World Bank Managing Director, Juan-Jose Daboub at the US-Arab Economic Forum

Juan-Jose Daboub

Managing Director of the World Bank

US-Arab Economic Forum, Washington, D.C.

May 7, 2008

Masa'a Al Kheir!

Excellencies, ladies and gentlemen. Members of the Press.

Thank you for the invitation to speak this evening to a distinguished group of policy makers, business people and academics.

Coming from a Palestinian family that immigrated to El Salvador over a century ago, the Arab World is close to my heart.

As is the importance of continuing and strengthening a long history of two-way engagement between the Arab World and the Americas. 

Please allow me to share some thoughts on 3 topics:

• Recent economic successes in the Arab World;
• Opportunities that can be seized to respond to emerging regional and global challenges; and
• The scope for Arab countries to play a greater role in global development issues.

Recent Economic Progress in the Arab World

Countries in the Arab World have made significant economic progress over the past few years.

This is often overlooked in a region that tends to get front page headlines for other reasons.

• Since 2003, economic growth throughout the region has averaged over 6% per year – the strongest sustained growth performance since the 1970s.
• Growth has been accompanied by more jobs and better social indicators.

Economic performance has been driven in part by high oil prices. 

But this is only part of the story. 

Strong growth is also coming from real efforts by governments to improve the business environment and make room for the private sector to generate growth, jobs, and opportunities.

Many countries in the region have embarked on wide-ranging economic reforms, improving development prospects: Egypt is only one example. 

Efforts by the government to improve the investment climate, simplify business and property registration, better enforce contracts, facilitate import and export procedures, and increase competition in key sectors of the economy have underpinned recent annual growth of 7 to 8 %. 

• Similar efforts to unleash the potential of the private sector can be seen in countries throughout the region:
• Saudi Arabia has moved quickly in reforms, and become one of the leading countries in the world in which to do business.
• Progress is also evident in Morocco, in Tunisia, and in Jordan – to name only a few. 
• In a recent visit to the Gulf countries, I was impressed with their success in encouraging private investment in different sectors to diversify their economies. 
• This experience provides valuable lessons for many developing countries around the world.
• The dynamism and hard working characteristics of the Arab people are constantly being tested in very difficult circumstances. 
• Palestinians and Lebanese are great examples.  Their heroic efforts can’t go without recognition.
• But, it is not about throwing MASARI there; it is about removing obstacles, so that people can take destiny into their own hands.
• It is not only about aid, it is about investment.
• Leaders in the region have the ability and the responsibility to help.
• Pledges were made in Paris last year for both Palestine and Lebanon.
• Those pledges that have not yet become a reality need to do so.
• I look forward to participating in the Palestine Investment Conference in Bethlehem later this month, and in visiting successful businesses that are working against all odds.

Seizing Opportunities Available

The reforms undertaken to date in many countries provide a platform from which even faster progress can be made.

Capturing the opportunities available is vital if countries are to generate growth and jobs for the people of the region.

This is especially important given the need to generate 80 million new jobs over the next 15 years for the large numbers of young people in the region that will be entering the workforce.

There is also a favorable juncture to take action now to deal with emerging environmental issues. 

Better regional management of scarce water resources, and investments to take advantage of the scope for renewable energy generation, will help ensure the region remains on a sustainable growth path.

And further efforts will be required to allow countries to respond effectively to global increases in food prices.

At the national level, the reform program in most countries in the region remains only partially completed. 

Although there has been considerable progress, indicators suggest that only 3 MENA countries [Saudi Arabia, Kuwait and Oman] are currently ranked among the top 50 countries in their ease of doing business. 

Despite an improvement of over 25 places, Egypt’s absolute ranking of 126 out of 178 countries reflects that a significant reform agenda remains.

Other middle income countries, such as Thailand and Malaysia, have consistently pushed ahead with wide ranging reforms to strengthen their business environment and improve the accountability of public institutions. 

Their ranking among the top 25 easiest countries in which to do business, and their success in attracting very significant foreign investment, is not a coincidence.

