PRODUCTION, TRADE, AND KNOWLEDGE ECONOMY IN ARAB COUNTRIES

This first section focuses on the on-going produc­tion and trading processes that have prevailed in Arab economies during the last years. Different economic issues related to production and trade are discussed in the respective parts shown in the following subsections.

Production

The Arab region has known a remarkable economic growth, with a growth in the creation of employ­ment and the unemployment rate had decreased as emphasized in a report by the World Bank. (2007) Between 2004 and 2007, the Arab region had seen an economic growth as stated by the report, indicating that high oil revenues coupled with the recovery in Europe, the growing vitality of the private sector and increased investment have provided the impetus for another year of economic performance chip.

The document notes that the region recorded in 2006 one of its strongest growth rate since the 70s. This expansion has been attributed to the continued strong expansion of resource-rich countries and importers of labor and improved results of resource-poor countries, noting that real GDP grew by 6.3 pc in 2006, against 4.6 pc in first four years of the decade.

According to the report, the GDP per capita increased on average by 4.2pc in the region in 2006, which is the highest level recorded in at least 20 years.

However, not all the countries can benefit, from that incredible expansion since the latest data about poverty are not available. It has been shown from the report that the increasing invest­ment from the private sector, national and foreign, makes that private sector the main source for new opportunities of employment in the region.

The private sector will pursue its activities in a growing integration in the global markets, which will promote the creation of new jobs, as stated in the report. It also indicates that the integration in the global markets will require an improvement in the educational system so that workers will be prepared to create a more competitive environment and establish mechanisms for social protection.

In general, the Arab region has the possibility to benefit from that economic boom to develop their reform programs. Authors ofthe report explain that the prospects for maintaining or increasing current growth rates in the coming years will depend on progress on the front of structural reforms “far irregular” and the growing private sector.

In contrast to the strong regional growth, in­dustrial production, which had increased by 4.1% in 2005, was down 0.4% in 2006, mainly due to capacity constraints faced by the production of hydrocarbons. Despite the decline in oil produc­tion and declining world oil prices, which reached a record $ 70 dollars per barrel in August 2006, revenues of oil exporting countries continued to increase. Hydrocarbon revenues have increased by more than $ 75 billion from the level reached in 2005 to $ 510 billion. Surplus funds of oil ex­porters and new investment opportunities in the region (some of which result from the ongoing reforms) have propelled the flow of foreign direct investment (FDI) to the record level of more than $ 24 billion in 2006, as stated in the report.

After the 2008 global economic crisis, the world cannot afford any uncertainty, and the lin­gering effects of that crisis continue to negatively affect some of the world’s biggest economies.

According to the organization of the petroleum exporting countries (OPEC), despite the economic uncertainty, data show long-term growth in energy consumption. In their World Oil Outlook, OPEC sees global energy demand increasing under all scenarios- with primary global energy demand to 2035 doubling in the Reference Case. Fossil fuels can be making up 82% of this by 2035, having fallen slightly from 87% today. This dominant growth is expected to be demand in non-OCED developing countries. In OPEC’s Reference Case, the overall oil demand is going from 88 million barrels (mb)∕day in 2011 to 93 mb/day by 2015- reaching around 110 mb/day by 2035.

One source of rising oil demand is growing domestic demand in the Arab region.

Some OPEC countries in Arab region are al­ready exploring for more oil and gas. Others are raising some recent gas discoveries. However, if the problems of satisfying the domestic energy demand while keeping crude export levels if left without a solution that would seriously impact some Arab countries.

In general and as in Chauffour and Hoekman (2013), the Arab markets offer considerable un­tapped potential for intra-regional trade. To these authors, A necessary first step to conquer interna­tional markets is to open the domestic economy and to further to reduce barriers to trade. They observe that significant progress appear over the last two decades in many Arab countries with the lowering of import tariffs and other explicit trade restrictions.

Descriptive Statistics

The data represented in the table are extracted from UNCTAD database that shows how the production is progressing over the years in Arab countries. More precisely, it shows the data from 1970 to 2009, for the following countries: Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Palestinian occupied territories, Oman, Qatar, Saudi Arabia, Syria, Tunis, United Arab Emirates, Yemen and League of Arab states. It also shows how the production in each sector (agriculture, industry, production of electricity, gas, and water, transport, hotels and restoration, construction) is progressing over the years.

The data represent the GDPs of Arab countries over the years, the value added per sector, from which we can calculate the share of GDP for each country.

By using the means of GDPs of all the coun­tries, we can see an overall progression through the years. However, there is a decrease in some periods. There is a small decrease from 1970 to 1975, than an observable decline from 1980 until 1985.

