More Talk of Arab Economic Reform
Two years on, the events of 9/11 still throw their shadow on the eighth Euromoney Arab Financial Forum. Niveen Wahish reports
Two years ago, the seventh Euromoney Arab Financial Forum was in the middle of its convention when news came of the terrorist attacks on New York and Washington. Many of the speakers at the eighth Euromoney Arab Financial Forum last week raised the theme of the changes that have shaken the world since 11 September 2001. The global political and economic order has been profoundly affected, particularly in the Middle East and North Africa (MENA) region, a reality that was reflected in the discourse throughout the two-day conference.
Richard Ensor, managing director of Euromoney Institutional Investor PLC, the organisers of the conference, told Al-Ahram Weekly that the most striking aspect of this year's conference is how open and frank most speakers are, particularly those speaking about the public sector and the government's economic role in general. "People are much more outspoken and much more prepared to suggest radical ways of doing things, and they are more critical."
"Opportunities in a time of change" was the theme of the conference, which tackled the region's financial sector issues within the framework of the region's macro economy and the broader framework of politics. Speakers dealt with issues stemming from economic and political liberalisation such as media bias in presenting the Arab world, as well of questions regarding the US and Arab roles in Iraqi reconstruction and foreign investment.
One of the key points made by several speakers is the importance of peace and stability for the prosperity of the region. As Prime Minister Atef Ebeid said during the conference's inaugural speech, the continuation or escalation of the present confrontations in Israel/Palestine and in Iraq could undermine any efforts towards reforming and liberalising the economies of the Middle East. This conference, usually an annual event, was cancelled last year due to the turmoil in the region and security concerns.
Mustafa El-Feki, chairman of the People's Assembly's foreign affairs committee also stressed that a just and lasting peace is the key for opening the floodgates for badly needed foreign capital. "We cannot afford more poverty or unemployment," he underlined.
One of the issues that came up during the conference is that of an Arab free trade area. Ahmed Galal, executive director of the Egyptian Centre for Economic Studies (ECES) described the notion as "more hope than reality". An agreement was signed in 1998, whereby tariffs on merchandise would be gradually dismantled between 14 Arab countries, to be completely eliminated by 2005. But as Marwan Hamde, Lebanese minister of economy and trade lamented that "non- tariff barriers are being erected where tariff barriers are taken down". Inter-Arab trade currently accounts for only eight per cent of the total foreign trade of Arab countries.
Another setback in the agreement, said Ahmed Galal of ECES, is the fact that signatory Arab countries wrote in lengthy lists of products that are exempt of the tariff reduction, so even if the agreement was fully implemented it would hardly amount to a free trade zone. According to Galal, the treaty is also flawed in that it does not expand cooperation between Arab countries in respects other than tariffs applied to goods. For example, it does not attempt to tackle issues such as services, rules of origin or investment flows between Arab countries. Currently, Arab countries lack the institutions, such as those put in place by the EU, that would see to the effective implementation of the agreement.
Inter-Arab trade was not the only topic addressed. The conference also examined the unusually modest foreign investments in the region. Mukhtar Hussein, CEO of investment banking and markets for the MENA region of HSBC Financial Services, cited a series of disheartening figures found in the 2001 UNDP Human Development Report. The figures reveal that Foreign Direct Investment (FDI) flows into the region are estimated at $4 billion, only 1.9 per cent of total flows into developing countries and 0.4 per cent of total global flows. He also referred to a UN study which showed that FDI as a percentage of GDP stood at 0.83 per cent for Arab countries, compared to 1.5 per cent for developing countries globally.
Moreover, Hussein said, much of the region's capital continues to leave the region. To catalyse investment in the region, he suggested that the region's governments be encouraged to issue sovereign bonds. This "raises the international investment profile", and provides "the pricing benchmark for the corporate and banking issuers stimulating further development in these sectors".
Mukhtar also pointed out that the establishment of domestic bond and equity markets could "make for the more efficient deployment of domestic and regional liquidity and contribute to the return of funds held externally". In the future, this would also facilitate attempts to unify Arab capital markets. According to Mukhtar "once individual market shortcomings are addressed, the strengths of the emerging Arab economies can be combined to shape a regional capital market with cross-listings."
