The Gulf Takes Charge in the MENA Region
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The Gulf takes charge in the MENA region Edward Burke Sara Bazoobandi Working Paper / Documento de trabajo 9797 April 2010 Working Paper / Documento de trabajo About FRIDE FRIDE is an independent think-tank based in Madrid, focused on issues related to democracy and human rights; peace and security; and humanitarian action and development. FRIDE attempts to influence policy-making and inform pub- lic opinion, through its research in these areas. Working Papers FRIDE’s working papers seek to stimulate wider debate on these issues and present policy-relevant considerations. 9 The Gulf takes charge in the MENA1 region Edward Burke and Sara Bazoobandi April 2010 Edward Burke is a researcher at FRIDE. Sara Bazoobandi is a PhD candidate at Exeter University. In 2009 Sara completed a research fellowship at FRIDE. Working Paper / Documento de trabajo 9797 April 2010 Working Paper / Documento de trabajo This Working paper is supported by the European Commission under the Al-Jisr project. Cover photo: Ammar Abd Rabbo/Flickr © Fundación para las Relaciones Internacionales y el Diálogo Exterior (FRIDE) 2010. Goya, 5-7, Pasaje 2º. 28001 Madrid – SPAIN Tel.: +34 912 44 47 40 – Fax: +34 912 44 47 41 Email: [email protected] All FRIDE publications are available at the FRIDE website: www.fride.org This document is the property of FRIDE. If you would like to copy, reprint or in any way reproduce all or any part, you must request permission. The views expressed by the author do not necessarily reflect the opinion of FRIDE. If you have any comments on this document or any other suggestions, please email us at [email protected] Contents Introduction: The Gulf takes charge 1 Intraregional trade: An overview 2 Regional trade agreements 2 GCC investment 5 Sovereign wealth funds 6 Iran – Some unusual business 7 Labour movement/remittances 7 GCC development assistance 9 Saudi Arabia’s leadership of the Arab world 11 The curious case of Qatar 12 Conclusion: Avoiding catastrophe 13 1 The critical asset of the MENA region since the mid- 20th century has been its vast reserves of Introduction: The hydrocarbons. Oil and gas exporting countries of the region together account for 65 per cent of global oil Gulf takes charge reserves and 45 per cent of natural gas reserves. Yet there is a wide discrepancy in the management of the In the 21st century, leadership of the Arab world has extraction and export of hydrocarbon resources in the shifted decisively from the ancient capitals of Cairo, region. Therefore while Iraq holds the world’s third Damascus and Baghdad to the Gulf. Hydrocarbon largest oil reserves, and Libya the largest in Africa, this revenues have not only facilitated the exercise of is partly due to both countries enduring long periods of conventional political leverage through the funding of isolation and instability during which entrenched other Arab governments, but the GCC countries have corruption had a corrosive effect on implementing the also invested heavily in influencing Islamic movements, necessary infrastructure to increase exports. The GCC confirming the Arabian peninsula as both the political by contrast has been highly pragmatic in the and spiritual centre of the region. Arab leaders have also maintenance of its energy infrastructure. spoken admiringly of the Gulf’s recent management of its hydrocarbon revenues in contrast with other MENA trade and investment figures confirm a glaring, countries in the region. Lebanese intellectual Rami and even widening, gap between wealth concentrated in Khouri praised the Gulf for having ‘transformed itself in the GCC in comparison to the rest of the MENA as a just decades from a largely barren backwater to a consequence of higher energy revenues. The GCC’s dynamic engine of Arab economic investment, efficient population is a mere 42.5 million of a total 345 million planning and execution, orderliness and modernity’.2 for the region, yet it receives the lion’s share of foreign exports’ earnings. In 2007, $477 billion of the MENA In recent years the non-GCC MENA states looked region’s total exports of $654 billion were from the towards the boom and diversification projects of the GCC countries.4 The gap between rich and poor in the GCC as a potential economic lifeline. GCC investment region is reflected by an extreme variance in GDP per and general engagement with the region has undergone capita, which ranges from as low as $1200 in Yemen to a significant expansion, yet this increase has been from a as high as $70,000 in Qatar.5 Exacerbating the very low base. GCC external investment continues to be problems of poor governance is the regional propensity predominantly directed towards more secure markets in to favour a high state monopoly over key economic North America, Europe and South and East Asia. Of the sectors. Crucially in this conflict-ridden region, GCC $542 billion outflow of GCC funds between 2002 and governments can make strategic investments