Peace Is Not Enough: The Arab-Israeli Economic and Demographic Crises

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Peace is Not Enough: The Arab-Israeli

Economic and Demographic Crises
Part One:
Economic Growth, Structural Change and

Modernization, Investment and
Privatization,Governments and "Statism,"
Dependence on Aid, Debt, and Trade
Anthony H. Cordesman
Co-Director, Middle East Program
February, 1998
Copyright Anthony H. Cordesman, all rights reserved. Not be copied or excerpted without the written permission
of the author.
Arab-Israeli Trends: Peace is Not Enough 3/2/98 Page 2
Table of Contents
COMPARATIVE GDP/GDP AND ECONOMIC GROWTH............................................................................ 5

THE COMPARATIVE GNP AND GDP OF COUNTRIES HAS GROWN IN VERY DIFFERENT WAYS: 1980-1990 VERSUS
1990-1995.............................................................................................................................................................. 6
ARAB-ISRAELI ANNUAL AVERAGE GROWTH IN GDP IN PERCENT: 1985-1995 ........................................................... 7
ARAB-ISRAELI GNP IN 1995.................................................................................................................................... 8
ARAB-ISRAELI GROSS DOMESTIC PRODUCT IN 1995 ................................................................................................. 9
ARAB-ISRAELI ANNUAL AVERAGE GROWTH IN GDP IN PERCENT: 1995.................................................................. 10
UNCERTAIN PROGRESS: TRENDS IN THE "REAL" GDP GROWTH OF EGYPT, ISRAEL, JORDAN, AND SYRIA BY COUNTRY:
1979-1996............................................................................................................................................................ 11
THE IMPACT OF VIOLENCE ON LEBANESE GROWTH: 1979-1996 .............................................................................. 12
STRUCTURAL CHANGE AND MODERNIZATION .................................................................................... 13
STRUCTURAL CHANGE AND SECTORAL GROWTH BY COUNTRY ............................................................................... 14
COMPARATIVE GROWTH IN OUTPUT: 1990-1995.................................................................................................... 15
DEBT.................................................................................................................................................................. 16
INVESTMENT RISK AND DEBT PERFORMANCE ......................................................................................................... 17
NET PRESENT VALUE OF ARAB-ISRAELI DEBT AS A PERCENT OF GNP IN MID-1995 ................................................. 18
TOTAL EXTERNAL DEBT HAS RISEN SHARPLY ........................................................................................................ 19
DEBT REMAINS HIGH AS A PERCENT OF GNP, AND VERY HIGH AS A PERCENT OF EXPORTS ...................................... 20
INVESTMENT, AND PRIVATIZATION ........................................................................................................ 21
MOST COUNTRIES HAVE LOW INVESTMENT RATES, WITH ....................................................................................... 22
NO PATTERN OF RECENT INCREASES ...................................................................................................................... 22
ARAB-ISRAELI NET PRIVATE CAPITAL FLOWS IN 1994 ............................................................................................ 23
ARAB-ISRAELI GROSS DOMESTIC INVESTMENT AND SAVINGS AS % OF GDP ............................................................ 24
ARAB-ISRAELI TOTAL INVESTMENT AS % OF GDP IN 1995 .................................................................................... 25
ARAB-ISRAELI FOREIGN INVESTMENT .................................................................................................................... 26
EGYPTIAN REFORM VERSUS MALAYSIAN PROGRESS: COMPARATIVE FOREIGN INVESTMENT IN 1996 ........................ 27
ARAB-ISRAELI DOMESTIC CREDIT TO THE PRIVATE SECTOR.................................................................................... 28
ARAB PRIVATIZATION IS LARGELY LIMITED TO EGYPT AND MOROCCO.................................................................... 29
SOME COUNTRIES ARE BEGINNING INTERNATIONAL EQUITY ISSUES: 1993-1996..................................................... 30
THEY ARE ALSO MOVING INTO INTERNATIONAL BONDS: 1993-1996...................................................................... 31
STOCK MARKET CAPITALIZATION IS INCREASING ................................................................................................... 32
ALTHOUGH IT AFFECTS FEW COUNTRIES AND TOTAL VOLUME IS LOW: 1990-1995 ................................................. 32
THE ROLE OF GOVERNMENTS AND THE PROBLEM OF "STATISM" ............................................... 33
"STATISM" BY COUNTRY ...................................................................................................................................... 34
ARAB-ISRAELI CENTRAL GOVERNMENT REVENUES AS A PERCENT OF GDP.............................................................. 35
STATE ECONOMIC ACTIVITY AS A PERCENT OF TOTAL GDP: 1986-1991 ................................................................. 36
ARAB-ISRAELI TOTAL GOVERNMENT EXPENDITURE AS % OF GDP IN 1995 ............................................................. 37
INVESTMENT IN STATE-OWNED ENTERPRISES AS A PERCENT OF GROSS DOMESTIC INVESTMENT: 1986-1991............ 38
GENERAL GOVERNMENT CONSUMPTION OF A PERCENT OF GDP.............................................................................. 39
ARAB-ISRAELI CENTRAL GOVERNMENT REVENUES & CONSUMPTION AS A PERCENT OF GDP IN 1995 ...................... 40
ARAB-ISRAELI CAPITAL EXPENDITURES AS A PERCENT OF TOTAL CENTRAL GOVERNMENT EXPENDITURES ............... 41
Copyright Anthony H. Cordesman, all rights reserved.

