Economic Innovation, Inclusion, and Resilience: A Key to Growth

The below transcript is from the fourth panel of MEI's 72nd Annual Conference, held on November 8, 2018 at the Marriott Wardman Park hotel in Washington, D.C.

Summary

With the impact of conflict in some countries and diversification initiatives in others, the economic future of the MENA region remains uncertain. Initiatives such as Saudi Vision 2030 and UAE Vision 2021 reflect the pursuit of economic diversification and energy innovation. Women and youth have played a larger role in diversifying Middle Eastern economies.  Meanwhile, countries impacted by conflict and economic stagnation face a much bleaker economic outlook. How are some local and international investment efforts being implemented to promote economic growth in the region? What are the priorities for regional economic integration, and what are the challenges brought about by corruption, conflict, and lack of access?

Panelists

• Jihad Azour
  Director of the Middle East and Central Asia department, International Monetary Fund

• Ferid Belhaj
  Vice president, Middle East and North Africa, World Bank Group

• Nahed Taher
  Group president of Middle East & director of Islamic finance, National Standard Bank

• Dina Sherif
  CEO and Co-founder, Ahead of the Curve

• Christopher Schroeder, moderator
  Co-founder, Next Billion Ventures

Video

Transcript

Ambassador Gerald Feierstein: [00:00:00] Of all of the issues that we've discussed today in our various panel discussions perhaps none will have a greater long term impact on the future stability of the region than the subject of our fourth and final discussion economic innovation inclusion and resilience. For this panel I would like to welcome an old friend of MEI Chris Schroeder. Chris is an entrepreneur advisor and investor in interactive technologies and social communications. He co-founded next billion Ventures a venture capital and advisory group for rising markets backed by leaders in Silicon Valley. Chris is also a bestselling author of Startup Rising The Entrepreneurial Revolution Remaking the Middle East please join me in welcoming Chris who will introduce our other panelists. Thank you.

Christopher Shroeder: [00:01:04] Are we live here? Fantastic. I couldn't be more excited to be here and I want to actually do something a little bit different because I know today we spend a lot of time on the very significant challenges of the region and there are many but there's actually some amazing opportunity that is coming and new frameworks by which I think we can look at things which will be positive. This is a remarkable wonderful but tough neighborhood we know but we want to force a little bit on the potential. I'll give an example from my lands which is spending time with technology young people in the Middle East and with venture capital in particular overall. So in December of last year I went to a Startup Gathering which I do a great deal of I go all across Silicon Valley in places like that. This gathering in December was 5000 young people completely energized all focused on the future thinking about how they're going to change the world through technology and through business, deeply deeply impressive. But this gathering was not in Silicon Valley this gathering was in Cairo Egypt and the 5000 were young people from the Middle East not just Egypt though there was plenty represented from Egypt.= and it was absolutely electrifying. More interesting than that event was 24 hours earlier there was another group of young 5000 people in Beirut Lebanon for the same purposes. Now I can assure you that if ten thousand young people gathered in 48 hours in the Middle East to talk about the Muslim Brotherhood everyone in this room would know about it and I'm willing to bet dinner with anybody in the room that almost none of you ever heard about that 48 hours happen in the Middle East. And I can tell you this is happening now all the time around the Middle East because it's actually happening everywhere. And they're three quick framing observations which I would like to give to lead into this amazing discussion we're about to have. We have an unprecedented rise of the youth and sometimes we think of that as a problem but in fact I think it's an amazing opportunity who right now have real access to the world. What I mean by that is 60 70 percent of humanity in the region but pretty much everywhere has access to one of these. And at one level you say well this is kind of interesting a smartphone is cool I guess I can access Facebook or or video or what have you but that's not the point at all. Every one of these devices has more computer power than all of NASA had in 1969 to put a man on the moon. People are walking around the Middle East right now literally with supercomputers which among many things means that they have essentially access to all of human knowledge on their person in their fingertips essentially for free. Technology is not a cure all for everything but it gives us unprecedented problem solving and opportunity without precedence for have to be able to solve problems at lower cost greater scale and innovation than we've ever been able to talk about even if we were sitting here three years ago. Every company large companies as well are becoming a tech company. And if you want to compete globally you have to understand this talent and thing that's being unleashed because that's what will put the Middle East foundationally and I think in a very good position going forward. Second there are new opportunities galore in new markets. We sometimes think about this and forget about it but the fact of the matter is the Middle East has many countries which are growing now in interesting ways and offer opportunity. But as importantly the Middle East is a hub to probably the fastest growing markets across the world. Many of you know Dubai is a five hour flight from three billion tech enabled customers who are looking to buy things and consume things in very powerful ways. These markets that these region can reach within the next 20 years very possibly will be larger the United States or in Europe. And of course in the midst of all this as the previous panel talked a little bit about China's offering alternatives again and in my space for the first time in the last year I'm seeing Chinese tech companies and Chinese venture capital coming in to the Middle East because of the opportunities I described in ways that Americans really are not. Finally there is a mindset that we have to think a lot about in a discussion like this which we really have to sort of check or at least suspend our imaginations briefly. We are structurally as human beings think about the world that the next 10 years is like the last 10 years literally we're structured neurologically to think that way but in fact we know from our own experience that the next 10 years is almost never like the last 10 years at all. So it takes time for us to think about new evidence and new ideas to be constructive. How often it is easy for us to think that the world is always coming back so we can look at Egypt right now and say you see it's falling back to what it once was or we can look at the challenges in Saudi now and fear that it will fall back to quote unquote something as it once was. But that's not the way to be thinking about this at all. It's about thinking about new kinds of opportunities which does not ameliorate all the problems overnight. It simply allows us to have a different conversation than we could ever have before. And we will see how things will be different. And we'll have some amazing insight with this group of people right now. I'd like to get right into it if I could. This amazing group of people right now and I'm to start if I may with Ferid who's the vice president of Middle East and North Africa for the World Bank since the summer he's been chief of staff to the president there for 15 months. He has extensive experience across the Levant in Iraq and Syria North Africa seems a lot of things. Again, Ferid the audience has a pretty good handle on the challenges of the region but I wonder if I could ask you to start us off by giving a bit of a tour of some of the things that you find most helpful.

