DUBAI, 5 May 2003 — Arab countries must pursue multilateral trade and domestic economic reform to reap the benefits of rapid growth and become an attractive destination for foreign direct investment (FDI), Peter Sutherland, chairman of British oil giant BP, said here yesterday.
“Regional economic integration should not be seen as a priority compared to the dual agenda of liberalization in external trade and domestic economic policy,” Sutherland told an international investment conference here.
“The two essentials are, first an openness to international trade and investment, and secondly domestic economic policies that encourage entrepreneurship and investment. The two go hand in hand,” said Sutherland, who is also chairman of Goldman Sachs International and a former director general of the World Trade Organization (WTO).
He said the Arab world must not allow geopolitical problems to overshadow the issue of development. “There are economic challenges for the Arab world and I believe it’s important not to allow the geopolitical uncertainties to become an excuse not to deliver economic reforms.
In his keynote address on “Economic reform in the Middle East North Africa area”, Sutherland said sequencing of reform is important.
“One of the lessons of the global financial crisis of 1997-98 was that it could be destabilizing to move forward too quickly on the external agenda, leaving domestic reforms lagging behind. Both need to progress at a comparable pace.”
He said the investment meeting’s initiative “to create a more fertile environment for inward investment is a testament to the government’s foresight in setting its economic priorities. And, of course, it is just one of a number of programs and initiatives under way here in Dubai to encourage the growth of business and creation of prosperity.”
He said the impact of structural change is visible in the UAE. “It looks like this place is on the move in a very positive way. It is moving, and moving rapidly in the right direction.”
Sutherland had a bit of an uncomfortable time when asked by session anchor Richard Quest of CNN to explain charges that he had a role in delaying the opening up of the markets of developed countries while at the same time demanding a speedy opening of developing countries’ markets. He refuted the charges.
He said foreign investment is not just access to additional capital. Investment by multinationals brings two essentials: a transfer of know-how, including management practices; and access to a network of overseas markets. Both these are crucial in the modern global economy, Sutherland added.
Foreign investment is the seed for a harvest of domestic enterprise. It can build a local network of suppliers and will train local people in essential know-how, in addition to creating jobs and generating direct incomes, he said.
Although some of the North African countries have done better recently, the region as a whole has not done well. During the explosion of FDI flows since 1980, the share of Arab countries in the global total has been declining and is down to just over $1 billion — this for a region with a population roughly the same as the European Union’s, he said.
In contrast, China attracted $52.7 billion worth of FDI in 2002 alone. The WTO-inspired liberalization of investment rules accounts for the 50 percent-plus annual growth rates in inward investment flows to China.
The Chinese experience turns the spotlight on one of the most important benefits of trade liberalization — the interplay between opening markets externally and reforming them internally, Sutherland said.
