May 1989, Page 23

Trade and Finance

By John T. Haldane

Libya Moving Downstream

Libya has set up a downstream investment organization, the Oil Investments International Company (OIIC), to extend its retailing and distribution interests in Western Europe. Patterned after the London-based Kuwait Petroleum International, the company is led by Tamoil (Italia) Chairman and former head of the Libyan Arab Foreign Bank Mohammed Abdul Jawad. Libya's current main downstream asset is Tamoil, in which the Libyan Arab Foreign Bank has a 74.68 percent interest. Assets include a 105,000-barrels-per-day refinery in Cremona, Italy, and 1,655 retail gasoline stations in northern Italy. Libya seeks to build a distribution network in Europe to ensure reliable outlets for its oil in the face of continuing US sanctions on imports of Libyan crude.

Algerian-Moroccan Gas Pipeline

Algeria and Morocco have agreed to establish a joint enterprise which will construct a 2,000-kilometer gas pipeline to transport Algerian natural gas across Morocco to the Straits of Gibraltar where an underwater section will carry it to Spain. Originating in the gas field of Hassi R'Mel, the pipeline, planned for completion in 1995, will run to the Moroccan border town of Oujda, through Fez to Tangiers. Gulf Interstate, a Houston-based US engineering company, was one of the Western companies asked to bid on the preparation of a feasibility study Morocco, one of the few non-oil producers in the Arab world, will receive Algerian gas at a discounted rate as part of the agreement.

Islamic Development Bank

The Islamic Development Bank (IsDB) recently celebrated its 100th session in Jeddah, Saudi Arabia. The institution, which seeks to foster economic development and social progress in member countries and Muslim communities throughout the world, announced at the close of the meeting that approximately $80 million had been approved by the board of directors for new project financing, foreign trade transactions, and special program assistance. Among those to benefit from new funds are Algeria, Egypt, Oman, Turkey, and South Yemen.

Arab Cooperation Council Formed

Egypt, Iraq, Jordan, and North Yemen agreed on Feb. 16 to form a new economic union, the Arab Cooperation Council (ACC). The four members emphasized that the purpose of the organization is to promote economic interdependence. Membership will be open to all Arab states.

US-Mideast Trade Up In 1988

Total US exports to the Near East and North African Arab countries rose from $9.5 billion in 1987 to more than $11 billion in 1988. During the same period, US imports rose from $9.9 billion to $11.8 billion. Primary US export markets last year were Saudi Arabia ($3.8 billion), Egypt ($2.3 billion), Iraq ($1.2 billion), and Algeria ($733 million). At the same time, the largest imports were from Saudi Arabia ($6.2 billion), Algeria ($2 billion), Iraq ($1.6 billion), and the United Arab Emirates ($616 million).

Arab Maghreb Union Formed

Leaders from Algeria, Libya, Mauritania, Morocco, and Tunisia meeting in Marrakesh announced on Feb. 17 the formation of the Arab Maghreb Union (UMA). The group is seen as a step that will enhance, economic stability in the region and enable the nations to present a common economic front to the European Community when it integrates economically in 1992. The 12-nation EC currently absorbs two-thirds of Maghreb exports. North African officials are hopeful that creation of a common currency, abolition of tariffs, and pooling of investment funds will spur intra-North African trade.

SABIC Enjoying High Profits

The Saudi Arabian Basic Industries Corporation (SABIC), a joint stock corporation of Saudi and private Gulf Cooperation Council (GCC) citizens and multinational corporations, has just finished a most profitable year. SABIC trebled profits in 1988 from the previous year's record $288 million. According to independent experts, Saudi Arabia's ethane-based industries now account for approximately 23 percent of world trade in ethylene products.

The corporation was created by a royal decree in 1976 and now is the parent company for 15 major industries located in Jubail, Yanbu, Dammam, and Jeddah. Joint venture partners include Celanese, Exxon, Mobil, Shell, and Texas Eastern. SABIC is also a participant in three regional industrial partnerships based in Bahrain which produce aluminum and petrochemicals. Work already has begun on a second generation of new facilities and the expansion of capacity of several on-line plants.

A primary government goal is to encourage the Saudi private sector to invest in secondary and downstream industries drawing feedstock from SABIC. Thirty percent of SABIC's shares already have been made available for public subscription. Additional private participation is being encouraged to tap what the Saudi Arabian Monetary Agency estimates to be over $64 billion in private capital held abroad.

Bahrain Seeking Foreign Investment

Bahrain has launched a major effort to attract foreign investment from Britain, West Germany, and other OECD nations. Sheikh Hamoud Khalifa, director of the Industrial Development Center (IDC) of the Ministry of Industry and Development, which is coordinating the new foreign investment and joint venture drive, reported that Bahrain has allocated more than $2 billion for industrial sector projects over the next five years as part of the government's plan to diversify the country's economy and reduce its dependence on oil revenues. Unlike Saudi Arabia and Kuwait, Bahrain earns only about $1 billion yearly from oil production. Present known reserves may be depleted in about 10 years.

IDC delegations have been visiting West European capitals to make attractive foreign investment and joint venture incentive offers. These include duty free importation of machinery and raw materials for agreed-upon projects; corporate and personal tax exemption; freedom to repatriate capital, profits, and royalties; duty free access to Gulf Cooperation Council markets; and a 70 percent government contribution to feasibility and market studies for proposed projects. According to Khalifa, priority areas will be aluminum production and related downstream industries, petrochemicals, engineering, electronics, and computer software.

In addition to the government-backed IDC effort, the Gulf Industrial Investment Company (GIIQ has been formed in the private sector to encourage private and institutional GCC investors to establish industrial companies. The purpose is to repatriate funds presently invested overseas. An initial $100 million in capital is to be raised within the next six months.

Iraq's Economy Looking Up

Despite foreign debt repayment problems, Iraq managed to make a marked improvement in its economy in 1988. This can be attributed to: 1) a sharp rise in oil export earnings, combined with only a modest increase in import expenditures; 2) debt rescheduling agreements with major creditors; 3) expanded credit facilities with several major trading partners; and 4) savings and improved efficiency in government administrative and economic operations.

The government of Iraq is instituting a number of broad economic changes to revive the economy, including expanding the private sector's role. The focus now is on boosting domestic agricultural and industrial production so as to increase the supply of goods in local markets, broaden the range of Iraqi exports, and provide locally produced substitutes for goods and services which are currently imported.

Baghdad is expanding both the mixed and the private sector economic roles. A number of state-owned productive assets have been sold to private investors, a major break from previous Iraqi government policies. There now is new emphasis on capturing local funds and using them to build and expand the agricultural and industrial sectors.

John T. Haldane is a Middle East specialist who has served as a Foreign Service officer in Baghdad, Cairo, and Beirut, and as an international economist in the departments of Commerce and Treasury.