| United Nations | E/1997/45 |
Economic and Social Council
Distr. GENERAL
28 April 1997
ORIGINAL: ENGLISH
Substantive session of 1997
Geneva, 30 June-25 July 1997
Item 10 of the provisional agenda
REGIONAL COOPERATION
Summary of the survey of economic and social developments
in the ESCWA region, 1996-1997
CONTENTS
Paragraphs Page
I. OVERALL ECONOMIC PERFORMANCE ......................... 1 - 40 4
II. DEVELOPMENTS IN INTERNATIONAL TRADE AND PAYMENTS ..... 41 - 55 13
III. MONEY, FINANCE AND BANKING ........................... 56 - 72 17
IV. FOREIGN DIRECT INVESTMENT ............................ 73 - 80 20
V. STATUS OF WOMEN ...................................... 81 - 90 22
Table. Socio-economic indicators for the ESCWA region, 1994-1996...... 26
EXECUTIVE SUMMARY
The gross domestic product (GDP) of the ESCWA region, excluding
Iraq, is estimated to have registered a 4.8 per cent growth rate in
1996, compared with 2.2 per cent in 1995. The region's GDP per capita
registered a 2.1 per cent growth rate, the first positive growth
recorded in several years. This was mainly due to the performance of
the economies of the Gulf Cooperation Council (GCC) countries. The
GDP of the GCC countries as a group is estimated to have grown by 4.9
per cent in 1996, more than four times the 1.1 per cent growth rate it
achieved the previous year. Moreover, the GDP growth rate in each of
the six GCC countries in 1996 was higher than its 1995 level. Among
the region's more diversified economies, only Egypt and the Syrian
Arab Republic achieved GDP growth rates in 1996 that were higher than
their 1995 respective levels.
The economic outlook for the ESCWA region in 1997 will greatly
depend on: the international prices of oil; the speed of
implementation of economic reform in member countries; the
developments in the Middle East peace process; and Iraq's return to
the international oil market and the lifting of the sanctions on Iraq.
The ESCWA region's GDP is projected to grow by 4.3 per cent in 1997.
The major factor behind the acceleration of GDP growth in the
region in 1996, particularly in the GCC countries, was the 20.3 per
cent increase in oil prices. The average price per barrel in 1996 was
$20.29, compared with $16.86 in 1995. Despite the fact that oil
production remained unchanged at around the 1995 level of 16 million
barrels per day, oil revenues in the region increased by $16.4 billion
and totalled $96.5 billion. Given the important role of the oil
sector in most member countries, the largely unexpected significant
increase in oil revenues had very favourable effects on the internal
and external balances of the region as a whole.
Several ESCWA member countries were able to reduce their
respective ratios of budget deficit to GDP in 1996. They included
Egypt, Kuwait, Saudi Arabia and the United Arab Emirates. Bahrain is
also reported to have registered a small budget surplus in 1996.
Economic reforms continued in most of the countries in the region,
but the process has tended to lose momentum in some GCC countries,
mainly because of the unexpectedly large oil revenue windfall.
High unemployment rates remained a major problem in the region.
The highest unemployment rate was in the West Bank and Gaza Strip (28
per cent), followed by Yemen (25 per cent). In Egypt and Jordan,
estimates show a relatively high rate of around 13 per cent in both
countries. The Syrian Arab Republic also suffered from high
unemployment but at lower rates than those estimated for Egypt and
Jordan. Although GCC countries are all labour- receiving countries,
unemployment has been rising among the indigenous population in some
of them.
The inflation rates in most ESCWA member countries were, in
general, at internationally acceptable levels in 1996. The rates in
the more diversified economies, however, tended to be considerably
higher than those reported for the GCC countries. For example,
Jordan's inflation rate, estimated at 6 per cent, was the lowest among
the more diversified economies but was still higher than the highest
rate, 4 per cent, reported (for the United Arab Emirates) among the
GCC countries.
Estimates indicate that the region's exports increased by 15 per
cent during 1996, while imports increased by 9 per cent. The GCC
countries' exports, which are estimated at $117.4 billion and which
accounted for 89 per cent of the region's total exports, witnessed a
16 per cent increase in 1996. Meanwhile, the ESCWA member countries
with more diversified economies recorded an estimated increase of
exports of 5.6 per cent. The region's imports are estimated to have
increased from $93.3 billion in 1995 to $101.8 billion in 1996.
Preliminary estimates regarding the region's current account balance
indicate that the overall deficit decreased significantly, from $8.7
billion in 1995 to $1.4 billion in 1996, mainly owing to a better
trade balance resulting from higher oil exports.
Total external debt of ESCWA member countries, excluding Iraq, is
estimated to have dropped by around 4 per cent, to $175 billion in
1996 from $182 billion in 1995. This drop was caused partly by
rescheduling and forgiveness of parts of the debt of a number of
member countries, such as Egypt, Jordan and Yemen, and partly by
repayment of debt by others, such as Kuwait.
Most stock markets in the ESCWA region performed better in 1996
than many emerging markets in other developing regions. While the
aggregate index of the markets in other developing regions was
estimated to have dropped by around 8 per cent in 1996, that of stock
markets in the ESCWA region was estimated to have risen by around 12
per cent. The improved economic performance of most ESCWA member
countries in 1996 was reflected in a rise in activities in their
respective stock markets. Moreover, the rise in overall liquidity in
the economies of most ESCWA member countries enabled many corporations
to approach the stock market to raise private capital.
The inflow of foreign direct investment to the ESCWA region
remained very limited, with Egypt and Saudi Arabia receiving the bulk
of such inflows. Member countries have recently started creating a
more conducive investment climate by promulgating new investment laws
and adopting measures that aim at attracting private foreign and local
investment.
I. OVERALL ECONOMIC PERFORMANCE
1. The overall economic performance of the ESCWA region improved
significantly in 1996. The region's gross domestic product (GDP), excluding
Iraq, is estimated to have registered a growth rate of 4.8 per cent in real
terms. This rate is more than twice the 2.2 per cent growth rate registered
in 1995 and yields a positive 2.1 per cent per capita real GDP growth in the
region. The region had registered negative per capita real GDP growth rates
during the previous several years.
2. In nominal terms and excluding Iraq, the ESCWA region's GDP was
estimated to have totalled $353.3 billion in 1996, up by 10.1 per cent from
the $320.8 billion it registered in 1995. The region's per capita nominal GDP
was estimated at $2,828 in 1996, up from $2,638 in the previous year. Per
capita GDPs vary greatly between Gulf Cooperation Council (GCC) countries
(Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) and
the more diversified economies (Egypt, Iraq, Jordan, Lebanon, the Syrian Arab
Republic, the West Bank and the Gaza Strip, and Yemen) as well as among
themselves. In 1996, per capita GDP was estimated at $8,906 for the GCC
countries as a group, ranging from $17,092 in the United Arab Emirates to
$6,758 in Oman. For the group of countries with more diversified economies,
per capita GDP was estimated at $1,192 for 1996, ranging from $3,975 in
Lebanon to $679 in Yemen, the region's least developed country.
3. Major factors that contributed to the acceleration of economic growth
and development in the region in 1996 include the significant rise in oil
revenues of most of the member countries and the introduction and acceleration
of economic reforms in many countries of the region. The region's economic
growth could have been even greater in 1996 had it not been for several
adverse factors. The major factors that hindered growth were the unstable
political situation caused by the stalling of the Middle East peace process;
the Israeli attacks on Lebanon; the closure of the borders of the West Bank
and the Gaza Strip; and the continued United Nations economic sanctions on
Iraq, imposed since August 1990.
4. The marked impact of the oil price increase on overall economic
performance in 1996 is evident. In 1995, oil prices recorded an increase of
8.6 per cent compared with 1994. In 1996, the average price per barrel
increased by 20.3 per cent over 1995, from $16.86 per barrel to $20.29 per
barrel. In fact, oil prices in 1996 were the highest since 1990, when the
Organization of Petroleum Exporting Countries (OPEC) crude oil basket price
averaged $22.26 per barrel.
5. Oil revenues of the ESCWA region in 1996 were estimated to have totalled
$96.5 billion. This is an increase of $16.4 billion over 1995 revenues,
representing an increase of 20.4 per cent over the previous year, despite oil
production remaining unchanged at around the 1995 level of 16 million barrels
per day (mbd). The region's oil revenues in 1996 were the highest recorded in
more than a decade. More than 93 per cent of the increase in the region's oil
revenues in 1996 accrued to the GCC countries, which include some of the
world's major oil-exporting countries - namely, Saudi Arabia, the United Arab
Emirates and Kuwait.
6. The importance of the oil sector in the economies of most ESCWA members
is apparent. Excluding Jordan, Lebanon, and the West Bank and the Gaza Strip,
which do not export any oil, the remaining ESCWA members are all exporters of
oil in varying degrees, and oil revenues play, directly and indirectly, an
important role in their economies.
