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FINANCE: World Bank Moves into the Middle East

Emad Mekay

WASHINGTON, Jul 16 2007 (IPS) - The Middle East and North Africa region has become the fastest-growing area for investments from the World Bank’s private sector arm, the International Finance Corporation (IFC), which surpassed one billion dollars for the first time last year, according to the Bank Information Centre, a Washington-based research group on international public lenders.

The study, among the few examining the role of multilateral financial institutions in a region that has traditionally drawn attention for its political volatility, says that the IFC recorded 1.2 billion dollars in investments in the so-called MENA region last year – its highest ever volume of new commitments and nearly double its 2005 investments.

“In part, IFC’s increased investment in MENA reflects global financing trends. The flood of petrodollars in the MENA region in recent years has spurred new investments and fueled a growing need for local banks, to soak-up and recycle the excess liquidity in the region,” said Nikki Reisch and Amy Ekdawi of the Bank Information Centre, in an email exchange with IPS.

Most of this money is going to open the region for financial markets services and insurance as well as traditional sectors such as oil, gas and infrastructure projects. More than 200 million dollars were approved for new insurance and financial services projects last year alone.

IFC’s investments often signify a greater international private flow of funds since the IFC works to facilitate private sector involvement in the region. It does so by advising governments on the implementation of investor-friendly economic changes, including the privatisation of state-owned banks and public utilities such as water and power.

Its portfolio has also grown over the last three years, with investments of nearly 150 million dollars – almost 17 percent of its regional portfolio – in oil and gas companies, mostly in North Africa. In contrast, during 2002 and 2003, the IFC did not invest in any extractive industry projects the region.

Egypt, the most populous Arab country, received most of the loans (283 million dollars) over the past five years, followed by Oman, Algeria and Iraq.

The report’s authors say that the IFC is also taking advantage of new investment opportunities created by accelerated trade liberalisation and privatisation reforms in the region, which are often tied to the World Bank and International Monetary Fund (IMF) programmes.

“For example, the privatisation of various state-owned enterprises and services, particularly in the banking, electricity and telecommunications sectors, has presented IFC with various advisory assignments and investment projects,” Reisch and Ekdawi told IPS.

The MENA region is generally defined as most Arabic-speaking countries as well as Israel and Iran.

“While the MENA region has always received only a small proportion of total IFI lending worldwide, its share of global public finance has grown considerably in recent years, in both relative and absolute terms,” said the report.

It says that the World Bank, the largest multilateral financial institution, alone increased its lending to the region threefold in the last five years. The region’s share of World Bank financing rose from less than three percent of total new approvals in the 2002 fiscal year to over seven percent in 2006.

Of all loans from multilateral financial institutions, including the African Development Bank, nearly a quarter again went to Egypt, which has implemented a rigorous World Bank-sponsored liberalisation programme.

Lending to Iraq is also forecast to grow in coming years. The World Bank has approved emergency loans worth around 400 million dollars to the country through its Iraq Trust Fund, while the IFC has committed over 100 million dollars in private sector operations.

The study notes that in 2001, the World Bank provided 507 million dollars to MENA – only 2.9 percent of the total Bank lending that year. But in 2006, it gave out 1.7 billion dollars, more than half which went for finance and energy projects after several years of relatively minimal allocations to these sectors.

Lending projects in the water and sanitation, health and agricultural sectors dropped off almost entirely, it says.

Of the 83 projects approved in last year, 44 were project loans and 39 were for technical assistance.

In the last five years, Egypt has borrowed more from the World Bank than any other country, receiving over 1.2 billion dollars, followed closely by Iran, which has received 1.1 billion dollars from the Bank over the same period.

At of the end of 2006, Morocco, Egypt, Algeria and Tunisia – all in North Africa – were the largest cumulative borrowers in the region.

The study found that the Bank went into the region with the same ideology it imposes elsewhere in developing nations. It says its focus has been on instituting “comprehensive structural reform” to facilitate greater liberalisation measures such as the elimination of trade barriers to open up the region to increased private investment and economic integration.

The authors of the report cite many of the Bank’s own studies, which have revealed that income inequality in MENA is on the rise, despite increased economic growth and investment.

“The jury is still out about the significance of increased IFI investment in MENA for the region’s people. The impacts of the influx of public financing on poverty, inequality, unemployment and the environment in MENA remain to be seen,” the authors of the report said.

“Investment is not an unambiguous good, as it is often portrayed to be, nor is investment itself tantamount to development”.

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