JANUARY/FEBRUARY 1995, Pages 34, 109

Trade and Finance

Casablanca: Arranging a Private-Sector Peace?

By Colin MacKinnon

The crowd of two thousand or so—prime ministers, foreign ministers, policy wonks, kings, princes, CEOs, bankers, lawyers, fixers, five-percent men and what have you—who gathered at the end of October in Casablanca have by now dispersed. The conference they attended was a politico-commercial extravaganza unprecedented in the region in its size and composition.

Officially called the Middle East/North Africa Economic Summit, the two-day meeting was arranged by the World Economic Forum of Geneva and the New York-based Council on Foreign Relations, with encouragement from interested governments, including the American.

First, to give it its due, the conference really must be taken as a sign of a new Middle East. It was intended to facilitate commercial contacts between Arabs and Israelis and it did. And, as intended by its organizers, it gave an additional fillip of recognition to Israel and added to the respectability among Arabs of dealing commercially with Israelis.

There's a danger, though, that governments will take to believing that the exchange of business cards and the doing of deals will substitute for real political progress in getting to a Palestinian state. They can't. More on this later.

Who Came?

Half the Israeli cabinet, including Yitzhak Rabin and Shimon Peres, attended, as did Warren Christopher; his Russian counterpart, Andrei Kozyrev; Prince Hassan of Jordan; Soleiman Soleim, the Saudi commerce minister; Esmat Abdel Meguid, secretary of the Arab League; Yasser Arafat; and the conference host, King Hassan of Morocco.

Major corporations and financial institutions sent people as well: Bechtel, the Manama-based Arab Bank Corporation, the Rothschild financial establishment, GE, Hughes Aircraft, the Olayan Group of Saudi Arabia and Israel's Koor were represented.

Some 100 Egyptians arrived with 50 or so proposals for joint ventures and investment. The well-prepared Israeli business contingent came with even more: 150 proposals running to $27 billion over ten years.

All this is heady stuff. Some of the Israeli proposals, like a Beirut-to-Cairo coastal highway, are hardly in the offing, but others make economic sense and could be started relatively quickly. National electrical grids can and should be linked, water sharing and conservation agreements can be worked out, the shared use of ports makes sense, cooperation in tourism is relatively feasible.

Conference backers naturally were enthusiastic. Klaus Schwab, who heads the World Economic Forum, compared the meeting to the early steps taken in the 1950s to create a common market which led ultimately to the European Union.

Still, beyond the private deals done over lunch and dinner, which we don't know about, what actually came out of the conference? Well, not that much.

Summit Pledges

The summit pledged to set up a regional tourist board and a chamber of commerce, and will perpetuate itself with a secretariat and a permanent staff. The Council on Foreign Relations will form a private sector "economic strategy group," whose composition is so far unnamed, to "recommend strategies for regional economic cooperation and ways to overcome obstacles to trade and private investment." The World Economic Forum will create a "business interaction group" intended to "foster increased contacts and exchanges among business communities."

These are ho-hummers and were the bare minimum the conference could have achieved.

Business people will tell you that the real barriers to commerce in the region are already well known—laws restricting investment and ownership, dubious or nonexistent protection for copyrights, trademarks and patents, problems with repatriating profits and hard currency, slow bureaucratic response to business proposals, protectionism. Neither the Council nor the Forum will come up with new proposals to cure such ills.

The most ambitious creation of the conference, if actually realized, will be a multi-billion-dollar regional development bank which would fund major infrastructural projects.

As currently envisaged, the bank would be capitalized at $10 billion, with $6 billion of that coming from the Organization for Economic Cooperation and Development countries, the rest from other, unspecified, donors. (Israeli Central Bank head Jacob Frankel, who attended the conference, was quick to say that U.S. contributions to the bank shouldn't come at the expense of U.S. aid to Israel.)

Saudi Arabia: Include Us Out

The bank is controversial. The U.S., the European Union, Israel, Jordan and Egypt back the idea. But others don't. Notably, the Saudis and other Gulf states say they see little reason for it. Saudi Minister of Commerce Soleim told The New York Times, "We have an abundance of lending and financial aid institutions operating under capacity in the region." Soleim cites the Kuwait-based Arab Fund for Economic and Social Development and the Islamic Development Bank. Creating another one, Soleim argues, would be a waste of time and money.

Even some backers of the bank, Egypt for example, are uneasy with the idea of establishing a regional lending institution before a full peace is established that includes countries such as Syria and Lebanon, neither of which attended the conference.

And Palestinians doubt that the bank has much relevance for them, since megaprojects don't address their direct needs.

Critics also point to other regional banks—the African Development Bank in particular—that have been troubled by mismanagement.

Nonetheless, with the U.S. and others backing it, we'll probably get a bank, though when is anybody's guess. The conference's ending communiqué, loftily entitled "The Casablanca Declaration," merely calls for "a group of experts to examine the different options for funding mechanisms including the creation of a Middle East and North Africa Development Bank." The experts—so far unnamed—are to report back in six months.

Politics, Not Business, Fundamental

The problem with Casablanca is that the heart of the peace process remains what it has always been, a solution of the Palestinian problem. Other peace moves derive from that.

It was that handshake in Washington in 1993 that made the Israeli-Jordanian peace treaty and its economic provisions possible one year later and that made an Israeli-Syrian treaty thinkable. It was the handshake, too, that made it possible for the GCC states to announce they were easing the boycott.

Now, one can always imagine a kind of feedback mechanism where business deals encourage political accommodation and political accommodation then smooths the way for more and better business deals and so on, with omnidirectional good feeling spiraling ever upward. The organizers of the conference and other enthusiasts like Shimon Peres must have had some vision of the sort in mind.

But: the day after the Casablanca summit broke up, the World Bank announced that the international aid program for the Palestinian Territories was more than six months behind schedule. The Bank estimates that at most only $220 million of the $700 million committed in aid to the Palestinian Territories for 1994 will have been disbursed by the end of the year.

Donors had expected Israel to be largely out of the West Bank by now, but the Rabin government has delayed pulling out. As a result, the revenue base of the Palestinian National Authority remains just Gaza and Jericho, some 900,000 impoverished people, and the PNA can't fund itself. Israeli closure of the territories in October has taken a toll, too, putting 65,000 Palestinians out of work.

The Financial Times quotes donors as saying that the closure and Rabin's characterization of Gaza as a terrorist territory have sent worrying signals to the aid community and potential investors.

And the territories fester.

Two weeks after the World Bank announcement, Palestinian police, confronted with a demonstration that turned nasty, shot dead 13 persons in Gaza and wounded 200 others. A civil war in the Palestinian enclave could happen. If it did, it would be a disaster, for the Palestinians, for the Israelis, and for peace.

And if the peace is derailed, it will take with it much of the new spirit of regional cooperation. Treaties, trade, joint ventures, regional cooperation, an end to the boycott—all this will be much less likely.

Peace is very fragile and it begins in Gaza and the West Bank, not Casablanca.