Employing Economic Tools To Address MENA's Challenges

Jose W. Fernandez
Assistant Secretary, Bureau of Economic and Business Affairs
21st Annual Arab-U.S. Policymakers Conference
Washington, DC
October 26, 2012


Thank you, Dr. Anthony for that kind introduction, thank you for your advice whenever I have asked for it, and for all that you do to improve U.S.-Arab relations.

I would also like to thank National Council on U.S.-Arab Relations for hosting this prestigious conference and for inviting me to speak about the work of the State Department in the Middle East and North Africa region. Thanks also to Danny Sebright and the U.S.-UAE Business Council for sponsoring this luncheon.

Finally, to all my Muslim friends here, Eid Mubarak.

I want to start off this afternoon by doing something diplomats don’t like to do: highlighting some of the problems we all face together in the Middle East and North Africa. I do so not because I am a pessimist, but because I believe that while these obstacles are great, they are not insurmountable. We have an array of economic tools, both with governments and with the private sector, which we can employ to address these challenges and which I would like to talk to you about in the next few minutes.

Defining the Problem

Over the past few decades, challenges—and opportunities—that were previously isolated to a single country are increasingly shared by entire regions, and the Middle East and North Africa is no exception. In the MENA region, we have witnessed changing attitudes sweeping across borders. Underlying this change is a demand for economic opportunity, a demand for freedom, a demand for individual dignity, and a call for more inclusive prosperity. These demands are in fact daunting and are redefining the landscape around the region. But they also provide enormous opportunities, if the current turmoil can be channeled into creating successful democracies that bring about fiscal stabilization, jobs, and skills training. To do so, governments all around the world will need to support the development of the private sector, which previously languished in many countries due to cronyism, corruption, and state-centric economies.

The fruits of the old policies are familiar: a combustible mixture of a demographic bulge and stagnant economies. In almost every country in the region, individuals younger than 25 years of age make up 40 and sometimes 60 percent of the population, and youth unemployment is projected to remain at more than 25 percent or above for the foreseeable future. Young people are coming into the work force faster than jobs can be created for them, and in some countries, the more educated a person is, the harder it is to find a job. Creating enough jobs will require high growth rates that must be sustained year upon year, and as we’ve learned in this country, that’s a tall order.

Another major economic challenge, especially in North Africa, is the virtual absence of regional integration. Intra-regional trade in the Maghreb accounts for less than four percent of total trade, making it the least economically integrated region anywhere in the world. The closing of the Algerian-Moroccan border since 1994 has effectively split the region in two. But that’s not the only obstacle. It is estimated that this lack of integration bears an economic cost of around two to three percent of GDP across the board in the Maghreb. That’s a cost that the Maghreb can’t afford, and that’s why it’s critical to build economic bridges than can span any political divide.

But again, the situation is far from hopeless: ties between Tunisia and Libya have shown signs of strengthening as evidenced by Tunisia welcoming over 1 million Libyan refugees during its own crisis; and entrepreneurs in Morocco and Algeria are working together to find ways to develop their economies.

Employing Our Tools: Government to Government Dialogue

So what can the government do? As Assistant Secretary, it has been my honor to work with great partners in nearly every country in the region to strengthen our bilateral relationships. We have done so because it is critical for our interests that the region succeeds both politically and economically. We know full well that we will not be able to dictate this success, but if we can help it along we can contribute to the creation of societies that will be not only stable, but also democratic.

So we are working actively with governments—both bilaterally and multilaterally—to help create environments in which economies can grow and businesses can flourish, because one way we can help democratic transitions succeed is to help prevent an economic crisis from undermining political progress.

For instance, next week the United States will chair the Deauville Partnership with Arab Countries to promote small and medium-sized enterprises in Egypt, Jordan, Libya, Morocco, Tunisia, and Yemen. Multilateral institutions and partners will work together to provide functional expertise and technical assistance to foster SME growth, improve job creation, and improve and create economic development. The Overseas Private Investment Corporation has committed or approved more than $433 million in financing and insurance in critical sectors that include transportation, finance, ICT, and franchising, as well as support for small and medium enterprises.