7. In the GCC countries, for example, despite the diversification efforts
over the past two decades, the oil sector still represents around
35-40 per cent of these countries' combined GDP. Oil revenues account for as
much as 80 per cent of government revenues and for more than 85 per cent of
exports in these countries. In the more diversified economies of the region,
such as Egypt, the Syrian Arab Republic and Yemen, although oil revenues do
not assume such a dominating role, they still represent a major source of
foreign exchange earnings, and this has positive effects on the respective
balance-of-trade accounts. The considerable rise in oil revenues, therefore,
exerts an appreciable impact on the level of economic activities in the
majority of ESCWA member countries.
8. The GDP of the GCC countries was estimated to have registered a
4.9 per cent growth rate in 1996, compared with a 1.1 per cent growth rate in
the preceding year. This marked acceleration in economic growth may be
attributed mainly to the growth in the oil sector and its indirect positive
implications for the non-oil sectors, in particular the banking, retail trade,
and construction sectors. With the unexpectedly large increases in oil
revenues, most Governments of the GCC countries were able to increase their
expenditure significantly above planned levels and still narrow their
respective budget deficits. The significant increases in government
expenditures, coupled with the multiplier effect, helped to boost further
economic activities and growth in these countries. Per capita GDP in the GCC
countries was estimated to have increased by 1.8 per cent in real terms in
1996, after declining by 2.1 per cent in the previous year. In 1996, real GDP
growth rates are estimated to have ranged between 5.2 per cent in both Kuwait
and Oman to 3.2 per cent in Qatar. In each and every GCC country, GDP grew at
a higher rate in 1996 than in 1995.
9. Bahrain's GDP was estimated to have increased by an estimated
3.8 per cent in 1996, compared with 2.2 per cent in 1995. Bahrain's economy,
the most diversified among the GCC countries, was stimulated by the estimated
44.7 per cent increase in its oil revenues. This considerable increase was
due partly to the rise in oil prices and partly to the country's gaining all
the revenues, since April 1996, from the output of the offshore Abu Saafa
oilfield, which it had previously shared with Saudi Arabia. The banking
sector, which traditionally has a strong link with developments in the oil
sector, performed very well in 1996. Most banks recorded higher profits than
in the previous year. The industrial sector, led by oil-refining and
aluminium, performed well in 1996. The tourism sector recovered somewhat from
its poor performance in 1995 and continued to attract tourists from other GCC
countries, particularly Saudi Arabia. The Government of Bahrain plans to
raise the salaries of public-sector employees by between 6 and 15 per cent in
1997. In addition, the Government plans to allocate 1.15 billion Bahrain
dinars (BD) (equivalent to $3.1 billion) for capital expenditure during the
four-year period 1997-2000. It should be noted that Bahrain had allotted only
BD 400 million ($1.1 billion) for capital expenditure during the previous four
years. Bahrain's economy is expected to grow at a slightly higher rate in
1997 than in 1996, despite a projected decline in oil prices in the
international markets.
10. The GDP in Kuwait was estimated to have increased by 3.9 per cent in
1995 and by 5.2 per cent in 1996. Economic conditions improved remarkably in
Kuwait in 1996, owing mainly to an estimated 19.1 per cent rise in Kuwait's
oil revenues, which have increased the country's balance-of-trade surplus and
simultaneously reduced its budget deficit. In addition, during the fourth
quarter of 1996, Kuwait repaid its last instalment of the $5.5 billion loan
that it borrowed at the end of the Gulf war. Moreover, Kuwaiti assets abroad,
which were estimated by unofficial sources at $35 billion in 1995, must have
increased considerably in 1996, owing to additional deposits by the Government
and the significant appreciation of the overseas investments during that year.
Kuwait's GDP is projected to grow by 4.3 per cent in 1997.
11. Oman's economy registered a growth rate of 4.5 per cent in 1995 and an
estimated 5.2 per cent growth rate in 1996. This steady and solid performance
may be attributed not only to the expanding oil sector but also to the fact
that Oman is at the forefront of economic reform among the GCC countries. The
private sector has apparently responded to governmental inducements to play a
greater role in the economy of the country. Despite projected declines in oil
prices, Oman's GDP is expected to grow by 4.9 per cent in 1997, which would be
the highest among the GCC countries.
12. Qatar's GDP, which grew by a modest rate of 1.4 per cent in 1995, was
estimated to have registered a 3.2 per cent growth rate in 1996. This marked
acceleration in economic growth was mainly due to the 13.5 per cent increase
in the country's oil production, from 422,000 barrels per day (b/d) in 1995 to
479,000 b/d in 1996. Given the increase in oil prices, the rise in oil
production resulted in an estimated 34.3 per cent increase in Qatar's oil
revenues in 1996. The economy of Qatar, a major producer of natural gas, also
benefited from higher natural gas prices in 1996. Qatar's GDP is projected to
register a higher growth rate, of 3.7 per cent, in 1997, owing mainly to
expected higher oil production and returns from its major liquefied natural
gas plants, which have recently been constructed and/or expanded.
13. Saudi Arabia's economy, which accounts for over 40 per cent of the ESCWA
region's GDP and around 58 per cent of the combined GDP of the GCC countries,
performed very well in 1996. After being basically stagnant in 1995, Saudi
Arabia's real GDP was conservatively estimated to have registered a 5 per cent
growth rate in 1996. In nominal terms, the Kingdom's GDP grew by 8.6 per cent
in 1996, according to official estimates. With oil production averaging
8 million b/d, the country's oil revenues were estimated to have increased by
more than $8 billion, to a total of around $51 billion in 1996, a
19.3 per cent increase over 1995. The growth of the oil sector, which
accounts for over one third of the Kingdom's GDP and around 90 per cent of its
exports, was clearly the main factor in boosting the economy and reducing the
country's internal and external imbalances. The increase in oil revenues was
more than sufficient to wipe out the budget deficit. Instead, however, the
Government apparently opted to repay its outstanding debts to private
contractors, increase governmental expenditure above planned levels, and
simultaneously narrow the budget deficit. The private sector benefited
greatly from the increase in the Kingdom's oil revenues and the rise in
Government expenditure, particularly the banking, retail trade and
construction sectors. Despite an expected decline in oil prices in 1997,
Saudi Arabia's GDP is projected to grow by 3.5 per cent in 1997, owing partly
to increased governmental expenditure and a rejuvenated private sector.
14. According to the Ministry of Planning in the United Arab Emirates, the
country's GDP grew by 6.1 per cent in real terms in 1995 and was preliminarily
estimated to have grown by 7.4 per cent in 1996. ESCWA estimates, however,
put the GDP growth rate of the United Arab Emirates at 2.2 per cent for 1995
and 5 per cent for 1996. In either case, the economy of the United Arab
Emirates performed well in 1995 and considerably better in 1996. The oil
sector accounts for around 40 per cent of the country's GDP. The United Arab
Emirates' oil revenues increased from $12.8 billion in 1995 to an estimated
$15.3 billion in 1996, and this had very positive direct and indirect effects
on the country's economy. The country's balance-of-trade surplus increased,
while the budget deficit declined, despite a rise in governmental expenditure
above planned levels. The banking sector recorded substantial profits. The
re-export trade surged in 1996, owing mainly to a large increase in the size
and number of companies, in particular in the Jabal Ali free trade zone. The
tourism sector performed well in 1996, with a rapidly rising number of
tourists, particularly from Europe. Several international exhibitions took
place in Abu Dhabi and Dubai, and the restaurant and hotel sector performed
exceptionally well in 1996. The departure of 180,000 expatriates who were
working illegally in the United Arab Emirates had only minor adverse effects
on the economy as a whole; these effects were felt mainly in smaller
enterprises and the construction sector. There were no significant increases
in employment opportunities for nationals since most of the jobs vacated by
the departing expatriate workers are not considered suitable by national job
seekers. The economy of the United Arab Emirates is expected to register
solid growth again, owing to the expected positive contribution of the oil
sector, the growing dynamism of the private sector, and also to the expected
increases in governmental expenditure, both current and capital expenditure.
The country's GDP is projected to grow by 4.5 per cent in 1997.
15. The region's more diversified economies, with the exception of Iraq,
performed well in 1996, with an estimated combined GDP growth rate of
4.7 per cent. This growth rate was high enough to yield an estimated GDP
per capita growth rate of 2 per cent for this group of countries as a whole.
Overall economic performance, however, varied from one country to another.
16. Egypt's economy, the largest among the ESCWA region's more diversified
economies and the second largest among all ESCWA member countries, was
estimated to have grown by 4.9 per cent in 1996, up from 4.6 per cent in 1995.
