OUTLOOK FOR THE MIDDLE EAST
The
Middle East has once more been formed into what, unfortunately, seems to
be its true state: a quagmire.
Pragmatists know that peace is on the way. At the same time, they
are aware that peace can only be created between the parties involved, and
assistance from the outside remains just that - from the outside. 1997 will
be a year in which the old methods of governance continue, with many of
the region's leaders - and this is a region in which leaders are literally
the most important aspect of a country - still filled with hubris, pride,
and egocentricity rather than ready to sacrifice for the sake of peace.
Both Yasser Arafat and Benjamin Netanyahu are obstinate to a fault.
Neither will give up what they feel is God's/Allah's way, and compromise
is not a popular word in their vocabularies. Therefore, the peace process
is stuck.
Egypt's Hosni Mubarak can go only so far in convincing both sides
to sit down for real discussions rather than pontificating on their positions.
He has no leverage with Netanyahu, and now Arafat rarely relies on him for
supplies or funds.
Syria, actually Greater Syria (including the province of Lebanon),
is once again on its own. It lost its opportunity to get the Golan Heights
back from the former Peres/Rabin government in Israel. Breakthroughs via
negotiations with Israel are not in sight for the coming year.
Jordan is still waiting for the economic bonanza promised by the
United States for its peace treaty with Israel. 1997 will see steps in the
correct direction, yet the question is whether the king can balance his
policies for change fast enough for his subjects.
Looking backwards seven years, the region was awash in acrimony,
tensions were high (this was before the Gulf War), and peace was nowhere
in sight. Today, at the start of 1997, though tension is down, the same
eerie feelings of mutual distrust have once again gained the upper hand.
Peace and normalization are still a long way from being the reality.
Here's what's ahead:
Israel
Last year, Taipan picked the winner of the Israeli elections, Netanyahu
over Peres. Though the victory was by only about 30,000 votes out of 4 million,
it clearly marked a watershed for Israeli politics. The Right, which had
lost its mandate to the Left, came back to power, this time with almost
the full support of the religious vote and more of the center of the political
spectrum.
For Israel's neighbors, the vote meant that negotiations and the
concessions from these talks would become exponentially more difficult -
and this means that the Syrians, Palestinians, and Egyptians are suffering.
During 1997, negotiations with the Palestinian Authority will not
become any easier. Though an agreement on Hebron may occur before the end
of 1996, the next stage of negotiations concerning the final arrangements
will drag on through the year without completion. Neither Netanyahu nor
Arafat has a full enough grip on their supporters, or even a sufficiently
powerful vision, to find a quick settlement.
Taipan's 1997 Prediction:
Netanyahu, while elected prime minister, leads a coalition, and
naturally faces opposition even within his own party. He will have a hard
time keeping his coalition majority together in 1997, and may even bring
about the creation of a National Unity Government with the opposition Labor
Party, though chances for this are slim.
Investors should not be deterred from making forays into the Israeli
economy, yet they should be aware that tension - not instability - is an
integral aspect of the atmosphere. Still, much depends on reforms Netanyahu
has promised. If privatization plans go through, the budget deficit is trimmed,
and the central bank cuts high interest rates, the economy will grow well.
Economically, Israel is just finding its feet for growth after
facing a tough nine-month mini-recession (only 4% annual growth rate instead
of 6-7%). Inflation is down, consumption is leveling off, and exports are
rising slightly. The Tel Aviv stock market is finally coming out of a two-and-a-half-year
slump, and the high-tech export market is leading growth again, as it did
in the early 1990s.
Peace dividends for Israel remain better than what its neighbors
have gleaned. Japanese, Korean, and Indian firms are all arriving in Israel,
while American and European multinational giants are bringing their high-tech
and consumer product businesses into Israel. Nestle, Unilever, Applied Materials,
Intel, and Citibank have all arrived in or expanded business in Israel during
1996, and there are signs that more are on the way.
Jordan
Long live the king, for he is stability. King Hussein is the longest-reigning
monarch in the region, and his steadiness keeps the kingdom from slipping.
Again, as was the case last year, the king's cancer raises a question mark.
Only time will tell how long he will be able to keep it in remission.
Still, if he becomes incapacitated, his brother, Crown Prince Hassan, will
without a doubt have no problem in taking over the kingdom's reins.
The primarily Islamic fundamentalist opposition, controlling a
substantial amount of the Jordanian parliament (close to 40%), is vocal,
and uses Islamic outbursts to further its causes. It is also quite adept
at taking advantage of Jordan's economic frailties to bring the people into
the streets.
