- The Washington Times - Sunday, October 11, 2009

ANALYSIS/OPINION:

Since creation of the Israeli state by the United Nations in 1948, world leaders have sought to establish peace and harmony between the Israelis and their Arab neighbors, principally the Palestinians. As efforts mount to have a fresh series of negotiations between the two sides, it is past time to try a different approach.

Once again, the United States and Europe are working to broker a lasting peace settlement between Israel and its Arab neighbors, principally the Palestinians. Former British Prime Minister Tony Blair has forecast that talks will resume in “the coming weeks,” simultaneously urged by President Obama on Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President Mahmoud Abbas.

Mr. Blair, serving as special ambassador of “the Quartet” - the United States, Russia, the European Union and the United Nations - has termed it vital that Israelis and Palestinians “negotiate from the top down” but “build from the bottom up.” Polls of Israelis and Palestinians show both groups want peace but neither believes it possible.

Interestingly, Mr. Netanyahu, long opposed to negotiations, has signaled his support for their resumption, simultaneously stressing economic development as important to creating peace. In a television interview last weekend, Mr. Netanyahu said, “Prosperity is good for peace … not a substitute, but it really enables it.”

The importance of economic development is increasingly recognized by Arab leaders, among them Morocco’s King Mohammed, Saudi Arabia’s King Abdullah and Egypt’s President Hosni Mubarak. A cornerstone of Jordanian King Abdullah’s policy has been to seek economic empowerment for his countrymen, particularly including the majority Palestinians resident in his country.

While it is crucial for negotiators to discuss - and agree upon - solutions to the various political and social issues, it is axiomatic that the cruel economic conditions under which Palestinians, most notably those living in the Gaza Strip, live must be alleviated if they are to live at peace. Although periodic efforts have been made by the United States and United Nations to provide aid in various forms, long-term sustained and sustainable economic development is required.

Emergency food rations, medications and the like are useful in a crisis, but for a people to prosper, solid foundations must exist upon which to build viable commercial and industrial enterprises. More than one important Arab investor has privately told me the conditions do not exist in Gaza in which the investor would be willing to support business development.

Enter Al Noor City, an innovative approach to urban planning, under development the past two years. The Al Noor (“the light” in Arabic) model, designed by dedicated engineering, legal and business professionals as an enlightened, independently operating entity, is close to being launched in southern Yemen and Djibouti. “Like a Middle East Hong Kong” is how Noor Holding Investment Co. Chief Executive Officer Mohammed Al Ahmed characterized the visionary concept that relieves legitimate business operations from government regulations that impede development and inadvertently encourage corruption.

“Governments, nongovernment organizations and private firms will forge a fresh model for urban development, creating a regulatory environment where investment can take root and thrive, delegating regulatory authority to a competent administrative entity,” notes Al Noor attorney Shanker A. Singham, a partner in the global law firm of Squire Sanders & Dempsey.

A leading Dubai-based Arab businessman spoke frankly: “This is not a task that governments in this troubled region can accomplish on their own.”

A 2005 report by the U.S.-based National Intelligence Council cautioned that an increase in the state’s role in economies would have negative effects in such countries and globally, “if that role leads to market distortions that impede legitimate business activities and hurt consumers.”

The Al Noor City development model creates the high-quality, reliable regulatory environment critical for legitimate business investment, particularly in areas of chronic instability. To overcome the regional risk issue, investors require reduced border trade barriers, competitive markets, property rights protection, plus a tax system that incentivizes rather than penalizes success.

Once regulatory authority is delegated to a recognized nongovernmental entity, other private-sector investors will be open to investing, a concept pioneered by successive British governments in Bermuda, Cayman Islands, Gibraltar and Hong Kong.

The Hong Kong experience following 150 years as a British colony exemplifies the value of well-regulated free-market enclaves for home countries. China willingly pledged a minimum 50 years’ continuation of its free-market status, following reversion of sovereignty over Hong Kong to the mainland in 1997. With freedom to operate intact, the former colony has continued its steady growth curve, with surrounding mainland enclaves - including Shenzhen, Dongguan and Guangzhou - growing even faster.

Hong Kong’s pact with Beijing has created an estimated 43,200 jobs from 2004 to 2008, brought 46 billion Hong Kong dollars (U.S. $5.9 billion) extra income to Hong Kong businesses providing services and added 49,500 mainland jobs.

Total mainland government revenue has grown from $208.4 billion in 1996-97 to $352.9 billion in 2007-08. The 2009 Index of Economic Freedom (World Bank and Heritage Foundation) ranks Hong Kong third best of 183 jurisdictions to do business.

Mr. Singham, the Al Noor attorney and a recognized international trade expert, succinctly sums up the situation for Hong Kong and other legitimate, freely operating business enclaves: “The Al Noor model works for everyone concerned. The host government makes money, not just from the Al Noor City but also from collateral business growth in the area. Thousands of new, relatively well-paying jobs are created, reducing social tension and political frustration. Investing businesses have a well-administered, predictable business climate in which to operate.

“Virtually every discussion with prospective host-country leaders reflects their frustration in seeking foreign investment. Concerned governments no longer need unsuccessfully to attempt the undoable: attract business investment in high-risk conditions. The definition of insanity is to repeat the same failed action, time and time again.”

As Israeli and Palestinian leaders once again approach negotiations, a key factor in easing their daunting challenges would be to provide economic opportunity to the Gaza Strip. Creating an Al Noor City could make a significant difference.

John R. Thomson is a geopolitical analyst specializing in developing countries. He has lived in Beirut, Cairo and Riyadh and worked in the Middle East for more than 30 years.

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