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Can The Mideast Find Its Way Out Of An Economic Desert?


International Outlook

CAN THE MIDEAST FIND ITS WAY OUT OF AN ECONOMIC DESERT?

The Middle East is passing milestones so fast they hardly draw notice. A peace accord between Israel and Jordan, signed one year ago, led to a trade accord between the two on Oct. 25. And the agreement between the Palestine Liberation Organization's Yassir Arafat and Israeli Prime Minister Yitzhak Rabin on Sept. 27 is leading to a pullback of Israeli troops from the occupied West Bank.

Now, says the Clinton Administration, it's time for business to capitalize on those achievements. That's why Secretary of State Warren M. Christopher will help kick off a three-day economic summit in Amman, Jordan, on Oct. 29 that is due to attract top executives from the West as well as the Arab countries and Israel. On the agenda: creation of a Mideast development bank and billions of dollars in infrastructure projects ranging from an Israeli-Jordanian airport to integration of Middle Eastern electricity grids.

SUCCESS STORIES. After wasting years on bickering and statist economic models, could it be that the Middle East is waking up to the need to join the world economy? At the end of September, Jordan introduced foreign investment legislation and a new streamlined tax code. Those countries that have carried out consistent economic reforms--Israel, Morocco, Tunisia, and Jordan--are seeing growth and investment flows pick up. Israel's economy, for instance, is growing at a 7% annual clip, and Jordan's at 6%. Says World Bank Senior Economist Nemat T. Shafik: "We are starting to see regional success stories."

Free-trade agreements due to be hammered out between the European Union and Mediterranean countries in the next couple of years--Tunisia signed one with the EU last July, while Jordan, Morocco, and Egypt are negotiating--also could light a fire under trans-Mediterranean commerce. Meanwhile, the EU is getting ready to announce a four-year, $12 billion aid program slated for North African and Middle Eastern countries.

Another very important change is occurring in companies' perceptions of risk in the region. As the likelihood of conflict declines, companies are losing their inhibitions about investing in these countries. In the early stages, Israel may be the major beneficiary of this trend. Intel has just announced a $1.6 billion flash memory chip plant in Israel--the largest industrial investment in the Jewish state's history.

It's about time. For a region at the doorstep of Europe, the Middle East's economic record is appalling. With 270 million inhabitants, the entire Middle East and North African area, excluding Israel, today exports fewer manufactured goods than Finland, with a population of 5 million. Since 1986, real per capita incomes in the Arab world have been dropping by 2% a year--the worst record in the developing world. By 2010, the Middle East will have to create close to 50 million new jobs. "There's no way you can do that unless you attract private investment," says Shafik.

Unfortunately, political problems are still inhibiting business. Syria and Lebanon are boycotting the conference, and some Lebanese executives who wanted to attend cancelled after feeling government pressure. Many Egyptian, Palestinian, and Jordanian businesspeople are still reluctant to strike deals with Israelis despite the peace agreements.

The Amman summit gives them a much-needed green light from their governments to do business. These regimes are figuring out that without a competitive business environment, they will fall far behind the Israelis and everyone else.EDITED BY STANLEY REED By John Rossant in Rome, with Kirk Albrecht in Amman and Neal Sandler in Jerusalem


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