This allowed the country's GDP per capita to grow by an estimated 2.7 per cent
in 1996. The Egyptian economy is reaping some of the expected benefits from
the structural adjustment programme that the Government initiated in 1991,
under the sponsorship of the International Monetary Fund (IMF). Egypt's rate
of inflation, which registered 15.7 per cent in 1995, is estimated to have
declined to 7.2 per cent; the budget deficit as a percentage of GDP has fallen
to 1.2 per cent; foreign reserves available in the Central Bank of Egypt
continued to increase in 1996 and were estimated to have reached close to
$19 billion by the end of the year. The manufacturing sector, which accounts
for about 18 per cent of Egypt's GDP, was estimated to have grown by around
5.5 per cent in 1996 and is projected to grow by 7-8 per cent in the coming
years. This is partly due to the commencement of large industrial projects
and the issuance of new laws that are of great importance for Egypt's
industrial sector, such as the new labour and unified investment law. The
tourism sector performed well in Egypt in 1996, with tourism revenues reaching
a new record of $3 billion. The number of tourists who visited Egypt in 1996
totalled 3.8 million, also a new record. This figure is projected to rise to
4.2 million in 1997. Hotel occupancy rates registered a record 63 per cent
during the first 11 months of 1996. Egypt's total hotel capacity jumped from
18,000 rooms in 1981 to 68,000 rooms in 1996. The Egyptian Government plans a
worldwide campaign to further promote tourism in Egypt, with special
concentration on the United States of America and Western Europe. The
banking, construction and retail trade sectors were all estimated to have
registered growth of over 5 per cent in 1996. The Egyptian stock market
performed well in 1996 and is expected to perform well again in 1997, as the
privatization process is accelerated and foreign private investment increases
markedly. Egypt's GDP growth is projected to accelerate further in 1997 and
register a 5.5 per cent growth rate, with the private sector playing a more
dynamic role and projects agreed upon with foreign investors during the Third
Middle East and North Africa (MENA) Summit, held in Cairo in November 1996,
beginning to be implemented. In addition, gigantic government-led development
projects will be undertaken in Upper Egypt and the Sinai Peninsula.
17. Iraq's economy remained crippled by the United Nations economic
sanctions imposed on it since August 1990. Economic conditions continued to
deteriorate in 1996 to such an extent that Iraq, which is well endowed with
valuable natural and human resources, is now ranked in the lowest group of
least developed countries in the world. Economic conditions may be expected
to improve only slightly in 1997, as a result of the oil-for-food deal with
the United Nations, which allows Iraq to export $2 billion worth of oil every
six months. However, a meaningful and urgently needed recovery can only be
achieved with the total removal of the United Nations-imposed economic
sanctions.
18. The GDP in Jordan grew by 6.4 per cent in 1995 and an estimated
5.2 per cent in 1996. Despite a relatively high population growth rate, the
economic performance of the country allowed it to register a 1.5 per cent
per capita GDP in 1996. The country's economy was adversely affected by the
continued imposition of economic sanctions on Iraq (its major trading partner
prior to the imposition of the sanctions); by the Israeli bombing of Lebanon
in April 1996, which negatively affected the tourism sector and foreign direct
investment in Jordan; and the stalling of the Middle East peace process, which
discouraged not only foreign investment but also investment by expatriate
Jordanians and by private investors in the Kingdom. However, Jordan's economy
benefited from improved relations with GCC countries, which led to more
exports of Jordanian goods to those countries and to an increase in employment
opportunities for Jordanian workers seeking employment abroad. Jordanian
expatriate workers were estimated to have remitted to Jordan $1.54 billion in
1996, a 25.2 per cent increase above the 1995 level of $1.23 billion.
Jordan's GDP is projected to grow by 6.2 per cent in 1997, the highest growth
rate among the ESCWA member countries.
19. Lebanon's GDP, which grew by 7 per cent in 1995, was estimated to have
registered a growth rate of 3 per cent in 1996. The Israeli bombing of
Lebanon in April 1996 had a considerable negative impact on the country, in
particular on the important tourism sector. Relatively high interest rates
have discouraged greater private investment. Lebanon's GDP is projected to
register a 5 per cent growth rate in 1997.
20. The GDP in the Syrian Arab Republic in 1996 was estimated to have
registered a growth rate of 5.9 per cent, compared with 3.6 per cent in 1995.
The country's GDP per capita was estimated to have risen by 2.9 per cent in
1996, which was the largest increase among all of the ESCWA member countries.
The Syrian economy benefited from a 21 per cent increase in its oil revenues
and a strong performance in the agriculture and tourism sectors. The private
sector, encouraged by the Government, is playing an increasingly important
role, particularly in the tourism sector. The country also benefited in 1996
from rising workers' remittances, especially from the Syrian expatriates in
the GCC countries. The GDP of the Syrian Arab Republic is projected to grow
by 4.8 per cent in 1997.
21. Yemen, the region's least developed country, has been confronted by
severe internal and external imbalances. It began implementing economic and
structural reforms in 1995, under the auspices of the World Bank and IMF.
After registering a GDP growth rate of 8.5 per cent in 1995, the economy was
estimated to have grown by 3 per cent in 1996. Owing to Yemen's relatively
high population growth rate, its GDP per capita declined by an estimated
0.7 per cent in 1996. Although Yemen's economy benefited from higher oil
prices and revenues, the country suffered considerably from the June 1996
floods, which had a severe negative impact on the important agriculture
sector. Yemen's GDP is projected to register a 3.5 per cent growth rate in
1997.
22. The combined GDP of the West Bank and the Gaza Strip grew by
3.5 per cent in 1995. The initial forecast for 1996 was that the GDP would
grow by 7 per cent; instead, it was estimated to have declined by 5 per cent
in that year. This was mainly due to the frequent closures of the borders of
the West Bank and the Gaza Strip by the Israeli Government and the less than
expected financial and technical assistance from the international community.
Assuming that Israel will allow at least 35,000 Palestinian workers to
continue working in Israel and that Israel will permit the free flow of goods
between it and the West Bank and the Gaza Strip, the GDP of the West Bank and
the Gaza Strip is projected to grow by 5 per cent in 1997.
23. The economic outlook for the ESCWA region in 1997 will greatly depend
on:
(a) The international prices of oil;
(b) The implementation of economic reforms in the member countries;
(c) The developments in the Middle East peace process;
(d) Iraq's return to the international oil market and the lifting of the
sanctions on Iraq.
It is projected that the GDP of the ESCWA region will grow in 1997 by a rate
of 4.3 per cent. This projected growth rate, although lower than the
4.8 per cent estimated growth rate for 1996, would still be significantly
higher than the 2.2 per cent growth rate achieved in 1995. It would also be
sufficient to yield a 2.1 per cent per capita real GDP growth rate in the
region. Moreover, while it is projected that the combined GDP of the GCC
countries will grow by 3.9 per cent, the GDP of the more diversified economies
is projected to grow by 5.2 per cent in 1997.
24. In 1996, the drive for economic reform and structural adjustment lost
most of the momentum it had accumulated in the previous year throughout most
of the GCC countries because of the unexpectedly large increase in oil
revenues. In 1996 several GCC countries postponed implementation of policies
to widen and diversify the tax revenue base and to further reduce subsidies on
goods and services provided by the Government. Gradual implementation of such
a policy is required in order to avoid abrupt and sharp reductions whenever
these countries are confronted by significant declines in oil revenues.
25. Economic reform continued to be implemented in most of the region's more
diversified economies, in particular in Egypt and Jordan, with privatization
accelerating notably in the former. Egypt's economic reform programme -
including full liberalization of the capital and labour markets, the freeing
of external trade and the completion of the country's privatization programme
- is expected to be completed by the year 2000.
26. High unemployment rates remain a major problem facing the members of the
ESCWA region, despite the reported growth rates in real GDP and the net
increase in per capita income referred to above. This is particularly true
with regard to the more diversified economies in the region. These economies
generally have over the past several years been characterized by a relatively
high rate of population growth and by an increase in the number of new
entrants to the labour market which has been well beyond the economic capacity
of the countries concerned to absorb fully. These countries have, for several
years now, been characterized by labour forces that are growing at a higher
rate than their economies. As a result, the increase in the demand for labour
has not been sufficient to absorb the increase in the supply of labour.
Recently the situation was further exacerbated following Governments' policies
to curtail expenditure, reduce budget deficits, and contract public-sector
employment. Moreover, opportunities for employment outside the region have,
in general, become more scarce.