In order to study the production in each coun­try, it is preferable to look at the three dominant sectors per country. As shown from this, for most countries, the main sectors are services, industry, and production of gas and electricity. Morocco has agriculture as one of the dominant sectors, in addition to services and industry, and Lebanon has fabrication, services and industry as the main sectors.

After selecting the economic sectors, a trend analysis is conducted for each country. However, since there are seventeen countries, only few are analyzed here. The countries are divided into categories to facilitate the analysis. Since there is a strong relationship between the production and the awareness of countries about Science and Technology, countries of the Arab region can be categorized based on that criterion.

As discussed earlier, there are three main cat­egories of countries in the Arab region. The first category includes Algeria and Egypt, the second is formed of Morocco and Tunisia, and the last category is composed of Libya and Mauritania.

Trend Analysis

First Category: Algeria and Egypt

The respective trend coefficients for industry, gas and services are 991.75; 849.10 and 606.25.

For Algeria, the behavior of the value added of its dominant sectors is increasing throughout the years from 1970 to 2009.

The trend coefficients for services, industry and gas are respectively 1456.42; 938.13 and 832.01.

For Egypt, the increase over the years of the value added of the three sectors (services, industry, and Production of Gas) starts from 0. The increase differs from one sector to another.

Second Category: Morocco and Tunisia

The estimated trends for services, industry and for agriculture are respectively 808.47; 303.13 and 130.77. Morocco is different from the other countries in term of the dominant sectors as it has agriculture as an important sector of production. But, the three sectors have an increasing trend over the years.

Similarly, the trends estimated for services, industry and gas are respectively 381.90; 198.14 and 160.15, for Tunisia. There is also an increase in the value added of the three sectors over the years.

Third Category: Libya and Mauritania

The respective coefficients for services, industry and gas are 248.30; 220.36 and 174.99.

For Libya, the increase in the value added of services over the years is not that big since it goes from $2,000 to $12,000 approximately. For the two other sectors, there is also an ascending trend over the years.

Mauritania has exhibited trend coefficients that are 18.47; 12.62 and 9.58 respectively for services, industry and gas. For Mauritania, the value added in the three dominant sectors (industry, services, and production of gas) has an ascendant trend over the years, but the increase is smaller compared to other countries.

The three main dominant sectors, which have the highest share of GDP, are industry, services, and production of gas. Some exceptions like Mo­rocco and Lebanon rely on agriculture and fabri­cation respectively instead of production of gas.

For all the countries, the trend of the value added of the dominant sectors is ascending over the 40 years.

Trade Concentration and Diversification

The following tables show respectively the major trends taking place respectively in trade concen­tration and diversification.

When looking at trade diversification, Algeria, Egypt, Qatar, Tunisia, Yemen, Kuwait, Bahrain, Oman, Saudi Arabia, Syria and UAE exhibit a decreasing pattern. The other countries have a constant level of diversification. No country is showing increase in diversification. These results are shown in Table 2.

Table 1. Trade concentration

Table 2. Trade diversification

The share of oil and gas in most of the Arab countries does still dominate in Arab countries. This share is represented in Table 3. This table shows the share of oil and natural gas in the se­lected countries’ total commodity exports. The shares indicate that, except for Oman in the last decade, none of the oil abundant countries of the region have managed to increase the share of their non-oil exports. More detailed analysis is under­taken in the section dealing with energy. These results are confirmed by Hvidt (2013) who uses an empirical approach, to analyze past record and future trends of economic diversification efforts in six Gulf Cooperation Council countries. The study shows that past record of diversification has shown limited results. But, current diversification plans are likely to ensure in theory, the stability and the sustainability of income for the future.

With governments leading these economies, di­versification is supposed to strengthen the private sector under some economic reforms. But the author identifies constraints to diversification as related to the prospects of world economies and the structure of production and trade in each country and between the countries of the region. The author emphasizes the difficulties related to the implementation of efficient diversification policies in these countries.

Knowledge Production in Arab Countries

Compared to previous years, the Arab region has known an increase in its knowledge production from 1995. Although there is a lack ofinformation about the outcomes of research and development

Table 3. Share of oil and natural gas in total commodity exports

Source: Dogruel & Tekce, 2011 based on COMTRADE data

in that region since there are no comprehensive statistics on specialized sectors or research topics, certain outputs can be measured by the amount of scientific publications, patents, and inventions.

