Qatari exports, but Saudi Arabia and the UAE are two of the country’s top three sources of imports.

Still, the region’s long-term economic interests should help to resolve this political crisis. There is a massive amount of coordination required among GCC countries for the World Expo 2020 in the UAE and World Cup 2022 in Qatar. Without close cooperation, the region’s most ambitious projects will be difficult to achieve. More importantly, trade potential among GCC states lies within the non-oil sector. This means that maintaining good relations will be critical as each state seeks to diversify away from dependence on natural resources exports. Moving towards a sustainable economic path, in order to create jobs and raise the standard of living, is the key to long-term security in the region. The failure to cooperate would represent a far greater threat to the region’s future than the current political crisis.

Companies should take a wait-and-see approach rather than making any immediate changes to their regional investment plans for 2014 and beyond. If the political crisis is protracted, executives should assess whether there is an impact on getting goods to their markets, operating costs, and partner relationships.

Why Algeria could unexpectedly emerge as a major FDI destination after the presidential election

Algeria’s upcoming presidential election should represent a turning point for investment. As expected, Algeria’s President Abdelaziz Bouteflika will seek a fourth term in April. He is expected to win easily. What isn’t as certain is what this means for Algeria’s investment prospects. While foreign MNCs are attracted to the country’s high public and private spending potential, tight restrictions across sectors limits FDI opportunities.

The president will be faced with a decision between two economic paths. Bouteflika could promote a continuation of protectionist policies and watch Algeria’s economy underperform its potential in his waning years. However, FSG believes it is more likely that Bouteflika, supported by his allies, will build on recent reforms to improve the investment climate and enshrine his legacy.

Bouteflika and his allies are incentivized heavily to implement reforms in order to attract FDI in the non-oil sector and bring balance to the economy. Reforms are badly needed, particularly to ease the process for FDI, as well as reduce the risk of currency volatility. The increasing presence of foreign companies would reduce the need for imports and inject more hard currency in the economy. Both developments are essential to ease pressure on the current account in the long term.

North Africa Currency Depreciations

Five Political Events that will Impact your MENA Business in 2014

My last post focused on an overlooked topic in the MENA region: business opportunity. This post covers a more popular regional theme: political risk. MNCs must prepare for how the following political events could impact their MENA business performance in order to be successful in 2014:

1.   The next round of Iran nuclear talks beginning on February 18

  • Why it matters: A deal would lead to the opening of MENA’s largest untapped market, while failed talks would shake business and consumer confidence throughout the region.
  • Political context: It is unclear whether a final deal involving Iran’s nuclear program can be reached this year. Decades of an uncoordinated international sanctions policy would be difficult to roll back even with a final agreement, particularly if the process is made into a campaign issue ahead of US congressional elections later this year. 
  • Business impact: Companies without a local presence should manage expectations regarding the pace of market entry if a final nuclear deal is reached; the sanction rollback process could take quite a long time and economic recovery will take longer. Established companies would have a head start against rapidly rising competition, but do not expect an immediate easing of restrictions on critical business activities like repatriating funds.

2.   Algeria’s presidential election, which is scheduled for April 17  

  • Why it matters: Algeria could become a major FDI destination if critical economic reforms are implemented after the election.
  • Political context: Companies should monitor whether President Abdelaziz Bouteflika announces that he will run for a fourth term. While the ruling National Liberation Front (FLN) could field another candidate who would win, Bouteflika’s absence from the election would be seen as a shakeup in the political order, leading to political uncertainty.
  • Business impact: If President Bouteflika decides to run for a fourth term, it could signify his desire to usher in a new economic era that would enshrine his legacy. Economic reforms are badly needed, particularly to ease the process for foreign investment and market entry. Some economic reforms could be aimed at encouraging local production in important sectors such as pharmaceuticals, as the government seeks to reduce its import bill and reorient spending toward local investment.

