John Sfakianakis* looks into how Middle East economies have fared during the past year As world political affairs took centre-stage in analyses of the events of 2002, the state of Middle East economies were largely neglected. The political impasse in Palestinian-Israeli relations and the looming war in Iraq have caused analysts to overlook economic issues that affect the region. A number of international organisations have focused on the Middle East this past year. The United Nations Development Programme's Arab Human Development Report highlighted the problems the region currently faces and offered policy recommendations. Written by analysts from the Middle East, it was the first report of its kind undertaken by the UNDP. Notwithstanding progress in some human development indices -- Arab life expectancy increased by 15 years and infant mortality rates dropped by two thirds in the last 30 years -- the report said the Arab world would not advance economically unless three key problems were tackled: education, human freedoms and the empowerment of women. For example, Saudi women make up 50 per cent of the population, but their contribution to the economy amounts to about three per cent, the report said. The GDP of all the Arab countries combined is less than the GDP of Spain. Large investments of over $3,000 billion over the past 20 years have not paid back in per capita income, which saw the second lowest growth rate in the world after sub-Saharan Africa. Another report by the Geneva-based World Economic Forum, which organises the annual Davos summit that brings together world leaders to address global issues, said too many government controls impinge on development in the Middle East. The report correctly pointed out that potential investors in many Arab countries face a suffocating web of complex regulations, licensing and other institutional obstacles that are often unclear and usually inconsistent with the rules that apply in the rest of the world. In Morocco, for instance, which is considered more liberalised than other Arab countries, it takes more than six months and over 20 documents to register a new business. Egyptian businessmen spend close to 35 per cent of their time solving problems related to government regulations, the report said. The reports coincided with a debate, mainly in US government circles and followed closely by the Western media, over which kinds of societies produce the type of militant movement from which Osama Bin Laden arose. Among the key problems identified, those relating to economic and human development topped the list. Rising unemployment of 15 to 20 per cent, a rising young population (nearly 53 per cent of the population are under 25), a lack of intra- regional trade (less than nine per cent compared to Western Europe's 69 per cent) and high illiteracy were all cited. An article published by Forbes magazine reflected the view in Washington that "Osama Bin Laden required a dry tinderbox to ignite a world conflagration. The surest method to dampen things is to find better jobs for would- be terrorists." This leads one to question if the Intifada is merely economically motivated, with 50 per cent of the Palestinians of the West Bank and more than 65 per cent of those living in Gaza young and unemployed. A step further, if jobs are found for the unemployed Palestinians, will the Intifada then loose its momentum? Meanwhile, international investors continued to view with caution emerging markets around the world. Global FDI into emerging markets has fallen over the past two years by 19 per cent, according to a recent study by the World Bank. Beyond these general trends, country cases would provide their own stories. The oil-rich countries of the Gulf continued their attempts of trying to diversify their economies. Higher oil prices, now due to current events such as the Venezuelan crisis and the situation in Iraq, are good news for oil-dependent economies. Saudi Arabia's budget continued to face deficits. The only time it has recorded a surplus in the last 20 years was in 2000. Unemployment in Saudi Arabia stands at between 15 and 20 per cent and foreigners make up about 65 per cent of the work force. Still the country has not been able to attract FDI in the non-oil sector in 2002 and has yet to join the World Trade Organisation. The Saudi economy was unable to grow beyond one per cent of real GDP growth. The United Arab Emirates (UAE), and especially Dubai, continued to lead the way in the Gulf in trying to diversify its revenue base. Dubai's oil reserves have declined and production has fallen from around 400,000 barrels per day in the early 1990s to around 165,000 barrels per day today. The country has moved into alternative industries, promoting itself as a regional banking and IT hub, while building on its reputation as a tourism, banking and transport centre. In 2002, Dubai held a 10 per cent share of global trade in gold. Moreover, the UAE's equities market benefited from the repatriation of Arab funds divested from US markets. One of the best performing stock markets in the world was Iran's Tehran Stock Exchange, rising by more than 30 per cent in 2002. Like the Iranian economy, the country's exchange is dominated by government-owned companies, with a few shares left in the hands of private investors. The Iranian government slashed taxes, updated its foreign investment law and overhauled its currency laws, announcing a single exchange rate for the Iranian rial. Turkey's economic reform experiment continued with the support of the IMF's $16 billion loan package. Although the economy achieved greater growth rates and inflation was lowered to 38 per cent from a high of 80 per cent in 2001, unemployment rose. However, due to Turkey's geo-strategic position, more money will be pumped into the Turkish economy via IMF loans. During the next two years, Turkey will be on a challenging course to meet European Union criteria set out in December 2002 for accession negotiations, to begin in 2004. The record holder for the largest public debt is clearly Lebanon. Some $4.4 billion in soft loans was secured in Paris last month from international donors, thanks to Prime Minister Rafiq Hariri's personal lobbying style and friendship with French President Jacques Chirac. The money is very-much needed to tackle Lebanon's $30 billion public debt, which now stands at around 180 per cent of GDP. The government still has to go ahead with strong austerity measures. Boosting revenues from value- added income and gasoline taxes, along with a hoped-for $5 billion from the privatisation of mobile phone and electricity utilities all aim at reducing the debt burden. In 2002 the Syrian economy remained stagnant and unable to disarm vested business interests that have stalled the opening up of the banking sector to foreign investors. Syria recently negotiated a major loan from the European Investment Bank and has ambitions to break out of its economic isolation by cultivating stronger EU ties in 2003. However, a legal wrangle is casting a long shadow over one of Syria's highest-profile foreign investments, a stake in mobile telephone operator SyriaTel held by Egypt's Orascom Telecom (OT). Jordan was not immune to the global economic slowdown witnessed in 2002. Tourism, which contributes 10 per cent of Jordan's GDP, was down due to tensions in the region. Another major hard currency earner for Jordan is potash, used mainly as fertiliser for agriculture. As global demand for potash fell, so did Jordan's exports of potash. Unemployment increased in 2002 by nearly 25 per cent. Finally, Egypt's economy continued to face a persistent liquidity crisis, a mounting public debt and a private sector investment slump. Nevertheless, all of the above economies were able to achieve a modicum of growth in 2002, except Palestine. According to the UN Conference on Trade and Development (UNCTAD), as much as $2.4 billion has drained out of the economy of the West Bank and the Gaza Strip due to closures, mass unemployment and the destruction of most infrastructure by Israeli forces. Almost half the population is living on an income below the UN's poverty threshold of $2 a day. Israel, meanwhile, is still grappling with one of its worst recessions of the past decade. * The writer is Research Fellow, Center for Middle Eastern Studies, Harvard University.