Ferid Belhaj: [00:06:03] Is it on? First of all, thank you very very much. Thank you very much for inviting us. Thank you very much Paul for turning generous eyes to the World Bank. Chris I think you have been looking or reading or listening to what we've been saying over the six months seriously. You said it all. When I look today at MENA. Yes. There are the fundamentals you know the wars and the trouble and the violence and the refugees and the tensions that have been you know galore actually all through the region and all through the last year in particular after what is still called the Arab Spring. True. And by the way everybody's putting a lot of attention to that. Paul has because he's been there basically putting together this program and having this particular panel at the end. So it shows that in the real attention is still on violence and and conflict when in fact when one looks at two numbers 2015 in 30 years we will have 350 million young people seeking jobs knocking at the door of the job market. And if we don't do anything about it. Well those doors will still be closed. So what Chris has mentioned earlier the tremendous energy that these 350 million young people who have needs to be tapped into. And this is why we are enlarging our strategy in the bank when it comes to the Middle East and North Africa. Yes. The fundamentals are there and yes we'll keep dealing with the refugees and the violence and the problems. Yes climate change desertification erosion of coastal erosion. Yes. These are still issues but what I would love to look at is to tap into this these young people work on human capital. We launched in Bali the human capital project focusing specifically on the aspirations that you've been mentioning Chris aspiration that are rising. Everybody has this. Everybody knows what's happening next door. But the fact is that when they look at what's happening in their own countries in their own environment there is a huge level of anxiety a new level of unfulfilment and a huge level of resentment. And this is what we should be addressing. So education absolutely crucial. A new way of engaging with education. This is one. Second in the Middle East and North Africa there is a strong potential for the private sector to move forward maximizing Financing for Development is one of our main drivers. We need to make sure that the governments are not you know stop being doers to becoming enablers. They need to put together a broader way of deconstraining in the investment climate. And we can go into a lot of details on that. And last but not least and this is where I believe that you know we've been reading maybe you know on on some of our notes new technology digitalization of the economy. We have been running around the whole region over the last few months and before that. Incredible potential for new technology. You go to from Morocco all the way to Egypt all the way to Lebanon and everybody every young people is dreaming of launching their start up. You know they have the knowledge they have the energy and they have the potential. What we need to do is to help them out and again, deconstraining or creating an ecosystem that would allow them to thrive. So we are moving on that I was at the Silicon Valley with my management team a couple a couple of months ago actually. It was amazing not just to be there and to talk to Uber and and and Facebook and LinkedIn and others and Apple but also to engage with young people young entrepreneurs from the Middle East and North Africa working there either in all those big companies or having started their startups there and all of them are telling us we may not necessarily want to go back but we are happy willing able to go and help to go and invest in the Middle East and North Africa. If you help us as well as the World Bank you know and work on the regulatory framework work on the ecosystem that would allow new technologies to thrive. So this is where we are going happy to engage more thoroughly. I know that you know time is is running up but we really need to have a more enlarged view of the challenges of the middle east of North Africa. Yes. Many are still there. The old ones but the new opportunities are tremendous. And we need to tap into them.

Christopher Shroeder: [00:10:48] Just one quick one. If we could just briefly before I go to others I was just with Jim Kim in Silicon Valley and it is quite remarkable. You guys are walking the talk. This isn't just saying technologies and I think it's out there but the World Bank itself is using technology in very new and innovative ways. A couple of headlines you could just quickly share?

Ferid Belhaj: [00:11:03] Well look when when it comes for instance when it comes to engaging in one of those conflict states we are using digital imagery and we are using satellite imagery to assess the damage and to see what we can do about it. But you also at the same time using you know our our policy firepower in a way to enlarge the conversation with some of the countries when it comes to payment. When it comes to making sure that fintech becomes part and parcel of our engagement. Now we are in a very good discussion with the UAE. We are looking at Abu Dhabi as a platform that would be managed by the bank with UAE and others a platform for new technology. This is something that hopefully would be inaugurated by Jim hopefully around February or March. It is really to show that we are walking our talk and that's what we are engaged with talk with our client countries with our member countries you know is a real one because we really want to instill that new dynamic into the Middle East and North Africa through the World Bank hopefully.

Christopher Shroeder: [00:12:07] This Is a big deal. Jim I just as a quick aside also met with Patrick Collison who's the founder of stripe which is the largest fintech company out of Silicon Valley going all across emerging markets. And they are literally now going to do data together to talk about digital inclusion to help really aim which countries are doing things well so we can do more support of them. Which ones are having trouble so we can help teach them. And it's going to be very co-author experience so it's very very exciting and I think it's a very big deal. Dina, talking about big deals you're the co-founder of ahead of the curve since 2012 you're helping companies and governments to think more about what you call a conscious form of capitalism. You've advised President Sisi that a professor at AUC you've probably taught me more about development in the Middle East and Africa through many of the things you've done in a previous life. Before that I just wonder what what is conscious form of capitalism and why are you talking about that now?

Dina Sherif: [00:12:54] Thank you Chris and thank you Paul for inviting me. I'm going to try to stay very brief but maybe also optimistic because Chris scares me. I think when, capitalism has become a bit of a dirty word and we like to make it sound better by saying conscious capitalism. But I like to say it's just going back to the root of what capitalism was about, is about which is creating shared value creation not just for shareholders but also for stakeholders and as for ahead of the curve. We talk about conscious capitalism we're really thinking about how in the Middle East we can develop economies both sustainably and inclusively and we say sustainably we're talking about do no harm. But we're also talking about what can we do to advance society. And when we talk about inclusivity, we're talking about what can we do to include the base of the pyramid create more pro business models but also think about how we can include women in the workforce the minorities in the workforce and in terms of optimism I think there's a lot of hope for the private sector today and where they're going in the Middle East in terms of really embracing new and more responsible modes of managing their companies. But we're also seeing very very positive trends when it comes to entrepreneurship and young people starting businesses that are solving real problems in energy healthcare transportation environment. What where we're not seeing though and I'm hoping the World Bank will help us out is more and more capital flowing towards these startups that are really trying to tackle problems in society.

