Middle East economic integration

Countries seek greater regional integration in order to:

• make economic welfare gains,
• increase the region's collective bargaining power in global issues, and
• maintain security and prevent conflict.

Economic integration requires good governance, education reform, social investing, knowledge economy, market economy, privatization and freedom of press.

A handshake between King Hussein I of Jordan and Israeli Prime Minister Yitzhak Rabin, accompanied by former U.S. President Bill Clinton, during the Israel–Jordan peace negotiations, October 26, 1994

In 1993, Israeli Prime Minister Shimon Peres, a leading architect of the Oslo peace plan, envisioned that:[1]

The next stage, after bilateral and multilateral relationships have been established, will entail formation of regional industries through the cooperation of international bodies and independent international consortiums. At this point, the regional economic process will be upgraded and the new reality, in which business precedes politics, will be instituted. Ultimately, the Middle East will unite in a common market after we achieve peace. And the very existence of this common market will foster vital interests in maintaining peace over the long term.

A prerequisite to economic integration is the establishment of peace. To date, several initiatives have enabled rapprochement among former enemies:

The Oslo Peace Accords and the 1994 Israel–Jordan peace treaty have promulgated greater economic interactions between Israel and its Arab neighbors. Despite this progress, problems like the Israeli–Palestinian conflict continue to be a hindrance to peace and development. Furthermore, the instability created by the war in Afghanistan, civil wars in Syria, Libya, Yemen and Egypt and the 2003 U.S. invasion of Iraq are considered negative factors to be overcome before the establishment of an economic union in this region.

1. Council of Arab Economic Unity: Established in 1964, with the ultimate goal of achieving complete economic unity among its member states. An intermediate objective of customs union has been set for 2015.[5]
2. Economic Cooperation Organization: Established in 1985. The common objective is to establish a single market for goods and services in West Asia, like the European Union.
3. U.S.–Middle East Free Trade Area: Established in 2003 by the United States, this aimed to gradually increase trade and investment in the Middle East by assisting countries to implement domestic reforms and protecting private property rights.
4. Euro-Mediterranean free trade area: The initial aim is to create a matrix of Free Trade Agreements. The next step would be a single free trade area of 600–800 million people, including, eventually, the European Union.

• Governance: Good governance attracts capital. Some Middle Eastern countries such as Saudi Arabia have made positive steps in reforming their judicial systems or adapting their capital market laws to international standards. Building efficient and capable public institutions needs to be a priority.
• Raise competitiveness levels of these economies. This can be achieved through overhauling and aggressively investing in the region's education system. If the education policies of the region deliver unwanted skills to the market, international investors will not be keen to come in, especially in the services sector. Unemployment runs as high as 40% in at least seven Arab nations.[5] Social investing should be planned in order to produce more entrepreneurs, engineers, scientists, and MBA graduates and expand the middle class.
• Raising competitiveness also entails accelerating the privatization programs, trade liberalization, investing in the infrastructure, deepening and linking capital markets and uprooting corruption.
• Facilitate the usage and penetration of new technologies. This would enhance the free flow of ideas, information and harness the forces of entrepreneurship. New technologies spur innovation and increase productivity which investors seek.
• Linked to this is increasing the freedom of the press and media which provides checks and balances against governments and business. New technology and freedom of the press would have a particular impact on youth and would encourage participation in the definition of future strategies at national and regional levels. Cooperation among Middle Eastern countries would be enhanced, advancing towards the knowledge economy. Increasing the use of new technologies would also reduce bureaucratic hurdles often cited by businesses as deterrents to investment.