Since 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.
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