Dec 30th 2003 | CAIRO
From The Economist print edition
Despite the region's instability, some economies are doing better than usual
WHEN war in Iraq loomed, the country's Arab neighbours predicted dire economic consequences for themselves. Egypt's government said it expected the country to lose $2 billion-3 billion, with tourists flocking elsewhere and fat contracts with Iraq abandoned. Jordan and Syria dreaded a cut-off of cheap Iraqi oil. Bahrain and Dubai feared a flight of investors. Regional shippers bemoaned hefty increases in their insurance bills.
In fact, Arab countries have done quite nicely, thank you. Several of the biggest oil exporters saw their incomes surge by a good 30% this year, as prices stuck at the comfortable end of OPEC's $22-28 target range. Saudi Arabia earned a delicious $74 billion from oil, letting its government bank a budget surplus of $12 billion, marking only the second time in 20 years it has balanced its books. Throughout the Gulf, the windfall has encouraged governments to invest in infrastructure on a scale unseen since the 1970s' oil boom. The reckoning that economists have long predicted, with oil monarchs failing to pamper their growing number of subjects, has again been put off.
But it is not just governments and contractors cashing in. The All-Arab Index, which tracks 79 stocks in 12 Arab countries, posted a gain of 50% in dollar terms in 2003. Another index reckoned that Kuwait's shares, boosted by heady profits for local firms servicing the American army and by the surge of joy due to the end of an Iraqi invasion threat, have doubled in value. Saudi Arabia's soared by a more modest 74%. Even the dowdy Cairo exchange, stalled for years by local troubles including an inexorable slide in the value of Egypt's currency, advanced by 60% in dollar terms.
Awash with cash, banks in Saudi Arabia saw profits rise by 15% in the first nine months of 2003, and those in the United Arab Emirates by an average of 30%. Egypt's Suez Canal, whose revenues have stayed flat at $2 billion a year for a decade, this year earned 32% more. Arab firms are also starting to do well out of reconstruction in Iraq. Egyptian and Kuwaiti ones are building the country's mobile-phone networks, with contracts for restoring power generation, water supplies and other such huge projects likely to follow.
As for those fickle tourists, they seem to have more nerve than expected. Lebanon has enjoyed its best year since 1974, the last year before civil war wrecked its reputation as the Switzerland of the Middle East. And Egypt hosted a record 6m tourists this year, up 20% on 2002.