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The Other Face Kor K2:Layout 1 OFID ARCHIVE Energy Resources and Policies of the Middle East and North Africa THE OTHER FACE OF OPEC Financial Assistance to the Third World By Ibrahim F.I. Shihata PUBLISHED 1982 A collection of papers prepared in recent years by Dr. Ibrahim Shihata for publication in specialist journals, or delivered before international confer- ences, these sixteen essays are presented in two major sections covering the general theme of OPEC aid and Arab external assistance and invest- ment, and in a third, shorter section dealing with the problems of world hunger. This volume identifies the OPEC member countries with the devel- oping countries of the Third World. Statistically, it demonstrates that the aid provided by the OPEC countries, as a proportion of GNP, far exceeds aid provided by the West. Historically, it traces the development of Arab aid from the setting up of the Kuwait Fund, and others aimed primarily at developing the resources of fellow Arab countries, to its present impres- sive volume and scope. The author reviews the institutions through which Arab aid is channelled, in all their variety and complexity, from relatively simple bilateral transactions, through the corporate Arab aid organizations, to the highly complex international banks and monetary foundations. Aid in the form of investment is a major theme in this book. The intri- cate problems of control over investment are discussed, together with the problems of ensuring both the security of those investments for the future, and maximum effectiveness in the use of aid by the recipient countries. The final chapters deal with the part OPEC aid seeks to play in the fight against world hunger. In sum, the book sets out to show how the OPEC member countries conceive, and attempt to fulfil, their responsibilities to the Third World. Dr. Ibrahim Shihata, a leading authority on international economic law, has been the Director-General of the OPEC Fund for International Develop- ment in Vienna since its establishment in 1976. 2 THE OTHER FACE OF OPEC PREFACE The name of OPEC is generally associated in the public mind with one phe- nomenon: ever increasing oil prices. Inaccurately depicted in the media as a powerful cartel which controls the supply and pricing of this vital commodity, OPEC has been repeatedly blamed, especially by Western politicians, for the world’s present economic ills. Under the same faulty assumption, OPEC has been often looked upon as a pool of excessive funds and is called upon, particularly by Third World politi- cians, to provide financial remedies for the world’s ailing economy. In their preoccupation with the negative effects of higher oil prices, many analysts found comfort in attributing the whole state of affairs to the existence of OPEC. By so doing they have simply ignored the fact that the price of oil was bound to rise with the growing scarcity of this commodity and with the diminishing control of Western companies over the natural resources of other nations. The fact that the oil prices were bound to increase and that the oil producers of the Third World used the proceeds of their oil in a highly respon- sible manner was ignored. The efforts of these countries to assist both the major oil consumers in the Western World and the poorer countries of the South have seldom been cited in the repeated discussions concerning OPEC and the impact it has. On the whole, the image of OPEC, as conceived by the Western mind, is one of indifference to the world’s ills. Indeed, they are alleged to be caused by none other than OPEC itself. Among the predominant “images” in today’s world, this one is particular- ly false. The major oil exporting countries of the Third World, acting individ- ually and collectively, are in fact playing a major role in assisting other devel- oping nations, especially the poorest. As developing countries themselves, with a recent past of dire financial need and of hard experiences in finding expedi- ent and dignified ways of meeting such needs, the OPEC member countries began their aid efforts with different objectives from those of traditional world donors. While the latter have readily used their financial assistance to create and expand markets for their products or to maintain their political spheres of influ- ence, no such aims were pursued or could, in fact, have been pursued by the OPEC donors. Those among them which initiated the aid efforts in the early sixties were basically motivated by moral commitments toward their neigh- 3 THE OTHER FACE OF OPEC bours. Their sense of regional community and their awareness of the social requirements of regional stability and security led them to act as donors almost at the same time as they began accumulating surplus funds. This trend was cer- tainly