Priority to economic considerations may open the door to fix political differences in the Arab world

Published May 4th, 2014 - 12:06 GMT

Last week, I attended in Amman a discussion group — organised by the Arab Federation of Chemical and Petrochemical Industries — on integration among Arab countries in the petrochemical and fertilizer industries.

It was attended by Ambassador Mohammad Al Rabea of the Council of Arab Economic Unity of the Arab League and honoured by the Prime Minister of Jordan, with the Minster of Energy and Mineral Resources, Mohammad Mousa Hamed, delivering the opening address on his behalf.

The presentations and interventions revealed many things. First, the extent of the Arab petrochemical industry is substantial. To give one example, ethylene production capacity was about 10 million tonnes a year in 2007 or about 8.4 per cent of world capacity. Since then, production increased rapidly such that the capacity now is around 23 million tonnes, with other basic petrochemicals and finished products increasing in the meantime.

Saudi Arabia was, and continues to be, the leader in this respect since it started earlier than others and joined hands with specialised companies through joint ventures, apart from having vast resources of oil and gas and a well-developed refining industry. Many other Arab countries are also planning expansions.

The fertiliser industry is substantial in Jordan, Syria, Iraq, Libya and Egypt — where statistics are available — and annual production is close to 30 million tons. Obviously both industries are supported by the vast oil and gas resources in the Arab countries, where oil reserves in 2012 stood at 717 billion barrels or 43 per cent of world reserves. Natural gas reserves in 2012 were 55 trillion cubic metres, or close to 30 per cent of world reserves.

The availability of strong domestic and export markets and the aim of governments to add value to oil and gas resources and to transfer technology played their role in advancing these industries. But the sad fact is that the great majority of these projects are country-specific with very few examples and limited capacity of projects shared by more than one country.

This has drawn the meeting to widen the discussion as to why the process of economic integration in the Arab world is so slow and with limited success. Isam Al Chalabi, the former Iraqi minister of oil, made a presentation about the success and failures of the many Arab joint companies that were championed by the Organisation of the Arab Petroleum Exporting Countries (OAPEC) in the 1970s and 1980s.

He said it was unfortunate that once these companies were established they are left to themselves to deal with individual countries without the umbrella of OAPEC to coordinate and support activities. Nevertheless, he pointed to the success of the Arab Petroleum Investment Corporation (Apicorp) in financing and participating in many oil and gas projects in various Arab countries against the failure of the Arab Engineering Company, which was liquidated in 1989 after only few years of operations.

Few pipelines

There are very few pipelines crossing borders between Arab countries and while some have reached some success, others have been shut down more than they have been operational. The Arab gas pipeline was hailed a great success to supply Jordan, Syria and Lebanon by gas from Egypt only to see Egypt itself importing gas after a few years.

The linkage of the system with others to supply Israel was not helpful as the line was blown up many times. Another successful project was that of the Arab Detergents Chemicals Company, which was established in Iraq in the 1980s and is still in production. But three countries since then have duplicated the same project without any co-ordination with the company in Iraq as to its plans for expansion.

Other economic sectors are probably less fortunate with respect to integration. The call for Arab economic integration is as old as the Arab League itself. The Council of Arab Economic Unity was founded in 1957. The ‘Greater Arab Free Trade Area’ (GAFTA) is a pan-Arab free trade zone that came into existence in 1997 to effectively reduce 95 per cent of customs tax among Arab countries.

Yet, progress is slow and minimal though the initiative to establish integration is even older than the same for the European Union — but look at the difference between the two groups. Intra-Arab trade is low, there is no integration of services, labour, and capital markets and so on... a situation that does not facilitate integration.

Naturally, politics is the reason for progress or for the lack of it and it is about time for the Arab leaders to give priority to economic considerations, which may open the door to sort out the political differences among Arab governments and benefit the greater majority of its people.

— The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.

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