ARAB-ISRAELI SUBSIDIES AND CURRENT TRANSFERS AS A PERCENT OF TOTAL CENTRAL GOVERNMENT EXPENDITURES42
"STATISM" AND "MILITARISM" .............................................................................................................................. 43
ARAB-ISRAELI GOVERNMENT SPENDING PATTERNS ................................................................................................ 44
BUSINESS ATTITUDES ARE NOT ALWAYS GOOD STANDARDS FOR JUDGING "STATISM": THE PRIVATE SECTOR ALWAYS
SEES THE GOVERNMENT AS A BARRIER TO THE ECONOMIC DEVELOPMENT .............................................................. 45
SOURCE: WORLD BANK, WORLD DEVELOPMENT REPORT, 1997, PP. 42-43............................................................. 45
INDUSTRY IN DEVELOPING NATIONS DOES, HOWEVER, FIND GOVERNMENT TO BE A GREAT WASTE OF TIME............ 46
HEAVY DEPENDENCE ON AID..................................................................................................................... 47
AID TO ARAB-ISRAELI STATES AS A PERCENT OF GNP IN 1994................................................................................ 48
ARAB-ISRAELI NET AID FLOWS PER CAPITA........................................................................................................... 49
UNCERTAIN TRENDS IN TRADE ................................................................................................................ 50
THE PAN-ARAB TRADE FANTASY: ARAB EXPORTS AND IMPORTS BY REGION IN 1995.............................................. 51
A MASSIVE IMBALANCE OF TRADE: ARAB-ISRAELI TRADE AND EXPORTS IN 1995 ................................................... 52
THE TRADE GAP: ARAB-ISRAELI EXPORTS AND IMPORTS IN 1995............................................................................ 53
ARAB-ISRAELI TRADE AND EXPORTS AS PERCENT OF GDP IN 1995 ......................................................................... 54
UNCERTAIN TRENDS IN THE GROWTH OF ARAB-ISRAELI TRADE: WEAK EXPORTS, MAJOR INCREASES IN IMPORTS .... 55
FOOD AND FUEL IMPORTS ARE A DECLINING PROBLEM ........................................................................................... 56
"MERCHANDISE EXPORTS" ARE GROWING: 1980 VERSUS 1995 .............................................................................. 57
BUT MOST ARE REALLY PRIMARY EXPORTS, THE REGION IS FAR TOO DEPENDENT ON PRIMARY EXPORTS ............... 58
AND TARIFF BARRIERS REMAIN HIGH .................................................................................................................... 59
ARAB-ISRAELI MEAN PERCENT OF TARIFF ON ALL PRODUCTS IN 1995 .................................................................... 60
GROSS INTERNATIONAL RESERVES HAVE IMPROVED............................................................................................... 61
BUT, CURRENT ACCOUNT BALANCES ARE A PROBLEM ........................................................................................... 62
US TRADE WITH THE LEVANT ............................................................................................................................... 63
THE US HAS MAJOR TRADING RELATIONSHIPS ...................................................................................................... 64

Overview
• The region faces massive economic and demographic
problems and recent progress is uncertain at best.
• Economic and demographic reform must go hand in
hand - one will not work without the other.
• "Statism" remains a critical problem. The state
sector remains the "enemy" of economic
development.
• Neither peace nor war bring prosperity by
themselves.
• Democracy and more representative government do
not necessarily affect prosperity and may increase
demographic problems.
• "Corruption" often helps by allowing the black and
gray economies to function.
• Religious extremism may be the symptom, rather
than the disease.