27. The highest unemployment rate in the region was reported in the West
Bank and the Gaza Strip, affecting 28 per cent of the labour force there. If
underemployment is also counted, these rates would, on the basis of
preliminary estimates, reach 45 per cent in the West Bank and 60 per cent in
the Gaza Strip. A number of factors accounted for this grave unemployment
situation. They included, on the one hand, Israel's border closure practices
and the deteriorating political situation, which discouraged private and
foreign investment and led to the postponement of major reconstruction
projects. On the other hand, it should be noted, the West Bank and the Gaza
Strip have also had relatively very high population growth rates.
28. In Yemen, the rate of unemployment in 1996 was still very high, although
lower than the rate reported for 1995; it was estimated at 25 per cent of the
labour force, compared with 30 per cent in 1995. The high growth rate of the
labour force (estimated at an average annual rate of 4.25 per cent) and
Government efforts to reduce its payroll did not help to lower this rate.
29. In Egypt and Jordan too, the preliminary estimates show a relatively
high unemployment rate of around 13 per cent. In an effort to create more
employment opportunities for Jordanians, the Government of Jordan enacted a
law in 1996 prohibiting non-Jordanians from employment in 15 different
professions and businesses in the country. What is interesting to note here
is that the Egyptian and Jordanian economies need a minimum average annual
rate of growth of 7-8 per cent in order to absorb fully the expected number of
new entrants into their labour forces (estimated at 500,000 and 50,000,
respectively) and secure lower unemployment rates. The Syrian Arab Republic
suffers from high unemployment, but with a lower rate than the rates reported
for Egypt and Jordan.
30. Some of the GCC countries also suffer from unemployment among their
indigenous populations. This is rather paradoxical since all GCC countries
are labour-receiving countries. This relatively new phenomenon has been a
cause of concern to the Governments of GCC countries. There are several
factors behind the phenomenon. Chief among them have been the unrealistic
expectations of the nationals entering the labour force; the availability of
low paid expatriate workers; governmental policies to restrain the expansion
of public-sector employment; and the current mismatch between the type of
qualifications held by job seekers and the type of job opportunities that are
available in the market place in these countries.
31. Indigenization of the labour force (replacing foreign workers with
nationals) is now considered a developmental goal in most of the GCC
countries. Bahrain and Oman have made some progress in indigenizing their
labour force. The progress, however, remains limited and confined mainly to
the public sector. In the private sector, the process has so far involved
certain managerial and clerical jobs only. The success of the process will,
to a great extent, depend on enabling the indigenous population to acquire the
type of education and technical skills that meet the requirements of the
labour market in the coming years. The policy of obliging the private sector
to employ nationals may affect the overall economic performance adversely and
may not be sustainable in the long run.
32. The social consequences of chronic unemployment in the ESCWA region are
very serious. High unemployment breeds marginalization and other social
problems, increases poverty and income inequality, and inflicts a high human
cost on the unemployed in terms of reduced well-being and loss of dignity.
These consequences are especially problematic for young people, who are new
entrants to the labour market and who, after long years of education, find
that they cannot secure adequate income levels. At the family level,
unemployment may also lead to family breakdown, forced child labour and
further marginalization of poor families. Such futility and frustration breed
crime and other social pathologies which can lead to social and political
unrest, from which everyone in society suffers.
33. The inflation rates in most ESCWA member countries were, in general, at
internationally acceptable levels in 1996. The rates among the more
diversified economies, however, tended to be considerably higher than those
reported for the GCC countries. For example, Jordan's inflation rate,
estimated at 6 per cent, the lowest among the more diversified economies, was
still higher than the highest rate (4 per cent, in the United Arab Emirates)
among the GCC countries in 1996.
34. Yemen's inflation rate, estimated at 30 per cent for 1996, has been the
highest among the more diversified economies. This rate, it should be noted,
is considerably below the country's staggering inflation rates of 120 per cent
and 55 per cent, registered in 1994 and 1995, respectively.
35. In the Syrian Arab Republic, the estimates indicate that the inflation
rate increased in 1996 compared with 1995, from 18.5 per cent to 20 per cent.
Two factors may have added to the inflationary pressure in the country. The
first was the high liquidity in the banking system; the second was the
official devaluation of the Syrian pound (LS) for several imported items, from
LS 11.2 for $1 to LS 42 for $1.
36. In the West Bank and the Gaza Strip, the inflation rate declined
substantially: from 25 per cent to 12 per cent between 1995 and 1996. This
decline may be interpreted as a result of the sharp decline in the purchasing
power of the Palestinian people in a year which saw very high unemployment
rates and a general decline in the level of economic activities.
37. In Lebanon, the inflation rate in 1996 declined to an estimated
8.9 per cent from 14 per cent in 1995. This decline reflects the more
conservative monetary policies pursued by the country's Central Bank and the
decline in the growth of economic activities.
38. In Egypt, estimates show the inflation rate declining to 7.2 per cent in
1996, compared with 15.7 per cent in 1995. Two main contributors to this drop
may have been the decline, to a record low, in the budget deficit as a
percentage of GDP, and the Government's use of treasury bills to finance its
budget deficits instead of increasing the supply of money.
39. In Jordan, as noted above, the estimate of the inflation rate in 1996
was 6 per cent. This rate is an increase compared with the 2.3 per cent
reported for 1995. It is important to note here that the Government of Jordan
in general pursued conservative monetary and fiscal policies. The escalation
in the inflation rate is due primarily to the reduction in the level of
governmental subsidies of wheat, fodder, water and electricity in 1996.
40. In the GCC countries, inflation rates continued to be restrained in
1996. They ranged from 4 per cent in the United Arab Emirates to only
1.2 per cent in Saudi Arabia. Most GCC countries traditionally pursue
conservative monetary policies. All GCC currencies, with the exception of
Kuwait, are pegged to the United States dollar. The appreciation of the
United States dollar in 1996, in terms of the currencies of Japan and most
Western European countries, helped to further dampen the inflation rates in
the GCC countries. The prices of imports from these major trading partners
thus became cheaper. Furthermore, the sharp increase in governmental revenues
in 1996 allowed the Governments to postpone additional reductions in subsidies
of various government-supported goods and services, as noted above.
II. DEVELOPMENTS IN INTERNATIONAL TRADE AND PAYMENTS
41. Preliminary data and estimates indicate that the region's exports and
imports in 1996 were positively affected by the significant rise in oil
prices, by the overall economic growth and by the increase in non-oil exports.
Exports were estimated to have increased by 15 per cent during 1996, while
imports increased by 9 per cent. The GCC countries' exports, which were
estimated at $117.4 billion and accounted for 89 per cent of the ESCWA
region's total exports, recorded a 16 per cent increase during 1996. This
increase is mainly attributable to higher oil prices, especially in the latter
half of the year. The largest percentage increases in exports within the
group were recorded by Kuwait, Saudi Arabia and the United Arab Emirates, for
which exports were estimated to have risen by 19 per cent, 18.8 per cent and
14.9 per cent, respectively. Kuwait benefited significantly from higher oil
prices, and its oil exports increased from $10.2 billion in 1995 to an
estimated $12.1 billion in 1996. The significant increases in exports noted
by Saudi Arabia were mainly due to higher oil prices but also in part to
greater exports of petrochemicals and non-oil exports. The United Arab
Emirates experienced continued export growth in the non-oil sector,
particularly with regard to re-exports; increased exports to South-East Asia
also contributed to this growth. Oman and Qatar noted increases in exports
during the year, estimated at 10 per cent in both countries. Bahrain's
increase in exports, estimated at 5 per cent, was due to increases in
aluminium exports and the decision by Saudi Arabia to transfer to Bahrain all
of the revenues of the Abu Saafa oilfield, which had been shared by the two
countries.
42. The ESCWA member countries with more diversified economies recorded an
estimated increase in exports of 5.6 per cent. Some countries in this group
benefited to some extent from higher oil prices, but some, such as Egypt,
witnessed declines in non-oil exports. Total exports of the group were
estimated to have increased from $14.2 billion in 1995 to $15 billion in 1996.
The largest percentage increase was recorded by Lebanon, for which exports
were estimated to be more than 20 per cent greater than the previous year.
The Syrian Arab Republic's exports increased by 16.9 per cent over 1995
levels, according to official reports. Exports were mainly oil and raw
materials, which benefited from the increase in oil prices. Non-oil exports,
however, continued to be affected by many factors, including exchange rate
restrictions, though rates were modified somewhat during 1996. Increases in
exports of Yemen amounted to an estimated 8.5 per cent during 1996 and may
have been higher, but there were difficulties in recording accurate statistics
for the country's large informal sector. Jordan's rise in exports, estimated
at 7.4 per cent, was considerably lower than the previous year's increase of
26 per cent and was, in part, attributable to border difficulties which
adversely affected trade with Israel and the West Bank. Egypt witnessed a
decrease in exports estimated at 6 per cent as non-oil exports declined: a
major factor in this decline was the drop in textile exports. Estimated data
for the West Bank and the Gaza Strip indicate that exports were adversely
affected by the severe restrictions placed on the movement of goods and people
by the Israelis during 1996 and consequently fell by 20 per cent: under the
guise of security measures, goods were prevented from being exported not only
to Israel but also to Jordan and Egypt or elsewhere outside the region for
much of the year.
