Casablanca Finance City, Dubaï International Finance Center, Mumbai Economic Development Zone or Tunis Financial Harbour: an impressive list of major commercial infrastructure projects, combining architectural and economic ambitions. Lately they’ve been blooming in countries where basic infrastructure are still lacking in the poorest areas, where the poverty rate is still high and income inequalities within the population glaring. Is there a paradox here? Is the development of these projects only the deed of a globalised elite disconnected from the realities of these countries or, on the contrary, a lever to accelerate growth and development?
Concept and critics
For more than ten years now, major commercial infrastructure projects have been multiplying in the Gulf countries, but also more recently in the Mediterranean and India regions. These projects aim to gather in the same district high standard business and leisure facilities, thus creating an unprecedented pool of resources: towers intended to accommodate both company offices and luxury apartments, shopping centers, but also recreational facilities, five star hotels, universities, parks…. Usually strategically located on the seafronts, these districts are literally intended to serve as a showcase of the economic and cultural vitality for thehost country, where they play a role as an economic, logistic and financial hub. The concept takes its inspiration from occidental financial districts such as the City of London or La Defense in Paris. However, these major projects are subject to a lot of criticism, especially in the light of the gap that may exist between these “islands” where resources and wealth are concentrated, intended to host a globalised elite of bankers and businessmen, and the reality experienced everyday by the vast majority of the population of the country.
And yet, behind these projects are men of convictions: politicians, economists, architects, banker, such as Ismaïl Douiri, Director General of Attijariwafa Bank and member of the Moroccan Financial Board (the body behind Casablanca Finance City), or Esam Janahi, who was one of the men behind Tunis Financial Harbor project, and contributed to the reflexionaround this very specific type of investment projects. As all the stakeholders involved in this kind of projects, Esam Janahi – who was granted an Honorary Doctorate from The Geneva School of Diplomacy and International Relations for his contribution towards accelerating growth in emerging countries in 2008 – is convinced that the economic ambitions that underpin the concept of Financial District go together with ambitions for the development of the host country.
Trickle-down economics
One might think that the development of such projects, organised around financial districts, are doomed to fail in emerging countries, because of the level of economic and social development that could be seen as “immature”. Indeed, in London and Paris, or New York, the Financial Districts were the result of a long process which had seen the economy moving from the primary sector to the industrial one, and eventually to the services sector. In emerging countries this process is sometime far from being complete and the economic and social structure is still very different, revealing huge regional and social inequalities. InCasablanca for example, even Ismaïl Douiri reckons that the project of Casablanca Finance Harbor takes time and can’t be deployed in just a few years, as it involves lots of regulatory changes and massive investment.
Does this mean that the deployment of these major commercial infrastructure projects is premature or inappropriate in a country where basic infrastructure is sometimes deficient? Well, economic theory and experience tend to deny it, and the success of these projects do not depend solely on the host country’s level of development. In fact, the concept of Trickle-Down Economics allows to highlight the reasons to believe that such projects can be a real lever for development and growth in emerging countries, not just a fad of real estate investors.
According to this concept, developed in the USA in the 1980s, regional and social inequalities are not an obstacle to investment. On the contrary, Investment, even in the services sector, will serve the reduction of inequalities and help the fight against povert, sometimes as efficiently as investment in basic infrastructures. Indeed, to maintain a high level of investment – in the financial sector for instance is to ensure high returns for the investors, but also for all the local economic stakeholders and the region, as flows of revenues will “trickle-down” the whole economy.
Impact on long term employment
To create almost ex-nihilo a financial and residential district, which also includes recreational facilities (hotel, golf …) is to ensure jobs creation in the short, medium and long term, and jobs that cannot be outsourced. In the short term, the building industry experiences unprecedented growth, attracting people from other regions, and creating revenue flows towards the local economy but also towards inland – and very often less developed regions where the workers come from.
Then, sustainable jobs in the services sector are created with the opening of resorts and leisure facilities. Likewise, one has to take into account all the jobs created in the service of employees of companies based in the district. Even if the latter are more often expat workers than nationals, they tend to earn very high incomes, which will be spent on services such as catering, education, dry cleaning, childcare, cleaning, etc.
Esam Janahi underlines the fact that far from being a side issue, the question of employment has been at the heart of this motion in a continuous effort to develop local economies, especially since a large number of investors are involved in these projects, including public ones.
Engine effect for growth and development
These income flows stimulate growth in the surrounding area and the whole region. The revenues that are generated contribute to increase to a similar extent the income of the State through taxation, which can be reinvested in basic infrastructure and redistribution policies for the benefit of the population. This also contributes to strengthen the attractiveness of the region for other national and foreign companies. Furthermore, the development of an advanced economic and financial sector ensures job opportunities for graduates, thus limiting the brain drain that tend to impoverish those countries and do not encourage investment in higher education.
The issue of training is also at the heart of a desire to foster development and work out the intellectual influence of these districts and their host country. As an example of this, most of the projects carried out by Esam Janahi, such as Tunis Financial Harbor, include university campuses and training centres.
In conclusion….
Although we still lack insight to assess the actual contribution of these projects to growth and development in these regions and countries, we can legitimately think that the image of a financial hub reserved to a globalised elite uncaring of development issues has to be nuanced. Without lapsing into a naïve vision, bankers and investors are aware of the potential spillover effect of these projects, both in terms of growth and development, and they know that a developed country is as much the result of growth as it is its best breeding ground.
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