Category: MENA
The Middle East and North Africa (MENA) is a geographic region which comprises the Middle East and North Africa together. This is larger than the Arab speaking world as it includes Iran and Turkey. Thus, within MENA lies the Arab Middle East and, within that, the six Arabian Gulf countries.
(Palestine:) The One-State Solution
— Edward Said
January 10th, 1999 © 2024 The New York Times Company.
PDF copy:
Said, E. (1999 Jan 10). The one-state solution. New York Times Magazine, 37-1
Given the collapse of the Netanyahu Government over the Wye peace agreement, it is time to question whether the entire process begun in Oslo in 1993 is the right instrument for bringing peace between Palestinians and Israelis. It is my view that the peace process has in fact put off the real reconciliation that must occur if the hundred-year war between Zionism and the Palestinian people is to end. Oslo set the stage for separation, but real peace can come only with a binational Israeli-Palestinian state.
This is not easy to imagine. The Zionist-Israeli official narrative and the Palestinian one are irreconcilable. Israelis say they waged a war of liberation and so achieved independence; Palestinians say their society was destroyed, most of the population evicted. And, in fact, this irreconcilability was already quite obvious to several generations of early Zionist leaders and thinkers, as of course it was to all Palestinians.
“Zionism was not blind to the presence of Arabs in Palestine,” writes the distinguished Israeli historian Zeev Sternhell in his recent book, “The Founding Myths of Israel.” “Even Zionist figures who had never visited the country knew that it was not devoid of inhabitants. At the same time, neither the Zionist movement abroad nor the pioneers who were beginning to settle the country could frame a policy toward the Palestinian national movement. The real reason for this was not a lack of understanding of the problem but a clear recognition of the insurmountable contradiction between the basic objectives of the two sides. If Zionist intellectuals and leaders ignored the Arab dilemma, it was chiefly because they knew that this problem had no solution within the Zionist way of thinking.”
David Ben-Gurion, for instance, was always clear. “There is no example in history,” he said in 1944, “of a people saying we agree to renounce our country, let another people come and settle here and outnumber us.” Another Zionist leader, Berl Katznelson, likewise had no illusions that the opposition between Zionist and Palestinian aims could be surmounted. And binationalists like Martin Buber, Judah Magnes and Hannah Arendt were fully aware of what the clash would be like, if it came to fruition, as of course it did.
Vastly outnumbering the Jews, Palestinian Arabs during the period after the 1917 Balfour Declaration and the British Mandate always refused anything that would compromise their dominance. It’s unfair to berate the Palestinians retrospectively for not accepting partition in 1947. Until 1948, Jews held only about 7 percent of the land. Why, the Arabs said when the partition resolution was proposed, should we concede 55 percent of Palestine to the Jews, who were a minority in Palestine? Neither the Balfour Declaration nor the mandate ever specifically conceded that Palestinians had political, as opposed to civil and religious, rights in Palestine. The idea of inequality between Jews and Arabs was therefore built into British, and subsequently Israeli and United States, policy from the start.
The conflict appears intractable because it is a contest over the same land by two peoples who always believed they had valid title to it and who hoped that the other side would in time give up or go away. One side won the war, the other lost, but the contest is as alive as ever. We Palestinians ask why a Jew born in Warsaw or New York has the right to settle here (according to Israel’s Law of Return), whereas we, the people who lived here for centuries, cannot. After 1967, the conflict between us was exacerbated. Years of military occupation have created in the weaker party anger, humiliation and hostility.
To its discredit, Oslo did little to change the situation. Arafat and his dwindling number of supporters were turned into enforcers of Israeli security, while Palestinians were made to endure the humiliation of dreadful and non-contiguous ”homelands” that make up about 10 percent of the West Bank and 60 percent of Gaza. Oslo required us to forget and renounce our history of loss, dispossessed by the very people who taught everyone the importance of not forgetting the past. Thus we are the victims of the victims, the refugees of the refugees.
Israel’s raison d’etre as a state has always been that there should be a separate country, a refuge, exclusively for Jews. Oslo itself was based on the principle of separation between Jews and others, as Yitzhak Rabin tirelessly repeated. Yet over the past 50 years, especially since Israeli settlements were first implanted on the occupied territories in 1967, the lives of Jews have become more and more enmeshed with those of non-Jews.
The effort to separate has occurred simultaneously and paradoxically with the effort to take more and more land, which has in turn meant that Israel has acquired more and more Palestinians. In Israel proper, Palestinians number about one million, almost 20 percent of the population. Among Gaza, East Jerusalem and the West Bank, which is where settlements are the thickest, there are almost 2.5 million Palestinians. Israel has built an entire system of “bypassing” roads, designed to go around Palestinian towns and villages, connecting settlements and avoiding Arabs. But so tiny is the land area of historical Palestine, so closely intertwined are Israelis and Palestinians, despite their inequality and antipathy, that clean separation simply won’t, can’t really, occur or work. It is estimated that by 2010 there will be demographic parity. What then?
Clearly, a system of privileging Israeli Jews will satisfy neither those who want an entirely homogenous Jewish state nor those who live there but are not Jewish. For the former, Palestinians are an obstacle to be disposed of somehow; for the latter, being Palestinian in a Jewish polity means forever chafing at inferior status. But Israeli Palestinians don’t want to move; they say they are already in their country and refuse any talk of joining a separate Palestinian state, should one come into being. Meanwhile, the impoverishing conditions imposed on Arafat are making it difficult for him to subdue the highly politicized inhabitants of Gaza and the West Bank. These Palestinians have aspirations for self-determination that, contrary to Israeli calculations, show no sign of withering away. It is also evident that as an Arab people — and, given the despondently cold peace treaties between Israel and Egypt and Israel and Jordan, this fact is important — Palestinians want at all costs to preserve their Arab identity as part of the surrounding Arab and Islamic world.