Improving the quality of education is the corner stone for innovation and to ensure that young people entering the workforce have the skills to compete in a modern economy.

The countries of the Arab World have a long history of learning and scholarship. 

Over the centuries, innovations in science, medicine, and mathematics have come from the Arab World. 

Countries in the region have been successful in recent years in expanding access to education. 

In a visit to Oman in February, for instance, I was impressed with unprecedented success in achieving near universal primary education – when 30 years ago there were no more than a handful of schools.

The next challenge throughout the region, however, is to reinvigorate the quality of education, and to encourage innovation, critical thinking, and to provide relevant skills to young people in a rapidly changing world.

There are outstanding educational institutions and centers of global excellence in the MENA region that provide a solid foundation for efforts to strengthen quality across the education systems of all countries.

Capitalizing on the opportunities available for private sector led growth and job creation will also require increasingly harnessing the skills and entrepreneurial spirit of the whole population, including women.

In visits to Bahrain, Kuwait, and Dubai earlier this year, I met women business leaders having a tremendous impact in their countries – creating jobs and generating social benefits for their communities. 

Building opportunities for even more women to take a leadership role in business is vital to unlock the full potential of all the people of the region and to generate even faster increases in prosperity. 

More broadly, greater economic integration between the countries of the Arab World will be essential to enable the environment for people and for the countries of the region to move ahead cooperatively.

The Arab World is not homogenous, but is a wonderful mosaic of different ethnic and religious communities. 

The economies of the region differ widely in their characteristics, with some having abundant resources, and some a large pool of labor.

At the same time, Arab countries share a common language, history, and civilization.

In this environment, all countries could potentially gain from greater regional integration of their markets.

There is sufficient diversity to ensure that the comparative advantages of different economies could complement each other, and sufficient shared values to encourage partnership and tolerance.

Greater economic integration between the Arab World and the global economy will also be fundamental, in order to achieve diversification and to take advantage of markets in several sector. 

The East Asian experience has demonstrated the role that export oriented manufacturing and service industries can play in generating growth and jobs – even during the recent slowdown in the US and other OECD markets. 

Arab countries have a long history of trading among themselves and with the world. 

Arab traders have plied the waters of the Indian Ocean for centuries, and images of Arab trading caravans are the stuff of folklore. 

My own family is proof of the long history of Arab engagement with the Americas. 

Members of the Arab diaspora are widely known throughout Latin America and elsewhere for their entrepreneurial spirit.

Yet despite this historical experience, economic integration between the region and the global economy today is limited to the energy sector.

Efforts by the Arab League to work with the countries of the region to facilitate trade and customs processing at the border will be a key element to encourage economic integration. 

The Bank is also keen to work closely with the Arab League to provide support for the forthcoming Arab Economic Summit.

There is a considerable need for “behind the border” investments – in transport links, more efficient ports, water management, and better energy connections and generation from renewable sources, like wind and solar– to support greater regional and global integration.  

Strengthened regional management of scarce water resources to support sustainable economic growth will be critical. 

Some countries are already seeing growth hampered by unreliable water supplies.  It could get much worse in future. 

Most of us here today and certainly our children will personally experience this drama.

Major investments are needed, but they are not enough. 

The countries of the region need to work together in a coordinated way, plan carefully, adopt smart policies across a range of sectors (agriculture, land use, energy, and more) to use limited water better. 

Regional infrastructure projects are an area where I’m pleased that the World Bank Group can potentially assist, in conjunction with institutions such as the Arab and Islamic Funds. 

Support will be important not just for public investments, but also to finance private investment in essential regional infrastructure. 

Encouraging greater private investment to improve agricultural productivity, where that makes sense given scarce water resources, will be a basic element in any successful longer term response to rising world food prices.

Food prices is a major concern.

In the past year, wheat prices have increased by 120% and rice prices by 75%.  The cost of a loaf of bread has more than doubled. 

Prices for other basic staples have also increased.

This is unlikely to be a temporary situation.  Research suggests that food prices are expected to stay high for the next few years.