Christopher Shroeder: [00:14:30] Could you just give an example or two that just jump out at you. You know when you see examples of this sort of wonderful theory and focuses just describe one or two women or men that's what you sort of jump out at you that you love and are proud of and like to talk about.

Dina Sherif: [00:14:43] Oh there's so many. I think you know not not to plug in for my my own business partner but he he started a business that created affordable education so in Egypt, in Egypt still in Egypt what we have is private education and public education and private schooling as with many developing countries is extremely expensive. And what he did is he created a business model to make private education high quality but also extremely affordable. And I think this is an extremely successful business model and it just IPO. This is the first IPO we've seen in the education sector coming out of the Middle East. And I think it's also representative of the trends of businesses growing within sectors like education and healthcare. We also see great examples like Yasmin Helal also working in education which is educate it educate me which is another social enterprise. It is a not for profit but it is also revenue generating and what they're doing is trying to create community education models at the grassroots level within some of Egypt's poorest slum areas.

Christopher Shroeder: [00:15:52] I think sometimes traditional institutions and sometimes economists or professors don't fully appreciate the multiplier effect of what you've just talked about Dina because an IPO is a great thing in and of itself it hires jobs it helps people but what it also does is has thousands maybe hundreds of thousands of young people in the Middle East saying well I can do that too it's actually happened which means I can do it. And that has a flywheel that's pretty powerful no.

Dina Sherif: [00:16:14] Yeah absolutely and I think you know just one final comment. And when we talk about the Middle East we really talk about one particular narrative that I think is extremely positive and that's the narrative of women. So it is true that we do fall behind in terms of almost women number of women on boards number of women in leadership positions. Number of women in the workforce however I think more than ever today we're seeing positive discussions around the increase of number of women on the executive level on boards and also within the workforce. And it's a huge opportunity. I think in Egypt alone and this is a World Bank statistic not to keep picking on you but if we can see an equal ratio of men and women in the workforce this could potentially mean over 30 percent increase in our GDP. And this is the case across the region. So economic advancement of women is a huge opportunity for us right now and I think in the Gulf one of the stories that we're really missing is the increase in number of women in tech and I'm sure Chris you can definitely attest to that we're seeing more and more women start tech based companies at extremely high high rate and that's an extremely positive thing to think about.

Christopher Shroeder: [00:17:27] The Economist reported this was four years ago that 25 percent of tech based startups in the Middle East right now were founded or run by women. That number's either easily two fold maybe three fold what would be in Silicon Valley. Just to put it in perspective. This a perfect time, the Gulf is a perfect transition on to you. You're the group president of the Middle East and Director of Islamic finance with the national standard bag. But you've had this amazing career around banking and finance with experience in Saudi Arabia around the Gulf. The speed and the change of what's happening obviously today is staggering it is not without its bumps as we know and some very tremendous difficulties but it is pretty wild. And yet again there are conversations we can have about things happening in the Gulf that if we are sitting here even three years ago I don't think we would be able to we've been able to talk about. Can you update us a little bit on how you think things are happening with Saudi Vision 2030 in particular now. Some of the impact and diversification initiatives that you're seeing there.

Nahed Taher: [00:18:16] I believe Saudi Arabia is the hub for infrastructure and investment for any investment company to participate in the world. If you want solar energy you should come to Saudi Arabia, the Empty Quarter. If you want water, we have 63 percent of the total water desalination plants in the world. If you want health care the potential is there. If you want shipment if you want oil and gas if you want petrochemical we are the hub for that. I think Saudi Arabia vision is perfect. We have this diversification concept since the start of Saudi Arabia many years ago hundreds of years ago Saudi Arabia wanted to go for, I mean since it started for diversification but it was only on paper because oil prices have been going up and we were having this luxury of oil money coming and spending on our business from the government but this didn't create jobs. So the the–and this created only spending like equity no debt. So that was very expensive spending on buildings and real estate and this accumulated a lot of problems of unemployment poverty whatever. Even within a rich the richest oil country. OK. So I think with the Vision 2030 it's becoming true. Why? Because our budget is limited now. OK. But our opportunities are massive. If you want gold you can come to Saudi Arabia. If you want to participate in infrastructure. I'm an infrastructure banker. I created the first infrastructure bank in the world in the Middle East I mean. And we did wonders I mean I can give you plenty of examples that we can talk days about it. But here I am coming today to tell you I have found with national standard finance the solution to the global world investment in the Middle East. How? This come with debt not ownership because ownership scares a lot of politicians. When you come to invest in water electricity because this is very politically critical. So what do you do is you come for long term financing debt coming from pension funds institutional investors insurance companies coming down putting that and having–turning the project risk to credit risk. I mean these lenders don't take care of project. They don't care where you put the money and you have to pay through direct pay. Letter of credit to them and have guarantees either sovereign guarantees or insurance credit guarantees and tell them that I will pay you back and enjoy the profits. OK you can come in as equity participant but this is up to you. But the most important is the long term financing 30 to 40 years. PPPs [inaudible] we've been talking about this a lot. I've been successful in doing this but it's a lot of headache. But when you give them money for 30 40 years this is as a negative loan. Pensioners don't care about the money as a principle. They care about sustainability of income coming from the interest rate payment. These pensioners also give them money without paying installment for their debits. I mean who takes the loan doesn't need to pay the installment he just pay the interest. You can pay a balloon payment. So all this formula works for everybody together. I mean look at Saudi Arabia doing that. America is happy to lend us okay and get their interest paying. Okay. Sovereign guarantees are there. Insurance is there. But the problem in the Middle East as a whole I'm not talking only Saudi today, my talk is about Saudi, but I've been investing in the whole Middle East in international as well. So what I see is them. The major problem is long term financing. That's why China came to Saudi Arabia and didn't succeed came to the Middle East and didn't succeed very well. Why. Because they gave reckless lending no structure. But I believe the U.S. European lending is fantastic to go now in the Middle East and have a win win situation. And then guess what. You can sell this loan to the public and the Middle East everybody would love to buy a loan and have risk free income coming from bonds rather than putting an equity and losing their money like what they're doing now in Saudi Arabia and the Gulf. So I believe, wait for my book it's coming very soon. This is my second book to be published.

