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 2006,
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
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
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
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 2005 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
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
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.
AUTHOR BIO (must be included with the article)
Sam Vaknin ( 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 Global Politician, Central Europe Review,
PopMatters, Bellaonline, and eBookWeb, a United Press International (UPI)
Senior Business Correspondent, and the editor of mental health and Central
East Europe categories in The Open Directory and Suite101.
Visit Sam's Web site at samvak.tripod.com