Rising food prices are a global phenomenon driven by a range of factors.

Including:

• Higher demand for food in emerging economies,
• Higher fuel prices which increase the costs of transport and fertilizers,
• A decrease in funding for agriculture and agricultural research in the past decade,
• Increasing use of certain food crops for biofuels,
• Distorting subsidies and trade barriers,
• Financial speculation, and
• Weather-related problems. 

While higher food prices benefit households and countries which are net producers, many countries in MENA, which are mostly net food importers, are being adversely affected.

In the case of several Arab countries, the effects of food price increases have been offset at the national level by increased revenues from high oil prices. 

Yet for those that are net food and fuel importers, the combined negative effect has been a shock. 

Poorer people in urban areas have been particularly hurt, in Arab countries, as in the rest of the world. 

In many developing countries, the poorest individuals spend about 75% of their income on basic foods.

Worldwide, estimates suggest that higher food prices may have pushed as many as 100 million people back into poverty over the past 2 years and that the doubling of food prices over 3 years could set back the fight against poverty by 7 years.

President Zoellick is calling for a comprehensive approach to address rising food prices - a “New Deal” for Global Food Policy. 

The new deal will embrace a short, medium and long-term response.

For example:

• Support for safety nets, such as: school feeding, food for work and conditional cash transfer programs;
• Increased agricultural production;
• A better understanding of the impact of biofuels; and
• Action on the trade front to reduce distorting subsidies and trade barriers.

Governments must act in response to vulnerable groups in society. 

But, it is equally important that support be provided to the poor in ways that do not lock in new market distortions that will have their own, negative impacts later on. 

Any economic interventions to reduce the impact of higher food prices should be targeted, temporary, transparent, fiscally sustainable, and part of a coordinated policy approach that allows local markets to respond and adapt to changes, including in prices.  

By the same token, price controls, or untargeted subsidies, risk distorting market signals – they encourage black markets and, in the longer-term, discourage food production. 

They also create fertile ground for corruption. 

Actions such as this will ultimately prolong and exacerbate the problem for those in need.

The Bank has been engaging globally to urge exporting countries not to impose trade bans as these drive up prices and hurt the poor. 

We welcome Ukraine’s recent decision to lift its export ban on grain – which resulted in an immediate lowering of wheat prices.  

Beyond immediate measures to cushion the impact on the poorest, any longer-term response to rising food prices must focus on increasing global food production.

There is already some evidence that higher food prices are bringing increased acreage under cultivation, although this is not enough. 

Higher grain production will also require better rural infrastructure, improved irrigation, greater private participation in food production, and more secure land tenure and property rights, among other measures.

I have heard directly from Arab investors stressing the need for greater legal security and market infrastructure if they are to invest in agriculture in countries like Sudan, and elsewhere in Africa.

A critical further element is a fairer and more open global trading system that will allow food to flow from surplus to deficit countries. 

The Doha round of trade talks offers a unique opportunity. 

If there ever was a time to open markets for food imports, it is now.  If not now, when?

The World Bank is moving to swiftly respond to the crisis. 

We have already provided advice to the Governments of Djibouti and Yemen on options to strengthen targeted social safety nets and cushion the impact on the poor. 

Over the next few weeks, we will be exploring the option of creating a rapid financing facility for especially fragile and poor countries – those with little margin for survival and limited access to finance.

At the same time, the Bank is committed to responding rapidly – within its mandate and in coordination with other agencies – to any requests from clients to provide financing or advice to increase agricultural production, to encourage greater private investments, and to better manage scarce water resources.

The World Bank Group’s Arab World Initiative

The World Bank Group has a long-standing commitment to work with the governments, businesses, and people of the Arab World to encourage economic and social development.

To contribute ideas, policy advice, share best practices and financing for the people of the region to be able to participate in and benefit from the opportunities provided by growth.

Giving greater importance to the Arab World is one of the six strategic priorities for the World Bank Group. 

