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Michael C. Hudson (ed.)
1999
11. Arab Economic Integration: The Poor Harvest of the 1980s
Yusif A. Sayigh
In 1981, I gave a paper at Georgetown University entitled "New Framework for Complementarity Among the Arab Economies (Ibrahim 1983)," which included an assessment of the extent of Arab economic integration and complementarity achieved during the years 1945–1980. My emphasis was on the years 1973–1980, which witnessed the correction of oil prices from October 1973 onward and the parallel rise in oil revenues accruing to the Arab oil exporters. Although the achievement had been quite modest, even during the 1970s, it was sufficient to create rosy expectations, especially when in late November 1980, the Arab heads of state in a summit meeting in Jordan approved a "Strategy for Joint Arab Economic Action" along with twenty–six other documents supportive of the Strategy.
Here I take stock of what has happened in the intervening decade with respect to economic complementarity and integration in the Arab region. Unfortunately, very little has been achieved. The shortfall between the high level at which hopes and expectations stood in 1980, and the much lower level of concrete performance by the summer of 1990 is vast. Yet before I proceed to trace the main steps taken during the 1980s to promote integration and complementarity and to assess their reach and significance, I must make two observations, meant to sharpen understanding of the cautious evaluation I made of the "new framework" in my earlier paper, even though I myself was directly and intensely involved in the formulation of the "Strategy" and the documents prepared for and around it.
The first observation is that I had expressed grave misgivings about the chances that the "New Framework" would be fleshed out by substantive and concrete achievement. My concern was that the framework would remain a largely–unfilled container—however elaborate, rationally reasoned and carefully designed. This fear was generated by the persistence of a number of deep–rooted cultural, political, and structural factors in Arab society, most particularly within the circles of political leadership and parts of the business community in which integration was not deemed desirable.
The second observation is that, in the short to medium term, it is imperative to greatly restrain expectations of marked achievement toward integration and complementarity among the Arab economies. The reason for this gloomy projection is that, in addition to cultural, political, and structural factors, Iraq’s occupation of Kuwait in August 1990, along with the crisis and war that occupation generated, resulted in further political fragmentation of the Arab region and far–reaching economic isolationism within virtually every country in the region. In fact, official statements supportive of complementarity and integration, however perfunctory and devoid of purposefulness they often were, are no longer even being uttered. A cloud of gloom, frustration, fear, and cynicism has descended on much of the Arab region since August 1990, blocking any significant rays of hope for either close political or economic cooperation. And, it should be remembered, cooperation and joint Arab economic action are distinctly less ambitious notions than complementarity or integration. There is, however, one notable exception to this very grim generalization which I will discuss in the review and evaluation of the records of the 1980s, to which I now turn. Later, I will attempt to explore the causes for what I have termed the "poor harvest" of the 1980s.
The Record of the 1980s
A review of the development of the 1980s with respect to the process of Arab economic complementarity and integration could easily become bogged down in detail. To spare the reader excessive quantification, I will generally restrict myself to a presentation of the broad findings of research undertaken on the components of the process in question. My main source of information has been The Consolidated Arab Economic Report. This official publication appears annually, and contains information relating to the previous year. 1 In addition, I have perused other reports and analytical articles in journals, particularly Al–Mustaqbal al–’arabi (The Arab Future), a monthly published in Beirut by the Center for Arab Unity Studies), Shu’un ’arabiyya (Arab Affairs), a monthly published by the Secretariat–General of the League of Arab States), and Al–Muntada (The Forum), a monthly published by the Arab Thought Forum in Amman). And finally, I have benefited from discussions with a number of Arab scholars, intellectuals, and business leaders who follow Arab economic developments closely and evaluate them analytically. As I do not have the space necessary for specific reporting on the research and the discussions undertaken, the reader may have to depend on the generalizations and conclusions I derive from the findings of my work.
The record of the 1980s will be examined under nine broad headings which feature prominently in the sources perused, particularly the Consolidated Report, for the years 1980 through 1990. The headings in question refer to sectors or activities; in other words, a functional classification is adopted. However, the Consolidated Report, 1989 contained a review of the history of joint Arab economic action and a listing of its main landmarks, from 1945 when the League of Arab States was founded up to the preparation of the Report in question. This was the first time such a full review had been attempted. Though useful as a list of agreements drawn up, institutions formed, broad politico–economic structures established, and resolutions taken by Arab officialdom, the review is mainly descriptive, with exceedingly little critical evaluation (The Consolidated Report 1989, Part 8).
The Consolidated Report, 1990 also includes a chapter that, among other things, surveys the activities, but only during 1989, of the bodies involved in joint Arab economic action. The survey follows a mixed institutional and functional (or sectoral) classification and comprises six broad headings, with a large number of subheadings (The Consolidated Report 1990, Part 8).
Although the survey claims to record the activities under the headings identified in the Report of 1989, the institutions, bodies, agreements, or resolutions listed and discussed all relate to the entire decade. However, there is special concentration on their activities (or the activities undertaken within their stipulations in the case of agreements and resolutions) which relates to the year 1989, but almost invariably with some reference to their background as well. The review of joint Arab economic action during the 1980s, which follows, combines the information available in the two surveys presented in the Consolidated Report of 1989 and that of 1990 though their classificatory systems are different. The combination is necessary in order to provide a complete picture for the decade of the 1980s.
The JAEA: An Institutional Framework
The terminology that is "in style" at any one moment is a clear indication of the position which the body politic takes with regard to Arab economic relations. Thus, it was "cooperation" that was highlighted in the early 1950s, and this choice reflected something less than complementarity or integration. The term cooperation was elastic enough to allow more than one interpretation and therefore to suit the preferences of different Arab governments and intellectual leaderships closely associated with political leaderships. Later in the 1950s, the emphasis shifted radically, and outright unity became the new objective. The shift was reflected in the resolution taken in June 1957 by the Council of the Arab League, the highest ministerial body, approving a project for Arab economic unity and subsequently the formation of the Council for Arab Economic Unity.
