Middle East Economic Review

I. Regional News

Syria Receives Record Iraqi Oil
International petroleum sources have revealed to the London-based Al-Hayat newspaper that the Iraqi oil exports to Syria in February will reach a record of 253,000 b/d. Syria has assured Western diplomats that it would not violate UN decisions on sanctions and that the oil it receives from Iraq was a gift for local consumption, freeing her own oil for export.

Al-Hayat quotes Energy Intelligence Briefing to the effect that the Syrian exports in February would reach 465,000 b/d from its own production. However, Syrian export capacity from local production would have been 212,000 b/d based on a local production of 506,000 b/d and a local consumption of 294,000 b/d. Based on its oil shipments abroad, Syria stands to export 405,000 b/d, suggesting that it was receiving Iraqi oil daily through the Karkuk-Banias pipeline.

The Syrian representative at the UN Sanctions Commission has assured Britain this month that his country has agreed with Iraq on the construction of a new pipeline and that the revenues from the pipeline will be subjected to the UN sanctions regime.[1] [Neither Syria nor Iraq has revealed how much Iraqi oil is flowing daily to Syria, how much of it is "a gift" and how much is sold to benefit the Iraqi regime outside the framework of the UN Sanctions regime.]

Yamani Predicts Collapse of Gulf Oil Prices
Ahmad Zaki Yamani, the former oil minister in Saudi Arabia, predicted, in a speech in Cairo that the strategic importance of the gulf oil will diminish after the U.S. has established its control over the Caspian Sea oil. He expressed his regret that the Arab support for the United States in the war in Afghanistan would put an end to the importance of Arab oil.

Yamani discarded the possibility of using oil by Arab countries as a political weapon because many of the oil producing countries are suffering from declining revenues to the extent that they will not be able, in the case of oil embargo, to pay the salaries of civil servants. He concluded that the Arab nation would have to meet two conditions to be counted: first, to strengthen science and technology and build human resources; and, the second, to introduce democracy and construct a free Arab man: "We do not want formal democracy…we want freedom of speech and protection of human rights…The rulers will oppose democracy with all their powers and the U.S. and Europe will stand together against such a transformation."[2] [Yamani’s premise is that the West prefers non-democratic to democratic oil-producing regimes.]

Russia’s Oil Policy Threatens a New Crisis with OPEC
The Russian Prime Minister Mikhail Kasyanov declared at the (Davos) Economic Forum held recently in New York that Russia intends to "strengthen her presence" in the world energy markets and that, for the long term, it has made no commitment either toward "the oil cartel or the Arab oil producers." The expectation is that Russia would renew its exports above the ceiling arrived at between it and OPEC last December. This change in policy would "restart the nerve war between Moscow and OPEC."[3]

Natural Gas Exporting Countries Meet
Twelve of the largest natural gas exporting countries met in Algeria in early February. The countries have reserves of 100 trillion cubic meters of gas, or two thirds of confirmed reserves. The meeting was convened at Egypt’s initiative to consider the possibility of creating an organization similar to the OPEC cartel. The participants agreed to appoint a committee of specialists from member countries to consider a new pricing regime for natural gas which will be delinked from oil.

There has been a tremendous demand for gas because of environmental and pricing reasons. It was recognized at the meeting that the supply of gas is growing as fast as the demand, and no shortages are expected.[4] According to study made by the Wood McKenzie Foundation in Scotland the consumption of gas will grow rapidly and reach approximately 4.8 trillion cubic meters annually by 2030.[5]

The Gas Forum was created by Iran in May 2001. Two of its founding members, Norway and Turkmenistan have since withdrawn. The remaining founding members are Iran, Algeria, Indonesia, Brunei, Russia, Qatar, Oman, Nigeria and Malaysia. Four new members have joined recently: Bolivia, Egypt, Libya and Venezuela.[6]

Syria Removes Intermediaries in Trade with Iraq
The Syrian Ministry of Industry, in collaboration with the Chamber of Industry, has decided to reorganize Syrian exports to Iraq by going directly to the local market, thereby eliminating the role of and the intermediaries [brokers and commercial agents.] A large delegation, headed by the Syrian Minister of Industry Issam Al-Za’im, was visiting Baghdad in early February to evaluate the needs of the Iraqi markets. It is expected that Syrian exports to Iraq will reach $3 billion in 2002.