Part One
Comparative GDP/GDP and Economic Growth
• Growth rates have lagged badly in the past and are

improving slowly relative to East Asia and high growth
regions.
• Real growth is general much lower than countries claim
and is often aid/excessive import driven.
• Growth performance is poor relative to demographic
trends.

The Comparative GNP AND GDP of Countries Has Grown in Very Different Ways: 1980-
1990 versus 1990-1995
(Percent of Growth in GNP and GDP in $US Calculated Using the World Bank Method)
7.6
East Asi a
10.3
5.0
Egy pt
1.3
3.5
Isr ael
6.4
-1.5
J or dan
8.2
5% level is generally the

Lebanon minimum needed to both
raise living standards
and off-set population
growth
Gaza & West Bank
1980- 1990
1.5
Sy r i a
7.4 1990- 1995
-2 0 2 4 6 8 10 12
Adapted by Anthony H. Cordesman from World Bank, World Development Indicators, 1997, Section 1.1/4.1, and
CIA on-line edition of the World Factbook, 1996, accessed April 1996.

Arab-Israeli Annual Average Growth in GDP in Percent: 1985-1995
450
400
350
300
250
200
150
100
50
0
Egy pt Isr ael J or dan Lebanon Sy r i a
Source: Adapted by Anthony H. Cordesman from World Bank, World Bank Atlas, 1997, pp. 36-38.

Arab-Israeli GNP in 1995

($US Millions 1995)
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
Egy pt Isr ael J or dan Lebanon Sy r i a West
Bank &
Gaza

Arab-Israeli Gross Domestic Product in 1995

(In Purchasing Power Parity in $US billions))
180
160
140
120
100
80
60
40
20
0
Egy pt Isr ael J or dan Lebanon Sy r i a Gaza West
Bank
GDP
($USB) 171.0 80.1 19.3 18.3 91.2 1.0 3.7
Sectors in Percent
Agriculutre - 3.5% 11% 13% 30% 33% 33%
Industry - 22% 25% 28% 25% 7% 7%
Services - 74.5% 64% 59% 40% 60% 60%
Budget ($USB)
Expend. 18.0 41.0 2.5 1.4 2.5 - -
Revenue 19.4 53.0 2.5 3.2 3.5 - -
Source: Adapted by Anthony H. Cordesman from CIA, World Factbook, 1996, April, 1997, CD ROM.

Arab-Israeli Annual Average Growth in GDP in Percent: 1995
0
Egy pt Isr ael J or dan Lebanon Sy r i a Gaza West
Bank
Note: The CIA "real" growth rates are adjusted for inflation but use PPP figures that can exaggerate real growth by
up to 5%.

Uncertain Progress: Trends in the "Real" GDP Growth of Egypt, Israel, Jordan, and Syria
by Country: 1979-1996
(Percent of "real" annual change: Usually sharply understates inflation and often overstates growth)
20
15
10
-5
Isr ael
- 10 Sy r i a
- 15 J or dan
79- 88 89 90 91 Egy pt
92 93 94
95
96
Adapted by Anthony H. Cordesman from IMF, World Economic Outlook, May, 1997, pp. 138-139.

The Impact of Violence on Lebanese Growth: 1979-1996

(Percent of "real" annual change in GDP : Usually sharply understates inflation and often overstates growth)
40
30
20
10
- 10
- 20 Sy r i a
- 30 J or dan
- 40 Isr ael
- 50 Egy pt
79- 88 89 90 91 Lebanon
92 93 94 95 96
Adapted by Anthony H. Cordesman from IMF, World Economic Outlook, May, 1997, pp. 138-139.

Part Two
Structural Change and Modernization
• Progress is being made, but growth in the

manufacturing sector lags.
• Labor remains over-dependent on agriculture in the
Arab countries and Israel.
• Output growth by sector badly lags structural
improvements in East Asia and Latin America.

Structural Change and Sectoral Growth by Country
Structural Economic Change by Country
Country Labor Force Agriculture Investment Trade

as % of Total as % of GDP as % of GDP as % of GDP
70 90 70 95 70 95 70 95
Egypt 52 43 29 20 14 17 33 54
Israel 10 4 - - 25 24 70 69
Jordan 28 21 - 8 - 26 - 121
Lebanon - 5 - 7 - 29 - 70
Syria 50 34 20 - 14 - 39 -
Comparative Sectoral Growth by Country

(Average Annual Percent of Increase in Output
Country Agriculture Industry Manufacturing Services