We need not survey the smaller shifts in outlook and ambition that occurred between the mid–1950s and the end of the 1960s or the early 1970s. However, the main concern that began to emerge in the intervening years was for something more purposeful than mere cooperation, but less ambitious (and therefore more realistic) than outright unity. Hence the emphasis on complementarity. But with the change in mood after the correction of oil prices in October 1973, and the inflow of vastly increased oil revenues, and with the accelerated formation of specialized regional organizations and federations and hundreds of joint Arab (and Arab–international) projects and companies, joint Arab economic action began to take precedence in the institutional vocabulary of Arab economic structures and relationships. Hence the emergence and subsequent prominence of the designation "Joint Arab Economic Action" (JAEA) which was embodied concretely in the "Joint Arab Economic Sector" (JAES). These two designations were the substance of the Strategy for Joint Arab Economic Action (the Strategy) which was finally drawn up in 1980 and approved at the summit of the Arab heads of state held in Jordan in November 1980.
However, the predominance of JAEA, which continues to be recognized today, has not been free of rivalry. Thus, complementarity and integration continue to be desirable objectives of intellectuals and some business leaders outside the dominant, political mainstream in the Arab region. JAEA, in the eyes of these intellectuals and business leaders, is a diluted formula deliberately designed to draw attention away from the quest for complementarity and integration, which they view as higher than JAEA. Nevertheless, JAEA seems to be a satisfactory objective for mainstream, less highly politicized Arab thinkers and action groups. To conclude, the 1980s opened with the crowning of JAEA and the main modality in its service, the JAES, and has continued to reserve for JAEA the same place of honor it came to occupy at the decisive 1980 summit meeting.
So far we have concentrated only on the conceptual and semantic part of the institutional framework, whether of JAEA or of integration and complementarity. (The Strategy does not clearly differentiate between JAEA, which is a rather generic term, and complementarity or integration, each of which has a specific, clearly identifiable connotation. We will continue to refer to integration, complementarity, and JAEA as though they were interchangeable concepts, processes, or states.)
Two substantive matters remain with respect to the institutional framework. The first is the identity of the tools or instruments through which JAEA unfolds and the JAES operates. The second is the record of JAEA during the 1980s as a whole: the directions, the reach, and the effectiveness of its activities. This record will be traced in the discussion that follows.
By far, most JAEA is governmental, involving two or more Arab governments (and in the case of joint companies and projects, often involving international, non–Arab parties as well). Most of the structures that currently function as instruments of JAEA were formed before the 1980s. They range in their powers of authority and control from the Arab heads of state at the top of the pyramid—acting and taking resolutions at their summit meetings—down to small joint projects and companies at the bottom. In between, there are ministerial councils, specialized regional organizations, joint companies and projects, subregional councils and federations, and ministerial councils without specialized regional organizations of their own.
The most important part of the institutional machinery is the Economic and Social Council of the League of Arab States, which is the kingpin of the machinery of JAEA, positioned as it is between the heads of state on the one hand and the Secretariat–General of the Arab League on the other, with control and coordinative functions and powers over the specialized regional organizations. Its concerns and authority embrace all the sectors directly involved in economic activity and development.
While there has been very little if any change in the institutional framework and structures of JAEA since the economic summit meeting of November 1980, the thrust of JAEA and of the JAES has slackened considerably though in varying degrees between one sector and another, or from one part of the machinery to another. The areas of notable activity during the 1980s will be singled out below. For the moment, let us focus on one important part of the institutional framework and machinery of JAEA. This is the three subregional bodies formed in the 1980s, namely, the Cooperation Council of the Arab States of the Gulf (GCC), formed in 1981; the Arab Cooperation Council, also in the Mashriq, formed in 1989; and the Union of the Arab Maghrib, also formed in 1989.
There has been heated debate by intellectuals, and within some political circles, around the rationale or "philosophy" of the formation of subregional councils. Specifically, the debate has centered around whether such councils, each consisting of small groups of Arab states, are meant to replace the Arab League or to marginalize it, and by the same token to marginalize the goals and objectives it (supposedly) stands for. Or are they merely meant to be more efficient, homogenous, and practical–minded than the League’s often overambitious purposes and targets, in the economic as well as the political areas of Arab life? The new bodies themselves claim that they supplement the Arab League and serve its long–term goals.
The debate was hottest with respect to the GCC, as its critics attributed to its members somewhat isolationist tendencies, inasmuch as most of them are important oil exporters eager to shelter their relatively recent financial opulence. The GCC countries’ quite substantial aid to capital–short Arab countries during most of the 1970s, and their continued aid (though on a smaller scale) in the 1980s, has created among the capital–short countries a mixed feeling of gratefulness, envy, and displeasure in the face of the conspicuous consumption that has characterized GCC societies since the "oil era" began in 1973–74. In addition, many Arabs are very critical of the outflow of vast financial resources to western money markets instead of the allocation of a larger volume of aid to Arab development. In response, particularly after the second Gulf crisis and war of 1990–91, the GCC members have expressed resentment at the lukewarm popular support that they got from other Mashriq and Maghrib countries, and are set today to restrict their aid considerably, if not stop it altogether, as punishment for what they consider ungratefulness by aid receivers. JAEA will necessarily shrink and suffer for several years to come, given the present feeling on both sides of the political, emotional, and economic divide.
Yet, even if the Gulf War had not occurred, aid outflows from the GCC would have continued to be distinctly reduced in the 1990s, as they have been in most of the 1980s. The basic reason for the drop in the volume of aid during the 1980s was the drop in the price of oil as well as in the volume of exports, and therefore in oil revenues. The drop was so steep that it forced countries like Saudi Arabia and Kuwait to dig into their current and capital budgets in the second half of the 1980s. 2 Aggregate Arab oil revenues reached an all–high level of $209.5 billion for 1980, but dropped to $74.5 billion for 1987 (see OAPEC 1981 and Consolidated Report 1988, Table 4/3). (The situation was much more critical in the spring of 1992, after the campaign against Iraq had cost GCC members, particularly Saudi Arabia and Kuwait, tens of billions of dollars which they contributed to the overall financing of the allied military campaign.)
The special financial circumstances of the GCC apart, the Council has taken certain steps since 1983, when its members approved the Unified Economic Agreement in a drive toward complementarity and subregional economic action. These have aimed at:
In conclusion, all of these seven avenues of action are on the whole being translated into agreements and operational modalities. But they are still far from full implementation, particularly with regard to the "economic citizenship" envisaged under point one.