Well before the Arab Spring, of course, the United States was engaged in the economic development of the region. In 2007, for example, the Millennium Challenge Corporation signed a five-year, $700 million compact with Morocco to stimulate economic growth through investments in projects ranging from small-scale fisheries to financial services and enterprise support. MCC remains an active player in MENA region with a recent $275 million compact with Jordan and a planned program with Tunisia to address the main constraints to Tunisia’s economic growth.

I could go on and talk about Tunisian and Egyptian enterprise funds. But our recent efforts have not been limited to funding. In recent months, we have hosted a number of strategic and economic dialogues with the governments of partners the United Arab Emirates, Morocco, and Algeria that covered a range of topics essential to a strong economic partnership between our countries. Danny Sebright and his organization were kind enough to host the UAE delegation and provided essential private sector input into our discussions. It’s amazing to me that until a year ago, we didn’t have an economic dialogue with our second largest trading partner in the Middle East, the UAE. We do now.

In the interests of promoting trade and investment between the United States and countries throughout the region, we’ve also signed five Free Trade Agreements and another five Bilateral Investment Treaties. We also have Trade and Investment Framework Agreements with twelve countries in the region. Just last month Ron Kirk, our U.S. Trade Representative, announced a Framework Agreement between the U.S. and the Gulf Cooperation Council (GCC) for Trade, Economic, Investment and Technical Cooperation. As it stands today, our trade between the U.S. and the GCC totaled almost $100 billion last year. The GCC countries, together, ranked tenth as an export market for the United States last year (that’s more than our exports to Japan and France put together), while the GCC was the sixth largest supplier of imports to the United States, mostly oil. With the new Agreement, we hope to go well beyond these already encouraging figures.

To complement these efforts, we’ve started an initiative close to my heart called Domestic Finance for Development, or DF4D, to create an environment in which the small businesses we support in our other efforts can thrive, and the basic principle behind DF4D is that when countries can fund their own development, they will in fact own it. By improving tax systems, reducing corruption, and increasing fiscal transparency, a country can harness real growth and create real economic opportunity. As part of DF4D, we have been proud to announce a new partnership with the Financial Services Volunteer Corps, or FSVC, to provide technical assistance to transitioning democracies in the MENA region. In the areas of tax administration and transparency, we have contributed close to $1million to seed this initiative and the Corps is donating in-kind technical assistance expertise valued at $1.2 million. We are hoping to scale up this effort through financial or in- kind contributions from G8 partners.

Employing Our Tools: Engaging the Private Sector

So that’s the government. And I will be the first to admit that all of the government initiatives we concoct can only have a limited effect. That’s because the success of all of these agreements, dialogues, and projects lies in the ability of the private sector—many of you here in this room—to exploit the opportunities that they create. And this is where I will focus the remainder of my remarks today: on our partnerships with the private sector. In an era of tightening budgets and reduced resources, we must look for innovative ways to accomplish our goals. We need private partners and businesses to work with us, not just because of budget issues, but because the level of expertise in the private sector is invaluable to economies across the MENA region. I can’t tell you how often I hear that from governments. For many countries, this is a critical point in their economic history, and private sector know-how more than funding is what they want.

One of the most effective ways we work with the private sector is through the promotion of entrepreneurship. A key example of our efforts in this arena is the Department’s Global Entrepreneurship Program. With the help of over 100 private partners, the Global Entrepreneurship Program seeks to empower local people and businesses to become full participants in their economies through entrepreneurship. In many countries, the Global Entrepreneurship Program works with local business and communities not only to foster the ideal of innovation, but also to provide tools for people to create new businesses, to build a new life for themselves. For example, in our partnership with Egypt’s Competitiveness Program, we have created an increase in outreach activities that just recently involved 1,200 students at public universities. Additionally, ECP helped develop 35 startups, and in a short time they facilitated financing for up to 35 more startups. Also, in December, we will be collaborating with the UAE to organize the third Global Entrepreneurship Summit in Dubai. The last two attracted over one thousand, and we believe this summit will attract even more entrepreneurs, investors, and government representatives from the region and around the world to create a better environment in which entrepreneurship can flourish.

