To Claim The Future
The companies of the Middle East must work together to be successful in the future.
The Countries of the Middle East face unprecedented challenges on the threshold of the new millennium. The pace of change in the global economy has never been faster, prompting the need for economic strategies to participate successfully in it .The past decade has seen the the region under-perform economically despite its former favourable record and underlying economics advantage of large oil and gas reserves.
In the 1970's early 1980's, the world was a less competitive place. it was an era of high oil prices, in a buoyant world economy, and industrialisation in the region was still in the easy start up stage, Strong oil prices allowed governments in the region to make generous transfers of wealth to large parts of their populations.It was also an Era of heavy public investment in infrastructure, state-led industrialisation, import substitution and limited use of foreign capital. But this huge investment in state owned enterprises and government bureaucracies, and the insulating of local companies against international competition, while effective at the time are not suitable for today's fast moving, information based, global market place.
Since 1986, oil prices have collapsed, productivity has deteriorated and real per capital incomes in oil exporting states has fallen by around four per cent a year. An indicator of just badly the region performs is in the global economy, comes from the WTO, whose figures show that total exports from the Middle East are US$163 billion, just 3.1 per cent of total world exports. Between 1990 and 1995 exports from the Middle East grew by only 1.5, per cent compared to a world average of 7.5 per cent. A World Bank report also shows that non-oil exports from the Middle East, (population 260 million) are less than Finland's, (population is five million).
The effects of the Asian crisis slowed the global economy in 1998, after collapsing the Russia's economy in 1997, they have now reached Latin America, causing Brazil to devalue its currency in January, further weakening the global economy as capital takes flight, depressing the largest economy in South America. To protect ourselves from this global economic conflagration there is an urgent need for some very hard thinking by Governments, businesses and individuals in this region about what policies to pursue if we are to assure the financial well being of our country and our region for the future.
On current forecasts from the World Bank growth may average around three per cent over the next decade, even so it will still be the lowest in the world. This predicted growth rate will depend on three conditions: firmer oil prices, structural change, and an absence of conflict in the region. In order to achieve sustained growth in the next few years, Middle East countries must implement structural changes in terms of privatisation, reduction of government subsidies and more transparency and accountability by banks, state owned enterprises and private companies, to off-set a continued weakening of oil prices due to the fragility of the global economy.
In terms of privatisation there has been some ground breaking reform by Saudi Arabia with the establishment of Saudi Telecommunications Company (STC) but progress towards privatisation is expected to be slow, although Oman has started to embrace private investment in its infrastructure by selling stakes in the telephone and electricity sectors, and Qatar announced a privatisation programme with the sale of 45 per cent of the state's stake in its sole telecommunications provider, Qatat Public Telecommunications Corporation (Q-Tel).
Here in the United Arab Emirates while the slump in oil prices has affected the economy which still relies heavily on oil and gas revenues we have so far been able to ride out the weakness in the oil markets because of the strength of our overseas reserves and the strength of our non-oil trade. However if oil prices fail to strengthen in the short term, harder times may be ahead for our economy perhaps pushing it to contract after a four year growth cycle. and should the price slump further it will put our economys ability to expand when our neighbours are in recession to the test.
To continue the successful development of our country and the region as a whole we must realise that to compete and be successful in a world economy that has signed up to the principles of trade as outlined in the WTO accords, we must, bury our local differences and embrace inter-regional trade integration, and greater economic co-operation. This is the only way we will be able to compete in a world where large trading block are being established to enhance and protect trade for countries who have perceived common interests ,such as the European Community (EU) and North American Free Trade Alliance (NAFTA). Although we have established the Gulf Co-operation Council, it has to date be largely ineffective in promoting Intra-regional Arab trade which comprises only five per cent of total trade as most oil markets are outside the region, however take oil out of the equation and intra - regional trade of non-oil exports becomes 20 per cent of total non-oil trade. although this proportion is the same in other trading regions (such as ASEAN), the volume of intra-regional exports is low, merely US$8 billion. But have been growing faster than global non -oil exports.
There is a wide variation in the level of intra-regional trade in non-oil exports among individual states, according to the World Bank, the UAE, Syria, Lebanon, Saudi Arabia , Jordon, Libya and the Yemen, the level is between 30 per cent and 45 per cent while countries like Egypt Bahrain, Oman Qatar and Kuwait have levels between 14per cent and 24 per cent In the Maghreb (Morocco, Tunsia and Algeria) the proportion is less than five per cent as they mainly trade with countries in Europe.
The recent EuroMed initiative an agreement between the EU and some Arab states(including Tunsia, Morocco Jordon and Syria, with Algeria Egypt and the Lebanon to follow) which provides for the abolition of tariffs on industrial goods over 12 years makes the development of free trade between Arab states vital as the EuroMed intuitive means that preferential treatment will be given to European countries in some Arab countries before it is extended to other Arab states in the region.
There is an urgent need for a Arab free trade agreement to compliment the EuroMed initiative which is highlighted by the fact that investors can locate in Europe to gain market share in Arab countries, whose markets would be flooded by European exports, this is known as the hub and spokes' phenomenon. To ensure that capital does not flow out of Arab countries to a European hub' there must be a free trade agreement in place that would encourage investment not only in the European hub' but also the Arab spokes as well. Otherwise given the strength of European multi-national companies who have the resources to freeze out the local competition the agreement could prove disastrous for countries in the Region.
While 18 members of the Arab League signed the Executive Programme for Arab Free Trade in 1997 that aims for a reduction in tariffs at ten per cent a year, and their elimination by 20008. But the agreement comes with a long list of exemptions that may make it meaningless. what is needed is a free trade agreement that addresses issues other than tariff reductions. other areas that need to be addressed are;non tariff barriers, import licensing, customs procedures and prohibitive transportation costs that have all contributed to slowing the growth in combined market size of Arab states.
The viability of trade liberalisation is dependant on other factors too, including the financing of adequate physical and social infrastructure, a transparent regulatory environment, and improved telecommunications which encourages competitiveness that in turn attracts investment. Trade liberalisation treaties require greater input from domestic and foreign capital which in turn need regionally uniform investment laws and regulations, the introduction of transparent and accessible accounting and taxation treatment, appropriate mechanisms for the settlement of disputes and a regionally applicable market oriented legal and regulatory system. When there is progress in these spheres more capital is likely to flow into the region, which has been bypassed by the increase in overseas investment seen globally this decade.
To achieve a viable future for ourselves as independent states and preserve our cohesive regional identity in the global economy we must face up to the fact that to achieve this aim that there must be some transfer of sovereignty from individual governments to a regional body as has happened in Europe with the establishment of the EU. This would give us more collective influence in other bodies such as the WTO, and we would be able to confidently negotiate diplomatic, economic and trade issues with other regions and countries around the globe, and ensure that our voice is heard and listened to in the Security Council when issues such as the establishment of a Plastinian homeland and the implementation of UN resolutions on the West Bank and Jerusalem are discussed.
The Short Term obstacles to achieving a unified trading block may at first seem insurmountable, but harsh economic realities and broad philosophical change have provided the impetus for reform. The gradualist strategies of the past may mean no growth in the future if new policies lack credibility or are half hearted or stop-go approaches to reform, they will be a sure way to lose credibility. we must succeed as our region's population (according to World Bank figures) is growing at 2.7 per cent a year and the labour force by 3.3% means that jobs for 47 million new entrants to the labour force will have to be found by 2010. so economic reform is fundimental necessity what ever the costs in the short run as without it Arab countries in the region may become increasingly unstable as a significant proportion of their populations cannot find the means to support themselves or a family.