Christopher Shroeder: [00:22:57] What's the name? Tell us the title.

Nahed Taher: [00:23:00] It's PPPP philanthropy public private partnership.

Christopher Shroeder: [00:23:06] Fantastic.

Nahed Taher: [00:23:06] We're also the charity houses in Saudi Arabia have floods of money and they don't know how to invest it rather than empty lands. So I think the whole region can come up to this model with theU.S. European international sovereign wealth funds insurance companies and have a win win situation and have job creation with the value chain not only certain projects but the value chain surrounding these projects. So I believe I have a fantastic model for you today and you are welcome to come to Saudi Arabia and the whole Middle East as well.

Christopher Shroeder: [00:23:40] Just a quick question if I could on that. A lot of times when I talk to clearly to American investors one of things they still have trouble navigating is a sense of when am I dealing with government when am I dealing business. And one of the great things that's been talked about in 2030 was much more emphasis of the private sector. Can you give us an update on how the private sector is actually stepping up and promoting some of the activities that you're talking about?

Nahed Taher: [00:24:00] Well the private sector in Saudi Arabia has been mainly in trade and construction but they've never been an infrastructure and this long term financing. Now they're coming up to the picture and they need the partnership with intelligent money like not just money from outside. We need intelligent money. Lack of capital is not there in Saudi Arabia. The problem is risk mitigation. So I believe with intelligent money coming and partnering with the Saudi private sector the private sector is in Saudi Arabia. You cannot believe how they are very enthusiastic and encouraged to go in and that by end of infrastructure financing. But they need the support or the partnership with experienced infrastructure financing people. And that I've done that massively in and all over the world and with Saudi money with American money with European money. And it has been successful and everybody is happy. So I think this is the sustainability aspect that we are all looking for that support job creation that support and raising the standard of living and creating wealth rather than managing wealth. That's what I believe in.

Christopher Shroeder: [00:25:15] You're you're a great investor. A lot of great investors obviously do everything they can to ameliorate the risk. We don't ignore risk. You just try to ameliorate and master it. There is uncertainty right now. What what advice are you giving right now to investors who are thinking about Saudi at a time where there is a lot of uncertainty. What would you what would be the message you would give?

Nahed Taher: [00:25:33] I think the media is over exaggerating about the risk in Saudi Arabia. Saudi Arabia now with the Vision 2030 is doing a lot of regulation to mitigate the risk and even giving sovereign guarantee which they haven't used to do that before. OK. For investors that coming in to ensure them that they will pay and that I believe the expansion of the loans or the expansion maturity of the loans will give opportunity more to Saudi Arabia to pay everybody on time because this infrastructure projects stake along around six to seven years to start giving profits. So if you give a loan for 30 40 years you will only succeed because you will make them relaxed doing the project benefiting and benefiting you as well. So as a lender and I think the returns are very high there because the cost of capital is very low because of a lot of natural aspects like mining oil and gas whatever. We are the lowest in cost for methylene for the petrochemicals. So we can be partners together and expanding all over the world taking the natural resources from Saudi and then turning it into industrial.

Christopher Shroeder: [00:26:50] Fantastic. You're the perfect person to wrap this first conversation right now that where we are as a director the Middle East and Central Asia part of the IMF since March 2017 you were Lebanon's finance minister responsible for significant financial reforms there so you weren't just a thinker about stuff you you actually learned what worked and didn't work and in tremendous complicated processes overall. You have a lens of this. Also from the consulting firms which means you have a lot of global comparison joining to bear here which is very important so I want to ask you drawing from your experience what you've learned what works and really doesn't work to get reform to really happen it's all good to talk about a lot of your ethereal things. Wonder if you could give us a bit of a tour of what you think is working today but what or the most important things in order to really have not just good ideas but actually good implementation.

