Responding to the invitation of the General Union of Chambers of Commerce, Industry and Agriculture of Arab Countries, HE Mr. Hamdi Tabbaa, the President of the Federation of Arab Businessmen attended the forum of “Sovereign Debt Crisis of the Euro Area: Dimensions and Implications and Lessons Learned for the Arab Economy,” held in Beirut on Thursday, 29/3/2012 where he presented a paper entitled “The Impact of Sovereign Debt Crisis of the Euro Area on the Arab Business Sector ” in which he reviewed the implications of Europe’s debt crisis on the Arab countries and its impact on private sector activities such as tourism, construction, investment, banking, transport, domestic and foreign trade and other economic activities.
On the tourism level, Mr. Tabbaa said that when European countries deliberately go to the austerity and the spread of recession it would result in a decline in consumer spending on foreign travel as well as the European tourism in the Arab region, especially the countries in which tourism sector occupies an important position in the national economy such as Morocco, Tunisia, Egypt, Jordan and Lebanon.
On the level of investment, banking and financial markets he indicated that it is likely the flow of European investments to the Arab countries will slow down or at the very least will be wallowing in their place. This crisis may lead to the withdrawal of major international from financing some Arab projects because of the decrease of its resources, thus leading to more pressure on Arab countries and their local banks for self financing of their development programs.
Consequently, this will lead to a decline in the Arab countries margin of credit maneuver to distributing credit capacity between the public and private sectors.
The Euro crisis has caused, in addition to other factors related to the political events of the Arab, a decline in transactions of Arab capital markets due to lower foreign transactions, and some local investors, who preferred savings bonds and thus withdrew their money from stocks.
With the decline in the exchange rate of the Euro against the dollar and some Arab currencies and the overwhelming of low interest rates the value and burdens of Arab debts denominated in euro will decline on Arab governments and banks.
On the contrary, the difficulties facing the euro area with respect to sovereign debts have contributed to the widening differences in insurance on risks of sovereign debt swaps and credit in this region. Any rise in global interest rates will result in similar increases in interest rates in the Arab region.
On the level of foreign trade, the crisis of the euro zone will cause positive and negative effects on the Arab trade. The decline in the euro exchange rate will decrease the cost of Arab imports from Europe, and thus reduce their prices to the consumer. On the other hand, this will make Arab exports less competitive because its relatively high costs in euro as well as policies of austerity in the euro countries, which will lead to its decline.
As for the scope of foreign aid and European joint ventures with Arab business sector, His Excellency the President of the Federation of Arab Businessmen stated that the EU’s commitment to providing aid to the private sector in some Arab countries will be certainly affected by continuation of this crisis and thus the planned aid under the Euro- Arab partnership agreements will be reduced. Also, there is a number of programs and projects implemented by the European Union in the Arab countries to develop the capacity of medium and small -sized companies that contribute to the existence of a vibrant private sector able to develop its products to comply with the requirements of European markets. This crisis may contribute to reducing the European allocations for such programs and projects. Add to that the renewable energy projects as the Desertech project for solar energy might be affected by this crisis. Implementation of this project remains subject to availability of European investments.
Then His Excellency Mr. Hamdi Tabbaa presented his perception about the solutions proposed to address the consequences of this crisis as follows:
The need to reconsider and reconsider the Euro-Arab partnership agreements so as to remove the injustice caused to Arab economies as a result of these agreements, particularly in terms of mutual trade, competition and the effects that the Arab industrial sector suffering from.
To encourage inter-Arab trade through the activation and implementation of the Greater Arab Free Trade Area, giving preference and priority for Arab goods when tendering and awarding projects, particularly housing, construction and infrastructure projects. This is in addition to exploiting the advantages and preferences offered by the WTO Agreement for regional organizations to facilitate the flow of trade between the countries of those organizations as countries of the Arab League.
The Arab private sector has to improve the quality assurance and specifications of goods and services produced by Arabs to live up to the European and global standards in order to raise their competitiveness in the Arab markets first and then secondly in the European and international markets in a way that reduce the impact of the European crisis on the Arab trade. Also, it is necessary to benefit from the advantages of accumulation of origin for Arab industries when exporting to foreign markets.
Arab banks are to manage their foreign transactions, loans and investment portfolios with international money and financial markets away from risks and without relying heavily on reports of international rating institutions that have been in so many cases misleading during the global financial crisis.
Conducting reform of trade policies through the diversification of economic partners including what called BRIX states such as Russia, Brazil, China and India as well as searching for strengthening relations with African emerging economies that should be taken advantage thereof.
Arab tourism sector is not to rely heavily on the European Union but instead to encourage inter-Arab tourism and the search for alternatives in other countries.
Non-oil Arab countries have to search for alternative energy sources, as projects of renewable energy from the sun, wind, water and bio-energy and start seriously investing in renewable energy projects in collaboration with countries and companies that have the technology and expertise necessary for such projects.
Arab states are to protect their economies from external commodity dumping, unfair competition and monopolies, particularly in the agricultural sector which still has the support and encourage of the European countries.
In the light of the foreign banks retreat from providing long-term credit lines, due to the repercussions of the European financial crisis, funding alternatives should be sought and considered in financing other projects such as power and water which in turn need huge funds in which bonds may play a major role.
Arab countries that have huge cash reserves should go for the implementation of major development projects and thus energizing the economy and stimulate the activities of the Arab business sector.
It is worth mentioning that the agenda of the Forum included three working sessions in which a number of senior officials and experts on Arab economic affairs in discussed in their submitted working papers the effects of the euro crisis on various economic sectors in the Arab States.