I. Regional Economic News
U.S. Financial Institutions Seek Partnerships with Islamic Banks
Encouraged by the Bush Administration after 9/11, many American financial institutions are seeking to enter into partnerships with Islamic and Gulf banks which are suspected by the U.S. to be a channel of funneling illegal contributions to terrorist organizations. [1]
Saudi Arabia – Third Largest Source of Oil Imported by the U.S.
According to data released by the American Energy Administration, Saudi Arabia is now the third largest source of oil to United States, behind Mexico and Canada. During December 2001, the U.S. imported 1.53 million b/d from Saudi Arabia, or 17.7% of total U.S. oil imports. At the same time, oil imports from Iraq have increased by 35% from the previous month, reaching 1.13 million b/d in December. [2]
Oil Industry in the Gulf Requires Heavy Investments
The oil industry in the Gulf area will require $100 billion of investments in the next two decades to meet projected demand of 106 million b/d. This was the conclusion of a 2-day seminar held in Dubai with the participation of oil experts and the Royal Institute of International Affairs.
The investment can be self-generated provided that the price of oil can be maintained at about $25 per barrel, the large consumer countries limit their taxes on oil and do not revert to alternative sources of energy. [3]
Saudi Arabia and Norway Call for "Satisfactory" Oil Prices
Concluding two days of meetings in Riyadh, the ministers of oil of Saudi Arabia and Norway called for "satisfactory" oil prices, meaning that the price should remain largely in the $20 per barrel range ("not much over $20 and not much below $20 per barrel," according to the two ministers.)[4]
German Exports to Arab Countries Rise
German exports to the Arab countries have increased from DM12.7 billion to DM15.5 billion, or by 21.7%, in the first half of 2001 compared with the similar period a year earlier. At the same time, imports by Germany from Arab countries have declined from DM10.1 billion to DM9.3, or by 9.3%, for the same period. Two countries, Jordan and Egypt, which have signed a partnership agreement with the EU, have seen their exports to Germany increase by 101.2% and 15.6%, respectively. German exports to the Arab countries have seen an increase across the board except to Egypt, Morocco and West Bank/Gaza.
Primary commodities like oil, gas and cotton are the main Arab exports to Germany.[5] Trade between Jordan and Iran Rises Trade between Jordan and Iran reached $20 million in 2001, an increase of 32% over the previous year. These data were released at a meeting in Amman between Jordanian officials and a delegation of businessmen and representatives of Iranian companies taking part in the 6th annual exhibition of Iranian goods in Jordan. [6]
Joint Saudi-Iranian Committee Meets
The joint Saudi-Iranian Committee met in Tehran in early February to discuss the strengthening of their economic ties. In his opening statement, the Iranian Minister of Trade, Muhammad Shari'a Madari said the relations between the two countries could lead to stronger relations among Islamic countries. He said the common view of the leaders of the two countries toward the Palestinian issue and oil "embodies the harmony and closeness between the kingdom, Iran and the rest of the Islamic countries."[7]
Egypt and Iraq to Sign a Protocol on Scientific Collaboration
Meeting in Baghdad, representatives of the Egyptian and Iraqi Governments have agreed to sign a protocol which calls for collaboration between the two countries in the areas of scientific research, particularly in medical and pharmaceutical industries. [8]
II. Country Economic News
Serious Discrepancy in Egyptian Trade figures
Under the heading "Numbers Anarchy," Osama Gaith, underscores the difficulty of arriving at an appropriate economic policy in the absence of reliable economic data and economic indicators. A good illustration is the figures on Egyptian external trade which have been problematic for many years.
Based on available statistics from abroad, the discrepancy between Egyptian external trade figures available in Egypt and those available abroad is in the billions of Egyptian pounds. As an example, comparing the two sets of figures, provided by the EU and by Egypt, for the years 1996 to 2000, shows that, on average, Egyptian exports to EU are $1.5 billion greater in each of the 5 years than those recorded by the Egyptian authorities. It suggests that the revenues from exports are used to finance unrecorded imports or kept abroad. As for imports, the EU statistics indicates that Egypt has imported an average of more than $2.5 billion in each of the 5 years, 1996-2000, than the official Egyptian statistics on imports. It suggests that Egyptian importers present to the customs authorities false import invoices to reduce the custom duties and sales taxes levied by the Egyptian authorities.