The two other subregional bodies, the Arab Cooperation Council (ACC) in the Mashriq and the Union of the Arab Maghrib, have stirred less concern than the GCC with regard to their real purposes and the implications of their emergence for regional Arab economic complementarity and integration. By the end of the 1980s, they were still shaping their internal structures and designing their initial priorities (in terms of activities to be targeted and agreements to be entered into). The ACC, in fact, can hardly be said to still exist since its two senior members, Egypt and Iraq, faced each other as enemies on the battlefield during the Gulf War.
One positive comment in defense of subregional councils must be added. According to a careful and authoritative observer, such councils provide an essential intermediate stage between narrowly defined single–country concerns (a qutriyya tendency), and a too–broad regional concern that encompasses the whole Arab region and thus becomes unmanageable (Al–Hamad 1988).
The machinery of JAEA encompasses a number of other parts as well. These include the ministerial councils which have no specialized regional organizations of their own such as those responsible for housing and construction, transport, and the environment. The Secretariat–General of the Arab League acts as an executive secretariat for those councils in lieu of specialized regional organizations. Not much can be said of the activities of the councils in question although they have generated sizable stacks of paper relating to the three sectors that fall under their authority. The annual issues of the Consolidated Report point to no concrete achievement, however, apart from holding conferences, seminars, and meetings, and some preparation of plans and programs.
The group of specialized regional organizations can lay claim to greater achievements during the 1980s. However, those consist mainly of formulating long–term strategies and programs, providing technical assistance and training, and holding seminars and meetings (as in the case of the organizations for agricultural development, industrial development, and labor, and ALECSO–the Arab League Educational, Cultural, and Scientific Organization). All of them, except the Arab Labor Organization, have carried out extensive and diversified programs within their competence.
All Arab specialized organizations without exception suffer from insufficient budgets and inadequate high–level staffing, and from counterproductive interference or outright neglect by the ministers within whose field of authority they operate. Without fully diagnosing the root causes of the weaknesses and limitations of these organizations, we can say here that what delays and severely limits the development of the various productive sectors served by the specialized organizations is not a shortage of studies, strategies, programs, and plans, nor insufficient understanding of the problems associated with sectoral development, but rather insufficient determination within the government system, misdirected action, and discontinuity of efforts.
Finally, relationships between the organizations as a group, and with the Secretariat–General of the Arab League and the Economic and Social (ministerial) Council which is the titular coordinator and supervisor of the organizations, have never been flawless. Overlapping functions among the organizations, directors–general chosen by political bargaining among ministers rather than on the basis of professionalism and capability, disputes over fair and appropriate budgeting, bureaucratic heavy–handedness—all of these combine to slow down the activities and marginalize the performance of the specialized organizations. For several years now, the Arab League has been studying these problems. A report on the subject by a team of distinguished experts was completed in the late 1980s and has been accepted in principle by the Economic and Social Council, but its recommendations have yet to be implemented.
Joint projects and companies, those capitalized jointly by two or more Arab governments, and in many cases by the Arab private sector as well, are estimated to number 252, with an estimated paid–up capital of $17.9 billion. Another 269 joint projects and companies in which (non–Arab) international parties are shareholders along with Arab parties, are estimated to have an aggregate paid–up capital of $12.3 billion. The authorized and declared capital of both groups combined is larger than paid–up capital by about $4.6 billion. This brings total authorized capital of all joint projects and companies to $34.8 billion (all information on joint projects from Consolidated Report 1989, tables and Part 8). The capital of joint holding companies, as well as that of the two regional funds (the Arab Fund for Economic and Social Development and the Arab Monetary Fund), and of national development funds (although these provide development financing to needy Arab countries) have been excluded. (The combined capital of the two regional and five national funds is estimated by the Consolidated Report 1983 to be $24.2 billion for the mid–1980s.) If the excluded aggregate capital is added to the total of $34.8 billion referred to above, the grand total would exceed $65 billion (Sayigh 1991, 130, quoting Samih Mas’oud 1987; Mas’oud 1987).
Considering the size of the aggregate Gross Domestic Product for the twenty–one Arab countries (excluding Palestine), which stood at $362.4 billion at current prices for 1988 (but at $385.5 billion for 1987) (The Consolidated Report 1988, Table 2.1), and considering aggregate investment by the Arab countries within their own frontiers, which in spite of the decline in GDP from its higher level in 1980 and 1981 totaled $93.1 billion in 1987 (The Consolidated Report 1988, Table 2.1), and finally considering that Arab financial holdings abroad reached a total of $374 billion by the end of 1982 (OAPEC 1982), the last year for which such information was available, the aggregate capital of the hundreds of joint projects and companies, some $65 billion, seems quite small.
Another cause of dissatisfaction with joint projects as part of the machinery of JAEA is that, although by far the largest proportion of them were established before the 1980s, there is very little difference between the estimate of their aggregate paid–up capital at the end of the 1970s and its level at the end of the 1980s. Furthermore, well–informed authorities both at the Secretariat–General of the League of Arab States and at the Council for Arab Economic Unity, and Samih Mas’oud, the scholar who has done most of the research in hand on joint projects, all agree that most of the projects in question are not functioning well. They are brisk on work programs and declaratory statements, but very sluggish on execution; at the top, they are on the whole bureaucratic in outlook and administration, though there were in the 1980s outstanding examples among them of efficiency and creditable performance, such as the companies formed by the Organization of Arab Petroleum Exporting Countries (OAPEC) to participate in various aspects of oil sector activity.
The Arab private sector has a significant share in the capital of joint projects, whether these are totally Arab, or combined Arab and international. The most notable part of the private–sector machinery in JAEA is the General Union of Arab Chambers of Commerce, Industry, and Agriculture for the Arab Countries—a sort of federation of the individual–country chambers for each of the three sectors mentioned in the Union name. In November 1983, this Union signed an ambitious agreement that approved the establishment of the "Arab Company for Agricultural Investment" with an authorized capital of $1 billion. However, concrete progress has not been reported since then, except that the Consolidated Report 1985 mentioned that the Company was in the process of completing the formalities for its establishment.
The last part of the machinery of JAEA to be mentioned are the two regional funds: the Arab Fund for Economic and Social Development (AFESD) and the Arab Monetary Fund (AMF). These funds have been the most active JAEA institutions whose performance remained at a creditable level during the 1980s while that of most other parts of the institutional framework of JAEA declined, compared with the 1970s. Other parts of the framework involved in financing and investment will also be dealt with below, however. The distinct importance of these two regional funds warrants a detailed discussion.
