Amid Middle East Strife, a New Focus on Economies

In the midst of intense strife in the Middle East, a new trend is taking shape to encourage economic development in a region that is crucial to the world in many ways.

As tanks and suicide bombers raise the death toll, leading industrialists in Israel and Jordan say a “Marshall Plan� of economic development is the only real solution to the region’s troubles.

The original post-World War II Marshall Plan revived Europe’s economies by shipping them food, fuel and technical assistance for industry. As used by business people in the Middle East today, the words “Marshall Plan� are shorthand for trade agreements with developed markets in the United States, Europe and Asia; investment in transportation and telecommunications infrastructure; and stepped-up education for the region’s young people.

Peace would be essential to start such development. But as in Europe half a century ago, business people are confident such assistance could have a dramatic economic effect and help secure long-term peace in the region.

“I just spent eight days in Washington, and at Harvard Business School and in New York, talking about a Marshall Plan and getting support,� says Stef Wertheimer, an Israeli entrepreneur who has built industrial parks and companies in Israel for more than half a century. Now he is branching out to Turkey and Jordan.

Omar Salah, a Jordanian businessman, also speaks of the related issues of economy and peace. “A Marshall Plan could do far more than military efforts to bring stability and better prospects to this region,� he says.

Salah has built factories in an industrial zone in Irbid, Jordan. Factories in the zone supply underwear to Victoria’s Secret and Ralph Lauren and electronic parts to Motorola Inc. under a free-trade agreement with the United States.

Salah and Wertheimer are not dreamers but number-crunching businessmen who understand that a major cause of trouble in the Middle East is the lack of development that leaves most countries with high unemployment and widespread poverty. Economic output of most of the region’s countries amounts to less than $2,000 per person per year, a sum one-tenth the size of Israel’s economy and one-twentieth that of the U.S. economy.

To many that will seem a paradox. The Middle East, after all, is known for oil riches. Yet most of its countries are poor and undereducated. Israel’s economy has no oil but has brainpower and industry; its gross domestic product per capita is more than double that of oil-rich Saudi Arabia.

For decades such disparity didn’t seem to matter to the developed countries of Europe, Asia and North America. As long as the Middle East kept pumping oil, was the attitude, its poverty and instability were not causes for concern.

But since the Sept. 11 terrorist attacks, attention is being paid. With 8% of the world’s population, the Middle East produces only 2% of the world’s economic output and is the point of origin of 60% of the world’s terrorist organizations, according to a report by the Milken Institute, a Santa Monica-based research organization that works to promote development in the region. (That economic comparison is made all the more dramatic by the fact that the Milken researchers include Central Asia and North Africa in statistics on the Middle East.)That’s why the need for economic development is a background issue in Vice President Dick Cheney’s current 12-day trip through the region and an issue for the summit of Middle East countries to be held in Beirut this month.

The United States is backing a peace plan, proposed by Saudi Arabia’s crown prince, that calls for a separate Palestinian state and normalized relations between the Arab states and Israel. Investment is poised to flow into the region if peace can be achieved along such lines, experts say.

Even though the strife of the last year has reduced Israel’s economic output by 5%, or

$5 billion, and increased its unemployment, venture capital still is coming to Israel’s high-tech companies, says Rami Kalish, managing director of Pitango Venture Capital in Herzliya, the high-tech suburb of Tel Aviv.

But a peaceful environment would mean better business. “A few years ago, when things were a lot better [in relations with the Palestinians and Arab nations] we had plans to do more business with neighbors,� Kalish says, referring to Egypt, Jordan and the West Bank and Gaza.

The region’s need is for jobs and training, says Wertheimer, who has built a global machine-tool company and four industrial parks in Israel that also serve as centers of training for Israeli and Palestinian workers.

Wertheimer, who fled Nazi Germany as a boy, has pursued a vision of Israel doing business with its neighbors. He was building an industrial park in Gaza two years ago when violence erupted and the project was stopped. He has just completed an industrial park in Turkey and hopes to build facilities in Jordan, a country notable in the Middle East for its relatively high education levels.

“We in Israel--like Jordan and Turkey and Lebanon--do not have oil but we have industry and can prosper through trade,� Wertheimer says.

Turkey, in fact, is eager to play a part in regional trade. It is setting up duty-free zones on the Mediterranean, including the Aegean Free Zone Development and Operating Co., a complex of factories and shipping facilities in Izmir--the ancient trading city of Smyrna--on Turkey’s western coast.

Jordan also is eager for development. Salah’s Century Investment Co., which has attracted manufacturing to Jordan through joint ventures with companies in Hong Kong, Britain and the United States, wants to expand facilities in Irbid, in northern Jordan, possibly raising capital by listing his company on U.S. stock markets.

If there were more stability in the area, a road from Irbid through Israel to the port of Haifa on the Mediterranean could be built, allowing for greatly expanded Jordanian trade with Europe and the United States.

“Jordan is a good place to do business; American companies can feel welcome there,� says Joseph Jacobs, founder and chairman of Pasadena-based Jacobs Engineering Group Inc., which helped build a potash production plant at the Jordanian port of Aqaba in the 1970s. Jordan has since doubled the plant’s output and its exports of potash, a key fertilizer ingredient.

Yet like every other country in the region, Jordan’s economy has suffered from war and violence. It has been hurt by the collapse of Iraq’s economy since the Persian Gulf War a decade ago. It remains dependent on Iraq for energy and for export sales. The Israeli-Palestinian strife, with blockades on the West Bank, has cut export opportunities for Jordan’s industries.

Every economy in the region--except Israel--suffers from an abundance of underemployed young people who are frustrated by their lack of opportunity.

If nothing changes in the Middle East, the frustrations of its rapidly growing populations will always present a threat of further violence and hatred of Americans.

But with development, those same young people could become the builders of thriving, diverse economies and successful societies.

Major sources of foreign investment--multinational companies, banks and international pension funds--are eager to back projects in the region if peace can be brought about, U.S. investment managers say.

Some of the world’s largest banks have commitments from the oil-rich states of the Middle East to invest in development in the region. For those states, threatened by continued instability, such investment would be a form of self-defense.

The original Marshall Plan helped Europe in one of the darkest hours of its history. The need is at least as great for a similar plan to do likewise for the Middle East today.

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James Flanigan can be reached at [email protected].