An Arab Development Bank: Institutionalising Change in the Middle East
RSIS presents the following commentary An Arab Development Bank: Institutionalising Change in Middle East by James M. Dorsey. It is also available online at this link. (To print it, click on this link.). Kindly forward anycomments or feedback to the Editor RSIS Commentaries, at RSISPublication@ntu.edu.sg
No. 145/2011 dated 10 October 2011
By James M. Dorsey
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
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
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.
he 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
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.
James M. Dorsey is a Senior Fellow at the S. Rajaratnam School of
International Studies (RSIS), Nanyang Technological University.
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