September 19, 2002 No. 34

GDP in Arab Countries Records Decline in 2001

September 19, 2002 | By Dr. Nimrod Raphaeli*
Libya | No. 34
I. Regional Economic News

GDP in Arab Countries Records Decline in 2001
Data published by the Arab Monetary Fund show that the gross domestic product (GDP) for the Arab countries, as a group, dropped in 2001 by 1.9%. The drop is attributed to a decline in oil revenues from $193 billion in 2000 to $152 billion in 2001, following the events of September 11.

During the same year, exports declined by 8.1% to $236.1 billion but imports rose to $163.8 billion, an increase of 4.8%.

Also during the year, government budgets have suffered from rising expenditures and declining revenues. Expenditures rose to $211.2 billion while revenues declined to $193.8 billion, generating a deficit spending of $17.4 billion.[1]

OPEC Exceeds Production Quotas
Members of OPEC have exceeded their production quotas by 2.15 million b/d in August, or 10% over the authorized quotas. It is the highest over-production since 1998, when the price of oil declined sharply. It is the sixth consecutive monthly over-production. The biggest violators of the quota system were Algeria (30%), Nigeria (9.5%) and Saudi Arabia, the largest producer (9%). These increases, the paper says, are jeopardizing the credibility of the organization.[2]

Concerns in the U.S. about Withdrawal of Saudi Investments
According to a study by the World Economic Forum, an affiliate of Morgan Stanley, there is growing concern in the U.S. about the effects of possible Saudi withdrawal of their investments from the U.S. market. It is estimated that Saudi investments in foreign markets amount to $750 billion of which 60%, or $450 billion, are invested in the U.S. market, including $290 billion in real estate. With its trade deficit of approximately $350 billion a year, the U.S. would need to attract $1 billion a day to alleviate the pressure on the value of the dollar. The study warns against sharpening the disagreements between the U.S. and Saudi Arabia which could result in higher oil prices that dampen a rather tentative post-recession growth in the United States.[3]

On the other hand, the Saudi daily, Al-Watan, reports that despite apprehension among Saudi and other Gulf investors in the U.S. market, and despite the $100 trillion lawsuit brought in U.S. courts against the Saudi government, its financial institutions and senior princes, there has not been a major organized effort by Saudi and Gulf region investors to withdraw their investments from the U.S. markets.[4]

Another article reports that Islamic investment companies prefer to invest in luxury apartment buildings and other high-end real estate. The U.S. Department of Commerce lists Kuwait as one the 10 largest foreign investors in the U.S. real estate market.[5]

Conflicting Views about Boycotting American Products
The drive in the Middle East to boycott American goods and services, e.g., cars, cigarettes, fast food establishments and clothing "to protest what is perceived as American pro-Israel policy, has not abated." Ihsan Abu 'Hulaiqa, a Saudi economist and member of the Consultative Council [a significant advisory body in Saudi Arabia] supports the boycott but warns against excesses. Another Saudi economist, who chose not to reveal his identity, strongly disagreed with 'Hulaiqa's position. He said the American markets are too large to be affected by Arab boycotts, even if it were carried out by all Arab countries. He argues the boycott campaign harms Saudi producers, workers and capitalists and would have absolutely no impact on the U.S. economy. He accused those who favor boycotts in the name of the Palestinian people of engaging in demagoguery since the Palestinians themselves have not declared such a boycott on American goods.[6]

Al-Qa'ida Finances Not Affected
A recent report issued by a United Nations group in charge of monitoring Al-Qa'ida's finances speculates that the financial support for Al-Qa'ida from Middle Eastern and North African resources amounts to $30 million and perhaps as high as $300 million [no time frame provided, but the figures would appear annualized]. In addition, annual charitable contributions of $16 million to Al-Qa'ida have not been affected by the "War on Terrorism." However, one year after September 11, and despite concerted efforts to freeze, confiscate, or disrupt Al-Qa'ida's extensive finances, these efforts have yielded little. The total amount of money frozen or confiscated is estimated at $10 million.[7]

