Integration is the most fervently negotiated term in Arab gatherings yet the least applied in reality, reports Sherine Nasr When it comes to economic integration, politics should be an asset, not the key. But this does not seem to be the rule in the Arab world, where integration plans have been enthusiastically discussed for over 50 years now. The Arab common market, a unified currency, customs procedures have been in the media for half a century now, but little has been achieved. "Ideally, economic interests should take the lead over politics. In our Arab world, the situation is reversed. The result is little transparency, a lack of trust and ultimately an absence of interest among Arab investors to invest in Arab countries," said Youssef El-Zalzalah, former minister of trade and industry in Kuwait and current chairman of Petrolink Holding. El-Zalzalah was speaking during a meeting organised by the Egyptian Businessmen's Association, hosted in Cairo early this week. The tendency to invest Arab capital in foreign markets and not within the region has had some serious impact through the current international financial crisis. According to Hamdi El-Tabaa, head of the Arab Businessmen Union, the value of Arab direct and indirect investments abroad is estimated at $2 trillion. "One must ask, what will become of this capital in light of the current international crisis," said El-Tabaa, adding that Arab money abroad runs a high risk of being dissipated as mega financial corporations fall apart. Studies refer to a total loss of $375 billion of Arab funds abroad due to the current financial turmoil -- in other words, an equivalent to the total petroleum revenues earned in a one-year period. The fact that this capital was not invested within the Arab region is a chance lost by any account. According to El-Tabaa, Arab cumulative direct investment within the Arab region is estimated at a meagre $114 billion in 2007, 34 per cent of which is concentrated in the real estate and tourist services sectors. In the meantime, the volume of Islamic capital investments is estimated at $800 billion, operating through 700 Islamic funds all over the world. Ironically, these Islamic funds have not encouraged more economic ties within the Arab region. All in all, although the present financial fallout was imported from abroad, Arabs did little to integrate their resources and capitals. As a result, each state has been living on an island as it were, and is now facing the anticipated recession alone. According to Egyptian Prime Minister Ahmed Nazif, the volume of trade among Arab countries is still very marginal. "But this is only expected as Arab countries are barely connected through vital transportation channels to serve trade and investment," said Nazif, adding that there is an added value to any route to be established via air, land or sea. "The prospects are huge and so are the challenges we are facing during the next phase," he added. Integration in other economic arenas is still limited and, in some cases, premature. For example, unemployment rates within the Arab world are estimated at 14 per cent, which translates into 13 million people. On the other hand Arab countries, and Gulf countries in particular, host some 14 million foreign workers at present. "Some $70 million should be pumped into the market annually to create job opportunities for an ever-growing number of unemployed people," said El-Tabaa, who referred to the fact that this comes at a time when recession rates are generally increasing along with rates for importing consumer rather than productive products. During 2008, recession rates reached 10 per cent, 15 per cent and 22 per cent in Saudi Arabia, Jordan and Egypt respectively. "Recession rates will most probably persist during the next two years. The credit crunch, slowed down growth rates and less loaning will further aggravate the economic spectrum in the Arab world," said Henri Azzam, CEO of Deutsche Bank, Middle East and Africa, who added that the ratio of loans to deposits in some Arab banks is alarming. For example, loans to deposits in United Arab Emirates are 120 per cent, while in Saudi Arabia they stand at 70 per cent. "These markets will be strongly affected by the situation," said Azzam. Worse still is the fact that debts of some gigantic financial corporations are 40 times worth their capitals. "This means that these funding corporations will not be able to pump any loans to carry out mega projects in the Arab countries. This is a bad sign," Azzam added. One substantial market that has been affected negatively is the real estate market which is already suffering from a state of recession, particularly in Dubai. Unfortunately, the Arab region has barely benefited from the latest drop in prices of staple crops and food commodities. The reason is that the Arab world is totally dependent on food exports to cover shortages in cereals, dairy products, meat and so on. "Food shortages in the Arab world have hit the $40 billion edge this year. The situation is getting no better," said Fallah Gabr, secretary-general of the Arab Union for Food Industries. Gabr explained that most Arab countries lie beneath water poverty line. The region's share of potable water is less than three per cent, the majority of which is lost due to obsolete traditional irrigation systems that consume up to 80 per cent of the region's limited water resources. Meanwhile, the Arab population, estimated at 350 million, is increasing by five per cent annually, while no equivalent increase in food production is noticed. "This will result in more dependency on food exports and an ever-increasing bill of food subsidies," said Gabr. As oil prices are expected to drop to pre- 2004 rates due to a slowing international economy and less demand, an Arab summit will be held in Kuwait next January to discuss a joint action plan among Arab countries to contain the repercussions of the current situation.