For all this, the problem is that Palestinian self-determination in a separate state is unworkable, just as unworkable as the principle of separation between a demographically mixed, irreversibly connected Arab population without sovereignty and a Jewish population with it. The question, I believe, is not how to devise means for persisting in trying to separate them but to see whether it is possible for them to live together as fairly and peacefully as possible.
What exists now is a disheartening, not to say, bloody, impasse. Zionists in and outside Israel will not give up on their wish for a separate Jewish state; Palestinians want the same thing for themselves, despite having accepted much less from Oslo. Yet in both instances, the idea of a state for “ourselves” simply flies in the face of the facts: short of ethnic cleansing or “mass transfer,” as in 1948, there is no way for Israel to get rid of the Palestinians or for Palestinians to wish Israelis away. Neither side has a viable military option against the other, which, I am sorry to say, is why both opted for a peace that so patently tries to accomplish what war couldn’t.
The more that current patterns of Israeli settlement and Palestinian confinement and resistance persist, the less likely it is that there will be real security for either side. It was always patently absurd for Netanyahu’s obsession with security to be couched only in terms of Palestinian compliance with his demands. On the one hand, he and Ariel Sharon crowded Palestinians more and more with their shrill urgings to the settlers to grab what they could. On the other hand, Netanyahu expected such methods to bludgeon Palestinians into accepting everything Israel did, with no reciprocal Israeli measures.
Arafat, backed by Washington, is daily more repressive. Improbably citing the 1936 British Emergency Defense Regulations against Palestinians, he has recently decreed, for example, that it is a crime not only to incite violence, racial and religious strife but also to criticize the peace process. There is no Palestinian constitution or basic law: Arafat simply refuses to accept limitations on his power in light of American and Israeli support for him. Who actually thinks all this can bring Israel security and permanent Palestinian submission?
Violence, hatred and intolerance are bred out of injustice, poverty and a thwarted sense of political fulfillment. Last fall, hundreds of acres of Palestinian land were expropriated by the Israeli Army from the village of Umm al-Fahm, which isn’t in the West Bank but inside Israel. This drove home the fact that, even as Israeli citizens, Palestinians are treated as inferior, as basically a sort of underclass existing in a condition of apartheid.
At the same time, because Israel does not have a constitution either, and because the ultra-Orthodox parties are acquiring more and more political power, there are Israeli Jewish groups and individuals who have begun to organize around the notion of a full secular democracy for all Israeli citizens. The charismatic Azmi Bishara, an Arab member of the Knesset, has also been speaking about enlarging the concept of citizenship as a way to get beyond ethnic and religious criteria that now make Israel in effect an undemocratic state for 20 percent of its population.
In the West Bank, Jerusalem and Gaza, the situation is deeply unstable and exploitative. Protected by the army, Israeli settlers (almost 350,000 of them) live as extraterritorial, privileged people with rights that resident Palestinians do not have. (For example, West Bank Palestinians cannot go to Jerusalem and in 70 percent of the territory are still subject to Israeli military law, with their land available for confiscation.) Israel controls Palestinian water resources and security, as well as exits and entrances. Even the new Gaza airport is under Israeli security control. You don’t need to be an expert to see that this is a prescription for extending, not limiting, conflict. Here the truth must be faced, not avoided or denied.
There are Israeli Jews today who speak candidly about ”post-Zionism,” insofar as after 50 years of Israeli history, classic Zionism has neither provided a solution to the Palestinian presence nor an exclusively Jewish presence. I see no other way than to begin now to speak about sharing the land that has thrust us together, sharing it in a truly democratic way, with equal rights for each citizen. There can be no reconciliation unless both peoples, two communities of suffering, resolve that their existence is a secular fact, and that it has to be dealt with as such.
This does not mean a diminishing of Jewish life as Jewish life or a surrendering of Palestinian Arab aspirations and political existence. On the contrary, it means self-determination for both peoples. But it does mean being willing to soften, lessen and finally give up special status for one people at the expense of the other. The Law of Return for Jews and the right of return for Palestinian refugees have to be considered and trimmed together. Both the notions of Greater Israel as the land of the Jewish people given to them by God and of Palestine as an Arab land that cannot be alienated from the Arab homeland need to be reduced in scale and exclusivity.
Interestingly, the millennia-long history of Palestine provides at least two precedents for thinking in such secular and modest terms. First, Palestine is and has always been a land of many histories; it is a radical simplification to think of it as principally or exclusively Jewish or Arab. While the Jewish presence is longstanding, it is by no means the main one. Other tenants have included Canaanites, Moabites, Jebusites and Philistines in ancient times, and Romans, Ottomans, Byzantines and Crusaders in the modern ages. Palestine is multicultural, multiethnic, multireligious. There is as little historical justification for homogeneity as there is for notions of national or ethnic and religious purity today.
Second, during the interwar period, a small but important group of Jewish thinkers (Judah Magnes, Buber, Arendt and others) argued and agitated for a binational state. The logic of Zionism naturally overwhelmed their efforts, but the idea is alive today here and there among Jewish and Arab individuals frustrated with the evident insufficiencies and depredations of the present. The essence of their vision is coexistence and sharing in ways that require an innovative, daring and theoretical willingness to get beyond the arid stalemate of assertion and rejection. Once the initial acknowledgment of the other as an equal is made, I believe the way forward becomes not only possible but also attractive.
The initial step, however, is a very difficult one to take. Israeli Jews are insulated from the Palestinian reality; most of them say that it does not really concern them. I remember the first time I drove from Ramallah into Israel, thinking it was like going straight from Bangladesh into Southern California. Yet reality is never that neat.