II. Water Issues

Baghdad Seeks Agreement with Turkey and Syria on Water
Iraqi Minister of Irrigation Rasool Abd Al-Hussein Sawadi, said his country is still working through diplomatic channels to renew the tripartite water commission meetings comprising Turkey, Syria, and Iraq. Iraq accuses Turkey of building dams on the Euphrates which have sharply cut the flow of water downstream to Syria and Iraq for agriculture and drinking. Turkey withdrew from the tripartite commission years ago and has since refused to take part in its deliberations.[8]

Egypt: No Change in Agreements about Nile Basin
The Egyptian Minister of Water Resources and Irrigation, Dr. Mahmood Abu Zaid, said that the Nasser Lake [Aswan Dam] is full to the limit with 123 billion cu. maters of water. He said the agreements between the 10 riparian countries of the Nile basin have been observed although the construction of dams on the upper Nile would reduce the amount of water to Sudan and Egypt. He said the international financial institutions will not finance any project on the Nile basin that would adversely affect any of the riparian countries.([9] [Egypt is concerned about Ethiopia's intention to construct a large dam on its territory, and suspects Israel's involvement.]

Syria to Reduce Use of Water
The Syrian government has launched a campaign to reduce the use of water in agriculture. Due to traditional irrigation methods, Syrian agriculture uses 90% of Syria's water resources. In the case of wheat, if a modern system of irrigation through sprinklers is introduced, the yield will increase by 23% (an increase of 819,000 tons) while water use will be reduced by 43%, or the equivalent of 6.1 billion cu. meters. Likewise, using sprinklers on cotton fields on 250,000 hectares will increase the yield by 19% and reduce water use by 27%. The government will make loans on easy terms to farmers who shift to modern irrigation methods.[10]

Israel Commits to Buy Turkish Water
Israel has committed itself to carry out an agreement, signed two years earlier, to purchase 50 million cu. meters of water from Turkey for each of the next 20 years. The delay in the implementation of the original agreement was caused by the concern expressed by the Ministry of Finance that the cost of water would be too high. On the other hand, the Ministry of Foreign Affairs said the question of cost should be overlooked in favor of maintaining the excellent relations with Turkey.[11]

Jordan Announces a Plan for a Canal between the Red and Dead Seas
The Jordanian Minister of Water, Hazim Al-Naser, has decided to launch a plan, at the U.N. Summit for Sustainable Development held in Johannesburg, to construct a canal between the Red Sea and the Dead Sea to alleviate the decline of water in the Dead Sea caused by lesser water flows and by the heavy extraction of its mineral resources by both Israel and Jordan. In the last 40 years, the water level at the Dead Sea has increased from 392 meters (431 yards) to 412 meters (454 yards) below sea level. There remain, however, political, environmental and cost problems associated with the construction of the canal.[12]

The biggest critic of the project is Professor Dan Zaslavski, former water commissioner of Israel. Zaslavski argues that in addition to the high cost of the project, the transfer of Red Sea water into the Dead Sea will reduce the latter's salinity and subsequently its natural resources and health properties. It may also cause bad odors that would drive the tourists out the area.[13]

III. Country Economic News


Baghdad Confronts War with Trade Agreements
Under the above heading, Abd Al-Rahman Al-Rashed, the editor of the London-based Saudi daily Al-Hayat, writes that the Iraqi government has commenced its preparation against the pending American war with "unprecedented trade generosity." It includes an "imaginary" $40 billion with Russia and an unknown number of billions with Turkey. And there are countries queuing to sell their political support to Iraq.

Why does Iraq, asks Al-Rashed, apply this dollar policy against the largest army of the richest country in the world? It is a reflection, he says, of a simplistic thinking about a highly complex and dangerous issue. It would be much cheaper for the regime, insists Al-Rashed, if it were to adopt a policy of openness and transparency.[14]

In this connection, the Iraqi Vice-President, Taha Yaseen Ramadhan, has signed multiple agreements with Syria for establishing joint industrial enterprises worth $700 million.[15] Just a week earlier, Iraq announced its intention to sign similar bilateral agreements with Syria for $500 million.[16] [The figures on the volume of potential agreements between Iraq and other partners appear to be adjusted upward regularly without realistic consideration for resources available under the oil for food program.]