 3.   The Iraqi parliamentary election, which is scheduled for April 30

  • Why it matters: An election accompanied by significant violence would lead to another year of high business costs and frequent transportation disruptions. However, a modestly successful election could encourage stability and boost substantial business potential.
  • Political context: Politically disaffected Sunnis (and some Shiites) are not motivated to seek change through the ballot box, because they feel excluded from the political process. Low voter turnout and significant violence would further undermine political cohesion and fuel ongoing instability. On the other hand, if the federal government and Sunni tribal leaders cooperate to combat militants in the Anbar province, this could act as a building block to ease tensions ahead of the election.
  • Business impact: An election that is widely seen as a failure will lead to more violence and necessitate companies to ensure contingency plans protect staff and local partners. On the other hand, if the election is seen as a modest success, it could slow down the momentum of ongoing violence. Companies would be in a better position to establish a foothold to build market share and to expand geographically with a sustained improvement to political stability.

 4.   The expiration of the 6-year term of Lebanese President Michel Suleiman in May

  • Why it matters: A new government must be agreed upon before President Suleiman’s departure from office or a worsening security situation would hurt business locally and across the Middle East.
  • Political context: To limit instability, it is critical that a new government is formed before the expiration of President Michel Suleiman’s six-year term in May. Without a functioning government, it has been difficult for Lebanon to contain rising instability since mid-2013. Last Saturday’s car bombing in Hermel, which killed four and injured 30, is the latest example of spill over from the Syrian civil war. The deteriorating security situation cannot be improved without a new government.
  • Business impact: Companies should brace for escalating violence, especially if there is no move towards political consensus. The volatile environment will continue to undermine consumer confidence, depress foreign investment, and raise the cost of doing business. Regionally, ongoing instability contributes to rising competition in the stable GCC region. In addition, if Lebanon becomes more enveloped in the Syria conflict, it threatens to disrupt transportation across the Middle East given the integral role played by the Port of Beirut for accessing nearby markets.

 5.   The announcement of any new Saudi labor regulations during 2014

  • Why it matters: Senior executives rely heavily on the Saudi market for overall MENA growth. Tighter labor regulations could slow down business enough to threaten MENA performance targets in 2014.
  • Political context: The government could tighten labor regulations without more private sector hiring of Saudi nationals, which increased only 4.6% between 2010 and 2012. The labor market must absorb 100,000 Saudi graduates per year and the government is willing to accept short-term economic pain in exchange for a long-term rebalancing of the job market.  Official figures indicate that Saudi Arabia has deported up to 1.25 million of 9 million foreign workers since 2013.
  • Business impact: As a result of the imbalance created by the mass deportations of foreign workers, some construction firms are struggling with higher costs and worker shortages. As a result, banks must deal with an increase in late payments and non-performing loans. More stringent labor regulations would exacerbate this situation and lead to tighter credit conditions, undermining consumer spending and business activity in 2014.

Uncovering Opportunities in the Middle East and North Africa

Despite news headlines highlighting political instability in the Middle East and North Africa (MENA) region, business continues as usual. FSG estimates that only 14% of the region’s GDP, which is expected to surpass US$ 4 trillion by 2017, comes from unstable markets. With private consumption forecast to grow more than 7% in MENA and spending power nearly 50% higher in GCC markets than in Central and Eastern Europe, there are plenty of investment opportunities for foreign multinational companies.

