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The Arab Economic Summit was largely overshadowed with Gaza crisis and internal Arab disputes, (Reuters photos) |
Several socio-economic problems, which formed and developed over the past 20th century, have passed on to the first decades of the 21st century.
On top of these problems come unequal distribution of income, poverty, fluctuating oil prices, and the rise of rentier Arab countries, as well as the interdependence between the neo-liberal and developing Arab economies, which affects macro prices, impacting— in turn— micro prices [1].
Moreover, the global financial crunch— which has affected the real market— caused the Arab economy to slow down, since virtual economy [2] could highly affect the real one.
Economic Gaps
| Military expenditure aiming at protecting ruling Arab regimes reached 12 percent in an Arab country. |
The Joint Arab Economic Report of 2006 indicated that the aggregate GDP [3] of all Arab countries was to the tune of $ 1066.481 trillion, with variations in income distribution within Arab countries remarkably exist.
In 2005, for example, stark disparity in income per capita occurred between low-income Arab countries and their oil-exporting counterparts when GDP in the latter exceeded half of the previously mentioned value (57.3 percent).
One of the reasons behind such disparity is that most Arab governments have neglected to build "welfare state" [4], so average per capita income in the 1990s declined— compared to that in the 1970s.
Moreover, on the one hand, spending from the aggregate GDP of Arab countries in 2006 on social expenditures was 17 percent, while spending on investment outflow did not exceed 16.9 percent despite its significance in terms of economic growth.
On the other hand, military expenditure aiming at protecting ruling Arab regimes reached 12 percent in an Arab country.
Accordingly, economic gap of resources is estimated at 19.8 percent, and food gap exceeded $ 16 billion, followed by a 36-percent increase in foreign debt.
Additionally, the internal gap between savings and investments, as well as the external gap between exports and imports, widened over the last two decades, especially in average and low-income countries, causing poverty to stricken more than third of Arab region's population.
Arabs and Financial Crisis
| Intra-Arab trade will decline, causing poverty and Gini Coefficient— which indicates inequality in income distribution— to increase. |
In the wake of world financial and economic crisis of 2008-09, the economies of Arab countries began to further slow down facing volatility in bond and share prices and suffering from rising unemployment.
Although several specialized publications and seminars were overoptimistic regarding this turmoil, facts completely provide the opposite.
Two and half million employees were laid off, more than 19 banks collapsed, and demand decreased on economic installations, real estate, and auto industry in particular.
In other words, the crisis headed to real markets from financial markets, and then moved overseas, highly affecting every region, even Europe.
In the face of the effects of this crunch, overspending was a proposed solution to stop financial collapse, accompanied by unprecedented interest rate reduction to bolster investment and provide suitable cash flow.
However, this may lead to an increase in inflation on the short-term, causing economic growth to slow down.
Concurrently, this impinges on Arab economies, especially oil-exporting countries, since the sharp fall in oil prices would increase unemployment and decrease wages.
Thus, intra-Arab trade will decline, causing poverty and Gini Coefficient— which indicates inequality in income distribution— to increase.
The Same Old Problem
| If Arab economic integration and cooperation are to be sought, democracy shall become a reality. |
Recently, the Arab Economic Summit discussed the economic issue as its main aspect due to choppy economic conditions around the world.
In the midst of globalization and current economic conditions, Arabs have the right to know the answers to certain questions about their economic life, like will the resolutions of the Arab Economic Summit reform certain Arab economic systems?
And, will the Summit establish a strategy to restructure the regional Arab economy, targeting welfare state and international competence, causing the Gini coefficient to decrease?
Nevertheless, increasing Arab cooperation and working on providing basic needs to Arab citizens will reposition the Arab economy in global markets and economic blocs, like the European Common Market and the North American Free Trade Agreement (NAFTA), as well as enabling the regional Arab economy to compete globally.
Even though the Council of Arab Economic Unity (CAEU) headed by its promising Secretary General, Dr. Ahmed Jowaili, this council is ineffective like other Arab organizations because of contradictions in Arab economic systems.
Some of these contradictions started since post- World War II, whereas others are due to the interests of several Arab and non-Arab strata that started to connect state-managed institutional entities with economic organizations.
Mixing state-managed institutions with economic organizations partly restricts integration and cooperation between economic policies, since institutional entities amend regulations in order to please economic organizations.
Thus, state-managed institutions lose their supervisory authority over economic organizations, allowing corruption to augment.
Furthermore, Arab countries follow different economic policies, restricting regional integration and cooperation.
For example, some states adopt neo-liberal policies; Others adopt more totalitarian approach; Others are in the middle between both.
Such disparity in economic policies is attributed to the differences of political systems in the Arab world, where some states are completely dependent on the West, while others seek some sort of independence.
The third obstacle is the wide gap in income distribution among Arab countries and within the same country.
There are uncertainties that rich countries would invest their capital in poor countries.
While Arab investments abroad are worth about $1 trillion, poor Arab countries seek to increase foreign direct investments in order to guarantee growth.
The final obstacle to Arab economic unity is the unjustified fallacy that some states argue that there is no relation between politics and economics.
However, democracy can not be effective without real liberalism, which is the case in the Arab world.
If Arab economic integration and cooperation are to be sought, democracy shall become a reality.
And, it is asked: Will the resolutions of the Arab Economic Summit overcome economic ignorance? Or, is it just propaganda?
Across the Arab world, the hopes of poor, low-income, and middle-income people to improve their living conditions were waned as the summit did not bother to create new jobs or to expand economic integration.
The Summit issued resolutions that only benefit "Arab capitalists", solidifying the already established relations between the state and big businessmen.
[1] Macro prices refer to exchange, interest and wholesale rates as well as wages ratio and micro prices reflect services and commodity prices in local markets.
[2] Virtual economy refers overestimation in financial markets and is dependent mostly on speculation, while real economy shows product volume in real markets.
[3] GDP is the acronym of Gross Domestic Products
[4] Welfare state means that the state has responsibilities in providing the population with basic goods and services, like education and health care.
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