The Future of Economic Integration within the Arab World
Authors: Askari Hossein , Cummings John Thomas 
Published: July 2010

As our main guidelines in judging the probability of success in the formation of an economic union, we have used past trade patterns to indicate complementarities between the prospective partners, oil revenue projections to estimate the degree of future expansion of both demand and supply, and the principles of mutual self-interest and universal gain to argue for the likelihood of cooperation of all members. The essential participants in a Middle East Economic Community (MEEC), on these bases, would have to include most of the countries now producing food and other commodities in sufficient quantities for export to the partners, and enough of the major oil producers to provide the capital resources the community will need to accelerate its development during the next decade. At a minimum this would involve the Fertile Crescent, Egypt, Kuwait, and Saudi Arabia. The arguments put forward to indicate the interest of the last two countries in unification apply also to the other oil producers considered here—Libya and the smaller Gulf states. The need in the Middle East for enhanced food-producing capabilities recommends inclusion of the Sudan, though the latter suffers from internal political problems that might limit its participation in an essentially Arab enterprise.

We have not considered the possible participation of other neighboring states in a Middle East Economic Community—Cyprus, Iran, Turkey, or even, after a settlement with the Palestinians, Israel—in order not to further complicate the discussion. While none of these countries might be interested in full MEEC membership in the foreseeable future, each might find considerable advantage in some sort of a link, possibly like Turkey's current associate standing in the European Community. Possible Iranian interest would have the same basis as that of the Arab oil exporters, promising investment opportunities in non-oil countries and a larger market in the long-run for new Iranian industries. On the other hand, Turkey is more like Egypt or Lebanon. It has already seen a considerable jump in its exports to the major Arab countries, from about $71 million in 1972 to $168 million, close to an eighth of all its exports, in 1975.

Although Iran's imports from the potential community members account for less than 1.5 percent of its total imports, 10 percent of the value of its non-petroleum exports are destined for these Arab States. Almost 16 percent of its food exports and over 11 percent of its manufactured exports constitute the major categories of Iran's exports to this market.

Cyprus, whose economy has suffered serious setbacks after the 1974 crisis, has, paradoxically had an extremely healthy growth of exports to these Middle Eastern states. By 1975, the total value of Cypriot exports to these countries was nearly 270 percent of its 1973 export figures to the same market. The principal factor behind this remarkable expansion of trade was due to the civil strife in Lebanon which disrupted its exports of vegetable and food products to these countries. Cyprus immediately filled the gap left by the Lebanese civil war; it remains to be seen, however, how strong and permanent the Cypriot foothold is in this market, since the end of the disturbances in Lebanon.

Turkey imports 10 percent of its total imports from these countries and exports nearly 12 percent of its total exports to them. There is, however, a great difference in the composition of imports and exports. Eighty-eight percent of Turkish exports to these countries are varied. In terms of its total exports to this market, Turkey exports 36 percent in food products, 39 percent in non-fuel crude materials, and 15 percent in basic manufactures.

The truly unique set of economic circumstances taking shape in the Middle East offer the region a chance for rapid development that could even exceed that of post-war Japan or Stalinist Russia. Such massive capital inflows that the oil-producers are now and will continue to enjoy for several years have never previously been seen in such a short period by any people. The Arabs will add this ingredient to economic structures which have already undergone considerable modernization in the past two generations. Transportation networks, educational and public health systems, and administrative bureaucracies, among other infrastructure elements, throughout the area are fairly well developed, thanks in no small part to past oil-related revenues.

These oil revenues will bring their recipients sufficient wealth to provide adequately for their descendants, economic union or not. But, the degree to which their descendants live by their own economic activities, provided for by today's investments, and the extent that oil benefits will fuel regional development depend upon whether, when, and how much economic integration occurs.

Both oil and non-oil states could reap considerable benefits from an economic union, and given their mutual needs for each other, they all would enter serious negotiations from individual positions of strength. To no small extent, the success of an Arab union may be as much dependent on the progress of an Arab-Israeli peace settlement. But, the advantages of integration to the core states of the Arab world, we maintain, are clear, and the degree to which these advantages can be realized depends upon how early in the upsurge of oil revenues economic union advances to an operative level. Some important early steps have been the Economic Unity Agreement and the establishment of the Kuwait Fund, the Arab Fund, the Abu Dhabi Fund, and the Inter-Arab Investment Guarantee Corporation. Most of these proposals have not achieved their full potential, and more genuine commitment is needed.

Stirrings of movement toward such commitment were seen at the June 1975 meeting of the Arab Economic Unity Council. Rather than issuing still another call for immediate integration with more rhetorical value than economic content, the participants pledged a five-year effort to coordinate the policies of their governments with the aim of initiating a Middle East Economic Community in 1981. Of course, progress remains to be seen, but considerable political realism appeared to be shown at the 1975 AEUC meeting, recognizing the need for a step-by-step approach to integration, not only over the first five years, but also in the twenty-year period beginning in 1981 that was seen as necessary for complete implementation of the economic community.

The challenge to integrate facing the Arabs is not as drastic as the economic equivalent of life or death, but the way in which it is met is likely to determine whether they emerge from the next quarter century as the major world economic power that their numbers, history, and fortunate endowment of natural resources seem to make possible.