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Social investors take a step in the Mideast

By G. Jeffrey MacDonaldCorrespondent of The Christian Science Monitor / April 19, 2004

Investors concerned with improving lives across the globe are testing the hot sands of a new frontier. The moral and financial rewards could make history, but pitfalls could bring upheaval to indigenous cultures and Western portfolios alike.

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Welcome, brave investor, to the Middle East.

Few regions offer more tantalizing promise to investors with a dual goal of making money and making a difference. This vast, oil-rich territory suggests a lucrative future in a range of industries spread from North Africa to Pakistan. The Middle East sits on 70 percent of the world's known oil reserves. And the opportunities for social change appear equally enticing to those keen to uproot the economic seeds of terrorism or to raise women's status in societies known for human rights violations.

Following these and other lures, ethically minded investors are seeing signs of progress. The Calvert Foundation, for instance, began searching in late 2003 for nonprofit partners in the region to steer an initial $100,000 to fledgling, sustainable businesses. Meanwhile, more than two dozen multinational companies with interests in the region will come together, starting this weekend, in Dubai for what's been billed as the first-ever Middle East conference on corporate social responsibility.

For a bit of worldwide context, consider how the region fares in the Heritage Foundation's 2004 Index of Economic Freedom. The Index does not classify a single Middle Eastern country as "economically free" in the sense that Hong Kong, Switzerland, or the United States are. Factors weighed, including foreign investment and property rights, cast a "mostly unfree" distinction on nearly all Middle Eastern countries.

On a map, the economically freest countries are tiny blips: Qatar, Kuwait, Jordan, and Israel. Saudi Arabia, the region's largest economy, is rated as far less free. And even with a gross domestic product of $142 billion, it doesn't rank high by global standards. Sweden's is more than twice as large at $300 billion.

Those aiming to invest for change in the Middle East will need to overcome a number of barriers, not the least of which concerns cultural sensitivity.

"Among socially responsible investors, there will be some who seek opportunities to make money and shape social conditions in that region," says Steve Schueth, president of First Affirmative Financial Network in Colorado Springs, Colo., an adviser to socially concerned investors. "But that drive is often [offset] by the idea that we should respect other cultures. It tends to have a neutralizing effect on the two yearnings."

Since the attacks of Sept. 11, Americans have heard much about the social conditions of the Arab world. Those seeking change through investment would apparently have ample targets on their radar screens, from the sewage-strewn streets of Gaza to Saudi Arabia, where women may neither vote nor drive.

To this point, however, the only significant private capital from the West at work remaking the region has arrived through the work of companies under contract with the US government to rebuild Iraq. Investors interested in leveraging alternative influence in the region have encountered more than a few roadblocks. Example: corporate transparency. The only companies that have traditionally met Western standards for oversight and accountability in this regard have been Western companies with a presence in the region.

Drops in a bucket

Foreign direct investment in the region is tiny: just $446 million in Egypt - a fraction of the country's $81 billion economy. Pakistan tells a similar story: $317 million in direct foreign investment, a drop in the bucket for a $73 billion economy.