Financing and Investment
If loans and other financial transfers from some of the GCC countries to Iraq during its war with Iran in the 1980s are excluded from this discussion, then by far the largest part of financial transfers (mostly in loans but also to a much smaller extent in nonreimbursable technical assistance grants) from capital–surplus to capital–short Arab countries was effected by the two regional funds, the AFESD and the AMF, together with national development funds. The national development funds include five institutions established by Kuwait, Saudi Arabia, United Arab Emirates, Iraq, and Libya. The Iraqi Fund was inactive during the 1980s as the country’s resources were committed entirely to the war effort. In addition to the institutions listed, the finance and investment sector of JAEA includes the Arab Authority for Agricultural Investment and Development, AAAID (with a declared capital of $500 million), the program for financing external trade established in 1989 by the AMF (with private Arab and international participation and a working capital of $500 million), and the Arab Institution for the Insurance of Investments (established in the 1970s) whose activities in the 1980s totaled insurance coverage of about $500 million ((The Consolidated Report 1989 and 1990).
The six development funds listed above, plus the AMF, are reported to have had an aggregate declared capital of $24.2 billion by the early 1980s (The Consolidated Report 1983). AFESD has a capital of one billion Kuwaiti dinars (KD) or about $3 billion, while AMF has a capital of about $2 billion. The AMF’s capital fund is generally considered too modest when set against the many functions the Fund is designed to shoulder, including correcting structural and temporary balance–of–payments imbalances or distortions, and participation in the capital of the program of trade promotion and of investment insurance. The total capital of the six development funds is considerable if one bears in mind that these funds generally try to lend only a part of the investment requirements of the projects for which financing is sought. (AFESD provided loans totaling KD1,152 million during the period 1974–89, for projects whose total cost was KD5,230 million (The Consolidated Report 1990, 190). Thus, its financial participation amounted to 22 percent of total cost.) In other words, though the total capital of the development funds is quite substantial in its own right, it serves as a catalytic agent for a much larger volume of investment—indeed, a fivefold volume—if the record of AFESD is representative of the operations of the whole group of Arab development funds.
Arab development assistance to needy Arab countries (both direct government–to–government and through regional and national development funds) amounted to an average of $5.1 billion a year during 1976–89, or a total of $70.8 billion (World Bank 1991, Table 19). But this did not represent the whole volume of aid. Considerable aid is directed by the Islamic Bank for Development (IBD) to needy Arab countries. Likewise, the OPEC Fund for International Development (OFID) had extensive lending operations during the 1970s, though these shrank in significance during the 1980s owing to the crisis the oil sector experienced in prices, volume of production, and revenues earned by the exporters. Both the IBD and OFID receive by far most of their resources from Arab oil exporters. Consequently, aid received by Arab countries from these two institutions is in fact mostly from Arab countries. Finally, the Arab oil–exporting countries made substantial resources available to the World Bank and the International Monetary Fund during the second part of the 1970s. This enabled these two bodies to expand their operations. To the extent that certain Arab countries benefited from the expansion of aid facilities, it has been Arab resources in effect that generated the benefit.
To sum up: it is clear that financial resources accruing to Arab oil–exporting countries have resulted, since the mid–1970s, in a vast inflow of loans and considerable grants to capital–short Arab countries, as well as to a number of non–Arab countries, thanks to the aid policies of the Kuwait Fund and the Saudi Fund, both of which extended aid to non–Arab Third World countries. And, as Arab resources constituted the largest part of the lending resources available to the IBD and OFID, and these two institutions extended aid to non–Arab as well as to capital–short Arab countries, Arab resources have reached out to help Third World countries beyond the Arab region.
In short, Arab oil revenues have been an important source of financial assistance to the Third World at large, but—quite naturally—to the Arab world more particularly. This can be seen all the more dramatically in the proportion of Arab GDP or GNP which such assistance constituted, compared with its counterpart from the rich Western industrial countries. Thus, in 1987, Arab development assistance amounted to 3.5 percent of the GDP of the donor countries as a group, while Western aid was less than half of one percent of the GDP of the Western industrial countries. Arab assistance also represented 14.5
percent of the volume of oil exports in 1987 (data on Arab donors from The Consolidated Report 1989, table entitled, "General Indicators of the Arab Homeland"; data on western countries from World Bank 1991, Table 19). Of course, Arab financial assistance arises from the sale of a depleting asset, not from renewable resources as in the case of the rich Western countries.
Arab Oil Policies and Oil–Related Development
Any Arab coordination that can be discerned with regard to oil production and pricing policies is undertaken by the seven Arab members of the thirteen–member Organization of Petroleum Exporting Countries. OAPEC, which is purely Arab in membership, is quite restricted to studies, research, some training, and organizing professional seminars on oil and other energy matters. The Arab members of OPEC probably favor this division of labor between OPEC and OAPEC because they believe that pricing and production matters ought to be dealt with by a body that includes non–Arab producers, and thus can claim to speak for a much larger oil constituency.
As a result of this division of labor, the use of oil revenues for development, particularly within the oil sector itself, fell between the cracks: it was deemed to be the responsibility of neither OPEC nor OAPEC. This is part of the reason why the rush to develop petrochemical industries in the Arab oil–exporting countries resulted in a number of industries that had not been pre–planned on a regional or sectoral basis, and that had failed to coordinate either specialization or production capacity with regional oil producers. As a general result, the Arab petrochemical industry now reaps the adverse consequences. These include excessive capacity, duplication of establishments, and marketing problems abroad.
We should not end our discussion of the field of energy without noting its one substantive achievement. This is the linkage effected during the 1980s between the electricity networks of Lebanon, Syria, and Jordan. The linkage serves to reduce sharp seasonal shortages and surpluses in the supply of power.
Labor vs. Remittances
From 1973 to 1983, an Arab workforce "estimated at three to four million strong moved to the oil&-;rich countries to take part in the very extensive construction and development activity which the expanded oil revenues have permitted" (Sayigh 1991, 130) 4 . The remittances sent back home by this workforce, or the savings made by it, are estimated to have been $3 to 4 billion a year. However, the size of the workforce and its remittances and/or savings have dropped significantly as a result of the oil crisis in the Gulf countries since the mid–1980s.