For the scientific research, when the number of scientific publications per million people is taken into consideration, Arab countries fall into the category of advanced developing countries, since it published 26 research papers in 1995. It is more significant when compared with the other developing countries such as Brazil (42), China (11), and India (19). On the other hand, this production is still far from the production levels of developed countries, such as Netherlands (1,252), or Switzerland (1,878). The Arab world has noticed a substantial increase in the last three decades of the 20th century. There was a clear increase in the number of papers published by Arab scholars from 465 papers in 1967 to 7,000 in 1995, which is approximately an increase of 10% per year. However, that increase was not as significant as the increase in some other develop­ing countries such as Korea, Brazil, or China. In order to make a comparison with those countries, the rate of increase in published scientific paper per million people can be useful. For example, the number of scientific paper per one million in China in 1995 was 11 times what it was in 1981. In South Korea, it was 24 times greater. But for Arab countries, it was only 2.4 times greater; i.e. increasing from 11 papers per one million people in 1981 to 26 papers in 1995. Even though there is that increase in the number of publications in Arab countries, most of the papers are specialized in applied fields such as medicine, health, and agriculture. For the publications in basic sciences such as physics, chemistry, astronomy, and math­ematics, it did not exceed 10% of the total research. Therefore, the Arabic research activity is said to be far from innovative. There is no research in advanced fields, such as information technology and molecular biology (Rashed, 2003).

In order to measure the quality of research, there is an indicator that accounts for the number of references included. As indicated in the First Arab Human Development Report in 2002, “only one paper each in Egypt, Saudi Arabia, Kuwait, and Algeria in 1987 was quoted more than 40 times, while in the United States 10,481 papers were quoted more than 40 times and in Switzerland 523 papers.” (Rashed, 2003, p.70).

For the patents, which are also an indicator of measuring the knowledge production, in Arab countries, there is a weak research and develop­ment activity, which delay far behind of that of developed countries and other countries of the developing world as shown in Table 4.

In order to have a well-developed research and development activity, Arab countries need to produce knowledge workers. Such as industries, national scientific research and development activities need to have highly qualified graduates and researchers with enquiring and trained people and highly skilled minds. According to some sta­tistics, there is a sustained increase in the number of female students. Those statistics indicate that there is a small number of graduates who opted to specialize in basic sciences, engineering, medicine and other scientific subjects. There is also a lack of training for skilled people because training in Arab countries depends generally on the supply rather than the demand, and the focus is in the quantity, not the quality.

Table 4. Number of patents registered in the United States from Arab and non-Arab countries from 1980 until 2000

Source: Djeflat (March 1999) and Bizri (April 2013)

According to the Arab knowledge report 2009, Arab societies are in need to more nurtur­ing institutions and some supportive policies to experience a significant increase in knowledge production and creation. According to the report that Arab societies have to make political, cultural, and intellectual reforms in addition to reform of media and information technologies if they want to make the knowledge production stronger.

It is also said that for a clear increase in the knowledge production, there should be a strong link between knowledge and freedom. Knowledge can be defined by freedom in both its enlighten­ment and developmental aspects. In order to enhance knowledge performances, there should be a freedom of expression, thought, and political participation.

The Arab knowledge report also shows that Arab countries have made a reasonable progress with regard to most ICT axes, especially where infrastructure is concerned. There was an improve­ment in technological abilities and performances that surpasses that observed in any other region of the world in 2008. Four Arab countries are members of the Gulf Cooperation Council (GCC). These countries are part of the fifty countries ready to invest in this area. However, there is a limitation in regards to quantity and quality because performance varies from one Arab state to another. In the Arab world, the use of Internet has noticeably proliferated in the last five years. However, the examination of the general Arab landscape shows that the digital divide remains. When conducting an investigation of Arab digital content, which is an indicator of investment and knowledge production activity in the Arab region, it has been shown that Arab countries and societies have fallen, according to most criteria if they are compared to other countries. The report explains how the Arabic knowledge will never pass an extremely low threshold if no steps are taken on various levels in the domain of technology policy and legislation, and if the issues related to Arabic language usage on the net are not settled.

Innovation in Production in the Arab Region

Arab countries, like the rest of the world and the Developing countries in particular, will soon face enhanced competition, vanishing trade barriers, more stringent intellectual property regimes and deeper concern for the environment, as said in a World Bank report (World Bank, 2011). Movements in these areas are expected to make serious challenges for fragile components in the socio-economic systems of the region. Science and Technology policies and strategies are still inadequate even if policy-makers have taken the measures to a large extent of these challenges. However, those are essential prerequisites to at­tain viable Science and Technology capabilities and innovative capacity.

There are of course some differences from one country of another in the Arab region, than it might seem because of resources endowment, history, political regimes etc. A more proactive role of the state would be its involvement in promoting scientific and technological innovation, a well- established market-driven competition, and a more efficient market in allocating resources enhanced with the supply of more and better information.

