Stretching from Morocco to Oman, MENA’s population tops 350 million, making it the world’s ninth largest market. But trade barriers among countries in the region have constrained market growth.

Now, an emerging trend is disrupting MENA’s traditional market patterns: a growing segment of urbanized, tech-savvy Arab youths is devouring on-line entertainment, gaming and social media, creating demand for digital services that are delivered across borders.

Despite differences among the region’s nations, its shared language and culture gives rise to a homogenous market that spans the breadth of the Arab world. With over 100 million people between the ages of 15 and 29, many of whom are economically active, the promise of the Arab digital market is sparking the interest of investors and entrepreneurs.

The popularity of social media in the region was highlighted during the recent Arab uprisings. The news was dominated by stories about how social media was used to mobilize demonstrators, but, in fact, MENA’s youths have been consuming a wide array of digital media.

The precursor to MENA’s digital sector is the successful Arab satellite TV industry — dominated by Qatari-owned Al-Jazeera and Saudi-backed Al-Arabiya. In the last decade, Arab-based TV has matured and expanded, delivering content through several outlets, including the Internet, to audiences around the world.

Like its satellite TV analog, the Arab digital market’s fundamentals are strong. In addition to its positive demographics, mentioned above, MENA’s internet usage has already reached 187 million from 10 million only a decade ago (source: TNS MENA). Mobile broadband penetration is rising quickly due to the adoption of LTE standards in the UAE and Saudi Arabia, and an explosion of smartphones and tablets.

As with any emerging sector, there are challenges. Monetizing digital media relies mostly on advertising, which has been undervalued in the region. Whether some type of pay model could work in the future is an open question.

MENA 2.0 is still in its infancy, but major international players have already arrived including Yahoo!, which bought Maktoob, a Jordanian portal; Google, which launched in the UAE, Egypt and Saudi Arabia; and Livingsocial, which acquired Dubai-based GoNabit.

One of the more intriguing features of the Arab digital market is the brisk pace of innovative ideas bubbling up from local platform, app, and content developers. For investors and entrepreneurs, the medium to long-term prospects look bright.

MENA 2.0 could transform the region, creating new business opportunities, youth employment and economic growth. It’s an exciting space to watch, and one that’s worth a closer look by anyone interested in what’s coming next.

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Notes:

MENA refers to the following countries in the Middle East and North Africa: Algeria, Bahrain, Egypt, Iraq, Jordan, KSA, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Sudan, Syria, Tunisia, UAE and Yemen.

Regional macroeconomic data from the IMF’s World Economic Outlook report and the World Bank’s MENA resources.

Want more info on this subject?

Arab Net, a conference for MENA’s digital services sector. More on Arab Net from All Things D.

Vali Nasr’s ’09 book, Forces of Fortune – The Rise of the New Muslim Middle Class and What It Will Mean for Our World.

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Despite the shaky underpinnings and dire economic climate, the U.S. still ranks ahead of the other nations in competitiveness, though economists see thorny challenges ahead.  On the plus side, the U.S. still brings a lot in the area of production potential, well-functioning labor markets, sophisticated businesses, academic leadership and technological innovation.  

While these are sustainable virtues, the U.S. has its work cut out to stay on top as other countries take steps to improve their competitiveness (see Fareed Zakaria’s seminal The Post American World).  Globalization is leading to the “Rise of the Rest”. This pattern has been evident to anyone involved in business dealings across markets over the last decade.   

The report had few surprises. A notable exception is that the UK slipped (from 9th last year to 12th) due to its heavy reliance on a flagging financial services sector. 

Singapore, the Scandinavian nations and Switzerland have been perennial leaders for several years. And it isn’t surprising that the Gulf nations are on the rise due to worldwide demand for hydrocarbons coupled with concerted economic reforms.

Fiinally, some sub-Saharan nations are making headway though, as a region, it still lags behind.  These economies have had 5-6% annual growth rates and relatively low inflation in recent years.  But their infrastrusctures are fragile and they may be hit hard by a global slowdown.    

The WEF report is a lagging indicator of the strengths and weaknesses of global economies.  For example, it doesn’t take into account the prospects of a global slowdown which reduces the demand for resources. 

The take away is that governments play a substantial role in shaping a nation’s long-term capacity to compete in an increasingly global and crowded world.  Good governance rules.

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