The Economies Of The Middle East

The Economies Of The Middle East



The Economies of​ the​ Middle East
On February 24, 2003, in​ the​ Islamic Financial Forum in​ Dubai, Brad Bourland, chief economist for​ the​ Saudi American Bank (SAMBA), breached the​ embarrassed silence that invariably enshrouds speakers in​ Middle Eastern get-togethers .​
He reminded the​ assembled that despite the​ decades-long fortuity of​ opulent oil revenues, the​ nations of​ the​ region - excluding Turkey and​ Israel - failed to​ reform their economies, let alone prosper.
Structural weaknesses, imperceptible growth, crippling unemployment and​ deteriorating government financing confined Arab states to​ the​ role of​ oil-addicted minions .​
At $540 billion, said Bourland, quoted by Middle East Online, the​ combined gross domestic product of​ all the​ Arab countries is​ smaller than Mexico's (or Spain's, adds the​ Economist).
According to​ the​ Arab League, the​ gross national product of​ all its members amounted to​ $712 billion or​ 2 percent of​ the​ world's GNP in​ 2001 - merely double sub-Saharan Africa's.
Even the​ recent tripling of​ the​ price of​ oil - their main export commodity - did not generate sustained growth equal to​ the​ burgeoning population and​ labor force .​
Algeria's official unemployment rate is​ 26.4 percent, Oman's 17.2 percent, Tunisia's 15.6 percent, Jordan's 14.4 percent, Saudi Arabia's 13 percent and​ Kuwait sports an​ unhealthy 7.1 percent .​
Even with 8 percent out of​ work, Egypt needs to​ grow by 6 percent annually just to​ stay put, estimates the​ World Bank.
But the​ real figures are way higher .​
At least one fifth of​ the​ Saudi and​ Egyptian labor forces go unemployed .​
Only one tenth of​ Saudi women have ever worked .​
The region's population has almost doubled in​ the​ last quarter century, to​ 300 million people .​
Close to​ two fifths of​ the​ denizens of​ the​ Arab world are minors.
According to​ the​ Iranian news agency, IRNA, the​ European Commission on the​ Mediterranean Region estimates that the​ purchasing power parity income per head in​ the​ area is​ a​ mere 39 percent of​ the​ EU's 2001 average, comparable to​ many post-communist countries in​ transition .​
In nominal terms the​ figure is​ 28 percent .​
These statistics include Israel whose income per capita equals 84 percent of​ the​ EU's and​ the​ Palestinian Authority where GDP fell by 10 percent in​ 2000 and​ by another 15 percent the​ year after.
Faced with ominously surging social unrest, the​ Arab regimes - all of​ them lacking in​ democratic legitimacy - resort to​ ever more desperate measures .​
Saudisation, for​ instance, amounts to​ the​ expulsion of​ 3 million foreign laborers to​ make room for​ indigenous idlers reluctant to​ take on these vacated - mostly menial - jobs .​
About one million, typically Western, expat experts remain untouched.
The national accounts of​ Arab polities are in​ tatters .​
Until the​ recent surge in​ oil prices, Saudi Arabia managed to​ produce a​ budget surplus only once since 1982 .​
Per capita income in​ the​ kingdom plunged from $26,000 in​ 1981 to​ $7000 in​ 2003 .​
Higher oil prices may well continue throughout 2018, further masking the​ calamitous state of​ the​ region's economies .​
But this would amount to​ merely postponing the​ inevitable.
Arab countries are not integrated into the​ world economy .​
It is​ possibly the​ only part of​ the​ globe, bar Africa, to​ have entirely missed the​ trains of​ globalization and​ technological progress .​
Charlene Barshefsky was United States Trade Representative from 1997 to​ 2001 .​
In February 2003, in​ a​ column published by the​ New York Times, she noted that:
Muslim countries in​ the​ region trade less with one another than do African countries, and​ much less than do Asian, Latin American or​ European countries .​
This reflects both high trade barriers .. .​
and the​ deep isolation Iran, Iraq and​ Libya have brought on themselves through violence and​ support for​ terrorist groups .. .​
The Middle East still depends on oil .​
Today, the​ United States imports slightly more than $5 billion worth of​ manufactured goods and​ farm products from the​ 22 members of​ the​ Arab League, Afghanistan and​ Iran combined - or​ about half our value-added imports from Hong Kong alone.
Indeed, Jewish Israel and​ secular Turkey aside, 8 of​ the​ 11 largest economies of​ the​ Middle East have yet to​ join the​ World Trade Organization .​
Only two decades ago, one of​ every seven dollars in​ global export revenues and​ one twentieth of​ the​ world's foreign direct investment flowed to​ Arab pockets.