43. Regarding import performance, preliminary estimates indicate that the
ESCWA region's imports grew from $93.3 billion in 1995 to $101.8 billion in
1996. Imports by the GCC countries totalled $67.5 billion. They amounted to
66.3 per cent of the region's total imports and approximately 75 per cent of
the oil revenues in those countries, which totalled about $89.9 billion in
1996. Imports increased in all countries in the group. The increases ranged
from 11 per cent in Oman to 3 per cent in Qatar. In the United Arab Emirates
and Kuwait, imports increased by 10 per cent and 8 per cent, respectively. In
Oman and Kuwait, increases in imports were in part the result of higher
imports of capital goods. Saudi Arabia witnessed an increase in imports of
4 per cent over its recorded 1995 level. This was caused partly by the
increase in governmental spending which occurred when oil revenues were higher
than expected during the second half of 1996. Another factor has been the
stronger dollar. The appreciation of the dollar against most currencies
during 1996 effectively lowered the prices of imports purchased from Japan,
Europe and elsewhere.
44. Imports by ESCWA member countries with more diversified economies
increased by 14 per cent during 1996, from $30.2 billion to an estimated
$34.3 billion. With the exception of Iraq, owing to the continued United
Nations economic sanctions, imports of every country in the group increased,
from 8 per cent in Jordan to 28 per cent in Lebanon. Imports by Yemen, the
Syrian Arab Republic and Egypt rose by 15.5 per cent, 14.7 per cent and
10.1 per cent, respectively, compared with 1995 levels. The increase in
Egypt's imports during 1996 may have been influenced by a reduction in
tariffs. In October 1996, Egypt announced an across-the-board tariff cut on
imports, ranging from 10 to 15 per cent. Tariffs on luxury items, however,
remained high, at 135 per cent on some goods. Jordan's liberalization
programme, which included the lowering of some tariffs, may have contributed
to higher import levels. The protection of the Jordanian currency's exchange
rate may have affected import levels during 1996. Indications, however, are
that this policy will be maintained in the coming years.
45. On the basis of the above data, it was estimated that the region's
balance of trade recorded a surplus in 1996. The surplus is put at
$30.5 billion, significantly higher than the $21.7 billion recorded for the
previous year, and mainly the result of higher oil prices. The GCC countries
witnessed an increase in their balance-of-trade surplus, which totalled
$49.9 billion in 1996, compared with $37.7 billion in 1995. However,
estimates indicate that the ESCWA member countries with more diversified
economies witnessed deficits in their overall balance of trade, amounting to
$19.3 billion, significantly higher than the previous total of $16 billion.
Imports were greater than exports for all the member countries.
46. Forecasts for 1997 indicate that the balance of trade will deteriorate
slightly for the region as a whole and for the GCC group of countries.
Exports of the ESCWA region are expected to rise modestly, based on the
assumption of oil prices in the $17.5-$19/barrel range, coupled with a modest
increase in the volume of oil exports. It is projected that the GCC countries
will experience a rise in exports of 2 per cent only. Their imports are
expected to increase by 7 per cent, causing a slight decline in the balance of
trade. Countries with more diversified economies are expected to benefit from
export-oriented economic reforms and greater penetration into new export
markets. The exports of the more diversified economies, therefore, are
expected to be 17 per cent higher in 1997, and their imports 8 per cent
higher.
47. The region's ability to finance imports from its export proceeds, as
measured by the export/import ratio, rose from 1.23 in 1995 to 1.30 in 1996.
The ratio for the GCC countries increased from 1.6 in 1995 to 1.74 in 1996,
mainly owing to the increase in exports. The ratio for the countries with
more diversified economies, however, decreased slightly, from 0.47 to 0.44,
largely as a result of increasing imports. The export/import ratio forecast
for 1997 for the region as a whole is put at 1.26, which is lower than its
1996 level. This projected decline is due to the fact that the expected
relative increase in imports exceeds the projected relative increase in
exports.
48. Preliminary estimates regarding the current-account balance for the
majority of the ESCWA members for which data were available (excluding Iraq,
the Syrian Arab Republic, the West Bank and the Gaza Strip, and Yemen)
indicate that the overall deficit decreased significantly, from $8.7 billion
in 1995 to $1.4 billion in 1996. This was mainly due to a better trade
balance resulting from higher oil exports. The GCC countries, according to
recent estimates, recorded a surplus in the total current-account balance of
$5.8 billion, representing a notable improvement over the 1995 deficit of
$2.5 billion. In the GCC countries, the most significant improvement was
registered by Saudi Arabia. It recorded a surplus of $900 million in 1996,
following a deficit of $8.1 billion the previous year. This improvement was
largely due to the increase in its balance-of-trade surplus as a result of
higher oil-export earnings. Bahrain and Kuwait also recorded improvements in
their balances, according to the latest estimates. Bahrain's current-account
surplus increased from $480 million in 1995 to an estimated $600 million in
1996, while Kuwait's surplus increased to $4.3 billion in 1996, up slightly
from the $4.2 billion recorded the previous year. Oman, Qatar and the United
Arab Emirates current-account balances are estimated to have deteriorated,
despite higher earnings from oil-export earnings during 1996. Oman and Qatar,
which recorded deficits during 1995, saw these deficits increase in 1996 from
$350 million to $740 million for Oman and from $260 million to $410 million
for Qatar. The United Arab Emirates, though maintaining a surplus in its
current-account balance for both years, recorded a decrease from $1.5 billion
in 1995 to $1.1 billion in 1996.
49. The deficit in the current account of the countries in the region with
more diversified economies was estimated to have increased from $6.2 billion
in 1995 to $7.2 billion in 1996. This was largely due to the significant
deterioration in Egypt's deficit, which increased from $254 million in 1995 to
$1 billion the following year, mainly because of lower exports during 1996.
Lebanon also saw its deficit increase in 1996, but by a lower amount, to
$5.9 billion, up from the $5.4 billion of the previous year. Jordan, however,
witnessed an improvement in its current-account balance: its deficit, which
was $460 million in 1995, was estimated to have decreased to $270 million in
1996, mainly owing to the rise in workers' remittances.
50. The overall current-account balance for the ESCWA region is expected to
remain in deficit in 1997. It may increase to around $4 billion if oil prices
range between $17.5 and $19/barrel and imports increase as expected. The
total surplus for the GCC countries is expected to fall to around $4 billion,
while the deficit for the more diversified economies is expected to increase
to around $8 billion.
51. Partial and preliminary data for 1996 indicate that the region's
international reserves (excluding Iraq, the West Bank and the Gaza Strip, and
the Syrian Arab Republic owing to lack of data) increased by 6.3 per cent over
1995 levels: from $51.2 billion to $54.4 billion. This was mainly the result
of higher reserves in the region's more diversified economies. The reserves
of the GCC countries remained unchanged at $23.4 billion, while those of the
ESCWA member countries with more diversified economies increased by
11 per cent, reaching $30.9 billion in 1996. Saudi Arabia and the United Arab
Emirates hold the largest reserves in the former group, with $8.5 billion and
$8.0 billion, respectively. Egypt is the largest holder of reserves in the
latter group, with $19 billion.
52. With regard to the region's ability to provide for its imports, the
above preliminary data on international reserves show that the region was able
to cover 6.9 months of imports in 1996. This was slightly lower than the
coverage for the previous year, which amounted to 7.1 months. The GCC
countries were able to provide for 4.2 months of import coverage, while ESCWA
member countries with more diversified economies were able to cover 13.9
months of imports with 1996 reserve levels, mainly because of Egypt's
relatively high level of international reserves.
53. Progress was made in many countries of the region in undertaking
economic reforms in line with those required for accession to the World Trade
Organization (WTO). These include trade-related measures such as a reduction
in tariffs, the elimination of non-tariff barriers, and the standardization of
tax laws and rates for foreign and domestic firms in some countries. In 1996
the United Arab Emirates joined WTO; Bahrain, Egypt, Kuwait and Qatar were
already members. Trade prospects are expected to be favourable for these
countries as a result. Jordan, Lebanon and Saudi Arabia have requested
membership in WTO, while Oman, which has observer status, and the Syrian Arab
Republic are still weighing the advantages and disadvantages of joining. Some
ESCWA member countries undertook negotiations with the European Union leading
towards eventual partnership agreements similar to those with other
Mediterranean countries. The European Union and the GCC countries are
considering a free-trade accord. With regard to trade within the region, the
establishment of an Arab monetary union was the major topic of discussion at a
meeting held under the auspices of the Arab Monetary Fund in Cairo during
1996. The aim of forming such a union would be to enhance prospects for
greater intraregional trade among ESCWA member countries.