Jihad Azour: [00:27:38] Thank you very much. In the beginning of the year we had a big conference in Marrakech about inclusive growth and it was very interesting to see sitting side by side, government and decision makers who maybe for one of the rare moment they were listening to the young entrepreneurs like some of the young we see here and also discussing with the private sector about how to bring the level of growth from what it is today to 1 or 2 percent higher that would allow us to turn the trajectory of unemployment and what this would require. And it was very interesting as the first observation that you see that you have two different communities or two different Arab words sitting side by side the one that you know you interact with were very positive very bullish. They see the opportunities. And you have another group that only they were seeing the challenges. And I think both of them are right to the level of growth in the region has declined compared to the first decade of this century from five to three and a half percent. The level of unemployment especially at the youth level is one of the highest worldwide. The level of FDI we're issuing a study that shows that is declining. Yet on the other hand this is a place where still you have a lot of potential I give you a few examples of policies that we we've been recommending recently in our discussions with the authorities of those countries about these issues. If you reduce the gender gap as the lady mentioned from 3 to 1 to 2 to 1, in ten years you could create 1 trillion dollars of additional growth additional and this is only by I would say including the excluded the same things apply for the youth. When you look at the level of education and skill set yet it's clear that we are our generation of Labor is good at the middle skill set. Maybe not at the high skill set but they are scalable. You can invest in them. Therefore there are clear policies that would allow you to reach the level of on average five and a half six percent sustain growth that will allow you to reduce the level of unemployment from 12 and a half to eight eight and a half which I think would be a reasonable objective and reduce it for views from an average of 25 percent to something that is below 20 percent 18 percent. The second thing that also surprises you. Access to finance. This region has good level of capital good level of well regulated well managed banks but access to find especially to Acehnese and we are about to launch a study on that is around 3 to 4 percent of GDP it could go down to 2 percent of GDP on average for EMs for emerging markets it's between 15 to 18 percent. If you fill the gap this will create tremendous number of job opportunities because we all know that SMEs create the large portion it could go up to 90 percent of unemployment. Therefore–of employment opportunities. Therefore improving access to finance in a region that has the resources that could help us address this issue. A third lever that is very important is how to bring confidence back and I think bringing confidence back would require to tackle the issue of governance starting with corruption. If we don't address the issue of corruption we still face a situation where citizens are not confident in the way their governments are running their business. If you don't address the issue of institutions and governance their doing business ranking of those countries as well as also their ability to attract both local and international investment will remain low and which will mean that the government will give additional sweeteners. If I may use the word in order to attract investors while at the same time this region. That has a lot to offer. To the global economy has to reconnect how we are connected to the global economy. Currently in three ways. Oil, I think this is maybe where a lot of attention is too. Second we are maybe less aware of that transportation both in terms of air transportation and sea transportation and three in terms of supply of labor. In certain cases is the problem of refugees or displacement of population. Therefore we need to connect more connecting more requires. And this is where public policy plays an important role. Connect more internally we have released a short paper. How additional cooperation. I wouldn't say trade integration among Maghreb countries because you know this is because of the political difficulty with challenges it's very difficult but only by improving in terms of economic exchange between the Maghreb countries you can have. On average one percent increase in growth. GCC still also have a lot of potential to grow through integration. Integrating the region with other neighbors. It happens that you know my job at the World Bank and the IMF covers a region that is not only the Middle East but also Central Asia and the potential of opportunities by connecting to countries in Central Asia and the caucuses. It's huge. We need to bring back the region to the global world. Having said that I think we should not lose sight on two things. Conjuncture is getting more challenging and the increase in vulnerabilities and volatilities for emerging markets where the potential increase in interest rates is an issue that needs to be addressed. Trade tensions have impact on our region more than we think that it would require some policies. Three, the increase in geopolitical tension usually increase the pressure or increase the premium that investors ask. Therefore we should not lose sight on addressing those things. And also we should not lose sight on the long term structuring threats technology and how technology should be I wouldn't say not an element of our analysis it should be at the heart of our analysis. Demography and the way demography is. It could be a curse or a blessing. Three I think there are important issues that we should pay attention more to climate change and their impact on our societies and terms of migration and how we can turn those challenges into opportunities and I argue very much that those things could also be for us an opportunity for additional growth. My last point which is I would like to join what Ferid said in the beginning. We still consider our economy as a byproduct not because you know we work on economic issues very what you work on economic issues and financial issues you see many of the political problems that we had discussed this morning and are discussed have at their root cause social and economic issues and not paying attention to those and not addressing them will keep us focusing on the symptoms not the root cause.

Christopher Shroeder: [00:35:51] So it's fascinating that you you have put together a wonderful recipe which is you know because you've lived it is sometimes easier to cook than it is to put out. But I'm one I haven't said that in yet there's broad space that you've had not only in the Middle East but now Central Asia but you've also seen a lot around the world is there an example or two of a government that you think's gotten this right as their example of some folks that you look and say we need to do more of that and this isn't we're not making this out of whole cloth look at this because it's working in certain things in the way that you've just articulated them.

Jihad Azour: [00:36:19] Listen, comparisons help. And the French, they, in French there say "comparaison n'est pas rasion". OK. But you can learn. I will take a few examples one of them is in the countries that are in my department, Georgia. Georgia the country that maybe ten years ago was considered one of the most difficult most corrupt countries and then in 10 years they did tremendous turn around in terms of strengthening their institution improving their business environment et cetera et cetera. Neighboring countries like you know Indonesia. We were both in during last month's in value for the annual meetings. This is country in 20 years did a major turnaround. I'm not taking the Singapore of the world or maybe New Zealand where maybe you have best practices that you can learn to copy from. I think at the essense of all of that there is no secret. It's not the solutions that are lacking. I think in many of what we write and those who wrote before us the recipes are there. Something happened 10 years ago or nine years ago which was called the Arab uprising or Arab Spring where the first step was made but we stopped there. We increased the level of participation in terms of election but we did not increase level of participation in terms of sharing how we identify issues solve issues prioritize them and share the burden. And I think the framework that has started that maybe in certain cases led to really difficult situation and callous and in other countries is that right one. You need to go back to the basics create the foundations of I would say a social contract whereby the players understand what you know is their share in the burden and they are in fact questioning. Also the other counterpart. Give you a small example. The region has one of the lowest levels of direct taxation and has a distorted tax system because the tax on consumption is high because of that. Only by addressing the small issue which is fiscal that we don't see you change completely the accountability framework and people will start asking for more. Our spending. When you look at the spending on social is low compared to other countries it doesn't exceed 8 to 10 percent of GDP. We need to bring it up but this means to finish the unfinished business of reforming the subsidies in order to get additional resources that will be directed to social protection. The tools are there the solutions are there. We need to have new contract that will allow everybody to participate and everybody to feel that you know there are checks and balances in the system.

Christopher Shroeder: [00:39:16] You know it's amazing and I want to open up to questions in a couple of minutes. But this word participation is so important. And Dina, I want to ask you to talk about something because one day many years ago not that many years ago you blew me away by making a distinction that's very important in the world that we're in today because one of the things that's being unleashed by the youth that we've talked about unleashed by the technology is this capability literally and ability now that we could have talked about a few years ago to participate. And so what we have is a bunch of people bottom up finding ways to solve problems or take hold of their economies locally sometimes regionally and beyond in ways that were not possible before. And I remember having this discussion with you where you said you know Chris top down institutions are important government jobs all these they all participate in this but in the end of the day top down institutions often think of people as problems to be solved. You poor person we will solve you because we've got something for you. But in the world of the bottom up people look at people as assets to be unleashed not merely problems to be solved but assets to be unleashed. Could you talk a little bit more about what era we're entering in and why this has to be part of the equation as much as what governments do and what financial institutions do which are very important. But there's some other new opportunity here.

