6 - 12 September 2001
Issue No.550
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Al-Ahram Weekly Online 6 - 12 September 2001 Issue No.550 |
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Facing adversity
With the Euromoney conference scheduled to begin next week, Sherine Abdel-Razek investigates the measures Arab economies are taking to face the global economic slowdown and the impact of escalating regional tensions
The global economic downturn has put a damper on foreign investment -- a trend that is especially acute in emerging markets, and within this group, Arab economies have also had to contend with escalating tension in the political arena. According to a report issued by the International Institute of Finance, Arab countries are expected to attract around $13.1 billion in private capital inflows this year, and a further $14.7 billion next year. However, Arab economies' share of total capital inflows to emerging markets remains below 9.2 per cent and is expected to drop to 7.6 per cent next year.
Net equity investment in the Arab region (including direct and portfolio investment) is forecast to rise by 6.3 per cent this year to $10.1 billion from $9.5 billion in 2000.
Foreign direct investment (FDI) to Arab countries is expected to increase by almost 5.5 per cent this year to $9.5 billion with the bulk going to gas projects in the Gulf states and Egypt.
With eight international oil companies for gas development, Saudi Arabia has given a clear welcome signal to interested foreign investors. Under a 20-year agreement with these companies, Saudi Arabia is expected to receive approximately $25 billion of investments to the gas sector along with additional billions for related investments.
Egypt, too, is attracting foreign interest in its natural gas, having received about one billion dollars of investment in this sector during the past year.
The International Institute of Finance's report noted that additional investment is expected to pour into other regional economies that are currently adopting reform and liberalisation programmes. Privatisation and increasing the role of the private sector are strategies common to these programmes. But they also share a shortcoming in their focus, albeit to varying degrees, on reducing budget deficits.
Saudi Arabia, which is the biggest economy in the region, with a gross domestic product (GDP) of $173 billion, has just launched a five-year programme aimed at attracting investment and creating jobs. The Saudi programme includes legislative restructuring to open its capital market to increased foreign participation and giving the green light to private brokerage houses to operate in the local capital market.
Meanwhile Lebanon, a smaller economy still rebuilding years after its civil war ended, is trying hard to lower its highest public deficit of 150 per cent of GDP by encouraging foreign trade through lowering custom duties, introducing a new value added tax and gearing up its privatisation programme by offering stakes in its utilities for privatisation.
The International Monetary Fund (IMF) has expressed guarded optimism about the Lebanese economy, noting that it has achieved tangible results in reducing its debt. The report projected Lebanon's GDP growth at 1.5 per cent in 2001 and 4.5 per cent in the next few years, as against zero economic growth in 2000.
Lebanon is also tapping the international markets with eurobonds, having issued bonds worth $1.5 billion in April and with plans for another issue before the year is over.
Obtaining funds through eurobonds is a strategy being pursued by Egypt and Qatar as well. In July Egypt, had its debut sovereign bond issue with an offering worth $500 million. Qatar preceded both Egypt and Lebanon with its two eurobond issues earlier this year worth a total of $2 billion.
Recourse to international markets pushed the three economies to be more transparent and thus vulnerable to the assessments of international financial institutions and rating companies.
The Intifada has pushed the fledging Palestinian economy into a critical situation. The United Nations estimated the number of workers who lost their jobs due to the closure of the occupied territories at 250,000 people -- about 38 per cent of the overall work force. This in turn has increased the incidence of poverty in the territories, where the World Bank estimates there are about one million people living under the poverty line of $2 per day. Syria and Jordan are facing the effects of the Intifada with economic planning. Syria has put a new five year reform programme ahead of its privatisation plans. It is focusing on increasing public investment and encourage private investments towards stimulating growth. This plan aims at increasing investment from 18.2 per cent of GDP in 2000 to 26 per cent in 2003.
As for the Jordanian economy, which is grappling with a budget deficit of 7.4 per cent of its GDP and a high foreign debt, it boasts record high foreign reserves at $2.7 billion and is making progress in reducing its budget deficit. The country was the first Arab country to sign a free trade agreement with the US last November.
Trade with Europe appears set to rise as four countries in the region, namely, Egypt, Tunisia, Morocco and the Palestinian Authority have signed partnership agreements with the European Union (EU). Jordan is already proceeding to the implementation phase of a similar agreement while Brussels is in negotiations with Algeria, Syria and Lebanon.
The free trade zone agreement between the Gulf Cooperation Council (GCC) and the EU countries was put on a hold despite 11 years of arduous negotiations. Although the GCC countries are urging the EU to sign the agreement in March 2005, EU commission representatives say there is no time-frame for a partnership given the manifold changes to the economies of the two sides since discussions began concerning such an agreement.
Thorny political issues such as human rights, together with the restrictions imposed by the EU on GCC exports, most importantly on oil, appear set to keep the two sides from coming together.
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