My generation of Palestinians, still reeling from the shock of losing everything in 1948, find it nearly impossible to accept that their homes and farms were taken over by another people. I see no way of evading the fact that in 1948 one people displaced another, thereby committing a grave injustice. Reading Palestinian and Jewish history together not only gives the tragedies of the Holocaust and of what subsequently happened to the Palestinians their full force but also reveals how in the course of interrelated Israeli and Palestinian life since 1948, one people, the Palestinians, has borne a disproportional share of the pain and loss.
Religious and right-wing Israelis and their supporters have no problem with such a formulation. Yes, they say, we won, but that’s how it should be. This land is the land of Israel, not of anyone else. I heard those words from an Israeli soldier guarding a bulldozer that was destroying a West Bank Palestinian’s field (its owner helplessly watching) to expand a bypass road.
But they are not the only Israelis. For others, who want peace as a result of reconciliation, there is dissatisfaction with the religious parties’ increasing hold on Israeli life and Oslo’s unfairness and frustrations. Many such Israelis demonstrate against their Government’s Palestinian land expropriations and house demolitions. So you sense a healthy willingness to look elsewhere for peace than in land-grabbing and suicide bombs.
For some Palestinians, because they are the weaker party, the losers, giving up on a full restoration of Arab Palestine is giving up on their own history. Most others, however, especially my children’s generation, are skeptical of their elders and look more unconventionally toward the future, beyond conflict and unending loss. Obviously, the establishments in both communities are too tied to present ”pragmatic” currents of thought and political formations to venture anything more risky, but a few others (Palestinian and Israeli) have begun to formulate radical alternatives to the status quo. They refuse to accept the limitations of Oslo, what one Israeli scholar has called ”peace without Palestinians,” while others tell me that the real struggle is over equal rights for Arabs and Jews, not a separate, necessarily dependent and weak Palestinian entity.
The beginning is to develop something entirely missing from both Israeli and Palestinian realities today: the idea and practice of citizenship, not of ethnic or racial community, as the main vehicle for coexistence. In a modern state, all its members are citizens by virtue of their presence and the sharing of rights and responsibilities. Citizenship therefore entitles an Israeli Jew and a Palestinian Arab to the same privileges and resources. A constitution and a bill of rights thus become necessary for getting beyond Square 1 of the conflict because each group would have the same right to self-determination; that is, the right to practice communal life in its own (Jewish or Palestinian) way, perhaps in federated cantons, with a joint capital in Jerusalem, equal access to land and inalienable secular and juridical rights. Neither side should be held hostage to religious extremists.
Yet feelings of persecution, suffering and victimhood are so ingrained that it is nearly impossible to undertake political initiatives that hold Jews and Arabs to the same general principles of civil equality while avoiding the pitfall of us-versus-them. Palestinian intellectuals need to express their case directly to Israelis, in public forums, universities and the media. The challenge is both to and within civil society, which has long been subordinate to a nationalism that has developed into an obstacle to reconciliation. Moreover, the degradation of discourse — symbolized by Arafat and Netanyahu trading charges while Palestinian rights are compromised by exaggerated “security” concerns — impedes any wider, more generous perspective from emerging.
The alternatives are unpleasantly simple: either the war continues (along with the onerous cost of the current peace process) or a way out, based on peace and equality (as in South Africa after apartheid) is actively sought, despite the many obstacles. Once we grant that Palestinians and Israelis are there to stay, then the decent conclusion has to be the need for peaceful coexistence and genuine reconciliation. Real self-determination. Unfortunately, injustice and belligerence don’t diminish by themselves: they have to be attacked by all concerned.
Wilfred Thesiger
Wilfred Thesiger was a writer, an amazing photographer and a consummate explorer. His most notable works are Arabian Sands (1959) which documented his journey across the Empty Quarter of the Arabian peninsula and, The Marsh Arabs (1964) which documented his time living in the marshes of Iraq.
As a student, studying Arabic, I read Arabian Sands. I recall being very much taken with it and it bringing about a sense of nostalgia. The work by Thesiger concentrates on his Arabian travels between 1945 and 1950. It charts two crossings of the Empty Quarter undertaken between 1946 and 1948. Thesiger’s first crossing, from Mughshin in Oman to Liwa across the eastern sands, was followed by a crossing of the western sands from Manwakh in Yemen, via Liwa, to Abu Dhabi.
The book largely reflects on the changes and large scale development that took place after the Second World War and the subsequent gradual erosion of traditional Bedouin ways of life that had previously existed unaltered for thousands of years. It captured well the lives of the Bedu (Bedouin) people and other inhabitants of the Arabian peninsula and is now considered a classic in the genre of travel literature. In the 1950s, The Times described Thesiger as “the last of a great line of Arabian explorers.” In an obituary piece for The Guardian, Michael Asher wrote that Thesiger’s description of the traditional life of the Bedu was probably “the finest book ever written about Arabia and a tribute to a world now lost forever.”
📗 Profile of: Sir Richard Burton
📗 Profile of: Edward Saïd
Edward Saïd
Edward Saïd’s seminal work, Orientalism, has, according to one academic, “redefined our understanding of colonialism and empire.” In Orienrltalism, Saïd surveys the history and nature of Western attitudes towards the East, and contends that “orientalism” is a powerful European ideological creation – a way for writers, philosophers and Western political powers (alongside their think tanks) to deal with the ‘otherness’ of eastern culture, customs and beliefs. Drawing on his own experiences as an Arab Palestinian living in the West, Said examines how these ideas can be a reflection of European imperialism and racism. He traces this view through the writings of Homer, Flaubert, Disraeli and Kipling, whose imaginative depictions have greatly contributed to the West’s romantic and exotic picture of the Orient.
