Interview with Dr Georges Corm Al Jazeera Centre for Studies Tel: +974-4930181 Fax: +974-4831346 jcforstudies@aljazeera.net www.aljazeera.net/studies April 2010
Dr. Georges Corm is a globally distinguished economist and historian. A scholar par excellence, he served as the Minister of Finance for Lebanon from December 1998 to October 2000. During his tenure, unprecedented landmark reforms in public finances in Lebanon were achieved. To the amazement of many international observers, the Ministry of Finance, under his direction, was also able to settle huge arrears, due by the state to numerous private companies. Dr. Georges Corm He is widely regarded as the cerebral force behind the modernization of the taxing system in Lebanon. As finance minister, he successfully introduced value added tax (VAT) and the global income tax system into Lebanese economics. Dr. Corm has spearheaded numerous World Bank studies and projects and serves as an eminent consultant to the United Nations Development Programme (UNDP), Food and Agriculture Organisation (FAO), Agence Francaise de Development-DATAR France, the French Ministry of Foreign Affairs, the European Union, European Commission, UN Department of Economic and Social Affairs, Organization of Economic Development and Cooperation, and numerous central and private banks of the Middle East. In the following interview, Dr Georges Corm discusses with Singapore-based researcher and analyst, Sourav Roy*, the overall impact of the global financial meltdown on Middle Eastern and North African economies. Sourav Roy: What has been the overall impact of the global financial crisis for the developing economies of the Middle East and North Africa (MENA) region? How has the recovery been thus far? Georges Corm: The impact of the crisis has been rather limited in the MENA countries, as this region of the world is less globalised than Europe and the U.S., areas that have been most affected by the financial crisis, a phenomenon that originated in the U.S. and extended to Europe. Overall, in any case, the impact of the crisis on emerging economies has been limited even in economies like China where exports to the old industrialised world has been a major engine of economic growth in the last twenty years. Although Gulf oil exporting countries have been affected, the crisis has mostly affected the exuberant real estate sector in Dubai and some of the banks of the region (Kuwait and UAE). But, in general, growth rates have not been negative and most countries have maintained a good level. Stock exchanges were affected even before the crisis because there were many speculators pushing up prices artificially in some of these exchanges. Now, however, financial and banking expansion is back in most countries and, in some countries, profits are quite high again in this sector. SR: Has the unfolding of the Dubai World debt problem in the UAE hampered broader growth prospects for the region? GC: No, the growth engine in the GCC region is oil exports. Receipts from the oil sector are still quite high for the demographic size of the member countries economies. 2
3 SR: The Middle East is the largest exporter of oil and the largest importer of food. Has the global financial meltdown worsened the food-fuel crisis of 2007-08? GC: Well, we have suffered from a big rise in the price of food imports and building materials. Now, although prices have declined in international markets, they remain high in the MENA region. That is a negative factor, as the prices of houses have increased tremendously, except in Dubai, where they have substantially declined. The cost of living has increased as well. Large strata of the population in the region, which are not in the higher revenue brackets, are suffering. Affordable housing for the large majority of people in the Arab region remains a big problem. SR: How have countries in the Maghreb, such as Morocco and Tunisia, which are large importers of both food and fuel, been affected? GC: The Maghreb countries, which are generally dependent on migrant remittances from Europe, have suffered a small decline in the flow of the remittances. Tunisian and Moroccan exports to Europe have also been affected, but other factors have counterbalanced this negative impact. Factors such as a continuous flow of oil and gas receipts in Algeria and Tunisia, good agricultural crops and a good flow of Arab Tourists, mainly from Libya and Europe, have acted as counters. A lot of Europeans travel to the region since tourist packages to the Maghreb countries are much cheaper than other international destinations. SR: Why does one see oil-producing nations maintaining high oil prices despite much reduced output? GC: This is natural. Arab management of the oil rent has always been geared towards maximising its return. As for current oil prices, the flow of oil receipts remains abundant compared to what it was a few years ago. Oil demand in the future, however, especially from China and India, will push prices up again. SR: There has been a steep decline in external demand, predominantly from the Euro area, for diversified