May 1990, Page 54

Trade and Finance

By John T. Haldane

US-Mideast Trade Breaks Record

Department of Commerce trade statistics for 1989 indicate that US trade with the Near Eastern and North African Arab countries surpassed both 1988 and 1987 figures. US exports in 1989 totaled $12.2 billion, approximately $1 billion over 1988 and almost $3 billion more than in 1987. US imports for 1989 were valued at $14 billion, compared to $12 billion in 1988 and $10 billion in 1987.

Primary American export markets for 1989 were: Saudi Arabia ($3.6 billion); Egypt ($2.6 billion); Iraq ($1.2 billion); and the United Arab Emirates ($1.2 billion). US imports, mainly oil, came from Saudi Arabia ($7.2 billion); Iraq ($2.4 billion); Algeria ($1.8 billion); and Kuwait ($975 million).

1990 Saudi Budget Announced

The new fiscal year 1990 Saudi Arabian budget indicates government spending of $38 billion, a two percent rise over last year. Revenues are estimated at $31.5 billion, leaving a $6.5 billion deficit to be financed by the sale of treasury bonds.

Minister of Finance and National Economy Mohammed Al-Ali Aba Al-Khail stated the new budget promises brighter economic prospects in the future and emphasizes the private sector's important role in development. He stressed the government's determination to continue to support and encourage the private business community. He cited the 13.5 percent increase in private sector exports in fiscal year 1989 as a sign of that sector's economic health and said it now accounts for more than 50 percent of Saudi Arabia's non-oil gross domestic product.

The ministry statement on the budget reveals that the main allocations, aside from the defense sector, will be: manpower development ($7 billion); health and social development ($3 billion); transport and communications ($2.5 billion); municipalities ($1.8 billion); agriculture and water ($1.8 billion); and industry, electricity and housing ($1.3 billion).

The new budget provides $13.2 billion for development projects, up from $12.8 billion in 1989. This includes new projects for development and upgrading in Mecca and Medina, a $530 million expansion of water desalination plants at Medina and new university campuses at Riyadh, Mecca, Qassim and Asir. Funding is provided for a large number of public projects to be completed during the budget year as well as for newly approved projects.

In addition to direct budget expenditures, the government's specialized credit institutions, such as the Agricultural Bank and the Credit Bank, will disburse $1.6 billion in soft loans to the private sector for use in housing, agriculture and industry.

Oil Revenues Boost YAR Economy

The Yemen Arab Republic (North Yemen) earned its first full year of petroleum income in 1988. Production averaged about 160,000 barrels per day (b/d) that year and rose to approximately 200,000 b/d in 1989. A doubling of crude oil production is forecast over the next three years, to reach about 400,000 b/d by 1993. Recoverable reserves are put at about 800 million barrels.

It is estimated that the government's export earnings from its share of oil production and taxes on oil exports was at least 35 percent of treasury income in 1989 and should rise to approximately 50 percent this year.

The Yemen Exploration and Production Company, a joint venture of Yemen Hunt Oil Company and Exxon Yemen Inc., recently announced that a fifth commercial oil field, the Asad al-Kamil field in the Marib/Al-Jawf region, has been discovered, and promises to have a larger output than any of the four currently producing fields.

World Crude Reserves Increase

The World Energy Conference has issued a report indicating that estimates of the world's proven reserves of crude oil have increased by 30 percent over the last three years. Total reserves now are set at 121 billion metric tons, up from a previous 91.5 billion metric tons. The rise is due primarily to recent new finds in the Middle East. The United Arab Emirates is up 9 billion tons; Iraq by 7.6 billion; Iran has a 6.5 billion increase; Kuwait reserves are up 2.7 billion; and Egyptian reserves rose by 2 billion.

OPEC members' crude oil reserves now account for over 75 percent of the world's total and about 85 percent of non-communist reserves.

Dubai Firm Signs Contract with Iran

The Dubai-based International Development Corporation (IDC) has signed a joint venture agreement with Iran's Ministry of Mines and Metals for the construction of a $1.35 billion aluminum smelter at the southern port of Bandar Abbas. This represents Iran's first large foreign joint venture contract since the Ministry of Economy and Finance announced in January that it was raising from 35 to 49 percent the ceiling foreign investors will be permitted to hold in Iranian companies.

A spokesman for IDC, which includes a number of well-known Middle Eastern and West European companies, stated that a 220,000 ton/year smelter, a 350 MW power plant and a desalination unit will be built. The consortium has provided a financing package, backed by a guarantee from the Central Bank of Iran, to cover the entire cost of the project. Half of the plant's output will be exported to cover Iran's repayment of its share of the contract.

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 Commerce and Treasury departments.