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Abu Dhabi green city the start of a new Middle East energy vision

November 8, 2011 1 comment

If Abu Dhabi were a canvas, few painters would consider using “green” to paint the skyscraper-clad urban desert oasis. Sure, the rich United Arab Emirates city pumps artificial green into its oven of a climate — tree-lined boulevards, expansive golf courses and other vegetation that could never survive without plundering a tremendous amount of resources give the metropolis a more Western feel.

Maintaining this Middle Eastern fantasy ecosystem comes at a heavy environmental and social price. Environmentalists last year warned, “the country, already reliant on costly desalination plants powered by its lucrative fossil fuels, must cut consumption by its 8.2 million people or risk depleting groundwater resources in 50 years,” according to a Reuters report.

It appears Masdar City, an Abu Dhabi community, took that message seriously. Masdar aspires to be the world’s first zero-carbon community and hopes waste timber will earn it that distinction. Masdar also will use native plants in landscaping, which require one-third the amount of water compared with Abu Dhabi’s penchant for unsustainable, unnatural flora. The city intends to divert 50 percent of all waste from landfills by recycling and reusing timber and other materials in the project’s first phase.

Sustainability practices are the first step in attracting research and business opportunities in other energy fields, especially for a region like the Gulf Coast. With European energy markets already more mature and those economies lacking the capital to initiate expensive, advanced projects, energy firms are looking toward emerging economies in the Middle East, Latin America and Asia Pacific for investment.

Scotland struck a deal with Masdar City on Monday to support  university research and other initiatives. That deal is potentially worth billions of dollars, Scottish First Minister Alex Salmond said:

“I firmly believe this agreement will yield great results for Abu Dhabi, great results for Scotland, and I do believe it will lead to significant advances that will benefit this entire planet. That’s the importance of what’s been talked about.”

As I’ve said in this space many times before, Middle Eastern nations must diversify their energy economies. That will that help avoid dependence on state-owned oil c0mpanies that prone to corruption. It also will provide a place for investment dollars, as energy firms are simply waiting for the next market to pop up so they can do something with all their money. In turn, that will spur research institutions — possibly leading to patents and valuable innovation — in Middle Eastern nations that desperately need to create skilled jobs for its educated, underemployed and young citizens.

The Middle East, with its well-documented dependence on fossil fuel production as a main economic driver, is an embryonic energy market. Energy pioneers there realize the benefits of technologies like PV solar, but too few people in the region have enough understanding of the technology for any sort of renewable energy movement momentum. However, investors will be more than ready when that momentum builds.

The Masdar City project is a good start, as it will get people in the region thinking about renewable energy and sustainability. Already, Masdar Institute, a graduate-level university focusing on renewable energy and sustainability, hosted a meeting with 12 UAE universities about joining the European Union-Gulf Cooperation Council (EU-GCC) Clean Energy Network. That organization strives to “build a functional partnership and extensive new networks relevant to renewable energy sources, energy demand side management and energy efficiency, clean natural gas & related clean technologies, electricity interconnections and market integration; as well as carbon capture and storage.”

The Middle East needs a new energy picture. It’s time to paint the region green.

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Cutting US foreign assistance bad for economy, Arab democracy

August 2, 2011 1 comment

Everyone knows US foreign assistance is slated for spending cuts, but recent aid authorization bills show the major differences already forming between the House and Senate. Never has there been a better opportunity and greater need for democracy promotion and US aid than the Arab Spring. But if the House gets its way, that will mean a sharply decreased US role abroad — and, as I will argue, to the detriment of the US economy.

First, let’s start with the facts. The foreign assistance fund — which includes food aid, supporting stable democratic institutions and the like — is not in any way related to the defense budget. Politicians usually lump the two together, whether intentionally or not, because our military missions in Iraq and Afghanistan have undertaken the ostensible role of democracy promotion. But when you look at the numbers, foreign assistance accounts for a mere 1 percent of the US budget. That still hasn’t stopped people like Rep. Paul Ryan, R-Wisc., from suggesting cuts of 44 percent by 2016. By comparison defense budget — cuts to which the House has tried to avoid — is the largest spending item in the US budget, comprising 24 percent of total spending this fiscal year.

