Friday, October 29, 2010

Middle East: Global forum shows path to prosperity

By Bernhard Schell

IDN-InDepth NewsAnalysis

MARRAKECH (IDN) - The Middle-East and North Africa (MENA) region "is poised to reclaim the great leadership it showed 1,000 years ago when it was at the cutting edge of civilization", according to businesspersons and government officials.

The logic behind this 'vision for the future' -- presented by a leading U.S. manager, David M. Rubenstein, and echoed by participants from 62 countries in the World Economic Forum (WEF) on the MENA region – is that it is blessed with shared twin endowments: its people and its natural resources.

However, if these two endowments are not invested wisely over the coming years they may turn into liabilities, the participants cautioned at the two-day Forum that ended on October 28.

For the vision to become a reality, "better integration, education and infrastructure" are imperatives. Without these, MENA will not reach its full potential. In fact, if the region works together cooperatively, it can become "a real emerging market leader in the 21st century", a large number of the WEF-MENA participants agreed with Rubenstein, Co-founder and managing director of the U.S. Carlyle Group.

"With 360 million people, there is a great opportunity for regional integration," noted Shyam Sunder Bhartia, chairman and managing director of India's Jubilant Bhartia Group. The MENA region is ideally situated to position itself as a bridge between dynamic Asian markets and large economies in Africa and Europe. The Gulf Cooperation Council (GCC) provides a useful model which should be extended, he said

"The Arab world has made much progress," observed Lubna S. Olayan, deputy chairperson and CEO of Saudi Arabia's Olayan Financing Company, and Chair of the Arab Business Council, “but further action is required to close the gender gap and reduce youth unemployment." He considers this essential to building a thriving middle class, which is considered to be the core of any prosperous, resilient society. "Failure to provide the growing ranks of low- and middle-income citizens with a sense of mobility and aspiration could lead to social instability," Olayan argued.

Most importantly, improving the quality of education is critical to acquiring the skill sets necessary for the 21st century. Specific initiatives include the launch of public-private partnerships in four countries to connect centres of excellence in the region. Another idea is to create a network of high schools around the Mediterranean.

Anass Alami, director-general of Morocco's Caisse de Dépôt et de Gestion (CDG), stressed that the government played a rather critical role "to make long-term investments and policy reforms to encourage the private sector to come in".

For example, to attract private investment to green sources of growth, Morocco is pursuing a bold energy mix target of 40 percent renewable sources such as solar and wind power. He urged governments in the MENA region to take the lead on shared challenges of water and food security.

Stressing that the region faces shared, interconnected risks and opportunities, Brian Duperreault, president and CEO of U.S. Marsh & McLennan Companies (MMC), outlined the three most relevant risks: water scarcity, energy security and underinvestment in infrastructure. "These key risks are highly interconnected and act as limits to sustainable growth," he pointed out.

Sustainability means responding to risks while taking advantage of the concomitant opportunities, noted Salaheddine Mezouar, Economy and Finance Minister of Morocco. "In recognition of the risks and opportunities related to energy security, Morocco has set an ambitious energy mix target of 60 percent fossil fuels and 40 percent renewable sources such as solar and wind power."

However, individual country actions are not enough. "Without a stable, integrated MENA bloc it will become ever more difficult to compete with large countries such as India and economic alliances like the European Union," Mezouar said.

The challenge is to overcome internal resistance within individual countries; mindsets need to be opened up before the region can open borders, he stressed.

Lars H. Thunell, executive vice-pesident and CEO of International Finance Corporation (IFC), emphasized the need for inclusiveness and pointed to a number of hurdles to integration. "Poor regulation, governance and transparency are all holding the region back," he warned.

"It's better to shape regional integration proactively rather than waiting for it to happen reactively," said Khalid Abdulla-Janahi, honorary chairman of United Arab Emirates' Vision 3 and the MENA Regional Agenda Council. The public, private and NGO sectors are all guilty of shifting the blame to others, when they should be increasing collaboration to deal with common challenges, he added.

In another panel, government and business leaders pointed out that the MENA region needs to overcome its infrastructure deficit if it is to boost its competitiveness and attract much-needed foreign investment.

Shamshad Akhtar, World Bank vice-president for the MENA region said that infrastructure deficits persist, despite many improvements in the last decade. "The region's infrastructure needs are between US$ 75 and 100 billion a year for the next five years, after experiencing an investment low of US$ 6 billion in mid-2009."

"To attract the massive foreign capital it needs, the MENA region needs to boost its competitiveness by enhancing regional infrastructure," said Carlos Ghosn, chairman and CEO of Renault-Nissan Alliance (France and Japan). "Good infrastructure is a necessary -- though not sufficient -- condition for investors to come in."

Governments in the region are heeding the call to action, according to Karim Ghellab, Minister of Equipment and Transport of Morocco. "In the case of Morocco, we have multiplied investment in transport infrastructure by a factor of four in the last decade -- spending 11 billion euros between 2008 and 2012." Infrastructure is not just laying concrete, he added, high performance infrastructure requires world-class operations.

Abdul Malek Al Jaber, board member of Astra Holding of Jordan, agreed and included the ICT sector, which represents 14 percent of the country's Gross Domestic Product. "We need to find the right balance between hard infrastructure and human capital so as to best use the infrastructure we have," he said, making an analogy to needing good hardware as well as good software.

José W. Fernandez, US Assistant Secretary of State for Economic, Energy and Business Affairs, emphasized the need for the public and private sectors to work together. "Government has a central, galvanizing role in developing infrastructure; while the amount of capital required means the private sector is essential." The main thing that governments can do is to remove barriers to trade and free movement of goods and people, thus boosting intra-regional trade and integration, he noted.

"It should not be forgotten that there has been huge progress in improving infrastructure in the past decade, said UAE's Abdulla-Janahi. Nevertheless, there is much more that needs to be done -- especially in terms of cross-border projects that enhance transnational integration, he pointed out.

Andrea Canino, president of France's Conseil de Coopération Economique, agreed: "Rather than focus on the challenges and the failures, we need to showcase flagship projects which have been successful."

Leaders from the Arab world went a step further and set a number of policy priorities for building a future middle class. "I see no reason to distinguish between gender in terms of employment and promotion, gender diversity will strengthen the economy," said Sheikh Ahmed Bin Mohammed Al Khalifa, finance minister of Bahrain. Saudi Arabia's Olayan echoed the minister, saying: "There should be incentives to hire more women in the Arab workforce."