Dina Sherif: [00:40:24] No, absolutely and I'm really glad you asked me that question because I was itching to expand on your comments about access to finance. So I think and you know everyone knows that we have one of the highest percentages of youth in the world and one of the highest percentages of youth unemployment the highest percentage of female youth unemployment in the world at the moment. I think the problem is that we see youth and women has problems. So when we talk about women we talk about how are we going to empower women. And when we talk about youth we talk about how are we going to expand the private sector to create jobs to get these youth off the streets so that they are not a national security issue. And I think what I have seen more than ever is that youth and women are the assets that we have to really improve and change the entire picture of the Middle East and I think these are not just structural issues. These are cultural issues and the Middle East is a very patriarchal society and you know not only patriarchal but hierarchical. So I think we when we think about how we're going to really focus on youth as assets we need to question how we see young people and really involved them in the solutions because they do have solutions and that needs to come with decision makers sitting at the table and really embracing the solutions that they provide. And when we think about women in terms of access to finance it's not debatable. We know that if women have access to finance our economies are going to grow. But yet we continue to tell women let us work with you and train you and upgrade you and empower you. That's all what they need. They just need to be included. And that requires some serious changes and policy changes in language and changes in culture which takes us back to education. And I think I think these are the discussions that we're not having enough we can change policies but until we really think about how to change our culture and to change the way we think about women and youth not as problems but really as assets. And one of two of the major ways to unlock or unleash our economic potential. I don't think we're going to see the growth that we want to see.

Christopher Shroeder: [00:42:49] Ferid what do you think for the world I'm going to, if we're having this conversation 20 years ago world banks a very top down place. How is this changing and how are you thinking about new ways to have people help you in your mission to help each other.

Ferid Belhaj: [00:43:02] Well it's an open ended question. Well look for us what's what's really important is that we approach the situation today in the Middle East and North Africa through a new positive lens. For instance when Dina says get the these young people off of the streets. I would say get these people to become productive elements in the society to be factors of growth to be able to we need to be able to tap into their potential. The issue is not whether they become a liability. The issue is how to make of them assets. Absolutely right in terms of the you know the discrepancy that the race between educated women and the share that they have in the job market. Take Jordan you know educated women are by far by far outnumbering educated men. But then when you look at the other unemployment you are at the level of 19 or 20 percent of women that are actually employed in Jordan. So it is something that's something it may have to do with culture it may have to do with a number of other factors. But this is not a determinism. This is not something that is there to stay. We need to do something about it to move ahead with it. When I mentioned earlier the number of youth that it would be hitting the job market in 30 years the issue is not with it here. The issue is that every year the MENA region needs to create north of 10 million jobs. And this is not what's happening right now. So basically we are building you know a lot of frustration that need that needs to be managed but again need to be managed positively meaning we need to open the doors through education including through know on the on the job education or vocational training because the stock is an issue. Today you have hundreds of thousands of young people would be you know getting their degree. You know this year or the next year degree in with with with the level of learning that would absolutely not. This is not necessarily allow them to tap into the job market because their skills are not adequate. And frankly because the job market is not as open as it as it is transitory. We need to make sure that we address the flow and the stock and the stock is also an issue. Third point I'd like to make related to what you had was was was mentioning a number of issues that all have to do with the investment climate that we are looking at in the Middle East and North Africa. If you look at the ranking in the doing business ranking within the countries of the Middle East and North Africa are lagging behind lagging behind because we are still looking at antiquated rules and regulation. We are not we are not looking beyond the horizon trying to be innovative. When you look at the Human Capital Index that the bank has just produced the best can best ranked country in the whole middle east of north and north Africa is Bahrain number 42. In spite of the tons of money that is going against education and health in the Middle East and North Africa proves what you know spending is not an issue is the efficacy of spending. I finished with one quick word on [inaudible] the human capital projects that the Bank has launched. When we started thinking about it and I was at the time with Jim in his office. The idea was to make sure that when we talk about education and health we are not just addressing the ministers of education and health care not just addressing the professionals in that in that sector. We need to address the ministers of finance and those people who are actually going to be possibly hiring. You know that young energy. We looked at the SNP and we looked at [inaudible] we had and we had a chat to do to them and we asked them would you actually go and look at the index that we are proposing and take it as one of the two of the determinants of your advice to your clients when it comes to investing in countries X Y and Z. We got obviously a positive response to that. We also talking to the IMF and and and and Jim was talking to Christine Lagarde about about this would we at one point start looking at human capital as part of the article for discussion. And that would be really a transformative shift because then the ministers of finance would actually be awaken to the fact that the issue is not balance of payment and budget deficit the issue is very much very much human capital. And this is where we should be really going and investing.

Christopher Shroeder: [00:48:14] So one quick question for each of you if I could and then we'll open it up see if there are questions if not we'll have a couple more we can wrap up overall. He's touched on something which I have to tell you as a guy who goes into this region and looks at it from investor, Jihad, which is really vexing to me because education and talent is unbelievably central. It's going to take some time but it doesn't have to take as long as some people think and technology certainly can help make it again more affordable and scalable. But changing rule I mean the tried and true changes of rule of law to make the freer movement of goods service people ideas capital like this is tried and true there are lots of examples of this. And it is shocking to me how hard it seems to be for folks to do some very very basic things that I could think would right light a flywheel of success around some of the other parts of the recipe that you've described why is it so hard. Why is it so hard to get a growth oriented rule of law?

