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Promoting Win-Win Cooperation: Towards a Regional Impact Fund in the Middle East

The MENA region is the least economically integrated region in the world, with significant developmental disparities persisting across GCC and non-GCC states. Against the backdrop of regional rapprochement and de-escalation, international and regional stakeholders should pool their resources to establish a regional impact fund that supports economic integration and regional security efforts.

By Victor J. Willi, Vice President Research, MEIS; Adel Hamaizia, Vice President Advisory, MEIS; Bijan Khajehpour, Senior Advisor, MEIS and Managing Partner, Eurasian Nexus Partners; and Malik Faraoun, Senior Advisor, MEIS and International Development Finance Expert.

NASA satellite night picture with lights in Europe, North Africa, and the Middle East.

Underdevelopment and low levels of economic integration are among the most fundamental structural challenges in the Middle East and North Africa. Compared to other regions such as the EU, USMCA (formerly NAFTA), or ASEAN, intraregional trade is at 16 percent – the lowest share globally. The reasons for this situation are well known: trade infrastructure deficits, insufficient regulatory harmonization, low levels of capital movement, high tariffs, non-tariff measures, wars, sanctions, political risk, market failures, and financing obstacles.

In recent months, regional leaders have taken positive steps towards increased cooperation, including the China-mediated deal between Saudi Arabia and Iran and the enlargement of the BRICS membership. Particularly the Iran-Saudi deal has charted a course towards greater regional cooperation and de-escalation, for instance by prompting Egypt and Jordan to improve ties with Tehran. 

As mutual distrust persists, there is an opportunity to transform the political climate from apprehension and suspicion to cooperation and understanding. To do so, international actors should support initiatives that advance economic development and regional integration, thereby promoting a win-win culture among regional stakeholders. There is no shortage of opportunities, whether in the trade, energy, and the educational or cultural space. What is urgently needed, however, is funding, partnerships, and courageous action by regional and international stakeholders.

Toward a Middle East Regional Impact Fund

An effective way to support political leaders in achieving regional integration and economic development consists in creating a Middle East Regional Impact Fund (MERIF) that comprises the "GCC+3" – the GCC countries plus Iran, Iraq, and Yemen (Jordan and Egypt could be invited in a subsequent phase). It would be important for Yemen to be considered as well, as in order to balance uneven levers of prosperity, economic integration should seek to promote reconstruction in the least-developed countries. The diversity of MERIF’s membership structure would hedge against the risks of a re-escalation of regional tensions.

MERIF would co-invest in, and mobilize resources for, bankable projects with economic and developmental impact, such as social infrastructure, trade infrastructure, climate financing, non-sanctioned sectors (food and pharmaceuticals), transboundary water issues, tourism, and cultural and educational initiatives. Focusing on these sectors would also contribute to progress on the SDGs, particularly SDG6, SDG7, and SDG9, thereby supporting the green transition in the MENA region. MERIF will be run on a commercial basis, ensuring private sector efficiency and transparency. This would ensure that investments will generate a developmental impact and yield political dividends, in parallel to commercial and financial returns. MEFIR’s commercial sustainability investments will be the subject of an extensive due diligence exercise that looks at markets, contractual arrangements, technical, environmental and social aspects, as well as in-depth financial analysis.

MERIF would serve as an anchor and facilitator for twinned and cross-border projects, bringing together global development institutions and relevant private sector players with a view to closing existing viability financing gaps. It would mobilize (blended) finance and partner with a range of actors, including development institutions (such as AIIB, EBRD, IDB, NDB, and the OPEC Investment Fund), governments, financial institutions, sovereign wealth funds, and philanthropic organizations.

MERIF will adopt a business model that manages project interoperability and incompatibility on the international (US-China) and regional (Israel-Iran/non-Abraham Accords signatories) levels, including across existing mechanisms such as BRICS+, Abraham Accords, the Negev Forum, the I2U2 Group, and the China-GCC Cooperation Forum. MERIF’s key differentiator would lie in its ability to finance projects benefiting a minimum of two GCC+3 states, including at least one non-GCC country. This form of twinning and cross-border financing would benefit from stronger GCC credit profiles that can absorb or reduce higher risk premiums to address current market failures.

The Fund could be initiated as a partnership between Swiss, EU, European, and GCC stakeholders, with an initial target capital of $100 million. It could be based in Switzerland due to its well-recognised neutrality, financial expertise, and its role in maintaining protecting power mandates in Iran and Saudi Arabia. This would also minimize any competition around where the Fund’s regional headquarters would sit, while representative offices could eventually be setup in all countries that become MERIF members. 

Opportunities for Switzerland and Europe

The project would be of value to both Swiss and EU diplomacy: for Switzerland, it may contribute positively to the advancement of its bilateral dialogue with the EU; for the EU, it may drive engagement in its pursuit of a free-trade agreement with the GCC, building on the 2022 Joint Communication on a strategic partnership with the Gulf, and utilising mechanisms such as the Neighbourhood Development and International Cooperation Instrument (NDICI)-Global Europe, and the European Fund for Sustainable Development Plus (EFSD+).

The first step towards establishing MERIF would be to support the Middle East Institute Switzerland (MEIS) to conduct a feasibility study that appraises current realities on the ground, identifies development impact sectors, and assesses cultural, legal, operational, and political risks. This study would also design a roadmap for turning existing ideas into commercially viable win-win scenarios. The second step would be to convene the expertise of regional and international stakeholders from the private sector, government, think tanks, and NGOs to conduct a series of economic diplomacy dialogues across GCC+3 capitals. The objective would be to identify bankable, and mutually beneficial projects that enhance regional economic integration and development. 

The benefits of such a fund are promising and potentially far-reaching. MERIF could be a unique and creative addition to Swiss and EU mediation efforts in the GCC+3 countries. Through financing impact-driven projects on the ground, MERIF would complement the progress that has been made by regional political leaders with an innovative economic diplomacy initiative.

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