Marketplace Middle East - Blog
7/17/08
Club Med

As my family and I embark on a summer sojourn to a Greek island, it seems only fitting to write about what could either be an ambitious political effort with great architecture or a hollow shell with 43 countries and little substance.

The cradle of civilization without even a Plato-inspired debate lies at the heart of the Mediterranean. Until Nicolas Sarkozy re-ignited this effort, few could honestly say they looked at this region as a potentially powerful trade zone. It has been fraught with divisions, immigration problems; border disputes and remains home to the long-standing Israeli-Palestinian conflict.

In traditional French style, Sarkozy invited leaders to Paris to showcase his intent to create substance within the Union of the Mediterranean. For those who have covered or have taken an interest in European Union politics, you know that Franco-German axis dominates decision-making in Brussels. The crumbling of the Berlin Wall tilted that axis east. Minus Malta and Cyprus, the recent expansion of the E.U. has largely been an eastbound effort. So this new Union creates a new paradigm and some tensions in Europe.

German Chancellor Angela Merkel was not going to sit idle and let President Sarkozy design a non-E.U. driven structure, which would have seen only those countries bordering the Mediterranean as part of this effort. The strong-willed East German thought that would set the wrong precedent and allow France to relive the grandeur colonial times with little benefit to the 27 nation bloc.

This would explain where we are today with 43 countries cobbled together. What is now being called Club Med is not a new initiative; it goes back to the so-called Barcelona process of 1995. With so much instability and what many feared would be an endless call by North African countries for cash and E.U. structural funds, the effort stalled.

A lot has changed since then. For one, there is economic stability and pretty decent growth-- 4.4 percent since the turn of the century. While no one can contend the non-E.U. countries represent a cradle for democracy, they do represent a handful of countries that have embarked on real economic reforms – Egypt, Jordan, Morocco, and Turkey immediately spring to mind.

Those reforms caught the eye of some very wealthy Gulf neighbors who can clearly claim first mover status. Large development companies are building new cities, ports, factories and oil and gas facilities throughout Club Med.

As the Chief Executive of one Gulf real estate company aptly noted, “we are not a charity; we are out to make money, but if we help stabilize our region at the same time, so much the better.”

This is not the International Monetary Fund or World Bank at work, but the private sector smelling value.

European Trade Commissioner Peter Mandelson acknowledges the frustration many North African leaders have felt after a decade of limited leadership from Brussels, but sees the merits of this effort after the wave of investment.

“I think that it will bring greater political stability on the back of greater prosperity to the countries of the Southern Mediterranean and North Africa and that’s certainly in the interests of Europe,” Mandelson said.

The not-so-foreign direct investment from the Gulf (since they are in the same neighborhood) is the deciding factor for President Sarkozy. The economic risks are low, but the political upside is high and he could even carve out a role for France (and the E.U. for that matter) in the Middle East peace process.

The challenge for all leaders is to make sure wealth can be distributed more evenly. This bloc trails only China in FDI at nearly $60 billion a year. But it is the region’s two most populous countries, Turkey and Egypt and the most tech savvy, Israel, which are dominating that total. Investors either want a large consumer market to sell into or the ability to export skills and technology they don’t have.

That certainly is changing. DP World has, for example, a $3.5 billion port under construction in Tangiers and Renault Nissan has an automobile plant designed within the same facility. FDI is up six fold since the start of the century, with again Gulf players leading the modern day caravan across the Med.

"The Arab world today is in a dramatically different situation and a significantly more promising economic situation than it was in the mid 1990s,” says Florence Eid, President of Arabia Monitor. “On the back of six years of the oil windfall now, we are seeing dramatically different methods of investment."

The investment will provide a foundation for growth and hopefully long term job creation. It is the most pressing issue. Unemployment stands at about 12 percent in the non-E.U. Med countries; most experts contend it is double that amongst the youth.

If successful it will help stem the tide of immigrants who literally wash up on the shores of Spain, France, Malta and Greece seeking job opportunities.

President Sarkozy, with his Parisian hospitality, was out to make a statement that the Union of the Mediterranean can be grand, can lower barriers to trade, create jobs and assist in addressing one of Europe’s most pressing issues.

The Club Med launch party was relatively easy to pull off; the real work, however, just begins.

ABOUT THIS BLOG
John Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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