Paraphrasing from the book’s introduction, orientalism is the amplification of difference, the presumption of Western superiority, and, “the application of clichéd analytical models for perceiving the Oriental world,” from the perspectives of Western thinkers and scholars. According to Said, orientalism is the key source of the inaccuracy in cultural representations that form the foundations of Western thought and perception of the Eastern world. The theoretical framework that orientalism covers has three tenets: (1) an academic tradition or field [think: Sir Richard Burton or possibly and less so, Wilfred Thesiger] (2) a worldview, representation, and canon / discourse which bases itself upon an, “ontological and epistemological distinction made between “the Orient” and the West (3) to be used as a powerful political instrument of Western domination over Eastern countries.
Praise for the Orientalism
“Beautifully patterned and passionately argued.”
— New Statesman
“Very exciting … his case is not merely persuasive, but conclusive.”
— John Leonard, New York Times
See too: (Palestine:) The One-State Solution; an ageless piece by Edward Said on the Palestine question which he penned in 1999.
📗 Profile of: Sir Richard Burton
📗 Profile of: Wilfred Thesiger
Sir Richard Burton
A long time ago I read The Devil That Drives. It is an excellent biography, written by Fawn Brodie and first published in 1967. It covers comprehensively the life of Sir Richard Burton. Brodie creates a brilliantly vivid and captivating portrait of Burton. By way of her prose, he emerges vividly from the richly textured fabric of his time (i.e, the Victorian era and the age of Colonialism and Imperialism). His travels to Mecca and Medina dressed as a Muslim pilgrim, his witnessing of the human sacrifices at Dahomey and his unlikely but loving partnership with his pious Catholic bride are treated both with compassion and scholarly rigor. It is one of very few books that I’ve read again. I see it as something of a companion to Edward W. Saïd’s 1978 Orientalism.
Praise for The Devil That Drives
“A first class biography of an exceptional man … read it.”
— J.H. Plumb, New York Times
“The latest, far the best and surely the final biography of Sir Richard Burton, one of the most bizarre characters whom England has ever produced.”
— Graham Greene, The Observer
Sir Richard Burton, it has been said, was a true man of the Renaissance. He was soldier, explorer, ethnologist, archaeologist, poet, translator, and one of the two or three great linguists of his time. He was also an amateur physician, a botanist, a geologist, a swordsman, and a superb raconteur. Burton is also said to have been the first to translate The Arabian Nights.
📗 Profile of: Edward Saïd
📗 Profile of: Wilfred Thesiger
Imperial interfering
WEF global competitiveness rankings, 2013-2014
According to the World Economic Forum Qatar reaffirms once again its position as the most competitive economy in the region (13th globally) for the period 2013-2014. The country’s strong performance in terms of competitiveness rests on solid foundations made up of a high-quality institutional framework (4th), a stable macroeconomic environment (6th), and an efficient goods market (3rd). Low levels of corruption and undue influence on government decisions, high efficiency of government institutions, and strong security are the cornerstones of the country’s solid institutional framework, which provides a good basis for heightening efficiency.
Going forward, reducing the country’s vulnerability to commodity price fluctuations will require diversification into other sectors of the economy and reinforcing some areas of competitiveness. As a high-income economy, Qatar will have to continue to pay significant attention to developing into a knowledge- and innovation-driven economy. The country’s patenting activity remains low by international standards, at 60th, although some elements that could contribute to fostering innovation are in place. The government drives innovation by procuring high-technology products, universities collaborate with the private sector, and scientists and engineers are readily available. To become a truly innovative economy, Qatar will have to continue to promote a greater use of the latest technologies (31st), ensure universal primary education, and foster more openness to foreign competition—currently ranked at 30th, a ranking that reflects barriers to international trade and investment and red tape when starting a business.
The United Arab Emirates moves up in the WEF global competitiveness rankings to take second place in the MENA region at 19th globally. Higher oil prices have buoyed the budget surplus and allowed the country to reduce public debt and raise the savings rate. The country has also been aggressive at adopting technologies and in particular using ICTs, which contributes to enhancing the country’s productivity. Overall, the country’s competitiveness reflects the high quality of its infrastructure, where it ranks a solid 5th, as well as its highly efficient goods markets (4th). Strong macroeconomic stability (7th) and some positive aspects of the country’s institutions—such as strong public trust in politicians (3rd) and high government efficiency (9th)—round up the list of competitive advantages.
Going forward, putting the country on a more stable development path will require further investment to boost health and educational outcomes (49th on the health and primary education pillar). Raising the bar with respect to education will require not only measures to improve the quality of teaching and the relevance of curricula, but also measures to provide incentives for the population to attend schools at the primary and secondary levels.
Saudi Arabia remains rather stable with a small drop of two places to 20th position overall. The country has seen a number of improvements to its competitiveness in recent years that have resulted in more efficient markets and sophisticated businesses. High macroeconomic stability (4th) and strong, albeit falling, use of ICTs for productivity improvements contribute to maintaining Saudi Arabia’s strong position in the GCI. As much as the recent developments are commendable, the country faces important challenges going forward. Health and education do not meet the standards of other countries at similar income levels. Although some progress is visible in health and primary education, improvements are being made from a low level. As a result, the country continues to occupy low ranks in the health and primary education pillar (53rd). Room for improvement also remains on the higher education and training pillar (48th), where the assessment has weakened over the past year. Labor market efficiency also declines, to a low 70th position, in this edition. Reform in this area will be of great significance to Saudi Arabia given the growing number of young people who will enter the labor market over the next several years. More efficient use of talent—in particular, enabling the increasing share of educated women to work—and better education outcomes will increase in importance as global talent shortages loom on the horizon and the country attempts to diversify its economy, which will require a more skilled and educated workforce. Last but not least, although some progress has been recorded recently, the use of the latest technologies can be enhanced further (41st), especially as this is an area where Saudi Arabia continues to trail other Gulf economies.
