Middle East economic integration

Middle East economic integration

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Middle East economic integration has been envisioned, proposed or implemented by various parties in recent history.

The stated rationale
Theory of justification
Theory of justification is a part of epistemology that attempts to understand the justification of propositions and beliefs. Epistemologists are concerned with various epistemic features of belief, which include the ideas of justification, warrant, rationality, and probability...

 is that peace, stability and prosperity in the Middle East
Middle East
The Middle East is a region that encompasses Western Asia and Northern Africa. It is often used as a synonym for Near East, in opposition to Far East...

 can only be sustained over the long-run through intra-regional economic cooperation.

Governance
Governance
Governance is the act of governing. It relates to decisions that define expectations, grant power, or verify performance. It consists of either a separate process or part of management or leadership processes...

, education reform
Education reform
Education reform is the process of improving public education. Small improvements in education theoretically have large social returns, in health, wealth and well-being. Historically, reforms have taken different forms because the motivations of reformers have differed.A continuing motivation has...

, social investing, knowledge economy
Knowledge economy
The knowledge economy is a term that refers either to an economy of knowledge focused on the production and management of knowledge in the frame of economic constraints, or to a knowledge-based economy. In the second meaning, more frequently used, it refers to the use of knowledge technologies to...

, market economy
Market economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...

, privatization
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...

 and freedom of press are important ingredients in economic integration
Economic integration
Economic integration refers to trade unification between different states by the partial or full abolishing of customs tariffs on trade taking place within the borders of each state...

.

Historical background



At the 1994 MIddle East and North Africa (MENA
MENA
The term MENA, for "Middle East and North Africa", is an acronym often used in academic, military planning and business writing.The term covers an extensive region, extending from Morocco to Iran, including the majority of both the Middle Eastern and Maghreb countries...

) conference in Casablanca, U.S. Secretary of State Warren Christopher
Warren Christopher
Warren Minor Christopher was an American lawyer, diplomat and politician. During Bill Clinton's first term as President, Christopher served as the 63rd Secretary of State. He also served as Deputy Attorney General in the Lyndon Johnson administration, and as Deputy Secretary of State in the Jimmy...

 stated that his government’s mission was to:

Transform the peace being made between governments into a peace between peoples.
Governments can make the peace. Governments can create the climate for economic
growth. But only the people of the private sector can marshall [sic] the resources
necessary for sustained growth and development. Only the private sector can
produce a peace that will endure.

Objectives


We can identify three reasons why countries seek greater regional integration:
  1. to make economic welfare gains,
  2. to increase the region’s collective political bargaining power in extra-regional issues, and
  3. to achieve other non-economic national goals, such as meeting security concerns and preventing future conflict.


In 1993, one leading architect of the peace plan, Israeli Prime Minister Shimon Peres
Shimon Peres
GCMG is the ninth President of the State of Israel. Peres served twice as the eighth Prime Minister of Israel and once as Interim Prime Minister, and has been a member of 12 cabinets in a political career spanning over 66 years...

, envisioned that:


The next stage, after bilateral and multilateral relationships have been established,
will entail formation of regional industries through the cooperation of international
bodies and independent international consortiums. At this point, the regional
economic process will be upgraded and the new reality, in which business precedes
politics, will be instituted. Ultimately, the Middle East will unite in a common
market- after we achieve peace. And the very existence of this common market will
foster vital interests in maintaining peace over the long term.

Economy and peace


A prerequisite to economic integration is the establishment of peace in this region of the world. To date several initiatives have enabled a rapprochement between former political enemies:

The Oslo Peace Accords followed by the Israel–Jordan peace treaty in 1994 have promulgated a greater economic interaction between Israel and its Arab neighbors. Still, problems persist such as the Israeli–Palestinian conflict
Israeli–Palestinian conflict
The Israeli–Palestinian conflict is the ongoing conflict between Israelis and Palestinians. The conflict is wide-ranging, and the term is also used in reference to the earlier phases of the same conflict, between Jewish and Zionist yishuv and the Arab population living in Palestine under Ottoman or...