Iraq -- Principal Outlet for Jordanian Exports
Figures published recently by the Jordanian Ministry of Industry and Trade show that Iraq is Jordan's biggest trade partner. Jordanian exports to Iraq in the first half of 2002 have reached $181.3 million, or 19% of total Jordanian exports. At the same time, Jordanian imports from Iraq, mostly oil and oil products, have reached $311.7 million, or 14% of total Jordanian imports.

The total trade between the two countries in 2001 was $900 million which was ahead of the overall trade with the U.S. which amounted to $600 million.[17]

Saudi Arabia:

Saudi Arabia Builds a Second Strategic Oil Storage Facility
Saudi Arabia has recently completed the construction of its second strategic oil storage facility in the Jeddah area. The project, which is listed as enormous, required the excavation of 18 million cu. meters of earth, and the application of 7.1 million tons of concrete, 188,000 tons of steel, 8,100 kilometers (5062 miles) of pipelines and 5000 kilometers (3125 miles) of electric wires. The cost of the project was estimated at $3 billion with a storage capacity of 12 million barrels of oil. An earlier project was completed 3 years earlier in Riyadh.[18]

Europeans Ready to Finance a Campaign against U.S. Companies in Saudi Arabia
Eight European companies (British, French, and German) have informed their representatives in Saudi Arabia of their willingness to contribute 50% of the cost of a campaign against "Saudi addiction" to American fast foods, soft drinks and tobacco products. The total cost of the campaign, to last 5 years, would be 225 million Saudi riyal ($60 million). The campaign will take the form of ads in both written and visual media. The names of the companies were not divulged.[19]


Zamzam Cola Will Quench Thirst of Pilgrims to Mecca
The Iranian producer of Zamzam Cola [named after the holly fountain of Zamzam in Mecca] is seeking to replace Pepsi Cola and Coca Cola as the soft drink of choice for pilgrims to Mecca. The Iranian company produces 800 million liters yearly and exports its products to Saudi Arabia, Bahrain, Qatar, U.A.E. and Iraq. The company also produces 300 million bottles of "halal beer" [non-alcoholic], marketed exclusively in Iran.[20]

Iranian Unemployment Rises
The Iranian Ministry of Labor has reported that unemployment in the country has risen to a new record of 14.8%. The Minister of Labor, 'Ali Ya'qoubi, has predicted further deterioration as 5.5 million new job seekers will enter the job market in the nest 4 years.[21]

United Arab Emirates:

U.A.E. Introduces New Controls on Saudi Money Transfers
In the context of fighting money laundering, the central bank of the United Arab Emirates has introduced, at the request of Saudi Arabia, new control measures on the transfer of Saudi funds through U.A.E.[22]


Upgrading Three Regional Airports
Egypt will spend $75 million to upgrade the radar systems and other facilities in 3 regional airports—El Arish, Taba and Burj Al-Arab. This follows the upgrading of 4 other regional airports—Sharm al-Sheikh, Ghardaqa, Luxor and Aswan. [23]

Egyptian Poverty and Unemployment
The Egyptian federation of civil societies, taking part at the World Summit on Sustainable Development in Johannesburg, has submitted a report to the conference indicating that 38% of the Egyptian people live below the poverty line, including 4.7%, or 5 million people, who live on less than a half dollar per day. At the same time, the rate of unemployment has reached 25%.[24]


$25 Billion for 5-Year Investments
In an interview with the daily Al-Hayat, Syrian Minister of Industry, Dr. Issam Al-Za'im, said his government would provide $25 billion over the next 5 years for investments in both the public and private sectors, of which 14.6% would originate from external sources. More pointedly, the minister declared that "privatization will be set aside permanently because of security, economic and strategic considerations."

