A Development Bank For The Region That Arab Youth Need

An Arab Development Bank, organised to take advantage of the best aspects of several comparable entities around the world, could be a great help to this region.

By Afshin Molavi

'Nothing is as powerful as an idea whose time has come," the French writer Victor Hugo said. But we might add an equally important political corollary: nothing is as powerful as a crisis to propel an idea forward.

The Arab world is in crisis. The events of the so-called Arab Spring have transformed the region in a year that has seen three governments fall, two more face serious and ongoing rebellions and others come face-to-face with a new age of uncertainty.

But in this age of uncertainty, there seems to be one idea that inspires near-universal agreement, one that bridges generations, links various political outlooks and binds together both ruling elites and the ruled. All across the region, one often hears this mantra: we need more jobs for young people, better functioning economies, stronger private sectors, more sustainable growth. Few dispute these ideas.

The numbers are sobering. Some two-thirds of all Arabs are under the age of 29. Youth unemployment across the Middle East and North Africa region averages 25 per cent. The World Bank has estimated that the region needs to create 100 million jobs by the year 2020 just to keep up with current employment levels and absorb new entrants into the labour market.

Of course, this is not news to anyone in the region. Arab ministers have been formulating job-creating plans for nearly a decade - with little success. The World Bank has been using its megaphone to beat the jobs crisis drum for nearly a decade. And countless newspaper columns have spilled ink on this issue. The one glaring exception: the Arab League has demonstrated little or no leadership on this vital issue.

Crises tend to clarify thinking, and often spawn important, strategic ventures on a large scale. Just as the Second World War spawned the United Nations, the World Bank and the International Monetary Fund, it is time for Arab leaders to think big.

In short, it is time to create a credible, well-funded, innovative Arab Development Bank. This institution would be both an operations centre and a knowledge hub on the single most vital issue facing the region today: economic development.

In order for this initiative to succeed and to distinguish it from existing bodies, it should be modelled after three institutions: the European Bank for Reconstruction and Development (EBRD), the Asian Development Bank (ADB), and the International Finance Corporation (IFC). All three have aspects relevant to the Arab world's situation today.

In 1991, Eastern and Central Europe experienced a dramatic geopolitical change: the fall of Communism and the collapse of the Soviet Union. Rather than wait for each country to find its own path, European leaders created EBRD in that same year.

The bank's goal was simple, but its mission was complex: to help countries from Central Europe to Central Asia move towards a market economy, and support all efforts to spur growth and development. It has been called the world's only transition bank.

Countries like Egypt, Tunisia, and Libya are undergoing significant transitions themselves. The Arab Development Bank would take steps to support their economic growth amid the inevitable growing pains of political transition. As a transition bank, the EBRD was nimble and responsive to the needs on the ground. It employed a mix of private sector support and structural reform. Today, 20 years after its founding, the EBRD is widely seen as a key ingredient in the economic turn-around of Europe's eastern and central reaches.

The Asian Development Bank, founded in 1966 and headquartered in Manila, is a major source of development financing for the Asia and Pacific region, deploying US$17.5 billion (Dh64 billion) across the region to build schools, improve infrastructure, support small and medium enterprises, invest in the private sector and promote regional integration. This last goal has been a particular area of ADB success.

The Arab world, for its part, is poorly integrated in trade. Simply put, Arabs trade far more with non-Arabs than with each other. An Arab Development Bank would be ideally positioned to address this shortcoming.

Too many Arab economies remain state-dominated. Private sectors need to take on a larger role. The International Finance Corporation, the private sector development arm of the World Bank, has been investing in the private sectors of emerging markets and developing countries since 1956.

The IFC provides an important example because the organisation is highly profitable. It has proven that investing in emerging and frontier markets can be lucrative, thus contributing to the overall confidence of other commercial investors. Thus, it is not only an investor but a catalyst of other investments.

An Arab Development Bank could borrow from the best practices and lessons of these three institutions while forging its own path. Politically, it would need a champion and a host. The United Arab Emirates, given its own economic success, would be a logical choice.

Widespread unemployment and underemployment are like a cancer that slowly eats away at an individual and society, engendering depression, hopelessness, alienation and the ultimate tragedy: squandered potential.

A young person entering adulthood, full of hope and energy and productive abilities, represents an irreplaceable asset to any country.

Youth bulges can also be a demographic gift. East Asia's growth spurt was driven by a large youth bulge entering the labour force and deployed productively. Time is running out to make today's Arab demography a gift rather than a burden.

-This commentary was published in The National on 05/09/2011
-Afshin Molavi is a senior fellow at the New America Foundation, a non-partisan think tank, and a senior adviser at Oxford Analytica, a global analysis and advisory firm