This article has been reposted from Knowledge@Wharton.

To anyone who has done business in the Middle East and North Africa (MENA) region, it is obvious that treating the region as a single bloc rather than a collection of very different countries is a big mistake. Neglecting to understand regional and local politics and the role they might play in enterprise and investment can be very damaging, said a number of prominent Arab business figures attending the third annual Wharton MENA conference in Philadelphia, organized by the MENA Club at Wharton earlier this year.

“The experience in the Middle East when you have to deal with the government is completely different than if you are opening a Chevy dealership or a fast-food franchise,” said Nassef Sawiris, Egypt’s richest man and CEO of OCI N.V., a global construction and fuel production conglomerate. “If you can avoid dealing with the government, then you will have an easier business model,” he noted. “The Middle East is not a transparent place. You have a lot of people whispering in officials’ ears with poor advice.”

During the one-day conference, Sawiris and his colleagues sought to provide insider insight into the region, and help Western audiences move past stereotypes of the Arab World. Wharton senior fellow Stephen Sammut, a partner at San Francisco-based life sciences venture capital firm Burrill & Co., and a panel moderator at the conference, said this was important advice.

“These are societies that are on the move, and they are interested in the same consumer goods that we are [in the West],” Sammut noted. “They want to do commerce, and they have the same aspirations that everyone does; that is, they want a great future for their children. They are moving from one period of history to another, and that is a great opportunity for them and for American companies and the American people to forge new relationships.”

Many international investors are swayed by headlines, said Minoush Abdel-Meguid, managing director and co-founder of Cairo-based Union Capital Partners. “Exits are much more difficult because of the political turbulence in the region, and it affects the performance of the stock market,” she noted. “Even companies that are perfectly IPO-able find it a challenge.”

But those investors miss out on opportunities in the region, because they don’t understand whether local politics will actually impact investment risk, said Hossam Radwan, a partner in Dubai-based private equity firm Abraaj Group. “We’ve been through the political instabilities,” he said. “We’ve had investments in Egypt, and they did exactly what they were supposed to do, regardless of who was in charge. It all goes back to the risks you take in the region.”

Generational differences

Diving into regional data for insight was Joe Saddi, senior vice president and Middle East managing director for Booz & Co., who told the audience that Arab attitudes and customer behavior are now split along generational lines. There are three generations in the Arab world, he noted: the oldest, which relished independence after World War II and embraced Pan-Arabism; the next generation, molded by the vast oil fortunes that bloomed in the Gulf in the 1970s, and the youngest, a digital generation in sync with globalization rather than regionalism or nationalism.

Each group has particular characteristics, Saddi said: Younger Arabs are much less satisfied with education in the region than their elders, and are more comfortable networking and communicating via digital means. Such shifts are creating opportunities, he noted, the biggest being a need to realign advertising spends in the region, where 32% of overall ad budgets are still spent on magazines and newspapers, and only 10% on social media and online ads.

Saddi was among the first of many speakers and panelists at the conference to question Arab governments’ ongoing reliance on providing subsidized public utilities — energy subsidies alone cost MENA governments $237 billion USD in 2011, according to the International Monetary Fund. “As long as people don’t understand the cost of what they are getting under subsidies, it is immaterial,” Saddi said. “It’s time to start showing the real cost of gasoline, power, and water.”

Particularly in the Gulf, the concern that has pushed countries to seek renewable energy solutions is not about production, according to Shafiq Ali, group head of principal investments at Gulf Investment Corporation. “Demand is running wild, because power and water are practically given away,” he said.

But detangling the usage of subsidies belies a more complicated issue for Arab governments in the wake of the populist uprisings that swept through the region in 2011, said Adel Iskandar, a lecturer at Georgetown University whose research focuses on Middle Eastern media and communication. “Citizenship [in the Arab World] is being revisited in a very fundamental way,” he noted. “Are you subject to or provided for by the government as a patron?”

Aaron Reese, deputy research director at the D.C.-based Institute for the Study of War, said that populations living in Arab countries are trying to figure out where to place their allegiance. They are seeking answers to the question: “Can I get what I want through the existing political structure?” Reese stated.

Part of the answer to that question is creating alternatives to subsidies, noted Moustafa Murad, president of One Global Economy, an international community development firm. “There is a mindset that the government will provide, but governments are running out of money and can’t fulfill those promises,” he said. “We need to build the capacity of civil society to assume government responsibilities, including providing goods and services, especially to the poor.”

Reduced government role

Less government influence is also needed in the business sector, according to Saad Al Barrak, the former CEO of Zain Group, the Kuwaiti mobile telecommunication company. “The role of the state in the economy is very much unbalanced,” he said. “In Kuwait, there is constant talk about free enterprise, yet the state owns 90% of the sources of production in the country.”

In his stint with Zain, Al Barrak said, he spent most of his time speaking to government regulators. In the Arab telecommunications industry, he added, state influence is unlikely to wane because of the events of the Arab Spring. “All big telecoms are controlled by government companies, because they are scared of any information leaking out. So they want to make sure they can close any hole.”

That has become one of the region’s emerging challenges, speakers at the conference said. Saddi noted that concerns about censorship is one of the issues that has garnered consensus among all age groups in the region, while Iskandar pointed out that the sentiment that drove the Arab Spring has not disappeared, which is why governments there now perceive social media as a threat: “Many countries in the region are accustomed to limiting opportunities for personal expression. This generation is no longer prepared to accept that.”

That desire for change is being expressed in ways other than violent protest, noted Reem Asaad, a Saudi Arabian financial advisor whose Facebook campaign pushed her country to allow women to work in lingerie stores, which previously were staffed only by men.

Asaad, who wrote the foreword for the recently published Knowledge@Wharton e-book Arab Women Rising, said there was no turning back the institutional changes taking place, even in her country. “I would like to see my daughter grow up in a healthier economy,” she stated. “I don’t want to wait another 20 years.”

Asaad acknowledged that in Saudi Arabia, the resistance to change was enormous, but women felt there was support from the leadership of current ruler King Abdullah. “A lot of obstacles remain, but at least the world knows which side the government is on,” she said.

“We are in an age of transformation,” Asaad concluded. “Independence brings power. We are optimistic.”