In the rocky aftermath of the Arab Spring, leaders across the Middle East have called for a regional “Marshall Plan”.

Most recently, Egypt’s finance minister and Tunisia’s former prime minister both asked for such a plan to mobilise massive resources to unlock the enormous potential for economic growth in promising sectors, such as tourism, energy, transportation and manufacturing, and to meet the urgent demand for jobs and better living standards from rapidly growing populations.

Given the dramatic events now unfolding in Iraq, the need for a coordinated economic plan to offer hope and enhance stability for the entire region is clear.

A recent study by the International Labor Organization (ILO) found that not only does the Middle East have the highest youth unemployment rate in the world, but it also experienced the greatest increase in unemployed youth over the past year.

To address this sharp increase in unemployment and bring it down to an 8pc level, it is estimated the region needs upwards of 6-7pc economic growth versus the near 3pc rates forecast for 2014.

The Marshall Plan was an instrument to transfer large amounts of finance to economies ruined by the Second World War but with essentially healthy institutions and a skilled workforce.

However, what the post-Arab Spring nations also need is transformational finance that targets fundamental reform of the institutional environment and helps raise the skill levels of the population.

For resource mobilisation to be successful, private companies must play a central role, but the aftermath of the Arab Spring has actually depressed private-sector investment in much of the region. If anything, the already-poor investment climate has further deteriorated, with increased macroeconomic uncertainty, political instability and security challenges.

At the same time, investment needs are even greater today than they were three years ago.

Infrastructure investment is critical. The World Bank estimates that the region requires $100bn (£60bn) annually, in sectors such as transport, telecoms and energy. Infrastructure still accounts for only 5pc of expenditure in the region (compared with 15pc in China).

Direct investment into critical infrastructure projects and partnering with the private sector would limit the bureaucracy often associated with large government projects and enable quicker and tangible economic improvements in countries such as Jordan, Yemen, Egypt and across North Africa.

Each $1bn invested in infrastructure could create up to 100,000 new jobs according to World Bank figures.

A large-scale “top-down” infrastructure effort must be complemented with a “bottom-up” approach focused on education, skills training and SME development. All elements are necessary to underpin a dynamic and sustainable economy.

The most effective way to create jobs is to spur the growth of new companies and allow small and medium-sized companies to grow into larger companies. Investments would need to be project-based and held to best practice in governance, while encouraging much-needed reforms in the investment climate and regulatory environment.

In a joint report on the competitiveness of the Arab countries, the European Bank for Reconstruction and Development (EBRD) and the World Economic Forum recently called for urgent institutional reform to support private-sector growth, arguing that excessive red tape and ineffective enforcement of competition policy and governance rules were hampering entrepreneurship. A private sector-led approach would enhance regulatory reform in this respect.

Private-sector principles are also important in expanding infrastructure investments. Lack of transparency and accountability is undermining efficiency and quality of service throughout the economy. Boundaries between central and local governments, and between local governments and utilities, are unclear.

In order to meet the needs of increasing populations, with legitimate demands for safe drinking water, more reliable power supplies and better transport, management of these services must improve.

Ultimately, private investors should also be attracted into municipal infrastructure, but only once these deficiencies in the investment framework have been addressed.

Additional resources must not be used to further distort the economies by subsidising wasteful use of energy and food consumption. Reducing subsidies is of the highest priority in improving the fiscal situation and encouraging better resource management.

But as policymakers are only too aware, subsidy reform must be handled with the utmost care. These countries have substantial pockets of deep poverty, where energy and food are important items in household budgets. The most vulnerable must be protected through carefully targeted interventions.

An Arab-led coordinated regional investment plan could promote much-needed economic growth and encourage improvements in the region’s business environment.

With additional income from sustained high oil prices, the Gulf co-operation council states are well placed to play a leading role as investor countries. They have already generously provided emergency finance, especially to Egypt. It is vital that the recipient countries use this efficiently while properly addressing the underlying structural problems of their economies.

Just as in the case of the Marshall Plan, for which the World Bank was once created, a multilateral framework is needed to ensure funds are managed, invested and governed through a transparent and coordinated mechanism, building upon global best practice.

Through a common regional investment platform, participating countries will be able to benefit through enhanced regional economic development, stability and security.

Majid Jafar is CEO of Crescent Petroleum and founder of the Arab Stabilisation Plan

Erik Berglof is chief economist for the European Bank for Reconstruction and Development