Far from taking any steps towards institutionalized political unity, the Arabs of today appear incapable of reaching any agreement in response to any of the serious and dangerous situations facing the Arabs collectively. Any follower of mediatised intra-Arab political or social debates would note the absurd pattern where the majority of debates amongst Arab representatives turn into un-intelligible disputes, worthy only of sighs of frustration and disbelief.

The divergence in interests combined with an inability to communicate has rendered the thought of mere collaboration between Arabs naïve and utopian.

The impotence of the Arabs in Palestine, Iraq, Sudan and now Yemen has saddened and frustrated generations, leading them either to utmost indifference or, more seriously, to religious fanaticism.

Whilst we are aware that the depressed tone of this article so far would appeal to many of our cynical readers, our actual purpose is to show that the spirit of Arab Renaissance still exists and is capable of making a major comeback.

The first Arab Renaissance started in the second half of the Nineteenth century as a corollary to the cultural and educational awareness raised after Napoleon’s invasion of Egypt and the contact with the western world. A significant Arab movement led by Sherif Hussein of Mecca grew under the shadow of the First World War. It did not however survive the Ottoman Empire and disappeared with the British and French division and dominance of the Arab world. A more mature Renaissance movement saw the light in the 1950’s focusing on the struggle against the establishment of Israel and the support of national independent movements growing in the “post colonial” countries.

The death of Jamal Abdul Nasser followed by the Camp David accord in 1978 ended a movement which could not survive with Egypt out of the equation. The military resistance to the Israeli invasion in Lebanon in the summer of 1982 followed by the First and Second Palestinian Intifada in 1987 and 2000 is considered by certain authors as the Third Arab Renaissance movement.

According to Issam Noman, a Lebanese politician and thinker, the Third Renaissance has progressed to a new civilized project, in line with the globalisation movement of the 21st Century. A project, which according to Noman, should be based on“mutual exchange, the removal of constraints and borders amongst countries, people and cultures in response to the telecommunication and technological revolution”.

And it is here that we contend that a spirit of Arab unity persists and grows in the region today, despite all political realities and agendas that push doggedly in the opposite direction. First and foremost, a pan-Arab mentality is manifesting itself in the world of business. We are not talking here of any significant pan-Arab economic initiatives at the government level. With the exception of the good work being done at the level of the Gulf Cooperation Council (GCC), efforts at economic coordination amongst Arab governments are pretty much dead in the water.

Still, Arab businessmen and companies are approaching the Arab world as one market. This comes not as the result of some rosy ideological attachments, but from a pure sense of business opportunities. Start–ups are springing up across the Arab world, starting in one Arab country and then moving swiftly to establish a presence in other Arab countries.

This trend is most visible in businesses that are grounded in the knowledge economy. Internet and new media enterprises must approach the Arab market as one, as it speaks one language. The success of enterprises like Zawya.com, Yamli.com, and Koora.com speaks volumes about the need to adopt a holistic approach to conducting business in Arabia.

Samih Toukan, co-founder of Maktoob.com, said at the recent ArabNet conference (http://www.arabnet.me/) in Beirut: “Investors look at Arab world as a whole…as one market.” In fact, nothing embodies the point of this article as the vibrancy and exuberance that was manifested at ArabNet. Speakers talked with passion about the need to foster and support the growing digital and entrepreneurial spirit in the Arab world. Young innovators from Jordan, Lebanon and many other Arab countries presented their projects to various investors who were focused on the Arab world as one unit.

Contrast this enthusiasm with that surrounding the annual Arab Summit that was held at the end of March in Sert, Libya. The level of popular interest was possibly at an all time low. Arabs, including their leaders, fully appreciate that a pan-Arab approach to regional challenges is at best futile.

However, there continues to be a strong Arab connection at the human level that pierces through this collective cynicism towards a unified political approach. For despite all the intelligentsia’s newfound realism that confines any form of Arab unity to obscurity, no one in his right mind would or could deny that basic, emotional link that still binds one Arab to another. It is that link that transcends the daily conflict that marks Arab politics.

This article aims to start a conversation. It is not about adopting slogans for or against Arab unity. It is about rational debate. Is the growing sense of one Arab market, driven by innovators and businessmen, a precursor to a grass roots movement towards the adoption of a truly integrated Arab economy? Is such a development worthy of our focus and effort? Could the human bond between Arabs be a driving force for unified Arab effort towards change?

Decades of failure will naturally lead many to respond negatively to these questions. But this is ultimately a knee jerk reaction that is, in and of itself, yet another manifestation of our decline.

We should seek positive conclusions from the encouraging realities on the ground. Whether it’s in the emerging success of Arab businesses, or in the engagement of the sense of Arab civil society to address our common regional challenges, there lies somewhere, potentially, the seeds of reform.

Furthermore, the global economic downturn has led to a significant increase in the number of disputes in various sectors, and this in turn has provided an impetus behind the need to enhance the procedures applied by the various arbitration centers in the Arab world.

This development is not solely linked to the realities of modern commerce. In fact, the conciliatory approach and the notion of deferring to a neutral and objective personality for a decision, that ultimately underline all forms of ADR, are well steeped in Arabic and Islamic traditions.

There are at least two verses in the Koran that sanction the notion of arbitration and mediation. Furthermore, one of the most famous stories of the Prophet Mohammad’s early life involved him being chosen by feuding tribes, who could not agree on a vital element of the reconstruction of the Ka’aba, to resolve the dispute. The Prophet bridged the gaps between the quarreling parties by suggesting an original solution that was essentially a win-win for all. Other examples of arbitration and mediation abound in Islamic history.

At the outset, let us distinguish between mediation and arbitration. There are a number of differences between those two mechanisms.

Firstly, these methods differ in terms of the role of the appointed third party; in arbitration, an arbitrator is like a judge and his or her decision is final, whereas in mediation, the mediator works to try and bridge the differences between the parties and move them closer a settlement or conciliation. In a sense, mediation is the preferred option when the parties are still attempting to resolve their differences in a way that would allow them to continue their working relationship; whereas, arbitration is usually sought in order to reach a final determination on the overall dispute at the end of the relationship.

Secondly, the authority of an arbitrator is much wider than that of the mediator.

Thirdly, there are differences in terms of time limits, and venue considerations, between the two methods. In essence, arbitration is an attempt to replicate the judicial process but in a manner that is more specialized and streamlined. Mediation is a process whereby the parties agree to nominate a third party who would be tasked with trying to find common ground between the parties and resolve their differences, usually through the organization of meetings which are of a rather informal nature, at least in comparison with arbitration proceedings.

Finally, one of the main advantages of mediation is that it is far less costly than arbitration. In fact, it can be said that the costs of arbitration are its Achilles heel.

***

One of the most significant trends is the adoption of laws that deal specifically with mediation. In Jordan, the Law on Mediation for the Resolution of Civil Disputes was adopted in 2006. The law organizes the process of judicial mediation that takes place at the Court of First Instance. In accordance with Article 3 of the said law, the presiding judge may, upon the agreement of the parties or further to their request, refer the dispute to a mediating judge or a private mediator for the purposes of amicable resolution of the dispute. The mediator is then obliged by law to complete the mediation process within three months of the date on which the dispute was referred to him or her.

A similar development has taken place in the Emirate of Dubai, in the United Arab Emirates. By virtue of Dubai’s Law No. 16 of 2009, a Mediation Centre was established. The Mediation Centre will be annexed to Dubai’s Courts. The Centre is entrusted to review types of disputes that are defined by its Chairman. Disputes will be reviewed and amicably resolved through a number of experts, under the supervision, of the concerned judge, within a period that would not exceed one month from the date of the attendance of the parties before the judge.