Three market developments to watch in 2014

  1. Iraq: This is your last chance to stay ahead of competition in Iraq. Devastating violence deservedly draws media attention, but it does not preclude the emergence of significant business opportunities. Iraq has the fifth-largest oil reserves in the world and funds are already being spent on infrastructure upgrades in education, healthcare, housing, IT, and retail. Iraq is expected to have MENA’s second-largest youth population within a decade, providing future customers to consumer-oriented companies. Many companies are working with local partners to capture these opportunities, while minimizing security and operational risks. First-movers are positioned to build customer loyalty, establish relationships with key government officials, and gain market share. FSG clients should read Frontier Market Access: Iraq to learn about strategies for entering the market, finding local partners, and navigating the difficult regulatory environment.
  2. Iran: Oil analysts estimate that global crude prices could drop by up to 15% following an international agreement involving Iran’s nuclear development program. Companies should expect lower oil prices to provide some relief to oil-importing countries in North Africa and the Levant, plagued by dwindling currency reserves, and as a result, currency volatility since 2011. Sanction rollbacks will also lead to more companies assessing Iran as a frontier market. Still, senior executives should manage expectations for Iran. Even if a deal is reached, it will be complicated to undue decades of an uncoordinated sanctions policy.
  3. Saudi Arabia: The recent crackdown on illegal labor is designed to provide long-term economic benefits. And while Saudi Arabia remains the top MENA market for many companies, senior executives should plan for higher inflation, which could impact consumers and small businesses, and project delays at least through the beginning of 2014. Close to one million migrant workers left Saudi Arabia this year. Some small businesses, such as bakeries and grocery stores, were forced to close after losing workers. Costs are up for electricians, mechanics, and plumbers. Foreign companies should allocate additional resources for recruiting and developing Saudi nationals due to mounting pressure from the government. FSG clients should read the Saudi Quarterly Market Review Q3 2013 report for strategies to overcome labor challenges.

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Why a Syria strike could disrupt port traffic through Beirut

Port of BeirutThis blog post is in response to the very good analysis offered by Rebel Economy regarding how a Syria strike could impact MENA’s economy. I want to offer one counterpoint on why I don’t think the impact of a potential strike is overstated as it pertains to transportation disruptions through Lebanon.

As Rebel Economy points out, cargo traffic has increased through the Port of Beirut during the Syrian Civil War. Aside from upgrades to the port infrastructure, this is for two reasons that are related to the conflict. First, companies are re-routing regional shipments to go through Beirut (and Aqaba) rather than Latakia and Tartus, Syria’s two largest port cities, to avoid risky overland transport to other locations in the region. Second, the huge influx of Syrian refugees has supported domestic demand in Lebanon.

But a military intervention in Syria, even on a small scale, could make the Port of Beirut seem a lot riskier. I can think of a few ways that a Syria strike might lead to spillover in Lebanon: heightened communal tensions, an Israeli conflict with Hezbollah, or a new wave of Syrian refugees. Any of these scenarios could undermine Lebanese political stability, hurting the competitive advantage that the Port of Beirut has enjoyed this year. Sometimes perception is all that matters in these types of situations and some companies could be scared off rather than counting on Lebanon’s resilience.

Earlier in the year, some shipping companies considered re-routing cargo traffic through the Cape of Good Hope in South Africa in the event of MENA unrest impacting transit through Beirut, Aqaba, and the Suez Canal. While this type of major transport shift would only happen under extreme circumstances, the fact that it has been considered demonstrates that companies are wary of what a widening regional conflict could mean for their business.

Further instability would mean higher insurance rates for sea freight shipping through the MENA region. This development might force companies to pass on higher costs to customers. Senior executives should monitor how higher transportation costs indirectly impacts their businesses and the spending power of customers. For consumer-oriented companies, higher costs might encourage customers to trade down to low-cost products. For companies selling to small businesses, be mindful of changes in your customers’ access to financing in case of tighter credit conditions. For companies selling to governments, the threat of transportation disruptions could put further pressure on government finances in import-dependent economies.

Syria Intervention Impacts Your MENA Business

Syria USThere are growing indications that the US is readying for a military intervention in Syria after last week’s suspected chemical weapons attack, which killed up to 1,000 people in a rebel-held Damascus suburb. This post highlights three business challenges likely to arise from an intervention and three suggested actions for multinational companies operating in the MENA region.

