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Do we need a MENA Regional Development Bank?

Omer Karasapan's picture
Also available in: العربية
World Bank | Arne Hoel | 2012Since my Blog on regional integration, I have been thinking about the possible role of an Arab Development Bank in the region, especially but not exclusively to spur regional and global integration. Colleagues who know a thing of two about the region, economic development and Arab organizations had mixed views. Some liked the idea, others thought the idea not very useful, especially since it is often voiced and then shot down. The feeling was that yet another institution on top of Arab Fund for Economic and Social Development, the Kuwait Fund, the OPEC Fund for International Development (OFID), the Islamic Development Bank, the African Development Bank and others would be confusing and redundant. A 2005 study (1) by the Arab Monetary Fund (AMF) on behalf of the Arab League also concluded that new Arab aid agencies are not needed and that the focus should be on improving the performance of existing institutions. The report also suggested that more attention be devoted to private sector development and more specifically to small and medium sized enterprises (SMEs).

Yet, I was not totally convinced that all that a Regional Development Bank could do was being done or that existing institutions could up their performance in the short-term. Needing a weightier advocate, I turned to Dr. Nasser Saidi, currently Chief Economist at the Dubai International Financial Center (DIFC) and formerly the First Vice-Governor of the Central Bank of Lebanon (twice) and professor of Economics at Chicago University.

Dr. Nasser Saidi makes his case in a recent article in the European Financial Review entitled "Financial Transformation to Sustain the Arab Firestorm,"noting that "if there is an important lesson to be learnt from the Arab Firestorm (his designation for the Arab Spring), it is that the region needs to own its transformation. Countries need to develop their own roadmap. There is no ‘one size fits all’ and there are no ready-made solutions. We need to develop institutions for collective action that are geared towards the betterment of this region.”

His recommendation is in the context of a broader set of reforms and the reality of a weakened Western banking system. He sees three building blocks for a major financial transformation in the region: (a) Re-orienting banking relations toward Asia and China; (b) Developing local currency financial markets and a capital market for SMEs; and (c) A region-wide institution in the form of an MENA Bank for Reconstruction and Development (MEBRD).

Noting that "a pseudo-Marshall Plan" for the Arab world will not be enough to deal with all the region’s challenges, Dr. Saidi underlines the need for a regional institution which would focus on (a) Financing and promoting private sector activity; (b) Financing and promoting private participation in infrastructure (PPI); (c) Development of financial markets in the region; and (d) Financing infrastructure, including regional and cross-border projects and investments that promote regional economic and integration. He foresees its scope and mandate to be similar to post-1989 efforts to rebuild eastern and central Europe. The MEBRD would be a multilateral institution, a joint undertaking by all Arab countries. The GCC and their aid agencies would play a prominent role along with the EU. The European Investment Bank (EIB)/European Bank for Reconstruction and Development (EBRD) would have a major stake along with the Islamic Development Bank and other participating international financial institutions (IFIs). The US, China, Japan, Korea and Turkey would be stakeholders as well. He concludes that the financial, human and natural resources for medium and long-term development are available in the region. What is less available and where the MEBRD comes in is the expertise in developing strategies, conceiving and implementing multi-year infrastructure and development projects to achieve sustainable and inclusive growth (2).

Obviously, the argument against yet another institution in the region does resonate but what do you think? Would a regional development bank help or hinder economic and social development in the region? --

1. Arab Monetary Fund. 2005. Arab Financial Institutions and the Financing of Investment and Development in the Arab World (in Arabic).Abu Dhabi: Arab Monetary Fund

2. Saidi, Nasser. 2012. Financial Transformation to Sustain the Arab Firestorm.The European Financial Review.

Comments

Submitted by Vikram Raghavan on
A similar proposal was made by Stan Fisher and Dennis Ross in the 1990s following the Oslo Peace Accords. The late Ibrahim Shihata, the Bank's then General Counsel, was consulted on the proposal and offered valuable comments on the Bank's objectives, mission, and governance structure. But the proposal apparently did not progress for a number of reasons.

Indeed that's true - there have been other analysis on this subject, including the one mentioned in a Blog by the Arab Monetary Fund at the behest of the Arab League. I remember well our World Bank colleague Wafik Grais going off to Cairo in the mid-1990s for an extended stay to assist in setting this up and I also remember that it was linked to the then recent Oslo accords. In fact, I will send Wafik a message to see if we can get him to share his views and experiences.

Submitted by Michael Massey on
Dear Omer,

I think not.

The short list of existing institutions includes, but is not necessarily limited to, the World Bank Group, Arab Bank for Economic Development in Africa, Islamic Development Bank, Arab Development Bank (exists?), Arab Monetary Fund, IMF, and on and on. What would be the purpose of another arab-oriented development bank as well as the pros and cons of establishing another regional institution that would be run by regional and global elites who would benefit enormously and, probably, over and above the benefits accruing to local populations.