In turn, Iraq will display its products at the Damascus International Fair. These include spare parts for cars and some electric products as well as carpets, dates, and handicrafts.[7]

Iraq and Iran Connect by Air
Iran and Iraq have signed an agreement calling for 4 weekly flights between the two countries. The two parties have also announced their willingness to construct special installations for ports and provide training services. Finally, they have agreed to undertake a feasibility study on connecting the two countries by rail.[8]

II. Country News

Egypt: Consultative Group Meetings
The World Bank-sponsored consultative group (CG) for Egypt met in Sharm-Al-Sheikh on February 5-6 to review Egypt’s economic performance and financial needs for the coming year. Thirty five donor countries and international agencies took part in the meetings. Egypt obtained most of what it requested in terms of financial support. Perhaps the political motivation of the donor community was best and succinctly expressed by the chairman of the meetings, Jean-Louis Sarbib, the Vice President for the Middle East and North Africa in the World Bank. At the conclusion of the meetings he told his Egyptian audience: "You live in a tough neighborhood and the efforts of Egypt to bring peace in the region will definitely have an immediate impact on attracting investors."[9]

In his opening statement, Egyptian Prime Minister Atef Obeid listed five programs that would respond to future challenges:

• Increasing the growth rates of the economy and addressing the population problem through health care (euphemism for population planning) in the rural areas.
• Finding 700,000 job opportunities in the business sector and making micro loans to projects initiated by graduating students.
• Renovating and activating 5000 centers for vocational training.
• Protecting the environment and financing small environmental projects.
• Addressing the problems of poverty through improvements in the education sector.

The prime minister also confirmed Egypt’s commitment to open markets, liberalization of trade, fiscal and monetary reforms and an improved environment for foreign private investments. He emphasized Egypt’s commitment to meeting its foreign obligations by servicing its loans in a timely fashion. In the meantime, the prime minister projected the GDP to contract 4-4.5%, the number of jobs to decline by 370,000 and the foreign reserve also to decline by $2.2 billion.

At the end of the two-day meetings, members of the CG committed $10.3 billion for 3 years, 2002 to 2004, including $2.1 billion to be disbursed quickly in 2002. In return, Egypt has agreed to take a number of economic measures to create the environment for restoring the economy on a growth path as well as a package of policies intended to encourage investments, increase the competitiveness of the Egyptian economy, diversify the sources of revenue and improve the environment, the educational system and health care. It was also revealed that Egypt has committed itself to carry out a comprehensive structural reform program for improving the management of the economy, regulating the foreign exchange policy and maintaining the independence of the central bank and adopting a fiscal policy that would ensure price stability. Egypt has also agreed to issue a package of legislations concerning money laundering, the ratification of the partnership agreement of the European Union and adherence to the communications agreement signed within the framework of its membership at the World Trade Organization. Finally, Egypt has agreed to expedite its privatization program.

It is noteworthy that most of the commitments that Egypt has taken upon itself to receive the aid package it badly needs appeared in the London-based Al-Sharq Al-Awsat. By contrast, the official daily Al-Ahram, limited the news to highlighting the praise for the Egyptian economic performance uttered by the speakers but none of the commitments Egypt has undertaken to be eligible for aid.[10]

Whether aid-motivated or not, shortly after the conclusion of the donors' meeting, the Court of Cessation (the highest appeals court in Egypt) granted Dr. Ibrahim Sa'adin, head of the Ibn-Khaldoun Center in Cairo and his twenty eight colleagues, a retrial.

On the eve of the meeting, President Mubarak stressed that the economic problems in his country do not compare with those of either Turkey or Argentine. Judging by the statements and interviews made by the major donors before, during and after the CG meeting, Egypt has no reason to fear that it would be let down by its major donors.[11]

Egypt: Concerns about Liberalization of Imports
As a member of the World Trade Organization, Egypt will soon have to open its markets to imports with lower tariffs and fewer restrictions. Sabri Al-Shabrawi, Professor of Management and Marketing and a key figure in the National Democratic Party is concerned about the impact of liberalized trade policy on Egyptian industry. The industry, he fears, is not ready for competition from outside "because of the lame policies we have been following since the 1960s." He goes on to say that "protected industries eventually grow sick and incapable of competition." In the 1960s, the government dictated a "closed-door" policy that allowed a few national companies to monopolize some industries which then failed to develop. In the 1970’s and 1980’s the government liberalized imports and the Egyptian consumer preferred them over locally-manufactured products and, adds Professor Al-Shabrawi, "We have not been able to overcome this phenomenon."