Business impact:

  1. Higher Energy Prices: Anticipate a spike in oil prices that could last for days or weeks. Oil analysts are estimating that Brent Crude could exceed US$120 per barrel as a result of a military strike. In extreme circumstances, Société Générale envisions prices climbing up to US$150 per barrel in the short term. A sustained spike in energy prices could lead to increased cost of production and less discretionary income available for households.
  2. FX volatility: Higher energy prices could place significant pressure on currencies in import-dependent countries. Several countries are near 10-year lows in currency reserves (Tunisia, Morocco, Jordan, and Lebanon) and they could have trouble covering the cost of imports during a sustained conflict. Currency depreciation is possible as reserves run low, putting further pressure on imports.
  3. Supply-chain disruptions: It is unlikely that military intervention will impact supply chain through key ports in the GCC or cargo traffic through the Suez Canal. However, even the threat of disruptions to shipping routes through Lebanon’s Port of Beirut could increase insurance rates and lengthen travel times for goods destined for other parts of the Levant, Eastern Mediterranean, Iraq, and Europe.

Suggested actions:

  1. Lend dollars to top customers and partners: In MENA countries that are impacted by Syrian spillover, provide liquidity to partners and customers to help them maintain local operations in case of a liquidity crisis. Lending can be used to build loyalty and extract concessions.
  2. Educate your team on the impact of FX volatility: Factor currency depreciation into next year’s strategic plans for import-dependent countries that are vulnerable to commodity price shocks. Use our quarterly report on FX volatility to align your team and adjust your strategy.
  3. Anticipate higher transportation costs:  Hold inventories in several locations to ensure goods can reach customers. Protect your staff and products by identifying secure facilities away from areas that could be targeted in the event of spillover from the Syrian conflict.

Royal Succession Planning at Saudi, Inc.

Qatar’s royal succession puts Saudi Arabia’s unresolved leadership question back into the spotlight. While it is unlikely the next king will alter Saudi Arabia’s path, it is important for companies to be prepared given the prominence of the market in their portfolio.

A survey conducted last year revealed that FSG clients count on Saudi Arabia to deliver sales growth rates than are more than double the overall average in the Middle East and Africa region. In addition, Saudi Arabia is forecast to receive 60% of FDI directed to the GCC by 2014, indicating a heavy reliance on the Saudi market among foreign investors.

Saudi Arabia v MEA and GCC

While a smooth transition is more likely than a botched one, the lack of political certainty will keep senior executives up at night. To understand why a smooth transition is important to business, consider how the king’s role has evolved during the past several decades. King Abdullah is essentially the CEO of one of the largest corporations in the world.

Four ways the king manages Saudi Arabia, Inc.

  1. Messaging to the board: The Saudi state’s legitimacy is built on support from religious conservatives, and the king must ensure they are satisfied with the direction of the country
  2. Keeping employees motivated: The king manages royal family rivalries by appointing new princes to positions of importance. Princes are motivated to remain loyal based on the prospect of increasing power that is laid out by this policy. The king also allocates generous allowances to more than 25,000 royal family members in exchange for support
  3. Setting the corporate vision / strategy: King Abdullah’s cautious reform agenda is slowly improving the investment climate and aims to promote sustainable growth. While the king cannot control all of the implementation, his vision plays a key role in the shaping the direction of the kingdom
  4. Portfolio Management: As part of the king’s power to set a strategic agenda, he sets the tone for which sectors and sub-regions benefit the most from public spending

Just as corporate entities are vulnerable to a lack of clear succession planning, so is Saudi Arabia Inc. King Abdullah has done much to alleviate these concern in recent years, positioning young princes in key ministerial and gubernatorial posts, and ensuring the princes that are next in the line roughly share his vision for the country. Still, doubts will likely persist until Saudi Arabia is able to successfully move to the next generation of leaders.

In preparation for changes in Saudi Arabia, companies can take actions now to protect their business:

  1. Establish and maintain government contacts on multiple levels: ministerial, regional, and municipal. This will promote cohesive relationships during a leadership transition
  2. Extend receivables for key customers and buy long-dated oil futures if you are concerned about a sustained disruption to the business landscape
  3. Do not alter or reduce investment plans in Saudi Arabia, particularly in social sectors like education and healthcare
  4. Communicate to corporate that you have a plan in the event of a royal succession