A New Method for Cooperation in the Middle East and North Africa

By Alexander Werman
Staff Writer
2 April 2018

The Middle East and North Africa (MENA) is an economically diverse region with a common heritage. It stands to receive massive benefits by pooling resources into a non-partisan entity that will fund much-needed infrastructure and economic development projects across the area. It is one of the only regions in the world that does not already have a bank or fund that is focused on providing liquidity and expertise for development initiatives. Asia has the Asian Development Bank, Europe has the European Bank for Reconstruction and Development (EBRD), Central America has the Inter-American Development Bank, and Africa has the African Development Bank. These regional institutions, among many others, increase regional economic cohesiveness and foster growth. As Madeleine Albright’s Middle East Strategy Task Force Final Report noted, it is time for the MENA countries to have their own regional fund. I would recommend calling it the Middle East Regional Development Fund (MERDF).

Trade and economic relations between MENA countries lag behind most other regions. Containing roughly two-thirds of the world’s proven oil reserves, the area is rich in natural resources, yet its GDP per capita remains below that of most other regions of the world. By increasing economic interdependence and building up regional trade, the MENA countries will reap huge benefits for their people. The MERDF’s main goal will be to build the infrastructure and the foundation to make this happen.

A regional development bank could serve a range of purposes, from infrastructure to promoting business. The MENA region needs significant investment in projects such as desalination plants in the West Bank and Gaza, energy and electricity generation in Iraq, and healthcare across the region. There is also a substantial need for greater capital availability for small and medium-sized enterprises (SMEs). SMEs struggle to gain access to credit in this region since it is culturally and economically dominated by massive public-sector operations. Due to a youth bulge and greater access to global information sources, the public is clamoring for more socioeconomic opportunities. MERDF will go a long way in addressing these needs.

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An example of a desalination plant in Oman

This fund will be built on principles of regional inclusivity and cooperation. Members will include countries from North Africa, the Levant, and the Arabian Peninsula that reach and maintain certain levels of stability. Libya, Syria, and Yemen will join when they have stabilized. The bank will be capitalized in such a way that MENA country members will have all the seats on the board of governors, however, these country members will cumulatively only be allowed to hold 51%-65% of the voting stock. This means that MENA country members will only contribute up to 65% of the fund’s capital and thereby control that proportion of the votes on fund issues. The fund will openly court outside entities such as the World Bank and western countries to contribute toward economic development, private sector development, and greater technical expertise. Like the EBRD, the fund will not allow more than 40% of its loan and equity investments in any given country to go to state institutions. It will operate on a “more-for-more” basis with countries that invest more in the fund being allocated a greater share of the investment projects. However, the fund will be structured in such a way that lower income countries still receive investment proportionally larger than their contributions. Like the World Bank, MERDF will offer favorable borrowing conditions for all projects it undertakes. Importantly, it will also invest only in projects that take place in MENA countries.

Creating this sort of fund will be challenging due to deeply entrenched hostility on many fronts. Even so, there are a variety of incentives that could address these issues and facilitate cooperation.

Some members will fear being ‘ganged up’ on by other states that are hostile toward them. All major initiatives, actions, and changes will need approval from 66% of the Board of Governors as well as 75% of the total voting power to pass to address this fear. Since MENA member countries cannot have more than 65% of the voting stock this should provide all countries with cover.

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The inclusion of Israel in MERDF could be a sticking point

Given that Israel has demonstrated its interest in participating in such a fund, MERDF’s structure must convince the Arab states to include Israel in the fund. The fund will have a mandated special fund that will invest only in the West Bank and the Gaza Strip. While MERDF will still invest in Israel through its ordinary operations, this special fund will be an important political instrument and will support development for the Palestinian people. MERDF will focus all programs in this special West Bank and Gaza Strip fund on supporting non-governmental organizations (NGOs), civil society organizations, and private businesses to avoid sensitive political questions regarding the rightful government administrators and to spur private sector development.

MERDF will also have to overcome the political realities on the ground to make sure that the fund makes investment allocations in a non-political manner. The fund can also ensure that all nations benefit, regardless of the number of significant projects for which they are awarded funding, through the creation of a few regional mechanisms placed in each country. These could include a scholarship fund to facilitate academic mobility, a regional foundation for cross-border citizen initiatives, and local governance-training institutes in each country. The fund will set a strong foundation by addressing key issues that the international community has identified while the rest of fund’s operations focus on local needs.

With the right oversight, goals, and institutional mechanisms in place, this organization could amplify a positive economic and social growth trend in the Middle East and North Africa. It can start a new era of cooperation, act as a forum for regional discourse, and relieve tensions that have recently been inflamed. Other regional initiatives have run into major roadblocks because of deep political disagreements, but economic growth is something all of these countries can rally around. The United States, the UN, and other international interlocutors should make this initiative a major diplomatic priority.

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Alexander Werman is a Master's Candidate in the Security Policy Studies Program at the Elliott School of International Affairs at George Washington University. He is currently interning at the Middle East Security Initiative in the Atlantic Council and previously interned at the U.S. Department of State, Search for Common Ground, and the American Foreign Policy Council. His research focuses on security challenges and governance in fragile states in the Middle East and North Africa.

Picture licensed under CC-BY-2.0

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