80-90 90-95 80-90 90-95 80-90 90-95 80-90 90-95
Egypt 1.5 2.1 2.6 0.4 - 0 8.4 1.5
Israel - - - - - - - -
Jordan 13.2 10.2 -1.3 7.9 2.4 7.7 -8.2 6.2
Lebanon - - - - - - - -
Syria -0.6 - 6.6 - - - - -
MENA 4.5 3.3 1.1 - 5.0 1.6 1.2 -
East Asia 4.8 3.9 8.9 15.0 9.7 15.1 9.0 8.4
South Asia 3.2 3.0 6.9 5.3 7.2 5.6 6.6 6.0
Adapted by Anthony H. Cordesman from World Bank, World Development Indicators, 1997, Section 1.3 and 4.1

Comparative Growth in Output: 1990-1995

(Percentage of Average Annual Growth Measured in Deflated Value Relative to GDP)
Adapted by Anthony H. Cordesman from World Bank, World Development Indicators, 1997, Section 4.1.

Part Three
Debt
• Forgiveness and rescheduling conceal a growing debt

problem.
• This problem is structural, and the structural causes are
not easing in intensity.
• The private sector is becoming a better risk, not
governments.

Investment Risk and Debt Performance
Many Countries are Assessed as High Investment Risks: Estimates of Investment Risk in the Middle East
Country COFACE Political Risk Estimate Moody & S&P Sovereign Ratings
Short-Term Medium-Term Moody Long- S&P Long-Term
Term Foreign Foreign Currency
Currency Bonds
and Notes
Egypt low moderately high Ba2 BBB-

Jordan low high B1 BB-
Lebanon low moderately high - -
Syria moderate quite high - -
Debt Performance By Country is Mixed
Country Relative Wealth Debt Status
Egypt low income moderately indebted

Jordan middle income severely indebted
Lebanon middle income less indebted
Syria middle income severely indebted
Note: Low income = $725 annually or less; lower-middle = $725-2,895; upper middle = $2,896-8,955. Kuwait,
Qatar, and the UAE are high income countries with $8,956 or more.
The ranking for indebtedness is determined by the present value of debt services relative to exports of goods and
services or relative to GNP.
Source: World Bank, World Debt Tables, 1995, pp. 43-44.
COFACE = Franceís Export Credit Agency

Investment grade for Moodyís is Baa3 and above; BBB- and above for S&P
Source: COFACE, Moodyís Investor service, Standard and Poorís, and Middle East Economic Digest, February 14,
1997, p. 2 and February 21, 1997, p. 4.

Net Present Value of Arab-Israeli Debt as a Percent of GNP in Mid-1995
120
100
80
60
40
20
0
Bank &
Gaza
Source: Adapted by Anthony H. Cordesman from World Bank, World Bank Atlas, 1997, pp. 36-37, and World
Development Report, 1997, pp. 214-215 .

Total External Debt Has Risen Sharply

($US Millions))
40000
1980 1995
35000
30000
25000
20000
15000
10000
5000
0
Bank &
Gaza
Country Total External Debt

1980 1995
Egypt 19,131 39,445
Israel - -
Jordan 1,971 7,944
Lebanon 510 2,966
Syria 3,552 21,318
West Bank & Gaza - -
Source: Adapted by Anthony H. Cordesman from World Bank, World Development Report, 1997, pp. 246-247.

Debt Remains High as a Percent of GNP, and Very High as a Percent of Exports
($US Millions))
Country External Debt as % of GNP External Debt as % of Exports
1980 1995 1990 1995
Egypt 89.2 73.3 207.7 208.1
Israel - - - -
Jordan - 126.2 79.0 163.8

Lebanon - 25.5 - 152.7
Syria 27.2 134.8 106.3 336.8
West Bank & Gaza - - - -
MENA 18.3 37.3 41.1 133.4
East Asia 17.3 32.9 81.8 98.3

Part Four
Investment, and Privatization
• Progress is slow and often is far more rhetorical than

real.
• All of the nations in the region have the right rhetoric,
but a poor history of performance.
• The private sector is succeeding in attracting more
capital, but often in spite of governments, rather than
because of them.
• The rate of private investment does not meet national
needs and major new incentives are needed -- often in
terms of reduced state barriers to private investment.
• Privatization and the growth of stock markets are
critical reforms, but are moving much too slowly.

Most Countries Have Low Investment Rates, with

No Pattern of Recent Increases
(Investment as percentage of GDP, with GDP measured in constant 1992 prices)
1995
Egypt 1990
1985
1980
Jor dan
Lebanon
Syr ia
0 10 20 30 40 50
Adapted by Anthony H. Cordesman from Economic and Social Commission for West Asia, and Middle East
Economic Digest, February 14, 1997, p. 3.