54. Total external debt of ESCWA member countries, excluding Iraq, is
estimated to have declined by around 4 per cent, from around $182 billion in
1995 to around $175 billion in 1996. This decline was caused partly by
rescheduling and forgiveness of parts of the debt of a number of member
countries, such as Egypt, Jordan and Yemen, and partly by repayment of debt by
others, such as Kuwait, which in late 1996 paid the final instalment of
$786 million. (This amount was still outstanding from the $5.5 billion on the
sovereign loan made to Kuwait in 1991.) Against this positive development in
the external debt of a number of ESCWA member countries, the external debt of
some other ESCWA member countries increased. For example, the external debt
of Qatar amounted to around $8.1 billion in 1996, up by around 42 per cent
over 1995 ($5.7 billion), and that of Lebanon increased by around 38 per cent,
from $1.28 billion to $1.77 billion. The external debt of Jordan, which
amounted to around $6 billion in 1996, was lower by around 10 per cent than
the figure in 1995 ($6.6 billion); it is expected to rise to over $7.5 billion
during the next two years, owing to loan commitments of around $1.5 billion to
Western creditors and multilateral organizations.
55. While most of the external debt of GCC countries is short-term and
geared to financing trade, most of the external debt of other ESCWA member
countries is long-term and partly concessionary and soft-term.
III. MONEY, FINANCE AND BANKING
56. In 1996, a number of ESCWA member countries (including Egypt) started
organizing on a regular basis treasury bill auctions at market-determined
interest rates. These auctions quickly became the key determinant of domestic
monetary conditions. Other ESCWA member countries carried out measures to
increase their reliance on reserve requirements (Jordan and Yemen) and develop
the interbank market (the GCC countries, Egypt, Jordan and Lebanon). Further
benefits are expected from the sustained efforts to strengthen the financial
markets through, for example, measures to promote competition among the
various segments of the financial sector and progressively widen access to the
markets.
57. In 1996, within the context of financial liberalization, the
improvements in the mechanisms of monetary control in most ESCWA member
countries were achieved by a move away from quantitative credit restrictions
to indirect instruments of monetary control. It is useful to note here that
the rediscount instrument was made more responsive to changes in market
conditions; the sale and the repurchase of treasury bills and other government
financial papers were used increasingly as instruments in the management of
liquidity; in addition, the legal reserve requirements were made uniform
across the whole spectrum of financial institutions.
58. The unexpectedly large increase in oil revenues, caused by the rise in
oil prices in 1996, enabled most of the GCC countries either to cut their 1996
budget deficits significantly or to eliminate them completely and record
slight budget surpluses, as in the case of Bahrain. The surge in the United
States dollar against other major international currencies in 1996 gave
another boost to the economies of these countries. With oil exports being
priced in dollars, the oil revenues of the GCC countries were higher in real
terms, since most of their oil exports were to Japan and non-dollar areas.
Moreover, the higher oil prices in 1996 are estimated to have resulted in
additional revenues of over $8 billion, $2.5 billion, $1.95 billion,
$1.2 billion and $0.9 billion to the Governments of Saudi Arabia, the United
Arab Emirates, Kuwait, Oman and Qatar, respectively.
59. While the GCC countries could resort to using these resources and, if
necessary, draw on their foreign reserves to finance their budget deficits,
the ESCWA member countries with more diversified economies continued searching
for alternative means to reduce their budget deficits.
60. In 1996, stock markets in the ESCWA region mostly performed better than
those in many emerging markets in other developing regions. While the
aggregate index of the markets in other developing regions was estimated to
have dropped by around 8 per cent in 1996, that of stock markets in the ESCWA
region was estimated to have risen by around 12 per cent. The improved
economic performance of most ESCWA member countries in 1996 was reflected in
the surge of activities in their respective stock markets. Moreover, the rise
in the overall liquidity in the economies of most ESCWA member countries
enabled many corporations to raise private capital in the stock market.
61. The privatization drive in a number of ESCWA member countries benefited
their stock markets significantly. This is mainly because most of the
privatization was made through public offerings. The improved investment
environment in the ESCWA region led to a rise in interregional capital flows,
mainly through the stock markets. This development has facilitated the
linking of stock markets in ESCWA member countries. A link was established in
September 1996 between the stock markets of Egypt, Kuwait and Lebanon, and
another in December between the stock markets of Bahrain, Kuwait and Oman.
The total capitalization of these markets was estimated to have amounted to
around $55 billion in 1996, compared with $28 billion in 1995.
62. In 1996 stock markets in the region emerged as a major segment of the
financial system of ESCWA member countries. For most financial and
non-financial institutions, the stock markets acted as an appropriate vehicle
for raising funds to increase their own capital base and finance investment
projects.
63. In spite of the favourable developments in the stock markets in the
region in 1996, most of the markets concerned would not be classified as
emerging markets. They still have insufficiently developed legal,
administrative and institutional infrastructures and stringent regulations
concerning the participation of foreigners.
64. The development of stock markets in the region has been encouraged by
the Governments of member countries. This came about at a time when most were
burdened with budget deficits and lacked the funds needed to finance
infrastructural and other projects. Governments expect stock markets to
assist them in mobilizing the resources needed to finance budget deficits and
planned investment projects.
65. Historically, both the business environment and the size of the stock
markets in ESCWA member countries have been shaped by the Governments and the
institutional structure of financial intermediation. The Governments have
played a prominent role in determining the level of economic activity in
virtually all ESCWA member countries. The need to implement ambitious
development projects, which the private sector was unwilling or incapable of
doing, has further strengthened the role of the Government (the public
sector). As to the institutional structure of financial intermediation, the
financial markets in all ESCWA member countries are dominated by commercial
banks, which traditionally have confined their lending mainly to short-term
trade financing. The issuance of securities instead of bank loans as a
principal financial instrument has increased markedly in recent years. This
change in attitude is caused by a drive for privatization which is gaining
momentum in most ESCWA member countries.
66. The financial business environment has improved in most ESCWA member
countries in recent years. Nevertheless, the inadequate regulatory and
institutional structures of financial markets in most of the countries of the
region have not helped to improve the business environment to the fullest
extent possible. Consequently, the financial markets in the ESCWA region have
remained generally inadequate - informal, lacking transparency and exposed to
the undesirable consequences of unchecked speculation.
67. The laws and regulations governing the stock markets in the ESCWA region
vary in approach. All of them, however, despite their shortcomings, aim at
mobilizing savings, providing corporate finance for both the public and
private sectors, and safeguarding the interests of both the shareholders and
the traders. The problem areas in these markets in 1996 continued to concern
the enforcement of accounting standards, the quality of information
disclosure, and the protection of the small investor from insider trading and
other forms of malpractice.
68. Shareholders' equity in banks in the ESCWA region was estimated to have
amounted to around $66 billion in 1996, up by 10 per cent from 1995
($60 billion), and total assets were estimated to have increased by around
12 per cent, from $420 billion to $470 billion, but the capital base of most
banks in the region remained low relative to that of major international
banks, thus preventing the region's banks from playing a competitive role in
the international banking markets.
69. Banks in the ESCWA region were estimated to have raised their share in
financing economic activities in the region by around 17 per cent in 1996,
from around $195 billion in 1995 to $228 billion in 1996. This increase was
achieved mainly through project finance and syndicated loans for major
investment projects. Total deposits in the banks in the region were estimated
at around $275 billion in 1996, up by around 16 per cent from 1995
($237 billion). The increase in bank deposits was partly due to the return of
expatriate money, increased interregional investments, and relatively high
interest rates, coupled with monetary stability in most ESCWA member
countries; it was also partly due to the introduction of a number of new
financial instruments in several countries in the region.
70. The reform of the financial sector, which was part of the economic
reform programmes of most ESCWA member countries, appears to have enhanced the
external investments of a number of banks in the ESCWA region. These
investments are estimated to have increased to around $60 billion in 1996,
from $54 billion in 1995.
71. The relatively tight banking conditions that characterized the banking
markets in the ESCWA region in 1995 eased significantly in 1996. This was the
result of the upturn in economic activity and the reforms in the financial
sector. Most banks in the region made record profits in 1996, despite a
number of restraining factors: their continued need for further provisioning
against non-performing loans made during the 1980s and early 1990s; the fall
in receivables, generated from trade in securities; and the continued pressure
to comply with internationally accepted capital adequacy standards.