The creation of such centers in Jordan and the UAE, as well as the existence of various mediation mechanisms through international organizations such the World Intellectual Property Organization’s Arbitration Centre, is likely to lead to a surge in the use of mediation as a method for the amicable resolution of disputes. This would be a welcome development, as it would entail the effective resolution of so many disputes in a conciliatory and timely manner, well before the matter escalates to reach a court room or an arbitration panel.

As for arbitration, we have also seen a number of positive trends in this regard in the Arab world. On the one hand, the trend towards the effective adoption of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Arbitration Convention) has solidified. The New York Arbitration Convention mainly enshrines the principle that a properly made arbitration award in one member country must be binding and enforceable in another member country, unless the award can be rejected on the basis of certain grounds for refusal of enforcement, which are narrowly defined in the Convention. The Convention also confirms the principle that if a court is presented with a dispute which the parties had agreed to refer to arbitration, then the court must refer the matter to arbitration upon the request of one of the parties.

Historically, the rate of adoption of the New York Arbitration Convention in the Arab world has been good. Jordan was amongst the first countries to adopt the Convention, which came into effect in 1959. Almost all Arab countries have since joined, with Kuwait joining in 1978, Saudi Arabia in 1994 and, more recently, the United Arab Emirates in 2006.

The challenge is to ensure that the exceptions that would allow a member country to refuse the enforcement of an arbitral award are applied in a strict and narrow manner. Under Article V(2)(b) of the Convention, the enforcement of an arbitral award may be refused if “the recognition or enforcement of the award would be contrary to the public policy of that country.” The parameters of what a country regards as “public policy” can be wide. In Saudi Arabia, an arbitration agreement or award is respected provided that it is not contrary to the principles of Shari’a law. Such a limitation falls within the “public policy” exception, but the key lies in the way such an exception is applied.

In the UAE, Articles 235 and 236 of the Civil Procedures Law (Federal Law No. 11 of 1992) confirm the principle that foreign arbitral awards will be enforced in the country, provided a number of conditions are met. These include procedural issues such as the proper notification and representation of the parties before the arbitral tribunal that issues the decision in the foreign country. Also, UAE courts may refuse the enforcement of a foreign arbitral award if it contradicts a previous judgment already issued by a UAE court or if it includes elements that “contradict public policy or morals.”

***

While in the past “public policy” exceptions have been defined in a wide manner that allowed courts to reject a number of foreign arbitration awards in various Arab countries, there is a discernible trend towards limiting the use of this exception, and applying it only in clear cases of contravention of the country’s moral or public policies.

Furthermore, in the recent past, various Arab countries have upgraded their arbitration laws to be in line with international best practices. This is evidenced by the increasing use of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. This model law was drafted by the UNCITRAL with a view to assisting countries that seek to improve their laws in such a way as to ensure the best possible procedures for commercial arbitration.

For example, Egypt adopted Law No. 27 in 1994, the Commercial Arbitration Law, which is based on the UNCITRAL Model Law. This aimed to enhance arbitrations procedures and resolve complications that arose under the provisions that dealt with arbitrations in the Egyptian Code of Civil and Commercial Procedures and provide a law dedicated to arbitration. Also, in 1994, Bahrain adopted a new international arbitration law (Decree no. 9/1994) that was based on the UNCITRAL Model Law. In 2008, Syria issued an arbitration law that is based on the Model Law as well.

The UAE is also presently considering a new Federal arbitration law and it is widely reported that the new law would be based on the UNCITRAL Model Law. Once enacted, the new Federal arbitration Law will replace the existing provisions in the Civil Procedures Law.

Finally, there is no greater proof of the growing popularity and importance of arbitration than the increasing use of existing arbitration centers in the region, and the founding of new centers. The Dubai International Arbitration Center (DIAC), whose rules are UNCITRAL based, has proven to be an excellent success. The number of cases that the DIAC is handling has been growing at a very impressive rate. According to one report, while the number of new cases with the DIAC in 2008 was 100, there had been 180 new cases registered with DIAC by August 2009. The Cairo Regional Center for International Commercial Arbitration, which was established in 1979, continues to be a great success.

Earlier in January, Bahrain announced the launch of Bahrain Chamber of Dispute Resolution, in partnership with the American Arbitration Association. It is reported that the Chamber will operate what is being called an “arbitration free zone.”

***

In conclusion, various Arab countries have engaged in an active process of upgrading their arbitration laws and those dealing with other alternative dispute resolution mechanisms. Arab arbitration centers are growing in significance, as more parties resort to the use of their services. These important developments can only serve to facilitate the infrastructure supporting international commercial contracts in the Arab world and, in turn, this will have very positive effects on investment and business growth in our region.

The key messages of the report are as follows. Education is at the crossroads for the future of MENA. It plays crucial role in promoting poverty alleviation and economic growth, both at national and household levels. Various stakeholders in the region regard education as their most important development challenge, and education reform is on top of the reform agenda of many regional governments.

Having succeeded in expanding the education systems to include most eligible children, boys and girls, the MENA region is now ready to travel a new road. While the exact configuration of this new road will not be the same for each country, all countries, irrespective of their initial conditions, will require a shift from “engineering inputs” to “engineering for results”, along with a combination of incentives and public accountability measures, as well as measures to improve labor market outcomes.

Finally, labor market reforms will need to be implemented hand in hand with those for the education system proper. In the case of MENA, the relevant labor market extends much farther than the confines of any country or even the region because of important migration trends and opportunities.

The report is 399-page long and is starting to stimulate quite a bit of discussions, in particular in the countries members of Gulf Cooperation Council (GCC). Public authorities are reviewing the details and assessing which analyses and recommendations are relevant to their own country.

Probably the best feature of this report on education is precisely that it is not (uniquely) about education, its own internal debates and inward-looking theories.

Granted, GCC countries have achieved a tremendous growth over the past thirty years. And their transformations do not seem to slow down. It is actually hard to think of a field in which nothing has been attempted: science, media, transport, education, art, sport, infrastructure, trade, e-government, the world is hearing from projects popping out from the western side of the Persian Gulf – a palm-shaped man-made island, a one-kilometer high tower, the Louvre, a couple of Formula One Grand Prix, English Premier League teams, television networks challenging CNN, local branches of top-tier universities and research centers. We cannot wait for the Football World Cup, the Olympic Games (at least the summer Olympic Games to start with), a landing on the moon…

This accumulation has been made possible by two fundamental God-sent gifts. The first one is obviously fossil fuel reserves. Albeit at various levels, the GCC countries have had access to cheap and abundant oil and gas. The second aspect is the peace and stability that the GCC countries have enjoyed.

Now, at the risk of spoiling the fun, two issues would need highlighting.

First, the rapid stockpiling of material assets biases the focus of life away from culture and heritage. While religion plays a central role in the societies of the Gulf and in spite of the many public initiatives such as festivals, competitions and museums, people do not seem to be genuinely interested in high culture or art.

Think about fine arts in everyday life in the main capitals of the Gulf – sculpture, painting, literature, theatre, music, dance, photography, filmmaking – and it is fair to say that they are not often the main topics of interest. The occasional buzz occurs (Paris Hilton in Dubai) but even the most educated people do not seem to have a deep interest in art. If it can be used as anecdotal evidence, compare the Friday edition of the local newspapers to the Sunday issue of any European newspaper. Locally, art attracts almost no attention.

This is not to say that endless passionate debates on the latest modern art exhibition, a new novel or an art-house film are the only signs of development, but simply that exposure to culture is a source of positive inspiration. It gives a meaning to societies and personal lives.

The second missing element in the GCC landscape is a collective memory of entrepreneurship, innovation and business initiative. The history of the Gulf is filled with great traders but the current development phase has principally been about the management of an immense rent and its distribution to populations who wanted to import A/C, cars, televisions, etc.

