| AMERICA'S MIDDLE EAST ECONOMY | ||||||||
Early American leaders who warned against allowing the nation to become entangled in foreign conflicts might look at twenty-first century United States with emotions ranging from amusement to alarm. Having fought in every conceivable conflict from regional skirmishes to world wars, it emerged a great superpower, protecting vested interests around the world. The fall of the Soviet Union and the rise of global jihad further pressed the U.S. to engage – often to the dismay of many of its citizens. Yet, today’s American foreign policy is a patchwork of global trade, international diplomacy, the exporting of democracy and the advance of human rights. The Middle East found itself open to Western influence and involvement as the Ottoman Empire crumbled after World War I. Nearly a century later, the terrorist attacks of 9/11 subdued those American lawmakers who argued for a reduced international profile, and propelled the U.S. into shooting-wars in Afghanistan and Iraq. As is often the case, American involvement stumbled on its way out and what began as a mission to wrest the nation from its dangerous dictator remains bogged down three years later under the task of democratizing post-Saddam Iraq while fighting a war against insurgents still loyal to their fallen leader. As history has often shown, bad wars make for good business. And today, notwithstanding the cost in human lives and political prestige among politicians, American corporations – and indeed, in some cases the government itself -- are investing and earning huge amounts of money in the Middle East. The wars in Afghanistan and Iraq; investments in various fields such as oil and gas; the advancement of democracy and human rights in the region; and even hamburger sales, amount to billions of dollars. America's post-9/11 wars In February, the New York Times reported that the Pentagon will spend about $3.5 billion in 2006 to combat the damage done by 'I.E.Ds' – improvised explosive devices, the number one killer of American troops in Iraq -- a figure triple its 2005 total. Lest the uninformed view this as a staggering sum, it represents only half of the Department of Defense’s average monthly spending-rate for the Iraqi war. By comparison, the U.S. spends $1 billion per month in Afghanistan. According to a Congressional Research Service (CRS) report issued on October 3, 2005, "Since the 9/11 terrorist attacks, the American Administration has allocated a total of about $361 billion for military operations, reconstruction, embassy costs, various foreign aid programs in Iraq and Afghanistan, and for enhanced security at defense bases." If the average rate still stands at $7 billion a month, the total of war-related expenditures since 9/11/2001 is around $400 billion. But that is not all. Success in Iraq, as stated in a State Department paper, requires simultaneous progress on three tracks: political, security, and economic. According to the President’s “National Strategy for Victory in Iraq,” these three tracks "are fundamental to our counter-insurgency, counter-terrorism campaign and our effort to help Iraqis build a democratic, stable and prosperous country." The United States claims the entire Afghan and Iraqi war campaigns have as a goal the democratization of these countries. But critics argue that except for the ousting of tyrannical leaders and the holding of elections, it cannot be argued that either nation is yet a democracy. This, the argument goes, is because most American dollars spent in Iraq or Afghanistan still go for war-related activities, while only a small amount of money is spent on reconstruction and foreign aid programs. In fact, of the $361 billion spent since 9/11, less than 9 percent ($31 billion) was allocated for these purposes. In war-shattered Iraq, the reconstruction of infrastructure -- mainly water, electricity, and oil -- is extremely important to the newly democratically-elected parliament in terms of attracting popular support, as is the ability to maintain security in the nation’s streets. Yet, less than 9% is allocated for these purposes. Private American companies in Iraq When referring to private American companies operating in Iraq, one is mainly speaking of energy companies being paid by the U.S. government to rehabilitate the various energy sectors. "Before the war started, the Americans pledged they will rebuild any infrastructure damaged during the war," Dr. Muhammad 'Ali Zaini, a senior energy economist with the London-based Center for Global Energy Studies, told The Media Line news agency. "The U.S. Congress authorized the DOD to go ahead and spend up to $2 billion on the reconstruction and rehabilitation of damaged infrastructure." The principal companies which took charge of the reconstruction work in Iraq's oil fields, according to Dr. Zaini, were America’s Parsons and KBR, and Australia's Worley. "But