An Arab Development Bank: Institutionalising Change in Middle East

Auto­crat­ic regimes and pro-democ­ra­cy pro­test­ers in the Mid­dle East and North Africa agree on the need for sus­tain­able eco­nom­ic growth and inte­gra­tion into a glob­alised world. To achieve that, the region needs an Arab Devel­op­ment Bank like the devel­op­ment engines in Asia, Africa and Latin Amer­i­ca.


TEN MONTHS into a wave of pop­u­lar protests that are reorder­ing the Mid­dle East and North Africa, the inter­na­tion­al com­mu­ni­ty has yet to for­mu­late a coher­ent, region-wide response to the shap­ing of the new real­i­ties that have buried long-stand­ing assump­tions and cer­tain­ties. With the over­throw of three auto­crat­ic lead­ers in Tunisia, Egypt and Libya this year and the embat­tled pres­i­dents of Syr­ia and Yemen tee­ter­ing on the brink of demise, almost every oth­er coun­try in the region has been swept along by the tidal wave of protests.

For­eign pow­ers – the Unit­ed States, Europe, Chi­na and Rus­sia – have respond­ed ad hoc to the suc­ces­sion of crises rather than view­ing them as a groundswell of demand for change that will shape the region’s polit­i­cal map for a decade to come.

To be sure, the world’s pow­ers have dif­fer­ent per­spec­tives on the pop­u­lar push for greater free­dom and more eco­nom­ic oppor­tu­ni­ty. More­over, the sit­u­a­tion dif­fers from coun­try to coun­try. Nonethe­less, if there is one thing all, includ­ing the pro­test­ers, agree on, it is the need for devel­op­ment that pro­motes sus­tain­able eco­nom­ic growth, cre­ates jobs for the region’s huge youth bulge, strength­ens the pri­vate sec­tor and par­tic­u­lar­ly small and medi­um enter­pris­es, and inte­grates the region into an increas­ing­ly glob­alised world.

A region­al engine for devel­op­ment

To do so, the region needs an Arab Devel­op­ment Bank much like the engines of growth in Asia, Africa and Latin Amer­i­ca that func­tion as coor­di­nat­ing oper­a­tion cen­tres and knowl­edge hubs. Cre­ation of such an insti­tu­tion may be one of the few things that all par­ties – world pow­ers with mutu­al­ly exclu­sive agen­das, embat­tled Arab lead­ers and emerg­ing post-revolt gov­ern­ments – can agree on.

The region has the nec­es­sary build­ing blocks: fund­ing from the oil-rich Gulf states, a pool of indige­nous tal­ent and insti­tu­tion­al mod­els like the Asian Devel­op­ment Bank (ADB), the Euro­pean Bank for Recon­struc­tion and Devel­op­ment (EBRD) and the Inter­na­tion­al Finance Cor­po­ra­tion (IFC).

Coop­er­a­tion in the cre­ation of an Arab Devel­op­ment Bank could help shift the basis on which world pow­ers seek to find com­mon ground on ways to halt the blood­shed in coun­tries like Syr­ia and Yemen and respond to the like­ly erup­tion of vio­lence else­where in the region as the pop­u­lar revolts spread.

Fuelling the pop­u­lar revolts is the fact that two thirds of the Arab world’s 300 mil­lion peo­ple are under the age of 29 in a region with an aver­age youth unem­ploy­ment rate of 40 per cent. Accord­ing to the World Bank, Arab nations need to cre­ate some 100 mil­lion jobs in the next eight years. How­ev­er Arab gov­ern­ments have not demon­strat­ed vision or lead­er­ship to tack­le the prob­lem let alone dis­played cre­ativ­i­ty and inno­va­tion in devis­ing their poli­cies.

A devel­op­ment bank to seek solu­tions

Cre­at­ing an Arab Devel­op­ment Bank would help to break the log jam and cre­ate a basis for tack­ling the most press­ing prob­lem in the Mid­dle East and North Africa. It would pro­vide a vehi­cle for Arab gov­ern­ments to seek solu­tions and pro­vide a frame­work for nec­es­sary reform, for exam­ple, the way mem­ber­ship of the World Trade Organ­i­sa­tion forced Sau­di Ara­bia to take a hard look at parts of its legal sys­tem.