Arab-Israeli Net Private Capital Flows in 1994

($US Millions)
1200
1000
800
600
400
200
0
- 200
Source: Adapted by Anthony H. Cordesman from World Bank, World Bank Development Report, 1997, pp. 218-
219.

Arab-Israeli Gross Domestic Investment and Savings as % of GDP
30
Inv est ment Sav i ngs
20
10
0
Bank
- 10
- 20
- 30
Development Report, 1997, pp. 238-239.

Arab-Israeli Total Investment as % of GDP in 1995
30
25
20
15
10
0

Arab-Israeli Foreign Investment

(Net Foreign Direct Investment as % of GDP)
0
Egy pt Isr ael J or dan Lebanon Sy r i a Chi na Indonesi a

Egyptian Reform Versus Malaysian Progress: Comparative Foreign Investment in 1996

($US millions)
Source: Adapted by Anthony H. Cordesman from World Bank and from World Bank Atala, 1997, pp. 16-17 36-37.

Arab-Israeli Domestic Credit to the Private Sector

(as % of GDP)
80
70
60
50
40
30
20
10
0

Arab Privatization is Largely Limited to Egypt and Morocco

($US millions)
350
300
250
200
150
Mor occo
100
Egy pt
50
Tunsi a
0
1988 Ot her s
1989
1990
1991
1992
1993
1994
Source: Adapted by Anthony H. Cordesman from World Bank, World Debt Tables, 1996, pp. 119-122.

Some Countries Are Beginning International Equity Issues: 1993-1996

($US millions)
Source: Adapted by Anthony H. Cordesman from World Bank, Global Development Finance, 1997, p. 114.

They Are Also Moving Into International Bonds: 1993-1996

($US millions)
600
500
Tuni si a
400 Lebanon
Mor occo
300
Bahr ai n
J or dan
200
Al ger i a
100
Egy pt
0 Oman
1993
1994
1995
1996
Source: Adapted by Anthony H. Cordesman from World Bank, Global Development Finance, 1997, p. 112.

Stock Market Capitalization Is Increasing

Although it Affects Few Countries and Total Volume is Low: 1990-1995
(Percentage of Average Annual Growth Measured in Deflated Value Relative to GDP)
East Asi a
A l ger i a
Egy pt
Isr ael
J or dan
Lebanon
1995
Li by a
1990
Maur i t ani a
Mor occo
Gaza & West Bank
Sy r i a
Tuni si a
0 5000 10000 15000 20000 25000 30000 35000 40000

Part Five
The Role of Governments and the Problem of
"Statism"
• The problem of government interference in the

economy is slowly easing, but no government has more
than a mediocre track record.
• There is surprisingly little difference between key states
like Egypt and Israel in the threat the government poses
to the economy and the nationís future.
• Syrian performance is particularly bad, with a virtual
halt to change.
• Military expenditures are a relatively minor problem,
more the excuse of incompetent governments than the
true cause.
• Subsidies and current transfers remain a major problem.

"Statism" By Country
(Central Government Revenues as a Percent of GDP)
Egy pt
Isr ael
J or dan
1995
1980
Lebanon
Gaza & West Bank
Sy r i a
0 10 20 30 40 50

Arab-Israeli Central Government Revenues as a Percent of GDP
45
40
35
30
25
20
15
10
0

State Economic Activity as a Percent of Total GDP: 1986-1991
Egy pt
Isr ael
J or dan
Lebanon
Gaza & West Bank
Sy r i a
0 5 10 15 20 25 30

Arab-Israeli Total Government Expenditure as % of GDP in 1995
45
Cur r ent Capi t al
40
35
30
25
20
15
10
0
Bank

Investment in State-Owned Enterprises as a Percent of Gross Domestic Investment: 1986-

1991
Egy pt
Isr ael
J or dan
Lebanon
Gaza & West Bank
Sy r i a
0 10 20 30 40 50 60 70

General Government Consumption of a Percent of GDP
Mi ddl e Income
East Asi a
Egy pt
Isr ael
J or dan
Lebanon
Gaza & West Bank
Sy r i a
0 5 10 15 20 25 30

Arab-Israeli Central Government Revenues & Consumption as a Percent of GDP in 1995
45
Rev enues as % of GNP Consumpt i on as % of GDP
40
35
30
25
20
15
10
0

Arab-Israeli Capital Expenditures as a Percent of Total Central Government Expenditures
25
1981- 1990 1991- 1995
20
15
10
0
Egy pt Isr ael J or dan Lebanon Sy r i a West Bank
& Gaza
Source: Adapted by Anthony H. Cordesman from World Bank, World Development Report, 1997, pp. 198-199..