Many people believe the US should turn inward — some argue the nation cannot project itself abroad when it cannot take care of its economic issues at home. I don’t buy that argument. US-based nongovernmental organizations will continue to do a lot of the heavy lifting overseas when it comes to international aid, but they will need government grants to keep major operations going. Denying those funds could lead to job loss, so keeping foreign assistance at current funding levels will keep Americans at work.

Also, it is in US economic interests to promote healthy governments and citizens because it will lead to economic rewards in the future. Corrupt, undemocratic governments will generally operate at the expense of their own people largely by keeping growing wealth for the government elite. That means people have less money to spend on more expensive American goods, which in turn dampens US overseas profits.

Curbing corruption will also ensure future US investment is not wasted. Billions of dollars of US investment — both from the federal government and private citizens or corporations — get lost among red tape or swindling politicians in corrupt foreign nations. Some of those nations — such as Afghanistan, Mongolia and India — sit on treasures of natural resources the US lacks, so US business interests are more than happy to invest. Cleaning up those states would produce a greater return on that investment.

In terms of the hopeful new Arab democracies, US foreign assistance can help build trust between those governing in Arab nations and the US officials with whom they will be communicating. It’s no secret that Egyptians oppose US meddling, a fear the military there is exploiting. But it’s not the Arab street the US must win over — it’s the new, democratically-elected leaders with whom the US must curry favor. The US already is training potential political leaders in Libya, Syria and Egypt — certainly a good start. The US wants to be the nation those new leaders look toward for guidance, but cutting foreign assistance will imperil the US ability to help guide new Arab democracies through the troubles they will encounter during nascent stages. In turn, that will dampen the ability to do everything from strike bilateral trade agreements to establishing and supporting sound human rights protections.

On top of the general budget malaise, a Foreign Relations Authorization bill currently going through the motions on Capitol Hill makes it more difficult for the US to use international aid in corrupt nations:

The corruption indicator has a range of uncertainly (especially around the median) and can have time lags of up to two years.  Using the control of corruption indicator as a hard hurdle for all U.S. economic and development assistance without addressing the inherent problems in the indicator could prove highly challenging.

That bill, pushed by the House (there also is a less restrictive Senate version) is not likely to pass in the Senate. But the writing is on the wall for US foreign assistance. If this debt ceiling fiasco proved anything, it’s that the House and Senate are beholden to very different interests and views. The House will champion spending cuts abroad because, rhetorically, it sounds good. The House will stomach defense cuts, but it will not digest those cuts easily. Still, it’s the assault on foreign assistance that should induce gagging.

 

World Bank SME program right thing for Middle East

This new World Bank program aimed at financing small- and medium-sized enterprises (SMEs) is the kind of policy this blog is all about. Democracy and entrepreneurship should work in lockstep. By giving people choice in who they vote for, you give people choice in how they want to live their lives. Entrepreneurship is all about choice — the choice between staying in a stable job (or remaining unemployed) and striking out on your own, risk and all, to do something different.

From the MEMRI Economic Blog:

MSME Sector: Engine Of Growth

“It is indeed the huge MSME sector across the Middle East and North Africa that can and must be the engine for accelerating growth and in so doing drive that all-important factor: job creation.” So says Shamshad Akhtar, vice president for the region at the World Bank. The facility has been a gleam in her eye from the outset, based in a firm conviction that enterprise access to finance and knowhow has proven globally to be a critical path to inclusive economic growth for millions of people. As the challenges of openness and opportunity recast history across the region in its streets and squares, the emphasis on creating employment and entrepreneurship opportunities has never been more urgent.