as a 2006, only $60 billion was invested in the non-GCC means of providing support to beleaguered governments MENA.3 This limited amount of intra-MENA investment in unstable countries such as Lebanon and Yemen. should not be dismissed however. In fact, as a proportion of GCC investment, this figure represents a rapid Despite the improved performance of the GCC and increase from an extremely low base with significant countries such as Egypt and Morocco, the MENA political and economic consequences for the region. region continues to lag behind in terms of global economic integration. In 2007 gross financing from 1 This paper adheres to the World Bank’s definition of the MENA international capital markets was the lowest among all which includes: Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Malta, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United, Arab Emirates, West Bank and Gaza, Yemen. 4 World Bank, ‘2008 MENA Economic Developments and 2 Rami Khouri, ‘The Gulf states, change you can invest in’, Daily Prospects: Regional Integration for Global Competitiveness’, p. 104–14. Star, 27 August 2008. 5 International Monetary Fund, ‘World Economic and Finance 3 The Gulf Times, ‘Capital outflows from GCC total $542 in five Survey, Regional Economic Outlook Middle East and Central Asia’, May years’, 13 January 2008. 2009. The Gulf takes charge in the MENA region Peter Burnell 2 developing regions and net portfolio equity flows were during which time the MENA share of global trade fell negative $2 billion, indicating a significant withdrawal from 8 per cent to 2.5 per cent, served as a sharp of foreign capital from the region.6 Intra-regionally it lesson for the region. Since the 1990s the major appears that the MENA is held together more by hydrocarbon producers have sought to diversify their cultural affinity than economic expediency. Although export partners, a shift that has been facilitated by the the potency of Arab nationalism has declined from the emergence of India and China as major energy heady days of Egypt’s Gamal Abdel Nasser half a consumers. GCC states are also investing over $1.3 century ago – largely replaced by various trends of trillion in economic projects aimed at diversifying their political Islam – pan-Arab institutes and a residual economies away from hydrocarbon dependency. It is sense of solidarity serve to bind the region together. too early to judge the outcome of such ambitious plans, Political and religious mistrust of Iran, and to a greater although there has been a significant increase in the degree of Israel, have historically left these countries non-hydrocarbon sector of the GCC economy.6 politically isolated within the region. Meanwhile the oil largesse of the GCC member states has allowed them In 2007, intraregional trade accounted for 11.1 per to invest heavily in countries for reasons of political cent of total foreign trade, which, although it appears leverage rather than economic prudence. modest, is a significant increase from the stagnant levels of the mid-1990s. In the non-energy sector, intraregional trade accounts for just under 25 per cent of all exports, but this varies considerably from the Intraregional trade: relatively closely integrated economies of the GCC to Libya and Morocco where this figure slips into single- An overview digits.7 In recent years Saudi Arabia has far outstripped other MENA countries in receiving new Trade in the MENA does not follow a general pattern intra-Arab investments, more than half in 2007. and varies in each country depending on its location, Beyond the Arab countries, this is only matched levels of governance and political ties. Major political regionally by Iran’s heavy investment in the UAE as a disputes and the frequency of war in the region have means of circumventing sanctions and due to its profoundly affected intra-regional trade. Factors that mistrust of other Arab states in the region.8 have had a negative impact upon intraregional trade growth in the region include political deadlock with Israel; the Iran-Iraq war; civil wars in Algeria, Lebanon, Sudan and Yemen; the fall-out from the Regional trade invasion of Kuwait; condemnation of Libya and, more recently, Iran, over the funding of foreign insurgencies agreements and nuclear enrichment programmes; the dispute over the fate of Western Sahara; the US invasion of Iraq; International trade statistics reveal that the MENA as and the assassination of the former Lebanese Prime a region has a consistently low trade complimentarity Minister Rafik Hariri. In contrast, the establishment of with the rest of the world. This is partly the result of the the GCC in 1981 marked one of the few constructive and effective initiatives to overcome local political 6 Allan Dennis, ‘The Impact of Regional Trade Agreements and differences in favour of establishing a pragmatic trade Trade Facilitation in the Middle East North African region’, Washington DC: World Bank Policy Research Working Paper 3837, February 2006, relationship in the region.