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Diplomacy in Action

Remarks at the Middle East Commercial Center Meeting


Remarks
Anne W. Patterson
Assistant Secretary for Near Eastern and North African Affairs 
Movenpick Dead Sea Resort
Amman, Jordan
February 25, 2014

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Good afternoon and thank you for your warm welcome. Let me join with everyone in thanking the U.S. Chamber of Commerce for putting this important event together. We are here to provide governments with an action agenda to enhance regional trade and investment that will spur growth and jobs. Working together is hugely important and I was very impressed with the presentations in the working groups.

Moving The Region’s Economy Forward

As we all know the political instability has become a significant feature across the Middle East in recent years as people – especially young people – demand a greater say in the shaping of their destinies. The economic and social roots of these upheavals are as important as the political ones. There are astonishing youth cohorts across the region, from the Gulf to Yemen and across to North Africa.

In other regions of the world, we have seen that large youthful populations can boost a nation’s confidence as productive workers and consumers. They can be a boon to growth. However in this region, large numbers of unemployed and underemployed young people fear their aspirations for better lives will never be realized.

This is a recipe for continuing and broader instability, and perhaps for violent extremism. For that reason, it is critical that governments provide positive alternatives to the region’s young people -- including educations that equip people with marketable, 21st century skills and jobs that offer hope and dignity for a better future.

The fact is, governments do not have sufficient resources to address their social or infrastructure needs – and the ability of donors to provide assistance or loans to make up the gaps cannot be sustained. The time has come for this region to break away from the models of the past that looked to governments or foreign donors to provide for needed investments – and instead to support the building of a vibrant private sector to take on those responsibilities.

The Partnership Between U.S. Diplomacy and Business

As a long-term partner for the people of this region, the United States supports this urgently-needed paradigm shift. We intend to be engaged across the region to help promote economic growth and expanded trade and investment, tying Middle East nations to each other and to the global economy.

This can only succeed if governments and businesses become partners in growth-oriented reforms, creating a positive new cycle that will generate new opportunities and jobs.

Middle East Economies: Facing Challenges

The changes taking place in the global economy are making it necessary for every country, including the United States, to keep up with the pace of change. The American people – and our leaders – engage in vigorous debates about policies affecting our own competitiveness. Entitlements for the elderly, the scale of government debt, the government role in health care, and the cost of our military are among the most controversial issues in American politics. Yet, in this region discussions of alternative economic policies have long been muted.

So let’s take a closer look at what governments and businesses can do together: As we’ve discussed, trade within this region is the most promising opportunity for economic growth. Trade statistics reveal that you trade more with the EU than with each other – at substantial cost to your own economies. In 2011, trade among Middle East and North African countries accounted for just 10 percent of total exports. During the same period, intraregional trade totaled 25 percent of total exports within the Association of Southeast Asian Nations (ASEAN) and 66 percent within the European Union.

Tariffs are a key factor in stifling intraregional trade. According to some estimates, this lack of integration costs countries around two to three percent of GDP across the board. Although regional governments have reduced manufacturing tariffs somewhat, they remain higher than international standards, particularly in agriculture.

Aside from tariffs, business and political leaders in your countries can decrease the costs of intraregional trade and investment by working together to identify and undertake actions to ease and simplify the movement of goods, services, and investment across your shared borders. The more freely that prospective businesses can establish, grow, and partner with other businesses, the faster they will drive prosperity. And with clear and equitable trade rules, businesses can find and mobilize your countries’ natural sources of competitive advantage more efficiently. Here in Jordan, for instance, the U.S. is working with customs authorities to smooth and expedite the processing of goods at the borders, which will help all companies engaged in trade. Similar projects in Egypt were underway to computerize transactions so that patterns can be evaluated and so that duties could be quickly collected.

Investments in key industries, such as high-tech, boost an entire market’s productivity and competitiveness. In the West Bank, the U.S. has been partnering with Palestinian technology firms to increase linkages to regional and global markets, while facilitating knowledge transfers to local companies with global hi-tech firms. In Jordan, the U.S. has also been supporting programs that train people for high-tech jobs.

Economists have shown that subsidy programs for food, electricity and fuel distort economic choices and consume resources that could otherwise be used to directly help the poor. Jordan has taken important steps in implementing necessary subsidy reforms and in doing so has established itself as a leader in fiscal reform and responsibility. Egypt has long been considering, but has not yet implemented, its reform program. In Egypt, 20 percent of the government’s spending goes to energy subsidies, which do not directly help poor people.

Securing the region’s energy and water needs is an area where increased regional cooperation could produce efficiencies that would lower costs to all. The recent agreement between U.S.-based Noble Energy and Jordan’s Arab Potash company to bring clean natural gas from Israel’s Tamar gas field to Jordan is an important step. Governments and the private sector need to work closely to develop a sustainable energy plan that is not solely reliant on fossil fuels in this region with plentiful solar and wind resources. The Middle East has a number of promising areas for exploration, and not just in the GCC countries, that could be exploited with the right economic policies.

Enhanced trade with the United States also offers great opportunities for this region. We currently have five Free Trade Agreements – with Israel, Jordan, Bahrain, Oman, and Morocco – and give preferential trade status to others. For Jordan, the advantages have been substantial, creating more than 50,000 jobs.