they have not finished the work,” he said. “The pledge was to recover the capacity that was lost, which stood at 2.8 million barrels per day before the war. The works are not finished because of plenty of red tape… other factors [which caused the delays] were the chaos in the country; the lack of security; the weakness of the [Iraqi] government; and the power interruptions." Like oil-rich nations of the Middle East, Iraq's economy was dominated by the oil sector, which has traditionally provided about 95% of the foreign exchange earnings. Therefore, the destruction of the oil sector during the war has deteriorated the overall Iraqi economy, making its reconstruction crucial for Iraq’s future. Nevertheless, Dr. Zaini adamantly states that the Iraqi oil industry today remains at a standstill. "Beyond the expenditures on reconstruction of oil fields in Iraq, so far nothing is happening in the oil industry." Middle Eastern economies open to the West Private American companies are gradually infiltrating Middle Eastern markets. According to the Middle East Economic Digest's News Editor Oliver Klaus, "the region's economies are growing at a very fast pace, especially in the [Persian] Gulf countries. This is largely driven by high oil prices, combined with high production levels, which is obviously bringing a lot of revenues." Economies in the region increasingly open up and integrate with global economies, and all this brings a lot of opportunities for international companies, including American companies, according to Klaus. As local Middle Eastern governments increasingly spend their revenues on infrastructures ranging from petroleum to health and education, ‘Western know-how’ is very much in demand – particularly in the areas of oil, gas, and information technology (IT). But in spite of that demand, local governments remain very hesitant to reveal to foreigners the intimate details of such strategic assets. "Where we do see the participation of the international oil companies is in the downstream oil side, which means in refining for example," Klaus told The Media Line. Klaus maintains that at this stage, there is no indication that there will be increased participation by foreign companies in upstream oil development: read, “oil production.” "You have companies like ARAMCO - Saudi Arabia's national oil company, which is the world's largest oil company. The company has all the competences it needs to develop oil resources." American (and other Western) oil companies are nevertheless coming in on the gas side of the business. So while the upstream oil is still off-limits for the international oil players, it is within limits on the gas side. Klaus illustrates this with some examples: Exxon-Mobil and Qatar Petroleum jointly developed a Liquefied Natural Gas (LNG) project, at a cost of up to $10 billion; Chevron Corporation invested in three petrochemical projects in Saudi Arabia, with their latest investment amounting to between $3-5 billion; and Dow Chemical Company signed a $2.6 billion joint venture deal with the government of Oman for the construction of a petrochemicals complex. While the local governments are generally reluctant to give up their complete control over their national oil companies, "further down the value chain, in the hydrocarbon sector, on the chemical side of the business, again international companies are participating as equity partners in such projects," says Klaus. One such example is the Dow Chemical Company, which will own 50% of the petrochemicals complex in Oman. One Arab oil expert told The Media Line that "there really isn't as much of an American presence in the Middle East as people like to think." According to Yousuf Ibrahim, Managing Director of the Dubai-based Strategy Energy Investment Group (SEIG), "in the last 20 years the role of American [oil] companies [in the Middle East] has shrunk because many other international oil companies – like the French, the Italian, the Norwegian, even the Chinese – came into the picture. The American tanks, in many ways, did not help American oil companies," says Ibrahim. He explains that with the emergence of OPEC in the 1970s, the oil sector was nationalized and the big international oil companies were evicted. Ibrahim offers the example of Saudi Arabia’s ARAMCO, which was an American company twenty-five years ago, but is now mostly a Saudi national oil company. Free Trade Agreements with Middle Eastern countries With a population exceeding 320 million people, Middle Eastern markets present many economic opportunities to American companies. In 1985, the United States signed its first Free Trade Agreement (FTA) with a country in the region: Israel. Between 2001 and 2004, it signed FTAs with Jordan, Morocco, and Bahrain, and it is now also negotiating such agreements with Oman, the United Arab Emirates, and Kuwait. The advent of FTAs gave American companies