Is it raining petrodollars in the Arab world?

Nov 01, 2004 01:00 AM

by Abdelmenem Jamil Addas

The present century has been marked by a significant increase in wealth-producing power (for some Arab countries) especially with today's oil prices being traded in NYMEX (New York Mercantile Exchange) at $ 50 a barrel.
One thing that people are missing is that Arab oil producing countries don't earn today's price of $ 50 a barrel. If you look at the spread between Dubai and WTI (West Texas Intermediate) you see that it has gone from about $ 2 at the beginning of the year to over $ 10 today, thus Arab oil is priced at under $ 40 a barrel. Besides, if we take the increase in the volume of US dollars (thanks to the US Federal Reserve Bank) from 1980s, Arab oil has to increase to $ 75 to reach that same level.
"Saudi nominal gross domestic product (GDP) increased by 13.7 %, compared to 3.0 % in 2002", Hamad Al-Sayyari was quoted as saying.

If the oil prices are at all-time high, therefore real wages in Saudi Arabia and in other Arab oil producing countries must increase. Could anybody tell me why Arab consumers are resorting to hundreds of millions in loans takeouts to keep consumption above the line? If real GDP growth is so high, tell me why the Arab economy hasn't created any jobs over the past 4 years?
More than twenty years ago in 1980 it was natural to expect, and it was expected, that higher oil prices would improve the condition of the Saudi citizen; that the enormous increase in the power of producing wealth would make real poverty a thing of the past.

Let us look at the fundamental question of how we characterize growth in the Arab economy. All economists will jump to explain (with their archaic logic) that any increase in prosperity can be measured strictly in terms of the macroeconomic entity called gross domestic product (GDP). Those economists and bureaucrats believe that keeping GDP expanding at some arbitrary minimum rate is the primary indicator of wealth, whatever economic or social harm this causes along the way.
The whole business of national income accounting enshrines Keynes's perverted and patronizing view. Those bureaucrats who suppose that they can make a purely objective estimate of national income, not influenced by preconceptions concerning the "facts", are deluding themselves; for whenever they include one item or excludes another they are implicitly accepting some standard of judgment of their own. Any measurement of a country's wealth must exclude all private and public debts.

Oil is just a commodity, it must be looked at as a "means" to achieve true wealth. The mere fact that those Arab states whose major portion of revenues come from oil, do not increase the wealth of their countries unless those proceeds are used efficiently to generate true wealth for all of their citizens, in other words it is called productive capital.
Arab citizens are facing all kinds of threats, both internal and external when they are trying to build wealth. Internal threats to wealth are many. People dependent on the income earner are demanding more money for current entertainment, vacations, diversions and consumption. Also, the Arab citizens are facing tremendous peer pressure -- "keep up with the joneses" -- living off their credit cards along with their loans, and naturally always driving shiny new cars.

Arab citizens seeking to build wealth also face external threats from their friendly (and unfriendly bankers) trying to separate them from their hard-earned seed capital. These banking institutions have brainwashed the Arab citizens to such terrible degree that rather than building wealth through had-work, prudence, and saving, many Arab citizens have been deluded into believing that debts and the stock markets always ascend to the heavens and make everyone rich.
The Arabs, do have things, but they lack the process to represent their prosperity and create capital. They have adapted every other Western invention, from the paper clip to the petrochemical plants, have not been able to produce sufficient capital to make their domestic capitalisms work.

We are coming into collision with facts which there can be no mistaking. From all parts of the Arab world come complaints of poverty and unemployment; of capital massed by the very few and spent on five-star hotels, shopping centres, expensive residential and commercial buildings, etc. of want and suffering and anxiety among the working classes and the unemployed.
And, unpleasant as it may be to admit it, it is at last becoming evident that the enormous increase in material wealth in the hands of less than 1 % of the Arab population which has marked the present century and is still going on with accelerating ratio, has no tendency to reduce poverty or to lighten the burdens of those compelled to work extremely hard. It simply widens the gulf between the "House of Have" and the "House of Want", and makes the struggle for existence more intense.

It is true that wealth has been greatly increased in the Arab world, and that the average of comfort, leisure, and refinement has been raised; but these gains are not general. In them the lowest class do not share. It is true that the poorest may now in certain ways enjoy what the richest 30 years ago could not have commanded, but this does not show improvement of condition so long as the ability to obtain the necessaries of life is not increased.
I do not mean that the condition of the Arab lowest class has nowhere nor in anything been improved; but that there is nowhere any improvement which can be credited to increased petrodollars. Where the lowest class barely lives, as has been the case for a long time in many parts of the Arab world, it is impossible for it to get any lower, for the next lowest step is out of existence.

Abdelmenem Jamil Addas (Abdelmenemaddas@yahoo.com) is a professor of financial markets, at the College of Business Administration. He is based in Jeddah.

Source: Arab News
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