Arab common market: Low inter-trade reveals problem, part 2
Regional, Analysis, 5/12/1999

There are a number of problems regarding the Arab common market. Firstly, most Arab states have not pursued policies to encourage inter-Arab trade, which was until 1996 about 6-7% of their total trade, and is usually in the form of organized "protocol trade," or bilateral and restrictive trade agreements.

Several factors that are structural to the economies of the individual Arab states have played a role in this low level of trade. One factor is the nature of industrial output of oil-producing states that is not focused on creating diverse value-added byproducts from raw materials and oil, whether this production is done in the oil-producing states themselves or shifted to low-cost labor in poorer states.

Another factor in the poorer Arab states is due to highly protected and inefficient industries and relatively poor economies that have not produced products that meet the needs of the Arab market.

Yet another factor is that many Arab states have not capitalized on the natural assets that each state has to develop these particular assets into strategic centers of development that can produce world-class products that can be sold to local, regional and internal markets. Fisheries, tourism, entertainment, agriculture are some of the most obvious areas (we will expand on this subject later in the series).

The low level of the Arab states' exploration of joint production possibilities for needed products is another factor, as is the diversity of the Arab economies where some states provide subsidies for commodities, thus preventing other states from opening up their markets.

Another factor is the lack of communication, information and facilitation to make possible the travel and greater contact by business persons and people in general that would allow for joint action and discovery of opportunities to meet other Arab states' needs of products that can be exported or imported.

There are great numbers of obstacles in the way of establishing an Arab common market. European policy at its early stage of development was geared towards individual countries where economic integration was a voluntary and gradual political process between two or more countries through which the members create a regional economic area where commodities and production inputs moved without barriers or restrictions. In this area the economic, trade and monetary policies were coordinated and presumably one monetary unit eventually prevails.

In theory four stages are usually noticed in this process: free trade area; customs union; common market and economic union. But this division into stages does not mean the complete independence of each stage. There is in practice an interaction between the stages, yet each stage has its own distinctive characteristics. The first is characterized by free movement of commodities, the second by a unified customs barrier against external countries (non-members of this integration), the third is distinguished by free movement of the production inputs (labor and capital in particular) and the fourth has the distinctive mark of unified economic policies and the issuance of a single currency.

From this definition of economic integration and the stages through which it passes, it appears that this integration is a voluntary political process with a purpose, not spontaneous or involuntary where part of the state's authority is ceded within the context of the nation-state to the apparatus overseeing the process of economic integration which may have the authority of a supra-state's authorities. This concession is made with the purpose of achieving economic gains for the member states which they cannot achieve individually. Hence economic integration cannot be reached without a political will, nevertheless, highlighting the real state of affairs of Arab economic integration.

The image of what is seen by Arabs, when looking from a distance at the status of the Arab world's economies, is fragmented, in-country Arab economies; the borders, barriers and restrictions have been consolidated over the years since independence so much so that they have become real walls. Strong economic relations bind them to the external world, while those which link the Arab states together are fragile, a weak framework of joint Arab institutions governed by political relations, and the concept of economic integration is absent. Rather it is replaced by the concept of economic cooperation.

A number of economic and non-economic indicators may point to this image, including a drop in the per-capita income on the pan-Arab level and wide differences in the individual levels of income inside each country. The average per capita income in the Arab world as a whole went down from US $2,452 in 1981 to US $1,965 in 1988 and to US $1,842 in 1991. The highest average of US $36,000 was recorded in the oil-producing Arab state (Qatar) in 1981 and the lowest in the same year was US $406 in Yemen.

In 1993, the average per capita income in the Arab states was US $2,116 with the highest recorded in the United Arab Emirates where it recorded US $20,705 and the lowest in Sudan at US $203.

Instability of economic growth rates in the Arab states also plays a role. This rate ranges between 7% and 81% annually, which can be attributed mainly to factors of economic growth that are governed by external reasons, especially fluctuations of petroleum prices in the world markets.

A rise in the value of trade transactions with industrialized countries is another factor. Sixty percent of the total Arab states' exports go to the European Union, the US and Japan, while 65% of the total Arab imports come from these same countries. The trade of the Arab Maghreb states is concentrated in the European Union, with rates ranging up to 80% for Tunisian exports and 72% of its imports.

The weakness of inter-Arab trade relations is reflected by the fact that inter-Arab trade does not surpass 9% of total Arab foreign trade. This percentage point changes up and down but does not exceed 10% at the best.

The structure of Arab foreign trade depends on the export of raw materials, particularly crude oil and natural gas. The Arab states' share in the total world exports of crude oil is around 38% and around 12% of natural gas. Oil accounts for over 70% of the total Arab exports. Moreover, there is reliance on imports to meet the local demands for consumer and capital commodities.

Imports of manufactured goods constitute over 72% of the Arab states' total imports, whereas the imports of food stuffs amount to 17% of the Arab states' total imports.

We've cited many factors (in brief) that touch on why inter-Arab trade is poor. But the problem, like all problems, is because each state individually, and for whatever political or economic reasons, has failed in stressing and providing the environment, factors and tools that would produce strong trade between the Arab states. If the stated goal of each of the Arab state is to produce greater inter-Arab trade for the common good so that a higher standard of living can be achieved along with the other benefits, then individually, each Arab state's effort to increase inter-Arab trade has failed due to either poor implementation, or lack of will, or insincere will, or alternatively because it is not possible to achieve greater inter-Arab trade due to unbiased economic limitations. It is hard to believe this last factor as it would suggest that some 250 million people, with great human, natural, and financial resources at their disposal are not capable of producing much, much more of the products that they consume, and in the process enriching their citizens.

Previous Stories:
  Arab League says too early for Arab army   (5/11/1999)
  Arab common market: The possibility of realization, Part 1   (5/10/1999)
  Morocco to develop fisheries sector into a strategic leg of the economy   (5/6/1999)
  7.7 percent increase in OPEC revenues likely this year, US says   (5/6/1999)
  Officials of Mideast, North Africa regions discuss inter-Arab tourism   (4/30/1999)
  World bank expresses guarded optimism about Africa's growth   (4/29/1999)
  Arab finance ministers meet in Doha on Arab free trade zone   (4/21/1999)
  Egyptian premier reiterates call for an Arab common market   (12/11/1998)

Please add a link on your webiste pointing to ArabicNews.com and bookmark ArabicNews.com & subscribe to our daily email news bulletin.

Search