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James Flanigan

Mideast Is Primed for Economic Reform

June 06, 2004|James Flanigan

Will the Middle East, so beleaguered by open warfare, come to embrace open markets?

With some hesitation, one of the region's major business leaders believes the answer is yes. Naguib Sawiris, chairman of Orascom Telecom Holding, is busily expanding his Cairo-based firm, which owns cellular telephone networks in many lands, including Iraq.

His brother Onsi, who heads Orascom Construction, the largest cement producer in the region, is also doing well.

"It is different for us," Naguib Sawiris says. "We Arabs and Egyptians can invest in the region because we understand the risks" and how they measure up to the potential rewards.

Indeed, the stock markets of Egypt, Kuwait, Saudi Arabia and Israel have soared since the fall of Baghdad last year, indicating a surge of optimism among the region's businesspeople.

Yet for all that, investment from outside the region remains abysmally low, notes economist Glenn Yago of the Milken Institute in Santa Monica. Although there are some small signs of progress -- a delegation from the U.S. Chamber of Commerce, for instance, will visit Libya this month to survey the possibilities -- the Middle East has a long way to go to catch up with much of the rest of the world.

For the last three years, about $60 billion annually in long-term direct investment from foreign corporations has poured into the developing countries of Asia. The developing countries of Latin America and the Caribbean have received more than $30 billion a year. As for the poor countries of the Middle East, they've taken in barely $6 billion a year.

"The numbers certainly tell the story," Yago says.

Sawiris says: "We need the GEs and GMs to make big investments. We need economic reform."

It is a cry, at least, that is being heard in Washington. President Bush on Tuesday will present his Greater Middle East Initiative to a meeting of the Group of 8 nations at Sea Island, Ga. The initiative reportedly will focus on fostering greater educational opportunity for societies in which half the people are younger than 20 but at least a third of the population is illiterate. The initiative will also promote movement toward free elections and more open economic systems in the Middle East, home to 5% of the world's population.

A chief aim is to "establish the conditions that make it attractive for money to come back to the region, as well as new money to come to the region," U.S. Undersecretary of State Alan P. Larson said last week.

The new initiative follows up on the State Department's Middle East Partnership Initiative of last year, which featured programs to encourage and finance entrepreneurs.

Whether such efforts bring real change -- or mere rhetoric -- will depend, in the end, on how Washington follows up.

To Sawiris, whose company's $1-billion-a-year operations stretch from Algeria to Pakistan, the initiative will be useful if it sticks to economic reform, with only a dash of politics thrown in. "Promote free markets," he urges, to help untangle Orascom from the red tape of the autocratic governments with which it deals.

Eventually, he says, the emphasis can shift to the promotion of democratic political systems. But if free elections come too fast, he fears, "the Islamic fundamentalists would win them and then abolish any future elections."

Before the Middle East can risk a spread of Iran-type rule by clerics, it first must taste a little of the good life, "as China has," the businessman believes. "What everybody wants is food and shelter and a job to provide support for their family." Then, he adds, people "can vote without thinking of fanatical religion."

At least one American expert says a move toward open markets should be the first priority -- before worrying about elections.

"Economic development and investment is possible now in the Middle East if countries would do away with bureaucratic and legal barriers to foreign investment," says Noah Feldman, a law professor at New York University and an advisor to the U.S.-appointed Iraqi Governing Council.

The ultimate solution, Feldman says, is to turn the region into an Arab common market, drawing capital from all over the globe -- and, at the same time, creating a large local business class, a true bourgeoisie. That group, in turn, can help pave the way for a series of peaceful Islamic democracies.

Indeed, the real key to peace in the Middle East will be nurturing more folks like Sawiris -- "world-class businesspeople," in the words of Feldman, "as comfortable in Geneva and New York" as in Beirut and Baghdad.

As bombs explode around the region -- from Iraq to Israel to Saudi Arabia -- that may all seem a distant dream. And yet we might recall that 60 years ago today, June 6, 1944, when Allied troops stormed the beaches of Normandy, few predicted a bright future for Europe.

The Middle East just might be starting on a long transformation of its own. Peace, after all, tends to follow prosperity.

*

James Flanigan can be reached at jim.flanigan @latimes.com.

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