The Middle East and North Africa
The Middle East and North African region continues to be affected by political turbulence that has impacted individual countries’ competitiveness. Economies that are significantly affected by unrest and political transformation within their own borders or those of neighboring countries tend to drop or stagnate in terms of national competitiveness. At the same time, some small, energy-rich economies in the region perform well in the rankings. This underlines the fact that, contrary to the situation found in previous energy price booms, these countries have managed to contain the effects of rising energy prices on their economies and have used the window of opportunity to embark on structural reforms and invest in competitiveness-enhancing measures.
Mineral resource abundance: Blessing or curse?
The availability of abundant natural resources, especially minerals such as oil, gas, copper, and gold, has traditionally been regarded as an important input into economic growth and higher levels of prosperity in many economies. Many oil- and gas-rich countries in the Middle East have benefited from some of the highest gross domestic product per capita in the world, for example.
However, an abundance of mineral resources does not necessarily directly equate with higher rates of sustained productivity and overall competitiveness, and thus with rising prosperity in the long term. From the 17th century, when a resource-poor Netherlands managed to flourish in sharp contrast to gold- and silver-abundant Spain, to more recent cases—such as the rapid economic development of mineral-poor newly industrialized countries of Southeast Asia, which stand in contrast to some oil-rich nations such as Venezuela—history is full of examples where mineral endowments have not proved to be a blessing for long-term economic growth. Instead, such endowments have been a curse that has held countries back from making investments to support future, long-term economic development.
In the end, the relationship between mineral abundance and levels of prosperity depends on the use that nations make of the revenues accruing from mineral exports. Those countries that use such revenues for current spending rather than on productive investments will most likely not benefit from high growth rates in the long run. In those countries, national investments are driven toward mineral extraction activities that affect the level of productivity of other activities, such as manufacturing and services. This leads to an increase in the country’s exposure to fluctuations of mineral prices in international markets. In order to avoid these negative effects, known in the academic literature as the “Dutch disease,” countries should invest their mineral revenues carefully in productive activities such as infrastructure, education, and innovation. By doing so, they will enhance their overall productivity and support a progressive diversification of their economies, becoming more resilient and ensuring more sustainable patterns of economic growth.
One crucial factor that allows countries to effectively channel mineral revenues toward productive investments is the presence of strong, transparent, and efficient institutions. The absence of corruption, along with high levels of transparency and accountability and a strong commitment to a long-term economic agenda that is based on steady productivity gains and independent from the political cycle, are necessary, if not always sufficient, conditions to ensure that natural resources support long-term growth. Chile, Norway, and the United Arab Emirates are examples of countries that are managing their mineral revenues smartly. These countries are creating national funds that avoid overheating their economies and that invest in growth enhancing activities related to education and innovation, thus supporting more diversification and preparing the ground for longer-lasting and more sustainable economic growth.
MENA: key economic issues in 2014
Economist Intelligence Unit | Middle East and North Africa: key economic issues in 2014
Since the onset of the Arab Spring in 2011 the Middle East and North Africa has in effect been a tale of the “haves” and “have nots”. The countries most affected by unrest, and in some cases war, have seen their economies stagnate. The more stable countries—which, not coincidentally, have also typically been oil-rich—have boomed on the back of fiscal stimulus and high oil prices. Yet 2014 should see the start of an unwinding of this trend, as the oil-rich “haves” take their foot off the fiscal pedal and the “have nots” begin to benefit from the upturn in the euro zone.
Nowhere has the opening of the fiscal spigots been more apparent than in the wealthy Gulf Co-operation Council (GCC). In the wake of the unrest in early 2011, all the GCC states dispensed with fiscal prudence and, buttressed by rising oil prices and production, their governments announced enormous public-sector salary and pension rises, huge new infrastructure and housing programmes, and increased subsidies. However, inevitably, such largesse has taken its toll on the public finances, and we expect all six of the GCC states to return either a narrower surplus, or, in the cases of Oman and Bahrain, wider deficits, in 2014.
GCC closes the fiscal spigots
In response, governments are being forced to act. Saudi Arabia, for example, recently announced a budget just 4% bigger than its predecessor (compared with a budgeted spending increase of 17% in 2013), and Oman’s 2014 budget projects spending just 5% up on its predecessor—a marked slowdown from the 29% spending increase announced in the 2013 budget. Similarly, for almost the first time since the collapse in oil prices in 1997‑98, several GCC governments are now publicly mulling tackling their overgenerous subsidy systems. In a blunt appraisal of the situation, the Omani oil and gas minister, Mohammed bin Hamad al‑Rumhi, told a conference in October that “subsidy is killing us” and, echoing his comments, the governor of the Central Bank of Bahrain, Rashid al‑Maraj, warned in December that the present situation is “not sustainable”. However, in reality, mindful of potentially fomenting unrest, any attempt to reform subsidies will be extremely cautious, with households almost certainly excluded, at least initially, from cuts, and industry prioritised.