Lack Of Funding

As elsewhere in the world, the MSME sector in the Middle East and North Africa (MENA) is where significant numbers of people make (or could make) their livelihoods. For example businesses employing up to 100 people make up well over 90% of all enterprises in economies such as Tunisia, Egypt, Jordan and Morocco. But the constraints are sharply felt. Bank lending to MSMEs is lowest in the world along with Sub Saharan Africa, and only 10% of MENA enterprises finance their investment expenditures with bank loans. Smaller players are starved for capital and growth in output, and job creation hits a ceiling.

With a large, educated amount of unemployed youth being one of the driving factors behind the Arab Spring, this program could not have come at a better time. If there are no jobs, people need to create them. Arab youth are right to hold their governments accountable for failing them — that is deserved. But plenty of smart, driven youth could also channel their revolutionary energy into innovative productivity.

Some of the greatest entrepreneurs have failed time and time again before finding the one innovation that changed the course of their lives. But in the top-down, authoritative Arab society, few dreamers receive the leeway to pursue such innovations. Responsibilities remain with putting food on the table for large families. Arab families also push their children into becoming engineers or doctors — recently, lawyers have become somewhat acceptable — simply because those professions represented stability and status. Entrepreneurship is just now rinsing off a dirty label in the United States, and the Arab world lags far behind cleaning up the term.

This influx of capital will only help push Arab innovators to go at it alone. Ultimately, it will merely pull people who already have the entrepreneurial spirit into the fold — this program won’t immediately attract the 22-year-old busboy with five siblings. But this program could very well set the groundwork for the entrepreneurial spirit in the Arab world. Eventually, busboys could innovate in their spare time, thinking of the next big business idea or technology.

Sidenote: Apologies for my self-imposed, week-long hiatus. It’s somewhat taxing to write 1,000 words daily for the job that pays my bills and then do another 600-1,000 on top of it each day for this blog. I’m sure you all had no idea what to do with yourselves this past week. Hopefully you read a book, or something.

Jordan workforce training initiative disappoints World Bank

Jordan must improve its joint public and private sector workforce development initiative, according to a sub-par World Bank report.

Since adopting a national plan to improve workforce training and preparedness in an increasingly globalized Jordanian economy, “the past two years have not seen effective coordinated implementation” of outlined initiatives, the World Bank said.

The review evaluates a 2002 plan to better integrate the private sector into the public sector’s efforts in preparing Jordanian workers for the competitive globalized market. That plan said, chiefly:

The absence of employers in the participation and decision making of most aspects of workforce development is the current dominating characteristic of the system. For example, none of the 5 private sector representatives of the 11 Board members of the VTC’s Board of Directors hold leadership positions or represent priority sectors. Over the last 30 years of VTC’s history, the attitude of the private sector toward VTC has been symbolic at best.

The quality of private sector training providers varies in both cost and quality and will have to be improved over time by developing certification and accreditation activities.

Jordan’s government has failed to set policies encouraging this partnership, the World Bank report released this week said. Ultimately, workforce training has to start with heavy government lifting. It must set the agenda and have a direction before it instructs the private sector on how to train and develop its workforce. Until the government knows what it wants, the private sector will remain distant.

The truly innovative and society-benefiting businesses follow talented minds and skilled labor, which Jordan certainly could have if it coordinated its efforts. The average Jordanian goes to school for 13 years, which means there are plenty who go to college. Workforce training starts with the government because it must set the agenda.

Private sector was not engaged in workforce training because, historically, Jordan generated most of its revenues from high tariffs, effectively closing off the economy and reducing its need for productive efficiency and a trained workforce. But the financial crisis that hit the nation in 1988 provoked serious trade liberalization discussion. In essence, government can take the blame for the private sector’s unwillingness or inability to train workers — the government had never given the private sector a reason to prioritize this.