Compared with Europe in the 19th century and many other countries around the world in the first half of the 20th century, the Gulf has not yet accumulated any significant long term industrial experience. Harvard professor and development specialist Alice Amsden argues that:

“On the eve of decolonization, manufacturing experience was greatest in Argentina, Brazil, Chile, China, Korea, Malaysia, Mexico, India, Indonesia, Taiwan, Thailand and Turkey. […] While not every country with prewar manufacturing experience succeeded, no country without it could create a diversity of advanced industries in the half-century after World War II.”

Only time and continuous effort can create the required experienced elite class with large cohorts of entrepreneurs, managers, engineers, lawyers and accountants.

While experience is indeed needed, there is one prerequisite: education is the absolute requirement for society to develop peacefully. There is probably no need to reiterate the importance of knowledge acquisition – awareness is actually quite high in this area – but it seems that the public attention regarding education is crystallized on a flawed debate.

Most of what we hear or read is about the inadequacy of rote-learning and other old-fashioned methodologies. It is as if children where going to learn mathematics through a series of modern, cool student-centered learning by doing. The time has perhaps come to go over this debate, which in any case will never be closed, and reorient the education strategy towards what is missing in the region. Not enough is done to inculcate the love of art and culture and not much is even attempted to foster a culture of innovation, research and entrepreneurship.

If that is what the GCC lacks, it is more than urgent that significant resources, efforts and commitments are aligned with the real challenges of the region. The Road Not Traveled? Indeed. And the journey is going to be long…

Olivier Renard is an advisor at the Secretariat General of the Research Council of the Sultanate of Oman.

The area where few dare to tread is the concept of cost/waste reduction as a means of enhancing revenues or making each Dinar count. Divining cost saving methods requires relevant experience* and hard work. It does not lend itself to slogans and is not particularly glamorous. One remembers the decision of the Water Authority to fix leaking pipes throughout the city of Amman. It was estimated that fixing the pipes is tantamount to increasing the water supply by 30%!

What is required today is a handyman with cross jurisdictional ministerial authority to do the fixing wherever it is required.

A glaring example of a leakage of efficiency is the way the Ministry of Health manages its procurement policy and structures its services contracts. An investigation uncovered that the ministry has a General Supplies Department (GSD), which buys items for all the hospitals in bulk – acquiring anything from nails to equipment to meats and vegetables.

Those items are purchased by the GSD, then stored in GSD’S warehouses and cold stores, then issued, and transported to hospitals where they are stored and issued according to requirements. One can see that items are stored twice and transported twice. It is a rule of thumb that items of perishable nature lose 10% of their freshness when they are transported 10% more when they are stored and 2.50% more are pilfered due to double handling. Let’s call this the 1st Leakage.

Furthermore, GSD, much like the State Trading Agencies of a neighboring country, are famously inaccurate and inefficient in determining or meeting the needs of markets, or hospitals in this context. So, they may over-order or under-order. This is the 2nd Leakage.

Store keepers and transporters are paid employees and even with the best of intentions will not safekeep, handle and transport these itmes as if their life depended on it. This is the 3rd Leakage.

The solution to these leakages is a change of philosophy.

What does that mean?

First, we need to outsource all ancillary services to specialists in catering, housekeeping, janitorial, landscaping and maintenance services. To illustrate the importance of this shift in approach, examine the way the ministry deals with catering services:

The food is supplied to the hospital through the GSD. There may be shortages or overages because of central purchasing as mentioned before. The labor supply contracts, which MOH gives out, are drafted to be mostly concerned with the number of personnel /quantity of laborers on the job at any point of time. No serious consideration is given to the quality or quantity of food served to patients or staff (remember, freshness of food and adequacy of quantity are not the responsibility of the labor supplier).

To rectify this situation, new contracts may be drafted where the caterer is responsible for providing the food items and for serving meals according to a set menu, with measurable quantities in a hygienic and timely manner, and at a fixed price. If the job is even done by two monkeys and a guard, and all is well , who cares?

The advantages of this switch in tactic are plenty:

1. Quantity and quality are controlled by supervisors. Penalties are applied for non performance.

2. Food ordered will NOT be more than required as the caterer’s profit and loss depend on it.

3. Food is purchased, transported and stored only once.

4. Storekeepers are audited by the way they organize their inventory– FIFO (meaning that the oldest items are sold first, and not left to deteriorate) and cleanliness rule. Their jobs depend on this.

Similar contracts can be drafted for maintenance, janitorial and housekeeping fields, where performance and not body count are the true measures of contract execution. Outsourcing those services to specialists allows both cost reduction and better performance. If MOH’S hospitals suffer due to high costs or low performance, the answer is here. Not to mention the fact that outsourcing allows MOH to concentrate on its core business: Staffing the hospitals with the best doctors and nurses for the job.

Saving money means writing new contracts with new specifications and finding different ways of supervising those contracts. It may also mean eliminating or reducing the task of GSD. It involves a change in philosophy where the emphasis is on quality and not quantity. However, it is the critical area to focus on today. I don’t believe there should be a debate on that.

Note:* A person with relevant experience is someone who, while educated in the West, has acquired his experience in the East, in the area of life support services. Particularly, this would be someone familiar with the way things are done in Saudi Arabia, where ancillary services have been outsourced with a large measure of success for the past 30 years.

US Defence Secretary Robert Gates proposed the idea in Manama, Bahrain, last weekend. Addressing the Manama Dialogue, Gates suggested that Iraq should be included in regional organizations in order to help bolster its rehabilitation.

“If you look closely at Iraq’s economic and political potential, about what it can offer the Middle East, you will see that it is in everyone’s strategic interests to support the new government and the people of Iraq in whatever way you can.

“Iraq can only play a constructive role in this region if it is on an equal footing diplomatically, which also requires its government to take proactive steps, such as continuing to appoint its own ambassadors,” Gates said.

“Regional engagement also means that Iraq should be included in regional forums for economic and security cooperation, and considered for membership in Middle East organizations,” he added.

This is not the first time that the U.S. has sought to tie Iraq to the GCC, but this latest call comes at a time when violence is low and the economic opportunities on offer are leading the war torn country to be labeled an ‘emerging market’ like its Gulf neighbours. It also comes on the back of the recently signed agreement that will see U.S. force leave the country by the end of 2011, thus removing a significant obstacle to warmer Arab relations with Baghdad.

Washington’s priorities for a bloody and expensive war that is universally unpopular and has become bone of contention back home are clear: prevent Iraq from slipping back into the sectarian chaos from which it has only just emerged; limit the influence of Iran.

This can be achieved through several steps; hand over security to Iraqi forces as soon as it is realistically possible; oversee a transition to a sustainable democracy; engage Iraq with its neighbours; and rebuild the economy.

Integrating Iraq closer with the GCC would, in theory, achieve most, if not all, of the above goals and would entrench Iraq as a responsible and prominent player in a volatile region. But while these ambitions are admirable, there is no certainty that the political and economic gains made over the past 12 months will hold once the U.S. leaves.

On top of this the political realities of the Gulf States towards Iraq, and towards each other, continue to hamper progress.

Immediately after Mr. Gates’s comments, senior figures from the GCC and member states were quick to dampen any speculation that Iraq would be asked to join the oil rich group.

GCC Secretary-General Abdul Rahman Al Attiyah ruled out expanding the council to include Iraq, saying that such a move needed careful consideration, according to a report on the UAE based Gulf News website:

“The council as it is has made several achievements, and any option to change it necessitates a cautious study,” Al Attiyah said. “Iraq in its current circumstances and even in normal circumstances is not ready to join the council,” he added.

Bahrain daily Gulf Daily News reported that the Bahrain Foreign Minister, Shaikh Khalid bin Ahmed Al Khalifa, said whilst there were no immediate plans to include Iraq because the organization had not yet defined its own internal structure, it might become a possibility in the future.

“There are certain agreements that have to be enforced,” Al Khalifa was quoted as saying in the report.

“When the GCC was established we did not restrict its membership to any countries – it is not an exclusive club.

“Once the GCC is a complete unit we will allow any of our brothers to come and join.”

