MNCs and the Arab Spring
In recent years, the Middle East and North Africa (MENA) have experienced a series of protests and social upheavals,beginning in Tunisia, spreading across the region, and toppling some of the long-standing Middle Eastern governments. Known as the Arab Spring, the social upheavals ended Gaddafi’s reign in Libya, with events after the beginning of the unrest consequently causing his death. Yemeni, Tunisian, and Egyptian strongmen all relinquished their grip on power following the upheavals (Mellahi, Demirbag, & Riddle, 2010). While there exist political, social, and economic concerns following the upheavals, the effects are real for multinational corporations (MNCs) operating in the region. The effects not only concern the level and mode of operation in the turbulent region, but also the risk the companies are exposed to in their operations.
The outbreak of the social unrest in the MENA countries strained MNCs’ operations in the countries. Among the immediate effects on MNCs was the absence of credit from banks and other lending institutions. Haider (2011) asserts that due to the unrest, banks reduced their trade finance limits in addition to restricting cross-border trade flows. Such a situation meant that the MNCs could not access financing from the local market, and therefore, had to rely on international markets for operation funds. With the continued unrest, MNCs also had to deal with shorter repayment cycles not only from banks, but from suppliers as well. According to Haider (2011), while the relative calm period before the unrest allowed wider payment dates of up to a year, the unrest changed the situation, with suppliers demanding payment almost immediately. Such situations can be especially tricky for MNCs with limited cash flows for operations.
While financial crunch and shorter payment cycles are actual challenges that MNCs had to deal with during the Arab Spring, the most detrimentaleffect of an unrest is of a much serious nature.With a deep seated anger over western MNCs and their governments, there are chances of the locals boycotting their products, as well as developing an animosity towards the MNCs and their spread of western consumerism values (Mellahi et al., 2010). Compromising of security is also one of the most probable effects of such an unrest. While most governments provide additional security to MNC expatriates and property during such upheavals, it is never a guarantee that such measures keep protestors away from the MNCs. Abdelhafez (2013) alludes that during the 2011 unrest in Egypt, security was one of the major concerns of the MNCs, and while it did not cause any scale back in investment, most MNC personnel remained on high alert.
Potentially, however, government paralysis is among the effects of the upheavals for MNCs. According to Abdelhafez (2013), “government paralysis” is the wariness of government officials in taking a stance on major decisions in addition to following through on decisions already made. Part of the manifestation of such paralysis was evident in Egypt where there were particularly prolonged product approvals (Abdelhafez, 2013). The effect of the paralysis is grave for MNCs, especially for those manufacturing products that require shorter manufacturing to market time-frames. The prolonged product approval processes have the potential of increasing costs for the MNCs in addition to being potential sources of losses for seasonal products, for instance, in the fashion industry.
While conflict and social upheavals have a direct effect on the operations of MNCs, they also expose the same corporation to various risks. The international status of expatriates and sometimes the economic status of the executives and the MNCs put the executives at risk of kidnapping and extortion (Alexander, 2013). MNC executives and their families become prime targets of extremist groups and factions in the MENA countries. Such executives become leverage for the different factions in addition to becoming victims of extortion. Perhaps, the greatest risk for MNCs operating in MENA countries after the outbreak of the Arab Spring was the loss of all their investments in the country. Golberg and Mugga (2016) argue that while a “positive business case” is fundamental for investment in a fragile, conflict-prone environment, there is a sure risk of losing all the investments in a country/region. Banham (2016) concurs with the assessment, arguing that the presence of MNC executivesmakes it easy for the extremists and governments to expropriate assets, manipulate currency, as well as repudiate contracts. Moreover, Banham (2016) argues that this causes an increased threat to personnel security.
Besides the risk of losing all their investments, MNCs also risk non-payment for goods or services already rendered. Banham (2016) argues that conflict, unrest, and upheavals as experienced in MENA countries, adversely affect the economy of the countries, which, in turn, affects the timing of anticipated payments. MNCs, according to Banham (2016), therefore, have to deal with the single risk of whether they would be paid or not. Most MENA countries continue to score favorably in the wake of the Arab Spring. Fitch rating puts countries such as Egypt, Tunisia, and Saudi Arabia at B, B+, and A+ respectively, with a stable outlook. The Arab Spring has proved a trying period for investments in the region, particularly for MNCs. However, with political, social, and economic reforms, the region is continually stabilizing, thus reclaiming the reputation of a safe haven for investments and operations by MNCs.
Abdelhafez, R. (2013). Egypt: Weathering the storm. Resilience: A Journal of Strategy and Risk.
Alexander, D. (2013). Threats and opportunities of doing business in conflict zones. Security.
Banham, R. (2016). The risk and opportunities of doing business in the Middle East. RIMS Executive Report. Retrieved from https://www.rims.org/RiskKnowledge/RISKKnowledgeDocs/2015-MENA-Risks-and-Opps_2222016_85647.pdf.
Golberg, E. &Muggah, R. (2016). 6 lessons from companies operating in war-torn communities. World Economic Forum. Retrieved from https://www.weforum.org/agenda/2016/03/6-lessons-from-companies-operating-in-war-torn-communities/.
Haider, F. (2011). The impact of the Arab Spring on MENA’s trade flows. Global Treasury Intelligence. Retrieved from https://www.gtnews.com/articles/the-impact-of-the-arab-spring-on-menas-trade-flows/.
Mellahi, K., Demirbag, M., & Riddle, L. (2010). Multinationals in the Middle East: Challenges and opportunities. Journal of World Business, 462, 1-5.