As for economic austerity measures - which caused riots in 1996
- the measures will continue in 1997 due to IMF and World Bank demands.
Though riots may not recur, the lack of peace dividends with Israel are
a major economic problem. Dividends promised to the populace have yet to
force growth and bring down unemployment.
The economy is continuing to suffer from the fallout of the 1991
Gulf War and loss of the booming pre-war trade with its largest trading
partner - Iraq. If the dividends do not begin soon, Taipan's analysis of
the kingdom's stability must be highly pessimistic.
Taipan's 1997 Forecast:
Positive signs do exist, including improvement in trade conditions
and transportation rules signed with Israel at the end of 1996. In 1997,
these concessions will allow Jordanians to increase trade across the Jordan
River both to Israel and to the Palestinian Authority by easing customs
and limitations on modes of trade.
Amman's financial markets still await the implementation of promised
reforms to assist liquidity and enable the entrance of foreign investment.
It is entirely possible that they may not arrive in 1997 either. Long-term
prospects, according to City of London financiers, are good, though other
emerging markets are outpacing this one for capital.
Palestinian Authority
Yasser Arafat is again at center stage, and there is no sign that
he is ready to make an exit. The skills that kept him alive and at the center
of the Palestinian national liberation movement for over 25 years have made
him the master at his game.
He decides who gets what, when, and how much. And a decision by
the chairman is just that. No one can pressure him to change. The impasse
with Israel over Hebron is just the latest in a series, including the wrangle
over the transparency of donations to the Palestinian Authority and the
number of police qua militia he was allowed to create.
In 1996, Arafat firmly placed the European Union in his camp against
Israel. In 1997, look for him to make moves to entice the Asian nations,
many of whom have majority or very large Moslem populations, into his camp.
Internally, with a power base within the area absolutely under
his control, there are no full contenders for his position. Yet as long
as Islamic fundamentalists and their terrorist bombs exist, Arafat and the
Palestinians can have their living conditions abruptly transformed for worse
within an instant. And the prevention of attacks is the best way to economic
stability and growth.
Investors can take solace from Arafat's indisputable power. If
the chairman wants something done, and the proper channels have been "taken
care of," the project will get done. The problem, of course, is knowing
where the correct channel is because of the fluidity of his inner and outer
circles.
Taipan's 1997 Forecast:
Industrial parks will get a push in 1997. An industrial park with
Israel on the Gaza Strip boundary will have its groundbreaking ceremony
in early 1997, and industrial zones in the northern parts of the PA will
also see tangible movement during the year. Recent moves by Israel to lift
the restrictions on workers and commerce with Israel in late 1996 will show
positive results for the PA's economic well-being into the beginning of
1997.
The biggest economic projects remain infrastructure and education
development projects, with the foreign public sector rather than the private
sector paying the bills. It is still too uncertain to invest large amounts
of effort and funds in the PA, though smaller, less grandiose plans (not
a Marriott hotel) are likely to provide early profits.
Syria
1996 could have been a triumphant year for the tyrant of Damascus.
Alas, because he did not move quickly enough and because he mispredicted
the outcome of the Israeli election, President Assad did not return to the
Golan Heights lost to Israel in 1967.
1997 will be no better for Assad on the diplomatic front with Israel.
Israel will not sit down with him on the opposite side of the table, and
the beginning positions are too far apart for real discussions. On the other
hand, his formidable gains over the past year in igniting the Arab world
against Israel were highly effective. Arab support of Syria and Assad is
at an all-time high for the 1990s, and this support is critical in isolating
Israel in the peace process. Only two years ago it was Assad and his rejectionist
attitude that was isolated in the region.
Syria, though vying for position in the Pan-Arab movement against
Egypt, is receiving Egypt's full backing in its activities. Support can
also be counted on from certain elements in Saudi Arabia as well as in the
Gulf. Lebanon, of course, supports Syria - it is more of a province than
an independent state.
All of this support is allowing Assad to preach and practice more
aggressive and confrontational policies vis-à-vis Israel. The only
down side for Syria in the confrontation is opprobrium from the United States.
However, since this has been the norm throughout the 1980 and only changed
after the 1991 Gulf War, President Assad seems not to be too bothered.
All that has to be remembered is the amount of time former U.S.
Secretary of State Christopher spent trying to influence Assad in the palaces
of Damascus. All efforts concerning flexibility in negotiations were of
no avail.
