“Arab economic integration”: What model does the ESCWA want?

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ESCWA's headquarters located in Beirut, Lebanon. Al-Akhbar/Haitham Moussawi

By: Firas Abou-Mosleh

Published Tuesday, November 25, 2014

Abdullah Dardari, chief economist at the United Nations Economic and Social Commission for Western Asia (ESCWA), puts the estimated value of capital assets destroyed by the wars in Iraq, Syria, Gaza, and Libya somewhere between $150 and 500 billion. He says that there is a need “to rebuild the economic structure,” even in states that have not suffered through war. According to Dardari, the task requires the establishment of an Arab bank for reconstruction and development to redirect Arab investments toward Arab countries rather than foreign financial markets, which would be a step forward in achieving “regional integration,” which has become a “need” for Arabs.

The proposition is excellent, in principle. But who believes that one of the institutions of the global system would propose an integration model to achieve development independent from the centers of capitalism?

A report entitled "Survey of Economic and Social Developments in the Arab Region, 2013-2014" released by ESCWA last week says that reducing the unemployment rate by half in the Arab countries is vital in order to contain the social-political explosion known as the “Arab Spring.” [The report] estimates the growth rates required for a number of Arab countries to achieve this goal, and to increase the funding required to achieve the target growth rates for each of the countries included in the study – which are Jordan, Tunisia, Syria, Sudan, Lebanon, Egypt, Morocco, and Yemen. It also explores “the options available to policy-makers in order to fill the gap in financing for development.”

According to Dardari, the “funding gap” is not due to a lack of resources, but because of the departure of [large] amounts of money from the region, in just one year, exceeding the size of the overall gap. He asserts the redistribution of Arab resources for development is not possible without the establishment of an Arab Bank for reconstruction and development, similar to what happened in Europe, Asia, Africa, and other regions of the world, in addition to the need to work toward achieving regional integration, which is imposed by “the common fate (of the entities of the region) in key areas such as security and social stability.”

The fact that the capital derived from the proceeds of oil goes abroad is nothing new, and proposing that part of it be invested in the region is a good idea in principle. But “the decision is purely political, and the fact that the majority of Arab elites are subordinate to the West and fully subject to [its will] in terms of [political decision-making] cannot be ignored,” economic researcher Albert Dagher says. He notes that the key issue is the direction of the prospective investments: While the report opposes [the adoption of] import substitution industrialization (ISI) and suggests export substitution industrialization (ESI) as an alternative, Dagher believes that “the best thing that happened in third world countries was the adoption of ISI, although the experience was immature and faced obstacles.” He adds that the experience led to the “establishment of national states,” which runs contrary to the direction of international institutions like ESCWA, which is governed by a “Washington consensus.”

Dagher indicates that [ESCWA] is trying to “divert from the main issue,” which is to reach the ability to produce machinery with national technological abilities by building and protecting independent local industries that would evolve “through experimentation and learning,” and thus allow the development of national military technology capable of fending off [foreign] aggression, “similar to the Iranian model.”

According to Dagher, the Arab region has been the target of Western aggression since the nineteenth century, when the West began to target all attempts at modernization and independent [state] building, starting with the experience of Mohammed Ali and Gamal Abdel Nasser in Egypt, leading to the systematic destruction of Iraq and Syria today.

In 2011, the countries included in the study needed approximately $111.117 billion “to cover the shortfall in financing for development” needed to reduce unemployment by half, of which they only received $56.248 billion, putting the shortfall in funding at $54.926 billion according to the report.

ESCWA figures show that “the Arab region's resources (in the same year) were sufficient to meet the shortfall in funding, and the total sum of remittances, foreign direct investments, and official development assistance coming out of the region reached $78.169 billion, approximately 1.4 times [greater than] the size of the shortage. Remittances alone, amounting to $53.528 billion, were sufficient to cover the entire shortfall,” but the Arab countries received only 29 percent of them.

The report notes that these transfers “are not used in investment as much as they are used in consumption, so their potential ability to generate employment opportunities remains limited.” The report indicates that this “phenomenon” is the “antithesis of the experience of a number of countries in South Asia, which received large amounts of remittances coming from the Gulf countries. India’s share of these remittances alone of amounted to about $33 billion,” exceeding the size of regular financial transfers.

According to the report, the remittances transferred from the [Gulf] region recorded a growth rate that “exceeded regular financial transfers (made by Arabs) by three times,” which is “inconsistent with the regular pattern in other regional economic blocs, where intra-transfers within a single bloc recorded rates much higher than the total remittances sent by them.” The writers of the report ask innocently, “What justifies the low level of financial transfers within the Arab region?”

Perhaps ESCWA cannot talk about the United States’ commitment to the security of the [Arab] Gulf regimes since the early seventies, or NATO’s direct military control over the Arabian Peninsula since the “Second Gulf War” in the early nineties, or the West’s compulsion of the [Arab] Gulf governments to reuse [part of] their share of the proceeds of oil from the US and European financial markets to purchase huge quantities of weapons at high prices. The report also attributes the low level of financial transfers within the Arab region compared with other regions to a lower intra-immigration level (or the barriers placed by the Arab oil-producing countries vis-à-vis other Arab citizens).

“Disparities (in terms of growth and income rates) between the countries of the Gulf Cooperation Council (GCC) and the other Arab countries have increased, far greater than those among the GCC countries themselves,” the report says, noting that the Arab countries “sign many bilateral investment treaties but later disapprove them,” contrary to what happens when a treaty is signed with dominant world powers, like the United States, where “(these treaties) come into effect [almost immediately]!”

The ESCWA report stresses “a clear need to develop a comprehensive strategy to reduce the growing disparity in income between the countries in the region, as an essential condition for achieving equity and establishing social and political stability.” The report adds that “it is necessary to develop a framework that would lead to the achievement of regional integration, which requires strengthening commitment to political coordination and reducing dependence on official development assistance as a tool to exert political influence” exclusively, since such assistance focuses on “the alleviation of poverty rather than the generation of resources, and thus would have a limited impact on generating employment.”

With regards to the disparity between the GCC countries and other Arab countries, the report points to a decline in non-GCC countries’ share of foreign direct investments, which dropped from more than 80 percent in 2001 to 13 percent in 2009. Also, Arab direct investments have turned to the GCC countries, which – in the past few years – received between 75 percent and 85 percent of them, while the Arab non-Gulf countries used to receive about 80 percent of them in 2001.

As a comparison, the report says that the EU “realized a long time ago that the success of regional integration requires a convergence in the levels of development among member countries,” and thus allocated a budget for regional cooperation amounting to 50 billion euros, 0.82 percent of which is for regional convergence, 16 percent to raise the competitive capacity of member countries, and 2 percent for regional cooperation.

Hadi Bashir, head of economic modeling and forecasting at ESCWA, says that the African Bank has made twice as many investments in Tunisia as the Arab funds combined, and amounting to almost half of those made by the Arab funds combined in Egypt.

Thus, given the scale of funding required in the Arab region, ESCWA sees a need to combine the sovereign funds of Arab countries under the framework of a regional bank for reconstruction and development with the ability to finance large projects by granting soft loans.

Jose Garcia, officer at the Economic Development and Globalization Division (EDGD) at ESCWA, says that Arab economic integration will not be achieved “if left to the markets, without political will.”

Integration is a “long and gradual process” that requires cooperation between the countries seeking to achieve financial integration,” adds Garcia. He asks what is preventing the Arab region from taking this course, “especially given the strong geo-strategic links between its (entities)?”

This article is an edited translation from the Arabic Edition.

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