Jordan had been maligned by unemployment and poverty, relying on at least five International Monetary Fund programs between 1992 and 2002. As a result, the Hashemite Kingdom had to follow the standard IMF prescription of lowering trade barriers, cutting public benefits and privatizing business, among other things. During the time of those IMF programs, Jordan joined the World Trade Organization, the EU partnership agreement, the Arab Free Trade Area and a free trade pact with the US. That all meant Jordan needed a better trained workforce to compete with its new, freer economic borders, which has lead to rapidly increasing exports and GDP.

But increasing exports is easy when you change from a drastically protectionist trade policy and have low wages — Jordan’s GDP per capita is $5,400, ranking 144th in the world according to the CIA World Factbook. The key now for Jordan is value creation. More than 77 percent of its workforce is in services, which are low-paying and do little to generate societal benefit.

The median age in Jordan is 22, which means there’s an overwhelming amount of young people in the country. It will not survive based on an almost entirely service-based economy. The government needs the private sector to help train workers in order to attract capital and investment. Until the government gets its act together, that won’t happen.

Yemeni banks cease some operation

July 14, 2011 1 comment

Growing tribal violence has pushed Yemenis to withdraw large amounts from banks that have crippled their ability to perform basic activities.

The withdrawals represent a bigger problem — tribal conflict is getting so dire that Yemenis are either fleeing the country with cash in hand or there is a real fear that whatever government comes to power could exert force over banks. With President Ali Abdullah Saleh in Saudi Arabia receiving medical treatment, there’s a sizable power vacuum that needs filling.  Saleh’s tribal allies already had turned against him. Yemen’s tribes are more than willing to vie for his former position atop the government.

This banking problem is more acute for the long term future than short term. Without any reserves, it cannot offer loans to businesses — and if it does, it risks default in an incredibly unstable economy. That means it cannot promote business in its own borders.

Additionally, it likely will not attract foreign investment (not that it was particularly successful in that regard before the Arab Spring) with financially tapped banks. The volatile political landscape will probably continue in Yemen much longer than any other Arab Spring nation, even after a new government comes to power. It appears some militant tribal faction will assume the presidency if Saleh steps down or is forcibly removed. Saleh has vowed to return to Yemen, which has made the country even more uneasy as Saleh will undoubtedly try to regain power from the tribes that now run the country. All of this sends bad signals to foreign investors.

Taiz is the city to watch. It’s considered the intellectu­al capital of Yemen, but it is growing increasing­ly militarize­d. People there never would have dreamed of seeing citizens carrying guns through the street, but it is now a daily occurrence­.

The longer Saleh stays in Saudi Arabia, the greater chance tribal violence breaks out in effort to establish control and supremacy over Yemen. I’m beginning to doubt that any change in government would lead to a peaceful, democratic one. Saleh certainly has not been a good leader — hardly anyone entrenched in power for 30+ years is — but there doesn’t appear to be a civil group ready to wrest power from the well establishe­d tribes.

From Al Bawaba:

Aeriqi confirms that banks suffering from large withdrawals may collapse and notes that liquidity is scarce. Dozens of banks are carrying out measures to ease monetary withdrawals such as reducing official working hours and initiating electricity interruptions.

Economic experts note the current crisis in Yemen has greatly impacted the Yemeni economy, especially the banking organizations which provide loans and credit to organizations and individual borrowers in order to meet their financial needs.

New IMF chief good news for Arab world

New International Monetary Fund chief Christine Lagarde has promised to give emerging markets a greater role in the macroeconomic monitoring and emergency lending organization, a move that should be a positive for Arab countries.

The IMF lends money to ailing nations — mostly poor — based on a “Washington Consensus” of structural adjustment policies. The idea is that these SAPs will integrate nations into the global economy, which will boost employment, make goods cheaper and provide stability for those nations.

For nations with a poor regard for human rights, IMF’s conditions could possibly increase the income gap between the wealthy and poor. IMF conditions such as spending cuts in social services, massive public sector layoffs, wage freezes to attract foreign investment, weaken public sector rights, devaluing local currencies, abolish price controls on basic foodstuffs and promotion of export-oriented production all put pressure on nations’ poor.