The movement in opposite directions of labor and factor payments abroad has reflected a very clear case of complementarity between the oil–exporting but labor–importing countries on the one hand (Iraq, Kuwait, Saudi Arabia, the United Arab Emirates, Qatar, and Libya), and labor–exporting countries (Egypt, [North] Yemen, Palestine–Jordan, Lebanon, and Syria) on the other. However, the Gulf crisis and war of 1990–91 have brought about a drastic reduction in the size of the expatriate labor force and therefore in remittances and/or savings effected by it. Kuwait and Iraq both saw their expatriate labor forces depart, and Saudi Arabia expelled an estimated one million Yemeni workers. The prospects seem very poor for Arab labor (especially for Palestinians and Jordanians) to return to Kuwait in large numbers; the indications are strong that most of the departing labor will be largely replaced by East and Southeast Asians. Thus an aspect of complementarity which had been remarkable and beneficial to all the parties concerned, politically, economically, and symbolically, is threatened by erosion, at least for several years to come.
Intraregional Trade
Although some institutional improvements were made during the 1980s to promote intraregional trade, there was hardly any change by the end of the decade in the proportion of the region’s total external trade moving inside it; this proportion has remained at a low 6 to 7 percent. Among the improvements was a new agreement to facilitate trade (approved in November 1980 at the Arab summit meeting devoted wholly to intra–Arab economic affairs and JAEA). The AMF also launched a program to promote intraregional trade, with a revolving fund of $500 million to provide short–term finance to exporters who were waiting to be paid for their sales, and to importers to help them pay for their purchases. Finally, an amendment to the terms of reference of the Institution for the Insurance of Investments within the region, which had been restricted to noncommercial risks, made the Institution capable of insuring commercial risks as well.
The persistence of the limited value of intraregional trade during the 1980s is explained by the slow change in the range of diversification of Arab production, and the weak competitiveness of Arab products, particularly manufactures, compared with their imported counterparts. Another possible reason is the failure of the Arab countries to improve the lines and facilities of transport among themselves to an extent that would reduce transport costs. Finally, most shoppers retain a built–in preference for imported goods, even when national (or regional) products are as good and cheaper. Obviously, there is a very wide scope for the intensification of intraregional trade, but the most essential and pressing prerequisite is the production of more and better goods and services to begin with, so that Arab countries would potentially have much more to offer to each other.
Agriculture and Food Production
Failure to achieve an effective measure of joint Arab economic action and complementarity in the area of agriculture and food production has had a most adverse effect on food security and is also very costly to the Arab region at large. In the mid–1980s, the bill for food imports for the region reached $23 billion (15.3 percent of total imports). However, it fell to $14 billion for 1987. The fall generally characterized the period 1979–87, thanks essentially to two factors: "the rise in food production over . . . [1981 to 1987] and the drop in oil revenues. The latter forced the Arab countries to compress their food imports and restrict them to the more essential items" (Sayigh 1991, 141; data for the expansion of food production per capita from FAO 1989, Table 4).
Yet the rise in food production per capita, which was partly behind the drop in food imports, was the result of country–by–country action, not collective Arab action. The agricultural sector is one of the largest beneficiaries among all sectors of studies, programs, suggestions, and injunctions by intellectuals and specialized regional organizations (such as the Arab Agricultural Development Organization, and the Arab Authority for Agricultural Investment and Development, along with their programs and subsidiary units). The case for agricultural development through collective Arab action is very compelling, since it uses the danger to food security as its main support. With about one–half of the food it consumes coming from abroad, the Arab region cannot underestimate the gravity of the danger that food security poses.
Specialized organizations—in agriculture as in other sectors—can contemplate, undertake research, design strategies and programs, prepare projects, and make strong appeals to the government ministries under which they operate. But they can do nothing beyond that: action remains the prerogative of the governments, and it is here that the tightest bottleneck is located.
Seeing official hesitation, if not outright lethargy and inaction, the private sector becomes even more hesitant. It ought to be remembered that the size of the food programs envisaged is enormous in terms of investment and working capital, running into many billions of dollars over several years. It is no wonder that the private sector balks when it sees that official action is not forthcoming.
As things stood by the end of the 1980s, the countries with the most promising potential for agricultural and food production, in terms of cultivable and irrigable land, and water—Sudan, Morocco, Syria, and Iraq—were still engaged in their own country programs, while regional programs involving collective action were collecting dust in their files. At the same time, almost every country in the region is vitally interested in the promotion of food production, and could have some role in such promotion, whether as supplier of investment finance (as in the case of most oil–exporting countries), of land and water (as in the case of the four countries listed above), of manpower (as in the case of Egypt, Jordan, Tunisia, and several other countries), or of markets and purchasing power, as in the case of every single Arab country.
Manufacturing Industry
The Arab Industrial Development Organization, AIDO, has been probably as active as the Arab Agricultural Development Organization (AADO), but much more active than the Arab Authority for Agricultural Investment and Development in terms of formulating strategies, designing programs and projects, providing training, and generally stressing the importance of industrialization. It cannot invoke an appeal that relates directly to the physical viability of Arab society, as AADO can when stressing the urgency of expanded food production in order to feed the Arab millions and to stop the massive erosion in Arab financial resources now paying for the import of foodstuffs. But AIDO can invoke the criticality for development of industrialization and the absorption of the existing excess labor supply. Agriculture is providing employment to a continuously shrinking proportion of the labor force, while manufacturing industry, at the stage where it stands today in the Arab region, can claim to be labor–intensive.
AIDO’s strategies and programs are largely based on the premise that the process of industrialization involves the development of basic and engineering industries, the training and retraining of skilled labor to meet the requirements of advanced technology in manufacturing, and the widening of the very narrow and inadequate bases of science and technology, and research and development now in existence. Such overwhelming needs require massive investment in addition to the design and building of institutions and services needed for achieving the target of industrialization. This demands collective action by groups of Arab countries, if not by all of them in one massive operation. Industrial complementarity can be achieved, if seriously thought out and sought, both at the horizontal and the vertical levels. The first would involve the grouping of similar undertakings or industries or of research and training facilities. The second requires the division of labor within the same industry, whereby the various processes and phases within it can be assigned to different countries on the basis of the logic of comparative advantage and the availability of appropriate manpower and technology or physical resources.