greater access to Middle Eastern markets, and in particular, the financial services sector, according to Klaus. Figures obtained by the Middle East North Africa Business Information Center (MENABIC) at the U.S. Department of Commerce show that during 2004, American businesses exported goods and services valued at more than $23.5 billion to the region. Saudi Arabia and Israel are consistently the largest Middle Eastern buyers of American goods. Such goods include some of America's most well-known brands, like McDonald's and Coca-Cola. McDonald's first entered the Middle East market in December 1993, when it established its first restaurant in Jedda, Saudi Arabia. Thirteen years later, McDonald's has more than 230 restaurants located in the region, in at least ten Middle Eastern countries. According to the company's website, "all partners in the Middle East are the 100% owners of their business as developmental licensees. In other words, McDonald's Corporation has no ownership over the real estate of the restaurants." Also, 80% of McDonald's supplies are of local origin. Coca-Cola is even more entrenched in the region. "The company sells its products in all countries of the Middle East," says the regional public affairs manager, Lubna Forzley. The local population's attitude towards American companies Despite the rise in local support for Al-Qa'ida and its affiliates throughout the region, and varying degrees of anti-American political sentiment, American companies do not encounter major difficulties in selling their products. "There were times when there were calls to boycott U.S. goods," says Klaus. "But in general, U.S. companies are very warmly welcomed across the Middle East and northern Africa, because they bring in knowledge technology, and a whole range of new opportunities for the countries on the ground. If you look at the UAE and the other Gulf countries for example, American cars are selling very well right now. If you look at technology being used in the oil, gas, and chemical sectors, a lot of these technologies come from the U.S." Nevertheless, boycotts against American and other Western products do occur from time to time. Coca-Cola is a case in point. The company has a number of times been the target of Arab and Muslim boycotts. Analysts suggest that because it is seen as an icon of American business, it serves those behind the boycotts as a symbol of imperialism and unwanted Western values. But Coca-Cola spokesman Steve Leroy says boycotts against the company tend to be short-lived. "Because consumer boycotts in certain countries in the Middle East did not last long, the impact of consumer boycotts on our global company profits has not been significant,” Leroy said. And while Coca Cola has not been seriously affected by periodical boycotts, several American chains -- KFC and Pizza Hut in particular -- have had to close some of their branches in the Arab world following extensive campaigns against them. USAID activities in the region The United States Agency for International Development (USAID) is the primary American governmental agency that is active in the region, according to Klaus. "They are involved in a range of countries, and very often in the infrastructure related projects – power and water sectors for example." Reviewing USAID's activities in Egypt for example, reveals that it is primarily interested in creating new job opportunities through trade and investment. For that purpose, USAID granted more than $428 million in 2005. The organization also financed programs to advance democracy and governance ($34.9 million), and to improve basic education ($38.6 million). All totaled, USAID distributed more than $530 million to Egypt during 2005, and almost $26 billion since 1975. During 2005, USAID transferred between $2-3 billion to Middle Eastern countries. The Palestinian Authority (P.A.) received $23 million for democracy and governance programs out of a total amount of $74.4 million for all programs, including private sector development, water resources development, higher education, family health, and community services. What does the future hold? The economies of America and the Middle East are growing increasingly closer. Middle Eastern countries represent a large market for American companies, while at the same time they are benefiting from American know-how in various fields. The mutual benefits are obvious. And although growing anti-American sentiments, especially following the post-9/11 wars, are disrupting the relations between the U.S. and the region at large, experts maintain that American goods are not going to disappear soon from the region's markets. Oliver Klaus sums it up with a strong dose of economic pragmatism. "People look at what it is,” he says. "If it is a quality product, and it comes at a price they can afford, then they will go for it."
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