As emphasized by the World Bank a Knowl­edge-Based Economy (KBE) is defined as one where “knowledge is created, acquired, trans­mitted, and used more effectively by enterprises, organizations, individuals and communities for greater economic and social development” (World Bank, 2003, p.1). One if the most important ele­ments is an efficient innovation system, which means that several institutions and competencies have to interact to assimilate the growing stock of global knowledge, in order to adapt it to local needs and use it to create new knowledge and technologies.

Policies and Strategies for National System of Innovation in the Arab Region

The integrated approach to the National System of Innovation (NSI) was discovered by Lundvall (1985) and revised in the nineties for LDC. Three main spheres should be included in the NSI: The productive sphere, the training and education sphere, and the research sphere. There must be a co-ordination between those three components so that the system can work efficiently. Since the NSI composes a central component in the process of capacity building, its initial Nation-State base has to be expanded because of the necessary relationship it mobilizes with foreign entities. In order to overcome market failures and optimal uses of externalities, the market should regulate largely the interaction between the components of the system. Social and political institutions and economic policies are the important factors that should be orchestrated by the State to have a homogeneous system.

Policy Options

The National System of Innovation (NSI) mainly depends on the extent to which Science and technology is made and efficiently implemented. Research and Development and innovation cannot rest on a vacuum. Since Arab countries are hetero­geneous, they show different levels of awareness of the importance of Science and Technology for development. For instance, because training and education are found everywhere, Research and Development institutions start to rise in various fields such as health, agriculture, engineering in some countries but are absent in others. In this sense, there are three main categories of countries in the Arab region:

First Category: Algeria and Egypt

Those countries have made serious attempts to include Science and Technology into their eco­nomic development and have now in their record some non-negligible experience. This experience seems to have started in the seventies based on an S&T policy and NSI. After conducting a study by the Egyptian Ministry of Scientific Research, it has been found that there are several strengths of the Egyptian S&T systems: they have marvelous human resources with a large number of highly educated people and specialized personnel, a lot of R&D institutions in various disciplines, and many examples of success especially in agricul­tural research. The main driving vectors of this policy include: massive transfer of up to-date technologies from various advanced countries and substantial investments in education and training, and engagement in programs of scientific research.

Second Category: Morocco, Tunisia, Jordan, and Kuwait

This category is more oriented towards market- driven growth and the contribution of foreign capital to industrialization. Foreign firms made decisions, at a time when the industrial base of the country was being laid down. Even though those countries have tried to make their policies on their own by developing local industries of small and medium size type, there were not in charge of the S&T policy and the level of awareness of the fundamental role of S&T in development. Consequently, the main component to set up the basis for NSI was missing.

Third Category: Libya and Mauritania

Those countries do not have enough industrial bases and are small in terms of population and markets, so the S&T policy and its integration in the economic policy is not part of their priorities. Current infrastructure and potential are unlikely to provide the basis for an NSI.

Sector Studies

Some studies of the most innovative companies in Tunisia in various sectors on a relatively small sample indicate that R&D departments in several operations made the most successful experiments modifying the acquired technological products or process in order to improve their characteristics (80%), developing new products and commercial­izing them (80%), and developing new products without commercialization (60%).

Arab Countries and Alternative Energy Sources

According to an article published in June 15,2010 by Arabic knowledge Wharton, in 2009, Saudi Arabia turned on the largest water desalination facility in the world. With a price tag of $3.4 billion, the Jubail II desalination plant produces 800,000 cubic meters of water daily. It was made the 28 th desalination facility operating in the country by the plant’s opening. Its output is the lifeblood for Saudi Arabia: Fully 70% of the freshwater used by Saudis is generated by the desalination facilities but this desalination is costly.

The Saudi government estimates that using all the desalination plants requires 1.5 million barrels of oil a day, since the process of turning seawater into tap water heavily depends on energy. Because of that, the oil-rich country is looking to another natural resource to fuel desalination: the desert sun. This is just one experiment in the region, where increased demand, rising oil prices and dwindling groundwater resources have made finding less costly and more efficient alternative energy sources a priority.

According to IDA, the International Desali­nation Association, the Middle East and Africa now accounts nearly half of the world’s global desalination capacity, with S audi Arabia and UAE (the Unites Arab Emirates) alone counting for approximately 30% of installed capacity. There was a desalination boom in the Arab region that was fueled by growing water demand and the availability of cheap energy. Desalination is an energy-intensive process, with energy account­ing for up to 50% of production costs. However, countries that do not have access to cheap energy found it expensive. For the hydrocarbon-rich na­tions in the Middle East, desalination has been the obvious way to address their lack of fresh water.