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The Arab Spring: Part II

March 5, 2012: 5:00 AM ET

One year after the uprisings in the Arab world, some nations in the region say they're open for business. Foreign investors will need to learn a whole new set of rules.

By Vivienne Walt, contributor

Construction remains halted at this office park in Cairo.

Construction remains halted at this office park in Cairo.

FORTUNE -- If you want to gauge the Arab Spring's economic health one year after revolutions exploded in Tunisia, Egypt, and Libya, meet Abu-Bakr Makhlouf. Last February, Makhlouf, founder of a construction supply company in Cairo, stood in a packed Tahrir Square, bundled in a heavy coat for the nightlong protests. "I paid my staff and told them to go join the revolution," he told me, days before President Mubarak fled the capital. "There is no turning back," he said. "We have nothing else to lose."

Or so he thought. Makhlouf, 33, had plowed his savings into his startup in 2010 and begun supplying materials to Egypt's booming construction industry. Then, over the next 12 months, his six employees sat idle, waiting for customers. None came. On the anniversary of Mubarak's downfall, Makhlouf finally closed shop. "I ran out of cash," he said.

The same can be said for countless others. Egypt, the region's powerhouse, might have run out of cash itself without a $3.2 billion IMF loan. Investors and tourists are waiting out the upheaval. Likewise in Tunisia, where resorts have sat empty in the dazzling sunlight. And although Libya pumped 1.3 million barrels of oil in January -- close to its pre-revolution output -- most foreign investors will stay away as long as militia groups fight lethal turf battles.

Turmoil is just one problem. After decades of fossilized, state-dominated economies, the Arab Spring now needs an economic revolution. Urgent tasks include streamlining confounding red tape and overhauling thousands of nonsensical trade rules across the region. One example: A truck traveling from Saudi Arabia to Syria is obligated to return empty. For years, multinationals simply accepted the unproductive and hugely corrupt business practices, focusing on the rich potential of a region in which 60% of the 350 million people are under 25. Besides, the system seemed predictable. "It's sad to say, but everywhere you have dictators, you have more chance for stability," says Riccardo Carradori, regional platform manager for the French credit-risk company Coface.

No longer. With their relationships in North Africa gone, corporations will face stiffer competition once economies open, including from local investors previously shut out of lucrative contracts. The Islamic parties now dominating Tunisia and Egypt have proclaimed business-friendly goals, with plans to invest heavily in new infrastructure and housing. Yet investors will need to think beyond profits. "Big businesses need a new rhetoric," says Adeel Malik of Oxford's Center for Islamic Studies. "They will have to talk about jobs and developing small enterprises."

In Cairo, Makhlouf is already plotting a new real estate venture in readiness for an influx of investors. Meanwhile, he is opening a consulting office -- not in Egypt but thousands of miles from the Arab Spring, in Ghana.

This article is from the March 19, 2012 issue of Fortune.

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