Dollar Up...Exports to Mideast Down

By John Haldane

The U.S. is losing its struggle to keep exports flowing to the Middle East and North Africa at recent levels. Part of the reason: The record-breaking strength of the U.S. dollar. High dollar rates have pushed up the purchase price of American goods and enabled aggressive Japanese, French and other foreign companies to move into markets long considered to be American domains.

After reaching an all-time high in 1982, U.S. exports to the Arab states in the Middle East and North Africa began a decline that has persisted into 1984 (see table below). During the first six months of this year, U.S. exports to the area fell to $7.7 billion, almost a 20-percent drop from the $9.6 billion sales figure for January-June of 1983, according to recent figures from the Department of Commerce.

While the quality of U.S. goods and technology continues to be an important factor in Arab importing decisions, price competitiveness has become an overriding concern, especially since the downturn in oil revenues. A representative of Westinghouse has stated, for example, that the high dollar rate particularly is hurting "over-the-counter" sales. Oil exporting countries—as well as non-oil Arab countries relying on economic aid from their wealthier neighbors—also are having to take a more careful look at their economic development programs.

In Saudi Arabia, for example, there is an ongoing belt-tightening effort in many government agencies. Competition among importers has become more intense, especially as new foreign suppliers enter the market. Saudi trade data indicate that Japan captured almost 20 percent of the market during the first nine months of 1983, displacing the U.S. as the Kingdom's principal supplier. American suppliers often prevail over the Japanese and others only because of the excellent reputation of U.S. technology. Recognizing this, some of the more established U.S. firms in Saudi Arabia are moving to speed up deliveries of spare parts and to enlarge service and repair facilities.

In Kuwait, the continuing strength of the U.S. dollar also has been a factor in the shift away from American goods. U.S. sales for the first six months of 1984 totaled only $322 million, compared to $408 million during the same period in 1983. A number of U.S. firms are attempting to hold on to their market share in Kuwait by placing more American personnel there. In this way the firms hope to become better able to provide stronger support to their Kuwaiti agents and to exploit more quickly new export opportunities.

Algeria's declining hydrocarbon revenues, and particularly the high dollar rate, have led to a steep drop in U.S. exports to that country. U.S. sales fell from $358 million in the first half of 1983 to $22 million for January-June of 1984. It is expected that Algeria's declining oil income will force importers to become more price-conscious than they have been in the past.

With no drop in dollar rates expected in the foreseeable future, the main concern of American exporters to the Middle East and North Africa will be to keep the customers they have. They well know that once Arab importers turn to other suppliers—who then set up distribution and support facilities—getting back into the market will be difficult. Even an all-out export effort with strong U.S. government support, such as occurred in the late seventies, cannot hope to overcome the strong disadvantage of the high dollar.

Unless the dollar does become more competitive vis-a-vis other world currencies, it seems clear that 1985 will record further losses of traditional export markets in the region.

John Haldane is a specialist in Middle East affairs who has served as a foreign service officer in Baghdad, Beirut and Cairo, and as an international economist in the Departments of Commerce and Treasury.