Within days of the popular uprising that resulted in the ouster of Tunisia's President Zine el-Abidine Ben Ali, attention shifted to Egypt's future. And heads of private equity firms with sizable investments in the Arab world's most populous country, such as Abraaj CEO Arif Naqvi, were pressed for their opinion on what to do next.

Though raucous crowds had not yet filled Cairo's Tahrir Square to call for the end to the long-serving regime of Hosni Mubarak, Naqvi's immediate concern centered on who would lead Egypt next. "People are more worried about the transition and succession, rather than the fundamental issues that affect the economy," he said.

"Egypt has gone from being the breadbasket of the region to one that has systemic problems in agriculture. Its industry has not found its niche, and unemployment is still an issue, but at least I see a government that is willing to engage with the private sector."

Naqvi was among a panel of corporate leaders at the annual Global Competitiveness Forum in Riyadh, Saudi Arabia, convened to discuss the recovery of capital markets in the region. Instead, they found themselves debating the questions before foreign investors in the wake of civil unrest in North Africa: What role can capital investment play in addressing the economic tensions behind the unrest, and what solutions exist for the Arab world's unemployed?

"We have to stop and think why are these protests taking place," Naqvi said, citing figures of the region's high unemployment rates and burgeoning youth demographics. "What it means is that people are not inherently unhappy … they are in need of opportunities."

One region, but many differences

Naqvi and his fellow panelists noted that although the North Africa Middle East (MENA) region was a collection of Arab countries, each was different in its approach to economics, politics and social policies and faced different risks.

Unlike their North African counterparts, most Gulf countries were not subject to the same political pressures, said Saeb Eigner, founder and CEO of London-based financial services firm Lonworld, and a Governor of the London Business School.

"Saudi Arabia has its own case of legitimacy in its government and its leadership, whereas in North Africa there is less of that sustainability of regimes and heirs," Eigner said. "It's a totally different structure, and you can't say what happened in Tunisia is going to happen in the Gulf. The Tunisian president came to power 23 years ago on the basis of being in power for two years. It was a very long two years. But here, there are different issues, and the House of Saud has legitimacy. You can't paint them all with the same brush, even if they are all in the same region."

As Egypt aggressively pursued a policy of economic liberalization during the past five years, Naqvi explained his Dubai-based firm had securely invested billions in the country, profited, and remained bullish about its prospects. "Egypt's problems are quite different [from Tunisia]," he said. "Egypt is a very stable place for foreign investment. Jobs are being created, it is a reform-oriented government, and they are focused on bringing business in on a level playing field with local businesses."

If there was a lesson for any Arab country that watched Tunisia's civil unrest with concern, it was that economic gains in the region had to be more widespread among its people, said John Fraser, Chairman and CEO for UBS Global Asset Management. "It's not a very popular message at the moment, but globalization's message is a simple one: It's that everybody has the potential to benefit from freer trade, and freer investment, but that doesn't guarantee those benefits will trickle down immediately," he said.

"There are countless examples around the world where they don't trickle down immediately enough, but there are also examples of when people do the right thing — freer trade, freer investment, and getting inflation under control — that ultimately it provides for the best protection for those who are waiting for the benefits to trickle down," Fraser added. "I believe that keeping inflation under control is the best protection for those on the lower end of the economic scale."

Role for interregional investment

Capital inflows can help, but one problem, from the perspective of foreign investors, lies in the differences between countries in the region, according to Ulf Henriksson, CEO of London-based Invensys, an industrial software and systems control company.

"The reason why the MENA region is not up there with the other countries of the BRIC group is because it is extremely heterogeneous," Henriksson said. "The greatest similarity may be language, but even then, it changes. It is highly heterogeneous at a political level. At an economic level, you have large countries that are relatively poor, with very low per-capita incomes, and you have small countries that are very affluent. Doing business in a consistent way is very difficult."

Inter-regional investment has a role to play in addressing these concerns, but that has to be accompanied by economic reforms and regional policy changes, panelists said. For instance, the wealthier Gulf countries need to invest more into North African countries, Eigner said, but there have to be set standards for investors.

"These points have been prevalent for 50 years, it's nothing new," Eigner said. "This region has one of the lowest [regional trade] rates in the world. The key thing is how you get labor and capital to migrate freely between countries. You've got North Africa, which predominately has large populations, and well-educated populations. In other parts of the region, huge amounts of capital need a labor force. All these countries have to look at themselves and ask, do they provide the right environment for inward investment?"

"In the Gulf region, they have accelerated the rate of development, and become much faster developers than the rest of the region, which is not what one thinks of the Gulf," Eigner continued. "What they've done in a relatively short period of time has been tremendous, compared to the other countries which are much longer-standing as investment places. I think they have to push some others to reform, by working to invest in their countries, and set the terms by which we will be willing to invest in Tunisia, Morocco or Egypt."

The recent trend of Gulf governments to invest in infrastructure — Qatar and Saudi Arabia have launched multi-billion dollar plans for spending on institutions, social resources and transportation — was one possible way that economic development could spread, Naqvi reasoned..

"We define infrastructure differently here, it is money that is spent on getting a country or region to its next level of development," Naqvi said. "There is money being spent by governments and the private sector. The real determinant of inter-Arab flow until the hot money flows in — and let's remember it was the hot money that caused the collapse here — is that it will be driven by sovereign wealth funds, and the realization that investing the infrastructure of your neighbors will be beneficial for the Gulf economy as well."

Governments in the region, Eigner said, will have to re-think how they view the use of technology, in view of the recent experience in Tunisia. "Young people have embraced technology and have invariably embraced it for positive and good," he said. "We keep thinking about it with a negative connotation, but there also is a positive side. They seem to culturally understand right from wrong, and we always think the Internet and information has a dangerous element. I think the youth, because they are better educated, are mature enough to make these distinctions."

Similarly, policies that encourage investment, entrepreneurship, and development will need to be re-thought, Naqvi added. "Egypt is not alone," he said. "Governments in this region [should] focus on the business of governance, and not on the business of management. We still have a tendency in this region of governments running large corporations because they provide employment. In our part of the world, the growing focus should be on privatization. We need to start focusing on innovation, we need to start evolving our thinking and our education processes towards the needs of the region."