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The_Economies_of_the_Middle_East
| The Economies of the Middle East
Last year, 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. 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 today. Higher oil prices may well continue throughout
2003, 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 a recent 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.
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 last
year 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 looming war with Iraq will change all that. This is 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 if the war proves
to be as decisive and nippy as the Americans foresee.
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.
War will traumatize 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, 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 will be 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.
War is 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 in the last two years. This years, flows
will revert 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 last year. 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 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 2010 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.
About the author:
Sam Vaknin ( http://samvak.tripod.com ) is the author of
Malignant Self Love - Narcissism Revisited and After the Rain -
How the West Lost the East. He served as a columnist for Central
Europe Review, PopMatters, and eBookWeb , and Bellaonline, and
as a United Press International (UPI) Senior Business
Correspondent. He is the the editor of mental health and Central
East Europe categories in The Open Directory and Suite101.
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