The answer to the region's "development" problems is not to create another bureaucracy that conflicts with a myriad of other, already existing development banks.

What about -- as one possible alternative -- the establishment of a pan-Arab think tank to study and assist with the acquisition of global knowledge capacities, entrepreneurial technical assistance, and venture financing? Perhaps such a flat, responsive, knowledge- and talent-oriented organization could help identify, analyze, and build national and regional strategies for whatever goals those nations might have -- e.g., aid, economic growth, societal advancement, etc. The clear need to my mind is for the acquisition of globally known knowledge capacities -- e.g., engineering, transportation, software, social media, ICT entrepreneurship, education, and on and on.

My other strong opinion is that such an organization must be interdisciplinary. The "development" industry has too long been dominated by economists, financiers, and former militarists alone. We're dealing with cultures and sub-cultures here and with communications, religions, theories of education and other social institutions, and quite different infrastructures, including legal systems (e.g., regulating property rights) that have historically been turned against the peoples of MENA by colonialist and postcolonialist forces for centuries, even millennia.

A good example supporting my calls for interdisciplinary knowledge capacities and management is THIS question asking if we should create another development bank bureaucracy.

There are other unbounded opportunities for assisting MENA. Another development bank is just one, and development banks have already over-penetrated global and MENA markets.

Finally, as a last critical example, I remain profoundly skeptical that such a duplicative institution would significantly help the Occupied Palestinian Territories and the extreme, continuous suffering of those peoples.

Respectfully submitted,

Michael W. Massey
The University of Georgia
USA

Dear Michael,

Thanks for your comments. You echo many of my colleagues here at the Bank and elsewhere in saying that less is more when it comes to yet another development institution getting into play. Yet, you too rightly identify the need for a regional institution that would focus on transferring global knowledge, provide technical assistance and targeted funding. You are also absolutely right that it should be multi-disciplinary, indeed that is what we strive for here as well.

I think it useful to note that the Middle East and North Africa Region (MENA) is about the only region that does not have a dedicated regional development bank. From the Asian Development Bank to the Inter-American Development Bank, the African Development Bank and the Asian Development Bank all the regions have established these types of institutions They provide development funding, technical assistance, global and local knowledge transfers and also, not an inconsiderable value-added, provide "competition" to the World Bank and other Global institutions (IMF, UN System, etc.) ensuring that they remain cutting edge and effective. Needless to say similar discussions preceded the establishment of these regional development banks as well.

Once again, many thanks for your comments, they did very much enrich the discussion and we hope to hear more from you and your colleagues on this and other topics.

Submitted by Khelifi Fakhreddine -IsDB on
I personally propose a SMEs Fund - with a strong technical assistance window- which would directly touch the poor people and the Young generation mainly university graduated. Such Fund (Bank) will be more relevant to the MENA current socio-economic situation.

Submitted by Khelifi Fakhreddine -IsDB on
In MENA Region, several Development Funds are there. The most important thing to look after now is aid effectiveness and sustainable development. The question is not how much you get but is it effective, what is the outcome and impact at the end of the day (so what?). I think in MENA Region, we need SMEs/microfinance Funds/Banks, which should have strong Technical Assistance Windows. This is, I guess, more relevant to our situation mainly as poverty alleviation tool and to overcome unemployment mostly among the university graduates.

Dear Khelifi,

Many thanks for your comments. I guess one thing that many agree on is the need to focus on SMEs in the region, they are indeed a necessary part of the solution to unemployment and particularly to youth unemployment. However, there are strong arguments to be made that while necessary they may not be sufficient in themselves to solve the problem. I am sure you would agree that a more multi-sectoral approach is needed on unemployment and its structural components.

There are also arguments that when it comes to employment, SMEs may not be a silver bullet - for more on this, see the blog from the Caroline Freund Chief Economist for the Bank's MENA Region, entitled "SMEs: Not a Silver Bullet for Growth and Job Creation" also see Bob Rijkers on "Job Creation: A Big Role for Big Firms." 

Still, the point on an entity focused on SMEs with TA and financing attached do resonate with many here as well, especially with an emphasis on strong technical assistance. Your point on micro-finance is also well taken. We are a region that uses this tool less than many others.

Indeed in October 2010 Arab Finance Ministers launched a $2 billion development fund for SMEs to be managed by Arab Fund For Economic and Social Development. This then brings us to your final point on the need to focus on aid effectiveness and results. I am guessing that this relatively recent fund will allow us to gauge how effective the SME fund has been and derive lessons to improve and enhance performance.

There are others though who continue to argue that a regional development Bank would bring in a level of competition and coordination that would further enhance ongoing efforts within the region. I suspect the debate will wax and wane but continue for some time.

I would like to thank you very much for your comments - they have enriched this discussion and I look forward to further exchanges on this and other topics.

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