Dr. Mohamed A. Ramady
Publication Date: 
Mon, 2006-11-27 03:00

The alarm bells are beginning to ring louder of the consequences of unchecked economic growth on the world’s fragile environment. The matter is no longer an esoteric debate amongst academics, but is taken up seriously by politicians in many countries. How this debate progresses, and what concrete measures are adopted to reverse back some of the effects of climate change, will profoundly affect the future viability of Gulf businesses.

For Saudi Arabian public and private sector businesses, this means one of the most important challenges facing their decision makers is that of keeping up on top of world technology events, and environmental management trends. Gone will be the days of pursuing bottom line profit in isolation to external pressures. A Saudi company’s response to changing patterns of behavior, world wide environmental policies and current commercial development in their field will, in the future, make the crucial difference between success and failure.

For most Gulf businessmen, past history sometimes teaches them absolutely nothing about the future, especially when new considerations such as environmental externalities are now at play. They understand the relationships between higher oil prices, increased government expenditures, rise in consumer demand and a higher “feel-good” factor that then drives the local investment plan. The opposite happens when recessions and downturns occur, sometimes driven by regional events and sometimes due to global economic uncertainties. This might not necessarily be the case in the future. Economic cycles might become more influenced by and affected to a larger degree on the environmental measures and investments that need to be made to remain competitive and meet global environmental standards.

The implications for business in the Gulf, which are basing their future expansion on hydrocarbon resources, can be massive. Some businesses might put off any decisions to invest in environmental friendly technology, arguing that business will take care of itself as part of the natural evolution of business. Those that do this, and sweep matters under the carpet, will do so at their peril, for long term trends, if left unaddressed, have a nasty habit of coming back to haunt you.

What is the rush then? Even the most insular of Gulf businessmen will not have missed the recent news of the melting of the polar ice-caps and which is accelerating at an alarming rate. Some might argue that the problem is far away, and does not affect us in the Gulf and that the consumer in the region, like consumers worldwide, are generally selfish, buy on price and are generally not prepared to pay an extra amount for protecting the environment. If this mentality persists, then the adverse effect of global warning will not become apparent to most businesses or consumers, until it is too late for effective change. The consequences for businesses, as part of reinforced global treaties to protect the environment, are that solutions will be imposed.

Many economists tend to argue that the big constraint on the future of economic development was the finite size of energy reserves. This prompted a rush for new reserve exploration at all costs, but the pressure is now to find carbon-free energy even before known reserves run dry. As such, private and public sector businesses in the Gulf will be forced to change their way of doing business, and to come to terms with this new urgency over the next decade or so.

Some enterprising businesses around the world have shown that environmental sustainability need not come at the expense of their bottom line profits. Their change of heart, from being ruthlessly competitive and profit-minded as anyone else, to model ecology friendly citizens, was due to the simple realization that they had to adapt or perish in the long run. One of the most famous cases was in the environmentally “dirty” carpet business, and the transformation of one company in that sector, Interface. The company chairman, Ray Anderson, had a change of heart and decided to do “his bit” for an environment friendly world. Interface looked to nature for designs that sought to please aesthetically, while also cutting back on waste material. Engineers were encouraged to cut down on energy use and some solutions were very simple. An engineer in Shanghai saved Interface money by changing the width of the pipes used to carry the liquids making the carpets. The results were astonishing in terms of energy saved — the bigger pipes created less friction, so less power was needed to pump the liquids.

The moral is simple — each Gulf business needs to re-examine the manner by which it is currently operating to reduce environmental waste. This can be done voluntarily, and so create proud legacies for future generations, or it can be imposed by law, to the cost of such businesses when they are least prepared in the future.

Saudi Aramco, and Saudi Basic Industries Corp. (SABIC) are taking the correct steps in this direction, with more resources allocated for environmental management and controls. The score sheet for the other industries is mixed. The choice is theirs, but the world trend is clear. You have been warned.

(Dr. Mohamed A. Ramady is visiting associate professor of finance and economics at King Fahd University of Petroleum and Minerals, Dhahran.)

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