Labour market policies will hinder businesses
The targeting of industries within the GCC is hardly going to help the business climate, however. Already, companies across the Gulf are being weighed down by increasingly aggressive labour market policies, which are focused on replacing foreign workers with locals. Saudi Arabia has been especially energetic in this regard, introducing a major reform to its expatriate sponsorship system, including inducements to encourage firms to hire nationals, and imposing fines on companies with more than 50% foreign workforces. Concurrently, a host of governments, including Oman, Saudi Arabia and Bahrain, have sought to encourage their wary citizens to embrace the private sector by raising the minimum wage for nationals. Overall, therefore, companies are increasingly being confronted with having to hire more, typically less well-educated and motivated locals, at a higher cost. Thus far, massive fiscal stimulus and high oil prices have shielded the GCC economies from the harmful effects of their labour policies. However, with oil prices stabilising (and forecast to decline in the coming years), the state will no longer be able to provide much of an economic prop, and thus there is a risk that the GCC’s stellar economic performance of recent years will become a thing of the past.
| Economic growth | ||||
| (% change, market exchange rate weights) | ||||
| 2011 | 2012 | 2013 | 2014 | |
| Middle East & North Africa | 2.8 | 3.7 | 2.4 | 3.6 |
| Oil exporters | 2.7 | 4.0 | 2.3 | 3.8 |
| Non-oil exporters | 3.1 | 2.8 | 2.9 | 3.1 |
| Gulf Co-operation Council | 7.6 | 5.5 | 3.9 | 4.4 |
| Algeria | 2.4 | 2.5 | 3.2 | 3.6 |
| Bahrain | 2.1 | 3.4 | 3.9 | 3.2 |
| Egypt | 1.8 | 2.2 | 2.0 | 2.2 |
| Iran | 2.7 | -5.6 | -3.0 | 1.5 |
| Iraq | 8.6 | 8.4 | 5.2 | 8.2 |
| Israel | 4.6 | 3.3 | 3.2 | 3.4 |
| Jordan | 2.6 | 2.7 | 3.2 | 3.9 |
| Kuwait | 10.2 | 8.3 | 2.3 | 2.7 |
| Lebanon | 3.0 | 1.4 | 1.3 | 2.2 |
| Libya | -61.4 | 92.1 | -2.3 | -2.7 |
| Morocco | 5.0 | 2.7 | 4.0 | 4.1 |
| Oman | 0.3 | 8.3 | 4.2 | 4.1 |
| Qatar | 13.0 | 6.2 | 5.5 | 5.0 |
| Saudi Arabia | 8.6 | 5.1 | 2.9 | 4.0 |
| Sudan | -3.8 | -4.2 | 3.0 | 2.9 |
| Syria | -3.4 | -18.8 | -19.0 | 1.8 |
| Tunisia | -2.0 | 3.6 | 2.8 | 3.0 |
| United Arab Emirates | 3.9 | 4.4 | 4.3 | 4.4 |
| Yemen | -10.5 | 0.1 | 3.8 | 5.1 |
| Source: The Economist Intelligence Unit. | ||||
Governments eschew economic reform
Meanwhile, in the rest of the region the challenge is simpler: job creation, rather than worker replacement, is top of the agenda. However, in the absence of large oil reserves or swollen sovereign wealth funds, and confronted by long-fragile fiscal positions, boosting growth will prove an uphill task. This will be exacerbated in the near term by ongoing cuts in subsidies, which have typically been focused on larger users (namely, industry), rather than households. For example, a phased 50% cut in the price subsidy for gas and electricity in Tunisia is being initially focused on only large users, and the latest electricity price increase in Jordan for major users has prompted an outcry from industrialists.
More broadly, the business climate will be further impaired by the general governmental aversion to economic reform, as populations remain wary of the capitalist models pursued by the pre-2011 generation of leaders and technocrats (which, in reality, were always undermined by corruption and nepotism). The only exception to this trend will probably be Egypt, where the current interim administration (populated predominately by technocrats and academics) is working assiduously to create a more foreign investor friendly environment following the more statist policies of the previous Muslim Brotherhood administration.
However, it will be undermined in this by the unpromising political and security outlook, which will in turn depress domestic confidence and foreign investment—a handicap that will also affect Tunisia and Lebanon, as well as hydrocarbons-rich but hyper-unstable Libya and more resource-poor Yemen. Adding to the unhelpful climate, the ongoing war in Syria will also continue to spill over its borders, strengthening the economic headwinds in Lebanon, depressing the recovery in Jordan, and potentially setting back Iraq’s recent oil-led economic bounceback.
In contrast, thus far at least, Israel has managed to remain at least economically aloof from Syria’s problems, and indeed it is well placed to benefit from the strengthening economic picture in its two primary export markets, the US and the EU. The long overdue recovery in the euro zone will also offer a rare bright spot for some of the more troubled North African states, notably Morocco, Egypt, Tunisia and Algeria, reflecting its primary importance as an export market, and as a source of remittances and tourists.
A little help from their friends
Nevertheless, in many cases such positives will be more than outweighed by the continued fallout of the Arab Spring, prompting governments in the more unstable and less resource-rich states to continue to rely heavily on outside support. The IMF play a crucial role in this regard. Jordan, for example, has had a US$2bn lending facility in place since August 2012, and the IMF also formally agreed a US$1.74bn financing programme with Tunisia in June 2013. Despite popular misgivings about the conditions attached to this lending, the Fund is likely to remain relatively flexible in its assessments, primarily reflecting the overarching desire on the part of both itself and its financers to promote stability and assist in the democratic transition.
Nevertheless, talks between the IMF and Egypt over a US$4.8bn stand-by arrangement appear to have run into the ground. Prior to the ousting of the president, Mohammed Morsi, in early July, efforts to reach a deal had been persistently hindered by the then government’s failure to follow through on promised reforms. Since July, however, it appears that talks have in effect come to a standstill, with the new interim government eschewing the option, citing the need to wait until the installation of a permanent administration.
Egypt’s reticence about the IMF stems from a trend that has been increasingly prominent over the past few years: the disbursement of financial support from the region’s oil-rich states, in particular the GCC, to regional allies. In this regard, the GCC has been especially generous to the new leadership in Egypt, with Kuwait, the UAE and Saudi Arabia offering US$13.9bn in assistance However, it remains to be seen whether Qatar, which also gave a US$500m loan to Tunisia in April 2012, will curtail its hyperactive financial assistance programme, in line with the receding of support across the region for the Muslim Brotherhood (which Qatar has proactively backed).