, also involving Syria
Syria
Syria , officially the Syrian Arab Republic , is a country in Western Asia, bordering Lebanon and the Mediterranean Sea to the West, Turkey to the north, Iraq to the east, Jordan to the south, and Israel to the southwest....

, Lebanon
Lebanon
Lebanon , officially the Republic of LebanonRepublic of Lebanon is the most common term used by Lebanese government agencies. The term Lebanese Republic, a literal translation of the official Arabic and French names that is not used in today's world. Arabic is the most common language spoken among...

 and Iran
Iran
Iran , officially the Islamic Republic of Iran , is a country in Southern and Western Asia. The name "Iran" has been in use natively since the Sassanian era and came into use internationally in 1935, before which the country was known to the Western world as Persia...

. Furthermore, the instability created by the war in Afghanistan
War in Afghanistan (2001–present)
The War in Afghanistan began on October 7, 2001, as the armed forces of the United States of America, the United Kingdom, Australia, and the Afghan United Front launched Operation Enduring Freedom...

 and the 2003 US invasion of Iraq are considered negative factors to be overcome before the establishment of an economic union in this region.

The regional characteristics of MENA


  • Despite many attempts since World War II
    World War II
    World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

     to promote economic integration and political cooperation among states in the MENA
    MENA
    The term MENA, for "Middle East and North Africa", is an acronym often used in academic, military planning and business writing.The term covers an extensive region, extending from Morocco to Iran, including the majority of both the Middle Eastern and Maghreb countries...

     region, economic interactions have remained limited. The scale of intra-regional merchandise trade is limited, amounting to only some 7-8% of total exports and imports; this compares to over 60% in the European
    Europe
    Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...

    .

Intra-regional trade, (% of total trade) EU CEE
Cee
Cee or CEE may refer to:* Cee, Galicia, a municipality in the province of A Coruña, Galicia, Spain* C, third letter of the English alphabet* Central and Eastern Europe, a region encompassing former Eastern Bloc countries...

+CIS
CIS
CIS usually refers to the Commonwealth of Independent States, a modern political entity consisting of eleven former Soviet Union republics.The acronym CIS may also refer to:-Organizations:...

Asia Africa Middle East Western hemisphere
Average (1991-97), source: International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...

62.1 29.6 36.8 9.0 7.1 18.3

  • Capital transactions have also been relatively limited, with the exception of large official flows from the oil-exporting economies to other Arab countries, particularly after the 1973–4 and 1979–80 oil-price increases. Financiers estimate that up to US$2 trillion in investable assets originate in the Persian Gulf
    Persian Gulf
    The Persian Gulf, in Southwest Asia, is an extension of the Indian Ocean located between Iran and the Arabian Peninsula.The Persian Gulf was the focus of the 1980–1988 Iran-Iraq War, in which each side attacked the other's oil tankers...

     region, the bulk of which is parked abroad, often as American Treasury bills and in places like Switzerland
    Switzerland
    Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....

     and London
    London
    London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...

    . Increasingly, however, Arabs are investing in their home region. Governments are also spending billions of dollars on infrastructure, and national investment agencies are looking for opportunities.

  • Tourism
    Tourism
    Tourism is travel for recreational, leisure or business purposes. The World Tourism Organization defines tourists as people "traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes".Tourism has become a...

     and other non-factor service-flow patterns have been quite segmented. Some countries—primarily Egypt, Jordan, Lebanon, Morocco and Tunisia—have received substantial tourist flows from within Mena. For others, particularly Israel, regional tourism has been inhibited by political and security considerations.

  • Labour
    Labour economics
    Labor economics seeks to understand the functioning and dynamics of the market for labor. Labor markets function through the interaction of workers and employers...

     flows have been important, taking the form of:
  1. Flows from non-oil economies to the GCC
    Cooperation Council for the Arab States of the Gulf
    The Cooperation Council for the Arab States of the Gulf , also known as the Gulf Cooperation Council , is a political and economic union of the Arab states bordering the Persian Gulf and constituting the Arabian Peninsula, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates...

     economies, and
  2. Palestinian labour working in Israel. In the 1990s, these flows have been subject to major restrictions and there has been recent substitution of Asian labour for Arab labour in both cases. Mena does not have the kind of labour mobility found, for example, in the EU, where the citizens of one country have the right to work in others.