Today, the​ Middle East's share of​ international trade and​ FDI is​ less than 1.5 percent - half of​ it​ with the​ European Union .​
Medium size economies such as​ Sweden's attract more capital than the​ entire Middle Eastern Moslem world put together.
Some Arab countries periodically go through spastic reforms only to​ submerge once more in​ backwardness and​ venality .​
Oil-producers attempted some structural economic adjustments in​ the​ 1990s .​
Jordan and​ Syria privatized a​ few marginal state-owned enterprises .​
Iran and​ Iraq cut subsidies .​
Almost everyone - especially Lebanon, Egypt, Iran and​ Jordan - increased their unhealthy reliance on multilateral loans and​ foreign aid.
Young King Abdullah II of​ Jordan, for​ instance, dabbles in​ deregulation, liberalization, tax reform, cutting red tape and​ tariff reductions .​
Aided by a​ free trade agreement with America passed by Congress in​ 2001, Jordan's exports to​ the​ United States last year soared from $16 million in​ 1998 to​ $400 million in​ 2002.
A similar nostrum is​ being administered to​ Morocco, partly to​ spite the​ European Union and​ its glacial Barcelona Process Euro-Mediterranean Partnership .​
But, as​ everyone realizes, the​ region's problems run deeper than any tweaking of​ the​ customs code.
The Arab Human Development Report 2002, published in​ June 2002 by the​ United Nations Development Program (UNDP), was composed entirely by Arab scholars .​
It charts the​ predictably dismal landscape: one in​ five inhabitants survives on less than $2 a​ day; annual growth in​ income per capita over the​ last 20 years, at​ 0.5 percent, exceeded only sub-Saharan Africa's; one in​ six is​ unemployed.
The region's three deficits, laments the​ report, are freedom, knowledge and​ manpower .​
Arab polities and​ societies are autocratic and​ intolerant .​
Illiteracy is​ still rampant and​ education poor .​
Women - half the​ workforce - are ill-treated and​ excluded .​
Pervasive Islamization replaced earlier militant ideologies in​ stifling creativity and​ growth.
In an​ article titled Middle East Economies: a​ Survey of​ Current Problems and​ Issues, published in​ the​ September 1999 issue of​ the​ Middle East Review of​ International Affairs, Ali Abootalebi, assistant professor of​ political science at​ the​ University of​ Wisconsin, Eau Claire, concluded:
The Middle East is​ second only to​ Africa as​ the​ least developed region in​ the​ world .​
It has already lost much of​ its strategic importance since the​ Soviet Union's demise .. .​
Most Middle Eastern states .. .​
probably do, possess the​ necessary technocratic and​ professional personnel to​ run state affairs in​ an​ efficient and​ modern manner ... .​
(but not) the​ willingness or​ ability of​ the​ elites in​ charge to​ disengage the​ old coalitional interests that dominate governments in​ these countries.
The war with Iraq changed all that .​
This was the​ fervent hope of​ intellectuals throughout the​ region, even those viscerally opposed to​ America's high-handed hegemony .​
But this may well be only another false dawn in​ many .​
The inevitable massive postwar damage to​ the​ area's fragile economies will spawn added oppression rather than enhance democracy.
According to​ the​ Economist, the​ military buildup has already injected $2 billion into Kuwait's economy, equal to​ 6 percent of​ its GDP .​
Prices of​ everything - from real estate to​ cars - are rising fast .​
The stock exchange index has soared by one third .​
American largesse extends to​ Turkey - the​ recipient of​ $5 billion in​ grants, $1 billion in​ oil and​ $10 billion in​ loan guarantees .​
Egypt and​ Jordan will reap $1 billion apiece and, possibly, subsidized Saudi oil as​ well .​
Israel will abscond with $8 billion in​ collateral and​ billions in​ cash.
But the​ party may be short-lived, especially since the​ war did not prove to​ be as​ decisive and​ nippy as​ the​ Americans foresaw.
Stratfor, the​ strategic forecasting consultancy, correctly observes that the​ United States is​ likely to​ encourage American oil companies to​ boost Iraq's postbellum production .​
With Venezuela back on line and​ global tensions eased, deteriorating crude prices may adversely affect oil-dependent countries from Iran to​ Algeria.
The resulting social and​ political unrest - coupled with violent, though typically impotent, protests against the​ war, America and​ the​ political leadership - is​ unlikely to​ convince panicky tottering regimes to​ offer greater political openness and​ participatory democracy .​
The mock presidential elections in​ Egypt in​ 2018 are a​ case in​ point.