The record of the 1980s shows that some progress has been achieved in industrial development, but again on a country–by–country, not a regional, basis. The increased export potential of Arab manufacturing has begun to be blocked by protectionist policies imposed by many Western industrial countries. A notable example is the barriers that the Arab petrochemical industry encountered when attempting to market its products in Europe. The GCC has taken the lead in approaching the European Community as a body to try to work out a mutually agreeable formula that would allow Arab exports to enter the European market. However, the general tendency with regard to industrialization is still for individual countries to act alone; in the area of industrial development, JAEA is still very marginal.
One feasible and very promising approach to speedier industrialization would be to establish those capital goods industries for the machines, equipment, and spare parts for which there is already a wide enough market to enable the industries in question to be viable and profitable. These might include products for the sectors of transport and communication, construction, tourism and hotel–keeping, agriculture, public works, and printing. 5
Transport, Communication, and Telecommunication
This sector has no specialized organization to prepare strategies, programs, and networks for it on a regional or subregional basis. However, a number of ambitious projects are at different points of readiness, involving the unification or at least a pooling of the services of some airlines, the construction of roads and/or railroads connecting countries in the Fertile Crescent, and the beginnings of programs to link Arab telecommunication networks. It is as true today as it was at the beginning of the 1970s to say that it is easier for someone in Beirut, Amman, or Damascus to telephone Bonn, Paris, or London than either of the two to telephone other nearby Arab capitals. Intraregional air transport connections are easier and more frequent now than during the 1970s, but still less so than between the Arab region and Western Europe.
Insufficient and inadequate transport facilities within the region serve to hinder intraregional trade, since they increase costs for the transport of goods across national boundaries. Yet, as indicated above, there are other probably stronger determining factors for the small proportion of intraregional trade out of total foreign trade. The rise in the intensity of Arab divisiveness since the 1991 Gulf War has certainly led to the postponement of any linkages, whether by road, railroad, airplane, or ship, which were at an advanced stage of preparation on the drafting board.
Furthermore, the sluggishness in the expansion of economic activity in the region, and the very small growth in GDP during the second half of the 1980s—indeed, its negative growth at times—will combine to postpone the development of the transport and communication components of regional infrastructure. The painful paradox in the present context is that more resources have been directed to transport and communication in individual Arab countries, particularly to the importation of airplanes, cars, buses, and trucks during the 1970s and 1980s, than ever before, while regional transport links remain largely neglected.
Education and the Acquisition of Effective Technology
The last, but by no means the least significant area of activity to discuss in this survey is joint Arab action in the field of education and the acquisition of appropriate and effective technological capability in the region. The expansion of educational facilities and programs continued in the 1980s in virtually every Arab country. However, collective efforts have remained minimal. The Arab League Educational, Cultural, and Scientific Organization (ALECSO) was very active in the 1980s; indeed, it completed the preparation of a number of strategies and programs in the various fields for which it was responsible, including the fight against illiteracy. Still, the gains made in absolute numbers of adults who acquired elementary reading and writing skills were smaller than the absolute numbers of those entering the dark area of illiteracy in several countries of the region.
As in the cases of agriculture and manufacturing industry, ALECSO, too, made remarkable progress in terms of studies, training, seminars, and the formulation of strategies and programs. But, once again, the transmission belt between ALECSO and the ministry or ministries under whose jurisdiction it operates proved defective. The translation of programs and projects into concrete reality by and large was blocked; the only exceptions being training, seminars, the formulation of strategies and programs for the future, and the publication of several valuable studies—areas in which ALECSO was able to execute projects using its own manpower and budgetary resources.
The promotion of the acquisition of advanced technology falls only partially within ALECSO’s area of concern. Other bodies are involved as well, directly and indirectly. Perhaps this diffusion of responsibility explains, if only in part, why the drive for the inculcation of greater technological capability has been so slow and its gains so modest. The establishment of a broad, regional base for science and technology has yet to be undertaken seriously. Two major regional programs prepared after extensive consideration during the 1970s remain dormant. The distance between theoretical and applied science in university education remains wide and unbridged. Similarly, the distance between engineering departments, schools, or colleges, and the users of engineering skills, such as the manufacturing industry, transport and communication, agriculture, and construction, remains wide and unbridged, except in a very few cases where trainees move for short periods from formal training to the business sector, to learn how to put their skills to practical use.
It should be stressed that there is still no regional endeavor to explain that the importation of the hardware and software of technology does not amount to the implantation of technological capability in the region. While such importation is thought to be a shortcut to the objective of acquiring the capability in question, it is actually a much longer and less assured conduit to the acquisition presumably sought. Only when such awareness becomes general can the region start the demanding but critical task of building the badly needed but painfully absent science and technology base.
Finally, the acquisition of technological capability need not be attempted in one big jump or in a short span of time. The region could begin by taking small manageable steps. To make this point clear, an Arab scholar experienced in the field estimated that some $5 billion a year was spent on the importation of technological software during the early 1980s. Much of the imported material could have been produced in the region, if the will were there and Arab professional resources were properly mobilized (A.B. Zahlan, quoted in Sayigh 1982, 165; see also ch. 12 below).
Explaining the Record of the 1980s
The discussion thus far must leave the reader with the clear impression that the 1970s witnessed a brisker and more fruitful drive toward integration and complementarity through joint Arab action than did the 1980s. It is necessary now, therefore, to attempt to explore the reasons for the shortfall in integration efforts and results in the 1980s, and to try to explain why the 1970s, in contrast, witnessed markedly better achievement.
As the reader will see, in my search for an explanation, I will have to stray away to a considerable extent from economic explanations and considerations. I realize that I take a risk in trying to find the explanation partly in Arab politics, and partly also in cultural, social, and even psychological factors. I accept that risk because of my conviction that economic factors alone cannot provide a sufficient explanation of important economic processes like integration. Indeed, economic factors acting alone, without any major exception, provide strong justification for the pursuit of integration rather than the opposite. Before I attempt to explain very briefly why the harvest of integration was poor in the 1980s, I should note that the listing of the components of the explanations I venture to make in the following paragraphs does not proceed according to a scale of significance or priority. Clearly, the components interact and supplement each other so closely that it would be most difficult to rank them according to their impact.