  • There has been little in the way of regional economic policy
    Economic policy
    Economic policy refers to the actions that governments take in the economic field. It covers the systems for setting interest rates and government budget as well as the labor market, national ownership, and many other areas of government interventions into the economy.Such policies are often...

     coordination, except for the GCC and through the OPEC
    OPEC
    OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings...

     mechanism.

Prospects for the MENA Region
MENA Region 2009 2010 2011
Real GDP growth 2.8 3.6 4.5
Real GDP growth (PPP) 2.7 3.6 4.5
Exports (change %) -9.5 2.6 5.2
Imports (change %) 1.2 4.9 6.6
CA (% of GDP) -0.1 1.5 0.9

Projects




Among the main concrete projects that have been initiated towards economic integration in the Middle East, one can mention:
  1. Council of Arab Economic Unity
    Council of Arab Economic Unity
    The Council of Arab Economic Unity was established by Egypt, Iraq, Jordan, Kuwait, Libya, Mauritania, Palestine, Saudi Arabia, Somalia, Sudan, Tunisia, Syria, United Arab Emirates and Yemen on 3 June 1957...

    : Established in 1964, with the ultimate goal of achieving complete economic unity among its member states. An intermediate objective of customs union
    Customs union
    A customs union is a type of trade bloc which is composed of a free trade area with a common external tariff. The participant countries set up common external trade policy, but in some cases they use different import quotas...

     has been set for 2015.
  2. Economic Cooperation Organization
    Economic Cooperation Organization
    The Economic Cooperation Organization is an intergovernmental organization involving seven Asian and three Eurasian nations, part of the South-central Asian Union. It provides a platform to discuss ways to improve development and promote trade, and investment opportunities. The ECO is an ad hoc...

    : Established in 1985. The common objective is to establish a single market for goods and services in West Asia, like the European Union
    European Union
    The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

    .
  3. US-Middle East Free Trade Area: The U.S.
    United States
    The United States of America is a federal constitutional republic comprising fifty states and a federal district...

     objective with this 2003-initiative has been to gradually increase trade and investment in the Middle East, and to assist the Middle East countries in implementing domestic reforms, instituting the rule of law, protecting private property rights (including intellectual property), and creating a foundation for openness, economic growth, and prosperity.
  4. Euro-Mediterranean free trade area
    Euro-Mediterranean free trade area
    The European Union-Mediterranean Free Trade Area , also called the Euro-Mediterranean Free Trade Area or Euromed FTA, is based on the Barcelona Process and European Neighbourhood Policy...

    : The initial aim is to create a matrix of Free Trade Agreements between each of the partners and the others. Then a single free trade area of 600-800 million people is to be formed, including the European Union.

Challenges and opportunities



There are many obstacles to investment in the region, both real and perceived:
  • Governance
    Governance
    Governance is the act of governing. It relates to decisions that define expectations, grant power, or verify performance. It consists of either a separate process or part of management or leadership processes...

    : Capital is attracted to environments where the rules of the game are clear, adhered to by all and enforced. Some Middle East countries have made positive steps forward in some areas such as reforming their judicial systems or adapting their capital market
    Capital market
    A capital market is a market for securities , where business enterprises and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets...

     laws to international standards such as Saudi Arabia
    Saudi Arabia
    The Kingdom of Saudi Arabia , commonly known in British English as Saudi Arabia and in Arabic as as-Sa‘ūdiyyah , is the largest state in Western Asia by land area, constituting the bulk of the Arabian Peninsula, and the second-largest in the Arab World...

    . However, as a whole good governance is unevenly spread across the region, therefore building efficient and capable public institutions is one priority.