While recognizing the diversity of the region, the Initiative provides an opportunity for the Bank Group to scale up its support to address common regional issues, as well as national priorities. 

Leaders with whom we have spoken would like to see increased engagement from the World Bank Group on key priorities.

Including:

• Supporting further economic reform and greater economic integration between the Arab World and the global economy to generate opportunities and jobs;
• Improving the quality of education to encourage innovation and give young people vital skills;
• Drawing more fully on the talents of the entire population, including women;
• Strengthening management of scarce water resources and overcoming environmental challenges; and
• Providing opportunities for people that remain in conflict situations.

I appreciate the support for the initiative that we have received from regional leaders, business organizations, and civil society groups during an extensive consultative process.  

The results so far are encouraging and we are committed to do more.

• World Bank financing for public investments in Arab countries has more than doubled in the past few years, from $600 million in 2002 to over $1.3 billion this year. 
• Bank support has helped to strengthen service delivery and support major public investments.

• New commitments from the Bank’s International Finance Corporation (IFC) in Arab countries have increased from $300 million in 2005 to almost $1.0 billion in 2007. 
• One example of IFC support is to increase access for housing finance in the Palestinian territories, which will create over 3,000 jobs and ensure thousands of people can better afford houses.
• The Bank’s Multilateral Investment Guarantee Agency (MIGA) currently has a portfolio supporting over $700 million of investment in the region.
• Including an innovative Sharia compliant guarantee for an investment by Dubai Ports World to modernize Djibouti’s container terminal. 

I hope that the Bank will be able to further explore options for Islamic financing across all of our business lines.

Most importantly, however, the Bank has been able to share global knowledge and advice, to provide “customized” solutions for the challenges governments and investors are facing. 

As a former minister and a businessman myself, I understand the need not to preach “one size fits all” solutions but to work with clients – both public and private - to find pragmatic answers.

A key element of such knowledge sharing will also be to take the lessons of success from the Arab region to other developing countries.

Addressing Global Challenges: A Greater Role for the Arab World

The successes that have been achieved in the MENA countries lay a foundation for the region to play a greater role in addressing global challenges – for the benefit of all.

An example is the growth of sovereign wealth – especially in emerging market countries – which has been one of the decade’s most notable trends in finance. 

It is important that we recognize the opportunities these funds provide, both for investors and for the countries in which they are investing. 

Major investments by SWFs, including from Middle Eastern countries, were central to global efforts to at least begin to calm recent turbulent financial markets.

Investments by SWFs in emerging markets can potentially help to diversify portfolios, generate investment returns, and provide much needed financing to encourage private sector led growth and job creation in developing countries.

It is in this context that President Zoellick has suggested that the World Bank Group could expand its engagement with SWFs: 

To help overcome obstacles to high-performing asset management, and to broaden the investment opportunities available to them in “frontier markets” for the benefit of all parties. 

Proposals to provide possibilities and instruments for SWFs to consider investing up to 1% of their assets in Africa and emerging economies are not for altruistic purposes - but because this can make investment sense.

Conclusion

GUAFI AL JITAM, the Arab region faces a unique set of opportunities and challenges.

Recent progress has been encouraging, and should not be overlooked. 

But there is still a long way to go.

The successes of countries in East Asia, such as Korea, as well as the experience of Arab countries such as the Gulf States, show that rapid progress can be made in the space of a single generation.

Successes can be emulated by:

·         Sound and open economic policies that promote trade and investment, and which encourage companies to compete globally to become the best at what they do;

·         Also by grasping opportunities available to become global leaders in areas such as renewable energy, water management, or financial services.

·         Strong public institutions that work as referees and not as orchestra directors make a difference;

·         A commitment to education, to support innovation and new ideas will make progress sustainable; and

·         Drawing on the skills of all people will make it irreversible.

Leaders like you are uniquely placed to step up to the challenges, take the opportunities available, and ensure that the recent successes in many parts of the Arab World can be built upon.

You have the ability and the responsibility to make it happen.

The World Bank Group is here to contribute.

Shukran Gazilan!