The same situation applies to trade statistics with the United States. A comparison between Egyptian and U.S. figures suggest that, in reality, Egyptian exports to the U.S. are greater by 65% and Egyptian imports from the U.S. are 56% greater than those recorded by Egypt. When both cases are combined, Egypt trade deficits are far greater than are commonly recorded by the Egyptian statistics. [9]
Egypt: Experts Critical of Government's Forex Policy
Al-Ahram reports on a meeting of the Alexandria Businessmen Association held earlier this month. Former ministers of economy, central bankers, economic experts and businessmen "spoke without reserve their criticism of the government's failed exchange-rate endeavor, stressing that an immediate solution is critical to curb prices of basic commodities from sky-rocketing." The paper quotes Maha Abdal Latif, a housewife and mother of two who complained: "A month ago, one 15-piastre loaf was enough to make two sandwiches for [my] children. Today, it's three-quarters of its original size!"
Fa'iqa El-Rifa'i, former deputy governor of the Central Bank of Egypt (CBE) complained that "The forex (foreign exchange) regime remains unclear." She explained that the CBE has combined the adjustment of the central rate with an adjustment of the band within which the pound is allowed to move. In January 2001, the band was one per cent up or down. In August of the same year, it was increased to three per cent. Since January 2001, however, the CBE has modified the central rate six times, sometimes by only a few piasters and sometimes by LE0.50 (LE or livre Egyptien, the traditional, French designation of the Egyptian pound); an erroneous move in an attempt to stabilize the currency."
Mustafa El-Sa'id, a former minister of the economy warned that "Unless the deficit in the balance of payments is dealt with…the government will have difficulty repaying its loans."
Ali Negm, a former of official of CBE, said the import system is dysfunctional. He said that only 42% of import transactions take place through letters of credit (i.e., through banks and subject to monitoring) while 58% are completed through documentary collections (special deals between trading partners which allow payments outside the official banking channels, including the black market). To this, added Ms. El-Rifa'i: "Smuggling is draining our foreign reserves beyond our expectations." She thought a ban on imports will be ineffective unless smuggling is clamped down.[10]
The general impression emerging from the meeting was that the government was not up to the task of addressing the forex issue and, by extension, the balance of payments, effectively.
Aid to Egypt: New vs. Old Money
At the conclusion of the Consultative Group Meetings in Sharm-El-Sheikh during the first week of February, Faiza Abu Al-Naga, State Minister for Foreign Affairs as well as other Egyptian officials, announced that the donors have made new commitments of $2.1 billion to help Egypt overcome its balance of payments deficits in 2002.[11] The remaining $8.2 billion, out of the $10.3 billion of total commitments made at the donors' meeting, will finance projects over a 3-year period, 2002-2004. Abu Al-Naga expects, however, that Egypt would receive $4 billion in 2202 of the remaining $8.2 billion (which is one half rather than one third of that amount) bringing the total for the year, according to her, to $6 billion.[12]
Since then, there have been some cautious voices from the World Bank and from two major donors-- the EU and the United States about the "new" money. According to J-L Sarbib, the World Bank's Vice-President for the Middle East, the figures cited by the minister are only commitments and there is no guarantee they will materialize.[13] The representatives of the other two major donors, the EU and the U.S. have said that the new money is, after all, old money.
In an interview with Al-Ahram, Ian Boaga, European Commission Ambassador to Egypt, said the EU will avoid the old trick of re-committing money that was pledged before but it "will stress that there is existing money which still needs to be used." He gave the example of the Industrial Modernization Program to which the EU has committed E250 million but, until recently "nothing has come out of it." As for the future, the EU is looking at something in the range of a little over E300 million to be disbursed over three years. He discounted the possibility that the EU will pledge E1 billion.[14]
In a separate interview, Lori Foreman, Deputy Administrator of the US Agency for International Development (USAID) avoided the issue of "new" money. She said that the U.S. will contribute $1.9 billion toward the overall aid program to Egypt out of the $10 billion agreed upon at Sharm Al-Sheikh. American contribution will be committed over a period of 3 years and subject to congressional approval.
Ms. Foreman also emphasized that 40% of US assistance is channeled through civil societies to increase popular participation in aid programs [and perhaps reduce leakage to unauthorized activities.][15]
Egypt is not Argentina
A seminar on "Lessons from Argentina" was held in Cairo under the auspices of the Egyptian Center for Economic Studies. Most speakers dwelt on the differences between the two countries because of the following factors:
- Argentine currency was freely interchangeable with the dollar (complete dollarization) which denied the central bank of Argentina monetary flexibility. For example, the rise in the value of the dollar has impacted negatively on Argentine export competitiveness. The Egyptian currency was pegged to a target zone, permitting the central bank to adjust the zone, or the band, periodically.
- Argentine economy is entirely free. The Egyptian economy is open, but to a much lesser degree than Argentina, particularly with regards to imports and foreign direct investment.