Meanwhile an editorial piece in The National, a newspaper sponsored by the government of Abu Dhabi, on Sunday claimed that Mr. Gates’ comments were ill-advised, and that the GCC could not accept Iraq as a member state.

“The council is built on the commonalities in political structures, geographical location and economic stature of its member states, which provide the necessary framework for co-operation on matters affecting all its members: there is an internal coherence to GCC nations that Iraq does not share, despite its vital role in regional stability and development,” it said.

These reports demonstrate the issues under the spotlight within the GCC. The six-member body consisting of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates was formed in 1981 as a trade bloc. Over the past three decades closer ties have been forged between the states, and more recently plans were announced for a joint-custom union, common currency and Central Bank.

Of these however only the Central Bank is making any progress: Oman dropped out of the unified currency in 2007 and the customs union is far from a reality since its inception in 2001. Politically, friction is high between Saudi Arabia, the richest and previously most powerful member, and a couple of the rapidly advancing nations.

Whilst most of the GCC members have restored diplomatic relations with Baghdad after an initially frosty approach to the Shiite-led government of Prime Minister Nouri Al-Maliki, Saudi Arabia and Kuwait have continually refused to cancel Iraq’s Saddam era debts, and populist politicians in Kuwait are playing hard-ball over their one-time occupier.

Iraq once embodied all that the Gulf States aspire to; it was once a powerful economic, cultural and political force in the Arab world, a true leader that embraced multi-ethnicity and education, with a diversified economy and industrial sector that others could only admire.

So what of Iraq and the Arab world now? It is unlikely that Gates made his comments without some consultation with officials in Baghdad, and Iraqi officials understand the political and economic benefits of working closely with the Gulf Arab neighbors.

Most telling are plans unveiled by government spokesman Ali al-Dabbagh at a conference in Washington in early December for a European Union-style organisation which envisioned Iraq at the heart of a trading, security and energy bloc that would include Saudi Arabia, Iran, Kuwait, Jordan, Syria and Turkey and later perhaps Gulf states.

Although it is hard to see this plan as a short to medium term reality, especially until the power-struggle that is inevitable once the U.S. withdraws is played out, Iraq is looking at other ways to integrate economically with the Arab world.

Already a member of the Greater Arab Free Trade Agreement – approved by the Arab League in 2005 to complete an Arab economic bloc that can compete internationally – Iraq has announced several plans this year to build Free Trade Zones with Turkey, Kuwait, Iran and Jordan, some of which are already under construction. A number of bilateral and regional trade agreements exist within the Middle East, which include the Gulf States, making a complex web.

Inter-Arab trade has grown steadily since 2000, according to a recent report published by the Arab Investment Guarantee Corporation, and reaching $137 billion, 11.1% of total Arab foreign trade, in 2007. The report attributed the rise to the activation of the Arab Free Trade Zone and application of the complete custom exemptions.

Local press reported recently that Iraq is to resume membership of two regional trade bodies, the Federation of GCC Chambers of Commerce and the Arab Sea Port Federation, from which it was expelled following the 1990 invasion of Kuwait.

There is also the proposed GCC railway, which was approved by member states at a meeting in November, and could be set to include Iraq through a special rail link with Kuwait that is currently being considered by both parties. This would, according to Sir Graham Boyce, former UK ambassador to Kuwait, Egypt and Qatar, enable closer economic integration between the GCC and Arab world, from which it is somewhat isolated.

On top of this Iraq has been flagged as a possible supplier of gas to the EU’s strategic Nabucco project, a planned natural gas pipeline that will transport natural gas from Turkey to Austria, via Bulgaria, Romania, and Hungary and reduce dependence on Russian energy supplies. It will most probably be connected through the Arab Gas Pipeline running from Egypt.

Once a proud, modern state, Iraq has suffered decades of war, neglect and humiliation. Its return to the regional stage is fraught with peril, both internally and from local conflicts of interests, as well as geopolitical grandstanding by the old and new global superpowers.

As a member of an up and coming bloc that will hold local political power and international economic influence, membership of the GCC would be no bad thing in itself, but a strong, multiethnic and independent Iraq acting as a gateway between the Gulf and the rest of the Arab world would be better.

ArabComment: How do you think that Dubai will perform during the global financial crisis, and how will your operations be affected?

Ahli: Actually our operations have not been affected at all by the financial crisis in the world because we still have companies establishing at the Dubai Airport Free Zone and asking for office spaces for the region. I’ll give you an example: we have now more companies from Japan, who would like to establish their offices in Dubai, and our location is an ideal location for them because they want to shift their operations of selling their products to the United States, and shifting it to other new markets, so Middle East, Russia, India are new markets for the Japanese companies.

ArabComment: Would you say that you’re offering a respite from the current financial crisis and that Dubai is a kind of a safe haven?

Ahli: Absolutely, yes.

ArabComment: You recently announced high growth rates for 2008. What would you say were the main reasons behind these increased profits, and what would be your expectations for next year?

Ahli: Because Dubai being the hub for almost everything in the Middle East and for example for aviation, shipping, tourism, a business venue and an exhibition hub. That creates demand, for everything; demand in opening offices; demand for visiting companies, expanding trade relations with neighbouring states.

Also, Dubai itself is a perfect location for doing business, you can always establish your company or your business in one place and then go to all of the region. For example in South East Asia you can either establish your office in Hong Kong or Singapore and that is where your operation goes into that region.

And the government is looking into the future…so we have perfect vision from the government making sure that the businesses are continuing and establish projects, developments in the local market that creates jobs, businesses and adds more trade between Dubai and others. Also because we import everything into Dubai from the six continents, different markets, and then we re-export, so it makes us a gateway to a 1.8 billion consumers if you fly five hours from Dubai.

ArabComment: You said that re-exports are a big part of Dubai’s trade. Dubai has come under a lot of pressure recently for its trade relations with Iran. Is Iran, for the companies involved in the airport trade zone, a big destination for re-exports?

Ahli: Actually Iran is a big potential business opportunity for many different markets and Dubai has always been the gateway of Iran’s trade; whether it is airport, through the container ship; we have these wooden dhows that take different products to Iran, its faster and its cheaper. So many companies that come from lets say Switzerland, Germany, France, Japan and China, if they want to trade and sell their products into the Iranian market then Dubai is their gateway.

There hasn’t been any affected trade between United Arab Emirates and Iran, and we are in the end very close neighbours. There is also Iran has banks. The Iranian banks are operating in Dubai so foreign companies that want to trade, sell their products into Iran, then the financial transaction will be through their banks in Dubai, or in the UAE, which makes it very safe for them and investors.

ArabComment: You mentioned that the UK has one of the biggest presences in Dubai Airport Free Zone, are you also targeting Europe and is the Euro zone an important market for you?

Ahli: We target different international markets but we focus on the main ones. Such as North America, Europe, Japan and Australia which are the main markets. However, we are also very selective of the companies we work with. Not just any company can come and operate here due to the limits of space.

So from these main markets we also focus on individual countries. So in Europe the UK is our number one focus and is very important for us for many different reasons. Mainly because British companies if they come they establish their business for the long term. We want a long term partnership. We currently have 140 British companies out of 1.400 companies in total then this is quite a big share from just one market.

Then our next focus is the German market, followed by the Swiss and French markets. But then the rest of the European market is not very important for us but we don’t deny having them.

ArabComment: Is the limited space available going to impact the greater vision for Dubai Airport Free Zone and does this result in your selective policy for companies aiming to set up in Dubai Airport Free Zone?

Ahli: When we say we are very selective it is because it is important to have niche companies in different sectors. This is due to the fact that people think as we are by the airport that we only support the aviation sector but this is not the case.

So as we expand we always get niche industries and companies based in our facilities so that is why we have selected companies and that goes through our limited space as we expand. Which is why we are always nearly fully booked when we finish a new expansion plot.