influenced by the traditions of Islam, which gives the deprived an “acknowledged right” to the wealth of the rich and ordains that those who have wealth extend 2.5 per cent of its value annually to those in need. The current aid efforts of OPEC countries have far reaching economic and political implications. Together they may be said to present the shining face of OPEC. For such efforts represent a form of assistance in which a group of countries, themselves developing, voluntarily share their wealth, and not mere- ly their income, with other countries in need. The donors realize that they may not necessarily be richer than the recipients. But they feel that some of the liq- uidity currently available to them should be used to meet the financial needs of other developing nations for the benefit of the Third World as a whole and as a voluntary expression of solidarity which is deeply felt. By channelling finan- cial assistance at the present impressive level the OPEC donors play an impor- tant role in the international redistribution of income to the benefit of the developing countries. The full implications of this role are yet to be ascertained. This book consists of sixteen essays on different aspects of the aid efforts of OPEC member countries, and especially of the aid extended by the Arab States of the Gulf region to other developing nations. Most of these essays are based on lectures by the author. They represent the facts and views prevalent at the time of their writing. The first two essays, as well as those published in Chapters 7 and 8, have been recently completed and the essay on “The Work- ing Relationship between the OPEC Fund and other International Develop- ment Finance Institutions” has been updated. All the other essays are published here as they first appeared. They should therefore be read with the date of their writing in mind. As the earliest of these essays was first published in 1972, they constitute a recent account of the phenomenon under discussion and there may be some overlapping. By having them assembled together for the first time, however, it is intended that the reader will have a convenient reference on the subject of OPEC aid and investments, a subject which has been the main preoccupation of the author for the last fifteen years. Vienna, 20 December 1981 Ibrahim Shihata 4 THE OTHER FACE OF OPEC Acknowledgements The author wishes to thank many friends and colleagues for their help in the preparation of this book. In particular he would like to mention: Mr A. Benbrahim; Mr A. Benamara; Dr M. Ali; Mr D. Ordoobadi who provided valuable assistance in the preparation of some of the more recent material included in this book. His thanks are due, especially to Mr Robert Mabro who co-authored Chapter 3. He is also grateful for the editorial preparation done by Miss K. Eldin and by the staff of Longman Group, especially Miss Janice Paveley. The views expressed in this book are naturally those of the author, and do not necessarily represent the official views of the OPEC Fund for Interna- tional Development or of its member countries. 5 THE OTHER FACE OF OPEC CONTENTS Preface 3 Acknowledgements 5 Tables and Graphs 11 PART I: OPEC AID Chapter 1 OPEC as a Donor Group 14 Introduction Measuring OPEC Aid OPEC Aid Figures Two Related Issues: Recipients and Adequacy OPEC’s New Aid Initiatives Future Areas of Co-operation The Recycling Issue Chapter 2 Some Prerequisites for the North–South Dialogue 33 Introduction Elements Absent in Inter-South Discussions Economic Prospects for the South Constraints on Financial Flows Proposed Solutions – The Role of OPEC Countries Chapter 3 The OPEC Aid Record 55 Introduction The Record The Experience Conclusion: The Prospects 6 THE OTHER FACE OF OPEC Chapter 4 OPEC Aid, the OPEC Fund, and Co-operation with Commercial Development Finance Sources 75 OPEC Aid The OPEC Fund Co-financing and Role of Commercial Banks Conclusion Chapter 5 The Working Relationship between the OPEC Fund and Other Development Finance Institutions 90 Introduction The OPEC Fund and National Development Finance Agencies The OPEC Fund and IFAD The OPEC Fund and the IMF The OPEC Fund and the UNDP Co-financing and Loan Administration in Project Lending Conclusion Chapter 6 The OPEC Fund and the North–South Dialogue 98 Looking Back at Paris The OPEC Fund OPEC Aid in General OPEC Fund Assistance The OPEC Fund and IFAD The OPEC Fund and the Common Fund The OPEC Fund and UNDP OPEC Fund Research and Training Development Starts at Home Chapter 7 The OPEC Fund and the Financing of Energy Development 113 7 THE OTHER FACE OF OPEC Chapter 8 The OPEC Fund and the Least Developed Countries 118 Chapter 9 The OPEC Fund – The First Five Years 124 Introduction Approaches and Procedures Target Beneficiaries Impact on the World
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