- Argentine is a rich country with a surplus in its balance of trade. Egypt depends entirely on outside sources for its foreign exchange. [16]
Saddam May Torch Oil Wells, if Attacked
A former senior Iraqi petroleum official expressed his concerns that, if Saddam Hussein felt threatened, he will torch the oil wells in northern and southern Iraq as he did in Kuwait. Saddam's rationale is that the destruction of the Iraqi wells will deny the international market the flow of about 2 million b/d of Iraqi oil which will cause the price to rise sharply. In turn, this would invite pressures on the Bush Administration to cease hostilities.
Oil sources in London maintain, however, that OPEC has reduced its production in 2001 and 2002 by 3.5 million b/d and has the capacity, together with non-OPEC members, to fill the gap that would be created if Iraqi oil is temporarily withheld from the international oil market. [17]
Iraq Continues to Collect Commission on its Oil Exports
Western oil industry sources confirmed that Iraq continues to collect a commission on its oil sold in the framework of "Oil for Food" program. The U.S. and Britain have insisted in the past that the pricing of Iraqi oil should be determined two month ex-post to deny Iraq the opportunity to collect a commission. It is estimated that Iraq collected $14 million in commissions in January. This source of income is supplemented by the sale of 350,000 b/d of crude oil at discounted prices to Jordan, Syria and Turkey.[18]
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Related to this issue, 5 executive directors in the Iraqi ministry of Oil were arrested for rigging bids for oil with certain companies for personal gain. Similar arrests were made in the ministries of health and agriculture.[19]
Iraq will Build Electric Networks Underground
Brown outs in Baghdad, and more severely in the provinces, reflect the failure of the Iraqi Power Authority to maintain the system properly (partly due to the difficulty of purchasing generation equipment and spare parts within the framework of the "Oil for Food" program. Often, the disruption in power supply results from heavy rains and strong winds causing the distribution lines to severe.
The Iraqi Power Authority has announced its intention to build transmission and distribution lines underground. Observers doubt that the project is feasible now or in the immediate future.[20]
Iran: Nuclear Reactor Next Year
The Russian Ministry of Nuclear Energy announced that the nuclear reactor built for Iran will be delivered in 2003. It was also announced that $800 million, or 60% of the cost of constructing the nuclear site in Bushahar, has been spent. Russia will provide the fuel and train Iranians to operate the reactor. A second 1000 megawatt reactor is being built and will be delivered to Iran in 2005. [21]
Iran: Reformist Members of Majlis Criticize Threats against Gulf Oil
Twenty reformist members of the Majlis (Iranian parliament) criticized the threats issued by General Muhammad Baqir Dhu-Al-Qadar, the deputy commander of the Revolutionary Guards to burn all Gulf oil if Iran were to be attacked by the United States. The deputies demanded from the Ministers of Defense and Foreign Affairs to know if this was the official policy; if not, what disciplinary measures have been taken against the general. [22]
In response, the Iranian Minister of Defense, Ali Shamkhani, denied that Iran will threaten the Gulf oil.[23]
Creeping Poverty in Syria
The Syrian newspaper Teshreen reviewed a recent book, Whither Economic Reform in Syria? by Dr. Hussein Al-Qadhi, a Professor of Accounting at Damascus University. The central theme of the book review is that many segments of the Syrian society are growing poorer.
The author first addresses the situation of the government employees. Between 1980 and 2000 the purchasing power of the Syrian Lira, measured against its exchange rate vis-à-vis the dollar, had declined by approximately 90% whereas the government salaries have not compensated half of this loss. Personal income during the last 5 years has increased by a mere 2%. Disposable income has also declined in real terms which are, according to the author, "an indication of real and low creeping poverty of most of the population."
During the 1990's there was little investment in the dominant public sector. According to the author, throughout that decade three ginning factories were built with loans from Arab sources. Foreign direct investment (FDI) is almost non-existent in Syria since the Arab countries as a group attract a paltry 1% of all FDI annually. The problem is that some segments of the power elite treat the private sector with hostility and consider private property as an exploitation of public resources and a plunder of its wealth.
The author explains the current economic recession by the failure of the central bank to increase the level of circulated currency to a level compatible with the growth in GNP. While the GNP has increased by 44% between 1995 and 1999 in nominal terms, the amount of currency in circulation has increased by only 26%. If the surplus were to be invested the recession would have weakened. [24]
Syria: From Family to Capitalized Companies
The Tuesday Night Economic Forum in Damascus offers one of the rare opportunities for Syrian economists and intellectuals to present critical, often bold, ideas which attract a lot of attention in the government-controlled press.