Money buys influence
Even without active Qatari participation, however, Saudi Arabia and its allies in the GCC will continue to work assiduously to defend the current crop of autocratic rulers. For example, Saudi Arabia, the UAE, Kuwait and—possibly—Qatar will provide further backing to Jordan and Morocco, as part of their long-term pledge in 2011 to give US$5bn to support development projects. This reflects a desire on the part of the GCC to shore up political stability, as well as maintain influence, but humanitarian concerns will also increasingly come to the fore: amid the civil war in Syria, millions of refugees have poured into neighbouring Jordan and Lebanon, threatening the authorities’ ability to cope and prompting their governments to plead for foreign assistance. (In response, Saudi Arabia pledged US$3bn to Lebanon’s army in late December.) However, given the GCC’s states hostility to the Syrian government, Syria’s leadership will instead rely on Iran, which has set up a US$4bn credit line and, unlike other parts of the region, could see a major upturn in its fortunes if a diplomatic deal can be reached over its nuclear programme.
However, again, 2014 could mark a turning point. With the GCC’s fiscal situation deteriorating rapidly and austerity in vogue, the region’s non-oil producers will increasingly be left to fend for themselves (although this may not become truly apparent until next year). With governments under-resourced and the public sector typically inefficient, the responsibility for raising living standards and boosting job growth will once again have to be shouldered by the private sector—as was much the case prior to 2011.
Sukuk Rising Fast in Popularity
First published in:
Rutledge, E. J. (2005, November 3). Sukuk Rising Fast in Popularity Arab News. https://www.arabnews.com/node/282634
The Islamic bond (Sukuk) is fast rising in popularity and so lucrative is the potential market that conventional international banks are falling over themselves to set up Shariah-compliant operations. With abundant oil-windfall revenues and a raft of infrastructure mega projects either underway or on the drawing board, the Gulf is fast becoming the logical choice for new and established players alike to set up shop.
As conventional bonds are “off limits” to Muslims because interest is paid to those who invest in them, the Gulf debt market was until recently underdeveloped. This is changing because Sukuk offer a share in the proceeds from a business venture rather than paying out interest.
Bahrain has been a leading “offshore” banking center for decades and its central bank, the Bahrain Monetary Agency, is one of the pioneers of Islamic banking. However, until recently, the “capital” of Islamic finance was Malaysia. Competition is certainly building up, Swiss banks are now making efforts to understand, embrace and implement some elements of Islamic finance and the UK’s chancellor of the exchequer, Gordon Brown, has said that he wants London to become the global Islamic finance center.
The latest Sukuk deal from the Gulf Cooperation Council (GCC) bloc is Saudi Basic Industries Corp’s (SABIC’s) $800 million issue. This is significant because it is the first Saudi Sukuk to be issued under the new Capital Market Law and the debt market in the Kingdom is relatively untapped. If SABIC becomes a Saudi trendsetter, there is no doubt that the GCC will become the global hub for Islamic finance. The only question is if the likes of Merrill Lynch and Goldman Sachs will pitch their headquarters in Dubai, Manama or Riyadh? According to the Islamic Finance Information Service, there were three key players in terms of issuing Sukuk in 2005 — GCC countries, Malaysia and Pakistan. To date, most Sukuk have been corporate, not sovereign. For instance, the only major sovereign bond issue in the GCC countries during 2005 was by the government of Bahrain ($79.5 million). It therefore follows that the potential Middle Eastern sovereign Islamic bond market could be huge in the future.
In 2005, a Malaysian company, Jimah Energy Ventures, issued the largest Sukuk for the year — $1.27 billion; Malaysian companies also issued the second and third biggest Sukuk last year (Musyarakah One Capital’s Sukuk for $658 million and PLUS Expressway’s for $634 million). However, the tables turned in early 2006 with DP World launching the largest Sukuk in history. The $3.5 billion issue by Dubai Ports, received more than $11 billion in subscriptions! The Malaysian bank, Commerce International Merchant Bankers, was the leading Sukuk manager (as of Q2 2005) with $1.39 billion, but the UAE’s Dubai Islamic Bank was in third place having managed three Sukuk worth $633 million. Interestingly, and indicative of the trend in conventional banks moving into Islamic finance, HSBC Amanah was last year’s second most important Sukuk manager having helped various entities raise $ 882 million, in seven separate issues.
The overall pool of assets managed by Islamic banks, according to estimates by Reuters, is between $250 billion and $400 billion. Over the past five years the Sukuk market has grown significantly — the latest data from Bahrain’s Liquidity Management Center indicates that there is almost $ 18 billion worth of outstanding issues; of this, no less than 52 percent originates from the GCC countries.
Various changes have taken place or continue to take place and all bode well for the Gulf’s nascent financial centers. The first is that much more of the region’s oil windfall revenues are being retained within the region than in previous oil booms. Ongoing reforms, particularly in the region’s real estate sectors, are attracting significant levels of this retained capital. The second is the region’s increasingly bullish private sector. All regional governments are investing heavily in their respective infrastructures and unlike the past, most of today’s projects are generating growth, and not white elephants.
Thirdly, governments and regulators in various GCC countries are being proactive in promoting Islamic banking and are developing custom-built regulatory frameworks, rather than simply following Malaysia’s lead. Combined, these changes mean that more local entities are seeking to raise money via Sukuk issuance and domestic investors are more willing to invest in such bonds. Many of the Sukuk issued in the Gulf till now have been oversubscribed due to high demand, but many more are in the pipeline. The head of Islamic Finance at the Dubai International Financial Center, Khalid Yousaf, estimates that the GCC countries are likely to see another $9 billion worth of new Sukuk between now and the end of the year. Many of the Gulf Sukuk that are open to foreign subscribers are not just attracting Middle Eastern and Asian investors, but increasingly European and US ones too. Furthermore, Western companies are also starting to seek Islamic debt. For instance, the Gulf East Cameron Partners from the United States recently became the first American firm to issue a Sukuk ($166 million).