Lebanon
The word Lebanon remains synonymous in many circles with wealth,
beauty, and rivieras. Attempting to capitalize on its reputation from the
1960s is the current government's second-greatest undertaking. The first
and foremost project is the actual rebuilding of downtown Beirut. The suburbs
have been brought back into the 1990s, but the downtown area is still on
the path to reconstruction.
Actually, business is very good around Beirut for those importing
and selling goods and services. For those trying to build an export business,
it is still too early. Tourism continues to suffer from the United States'
travel ban, though Europeans and those from around the Arab world have no
problems in visiting the area. Fantastic Roman ruins on the coast and inland
in the Baalbek region, as well as the breathtaking mountains and valleys,
make this a popular destination.
As for the stock market, reforms - such as allowing ownership of
shares by non-Arabs and non-Lebanese - are a necessity in order to entice
investment from abroad, not only from the international funds but also from
wealthy expatriates.
The market also needs to be decentralized. It is currently dominated
by Solidere, the real estate firm responsible for reconstructing the heart
of Beirut, which capitalizes more than 70% of the US$2.5 billion market.
Depending on the state of tensions with Israel - the more there is, the
less real economic liberalization and the less investment can take place
- Lebanon's economy could boom.
Still, it must be remembered that the country is a province of
Syria, and does what it is told. If Syria feels that too much freedom or
too much capitalism is at work, it will make its feelings known, and when
this occurs, it is not unusual for a number of people to end up missing
or calling from Damascus.
South Lebanon remains a shooting range between Israel, Hizballah
and Amal terrorists, and the South Lebanese Army supported by Israel. 1996
saw the "Grapes of Wrath" operation by Israel which destroyed
infrastructure and sent untold thousands of Lebanese citizens streaming
north into Beirut and beyond.
Taipan's 1997 Forecast:
There is no telling what may happen in 1997. At the end of 1996,
daily clashes are taking place between the forces. But as long as Israel
stays away from Beirut and the northern port cities, Lebanon will prosper.
Besides, the Lebanese are among the best when it comes to making a profit
out of misfortune.
Egypt
Egypt is the Arab world's leading voice, intellectually, diplomatically,
and economically. A Nobel Prize in literature and one in peace, a United
Nations secretary-general, and the leading Arab stock exchange all provide
the nation on the Nile with the power to lead.
President Hosni Mubarak is acutely aware of this. With American
and IMF aid, he is pulling his country out of the Nile delta sediment and
onto the emerging market indicators. During 1996, the government enacted
a host of economic initiatives and reforms which within approximately eight
months forced changes in the macro-economic sector that along with financial
liberalization created greater liquidity on the Egyptian stock exchange.
Privatizations, tax reforms, and trade liberalization are the pragmatic
aspects of the program which are igniting the economy. According to one
source, foreigners now account for close to 35% of trading on the stock
exchange.
However, economic reforms will, at best, allow economic growth
to keep up with that of the population. This is the government's major problem
- and it is likely that it will always remain the major issue - because
Mubarak must keep the population well enough satisfied to keep the Muslim
Brotherhood and other radical Islamic groups from seizing the initiative.
Attacks on tourists by these groups have been down recently, though
attacks on the police continue at a regular pace. The fact that the Middle
East/North Africa Economic Conference went off without an attack in November
bolstered the government in its fight and should help shore up tourist attitudes.
Diplomatically, Egypt is taking a hard line with Israel. These
policies are bearing fruit in Europe, and in the Middle East they are making
Egypt the standard-bearer for the region.
Though Egyptian businessmen look toward Israel for partnerships,
the government is wary and cautious about being a partner with Netanyahu's
newly elected government. Without an agreement on Hebron and real progress
on the final status accords between Israel and the Palestinians, Egypt will
freeze out Israel as much as possible from its activities.
Egypt has also been moving closer to Syria ever since the 1996
elections in Israel. This has meant more sharing of information, more visits,
and more policy coordination.
The strengthening of the bonds between these two countries is bringing
the Arab world closer together than it has been since before the 1991 Gulf
War.
Taipan's 1997 Forecast:
Taipan believes this can be the key to unlocking the great store
of economic and political power that has been lying dormant between Egypt
and Syria. The constellation no longer includes Israel, at least not Netanyahu's
Israel, and though the United States may not like this fact, the Arab world
does, and it is first and foremost to them that Egypt and Syria turn for
approval and support.