Arab-Israeli Subsidies and Current Transfers as a Percent of Total Central Government

Expenditures
40
1981- 1990 1991- 1995
35
30
25
20
15
10
0

"Statism" and "Militarism"

(Size of Central Government and Military Expenditures Relative to GNP in 1994)
Sy r i a
Lebanon
Mi l Ex
CGE
J or dan GNP
Isr ael
Egy pt
0 10000 20000 30000 40000 50000 60000 70000 80000
Source: Adapted by Anthony H. Cordesman from ACDA, World Military Expenditures and Arms Transfers,
1995, Washington, GPO, 1996

Arab-Israeli Government Spending Patterns
60
Def ense as % of CGE
Soci al Ser v i ces as % of CGE
Def i ci t as % of GDP
50
40
30
20
10
0
Bank
- 10

Business Attitudes Are Not Always Good Standards for Judging "Statism": The Private
Sector Always Sees the Government as a Barrier to the Economic Development
(Private sector survey by World Bank: Worst ranking = 1)
Obstacle MENA East/South Latin America Sub-Saharan CIS CEED OECD

Asia & Caribbean Africa
Property rights
Corruption 2 3 1 1 3 3 5
Crime & Theft 8 8 3 5 4 6 6
Regulation 7 7 8 8 8 8 4
Policy
Taxes 3 2 5 2 1 1 1
Financing 4 5 4 6 2 2 2
Inflation 6 4 7 4 4 8 8
Policy
instability 5 6 6 7 7 7 7
Public Investment
Poor Infrastructure 1 1 2 3 7 5 3
Source: World Bank, World Development Report, 1997, pp. 42-43.

Industry in Developing Nations Does, However, Find Government to be a Great Waste of

Time
(Percentage of firms devoting more than 15% of managers time to negotiating with officials)
60
50
40
30
20
10
0
Hi gh Sout h/ Sout CEE Sub- MENA Lat i n CIS
Income heast A si a Sahar an A mer i ca
OECD Af r i ca

Part Six
Heavy Dependence on Aid
• Those states who can obtain aid, remain heavily

dependent on such aid.
• It is unclear that such aid has a net economic benefit to
any state in the region.
• Some aid is used effectively, particularly on
infrastructure.
• The benefits, however, are offset by the use
of funds to buy time, pay subsidies, and
allow broad structural problems to get
worse.
• A rapid phase out of aid would be disruptive, but strong
links to demonstrated progress in reform seem
necessary if aid is to avoid having a negative net impact
on states like Egypt, Israel, Jordan, etc.

Aid to Arab-Israeli States as a Percent of GNP in 1994
0
Bank &
Gaza
Development Report, 1997, pp. 218-219 .

Arab-Israeli Net Aid Flows Per Capita
250
200
150
100
50
0

Part Seven
Uncertain Trends in Trade
• Imports are growing far more quickly than exports.

• Intra-regional trade is very low and Pan-Arab/regional
development is a myth.
• Improvements in the sophistication of exports --
merchandise exports -- are more apparent than real,
except for Israel.
• Tariff and regulatory barriers remain far too high.
• International reserves have improved, but current
account balances are a major problem and reflect the
growing over dependence on imports.

The Pan-Arab Trade Fantasy: Arab Exports and Imports By Region in 1995
(In Percent of Total)
ARAB COUNTRIES
= ONLY 4.2%
Other =
8.6%
Japan =
22%
US =
9.6%
Other Developing
Countries =
EU = 37.8% TOTAL EXPORTS =
17.8% $US 112,121
MILLION
Japan =
7.4% ARAB COUNTRIES
Other = = ONLY 5.9%
10.3%
US =
13.6%
Other
EU = Developing
33.9% Countries =
28.9%
TOTAL IMPORTS =
$US 95,292
MILLION
NOTE: Includes Bahrain, Egypt, Gaza, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, UAE, West
Bank, Yemen
Adapted by Anthony H. Cordesman from Middle East Economic Digest, July 4, 1997. Source of data: Economic
and Social Commission for Western Asia.