Jihad Azour: [00:49:05] It's not let me use let me start by using one of your words or the language that you use. We have a proof of concept. In my previous incarnation I was very much into the micro things I was very much invested into startups NVCs in startups etc. And I know that you know it exists. I saw ideas becoming ventures and reaching levels of hundreds of millions of dollars of businesses. Therefore the region has demonstrated that it can do. And they're not waiting for others to do. They're not waiting for government. They're not waiting for the outside. They're doing it. They are reaching out. When you listen to them when you talk to them they are equal to the best people you meet internationally. Therefore the potential is there. What we need to do is we need to scale it up. Not kill it. And I think it's something that is very important. We should not. Ten years or five years down the road come and meet and say well you know we missed an opportunity. Our young startups went to the Silicon Valley or went to London etc. Therefore first thing to do is scale them not kill it. The second thing is and I totally agree with Ms Sharif is you need to have this as the driving the driving engine of the transformation of the region. You have to believe in it. We should not resist it. Those are the initiatives the people that could drive the transformation. They have the energy for that. Therefore it's not about allowing them. It's about in fact providing them what they need in order to lead because if they don't believe we are doomed. In terms of growth in terms of job creation. Three I think we could leapfrog I think two examples one from the region and one outside the region. At some point in time mid 80s Dubai decided to leapfrog and they were able to do it. Everybody was at the beginning skeptical and then 30 years have one of the largest I would say transportation and tourism platform in the world nobody would have at the time the beginning believed that. Estonia a country that you know who knows Estonia. Estonia is one of the leading countries in technology. They have decided to leapfrog there have decided to invest massively in one thing. Provide access to technology to everybody wherever it takes. One, I would say single issue and they have moved I think what we need to do is to have a belief. We have to scale. We have to connect not to replicate, replication, when you come second you lose the opportunity. And I will conclude with that. And the last aspect that I think it's very important we should not think that this is can be turned around in three months or six months or by bringing in a brilliant consulting firm or an international organization or whomever to tell you you know this is the magic recipe. It will take time. It will be painful. There will be failures more than successes but you have to do it. You know it's it's there. And as I said and I think we all agree the ingredients are there.

Christopher Shroeder: [00:52:52] So if I could just quickly.

Nahed Taher: [00:52:53] May I...

Christopher Shroeder: [00:52:54] Yeh and I mean I want to go to another thing so why don't you add to that and I'll follow.

Nahed Taher: [00:52:58] No, just because the SMEs is very critical here. I want to penetrate on something that, although I'm not–I am a female but I'm not a gender biased OK because I believe brains who no matter male or female can be supported to get their their business integral. I launched two to SMEs means funds and Saudi Arabia where there is no rules for SMEs. And they were very successful to the extent I'll give you one example one company made ten fold and three years. OK, entrepreneur and vaccination and plantation. I mean it just need to define sectors you need to define demand. Where is demand because the growth is very important for SMEs. If you choose a sector like real estate and say this is an SME it will fail right away because this is a competition everywhere in the valley that the idea will be stolen and they too it will be failing. But I think sector related demand related. I think the whole business in the region has to be look at sector related not country related. And if you link that together with a value chain I think the success will come. Therefore SMEs and infrastructure but I believe infrastructure financing is a majority important. Okay. To create SMEs where you can outsource and yes give SMEs the opportunity. Otherwise brain drain will happen.

Christopher Shroeder: [00:54:30] And it is happening.

Nahed Taher: [00:54:32] Yeah.

Christopher Shroeder: [00:54:32] Last question if I could, we have been asking ourselves almost for the entire panel what is different in the next 10 years than in the past 10 years overall. We were talking about the rise of technology. We've been talking about the rise of participation in the bottom up particularly women and youth and the potential for what that is. It's a new kind of a conversation we're having we're talking about new opportunities to go to other markets and be able to reach from the Middle East. Other markets that can help grow the economy overall. We've been talking about very clear recipes with new examples. It's not theoretical anymore we're not just saying here's a good set of recipes that he has articulated there's concrete examples that we can now leverage and look at to be able to implement these are all things which are different from the next year in the last 10 years. The other big one which are I really would like your view because in a way you're talking about how Saudi Arabia. I think the region overall is is open for business. The other major shift that is happening in the next 10 years different last 10 years are mega economies outside of the United States which can step in a ways where this isn't just waiting around for the West. This is now looking at all sorts of opportunities. That certainly includes China. It includes other places as well. Do you want to talk a little bit about this new global imperative because there's so many other opportunities to be harnessed around the world that can be helpful to the new new Middle East.

Nahed Taher: [00:55:41] The Middle East now really is has a huge vision about not to be a local business. Or to do a business locally that's not anymore in the region. If you look at Saudis or a Emiratis or whatever they are looking for acquisition of industrial technology not only acquisition but partnership maybe okay with industrial technology SMEs all over the world and bringing them to the region to do business. So this mega project element that helps all the economies together is the vision for the Middle East. So you don't go to Egypt and find Egyptians want to do business only in Egypt Saudis want to do business on the inside the mix is there already. Okay everybody is looking to do together like we are doing. For example solar energy factories with four factories all over the region. OK. Why. Because you want to allocate cause you want to allocate manpower low cost manpower. You want to locate materials you want. You want to find the best within the region to make the most effective productive products for the world. The world is not closed anymore. Okay so China when they came. Honestly I had the experience with Chinese businesses. Chinese don't have the structure. They come and lend recklessly. Okay. That's why now they are burdened with huge debt. And it's written all over the business magazines and they cannot find how to pay back their debt. But also the U.S. and Europe are very conservative in lending. That's why I found out. Credit risk is to be managed not project risk. So you need to look at the major projects worldwide that way because if the investors internationally come and find a win win situation they will always come. Okay. They will not be they don't care if you create all or you create water or whatever. In Saudi Arabia or Egypt or Morocco or whatever they care about their money back and their returns. Okay. Secure that for them and do your own business and do globally a win win situation.

Christopher Shroeder: [00:58:07] We have time for maybe one or two questions if anyone want to go. Paul, before I forget just take here. Do you want to start Paul? Or, that's fine.

Paul Salem: [00:58:15] Thank you. Thank you for an excellent panel. I want to say it's true that at the Middle East Institute we have been focusing recently on some of the conflict areas particularly Yemen and Syria. Previously Iraq of course Libya as well. And I think that makes sense in the sense that the devastation there millions on the brink of famine millions displaced millions out of school. That addressing conflict is obviously a necessary urgent putting out the fire kind of thing which has very necessitates it. My question is we've had a lot of discussion about sort of the politics of trying to end some of these conflicts. We are in cooperation with the bank a little bit about looking at reconstruction issues. But let me ask sort of two Ferid aid at the bank and to Jihad at the IMF as international institutions looking at Yemen and Syria in particular who are the really big places where human suffering is there on a big scale. What are you able to do now during the conflict? Obviously in a post-conflict situation one could do one could do a lot. What are you doing? What leverage do you have?How can you help to alleviate suffering or bring about a de-escalation?

