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Cautious approach can breed risk management success in Middle East ventures

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Some countries in the Middle East and North Africa such as Saudi Arabia are seeing more stability than others, according to a report published by the Risk & Insurance Management Society Inc.

Companies that can identify, manage and mitigate the significant risks involved in doing business in these regions can benefit financially, according to “The Risks and Opportunities of Doing Business in the Middle East” report, issued Monday.

In a region where the recent migration of millions of people and declining oil prices have only added to the challenges of living in ongoing violence from civil wars, clashes between Israelis and Palestinians and terrorist groups, risk experts say businesses can still find market opportunities.

Internet usage in the Middle East has increased by more than 2,500% in the past decade, according to the report. Saudi Arabia is now the world's largest consumer of YouTube videos, and the area has 19% more mobile phones owned than the world's average, according to Nielson's Internet Usage and World Population Statistics report, published in November.

Also bringing opportunity to the region is the lifting of the U.S. economic sanctions against Iraq. This event is expected to bring a 4% growth in the nation's economy, a recent Business Monitor International Ltd. research report said.

Those changes, along with the significant increase in the population of young people in Iran and Egypt, bring the potential for profits in industries such as mobile communications, data analytics and information technology. But in order to achieve success in the Middle East, a company needs to first look at the risks, the RIMS report said.

Organizations interested in business opportunities in the Middle East and North Africa need to be aware of the changing risks of that volatile region. Working with trustworthy personnel in the area is one way to do that, risk experts say.

Two of the largest risks will be geopolitical and macroeconomic, but “there are ways of mitigating their impact,” said Sorana Parvulescu, director of political risk at Control Risks Group Ltd., a strategic risk consulting firm in the report.

One of the risks of doing business in the Middle East is the abundance of corruption of public officials; engaging with these foreigners can bring reputational damage to a business across the world, the report said.

Political risk insurance can help in some situations such as business-related losses from war, but a company should be proactive and monitor the environment by developing working relationships with people that are located in the area.

In order to mitigate risk, it is critical for any organization doing business in the Middle East and North Africa to have a human presence located in the region, whether it's their own employees or a business partner that is trustworthy and understands the area, the report said.

Cultural differences also need to be understood and respected, a dispute resolution and negotiations expert said in the report. Westerners tend to hurry negotiating, and it takes time for other cultures to build the trust they want first before closing a deal, she said.

It is a good idea to have a local business as a partner, according to the report. Someone that understands the dynamics of the region can prove to be an asset, but experts recommend getting the potential partner to submit a background check and show their business books first. Risk experts also suggest starting slow and having the first deal be small to see how the other party does business.