72. The major activity of most banks in the ESCWA region in 1996 continued
to be retail and consumer banking business. A number of banks, however,
started paying more attention to universal banking (combining retail and
wholesale banking) in order to enjoy the benefits of economies of scale and to
avoid concentration of risk in one banking activity. A number of banks,
notably in Egypt and some GCC countries, benefited from participation in
governmental privatization efforts by underwriting privatization stocks and
providing financial advisory services. Governments in these countries
encouraged domestic banks to set up mutual funds, investing in local equities
as well as equities of other ESCWA member countries.
IV. FOREIGN DIRECT INVESTMENT
73. Foreign direct investment (FDI) is the single largest component of
renewed inflow of capital to developing countries. Inflows of FDI to
developing countries grew from about $10 billion in 1986 to around $99 billion
in 1995. This dramatic development concurs with the reforms and structural
adjustments programmes that the developing countries undertook to stabilize
their economies and bolster the role of the private sector by attracting
foreign and local investors. However, ESCWA member countries' performance has
not been commensurate with the cumulative performance of the developing
countries with regard to the increase in the volume of inflows and outflows of
FDI since the 1980s. Since most ESCWA member countries were affected by
indebtedness and adverse economic and political circumstances during the
1980s, the region lost an opportunity to attract much needed inflows of
capital which could have been used to accelerate economic growth and
development in that decade. ESCWA member countries have recently started to
create a climate more conducive to investment, however, by legislating new
investment laws and adopting measures that aim at attracting private foreign
and local investment.
74. The countries in the ESCWA region have so far been far less successful
in attracting FDI inflows than developing countries in other regions. In
1995, the region as a whole attracted 0.8 per cent of the world's FDI inflows,
while South, East and South-East Asia attracted 8.74 per cent; Central and
Eastern Europe, 3.8 per cent; Latin America and the Caribbean, 8.43 per cent;
and Africa, 1.48 per cent of the world's inflows. Moreover, while the world's
FDI inflows in 1995 increased by 39.6 per cent above their 1994 level, the
inflows of FDI to the ESCWA region registered a decline of 19.7 per cent
compared with the previous year. In fact, all regions in the world had
positive FDI inflows growth in 1995, with the exception of the ESCWA region
and Africa.
75. Capital invested abroad by ESCWA member countries amounted to
0.32 per cent of the world's outflows in 1995. Excluding China, the combined
South, East and South-East Asian outflows were estimated at about 12 per cent
of world outflows; Central and Eastern Europe, at 0.1 per cent; Latin America
and the Caribbean, at 1.2 per cent; and Africa, at 0.2 per cent.
76. In 1995, the inflows of FDI to the ESCWA member countries totalled
$2.38 billion, representing 0.8 per cent of total world inflows and
2.39 per cent of inflows to developing countries. In 1995 they were
19.6 per cent below the $2.96 billion level registered in 1994. Nevertheless,
although the 1995 figure was less than that of 1994, it still amounted to a
bigger volume of FDI inflow than in 1991 and 1992 - during and in the
aftermath of the Gulf war - when inflows were $1.3 billion and $1.5 billion,
respectively. The declining share of FDI inflows in the ESCWA region
vis-a`-vis that of developing countries is partly due to a decrease in the
volume of FDI inflows to the region and partly to the increase in the volume
of inflows to the developing countries as a whole. This development could
also be attributed to the fact that, as of the late 1980s, more regional blocs
were established in which affluent partners favoured investment either in the
developing countries of the same bloc or in neighbouring countries. Japan's
FDI is mainly directed towards South-East Asia; the United States and Canada
invest mainly in the North American Free Trade Agreement (NAFTA) and Latin
American countries, and the countries of the European Union invest in Eastern
Europe. In addition, more investment opportunities opened up in other
developing countries, such as China and some Latin American countries, than in
the ESCWA region.
77. Of the total inflows of FDI to the ESCWA member countries in 1995,
Egypt's share was the highest, amounting to 42 per cent. FDI inflows to Egypt
surged in 1996 and were estimated to have reached $2 billion. The Saudi
Arabian share, the second highest in 1995, amounted to 37.4 per cent, followed
by Oman, with 6.3 per cent, and the United Arab Emirates, with 4.62 per cent.
Egypt and Saudi Arabia have always received, by far, the highest shares of the
region's FDI. Together they amounted to an average of 85.9 per cent of total
inflows into the region for the period 1984-1989 and to 79.38 per cent in
1995.
78. In 1995, the FDI outflows from the ESCWA region totalled $1.02 billion,
representing 0.32 per cent of the world outflows, as noted above, and
2.17 per cent of the total outflows from developing countries. The 1995
outflow figure reveals a decline of 9.6 per cent from that registered in 1994,
when the outflows from the ESCWA region were $1.13 billion. However, the 1995
FDI outflows still constituted a significant increase when compared with the
average annual outflows for the period 1984-1989, which amounted to
$0.35 billion. In 1990 and 1991, outflows from the region totalled
$0.44 billion and $0.32 billion, respectively. This drop was attributed
mainly to the Gulf war, during which two of the region's most important FDI
outflow sources, Kuwait and Saudi Arabia, had to use their investments for
military expenditures. The ESCWA region's outflows in 1992, however, were the
highest since the mid 1980s, when they totalled $1.23 billion; this was almost
entirely due to Kuwait's soaring outflows of $1.2 billion.
79. Among ESCWA member countries, Kuwait was the dominant source of the
region's FDI outflows in 1995, with a figure totalling around $1.04 billion,
followed by Egypt and Saudi Arabia with $13 million each. Kuwait has
traditionally been the country with the highest outflow of FDI in the region,
owing mainly to the policy of the Government to deposit 10 per cent of its
yearly budget revenues in its Reserve Fund for Future Generations, most of
which is invested abroad.
80. As noted above, ESCWA member countries have recognized that foreign
investment can contribute to the development of their economies. They have
manifested this paradigmatic change by opening up, privatizing, and
deregulating the financial sector and by promulgating investment laws geared
to attract foreign investment. The three MENA Summits (Casablanca in 1994,
Amman in 1995, and Cairo in 1996) were clear indications that the Middle East
and North African countries have committed their economies to creating
investment-friendly environments. There are, however, several requirements
that the ESCWA region must meet in order to accelerate FDI inflows
significantly. One is political stability. Investors are attracted to
countries that have a track record of political stability, which the ESCWA
region lacks but is seriously trying to achieve. A second requirement is the
absence of restrictions on ownership. Some ESCWA member countries favour
joint venture contracts, but many multinational corporations regard joint
ventures as not sufficiently attractive for investment. In assessing the
viability of a country for FDI, they also consider any ownership restriction
to be a serious adverse factor. However, some member countries - namely
Bahrain, Egypt, Jordan, Lebanon and the Syrian Arab Republic - have recently
changed their laws to allow, in some sectors, 100-per-cent foreign ownership.
Some ESCWA member countries offer tax exemptions and guarantees to foreign
investors. A third requirement pertains to the removal of excessive
bureaucracy. The Governments of the countries in the region should commit
themselves to facilitating transactions, administrative procedures and
decreasing bureaucracy. They should also adhere to international standards
and enhance the information and availability of data in order to reduce market
entry costs. Furthermore, the recent regionalization trend should send a
message to the ESCWA region and to all other Arab countries to engage in
cooperative economic processes, such as creating an Arab free zone area and
thereafter an Arab common market. Regional blocs are a reality and have
influenced the flow of FDI that favours members of the same bloc. ESCWA
member countries have to take this fact into consideration and pre-empt any
negative effect that could hinder inflows of FDI.
V. STATUS OF WOMEN
81. Women's recent achievements in the ESCWA region in the fields of
education, health and employment have been encouraging, compared with the
1970s. However, their participation in public life, power-sharing, decision-
making and politics has been below expectations. Inasmuch as legal awareness
and the empowerment of women are concerned, much more is needed to overcome
the existing economic hurdles, alleviate poverty, and promote self-reliance,
financial independence and security in the broadest sense.
82. Traditions, values and norms constitute the single most important
cultural and religious framework within which women in the rapidly changing
societies of the ESCWA region may participate and become integrated into the
development process. The family remains a central institution in the ESCWA
region, and women remain the nucleus of this institution as wives, sisters,
mothers and child-bearers and -rearers. The society, however, is becoming
more and more "gender-sensitized" to the different roles and functions of its
individual members. These individuals - men, women, children, youth and the
aged - are increasingly being looked upon as partners in the development
process.