With a trade deficit in excess of $13 billion last year, the government is facing a difficult situation. In the words of Mustafa Wali, the general manager of the Federation of Egyptian Industries, "Egypt is nowhere close to being able to compete on the open market. We do not manufacture cars, trains, planes, or electronics. We buy wheat, steel and intermediate materials. We lack professional labor, marketing skills, technology, long term planning. We are stuck."[12]

Silicon Valley, Silicon Pyramid
Egypt is seeking to develop its hi-tech industry. Thus, Yasmine Al-Rashid, writing in Al-Ahram weekly, says: "New York, Los Angeles, and India have all claimed places for themselves as silicon-something’s of the world. Now, Egypt is trying to claim its own snippet of the scene too."[13]

Japan Extends Assistance to Civilianize Latkia Port in Syria
A Japanese delegation is due in Damascus soon to negotiate the legal framework for Japanese assistance estimated at Y9 billion ($70 million) for the civilianization of the Latkia port. Japan is seeking official commitment that the port will not be used for military purposes.

Japan will also consider a request from Syria for assistance to alleviate water shortages in Damascus during the summer. The water project will cost $250 million.[14]

Syria Seeks to Protect its Currency Fearing a spillover from Egypt and having witnessed a decline in its national currency against the US dollar in recent weeks, Syria has taken measures to prevent its currency from a precipitous fall. The decline of the Syrian lira against the dollar is attributed to seasonal demand by Syrians going to Hajj in Saudi Arabia, and the travel of businessmen to Lebanon in connection with the free trade agreement between the two countries.[15] [One would assume that the Lebanese would prefer dollars over Syrian liras.]

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Iran: Severe Unemployment
Speaking at a seminar "The National Plan for Attaining a Sustained Exports Regime," Deputy Minister of Commerce Mohsen Bahrami said that "the government faces a serious challenge in tackling unemployment."

Available data indicate that about 3.5 million people of the active population—between 15 to 64 years old—are currently unemployed. At least 5.5 million high school graduates would enter the job market within the next four years to increase the rate of unemployment to 24%. The Statistics Office also shows that one out of every 10 jobless Iranians holds a university degree, 29.6% are high school graduates and 40.8% hold primary school certificates and 6.9% are illiterate. About 76% of the unemployed are classified as unskilled laborers. The figures indicate that the educational curricula do not correspond with the needs of the community.[16]

Algeria to Build a New Economic City
Algeria has begun the construction of an economic city at a cost of $10 billion. The city will be located 100 kilometers (63 miles) from the capital Algiers. It will be built on hills, 2600 feet over sea level and will take 10-15 years to complete. No decision has been taken whether to make the new city an economic as well as a political capital (like Brasilia and Abuja, Nigeria) because this will require the construction of parliament and ministries.

Algeria is facing a serious population problem. In 1956, Algeria had a population of 7.5 million with only 8% urban. Since then, the population has more than quadrupled with 70% of it urbanized. The new city will relieve the pressure on Algiers, the current capital.

Belgium has offered an initial assistance of 400-500 million euros while Spanish companies have offered investments of 400-800 euros. The Algerian government has earmarked $300 million for the initial phase of the project.[17]

Russia and China Explore Oil in Iraq
A Russian oil company has signed a contract with North Iraq Oil Company to explore oil in 45 locations in Karkuk, in the north. At the same time, a Chinese company has signed a contract to explore oil in 5 locations in Basra, in the south. Both foreign companies have obtained UN approval to start the explorations.[18]

Twenty Hour a Day of Brown Outs in a Frank Interview with Iraq Energy Authorities
The Iraqi weekly Al-Iqtisadi (the Economist), which belongs to the publishing business of Uday Saddam Hussein, conducted a frank, even a blunt, interview with the head of the Electric Power Authority and Minister of Electricity, Sahban Faisal Mahjoub, about the long brown outs in Iraq. Some of the brown outs last as long as 20 hours daily. The Minister argued that the brown outs are caused by the damage inflicted on the electric grids during the Gulf war. There are currently 155 contracts, valued at $1.7 billion, pending before the UN Sanctions Commission.[19]

In this connection, it was announced that Russia will build a large power station in southern Iraq, destroyed during the Gulf war.[20]

U.S. Customs Raid Iraqi-Connected Financial Company
U.S. Customs Agency raided "Shafi’i Family Connect," a Seattle-based company accused of transferring money to Iraq via Jordanian banks. The company has transferred a total of $14.6 million but the U.S. refused to indicate what share of this amount was intended for Iraq.

In 1999 President Bill Clinton issued an executive order forbidding Americans to transfer money to Iraq, directly or indirectly.[21]

IMF Approves Big Loan to Turkey
The International Monetary Fund approved a $16 billion loan to Turkey, the third in the last two years. With this loan, Turkey has become the largest IMF borrower with total outstanding loans of $31 billion, $9 billion higher than the outstanding loans to Argentina. The IMF announced that Turkey may withdraw $9 billion immediately, and indeed it has.