When asked about the implementation of the private banking law which has been touted in the Syrian press for a long time as the new symbol of economic liberalization, the minister said that law implementation requires "the preparation of legal, administrative, organizational and procedural framework" which requires a long time.[25] [In practice, Syria has opted to maintain an economic model which has led to stagnation, bureaucratization, corruption and waste.]

Syria Provides Jordan with Water
Syria has begun pumping 3 million cu. meters of water to Jordan over a period of 45 days to alleviate the latter's shortage of drinking water. The rate of pumping will be 700 liters per second. The water will flow from the Martyr Basil Al-Assad Dam to Abdallah Canal, located in the greater Amman vicinity.[26]


$385m. in Foreign Aid
Jordan received $385 million in foreign aid during the first half of 2002. The Ministry of Planning estimates total aid for 2002 at $668 million, an increase of 44.6% over the previous year total aid of $462 million.[27]


Chinese Company Constructs Oil and Gas Pipelines
The Chinese National Company for Petrol, the largest in China, has won a contract worth $230 million to construct a dual purpose oil/natural gas pipeline in Libya. The pipeline will be 520 km long (325 miles) and will connect the Wafa oil field in southern Libya to an area 50 km (31 miles) from the capital, Tripoli.[28]


External Debt Rises
The Bank of Israel (central bank) has announced that Israel's external debt has risen by $2.1 billion in the first 6 months of the year, reaching $66 billion, after a rise of only $500 million throughout 2001. The Israeli economy has been in a recession for two years due, in part, to the global economic slowdown which affected Israeli technology exports, and, in part, to the effects of the Intifada.[29]

Palestinian Authority:
According to a report issued by Terje Larsen, the U.N. Special Representative in West Bank/Gaza, the rate of unemployment among Palestinians reached 50% in 2002 because of closures which relegate between 600,000-900,000 Palestinians to their homes. The losses incurred by the Palestinian economy during the years of Intifada have reached $7.6 billion.[30] A report by UNRWA (United Nations Relief Agency for Palestinian refugees) estimates those living below the poverty line at 64% in the West Bank and 80% in Gaza.[31]

*Dr. Nimrod Raphaeli is Senior Analyst of MEMRI's Middle East Economic Studies Program.

[1]Al-Hayat, August 29, 2002.

[2]Al-Quds Al-Arabi, September 4, 2002.

[3]Al-Hayat, August 28, 2002.

[4]Al-Watan, September 5, 2002.

[5]Al-Hayat, August 30, 2002.

[6]Al-Sharq Al-Awsat, August 18, 2002.

[7]Al-Hayat, September 4, 2002.

[8]Al-Iqtisadi (Baghdad), September 4, 2002.

[9]Al-Sharq Al-Awsat, August 18, 2002.

[10]Teshreen, August 26, 2002.

[11]Al-Hayat, August 8, 2002.

[12]Al-Quds Al-Arabi, August 8, 2002.

[13]Al-Sharq Al-Awsat, August 30, 2002.

[14]Al-Sharq Al-Awsat, August 26, 2002.

[15]Al-Hayat, August 30, 2002.

[16]Al-Hayat, August 23, 2002.

[17]Al-Quds Al-Arabi, August 27, 2002.

[18]Al-Quds Al-Arabi, August 8, 2002, and Al-Hayat, August 29, 2002.

[19]Al-Quds Al-Arabi, August 29, 2002.

[20]Al-Quds Al-Arabi, August 27, 2002.

[21]Al-Hayat, August 30, 2002.

[22]Al-Sharq Al-Awsat, September 4, 2002.

[23]Al-Sharq Al-Awsat, August 27, 2002.

[24], August 28, 2002.

[25]Al-Hayat, September 1, 2002.

[26]Al-Quds Al-Arabi, August 29, 2002.

[27]Al-Sharq Al-Awsat, September 4, 2002.

[28]Al-Bayan (U.A.E.), August 23, 2002.

[29]Al-Sharq Al-Awsat, September 4, 2002.

[30]Al-Quds Al-Arabi, August 30, 2002.

[31]Al-Watan, August 27, 2002.

*Dr. Nimrod Raphaeli is Senior Analyst of MEMRI's Middle East Economic Studies Program.

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