  • Raise competitiveness levels of these economies. This can be achieved through overhauling and aggressively investing in the region’s education system. If the education policies of the region deliver unwanted skills to the market, international investors will not be keen to come in, especially in the services sector. Unemployment runs as high as 40% in at least seven Arab nations. Social investing should be planned in order to produce more entrepreneurs
    Entrepreneurship
    Entrepreneurship is the act of being an entrepreneur, which can be defined as "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods". This may result in new organizations or may be part of revitalizing mature organizations in response...

    , engineers, scientists, and MBA graduates and expand the middle class
    Middle class
    The middle class is any class of people in the middle of a societal hierarchy. In Weberian socio-economic terms, the middle class is the broad group of people in contemporary society who fall socio-economically between the working class and upper class....

    .

  • Raising competitiveness also entails accelerating the privatization
    Privatization
    Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...

     programs, trade liberalization, investing in the infrastructure
    Infrastructure
    Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...

    , deepening and linking capital markets and ensuring that business tackles corruption with a passion.

  • Facilitate the usage and penetration of new technologies. This would enhance the free flow of ideas, information and harness the forces of entrepreneurship
    Entrepreneurship
    Entrepreneurship is the act of being an entrepreneur, which can be defined as "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods". This may result in new organizations or may be part of revitalizing mature organizations in response...

    . New technologies spur innovation and increase productivity which investors seek.

  • Linked to this is increasing the freedom of the press
    Freedom of the press
    Freedom of the press or freedom of the media is the freedom of communication and expression through vehicles including various electronic media and published materials...

     and media which provides checks and balances against governments and business. New technology and freedom of the press would have a particular impact on youth and would encourage participation in the definition of future strategies at national and regional levels. Inter-Middle East cooperation would be enhanced and global integration into the knowledge economy
    Knowledge economy
    The knowledge economy is a term that refers either to an economy of knowledge focused on the production and management of knowledge in the frame of economic constraints, or to a knowledge-based economy. In the second meaning, more frequently used, it refers to the use of knowledge technologies to...

     would be achieved. Increasing the use of new technologies would also reduce red tape and bureaucratic hurdles which are often quoted by business leaders as deterrents to investment.

See also

  • Arab Maghreb Union
    Arab Maghreb Union
    The Arab Maghreb Union is a trade agreement aiming for economic and some sort of future political unity in North Africa between the countries Morocco, Algeria, Tunisia, Libya, and Mauritania...

  • Cooperation Council for the Arab States of the Gulf
    Cooperation Council for the Arab States of the Gulf
    The Cooperation Council for the Arab States of the Gulf , also known as the Gulf Cooperation Council , is a political and economic union of the Arab states bordering the Persian Gulf and constituting the Arabian Peninsula, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates...

  • Economy of the Organisation of the Islamic Conference
    Economy of the Organisation of the Islamic Conference
    The economy of the Organisation of Islamic Cooperation combines the economies of 57 member states. Those 57 countries have a combined GDP of USD7,740 billion. The richest country on the basis of GDP per capita at PPP is United Arab Emirates...

  • Mediterranean Union
  • African Economic Community
    African Economic Community
    The African Economic Community is an organization of African Union states establishing grounds for mutual economic development among the majority of African states...

  • Arab Cooperation Council
    Arab Cooperation Council
    The Arab Cooperation Council was founded in February 1989 by North Yemen, Iraq, Jordan, and Egypt.The ACC was created partly in response to the four countries being left out of the Gulf Cooperation Council , partly out of a desire to foster closer economic cooperation and integration among its...

  • List of free trade agreements
  • List of Trade blocs
  • South-South Cooperation
    South-South Cooperation
    South-South Cooperation is a term historically used by policymakers and academics to describe the exchange of resources, technology, and knowledge between developing countries, also known as countries of the global South.- History :...

  • Middle East and globalization
    Middle East and globalization
    Globalization has been internalized in Arabic as “awlaama” and refers to the spread throughout the globe of ideas, customs, institutions, and attitudes originated in one part of the world which are usually Western in origin. For this reason it has often been perceived as largely equivalent to...


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