A Massive Imbalance of Trade: Arab-Israeli Trade and Exports in 1995

($US Millions)
30000
Ex por t s Impor t s
25000
20000
15000
10000
5000
0
Bank &
Gaza

The Trade Gap: Arab-Israeli Exports and Imports in 1995

(In $US millions)
40000
Ex por t s Impor t s
35000
30000
25000
20000
15000
10000
5000
0
Egy pt Isr ael J or dan Lebanon Sy r i a Gaza West Bank
Exports 5,400 28,400 1,700 1,000 3,400 49 116

Imports 15,200 40,100 3,800 7,300 5,100 339 791

Arab-Israeli Trade and Exports as Percent of GDP in 1995
140
Tr ade Ex por t s
120
100
80
60
40
20
0
Bank &
Gaza

Uncertain Trends in the Growth of Arab-Israeli Trade: Weak Exports, Major Increases in
Imports
(Average Annual Change in Percent)
25
Ex por t Vol ume 80- 90
Ex por t Vol ume 90- 95
20 .
Impor t Vol ume 80- 90
Impor t Vol ume 90- 95

15
10
0
Bank &
Gaza
-5
- 10
Country Average Annual Growth Rate in Percent

Exports: 80-90 90-95 Imports: 80-90 90-95
Egypt 1.7 -5.4 -2.8 18.9
Israel 5.9 10.0 4.6 12.3
Jordan 1.2 1.3 3.1 7.0
Lebanon -1.2 -7.8 -7.4 23.5
Syria 6.4 -3.2 -9.3 22.3
MENA -2.0 1.1 -5.8 5.9
East Asia 9.3 17.8 7.1 17.0

Food and Fuel Imports Are a Declining Problem

(Average Annual Change in Percent)
35
Food Impor t s - 1980
Food Impor t s - 1993
30 *
Fuel Impor t s - 1980
Fuel Impor t s - 1993
25
20
15
10
0
Bank &
Gaza
Country Food Imports as % of Total Fuel Imports as % of Total

1980 1995 1980 1995
Egypt 32 24 1 2
Israel 11 7 27 7
Jordan 18 20 17 13
Lebanon 16 - 15 -
Syria 14 19 26 4

"Merchandise Exports" Are Growing: 1980 versus 1995

($US Millions)
A l ger i a
Egy pt
Isr ael
J or dan
Lebanon
1995
Li by a
1980
Maur i t ani a
Mor occo
Gaza & West Bank
Sy r i a
Tuni si a
0 5000 10000 15000 20000

But Most Are Really Primary Exports, the Region is Far Too Dependent on Primary
Exports
(Percent of Total Exports in 1993)
A l ger i a
Egy pt
Isr ael
J or dan
Lebanon
Li by a
Maur i t ani a
Fuel s,
Mor occo Mi ner al s &
Met al s
Al l
Gaza & West Bank Pr i mar y
Sy r i a
Tuni si a
0 20 40 60 80 100

And Tariff Barriers Remain High

(Mean Average Tariff in Percent During 1990-1933)
OECD
Dev el opi ng Wor l d
A l ger i a
Egy pt
Isr ael
J or dan
Lebanon
Li by a
Maur i t ani a
Mor occo
Gaza & West Bank
Sy r i a
Tuni si a
0 5 10 15 20 25 30

Arab-Israeli Mean Percent of Tariff on All Products in 1995
40
35
30
25
20
15
10
0

Gross International Reserves Have Improved

($US Millions))
18000
1980 1995
16000
14000
12000
10000
8000
6000
4000
2000
0
Bank &
Gaza
Country Gross International Reserves

1980 1995
Egypt 2,480 14,908
Israel 4,055 8,123
Jordan 1,745 2,279
Lebanon 7,025 8,100
Syria 828 -

But, Current Account Balances Are a Problem

($US Millions))
1000
1980 1995
0
Bank &
Gaza
- 1000
- 2000
- 3000
- 4000
- 5000
- 6000
Country Current Account Balance

1980 1995
Egypt -438 -956
Israel -871 -5,491
Jordan -942 -476
Lebanon - -5,092
Syria 251 440

US Trade With the Levant

(Trade in 1995 in $Current Millions)
Country Trade Balance Exports to US Imports from US
Egypt 2378.7 2985.1 606.4
Israel -87.6 5621.1 5708.7
Jordan 306.5 335.3 28.8
Lebanon 557.2 592.3 35.1
Syria 167.8 223.4 55.6
Total 3322.6 9757.2 6434.6
Source: Department of Commerce, July, 1996

The US Has Major Trading Relationships

(in millions of dollars)
US General Exports, including re-exports US General Imports

1992 1993 1994 1995 1992 1993 1994 1995
Total Area 21, 346.321,345.3 20,804.6 21,804.2 18,697.319,149.6 19,384.4 20,227.6