Commenting on the loan, Turkey’s Minister of the Economy (and former vice president of the World Bank Kemal Dervis) said that "Turkey has emerged from the intensive care unit and we are starting a new beginning."[22]

IMF Does not Endorse Lebanese Economic Reform Plan
The International Monetary Fund has declined to endorse the proposed Lebanese economic reform plan because the international community considers Lebanon not capable of carrying out serious reforms. Lebanon pleaded that some of the changes demanded by the donor community, such as collecting taxes and reducing expenditures and devaluating the currency are difficult to implement and could even cause "bigger problems."

In the absence of the IMF endorsement, Lebanon cannot get help from the Paris Club [an informal organization of major donors] to reschedule its foreign debt.

Qatar to Become a Major Exporter of Natural Gas
Qatar appears to have the third largest amount of natural gas reserves in the world, behind Iran and Russia. The Qatari Minister of Energy, Abdallah Hamad Al-Atiyya said his country’s exports of natural gas has reached 13 million tons annually, from a zero base five years ago. Given the enormous investments Qatar has made in its development natural gas export will reach 30 million tons in the next 10 years.[23]

Jordan Seeks to Reschedule its Debt
Jordan is seeking to reschedule its foreign debt of $7 billion and obtain help for its development program which aims at reducing the high rate of unemployment and the budget deficit of $600 million. Currently, Jordan earmarks one quarter of its budget, or $770 million, annually to service its foreign debt.

Most of the outstanding debt is held by European countries and Japan. The U.S. had cancelled its outstanding debt with Jordan when the latter signed the peace agreement with Israel in 1994. U.S. annual foreign aid to Jordan is $175 million.[24]

Jordanian Exports to Israel
Jordanian exports to Israel in the first 9 months of the year have reached $77 million, a decline of 8% from the volume of exports for the same period a year earlier. However, the total trade for 2001 would equal that of the earlier year. The volume of Jordanian exports to Israel has grown from a modest start of less than $3 million in 1994 when the peace agreement between the two countries was signed. By contrast, Israeli exports to Jordan appear to be negligible.

Jordan believes that its exports could increase much faster if Israel were to remove the restrictions on trade between Jordan and the Palestinian Authority.[25]

Israel Concerned About New Trade Restrictions by the EU
Israeli Foreign Ministry circulated a note expressing its concerns about the new restrictions imposed by the Italian customs on Israeli products originating from the Settlements. Although such exports represent 0.5% of total Israeli exports, the Italian measures may spillover to Israeli exports to Italy and other European countries.

The European Commission recently issued a circular to importers in member countries warning them that they may face future retroactive duties on products made in the Settlements.[26] [The EU does not consider the occupied territories in the West Bank and Gaza as part of Israel, and consequently holds that goods manufactured there should not enjoy preferential access granted by Israel’s Association Agreement with the EU. For this reason that Britain’s two major department stores, Harrods and Selfridges, have recently removed from their shelves goods manufactured outside the boundaries of Israel proper.]

In an interview with the Egyptian newspaper Al-Ahram, Catherine Day, the head of the European Union delegation to the CG meetings in Sharm-Al-Sheikh, said that given the Intifada and the destruction of major projects financed by the EU, the latter will now focus on providing direct budget subsidies to the Palestinian National Authority. In answer to a question by the Egyptian reporter about the possibility of asking Israel to reimburse the EU for the destruction of projects financed by the Union, Ms. Day replied that "what was destroyed does not belong to us but belongs to the Palestinian Authority which is the one that should ask for compensation." In a reply to another question regarding France’s demand that it be compensated by Israel for the destruction of projects financed by France, Ms. Day said that "the fact of the matter is that these projects were financed by the European Union and from some European countries separately. Some countries are arguing with Israel about compensation but this has not been the policy of the European Union."[27]

Sweden will Increase Financial Support to PA
The Swedish Ministry of Foreign Affairs announced that it will increase the aid to the Palestinian authority from Kr.140 million ($13.2 million) to Kr. 164 million ($15.4 million,) as a reaffirmation of its support of Chairman Arafat who has come under severe criticism by Israel and the United States.[28]

Kebab and Pizza Restaurants –A New Islamist Activity in Britain
Some of the terrorist suspects arrested in Britain manage kebab and pizza restaurants, and the question is whether the Islamists have turned their attention to this line of business to finance activities involving themselves and other Islamist activities around the world.[29] [No information was provided on the numbers of restaurants involved and who owned them.]