The subject at the Forum on February 5 was "From the Family to the Establishment." In order for the family companies to be integrated into the private sector as capitalized companies, a number of conditions should be met. These include a comprehensive survey of existing plants, proper taxation policy, access to bank loans (including the introduction of private banks), review of social legislations to reach a balance between workers benefits and obligations, and developing a supporting infrastructure.[2]5
Syria Considers its Water Options
A specialized committee has estimated the Syrian needs for all uses of water in 2015 from the Euphrates River at 5.1 billion cubic meters. After considering the need for drinking water and for industrial use Syria would expect to draw from the Euphrates between 997 million cubic meters (low option) and 3.4 billion cubic meters (high option). In either case, Syria will have to modernize its traditional irrigation system which is considered wasteful.[26]
Saudi Arabia Imports 228 Tons of Gold
According to data provided by the World Gold Council, Saudi Arabia had imported a record quantity of gold -- 228 tons in 2001 with the biggest spurt registered after 9/11. Contributing to this spurt is the reduction of tariffs on gold from 12% to 5%.
The demand for gold has registered significant increases in UAE (100 tons) and Kuwait (30 tons). Egypt was another significant importer of gold with 120 tons. [27]
Lebanon Ends Exclusive Dealerships
The Lebanese Government has lifted its protection of exclusive dealerships in a move designed to end the monopoly of a privileged few and encourage competition. This measure has a significant impact on the import of oil and pharmaceuticals which have been restricted to a handful of firms under the exclusive dealership system.
The new policy is still subject to Parliament's ratification and will pave the way toward Lebanon's membership in the World Trade Organization. [28]
Jordan: Major financial Scandal
The Jordanian prime minister has referred to the State Security Court the case of Majd Al-Shamayleh who is accused of fraudulently obtaining 70 million Jordanian dinars ($100 million) from local banks. Al-Shmayleh, owns a computer firm, Global Business, which sells sensitive security equipments to the Jordanian Government. The firm has branches in Dubai, Libya and Uzbekistan. Other suspects involved in the case are Samih Al-Battikhi, the former head of the General Intelligence Department, Zuhair Zanuna, a former minister of agriculture and some senior officials of the 3 banks which made the loans to Al-Shmayleh.
The Jordanian Government has refused to disclose whether Al-Shmayleh was under arrest or has left the country. [29]
Israel: Decline in GDP
According to data issued by the Israeli Statistics Office, gross domestic product declined by 7% in the last quarter of 2001. The office also reported that export of goods and services in the second half of last year decline by 11% while investments declined by 14% during the same period.
Israel: Demographic Projections
An academic research, carried out by the Hebrew University, indicates that the Jewish population in "historical Palestine" will decline in 2020 below 50% of total population. By 2050, the ratio of Jewish population will decline further to 35%.
The ratio of Jewish population inside the green line is currently 78% and will decline to 73-76% in 2020 and to 65-69% in 2050.
The demographic expert who conducted the research, Professor Sergio de la Pergola, suggests that Jewish immigration, such as the 1 million Russian immigrants who came to Israel in the 1990s, will not alter the demographic balance. He proposes a complete separation between the Israelis and Palestinians and the creation of two states in historical Palestine with the concentration of the largest number of Jews in one of them.[30]
[1] Al-Hayat, February 13, 2002.
[2] Al-Hayat, February 20, 2002.
[5] Al-Sharq Al-Awsat, February 18, 2002.
[6] Al-Sharq Al-Awsat, February 15, 2002.
[7] Al-Sharq Al-Awsat, February 6, 2002.
[8] Al-Sharq Al-Awsat, February 19, 2002.
[9] Al-Ahram, February 16, 2002.
[10] Al-Ahram Weekly Online, February 14-20, 2002.
[11] Al-Ahram, February 9, 2002.
[12] Al-Hayat, February 15, 2002.
[13] Al-Quds Al-Arabi, February 15, 2002.
[14] Al-Ahram Weedly Online, February 14-20, 2002.
[15] Al-Ahram, February 15, 2002.
[16] Al-Ahram, February 21, 2002.
[17] Al-Hayat, February 20, 2002.
[18] Al-Hayat, February 14, 2002.
[19] Babil, February 19, 2002.
[20] Al-Sharq Al-Awsat, February 17, 2002.
[21] Babil, February 17, 2002.
[22] Al-Hayat, February 13, 2002.
[23] Babil, February 21, 2002.
[24] Teshreen, February 12, 2002.
[25] Teshreen, February 7, 2002.
[26] Al-Sharq Al-Awsat, February 21, 2002.
[27] Al-Hayat, February 16, 2002.
[28] Al-Safir (Beirut), February 15, 2002.
[29] Al-Hayat, February 16, 2002.
[30] Al-Hayat, February 14, 2002.
*Dr. Nimrod Raphaeli is Senior Analyst of MEMRI's Middle East Economic Studies Program.