Another vehicle that we created to promote entrepreneurship is the Partnership for a New Beginning’s North Africa Partnership for Economic opportunity, or PNB-NAPEO, as we call it for short. PNB-NAPEO is a Maghreb regional public-private partnership with leading U.S. companies and NGOs. It focuses on building cross-border ties from the bottom-up among Maghreb entrepreneurs, business leaders and youth innovators. We have held two conferences, the most recent one in Marrakech we had more than 400 U.S. and Maghreb entrepreneurs, investors, and educators. This past July, the Algeria PNB-NAPEO local board sponsored an entrepreneurship training program that brought together students from Algeria, Morocco and Tunisia in an intra-regional exchange that was one of the first of its kind in this fragmented region, and in the next few months we will host visits to the Maghreb by U.S. universities and private equity entrepreneurs.

But our support for the private sector goes beyond entrepreneurs and start-ups. In early September, I traveled to Egypt with Deputy Secretary of State Thomas Nides and a trade delegation that included 95 business people from 48 companies, including Fortune 500 companies such as General Electric, Cisco, Coca-Cola, and Cargill. It was the biggest delegation of its kind to Egypt, and I am told the second largest delegation that had been taken anywhere.

The purpose of our delegation was to identify business opportunities for American companies. But we were also there for another very important reason: to support Egypt’s democratic transition and economic development. The trip gave American business leaders unprecedented access to the new Egyptian government, and in turn offered the Egyptian government a unique opportunity to signal its openness to trade and investment and its commitment to economic and political stability. And that it did: in the words of one government official, “What’s good U.S. business will be good for Egypt,” and they are eager to attract American investors. For their part, our U.S business participants came prepared with their own menu of reforms they urged the Egyptian government to undertake in order to encourage growth in trade and investment. The Egyptians welcomed the delegation as an important sign of interest in doing business in Egypt from global leaders in numerous key industry and trade sectors.

In short, at the State Department, we will continue to be a convening partner and bring together foreign governments and our private sector. We will work across the region with private partners eager to contribute to the economic development of the countries in which they operate. This is part of the vision of our continuing diplomacy in the MENA region and of Secretary Clinton’s economic statecraft agenda. For our own foreign policy goals, the bottom line is we need to create more links between the new democracies and American industry.

Conclusion: We Will Not Retreat

Let me conclude by repeating what I said at the outset: there are daunting challenges throughout the region. We need no more proof of them than the attacks in September that took the lives of four of our own and left scars across our embassies in North Africa. But President Obama has made clear that no amount of violence will make America retreat from the region. We will bring justice to those who harm us and our friends, but we will not be deterred from siding with history. We will support our allies; we will partner with new democracies to achieve the aspirations of all of our people.

In the last few months, I’ve been reminded of my first trip to North Africa. This was early2010, before the advent of the Arab Spring. I’d been on the job for less than a year. I was there to test the idea of PNB-NAPEO with a number of North African business leaders and educators. No government. I wasn’t sure how they would react to a plan to bring entrepreneurs, private sector investors, and business schools to their region to promote private sector involvement. So I met with a small group of Algerians and Tunisians and explained the plan. Then I asked for their comments. I sat back, waited. They said nothing for about 20 seconds, the longest 20 seconds of my time at the State Department. Finally one gentleman got up, took me by the hand, and said, “Mr. Fernandez, this is the America we believe in.” This is the America we believe in. Well, this is the America we believe in.

Going forward, I’m optimistic that our engagement with the region will strengthen and our coordination with the private sector will continue to bear fruit. Working together, with humility and perseverance, we can meet the economic challenges of today, and create a prosperous tomorrow for all.

Thank you.