Next year we will start with another building that will add another 32,000 sq meters of office space and then from 2011 to 2012 we will have a completion of a much bigger project and that will add 130,000 sq meters of office spaces. Then after that we won’t have any more space.

We are thinking from now of expanding our airport free zone at the next airport in Dubai, which is called Dubai World Central. This is the future second airport that Dubai needs, like London has Heathrow and Gatwick, so Dubai will eventually need two main airports. So we will have a free zone over there as well. Also, we are thinking of managing free zones around the world. So we won’t stop our visionary to where we are just located. So if there is a requirement of managing an airport free zone in a certain city, why not. We would take it into consideration or in partnership.

ArabComment: Dubai is not alone among cities in the UAE and GCC in attracting international companies or building free trade zones as they all try to diversify their economies away from energy. Who would you consider to be your biggest rivals in the region, and is it possible to accommodate all these aspiring countries?

Ahli: Alright I can tell you the truth; we do not have any competitors because we are the only successful airport free zone in the region and we have vast experience in managing such a free zone. There is only neighbouring emirate, Sharjah that has an airport free zone and none in the rest of the region.

Other countries may have many companies but they are not great names from companies around the world. The reason that companies, like Rolls Royce and Johnson and Johnson, want to establish their facilities in our free zone is because of the connectivity. They can operate in Dubai for the whole of the region, doing sales and marketing, finding sale agents and distributors and so on.

For these companies to establish themselves in Dubai it is easy and they can get on any Emirates flight or one of the 120 international airlines and go to any of the cities in the region and do business meeting and come back. So this is the reason why we really do not have any competitors.

ArabComment: Would you say that this is the biggest contributing factor to the success of Dubai Airport Free Zones?

Ahli: Absolutely.

ArabComment: Any final comments?

Ahli: For us it is important to get more British companies, because between Dubai and the UK there has always been a special relationship. We will make sure that these companies will prosper over the coming years and will benefit by being in the Dubai Airport Free Zones. Our facilities are world class and have excellent living conditions.

By Julian Walker and Oliver Pearce

Speaking at the Economist’s Emerging Markets Summit in London, Fenning said that a term that lumps multiple countries into a single group “supposes a kind of homogeneous nature” is not an accurate assessment of the reality on the ground.

But even when investors look past a country’s regional position, the ‘country brand’ – perceptions of a country fuelled by external commentators such as the media, analysts, international bodies – can distort a true analysis of the risks involved.

“We have to stop looking at the world in terms of these various categories: developing economies, BRIC economies and the next level down, and look at them seriously as independent.” Fenning said.

For those organisations willing to take a ground up approach and understand the local climate for themselves, Fenning reasons, opportunities do exist.

Iraq as the ‘phenomenal risk story’ for 2009

Iraq has, for the past five years, dominated Western news coverage with harrowing tales of sectarian strife, mass suicide bombings, and the collapse of social order and public services.

Its economy lies in tatters – the great rebuilding that lured Western companies with the promise of billions of dollars of U.S. government money was put almost permanently on hold after an insurgency broke out in 2004 that took no prisoners.

However the recent relative improvements in security led Fenning to announce that in 2009 and beyond investors searching for a case study of where political risk and business meet, “where the rubber hits the road”, should look no further than Iraq.

The now famous ‘surge’ launched by U.S. forces in January 2007 to combat the insurgency is finally bearing fruit, and violence is down more than 80% over the past 12 months whilst the Awakening Councils, Sunni militias paid off by the U.S. to fight Al-Qeada, are helping keep the peace. U.S. forces suffered more fatalities in Afghanistan for the first time this month, and you are now more likely to be kidnapped in Latin America than in Iraq.

This time though, Fenning claims, it’s not just about the oil. “Its telecommunications, its power, its food, its everything else,” he said, although being home to the world’s third largest oil reserves makes certainly makes it a more attractive place: “China and everyone else wants it [the oil]. It is a phenomenal political risk story.”

They certainly do. In late August and early September Iraq signed two major energy deals with foreign firms: a $3bn oil services contract with China National Petroleum Corporation and Shell signed a $4bn agreement to establish a joint venture with the South Gas Company in the Basra district of southern Iraq to process and market natural gas.

On Monday (October 13th) at an event in London, Iraq put the World’s largest ever amount of oil up for sale by offering 40bn barrels of recoverable crude across eight fields in the country. Up to now it has only sought to sign short-term service contracts to boost production at existing fields.

The auction has proved controversial, given that the country is still occupied and that there is massive disagreement in parliament on the streets about how the country’s ‘jewels’ should be managed, with many adamant that the oil industry should remain in state hands.

Gregg Muttitt, from the UK-based social and ecological justice group Platform, told The Guardian Newspaper that he is alarmed that the government is pushing ahead with its plans without the support of many in Iraq, and other groups such as UK based Hands Of Iraqi Oil have demonstrated against the dealings of BP and other oil majors looking at Iraq, brining unwanted negative publicity at a time of public resentment against high petrol prices.

As Fenning mentioned, investors are now looking at options other than oil, and are investing outside of Iraqi Kurdistan which has long been the popular choice for capital flows seeking sanctuary from the conflict in the south. Some of the biggest deals agreed or in the works concerning Western firms include news that France’s Larfarge is investing in several cement plants in the south, British companies have submitted proposals for construction projects in Najaf, and that an Italian company is offering consulting services for the port project in Basra.

Outside of energy, telecoms remain the biggest point of interest. Ali Al Dahwi, CEO of Kuwaiti telecoms giant Zain, told delegates at the Iraq Telecoms 2008 event on Monday that his company has invested $4.25bn in Iraq over the pat few years, making it the biggest foreign investor in Iraq in the non-oil sector. Zain, along with Asiacell (in conjunction with Qatari firm Qtel) and Korek (a Kurdish group) won three 15-year GSM licenses at an auction in August 2007 that netted the Iraqi government $3.75bn. Western firms such as Nokia Siemens Networks and Motorola have been involved in U.S. led telecoms projects, mainly infrastructure and services, since 2003.

Getting better, but political risk remains

Politics remains a messy affair in Iraq, with domestic troubles and meddlesome neighbours continuing to derail sustainable progress.

A Political Risk Alert issued by research house Business Monitor International (BMI) on October 2nd highlights the transition of the Awakening Councils from U.S. to Iraqi control. As Sunni’s, these militia are deeply mistrusted by the majority Shia led government, and Prime Minister Nouri Al-Maliki in particular who has made his concerns clear. He has promised to keep only 20% of these militias on the government payroll, and U.S. military figures have expressed concern that any enforced isolation could lead the militias to turn on the government once more.

“To the north of Baghdad, the thorny issue of the future status of Kirkuk will likely linger on for months if not years, and along a shorter time horizon the potential for conflict exists between Kurdish Peshmerga forces and Iraqi security forces in the border region between Iraqi Kurdistan and Iraq ‘proper’,” the alert says.

Whilst relations with its Arab neighbours having improved greatly, with many pledging to re-open embassies, and the threat that they may try to topple Al-Maliki subsiding, Iran persists in its attempts to destabilize Iraq.

In the run up to the January 2009 provincial elections, domestic political violence is expected to rise. On October 9th, a prominent politician, Saleh al-Auqaeili of Moqtada al-Sadr’s political party was killed in a car bomb. Many believe he was killed because of his party’s opposition to Al-Maliki, who earlier this year ordered Iraqi security troops to disarm Al-Sadr’s militias in a law and order exercise that was regarded by some as an open move against Al-Sadr himself.

But it seems that, especially in the oil sector, big companies are willing to factor in this risk. “There are security, political, and reputational risks here for oil companies but none of them will want to see one of their competitors gain an advantage,” according to Muttitt

Red tape and brown envelopes

At the telecoms conference, panelists throughout the day continued to proclaim that red tape, the self-interests of politicians, and a fear of privatization and the free market are bigger obstacles than security – something that affects companies across all sectors.

