Two Huge Middle Eastern Stories: One Good, One Bad
Roger Owen Al-Hayat - 18/01/07//
There are two huge stories coming out of the Middle East these days. One is the headline story of wars, civil wars, terrorism and destruction with, perhaps, worse to come in the shape of isintegrated Iraq, and an Iran with the power to produce a nuclear weapon in five to ten years time. The other is the impact of the last three years of high oil prices which, combined with the recent huge
increase in world trade led by booming economies of in China and India, has produced very high levels of growth not just in the oil exporting countries of the Gulf but also in some of the non-oil, or little oil economies like Egypt, Jordan, Israel and Turkey.
Both stories are, of course, largely true. But the second is still much less well-known except by those in the West who read the financial press or who have a direct interest in managing the hundreds of billions of Middle Eastern money which passes through the banks of London or Geneva as well as those in the Gulf
itself. And yet the figures are staggering. Looked at in aggregate, the MENA (Middle East and North Africa) economies have been growing at some 4-5 percent a year since 2003 with almost all experiencing a substantial increase in FDI (Foreign Direct Investment) as well.
The front runners have been the big oil producers like Saudi Arabia whose GDP grew by 23 percent in 2003 alone. But substantial progress has also been made, for example, by Egypt, whose economy grew at nearly 7 percent in the last financial year while receiving over $6 billion on FDI, up from a paltry half a billion in 2001/2. Much the same is true of such non-Arab countries as Israel
and Turkey, both of which rebounded from early twenty-first century political and financial crises to experience sizeable rates of growth in the last few years.
Looked at in historical perspective, two other developments are of the greatest importance. The first is that for the oil exporters, and, to some extent, for their non oil-rich neighbours, the 1990s were a time of little or no growth due to low oil prices, the Asian economic crisis of 1997 and, in the case of Kuwait and Saudia Arabia in particular, the huge drain imposed on their financial resources by the need to pay for a large part of the first Gulf War. The Saudis experience no growth at all at this time with falling per-capita incomes, while the best performing economies, those of Israel, Turkey and Egypt, could only manage some 1 to 1.5 percent a year.
The second follows from the first. It seems likely that if it had not been for this period of intense economic difficulties most Middle Eastern regimes would have not embarked on all the measures now in place to balance their budgets, to improve regulatory mechanisms and to encourage foreign investment. This was as true of the Gulf states - witness Kuwait's foreign investment law of 1999 and that of Saudia Arabia in 2000 - as it was of, say, Egypt, whose 2004 package of economic reforms is widely credited with preparing the way for that country's present boom. The decision by so many countries to join large international trade organizations like the European Union's Mediterranean project or the World Trade Organisation were also significant.
The economic stagnation of the 1990s, followed by the international response to the World Trade Center attack of September 2001, also played a considerable role in directing how the Middle East's new wealth should be spent. For one thing, there was now an opportunity to make up for the world-wide neglect of
investment in oil exploration and development consequent on the reduced oil revenues of those days. Hence Saudi Arabia's recently-announced plan to expand its facilities so as to be able to produce some 12.5 million barrels/day by 2009. For another, the fact that so much Gulf money was withdrawn from the United States after 9/11 and, to some extent, Europe, out of fears that accounts might be frozen, has encouraged the emergence of a new investment climate in which Arab fund-managers are not only much more confident in their abilities to manage their funds without western help but are also demonstrating a much greater willingness to seek out Middle Eastern rather than European and American outlets for their money.
Gone are the days it seems when Western critics of the Arab and Muslim Worlds could write books with titles like Bernard Lewis's best-selling 'What went wrong? The Clash Between Islam and Modernity in the Middle East' published in 2003. But even if Arab economic performance has much improved for those countries that have managed to avoid civil war or foreign invasion, this is certainly not the end of the story either. For the foreseeable future, oil, and the price of oil will continue to determine much of the Middle East's future, making further efforts at economic diversification problematic. Then too there is the question of how the hundreds of billions of new funds in public and private hands can be invested at a profit, a major challenge, and a pointer to
some future moment when, for any number of reasons, the bubble might suddenly burst, or at least produce a serious local shock like the collapse of stock-prices in Saudi Arabia in 2006.
Other problems are perhaps even more inevitable. To mention just one of the most important, not only will increased globalization bring more foreign competition across the board, supported by the World Trade Organisation and the European Union, but it is also very likely to widen existing disparities in domestic incomes as is already happening in Turkey, Israel and, more recently, Egypt,
where they have reached levels which now make them some of the most unequal places in the world.
There is also the very real possibility of dangerous spill-over effects from the region's various zones of instability, destruction and war, not just in Iraq but in South Lebanon, the Gaza Strip and Darfur as well. One of the most extraordinary things about the Middle East's twin stories of violence in some places and huge increases in overall prosperity in others, is that there has, so far, been so little interaction between them, whether for better or, it is much easier to imagine, for worse. Who knows how long this unusual state can
continue.
|
