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Speeches & Transcripts

Mashreq: Cross Border Trade Facilitation and Infrastructure

January 15, 2011

Ms. Shamshad Akhtar, The World Bank Vice President Middle East and North Africa Region Islamic Development Bank and the World Bank Jeddah, Saudi Arabia

As Prepared for Delivery

Excellencies, colleagues, Ladies and Gentleman

Let me welcome you all and express our warm appreciation for the kind hospitality of Dr. Ahmed Mohamed Ali Al Madani and his colleagues for supporting this event. We are proud of our growing and substantive partnership with IsDB. The frequency of our consultations has helped foster partnerships in a number of transactions and nurtured a close working relationship among WB-IsDB staff in the Arab World. This will benefit clients both at the country and regional level.

We meet today in Jeddah just before the Second Arab Economic and Social Summit to be held on 18-19 January, 2011. The event follows a set of events which express the youth’s frustration with significant unemployment. Unemployment – a number one problem of the region -- is a manifestation of a range of issues Arab economies face. While the region is well on its way to recovery, the Arab World has historically grown below its economic potential. Growth is stifled because of the lack of economic and trade diversification, low competitiveness and productivity, a significant infrastructure deficit and low quality of education and the skill base. With the emergence of formidable global competitors such as China, India and Brazil, the Arab World has to now exploit its potential and tap newer poles of growth.

Integrating Arab countries both regionally and globally are two complementary avenues which will help achieve higher and sustainable inclusive growth by offering new markets and improving competitiveness and productivity. Keeping in perspective the specific circumstances and conditions, the Arab World has to launch an ambitious agenda in the context of Pan Arab Free Trade and ensure its effective implementation. The World Bank has been engaged on different fronts to support in this area.

Among others, a few principal elements for collaboration are need to support the free movement of goods within the region through the elimination of non-tariff barriers (NTBs) and harmonizing and strengthening the rules and discipline applicable to regional trade and other policies of common interests. NTBs have become one of the most important barriers to trade in Arab World. Lengthy clearances, inspection and procedural complexities hinder efficient movement of goods and cost effective trading.

Regional integration is a major feature of the trade policy strategy of the Middle East and North Africa countries. Regional trade integration was given a new stimulus in the mid 1990s, with countries around the Mediterranean signing free trade agreements with the European Community (EC) that aimed at the elimination of tariffs on trade in goods with the EC (with the exception of agriculture). The next important step towards greater integration of Arab countries was the agreement to form the Pan Arab Free Trade Area (PAFTA) in 1997 under the auspices of the Arab League. That said many opportunities for trade to, from, between and through Mashreq countries are being lost because of inefficient trade facilitation processes and procedures and, to some extent, because of underdeveloped infrastructure also.

The World Bank has now for a year or so been working closely with the clients, technical groups and other stakeholders to conduct a diagnostic that has helped explore models and options for trade facilitation in the Arab region. The findings of the World Bank study were discussed with key regional members in Beirut last year which helped shape the Regional Trade Facilitation Program and Project. The work has benefited from the UNESCWA’s valuable work.

The Regional Program and Project being proposed here are aimed at addressing the principal outstanding issues of trade facilitation and transport infrastructure in the major trade corridors of the Mashreq region. This proposal will improve trade facilitation and increase total trade, and particularly the intra regional trade of the five countries of the Mashreq.

Reducing cross-border bottlenecks and transaction costs is undoubtedly a complex task as it requires removal of physical infrastructure gaps and bottlenecks and formulating and implementing a more conducive set of policies, regulations and procedures that allow countries to rapidly harmonize differing approaches. Joint technical and security inspections are critical elements of trade facilitation and would help save time at the borders by reliance on common information systems on cargo. On paper this may seem simple and a matter of fixing nuts and bolts, but requires fundamental change of mind sets and agreements among many institutions in each country (finance, trade, customs, security, immigration and interior services, etc.), all with their different legal and regulatory frameworks and change can be a challenge.

Based on our experience in other regions, harmonization of policies and regulations requires strong political commitment, and an effective institutional arrangement that will ensure that actions are implemented as planned. As an outcome of this meeting, I count on your support to reach consensus on the investment needs for both transport infrastructure and trade facilitation measures and how they might best be financed through credit, loan and TA support.

The overall Program costs are around US$12.7 billion for financing projects and TA requirements. About half of this funding will be needed during the first five years. About $1.9 billion of the financing commitments for the first five years have still to be confirmed – which is what defines the proposed project.

From our perspective launching this large endeavor today at this forum is very timely. The Program has been developed based on collective wisdom of how and what needs to be done based on implementation experience gained of the investments, technical assistance and training programs that have been already under way. Despite the accelerated progress of the last year or so, you know well that the real question is the coordination of implementation of actions, and the determination of the arrangements required to bring that about. Our proposal to agree on a more formal management of the major trade corridors in the Mashreq region could provide the context in which to shape the necessary technical, investment and operational changes to be made. The vision calls for an appropriate institutional arrangement whose objective it is to increase trade facilitation in both the north-south and linking east-west corridors.

The recent work on Mashreq region, which our colleagues will present confirms that the region is far behind, and falling further behind, other regions of the world in terms of trade facilitation. The UNESCWA study found that improved facilitation could bring annual cost savings to existing trade of some U$600 million per year, the study tabled today indicates that required investments and trade facilitation would catalyze an increase in :

  1. non-oil exports of the Mashreq countries from its current average share of about 21% of GDP to a level closer to 35% of GDP for countries with a comparable per capita income.
  2. Even a 2% increase in the trade share of GDP could be result in export gains of about U$6 billion per year by 2015– so the investments in trade facilitation would pay for themselves with just two years worth of increased exports.
  3. the intra-Mashreq share of this trade from its current 17% to closer to the 24% that is currently achieved by the ASEAN countries.

The simple logic of an interconnected world points to faster growth, more and better jobs, lower disparities, greater social inclusion and better management of natural resources if collaboration – and imagination – crosses borders, as tough as that can be politically.

With the support of all the countries, the Arab World Initiative has now been prioritized and fast tracked with the formulation of an Arab Finance Facility for Infrastructure (AFFI) and Micro and Small and Meduim Enterprise initiatives which will be reinforced by the Regional Infrastructure and Trade Facilitation project that we are now discussing. AWI seeks to strengthen development and welfare of the people of the Arab World by advancing opportunities for both regional and global integration and the Program and Project we are furthering here fit well with both the Initiative and the Facility.

Today’s meeting concentrates on the Mashreq Program and more specifically on the first Project. We will present to you the major needs in investment and other support, including railways, roads, border crossings, trade facilitation facilities, policies and procedures, transport industry restructuring and training in all the professions related to trade facilitation. Implementation of the Program and the Project are critical to the opportunity all citizens of the region aspire to if they are to live more prosperous and hopeful lives.

I wish you all the success during this workshop. The World Bank stands ready to assist technically and financially with the implementation of these actions that will contribute to the stability and prosperity of the region.

Thank you all.