Iraq has been a centrally planned economy for decades and the state is by far the biggest employer in the country at present.

Ali Al Dahwi, CEO Zain and Diar Ahmed, CEO Asiacell, both complained that excessive and arbitrary taxation is unhelpful attracting foreign investment and that there is no clear decision making progress or administrative assessment in place. Contracts are often disputed in parliament and revisited when new faces assume ministerial roles in the country.

This is a problem that will not go away overnight, and is not helped by a fear of the free market and privatization. Steven J Spano, Brigadier General, US Air Force, Multinational Forces Iraq/CCJ6, gave the best explanation of the frictions between the private sector and state when he said that Iraq had lost its free market culture over a generation ago, and that it would take another generation for confidence in the private sector to return.

Corruption, rife in every aspect of economic life under Saddam, remains despite the establishment of a National Integrity Board in the parliament and efforts by coalition partners to help combat it. Iraq was ranked fourth from bottom in Transparency International’s 2008 corruption report.

Doing Business 2009, an annual World Bank report on the ease of doing business in a certain country, ranks Iraq 148th out of 181, slightly below Syria and Iran but above 19 places above Afghanistan. Although it ranks very poorly for opening a new business, trading across borders and enforcing contracts, ease of paying taxes and registering property put it within the top 25% of countries globally.

The 2008 Investment Climate for Iraq by the U.S. Department of State also offers a mixed message. Under the 2006 National Investment Law foreigners are not allowed to own land, “but are permitted to rent or lease land for up to fifty years (renewable). Foreign investors are also able to own investment portfolios in shares and securities,” the report says. A signatory of a number of treaties on arbitration and intellectual property, “it has not signed or adopted the two most important legal instruments for international commercial arbitration.”

The investment law was expected to open up its economy to foreign investment and is designed to give Iraq a more investor-friendly business environment. However, the report notes that “Implementation of the law will be a challenge for Iraq in 2008,” and the ability to pass and implement such laws remain Iraq’s greatest weakness. Constant tensions between Baghdad and the Kurdistan Regional Government (KRG) have led to the continued delay of the passing of the hugely important Petroleum Law, and will most likely hold up a parliamentary vote on the draft Telecoms law at the end of this year.

Iraq’s government has, according to a report by the Economist Intelligence Unit (EIU) on October 14th, “belatedly recognised the need to streamline decision-making structures to avoid political and bureaucratic bottlenecks and thus staunch politically dangerous popular discontent at the lack of basic amenities.” In July of this year it created a National Council for Reconstruction & Development with the power to bypass ministries in negotiating and signing contracts in strategic sectors.

Who you know and where you go

Operating in Iraq will remain dangerous for a while to come. Iraqi Kurdistan remains the safest option for investors, while Basra and Najaf are potential goldmines if the security situation holds, but that depends on Iraq’s internal politics and the influence of Iran.

“There are vastly different operating environments in countries that from a distance look very similar can be markedly different on the ground, and particularly for investors who are actually getting dirt under their fingernails” as opposed to observing from the outside, Fenning said.

“The reality of what its actually is like in terms of supply chain, in terms of corruption, in terms of operational activity is actually what makes the difference at the end of the day.”

Then I realized this story comes shortly after this remarkable Jordanian blogger, Ajloun, calls it quits, after seemingly never ending tales of corruption revolving around public officials. This is happening in a country facing political, economic and social challenges all taking a heavy toll, with a local media in a perpetual downward spiral, and an extremely frustrated people.

Brand Jordan is bust. Brand Jordan is in the worse shape ever, it seems. And no sooner had I come to that revelation, this appeared. Country brand ranking. I’m not big on rankings, but it is some kind of gauge. So not only is brand Jordan aching from the inside, but it’s also aching out there.

Brand Jordan needs to evolve into something amazing so as to regain the trust of those who love it. Brand Jordan needs its diverse lovers to find new ways of living on common ground. Brand Jordan needs to be able to reignite compassion in everyone.

While reading the wide range of comments on Madian’s Books@Café story I realized every single one was right. Nobody was wrong. Not only was every contribution right, but each was put out there with so much passion.

So if they are all right and the passion is clearly felt, what’s the problem?

The lack of vision is the problem. Brand Jordan has failed to keep the vision alive and the lights are dimming, it fell off the track at some point. Why does that matter? Because people need a vision to be able to achieve their goals. Passion helps us define the spheres we want to be in, but a unified vision helps us see the journey. And when brand Jordan is bust, we can’t see.

This task is for everybody. Coming from diverse origins, faiths, ethnicities, classes, political affiliations, cultures, colors, ages, shapes and sizes, people in Jordan can find their places on the road forward.

Shutting down the Books@Café and the other F&B outlets around the country in a way that allows the system to abuse its own rules is the saddest low point we can get to. It does nothing but drive us to lose faith and cultivate apathy. A restaurant’s license should be honored. A rule should be respected. Common sense should prevail. Public servants should not forget that they are there to serve. Instilling fear in people should not be allowed.

If our vision includes a Jordan with special rules during Ramadan, everyone will respect that. If the vision includes business as usual twelve months a year, everyone will respect that. But when we dishonor our own rules, disrespect our own diverse society, deny its realities, we become a broken people with a broken country brand. And no matter how hard we try, how much we invest in it, how loud we shout, we will not get it right. All that happens is that we pollute the intellectual, spiritual, and physical landscape of our country.

Vision is why we are able to take on change and challenges passionately when everyone else says it’s not possible. Brand Jordan needs our help. Defining, sharing the vision for, and fixing brand Jordan must be our absolute priority. If we know where we want to go, we can better define who we need to be for the journey.

The original version of this piece is here.

The announcement came a day after Iraqi government spokesman Ali Al-Dabbagh announced that seven Arab countries are set to reopen their embassies in Baghdad this year. These countries include Kuwait, the United Arab Emirates, Saudi Arabia and Bahrain, Algeria and Morocco.

Jordan also recently announced that it would reopen its embassy to Iraq after the historic visit of King Abdullah, who became the first Arab head of state to do so since the 2003 invasion that toppled the former regime.

Lebanon is only one of five Arab states to currently have an embassy in Iraq, alongside Syria, Palestine, Yemen, Lebanon and Tunisia, which it opened in 2006. Official relations had been strained for six years between 1994 and 2000 when Lebanon broke its relations with Iraq in 1994 following the murder of an Iraqi dissident in Lebanon.

Sinioria travelled to Baghdad to discuss trade and energy, his spokesman quoted by the AFP as saying: “The discussions with Iraqi leaders will be on bilateral relations and particularly trade and oil.”

Renewed relations with Lebanon would be a positive sign for Maliki’s government, and both countries share a similar recent history. In the late 1960s and early 70s Beirut was considered the ‘Switzerland of the Orient’ and was home to a Riviera as opulent and international as any in Southern France, as well as being an Arab financial and medical centre, with Shia, Sunni and Christian living together in relative harmony.

Iraq was an oil rich state with high rates of education, renown for its industry and culture and pro-Western outlook, seemingly combining the best of East and West, as well as combining a mixed population of Shias, Sunnis and Christians. The ties that bind are the brutal and punishing conflicts both countries have endured since then, reducing these once prosperous nations to sectarian battlegrounds, divided internally and used as pawns in a regional power struggle.

As the war rages in Iraq and simmers in the Levant, commentators have been quick to point out the similarities, and many believe that a solution to either, or both, conflicts may hold the key to lasting peace in the Middle East. The reality is of course different. Regional power Saudi Arabia is an ally of the Lebanese government, but shows indifference and hostility to the power brokers in Baghdad.

Politics aside, Iraq and Lebanon have in the past few decades shared a strong trading relationship. In the 1970s and 80s the Iraqi market accounted for over a quarter of Lebanese total exports, interrupted by the first Gulf War.