It would also stream­line efforts to cater to post-revolt expec­ta­tions of a bet­ter life and increased oppor­tu­ni­ty that run high in Egypt, Tunisia and Libya in the wake of the fall of their erst­while lead­ers, Hos­ni Mubarak, Zine El Abe­dine Ben Ali and Moam­mar Ghaddafi.

An Arab Devel­op­ment Bank would give the region own­er­ship of its tran­si­tion at a time that post-revolt gov­ern­ments are sen­si­tive about ensur­ing their country’s sov­er­eign­ty. Egypt, for exam­ple, can­celled in June plans to bor­row US$3 bil­lion from the Inter­na­tion­al Mon­e­tary Fund and the World Bank because the terms of the loan alleged­ly vio­lat­ed the country’s sov­er­eign­ty and would invite pub­lic protests.

Inter­na­tion­al com­mu­ni­ty takes first step

The inter­na­tion­al com­mu­ni­ty took a first step in the direc­tion of the devel­op­ment bank mod­el when the G‑8 that groups the world’s biggest economies recent­ly man­dat­ed the EBRD to assist the post-revolt gov­ern­ments of Egypt, Tunisia and Libya as well as Jor­dan and Moroc­co, whose mon­archs have ini­ti­at­ed a process of change. The EBRD is wait­ing for the 63 coun­tries and insti­tu­tions that are its share­hold­ers to rat­i­fy the expan­sion of its man­date. The G‑8 coun­tries have pledged US$38 bil­lion in new loans to sup­port the region’s tran­si­tion to democ­ra­cy.

The EBRD is the world’s one finan­cial insti­tu­tion whose rai­son d’aitre is and was tran­si­tion. Cre­at­ed in 1991, its task was to assist east­ern and cen­tral Europe in build­ing mar­ket economies and ensur­ing growth and devel­op­ment in the wake of the demise of com­mu­nism. The EBRD has much to offer the Mid­dle East and North Africa, yet it remains a Europe-based, Europe-focused organ­i­sa­tion rather than one that is ori­ent­ed to the Mid­dle East and North Africa.

Sim­i­lar­ly, the IFC, the World Bank’s pri­vate sec­tor devel­op­ment arm, could serve the Arab bank as an exam­ple of how to turn a prof­it on invest­ments in risky mar­kets and become a bea­con that gives pri­vate sec­tor investors the con­fi­dence to fol­low suit. This is par­tic­u­lar­ly rel­e­vant to the Mid­dle East and North Africa where the state dom­i­nates the econ­o­my.

Final­ly, the ADB has demon­strat­ed in the Asia-Pacif­ic that youth bulges are as much an asset as they are a chal­lenge. ADB’s focus on pro­mot­ing edu­ca­tion, the devel­op­ment of small and medi­um enter­pris­es and region­al inte­gra­tion ensured that eco­nom­ic growth was dri­ven by a young pop­u­la­tion that was gain­ful­ly employed.

The wave of pop­u­lar revolts sweep­ing the Mid­dle East and North Africa feed on indige­nous deter­mi­na­tion to force change despite the high price in blood that pro­test­ers are pay­ing. They demand to be part of the post-revolt tran­si­tion after the demo­li­tion of the old regimes. By giv­ing Arabs own­er­ship of the process, the Arab Devel­op­ment Bank would func­tion as a cat­a­lyst and a bridge in an increas­ing­ly polarised part of the world.

About The Author:
James M. Dorsey is a senior fel­low at the S. Rajarat­nam School of Inter­na­tion­al Stud­ies at Nanyang Tech­no­log­i­cal Uni­ver­si­ty in Sin­ga­pore and the author of the blog, The Tur­bu­lent World of Mid­dle East Soc­cer.

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