Percent of
US total 4.8 4.6 4.1 3.7 3.4 3.2 2.8 2.6
Arab Countries
Near East 12,028.6 11,614.4 10,712.6 11,492.5 12,961.311,999.2 11,458.5 11,593.6
Jordan 249.9 362.7 288. 355.8 18.6 20.1 31.3 30.7

Lebanon 310.8 376.5 442.9 589.5 28.5 27.9 26.4 36.4
Syria 168.3 185.8 198.5 223.3 45.8 144.7 48.4 65.0
Gaza * * 1.2 .2 * * * *
West Bank .2 * * .2 * * * *
Arab Countries
North Africa 4,489.6 4,495.0 4,767.2 4,495.7 2,374.6 2,527.2 2,680.3 2,793.2
Egypt 3,087.3 2,762.6 2,843.8 2,985.3 434.3 663.8 593.6 654.6
Israel 4,074.2 4,420.2 5,006.0 5,593.3 3,138.7 4,527.1 5,336.7 5,840.6
* - less than $100,000
Source: Adapted from material provided by the US Department of Commerce, June 1996

Peace Is Not Enough: The Arab-Israeli Economic and Demographic Crises

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CSIS_______________________________

Center for Strategic and International Studies

Peace is Not Enough: The Arab-Israeli

Economic Growth, Structural Change and

COMPARATIVE GDP/GDP AND ECONOMIC GROWTH............................................................................ 5

Copyright Anthony H. Cordesman, all rights reserved.

Copyright Anthony H. Cordesman, all rights reserved.

Copyright Anthony H. Cordesman, all rights reserved.

Comparative GDP/GDP and Economic Growth

• Growth rates have lagged badly in the past and are

Copyright Anthony H. Cordesman, all rights reserved.

5% level is generally the

Gaza & West Bank

Copyright Anthony H. Cordesman, all rights reserved.

Arab-Israeli Annual Average Growth in GDP in Percent: 1985-1995

Copyright Anthony H. Cordesman, all rights reserved.

Arab-Israeli GNP in 1995

Copyright Anthony H. Cordesman, all rights reserved.

Arab-Israeli Gross Domestic Product in 1995

Copyright Anthony H. Cordesman, all rights reserved.

Arab-Israeli Annual Average Growth in GDP in Percent: 1995

Copyright Anthony H. Cordesman, all rights reserved.

Copyright Anthony H. Cordesman, all rights reserved.

The Impact of Violence on Lebanese Growth: 1979-1996

Copyright Anthony H. Cordesman, all rights reserved.

Structural Change and Modernization

• Progress is being made, but growth in the

Copyright Anthony H. Cordesman, all rights reserved.

Structural Change and Sectoral Growth by Country

Structural Economic Change by Country

Country Labor Force Agriculture Investment Trade

Comparative Sectoral Growth by Country

Country Agriculture Industry Manufacturing Services

Egypt 1.5 2.1 2.6 0.4 - 0 8.4 1.5

Jordan 13.2 10.2 -1.3 7.9 2.4 7.7 -8.2 6.2

Syria -0.6 - 6.6 - - - - -

MENA 4.5 3.3 1.1 - 5.0 1.6 1.2 -

Copyright Anthony H. Cordesman, all rights reserved.

Comparative Growth in Output: 1990-1995

Copyright Anthony H. Cordesman, all rights reserved.

• Forgiveness and rescheduling conceal a growing debt

Copyright Anthony H. Cordesman, all rights reserved.

Investment Risk and Debt Performance

Egypt low moderately high Ba2 BBB-

Debt Performance By Country is Mixed

Country Relative Wealth Debt Status

Egypt low income moderately indebted

Source: World Bank, World Debt Tables, 1995, pp. 43-44.

COFACE = Franceís Export Credit Agency

Copyright Anthony H. Cordesman, all rights reserved.

Net Present Value of Arab-Israeli Debt as a Percent of GNP in Mid-1995

Copyright Anthony H. Cordesman, all rights reserved.

Total External Debt Has Risen Sharply

Country Total External Debt

Copyright Anthony H. Cordesman, all rights reserved.

Jordan - 126.2 79.0 163.8

Copyright Anthony H. Cordesman, all rights reserved.

Investment, and Privatization

• Progress is slow and often is far more rhetorical than

Copyright Anthony H. Cordesman, all rights reserved.

Most Countries Have Low Investment Rates, with

Copyright Anthony H. Cordesman, all rights reserved.

Arab-Israeli Net Private Capital Flows in 1994