In the late 1990s however, many Lebanese companies turned to Iraq in a time of economic downturn and uncertainty, seeing opportunity for manufactured goods and foodstuffs in a country crippled by sanctions but rich with petrodollars. The two countries signed a bilateral free trade agreement in April 2002, abolishing tariffs on goods traded between the two countries.

According to official figures provided the Center for Economic Research at the Chamber of Commerce, Industry, and Agriculture of Beirut, exports to Iraq (including both the public and private sectors) totalled $71,117. However an article in the Washington Report on Middle East Affairs journal in 2002 claimed that “the actual number was close to $400 million. Some even go so far as saying it exceeded $1 billion—a huge figure, considering that Lebanon’s public debt amounts to around $30 billion.”

The article went on to say that “hundreds of other Lebanese companies could suffer as a result of the war on Iraq.” Since 2003 though, Lebanon has played a minor role in the U.S.-controlled Iraqi economy, despite some optimism shown by Lebanese commentators in 2003, who believed that Lebanon was poised to benefit strongly from lucrative U.S. reconstruction contracts.

The past 12 months though have been a different story, and as I wrote recently, Lebanon has been one of the few consistent Arab sources of private capital into Iraq. Although Lebanese investors missed out on the privatisation of Iraq’s mobile phone network in 2003 and 2007, entrepreneurs have been leading the way in a variety of non-energy sectors including construction, tourism, banking and industry.

Lebanon is a major exporter of cement to Iraq, and Make Oil, a prominent Lebanese firm, has expressed its desire to build a cement factory in Dohuk, northern Iraq in addition to a $3 billion oil refinery. Byblos Bank opened an Iraqi branch in Erbil in 2007 and has announced expansion plans. A sponsor of the Iraq Industry summit in Dubai earlier this year, Byblos’ operations in Iraq include financing trade and infrastructure projects. Byblos also acts as an intermediary for Iraqi banks trying to do business overseas.

Tourism and Iraq are not often mentioned in the same sentence, but in the virtually autonomous Iraqi Kurdistan, it has taken off in a big way due to relative security. Lebanese companies over the year have announced plans for a massive mountain resort in Shaqlawa County, Erbil and a $55m 5-star hotel in the city of Erbil, to be managed by a major Gulf hotel group, Rotana Hotels.

Investment into Iraqi Kurdistan is nothing new, however. Earlier this year, UAE property giant DAMAC announced a $15 billion residential project for the region, showing just how much confidence the region has attracted. Undoubtedly this attracts attention to Iraq as a whole but the uncertainty over the oil and gas law and, more significantly, the status of Iraqi Kurdistan does not guarantee that the benefits will spill over into the rest of the country either in the short to medium term.

Many Lebanese companies, such as Sfeir Industries which has a contract with the U.S. military to supply food services in Baghdad, operate out of Jordan or Turkey.

Carlos Sfeir, general manager of the company told Oxford Business Group in an interview that “The growth is very interesting and the potential is huge so we take the risk,” but admitted that “We never send company personnel to Baghdad.”

Alongside boosting diplomatic acceptance of the current Iraqi administration, Lebanese firms could in many ways offer far greater support by venturing south in search of commercial opportunities and setting a precedence for Arab companies who are better equipped with cultural ties and physical proximity than international firms. They can also show that there is money to be made outside of the energy sector.

Before 2003 Lebanon exported to Iraq over 97 articles, including food products, leather, wood, cement, iron, books and newspapers, clothes, and machinery: products desperately needed in 2008.

Corrupt and unmanned border crossings have made the Iraqi market an easy target for Turkish and Iranian manufacturers and merchants, peddling everything from tinned food, radios and other consumer items to the detriment of Iraqi industry and consumers alike. A colleague in Baghdad often complains of shoddy imports, and wishes that the government would take action. He was delighted recently with the purchase of a Lebanese made petrol-powered generator for his basement, and wants better quality goods to return to the general market, without premiums demanded by blackmarketeers.

As much as Iraqi consumers or Lebanese exporters would wish to focus on trade and commerce, and for agreements to be made, yet oil and gas dominate the headlines.

Iraq was a major exporter of oil to Lebanon in the 1970s and 80s but output was cut after the first Gulf War. In 2000 Iraq and Syria agreed to build a pipeline to Syria’s Mediterranean port of Banias, including Lebanon in the process, and it courted controversy for flouting UN imposed sanctions with the volumes exported. It was shut by the U.S. soon after the 2003 invasion.

The 200,000 – 300,000 bpd Iraq-Syria-Lebanon Pipeline (ISLP) has been closed and the Iraqi portion reported unusable since 2003. The initial capacity of the pipeline was approximately 700,000 bpd, with potential to expand to 1.4 million bpd, according to data obtained from the U.S. government’s Energy Information Administration.

Government statistics put Iraq oil production at 2.46 million bpd in July 2008, with exports at 1.89 million bpd.

On August 11th 2008 the Iraqi Ministry of Trade released a statement saying that Iraq and Syria have agreed on terms to revitalize an idle pipeline that used to carry Iraqi crude to Syrian terminals on the Mediterranean. Discussions have been ongoing since the beginning of the year to re-open the pipeline and a Russian company has been widely tipped to win the contract for renovation works after carrying out a survey of the remaining pipeline and facilities. There have also been talks to add a second line parallel to the existing one.

Whilst Lebanese investment in Iraq is on the up, what of Iraqi interests in Lebanon? After all a healthy trade relationship is a balanced one.

There are no exact figures to measure trade between the two countries, but it is reported that millions of dollars flow between the two on a monthly basis: the more exports from Lebanon the better for it; Lebanon’s exports surpassed $5.96 billion in the first four months of 2008, but the trade deficit widened to $3.65 billion in the same period.

During the Israel-Lebanon conflict in the summer of 2006 the UN Office for the Coordination of Humanitarian Affairs released a statement saying that the current conflict in Lebanon was having a negative impact on the Iraqi economy as most of its trade with Lebanon has been frozen and business with Syria has decreased.

It quoted Muhammad Rushi, an economic analyst and professor at Baghdad University, as saying: “Lebanon and Syria were Iraqi’s most important trading partners…Hundreds of contracts had to be cancelled or postponed due to the current violence in Lebanon.”

Iraqi refugees in Lebanon number only 20,000 – 50,000, U.N. data shows. Such small numbers are unlikely to make a significant economic impact on the local economy compared to their counterparts in Jordan and Syria. Iraqi capital has flowed steadily into Jordan and the influx of refugees into Syria has sent house prices soaring. To compare, only 20% – predominantly Christian – of Iraqi refugees in Lebanon said they want to integrate into the country.

Last Monday, the influential Lebanese newspaper The Daily Star published an article on the progress of the Iraqi investment law that was designed to encourage the development of Iraq’s private sector and to reassure foreign investors. Passed in 2006, it has still not been implemented, and this failure is almost a big a barrier to foreign investment as the conflict itself. It has also not helped that private sector growth in Iraq has been low key at best.

“It is the nature of capital to favour markets in which a single, clear, comprehensive law is applied regarding investment, and where a single authority is responsible for this law,” the article states, “Therefore, stability, clear principles and rules that govern investment operations, and modernizing laws to simplify regulations are considered the main means for providing a suitable investment climate.” Where there is no comprehensive law, it sums up, “there is chaos.”

The solutions it offers are simple: Reduced bureaucracy, investment timeframes to prevent foreign monopolies, increased tax exemption and investor protection from exploitation and corruption.

It may be wishful thinking but if regional investors, led by companies from Lebanon with a long history of trading with Iraq, make a real effort to enter the Iraqi market and nurture private sector growth, it would surely be in the interest of the government of Iraq to legislate for a better trade and investment climate.

Oliver Pearce is an editor at a leading Middle East focused business information service. You can contact him at: olivercpearce [at] gmail [dot] com.