U.S. Government Contributions to Business Development

There is much work ahead. The United States wants to support the people of this region – and this means a focus on generating jobs. Our Qualifying Industrial Zones (QIZ) here in Jordan and in Egypt provides opportunities for duty free exports to the United States, resulting in hundreds of thousands of jobs, particularly in textile and apparel. The Qualifying Industrial Zones is the most advantageous preference program offered by the U.S. and we need to see it grow.

The Egyptian-American and Tunisian-American Enterprise Funds launched last year are initiatives to help expand and grow small and medium enterprises and spur job creation. Through the Overseas Private Investment Corporation (OPIC), the United States is providing over $400 million in financing and insurance in Egypt, over $700 million in Jordan, and over $300 million in the Palestinian Authority, to provide support in sectors that include transportation, finance, high-tech, energy, construction, and franchising.

Working with local business chambers and government counterparts, the U.S. has established a number of “one-stop shops” for business services across Egypt and Jordan, and other countries helping to streamline the procedures for launching new businesses and licensing.

To ease access to capital, the U.S. has also provided sovereign loan guarantees to Israel, Egypt, Tunisia, and Jordan, among others. Loan guarantees support access to and development of the capital markets, promote economic policy adjustments, and develop better relationships with international capital markets.

These are all good programs. But I want to assure you that in the next few months we are going to work with the Chamber and you in this audience to evaluate what we are already doing, what can we do better, and what can we do more efficiently.

For instance, the U.S. has programs promoting entrepreneurship in a number of countries and the U.S. Government has co-hosted four entrepreneurship summits. I met in Egypt with some incredibly promising entrepreneurs, so it is nonsense to say that Middle Eastern countries cannot develop an entrepreneurial culture. By the way, this is a claim that used to be made about Latin Americans, but you don’t hear it much anymore because of the rapid economic growth in most Latin American countries.

We need to take stock of these programs. I was visited the other day in Washington by a very prominent businessman from Egypt, who said that these young entrepreneurs need stronger linkages to the United States, and urged us to help them get greater exposure to U.S. capital and ideas.

Are U.S. government programs to promote funding for small and medium sized businesses effective? In Egypt, I admit they did not work very well, because banks found it far more profitable to lend to the government. Can the American experience with angel investing be made to work in the Middle East? Would donor money be better spent in setting up highly specialized math and science schools modeled on schools like Bronx science in the U.S. or the equivalent of junior colleges where students could learn specific technical skills? We are debating these issues in our own country, too, but they need urgent attention in the Middle East and North Africa.

I don’t know the answer to all these questions, but I know that there are people in this room who do, and we want to work with you to find how we can partner most effectively.

The Economic Bounty of a Peace Agreement

Let me turn for a moment to the Middle East peace efforts. As most of you know well, Secretary of State John Kerry is working very hard to bring about an Israeli – Palestinian peace agreement. Although I am not at liberty to discuss these details today, a final peace agreement offers the opportunity for very real benefits to the Palestinians, to the Israelis, and to the broader region.

The Palestinians will be able to build the permanent institutions of a viable, independent and contiguous state. Ambassador Norm Eisen, a close friend of President Obama, is gathering investors on March 8 – 9 in Prague to organize an investor conference in support of the “Initiative for the Palestinian Economy (IPE),” which may be of interest to many of you. This initiative is part of a plan, strongly supported by Secretary of State Kerry, to bring billions of dollars of new private sector investment to the Palestinian economy over the coming years.

It is not a corporate social responsibility or government aid project. It is a package of corporate investments that are intended as profit-making opportunities for the global private sector, both operating within the Palestinian economy and using it as a base to access regional markets.

The March 8-9 Prague conference will discuss practical concrete next steps. Madeline Albright, Tony Blair, and Myron Brilliant will co-chair, representing their respective organizations. Deputy Prime Minister Mustafa will lead the Palestinian delegation, and attendance is limited to just 50 businesses so that the conversation can be focused and specific. The conference will help companies who might want to invest in the Palestinian economy to take the first steps to do so, and help companies who are already investing there (or who have started thinking about it) to take their next steps.

Many leading Palestinian, U.S. and multinational companies are attending, but there are still a few places left for regional and international enterprises. If you are interested, please see me or any of the American government representatives who are here.

The Arab Peace Initiative offers the vision of normalized relations – including economic relations – that can be achieved in the context of reaching a peace agreement.

In addition to substantially expanding the GDP of both Israel and the Palestinians, an agreement would encourage investment in the region and help the two countries become integrated players in the regional economy. These would involve significant increases in trade between and among Israel and the future State of Palestine, Jordan, Turkey and Egypt with the potential opening of new trade routes throughout the region to reach the Arabian Peninsula. Just reflect for a moment on what a peace deal could eventually mean for Egypt – stabilizing the situation in the Sinai and securing energy markets and sources.

A peace agreement will create enormous opportunities for this region, as investor perceptions of political risk improve.

We could also expect to see significant increases in tourism – some believe a doubling of tourism revenues in this region would be possible.

The long conflict between Israel and the Palestinians needs to come to an end – and the opportunities that will become available to everyone in this region should be clear: Peace will be good for business!

Next Steps

We are very much looking forward to the recommendations of your working groups to promote projects and determine public policies that can contribute to greater regional economic growth, intraregional trade and investment. These recommendations should become substantive action plans for us all.

Thank you.



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