As the sophistication of Shariah-compliant products increase (particularly the emergence of a secondary market for trading issued Sukuk, as is happening in Dubai and Manama), a far higher number of Muslims and Islamic countries will opt for Sukuk as opposed to conventional bonds. And, why not? For all intents and purposes, the financial returns are comparable; the only real difference is that one is just that bit more ethical than the other.
(Emilie Rutledge is an economic researcher at the Gulf Research Center in Dubai.)
The dollar declines, while the euro shines
First published in:
Rutledge, E. J. (2006, May 28). The dollar declines, while the euro shines. Khaleej Times. https://www.khaleejtimes.com/business/the-dollar-declines-while-the-euro-shines
The dollar is once again losing value, and has depreciated by seven per cent against the euro since the start of the year. How far it will go is anybody’s guess, but the odds are, it will fall further.
Li Yong, China’s Vice-Minister of Finance, has talked of a possible further 25 per cent fall. According to some estimates the amount the United States now owes to the rest of the world now stands at $3 trillion. This, not anything else, is the prime reason for the dollar’s decline.
Although the Federal Reserve does not want to see the dollar collapse, it probably views any dollar devaluation as a convenient way of partially reducing the US’ huge current account deficit. If the dollar declines so will the ‘value’ of the deficit. However, a falling dollar does not bode well for the GCC. It will exacerbate inflation as European and Japanese goods become more expensive and it will also result in a depreciation of the ‘real’ value of the region’s reserve holdings. In addition, because oil and gas are priced and sold in dollars the GCC also stand to loose some revenues in this respect also.
Nevertheless, we have seen only a limited response to these currency conundrums in the form of Kuwait’s decision to allow its currency to appreciate marginally against the dollar. There has been talk from several of the region’s central bankers about a possible realignment in their foreign reserve holdings but as yet no concrete action has been announced. For the time being at least, any speculation that other GCC states were about to follow Kuwait’s lead have been discounted. Both the Saudi Arabian Monetary Authority and the Central Bank of Oman came out and publicly defended the status quo.
Apart for arguments such as ‘providing stability’ and ‘eliminating intra-regional exchange rate risk’ (all 6 GCC states are pegged to the US dollar, albeit Kuwait maintains a more flexible band within which to fluctuate), there is another argument for maintaining the dollar peg. And that is that the collective peg is an interim step towards forming a single GCC currency in 2010. Having a joint peg is a good thing, as it eliminates exchange rate risk within the bloc, but it could just as easily be achieved with a joint peg to the euro or a trade weighted basket of currencies.
Happy creditors no more? For many years Asian central banks, particularly those of China and Japan, have been willing to finance US deficits despite the risks, in order to support their own export-led growth models. However, the scale of financing (subsidising) required to sustain the US’ current account deficit may soon exceed their absorptive capacities. A law of diminishing returns also comes into play; there comes a point when alternative economic growth models look more appealing that accumulating ever greater numbers of underperforming US Treasury Bonds.
The current situation is somewhat perplexing, the country that controls the world’s de facto reserve currency, also happens to be the world’s largest debtor. In any other walk of life, you would be forgiven for being somewhat wary if lending to someone with huge debts. The US like any other debtor may be tempted to use (or not do anything much to prevent) devaluation to reduce external deficit, and this is hardly a desirable trait for a reserve currency.
The dollar has been the dominant reserve currency for at least the past half century and will no doubt continue to be one for some time to come. It can however no longer take this role for granted. One thing is constant in history and that is nothing remains the same forever. Back in the early 1990s after a period where the dollar devalued considerably, many economists at the time speculated about the dollar’s role as the world’s de facto reserve currency. The dollar, nevertheless rebounded, and continued to play its role, in part because there was no viable alternative.
This has changed. Today we have the euro (tomorrow perhaps, even the Yuan). In general for a currency to qualify as a reserve one it needs to meet several criteria including being backed by a large economy, which itself has free flows of capital, open and deep financial markets and low inflation. The euro zone has all of these characteristics and to top it all, it runs a current account surplus.
Those who switch first stand to gain the most: It is now estimated that the US’ deficit consumes no less than two thirds of the worlds total current account surplus. Joseph Stiglitz, a f ormer head of the IMF, recently pointed out that there is obviously something peculiar about a global financial system in which America borrows more than $2 billion each and every day from other countries (in March the US’ Trade Deficit was $62bn) whilst lecturing them on fiscal responsibility.
One could view the current state of affairs as a bit like the classic ‘prisoner’s dilemma’. If any one Asian central bank switched its reserves into euros tomorrow it would undoubtedly benefit vis-à-vis the others, but if they all attempted to switch at the same time they would collectively see the value of their reserves fall considerably, as the resulting run on the dollar would adversely affect all that hold it in reserve.
Reactionary tendencies will probably mean that the GCC dollar peg remains for the time being but there is a strong and growing argument for a move away from too much dependence on the dollar. If Gulf central banks were to buy euros today with some of their dollars reserves, they would get far better exchange rates than if they were to wait for Asian central banks to make the move first.
It is surely worth the while of the GCC’s central bankers to seriously consider alternative options to the current status quo, it would be a shame if the considerable economic achievements of the past few years are washed away by maintaining a rigid dollar peg that may be extremely expensive to maintain and cause unnecessary inflation.- (Emilie Rutledge is an economist with Gulf Research Centre)