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 
any comments or feedback to the Editor RSIS Commentaries, at

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 


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 
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. 
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 
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.

James M. Dorsey is a Senior Fellow at the S. Rajaratnam School of 
International Studies (RSIS), Nanyang Technological University.

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