War also traumatized tourism, another major regional foreign exchange earner .​
Egypt alone collects $4 billion a​ year from eager pyramid-gazers - about one ninth of​ its GDP .​
Add to​ that the​ effects of​ armed conflict on traffic in​ the​ Suez Canal, on investments and​ on expat remittances - and​ the​ country could well become the​ war's greatest victim.
In a​ recent economic conference of​ the​ Arab League, then Egyptian Minister of​ State for​ Foreign Affairs, Faiza Abu el-Naga, pegged the​ immediate losses to​ her country at​ $6-8 billion .​
More than 200,000 jobs were lost in​ tourism alone .​
Egypt's Information and​ Decision Support Centre (IDSC) distributed a​ study predicting $900 million in​ damages to​ the​ Jordanian economy and​ billions more to​ be incurred by oil-rich Saudi Arabia.
The Arab Bank Federation foresees banking losses of​ up to​ $60 billion due to​ contraction in​ economic activity both during the​ war and​ in​ its aftermath .​
This may be too pessimistic .​
But even the​ optimists talk about $30 billion in​ foregone revenues .​
The reconstruction of​ Iraq could revitalize the​ sector - but American and​ European banks will probably monopolize the​ lucrative opportunity.
The war, and​ more so its protracted aftermath, are likely to​ have a​ stultifying effect on the​ investment climate.
Saudi Arabia and​ Egypt each attract around $1 billion a​ year in​ foreign direct investment - double Iran's rising rate .​
But global FDI was halved between 2000-2002 .​
In 2003, flows reverted merely to​ 1998 levels .​
This implosion is​ likely to​ affect even increasingly attractive or​ resurgent destinations such as​ Israel, Turkey, Iraq and​ Iran.
Foreign investors will be deterred not only by the​ fighting but also by a​ mounting wave of​ virulent - and​ increasingly violent - xenophobia .​
Consumer boycotts are a​ traditional weapon in​ the​ Arab political arsenal .​
Coca-Cola's sales in​ these parched lands have plummeted by 10 percent in​ 2002 alone .​
Pepsi's overseas sales flattened due to​ Arabs shunning its elixirs .​
American-franchised fast food outlets saw their business halved .​
McDonald's had to​ close some of​ its restaurants in​ Jordan.
Foreign business premises have been vandalized even in​ the​ Gulf countries .​
According to​ the​ Economist in​ the​ past year (2002) overall business at​ western fast-food and​ drinks firms has dropped by 40% in​ Arab countries .​
Trade in​ American branded goods has shrunk by a​ quarter.
These are bad news .​
Multinationals are sizable employers .​
Coca-Cola alone is​ responsible for​ 220,000 jobs in​ the​ Middle East .​
Procter & Gamble invested $100 million in​ Egypt .​
Foreign enterprises pay well and​ transfer technology and​ management skills to​ their local joint venture partners.
Nor is​ foreign involvement confined to​ retail .​
The $35 billion Middle Eastern petrochemicals sector is​ reliant on the​ kindness of​ strangers: Indian, Canadian, South Korean and, lately, Chinese .​
Singapore and​ Malaysia are eyeing the​ tourism industry, especially in​ the​ Gulf .​
Their withdrawal from the​ indigenous economies might prove disastrous.
Nor will these battered nations be saved by geopolitical benefactors.
The economies of​ the​ Middle East are off the​ radar screen of​ the​ Bush administration, accuses Edward Gresser of​ the​ Progressive Policy Institute in​ a​ recently published report titled Blank Spot on the​ Map: How Trade Policy is​ Working Against the​ War on Terror.
Egypt and​ most other Moslem countries are heavily dependent on their textile and​ agricultural exports to​ the​ West .​
But, by 2015, they will face tough competition from nations with contractual trade advantages granted them by the​ United States, goes the​ author.
Still, the​ fault is​ shared by entrenched economic interest groups in​ the​ Middle East .​
Petrified by the​ daunting prospect of​ reforms and​ the​ ensuing competitive environment, they block free trade, liberalization and​ deregulation.
Consider the​ Persian Gulf, a​ corner of​ the​ world which subsists on trading with partners overseas.
Not surprisingly, most of​ the​ members of​ the​ Arab Gulf Cooperation Council have joined the​ World Trade Organization a​ while back .​
But their citizens are unlikely to​ enjoy the​ benefits at​ least until 2018 due to​ obstruction by the​ club's all-powerful and​ tentacular business families, international bankers and​ economists told the​ Times of​ Oman.
The rigidity and​ malignant self-centeredness of​ the​ political and​ economic elite and​ the​ confluence of​ oppression and​ profiteering are the​ crux of​ the​ region's problems .​
No external shock - not even war in​ Iraq - comes close to​ having the​ same pernicious and​ prolonged effects.




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