The Retreat of Integration and JAEA as Major Arab Concerns
There is an apparent element of circularity in posing this first item as part of the explanation, while it is the phenomenon whose explanation is sought. However, it is worth asking why there is less concern with integration today than in the 1970s; that is, what are the deep causes for the drop in concern. Even the Arab intelligentsia that is highly politicized is less concerned today both with integration and development on the one hand, and with national (that is, regional) security on the other. I believe that the economic prosperity which characterized the 1970s in the oil and non–oil countries, though to different degrees, has generated a drive toward individual opulence at the expense of political and politico–economic desiderata.
This drive toward money–making has also taken hold of the other strata and groups of Arab citizenry—businessmen, professionals, bureaucrats, laborers, and particularly politicians. To the extent that political and politico–economic desiderata relating to the welfare of society as a whole often involve those who uphold them in political (and sometimes physical) risk, there is a discernible shift away from such desiderata toward the pursuit of personal well–being.
Insufficient Awareness of the Grave Danger of Isolationism
I would contend that awareness by the Arab public, especially by politicized citizens and leaderships in various walks of life, of the benefits that would accrue to the region as a whole and to its constituent parts because of joint economic action and integration, can be clear and strong only if it is preceded by another awareness: that the absence of integration and exaggerated focus on single–country affairs and interests carry with them grave dangers to each of the region’s countries. And the dangers mean the distortion and shrinkage of achievement with respect to development, as well as the capability of the region as a whole and its constituent parts to protect its own, and their, security to the extent possible.
There is a two–way relationship between development and security: the former provides a stronger economic base for the latter, and the latter provides a protective shield for the former. Most thinking Arabs are convinced at present that both Arab development and Arab security have been seriously debilitated and eroded, not just since the Gulf crisis and war of 1990–91, but actually since the early 1980s, when the retreat of Arab concern with integration—both economic and political—became marked.
Divisiveness Within Individual Arab Countries
The 1980s witnessed greater divisiveness within each of several Arab countries, whether the causes were ideological (political or theological), ethnic, or economic (relating to interest groups, public–vs.–private sector controversies, or labor vs. management). Furthermore, the divisiveness within countries had ramifications also among countries, although these were less visible. The most serious aspects of divisiveness which went beyond national borders arose from fundamentalist tendencies and loyalties, dichotomy between rich and poor countries, and varying alignments within the world order.
Such a climate of divisiveness will necessarily affect attitudes toward intraregional political and economic relationships. Within this sort of climate, secondary contradictions overshadow basic consensus and shared heritage. Furthermore, the divisiveness has not appeared in a vacuum. It is merely an accentuated tendency that underlines longstanding qutri loyalties and tendencies (i.e., those whose focus is their own country rather than the Arab region). It is not certain that a large proportion of Arabs realize that their own qutri interests can be better served if they cooperate with the citizens, authorities, and institutions of other countries (aqtar) in serving the interests and solving the problems that threaten them, be they economic or political.
The advantages of collective as against individual action are a matter of common knowledge since a group of countries acting as one unit command more energy than the sum of their individual energies. Thus, the case for Arab economic complementarity and joint action is well established with respect to every sector or activity, from food production to manufacturing industry to the establishment of a science and technology base. The pursuit of self–reliance, a difficult objective under the best of circumstances, is hopeless if attempted by Arab countries individually, but possible if attempted collectively (see Sayigh 1991, ch. 4).
Divorce Between Thought and Action in Societal Crises
Here lies a major problem with many Arabs in positions of responsibility, especially in politics. Even when such persons comprehend the nature and dimensions of a social crisis, and realize the criticality and urgency of action to respond to its challenge, they do not put in the planning, determination, and effort to translate their realization into concrete action consistent with their assessment of the crisis. I consider this a kind of separation, if not total divorce, between perception or comprehension, and a consistent response. The inconsistency thus manifested can be seen in our weak and flawed responses to grave matters of a political or security nature as well as to economic matters.
What is baffling here is that the average Arab, faced with a personal crisis, or one relating to family or clan, loses little time in mobilizing his (or her) energy and endowments to face that crisis. He may face it counterproductively, or he may overreact, but he does not show the same slowness or produce the same diluted reaction as in the case of a societal, country–wide, or region–wide crisis. One wonders if matters of personal honor and welfare rank much more highly in our social evaluation than the collective honor of country or society.
Lukewarm reaction to invocations for work and sacrifice in order to achieve development and security through Arab collective action can be understood, though only partly, within the context of the factor I now venture to suggest as an input in the explanation of the sluggishness of the drive for integration. Such reaction is particularly unfathomable because the objective of collective action—integration in the present instance—is not a mere abstraction that eludes the grasp of many people, but rather something that could make a significant and tangible contribution to economic and social development, from which every citizen would benefit.
The Personalization of Authority and Power
This component of the explanation might also be designated "the excessive centralization of authority and power" in virtually every Arab country. Even where there is political pluralism and a reasonable degree of institutionalization, real power resides in the head of state. In the rare cases where this is not (or has not been) the case, then it resides in some éminence grise, a holder of real power behind the titular head of state.
It is a general phenomenon that the more centralized and personalized power is, the more isolated the holder of that power becomes. Consequently, the leader loses touch with currents of thought and mainstream feelings, particularly when these do not harmonize with his own position and wishes. The inner circle of advisers, who usually tell the powerful ruler what they believe he prefers to hear, lose their true function and become simply the echo of whatever they believe the ruler is thinking. Obviously, the popular message for integration or any other process requiring collective Arab action is not very articulate in the Arab region. It would be difficult to hear even if the ruler were not despotic.
In the absence of a well–functioning conveyor belt of ideas, desires, and popular preferences between the people and the center of power, the ruler has only two or three conduits to inform him of what the public wants. These conduits are the advisers, the security services, and the family of the ruler. As these three sources of information usually have an interest in passing the same kind of information on to the ruler, and they mostly represent "intercommunicating compartments," the ruler’s isolation becomes complete.
To all this must be added that most rulers are interested in power and how it can be captured and maintained, not in ideas of integration, collective self–reliance, or inner–directed development: these do not seem to the rulers to be direct contributors to their purpose of holding and consolidating power. Most political parties and movements are likewise obsessed with political power, and assign only a marginal part of their attention and platforms to questions such as integration, regional development, and collective self–reliance.
