LONDON, 20 January 2003 — Imagine for a moment if Iraqi President Saddam Hussein did not invade Kuwait in August 1990. His trade and defense ministers would today be feted in Washington, London, and Paris, as they were before the invasion.
Secular Iraq would probably have been a key ally against the extremists in President George W. Bush’s “war against international terrorism”. American, British, European and Japanese companies would be star exhibitors at the annual Baghdad International Trade Fair, jockeying for lucrative oil, construction, and defense contracts. Never mind the war against Iran and the gassing of rebel Kurds in Halabja. These are unfortunate excesses which can be excused in the name of national interest. The invasion is probably the most disastrous policy miscalculation in the 20th century after Hitler’s decision to invade Poland which effectively precipitated the World War II, and Kruschev’s decision to secretly locate Russian nuclear missiles in Cuba, leading to the ‘Bay of Pigs’ incident and the Cuban Missile Crisis, which brought the two superpowers to the brink of nuclear war.
Almost thirteen years on, Iraq is on the brink of yet another self-imposed war, this time against the might of the US and Britain and their allies armed not only with smart bombs but also a UN resolution, supposedly to rid Saddam Hussein and Iraq of weapons of mass destruction.
Whether Messrs Bush and Blair do attack Iraq, with or without a second UN resolution, only time will tell. But uncertainty and the tension in the Middle East, compounded by Bush’s “war on terrorism” following the fallout from 9/11, is already taking its toll on business with both British and American exports to the region falling sharply in 2002. This is one compelling reason why corporate America and Britain are not that keen on a war against Iraq. Yes, they would countenance the overthrow of Saddam Hussein by any other means. Arab investment in the US and Britain is substantial. Even in the recent corporate collapses of Enron and WorldCom, several major Arab institutional investors lost millions of dollars. An attack on Iraq will depend on whether the “Hawks” and their defense industry backers, or corporate America wins the argument and the ear of the president.
US exports to its main trading partner in the Middle East, Saudi Arabia plunged 30.5 percent in first half 2002 to $2.2 billion, a 12-year low according to the Foreign Trade Division of the US census Bureau. Saudi exports to the US also dropped 24.2 percent in the same period to reach $5.6 billion.
British exports to the region has also dropped in 2002, with exports to Saudi Arabia, according to the Middle East Association (MEA), down by 3 percent compared to the previous year. Out of the top 17 MENA markets, British exports declined to eleven in 2001 compared with the previous year, with the largest downturn in exports to Saudi Arabia and Qatar.
While experts such as Brian Constant, director general of the MEA, are concerned about the apparent decline of the UK’s competitive position, they do see market opportunities and stress that “now is the time for British companies to show their commitment to the region and take advantage of the many opportunities it offers, whilst US-Arab relations are at a low ebb.”
Commitment, some British businessmen privately fear, may not be enough. It might depend also on the perception of the Middle East countries, and perhaps more importantly of their populations, of the role the Blair government plays in any attack on Iraq. Nevertheless, Arab businessmen and investors are also relieved that they are spared the humiliating body-searches carried out at US customs & immigration when they come to Britain. They stress such acts impact negatively on their investor sentiments and confidence in such countries.
While the UK stands to capitalize on the ebb in US-Arab relations, IMF figures on visible exports to the Middle East and North Africa (MENA) region tells a different and rather dismal story for British exporters. Britain is at the bottom of the league of the so-called ‘Big 6’ suppliers to the region — US, Japan, Germany, France and Italy. Britain in 2002 had a market share of visible exports to MENA of 5 percent; compared with Japan’s 5.4 percent, Italy’s 7.2 percent, Germany’s 8.6 percent, France’s 8.8 percent, and the US’s 9.2 percent.
According to the Middle East Association,” although we (Britain) perform rather better in our traditional markets in the Gulf than in the Mediterranean (North Africa, Levant, Turkey), we appear to be losing market share in some of our established markets. Five years ago, we were the second largest supplier to Saudi Arabia after the US, and the third largest supplier to the UAE after the US and Japan. Today we are the fourth largest supplier to Saudi Arabia after the US, Japan, and Germany, and sixth to the UAE after the US, Japan, Germany, France, and China. What lies behind this sorry state of affairs?”
The reasons are manifold:
* An over-reliance on Britain’s historical ties with many of the MENA countries.
* The market has become competitive, with new entrants such as China, South Korea, Taiwan and others, making serious inroads.
* European continental exporters too are diversifying from their traditional markets in North Africa, Turkey and Iran, to the lucrative Gulf markets.
* Gulf states on the other hand, post 9/11 themselves are forging links with new markets in Asia, Latin America, South Africa, New Zealand and Australia.
* The continuing strength of the UK pound is affecting the competitiveness of British products.
* The decline of Britain’s industrial base means that British companies have limited capability to take on a leading role in the big petrochemical, gas, and industrial projects in the region.
* Continental exporters appear to get more proactive support from their export credit agencies (ECAs) and their ceilings on cover is far more flexible than that of the UK’s Export Credit Guarantee Department (ECGD), which is perceived as “over cautious”.
* The British government is perceived to be too “correct” in its interpretations for instance of UN sanctions regulations on Iraq. Other countries are less strict in their interpretations, which means their companies benefit.
* Often bilateral aid supplied by the US and Europe especially to Mediterranean countries are tied to products and services from companies from the donor countries. Britain has no such provision.
* Continental countries also access EU funding say from the European Investment Bank and from their governments much more effectively than British counterparts, who remain reluctant to penetrate the Brussels bureaucracy.
To put the above in perspective, Britain is a leading “invisibles” exporter to the region — financial services, privatization, capacity building, upgrading industry, education and training, preservation of cultural heritage, and tourism. In 2000, for instance, British “invisibles” exports to Saudi Arabia, according to the MEA, totaled $3.5 billion, well in excess of visible exports of $2.7 billion.
To what extent US and British dominance in the MENA markets is affected by any attack on Iraq; by a continuing impasse in the Palestinian-Israeli Conflict; and by an over-zealous implementation of the “war on terrorism”, is difficult to say. The level of negativity could be mitigated to some extent by a short sharp and successful attack. If the allied forces are bogged down, then the political and economic toll could be very damaging.
A prominent Saudi businessman stressed at a recent MEA roundtable on Saudi economic reforms on why the pace of reforms have been perceived to be slow: “Yes we can put our house in order. But there are some things that are beyond our control”. Perhaps a sentiment which British businessmen too would like to echo, on their government’s policy on Iraq.