Ferid Belhaj: [00:59:43] When it comes to what when it comes to Syria. O ur quote unquote authorizing environment does not allow us to get into the country. What we have done over the last few years is basically help those countries that have been affected by the Syria conflict. Lebanon Jordan principally when it came to the Middle East and North Africa the bank. And now we are looking at a at a different way to keep helping Syrian refugees directly. You know kind of follow the people type of concept. Because we fully understand where Jordan and Lebanon are and you know in particular it's an incredible pressure that is being put on that country. We try to help in a number of projects where you could find some kind of employment for Lebanese and Syrians. There is so much you can do with that but there is also a need to get money directly into the pockets of the refugees and these refugees being in Jordan and Lebanon. You know there was spending there and that would allow for some kind of an economic dynamic. It's tough. It's a tough sell by the way because you know many of our member states do not buy that because they would tell you know you are basically pulling money to upper or lower middle income countries. This is not the way we should we should we should engage in particular when it comes to to grant money. But anyway so this is a conversation. Yemen, you know we have we have been talking about this continuum between humanitarian and development. And we are trying to still move on that. You know under that particular window. But the situation is absolutely desperate and we are on the verge of the largest famine that the world has ever ever ever witnessed. So we are trying to get money get it through UNICEF for instance organizations that are in the field and to try have to help as much as we can to alleviate some of that catastrophe. But obviously when it comes to Syria and Yemen you know the whole conversation that we've been having about new technology and education et cetera unfortunately does not strike as much as it should be striking in other places.

Christopher Shroeder: [01:02:07] Jihad you want to answer?

Jihad Azour: [01:02:07] You know I think those are still important issues and in a matter of fact after this meeting we have a meeting a very high level meeting at the fund in order to you the way we engage with conflict and fragile states. Each country is different and each country has its own challenges. We'll start with Yemen very quickly Yemen the issue is in addition to the conflict, you have the institutions that are being dismantled and this is also fueling into the problem of famine or all the health care diseases that we are seeing. And recently we were helping the central bank in order to you know get their act together between these two divided central banks in order for them to pay the salaries and to have the minimum of what are, I would say the basic core state services function and this would tremendously help to create the purchasing power that would gradually alleviate the pressure because in Yemen the problem is not the supply it's more the demand. Syria is a different case state is still operating not fully in the not it's I would say partially. And it's partisan state compared to other places but in both cases and I would add the others I think now is the time to start thinking about the post-conflict and not only in terms of reconstruction and rehabilitation but also how we can change the whole dynamic and framework in the region through this exercise. I think if we limit the exercise of post-conflict to you know what needs to be done in terms of alleviating the pressure and infrastructure we are creating the seeds for the next conflict round. And I think we have an opportunity now to think broadly about the new framework for the region whereby several issues including financing including the many things need to be to be thought off. And I think this is the right time to start thinking of that although we are in the middle of the conflict season I would say.

Christopher Shroeder: [01:04:13] So very important I want to apologize. We only have time really for one more question and if I could turn to you and then we'll wrap up very quickly so...

Audience Member: [01:04:23] Thanks. Just really quickly. Thank you very much. My bias is governance. I really appreciate the talk about good governance fighting corruption youth and women are assets you know government and folks shouldn't be afraid of them. My question is separate something a little bit different is also perception of business and private sector. I've lived and worked in Jordan and Tunisia and in polling that I've been a part of. When you talk to people, the private sector has a very negative reputation in Tunisia. The number one place where people want to work is the government. Obviously people want some stability in a place that's transitioning and the economy is not great. But sometimes you get some visceral visceral reaction against the private sector. And I wanted to ask you guys what you and probably working in concert with government who has created this, some of them have create enabling environment where people want to work for a government more than the private sector even though its private sector that creates the jobs government can't create the jobs. I'd like to hear your perspective on that.

Christopher Shroeder: [01:05:24] Nahed, can I ask you to take a look at that question?

Nahed Taher: [01:05:24] Yes, actually this is a major concern to our [inaudible] especially in our country and I always look for that solution and I think the solution came about they did just did their patent it in America or Europe in order to have a full protection. But although we have registary of some patents in our country but the security comes from international perfect protection and I think this is a concern because a lot of people can copy these rights and go with the business without mentioning the founder or whatever. So I think this is a major concern I think the IMF maybe or the World Bank should strengthen the protection of the patents or SMEs in the region make it institutional or for them to help them and support them as a means to maintain their business.

Christopher Shroeder: [01:06:29] And I think that younger–we unfortunately we're gonna have to wrap or I'd bring you in. Also there's a new generation that has a view about going to the private sector that might be a with different Vaclav Havel once said a wonderful distinction between optimism and hope. He said optimism is everything's going to turn out great and everything's going to be great. Hope is you know sometimes things don't work out but they made sense and I hope if nothing else you heard from these amazing feedback from these amazing individuals that there is a tremendous amount of hope out there and I think if we take action we can make hope into optimism. But I just wanted to thank you for the amazing insight that you've shared and thank you very much.

Ambassador Gerald Feierstein: [01:07:04] Thank you. Thank you Chris and thank you again for a great panel conversation. I hope that all of you found the day today to be as rewarding as we did. I think we had some wonderful conversations wonderful discussions all through the course of the day on behalf of the Middle East Institute. I do want to thank all of our panelists and all of the moderators who who provided such great insights gave us their time. We thank the staff here at the Marriott Wardman Park for their cooperation in organizing the annual gala awards dinner last night and the conference today. And please also join me in a round of applause for the Middle East Institute interns and staff who worked so hard to prepare and conduct both events. Thank you again for joining us today. We we do look forward to all of you taking part in all of the activities that we organize over the course of the year at the Middle East Institute. We hope that you become familiar faces for all of us and I wish all of you a pleasant rest of the day. Thank you.