The Strict Rationing of Democracy, Freedom, and Human Rights
This factor is organically related to the one immediately preceding it, since excessive centralization and personalization of power are not possible if the population enjoys political participation, freedom of expression and communication, and human rights in general. I believe it is correct to claim that were the exercise of democracy, freedom, and human rights distinctly fuller, the advocates of integration and joint Arab action would have access to the awareness of the people and make their message not only heard but also accepted. In a system where such communication is possible and widespread, public expression of support for intraregional integration and development would become both vocal and communicable to the government through organized political, social, economic, and union groups. From there on the actual pursuit of joint action becomes both feasible and promising.
But democracy, freedom, and human rights are not habitually offered on a silver plate to a people. They have to be struggled for, often wrenched away at a high cost. It is promising to see that most Arab peoples are engaged in an effort, even if still tentative and partial, to reclaim their political, social, and human rights.
The more effective and generalized this effort becomes, the more hope will be generated that socioeconomic objectives like integration will become attainable. Once the hopes materialize sufficiently, the quality of government can be improved. And since governments are at present the tightest bottleneck that blocks the program and projects designed to make integration and regional development a concrete reality, any loosening will permit the flow of ideas into the realm of action and achievement. The process from there on will necessarily be long because durable integration and meaningful development are not easy tasks. The example of the European Community is there to learn from: it took the EC decades to reach its present level of cohesiveness and achievement, both in the political and economic fields.
Political Integration and Economic Integration
I have suggested above the imperative of associating political with economic integration. Which should come first is not the basic question here. What is basic is that hesitation in the pursuit of economic integration often derives from the conviction that to be effective, economic integration must be accompanied, sooner or later, by political integration. This is largely true since economic integration involves making major decisions that cannot be made unless there is at least a large measure of policy coordination among the countries seeking integration.
The Arab politicians who express enthusiasm about economic integration but secretly remain at best lukewarm toward it—and these probably represent the majority—are essentially worried that if economic integration were seriously and purposefully sought, it would lead to political integration. And political integration is anathema to them as a class. Here lies one of the main blockages to economic integration.
Limitation of Private Sector Pursuit of Integration
It seems to me plausible that private business people would be in favor of integration once the benefits it could bring them are explained convincingly. Naturally, some would fear the loss of the advantages they now enjoy in their own countries. But even here, compensatory mechanisms could be designed and put to work, and capital could be relocated to help industries that suffer as a result of integration and the competition it might engender.
The real reason for the hesitation of the private sector in the face of arguments for integration is its sensitivity to the hostile climate that governments generate, covertly, if not overtly, vis–à–vis integration. The private sector takes shelter behind the lukewarm official attitude to integration. But it is arguable that a radical change in the official attitude would be met by readiness on the part of the private sector to support integration, once the appropriate compensatory mechanisms have been activated.
The External Factor
So far we have dwelt on internal factors that inhibit the drive toward integration. This is deliberate. But I want to end this enumeration of factors by pointing out that certain Western powers play an influential part in frightening some Arab rulers away from economic integration by stressing the "danger" that political integration would soon follow. The countries most sensitive to this sort of pressure are the oil–producing countries, whose interests are invoked as a central concern of the Western countries exercising the influence. The specter of a rich country vs. poor country confrontation is raised to carry this message to the oil–producing countries. This situation cannot be simply shrugged off as an example of imperialist machination. The non–oil countries are called upon to possess understanding of the concerns of the oil countries and to share with them the overall concern for the whole Arab region.
If the present diagnosis of the causes behind the very limited progress toward economic integration during the 1980s is correct, then why was progress more marked during the 1970s if the explanatory factors suggested have not changed on the whole between the two decades? My only answer is that the 1970s witnessed a unique phenomenon so powerful that it swept aside much of the hesitation hindering the pursuit of economic integration. This phenomenon was the windfall of oil revenues. The unprecedented affluence that these revenues made possible was so reassuring that the oil rulers responded positively to the new situation. Consequently, they showed considerable readiness to encourage, participate in, and finance the widening institutional framework of integration. They also aided needy Arab countries at a rate by far exceeding that of Western aid.
The key to an understanding of the 1970s is therefore both financial and psychological. The relatively vast influx of financial resources created a new mood expressed in joint Arab economic action. But mood is reversible, as we saw in the 1980s and as we can witness today. It will not be brought back to equilibrium until all Arab countries, rich and poor alike, achieve mutual understanding of their common, and also different, endowments, problems, and aspirations.
Endnotes
Note 1: The Report is prepared as a cooperative effort by the Secretariat–General of the League of Arab States, the Arab Monetary Fund, the Arab Fund for Economic and Social Development, and the Organization of Arab Petroleum Exporting Countries. I will refer to it hereafter as the Consolidated Report. Its title in Arabic is Al–Taqrir al–iqtisadi al–‘arabi al–muwahhad, and the four agencies that prepare it had published a few of the annual issues in English, which uses the word "Joint" instead of "Consolidated." Elsewhere, I have used the term "Unified." See Yusif A. Sayigh, Elusive Development: From Dependence to Self–Reliance in the Arab Region (London and New York: Routledge, 1991). Back.
Note 2: A well–informed economist in the Gulf has estimated budget deficits for the years 1983–87 to aggregate about $70 billion for the members of the GCC. See Ali Khalifah al–Kawari, "Comment on Dr. Abdallah al–Quwaiz’s Paper on ‘Movement of the Co–operation Council in the Field of Investment,’ "given at a Symposium held in Dubai, December 12–13, 1989. Back.
Note 3: The total number of GCC joint projects is "said to be" 326. This bit of information most assuredly must be taken with a grain of salt. Back.
Note 4: A much higher estimate of remittances, reaching $6.8 billion at their peak in 1984, is reported in a paper by Abdelatif Y. al–Hamad, "Implications of Oil for Arab Development: Financial and Investment Issues and Options for the Future," given at a seminar on Prospects for Oil and Future Development in the Arab Countries, held in Amman, Jordan, December 1–2, 1987. Back.
Note 5: I am grateful to Professor A. B. Zahlan for making this suggestion. Back.
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