In nations where human rights and democracy are not respected — like many in the Arab world — IMF loans have been widely abused. For example, since dictators ran many borrowing countries between 1972 and 1981, IMF loans were used to boost military spending from $2.5 billion to $29 billion. Developing nations turned to rapid industrialization, building airports and dams, rather than small-scale development projects to assist local economies.

The IMF, headquartered in Washington, D.C., has a “Western” economic philosophy of open trade, but open trade does not suit every nation. And given the recent financial troubles of interconnected, open economies in Europe and the United States, the timing could not be better for emerging market input.

The IMF applies its Washington Consensus because it believes that cocktail of macroeconomic reform will allow debtor nations to repay IMF loans faster. But I would argue this is a quick fix that provides a cosmetic spurt to GDP without actually creating a sustainable improvement of quality of life.

Many Arab nations — even a majority of those still engaged in the Arab Spring revolutions — are largely run by authoritarian figures that spend little on social services because there’s no political pressure, such as elections, to do so; rely on public sector employment because those figures build loyalty through those jobs; rely on military employment for loyalty; have undiversified economies; and institutionally-created income gaps through shoddy welfare systems and lack of homegrown business.

At the root of this problem is the lack of accountability for Arab leaders as a result of weak or nonexistent human rights. Without the threat of being voted out of office and with the military, business elite and public sector dependent on those rulers staying in power, there are few ways to force leaders to cycle the money they earn and keep for themselves back into the economy. As a result, most people remain poor, education becomes less attainable, those nations become less attractive for foreign investment to mine the talent living there and people do not have enough money to do things like become an entrepreneur.

India and China still have rampant income inequality and the latter has a suspect human rights record, but their economies are growing faster than anyone. They will undoubtedly have an increased influence in the Lagarde-led IMF. India built its economy through harnessing the loads of young talent it had at home, making it an attractive place for investment. China closed its economy, has manipulated currency and relied on its 2 billion residents to be its market.

Neither India or China should be a model for macroeconomic policies. Their input, however, could help craft a better model than what we have today.

 

 

 

Lebanon gets 3G, elevates its business attraction

Lebanon probably hasn’t paid too much attention to 4G iPhones, as the country just got 3G capability nationwide this week.

The new network should make Lebanon a more attractive destination for investment. It still has to get over the whole being a puppet of Syria and constant tension with Israel things, but this can only help — especially since Iraq and Syria are the only other 3G networks in the region.

The Middle East and Africa as a region had just 7 percent 3G cellphone penetration in 2009, one of the worst regions in the world for cellphone service. That number is expected to grow to 35 percent in 2014.

The Middle East has been a little slower than many regions on communications technology, but it is trending toward modernization. More Middle Eastern residents have cellphones than ever before, and it is one of the fastest growing regions for cellphone adoption.

Lack of economic diversity certainly has played a role in the Middle East’s slow adjustment to 3G. With so much of the Middle East dependent on the oil industry, there was little incentive for governments to make that investment because the oil industry could get along fine without it. Everyone needs oil, and production efficiency isn’t a big concern for buyers.

The 3G technology also could help protest movements, if Lebanese feel so inclined to join other Arab nations. Faster and more reliable communications technology would make Twitter even more viable.

From the Lebanon Daily Star:

The state-owned GSM operator is set to launch one of the latest versions of the 3G technologies, 3.9G, granting users Internet speeds of up to 170 MB per second, more than a 100 times maximum bandwidths of current 2G networks.

This is like bringing Lebanon out of the cellphone stone age. That alone should make it a more attractive place for business. It has the aforementioned shaky governance and political atmosphere issues to overcome, which will definitely inhibit investment. Still, businesses couldn’t have liked the idea of operating in a rapid-paced global world on a 2G network. This will certainly pay off.

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