Former United States general John Allen has called for a new economic initiative for the Middle East similar to the Marshall Plan for Europe after the Second World War. Robyn BECK / AFP Photo
Former United States general John Allen has called for a new economic initiative for the Middle East similar to the Marshall Plan for Europe after the Second World War. Robyn BECK / AFP Photo

Western aid will not fix the region’s ills



Former United States general John Allen has called for a new economic initiative for the Middle East similar to the Marshall Plan for Europe after the Second World War. Gen Allen, who was president Barack Obama’s special envoy to the coalition fighting ISIL, believes that a western-backed economic plan is the best way to address the root causes of extremism in the region and ISIL’s primary recruitment materials.

The general is correct that poverty and a growing youth population that feels limited in employment and advancement options are serious challenges that extremists have exploited for their own nefarious ends. It is also understandable that serious people are looking for a historical precedent that could provide the framework for solving the endemic challenges of the region. However, a Marshall Plan is not the right precedent when it is inspected closely.

Fears of undue western influence in the Middle East, in the form of cultural and economic imperialism, are long standing and not without basis.

Extremist groups have long been able to exploit anti-western sentiment for recruitment purposes. Thus, a visible economic initiative such as a new Marshall Plan could be seen by many as cynical attempt by the West to entrench its dominance. Additionally, the original Marshall Plan for Europe was aided by a genuine exchange of ideas and common culture. While there are similar elements of commonality between the US and the Middle East, they are nowhere close to the bonds that America shares with Europe.

Ultimately, there is much that the US and Middle Eastern countries can do to resolve issues of job creation, reform and disenfranchisement that lead to radicalisation. The anti-extremist messaging spearheaded by Abu Dhabi’s Sawab Centre, a joint project by the US and the UAE to counter ISIL propaganda, is a good example of the constructive efforts aimed at eroding ISIL’s support base.

The bigger issue with any plan to reform the region is that such an initiative must materialise organically. Western countries can certainly play a role in assisting governments to counter extremist organisations ,but the problems of the Middle East will not be solved by the outside. In the absence of regional cooperation on poverty and youth engagement, the priority must be assisting those in need, whether in Syria, Libya or Palestine. Once the chaos of war subsides, the region will have to create its own plan for economic stability.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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