July 1989, Page 18

Trade and Finance

By John T. Haldane

China Major Middle East Trade Partner

Chinese government officials and businessmen continue to roam the Middle East, from Morocco to Iran, in search of lucrative markets for their industrial products and technical services. The Middle East now is believed to be China's third largest trading area. The China Council for the Promotion of International Trade and the China International Trust and Investment Corporation provide strong government backing to the numerous Chinese companies interested in penetrating Arab and Iranian markets.

Egypt, Iraq, Libya, Iran and Syria traditionally have been the largest traders with China. However, recent trade and economic agreements are making it possible for Beijing to make significant gains in exports to the Gulf Cooperation Council states. Bahrain's recent diplomatic recognition of China means that all of the Arab world except Saudi Arabia now have relations with China. The recent opening of a Chinese trade office in Riyadh is thought to presage Saudi recognition in the near future.

Recent new Chinese contracts include a $200 million agreement with Algeria to build a dam in the eastern province of Mila and an agreement with Misia for the sale of phosphates in exchange for Chinese wheat and cotton.

Iraq has been a good market for China, even during the Iran-Iraq war. Annual trade between Baghdad and Beijing exceeded $130 million between 1980-88, with 10 Chinese firms in Iraq employing a total of almost 10,000 Chinese workers. Chinese Vice Premier Tian Jiyun recently visited Baghdad to emphasize his country's desire to play a major role in Iraq's reconstruction projects.

Kuwait, in addition to its active two-way trade with China, has provided Beijing with loans totaling over $150 million through the Kuwait Fund for Arab Economic Development for four projects in China. A new $18 million agreement recently was signed for the financing of the first phase of the Jinzhou harbor project. In addition, Kuwait has a 15 percent interest in the $400 million offshore gas development project in the South China Sea off Hainan Island.

Economic relations between China and Iran are handled through a joint economic commission and by separate visits by trade officials and businessmen. A letter of understanding signed late last year provides for industrial cooperation in the fields of design, engineering and manufacture of equipment for refineries, power stations, ports and jetties.

Loans to Middle East Countries

The World Bank, International Monetary Fund (IMF) and Arab funds continue to provide strong financial support to Middle Eastern countries.

Algeria recently received five World Bank loans, totaling $379 million, to finance its economic reform program and to modernize irrigation projects and port facilities. In addition, Algeria will be borrowing $201 million from the IMF in the form of a standby credit facility. Algiers also is negotiating for an additional $423 million from the IMF's Compensatory Finance Facility to finance cereal imports.

Morocco has received $251 million from the World Bank to strengthen its economic and financial management capabilities, to boost farm production and improve agricultural support services, and to carry out the first phase of an economic structural adjustment program.

Sudan has received a $20 million credit from the International Development Association (IDA), the World Bank's concessionary lending affiliate, to boost crop production in the Kassala province. A second IDA loan, for $75 million, will support reconstruction efforts in flood-damaged areas.

Tunisia has received $5.5 million from the bank to help offset the decline in crude oil production through the launching of a project aimed at developing the country's smaller oil fields, a $95 million loan to help improve the nation's vocational-training system and a $58 million credit to improve access to low-income urban housing.

The Yemen Arab Republic received a $10.8 million credit for use in improving the quality and management of government operations.

Arab financing organizations are providing funds for a variety of agricultural and industrial projects. The Islamic Development Bank has agreed to lend $15 million to Algeria under the terms of a foreign trade financing facility. Jordan has received $10 million for an industrial estate project from the Saudi Fund for Development and a $20.6 million loan from the Abu Dhabi-based Arab Monetary Fund to help finance the balance of payments deficit. Egypt was granted a soft loan of $120 million by the Arab Fund for Economic and Social Development to build a power station. This is the largest loan Egypt has received from an Arab fund since its readmission to the various Arab funding organizations last year. Egypt also recently received a $75 million loan from the United Arab Emirates' Fund for Arab Economic Development for desert reclamation projects.

Arabsat Launch Scheduled

Arabsat 3, the third telecommunications satellite to be orbited by the Riyadh based Arab Satellite Communications Organization (ASCO), is scheduled for launch in 1992, and the organization is reviewing bids for a launch contract, according to the Defense & Foreign Affairs Weekly. Details of the program were discussed at a recent three-day meeting in Muscat at which time Egypt was restored to membership after a 10-year absence.

King Falid of Saudi Arabia took the occasion of the Muscat meeting to donate to Egypt a fully equipped ground station for satellite communication worth an estimated $5.5 million.

Record U.S. Imports of Arab Oil

The Department of Energy reports that US imports from Arab OPEC members accounted for about 25 percent of total oil imports in 1988. The monthly average of US total imports of crude oil and petroleum products reached 7.17 million barrels per day (b/d), the highest amount since 1977's peak of 8.81 million b/d. Arab OPEC nations accounted for 1.83 million b/d of this total, a 19 percent increase from 1987, when Arab producers shipped about 1.3 million b/d to the United States.

The largest exporters were Saudi Arabia, Iraq, Algeria and Kuwait. Saudi Arabia shipped 1.1 million b/d, about 42 percent more than in 1987. Iraq exported 343,000 b/d, raising its ranking to sixth among oil exporters to the United States. Algeria averaged 294,000 b/d and Kuwait 92,000 b/d.

Basra Reconstruction Given Top Priority

Basra, the port of Sinbad the Sailor and Iraq's second-largest city, is rapidly returning to its normal busy life. President Saddam Hussein has declared the reconstruction of Iraq's major port to be under his personal direction. Large numbers of cranes, trucks, bulldozers and other construction equipment, as well as an estimated 15,000 laborers and demobilized soldiers have been dispatched to insure completion of the first phase of reconstruction of the war damaged city by July 1.

Basra's governor, Anwar Al-Hadithi, announced that the government has allocated about $5 billion for his city's reconstruction and modernization. Funds have been earmarked to rebuild schools, homes, office buildings, resurface roads and to repair municipal water and electrical services.

Basra's main canals, designed to carry ships to and from the Shatt-al-Arab, have been dredged and are back in use. The cargo ships sunk during the war in the waterway's main channel opposite Basra's corniche have been refloated and towed away.

The heavily damaged Basra oil refinery has been repaired and is back on stream. Isam al-Chalabi, the Iraqi minister of oil, stated recently that the first 70,000 barrel per day (b/d) unit began production in March and repair work on the second 70,000 b/d unit was completed in late June. Until the Shatt is cleared of sunken ships and dredged, oil will flow out of Basra via the Khor Abdallah canal, which runs parallel to the Shatt and terminates at Khor al-Zubair.

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.