As violence tapers off, oil exports increase, and global crude prices remain high, Iraq’s economy is set to grow by 8 percent in 2008 and will end the year with a predicted $79 billion budget surplus, according to a report by the U.S. Government Accountability Office.

But with the U.S. presidential campaign in full swing the Democrats are lashing out at Iraq for draining American money and American lives. The media machine has been in overdrive, with scathing attacks from both neo-con and liberal commentators scoring points on the same issues: U.S. lives, U.S. money, and the impact on the lives of U.S. consumers.

They demand that Iraq now pay is own way for reconstruction and embrace a potentially tragic cut-and-run strategy that could lead to further internal and regional instability.

It is clear that only a prolonged long-term investment, combining economic, military and political initiatives can restore the home of Arab cultural and economic development.

As Naomi Klein put it in a piece for the Guardian newspaper, “The country’s invaders should be paying billions in reparations not using the war as a reason to pillage its richest resource.” She was of course talking about Big Oil in Iraq, but the sentiment sticks: The U.S. and the Allies at the very least owe the people of Iraq a basic infrastructure, let alone a guarantee of minimum security in which to rebuild.

American dollars, $48 billion to be precise, have been spent since 2003 on reconstruction and rebuilding projects. US Aid, Provincial Reconstruction Teams and Microfinance credit initiatives are all examples of U.S. efforts to rebuild the country, not to mention the hundreds of schools, hospitals, water plants and generating stations built by Allied forces.

Having closely monitored Iraq’s economic development for the past 18 months, I can testify to the changes taking place. Daily reports from local media and regular feature stories from foreign news agencies talk of reconstruction projects in Baghdad and beyond: solar street lighting, repaving of city streets, beautification projects in public squares, new parks and leisure attractions and the return of some sort of nightlife in urban areas.

But these projects – some complete, some in progress, most not even begun – are barely a start to what is required. A cliché such as ‘tip of the iceberg’ would not do justice to the mess the country is in.

Daily conversations with our correspondent in Baghdad or with a friend in Anbar province paint a picture of such incredible hardship that you wonder how anything at all gets done. Reports flood my inbox: of sewage piling up like mountains, hours upon end without electricity in 40 degree heat, no running water, and 40% unemployment.

Iraq lacks even the most basic of infrastructure for its residents. Electrical generating capacity runs at just over 40% of demand; in a country awash with oil the government spends billions each year on fuel imports; and overpriced, shoddy goods from Syria and Iran flood the consumer market.

And so the call grows ever louder: “Don’t sit on it, spend it.”

U.S. and Iraqi officials have privately admitted that money has not been spent quickly enough, and that not enough is being done to improve the lives of ordinary Iraqis. Local businessmen blame the authorities’ lack of experience and a shortage of skilled local contractors (due to the brain drain since 2003). Security is cited as the biggest issue.

Corruption has eaten away plenty of funding. The Iraqi government launched its own watchdog, the Integrity Board, to go after official fraudsters, but reports indicate that its members have been thwarted by internal party politics – although a recent statement from a senior official indicated that many of those accused of crimes have now fled the country for fear of prosecution.

Safeguards have been put in place by Iraqi and U.S. officials to regulate government spending better, but even these can have a limited impact. A report on Tuesday revealed that the U.S. has spend over $100 billion on private contractors in Iraq since 2003, and several America-based firms have been charged with waste.

Sub-standard construction, projects unfinished, wildly over-inflated costs arising from no-bid or single bid offers are all indicative of this. Everyone knows the story of Dick Cheney and Haliburton.

Iraqis themselves are naturally bitter that the government is sitting on all this money that’s going nowhere, but piles of cash alone don’t solve social and public service problems.

A glance need only be cast at the oil flush GCC states to prove this: The government of Kuwait on Sunday had the cheek to link Iraq’s budget surplus to the war debt it owes the Kingdom, totalling $16 billion, the very same government that earlier in the year spend billions to subsidise private bank debts run up by its own citizens.

If you read the comments of Democratic Senator Carl Levin, a pattern of shirking responsibility emerges: “We should not be paying for Iraqi projects while Iraqi oil revenues continue to pile up in the bank, including outrageous profits from $4-a-gallon gas prices in the U.S,” he said last week.

Yes, indeed. Why should innocent Iraqis, who have been tortured and impoverished, receive support when the governments of the U.S., Saudi Arabia, and Kuwait have to subsidise the reckless spending of their own citizens? Would someone like to remind me how many hundreds of billions have been lost in this credit crunch, or how many jumbo jets oil-rich sheikhs need for their private use?

For the sake of parity however, and for the sake of preserving my capitalist credentials, I invite you to play the numbers game with me:

Iraq announced a supplementary budget of $21 billion which was approved by the parliament last week, on top of a record $47 billion budget set at the start of the year. The lion share of this money is for expenses, with only a fraction for investment.

The Coalition Provisional Authority, which ran Iraq from April 2003-June 2004, threw the country’s economy wide open to the principles of the free market and wound down many state run factories, with tens of thousands of job losses as the result. The insurgency then all but halted private sector growth and foreign investment, and the FDI has remained “depressed since 2003” according to the Economist Intelligence Unit.

Both foreign and Arab capital inflows into Iraq have been slow. Kuwaiti financial firms have taken small stakes in local banks, Turkish and Iranian companies have been doing brisk business in the north and south respectively, and the odd Saudi or Lebanese investor has popped up for construction projects, yet most of the money coming into the country stubbornly heads to the all but independent Kurdistan province. Furthermore, none of these sums together could make much headway, even if the projects they fund were completed overnight.

A news report on Monday said that Iraqis still depend heavily on the government for jobs and that 30,000 new government jobs are to be created this year. Most of the $125 billion worth of projects currently being undertaken in the country has been underwritten by the government.

Oil remains the biggest source of revenue in Iraq. It will account for over 90% of government funds for 2008 and the foreseeable future, and oil and gas are the only sectors to truly to be receiving foreign attention on a scale needed to rebuild the country. Most of these resources are earmarked for export.

Therefore, the biggest blow to those who say that Iraq should “pay its own way” is the slide in global oil prices. U.S. crude has fallen by about $35 from its record high struck in July, and this does not factor in Basra Light Crude (the main Iraqi export) which is sold at a discount and at a government controlled price set at the beginning of each month.

London-based research house Business Monitor International released a country economic forecast for Iraq on August 6th that criticizes those who think that Iraq is going to be able to pay is own way anytime soon.

Titled “From Surplus To Deficit”, it opens with: “While current high oil prices will provide a boon to central government finances this year, we expect the budget to fall into deficit in 2009, and for deficits to widen over the forecast period.”

Taking a negative view of oil prices and capping oil production at 3.3 million barrels per day, BMI expects “oil revenues to contract around 17% in 2009, and then to continue to fall, but at a slower rate, over the remainder of the forecast period [2008-2012].”

The report says that government subsidies will continue to grow and that current expenditure will increase 30% in 2008. BMI also believes that the government will embark on a costly economic stimulation programme: “We therefore expect current expenditure to continue to grow, and for investment expenditure to increase at double-digit rates over the forecast period.”

With 69% percent of the 2007 investment budget spent, up from the 22% achieved in 2006, and a better security situation allowing for these numbers to grow, Iraq’s finances will be stretched. As the last of the U.S. reconstruction allocation is spent, oil revenues contract, and economic diversification and private sector growth progress slowly, Iraq will reach a budget deficit in of 6% in 2009, and 20% in 2010, according to the report.

All of these predictions are based on an uncertain future for Iraq. Government spending may not rise drastically, but any collapse of security could send the oil firms running and revenue plummeting.

As global market conditions limit investment and multinationals shy away from risky propositions, Iraq will be the first to suffer. So in addition to the moral responsibility of the U.S., its Allies and Iraq’s Arab neighbours to stay the course, market principles further support this proposition.