83. According to available data, in 1995 around 34 per cent of the female
population in the ESCWA region, aged 15 and above, were still illiterate; the
comparable figure for males was 17 per cent. Although women's illiteracy
rates have been declining in most member countries, unfortunately the gender
gap is widening. In 1995, female illiteracy rates ranged from a
disconcertingly high level of around 76 per cent in the case of Yemen, to a
less alarming range of between 20 and 23 per cent in Jordan, Bahrain and the
United Arab Emirates, and to a more encouraging low rate of 9-13 per cent in
Lebanon, Kuwait and Qatar. Notwithstanding the implementation of policies
such as "Education for All", which encourages higher enrolment of girls in
schools and, in some countries, allocates higher budgets for the education
sector as a percentage of total public expenditure, the gender gap has not
narrowed sufficiently in the region. The high drop-out rate of girls from
schools is still a major problem, and the situation in the rural areas remains
critical. More often than not, high female illiteracy rates are associated
with a wider gender gap (Yemen, Syrian Arab Republic, and Saudi Arabia), and
low illiteracy rates with a narrower gap (Lebanon, Qatar, Kuwait, Jordan and
Bahrain). For instance, the gender gap in the Syrian Arab Republic is eight
times that in Lebanon. However, eradication of female illiteracy has been the
target of concerned non-governmental organizations, which have been working
closely with the Governments of ESCWA member countries and specialized
international agencies, especially since 1995.
84. In Egypt, Iraq, the Syrian Arab Republic, and most of the GCC countries,
welfare policies are pursued and health care services are freely provided or
substantially supported by the Governments. In certain GCC countries,
non-national residents are also medically covered.
85. In 1995, the average life expectancy for Arab women in the ESCWA region
was 20 years longer (21 years longer for men) than it was four decades ago.
For instance, average life expectancy for women in the GCC countries, the West
Bank, Lebanon and Jordan ranged from 70 years in Jordan to 77 years in Kuwait.
Meanwhile, life expectancy at birth in the least developed ESCWA member
country, Yemen, was only 51 years. Egypt recorded the highest relative
improvement in average female life expectancy between the periods 1970-1975
and 1990-1995; the figure increased from 53 years in the first period to 65
years in the second. At the same time, the total fertility rate has been
declining moderately in ESCWA member countries. The average number of
children per woman of childbearing age in the region dropped from 6.8 to 5.2
between 1975 and 1995. Fertility rates, however, varied across the member
countries, ranging from a low of around 3.1 children in Lebanon and Kuwait to
a high of 7.6 children per woman in Yemen. Family planning is being
increasingly pursued, through awareness campaigns with the assistance of non-
governmental organizations and specialized agencies. More women are able and
empowered to make decisions regarding the number of children they want to
bear. Better education and higher literacy rates, improved health and more
employment opportunities, combined with older age at first marriage, are all
positively correlated with lower birth rates and smaller family size units in
the ESCWA region.
86. Worldwide, the participation rate of women in the labour force is lower
than that of men. This phenomenon is particularly true in the ESCWA region.
In 1994, the most recent year for which data were available, women represented
a meagre 15 per cent of the total labour force of men and women aged 15 years
and above. Women's participation rates in the labour force, however, vary
greatly between the more diversified economies of the region and the GCC
countries. In 1994, women represented slightly above one fourth of the labour
force in Lebanon, and slightly above one fifth in Egypt and Iraq. In most GCC
countries, however, women accounted for only 7-9 per cent of the labour force.
87. Rapidly changing economic conditions have counteracted the reluctance,
arising from traditions and social norms in the region, to encourage wider and
stronger participation of women in economic activity. The marginal
improvement in women's participation has been mostly evident in clerical work
and services, the informal sector and, to a much lesser extent, in industry.
No major breakthrough has been made in women's access to new jobs and away
from traditionally "female" jobs. Analysis of the sectoral distribution of
women revealed that by the mid 1990s, on average, around 70 per cent of the
economically active women in the ESCWA region were concentrated in the
services sector (teachers, secretaries, clerks and nurses), while nearly one
fifth worked in the agricultural sector and the balance were in the industrial
sector, largely in manufacturing (textiles and food). The percentage
distribution of the female labour force is merely a reflection of the
economies of the countries concerned. For example, in the Syrian Arab
Republic, where the agriculture sector plays a major role in the country's
economy, around 65 per cent of the women in the labour force work in the
agriculture sector. In Yemen, also, where agriculture is a predominant
sector, almost half of the women work in the agricultural sector. Meanwhile,
in Jordan, a service-oriented economy, 92 per cent of the women in the labour
force work in the services sector. Similarly, in most of the GCC countries,
where it is not socially accepted for women to work in the oil/industrial
sector, the majority of the already small percentage of working women are in
the services sector (reaching as high as between 90 and 100 per cent in Qatar,
Kuwait, Bahrain and the United Arab Emirates). In Saudi Arabia, measures were
adopted in 1997 to increase employment opportunities for women in the private
sector (services including hotel management). In Lebanon and Egypt more than
one fifth of the female labour force worked in the industrial sector in 1994.
88. In public life, women are now sharing - though to a limited extent - in
the decision-making process and have recently become relatively more visible.
In most Arab countries, except for the GCC countries, women have gained their
rights of suffrage: the right to vote and run for public office.
Unfortunately, however, less than 3 per cent of the seats in the Parliaments
of 7 of the 13 ESCWA members are occupied by women. The highest
representation of women in the Arab Parliaments is in Iraq and the West Bank
and the Gaza Strip (over 10 per cent), followed by the Syrian Arab Republic
(over 8 per cent). The lowest representation of women is in the Parliament of
Yemen, with less than 1 per cent of the seats. The period since 1995, when
the Fourth World Conference on Women was held, has witnessed a heightening of
demands by women and non-governmental organizations concerned with women for
women's rights, a greater role for women in decision-making and the removal of
obstacles to greater political participation and power-sharing for women. In
Kuwait, where women have not yet acquired the right of suffrage but have
strongly voiced their demands for political participation during the 1996
parliamentary elections, there are, nevertheless, Kuwaiti women ambassadors
and deans of institutes of higher education. Similarly, in 1996, a Qatari
woman was appointed Under-Secretary (Ministry of Education and Culture), and
in 1997 a Yemeni woman was appointed Under-Secretary of the Ministry of
Information, for the first time.
89. Legal awareness campaigns and an increased resort to the media to change
the prototypical negative image of women are the hallmarks of the years since
the Fourth World Conference.
90. Political instability, compounded by increasing economic vulnerability
and external dependence, together with outdated legislation and policies that
need to be amended to take account of the changing environment, has militated
against women's growth and their contribution to the development process. The
gender gap has to be bridged in all areas of critical concern to the women in
the ESCWA region, starting with the alleviation of poverty (economic
dimension), encouraging the participation of women in decision-making
(political dimension), and focusing on the family as the central unit of the
Arab civil society and on the role of women and men therein (social
dimension). Arab Governments have agreed to address these three themes. The
important question is whether and when Arab women will move from the "women in
development" to the "gender and development" phase, in which women would cease
to be an add-on component in development plans and become an integral element
in all policies and programmes. This would be the phase in which a gender
perspective is incorporated into the mainstream of all development policies
and programmes.
Table. Socio-economic indicators for the ESCWA region, 1994-1996
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1994 1995 1996 a/
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Gross domestic product (GDP) (billions of
US dollars)b at constant 1992 prices 289.9 296.3 310.8
Real GDP growth rate (percentage) b/ 0.8 2.2 4.8
Population in the ESCWA regionb (millions) 118.2 121.5 124.9
Population growth rate (percentage) b/ 2.80 2.79 2.80
Per capita GDP (US dollars) b/ 2 451 2 437 2 487
Growth rates (1.8) (0.6) 2.1
GDP at nominal prices (billions of US
dollars) b/ 293.3 320.7 353.3
Per capita GDP in nominal prices (US
dollars) b/ 2 481 2 638 2 828
Growth rate 1.3 6.3 7.2
External debt (billions of US dollars) b/ 186 182 175
External debt/GDP (percentage) b/ 64 61 56
Exports (billions of US dollars) b/ 102.7 115.0 132.4
Imports (billions of US dollars) b/ 85.6 93.3 101.8
Balance of trade (billions of US dollars) b/ 17.1 21.7 30.5
Current-account balance (billions of US
dollars) c/ (7.1) (8.7) (1.4)
International reserves (billions of US
dollars) d/ 45.7 51.2 54.4
International reserves/import ratio
(months) d/ 6.4 6.6 6.4
Crude oil production (millions of barrels
per day) 16.052 16.119 16.260
Crude oil revenues (billions of US
dollars) 72.4 80.1 96.5
Proven oil reserves (billions of barrels) 568.5 570.0 575.0
Proven oil reserves/total world oil
reserves (percentage) 56.9 57.0 57.1
Proven oil reserves/production (years) 98.8 98.2 98.3
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Source: Economic and Social Commission for Western Asia, based on
national and international sources.
Notes: Parentheses () denote a deficit or negative.
a/ Preliminary estimates.
b/ Excluding Iraq.
c/ Excluding Iraq, Syrian Arab Republic and Yemen.
d/ Excluding Iraq and the Syrian Arab Republic.
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Date last posted: 29 November 1999 12:16:05
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