economies such as Egypt, Jordan, Lebanon, Morocco and Tunisia. On top of that, the inflow of Foreign Direct Investment (FDI) into these countries from the Gulf Cooperation Council (GCC) nations has decreased. What is the overall impact of this situation and how difficult does recovery become in these circumstances? GC: GCC investments in other parts of the Arab world have been largely concentrated on the luxury segment of the real estate sector and on the banking sector. The decline in remittances will not dramatically affect the growth rates of these recipient countries. GCC nationals investments in the real estate sector has already picked up in Lebanon and probably Syria, where the prices of apartments are continuing to skyrocket. SR: Iraq is witnessing a major short-term financing gap due to the global slowdown, with a fiscal deficit of 26 percent of GDP accrued in 2009 and a current account that moved from a substantial surplus of 13.3 percent of its GDP to a major deficit of 31 percent in 2009. What do you think will be the road ahead for Iraq? GC: Well, 2009 was the year of preparation for Iraq s 2010 elections, so the government increased spending in many sectors. The important factor for better macro-economic
performance in Iraq is political stability and improvement in the security situation. This is in addition to caring actively for a large number of poor people in the country who suffered terribly since 1979 when the war with Iran was declared. This was followed by the Kuwait invasion, the first Gulf War and the global economic embargo that, on the whole, affected the poorer strata of the population. SR: Will the recovery of the MENA region predominantly depend on the revival in global oil demand or could other factors such as domestic consumption play an important role? GC: Unfortunately, since the 1970s, the increases in the price of oil have been the main growth engine for both the Mashreq and the Maghreb countries. Non-oil-exporting countries have become dependent on the export of manpower to the Arabian oil exporting countries and on the investment inflow of GCC nationals in the sectors of tourism, real estate and banking. Therefore, when business is booming in Arabian oil-exporting countries due to high oil prices, other Arab economies have a better growth rate. SR: How do constant political tensions in the region restrain international capital flows that might have otherwise contributed to the deepening of the capital markets? GC: This is only partially true. Look at Lebanon, Syria and Jordan, which are the most exposed to their respective regional tensions. Their growth is not really affected by political instability or the fear of a new war with Israel. Instead, what counts in these regions is the sharp variations in the price of oil or the agricultural sector s performance. Especially in Syria, Morocco and Tunisia, agricultural performance is dependent on the quantity of rainfall. SR: Do you see Iran as a regional economic power influencing Middle Eastern and North African economies? GC: Iran is definitely an important economy, even by its size, for the region and especially for Syria and the GCC countries. There is certainly a potential for more trade and investment with this country, provided that political tensions between Iran and some Arab governments cool down. There is also huge potential for an increase in trade and commerce with Turkey. However, the extremely limited capacity within the Arabian countries to diversify export capacities to sophisticated goods, equipment or services that are in high demand in the international markets namely electronic products, superior quality food products or research and development capacity. These could be significant to multinational companies; so the fact that Arabian countries are limited in these areas is a constraining factor for a better, more dynamic economic growth. We are an important consumer market for the outside world, but we have no products manufactured in our own countries that we can export to other markets, except oil and chemicals. 4 SR: What do you think would be the short- and long-term prospects for the MENA region? GC: I do not see any prospect for decreasing regional political tensions or a change in the Israeli crazy policies vis à vis the Palestinian people. The U.S. policy towards the region has only marginally changed up to now. On the economic front, the very high concentration of local and inter-arab investments in trade, real estate, tourism and finance limits economic growth, as the Middle East lacks the capacity to create innovative technologies that are developed locally. Success regarding the latter would see the dependence of the growth of the
oil industry or remittance flows lessen. But this is another story, which requires a change in the economic psychology of Arab investors and the qualitative changes in human resources education and training, in addition to resources devoted by the private sector companies to research and development. *Sourav Roy is a Singapore based analyst and researcher of geopolitical and strategic affairs 5