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Volume 30, Number 6November/December 1979

In This Issue

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Arab Aid

An Introduction

Shortly after World War II, the United States initiated a new approach to international diplomacy: through the Marshall Plan, the U.S. provided massive economic aid to the war-devastated countries of Europe in an effort to insure political stability and to promote world peace. Later, with its Point Four programs, the United States, in an expansion of the concept, also began to extend aid to underdeveloped countries not affected by the war. At once practical and generous, such aid programs became an outstanding feature of American foreign policy and, when Europe revived, of most European countries' foreign policy as well.

Recently, however, there has been a significant change in the source of aid flowing to emerging countries. Although the industrialized nations continue to provide aid, the Arab oil-producing states have quietly launched aid programs of their own that already total no less than $20 billion. Because headlines from the Arab world almost invariably focus on hefty hikes in petroleum prices, or on the Arab world's massive spending programs, few in the West realize that a large proportion of the soaring oil revenues is being lent or given to the Third World - in the same spirit as the Marshall Plan - or that today, as Harry B. Ellis wrote in the Christian Science Monitor, "the most generous donors of foreign aid are Arab states of the Gulf, whose largesse outstrips that of the United States and European powers."

The scale of Arab aid, in fact, is almost unprecedented. It far exceeds the minimum levels recommended by the United Nations and, according to the Organization of Economic Cooperation and Development (OECD), it outstrips, in percentage terms, the aid granted by the industrialized world. Industrialized nations, said an OECD report, give an average of only 0.39 percent of their gross national product (GNP) in foreign aid - far less than the 0.70 percent recommended by the United Nations - while three Arab states, Saudi Arabia, the United Arab Emirates and Qatar, give more than five percent of their GNP, and a fourth, Kuwait, gives more than three percent. By comparison, the United States today gives about one quarter of one percent - about a third the level of the Kennedy years. And even the most generous countries of Europe - Sweden and The Netherlands - gave no more than 0.82 percent of their GNP in 1977 - and fractionally more in 1978. Arab aid, furthermore, does not consist of sharing the income of developed, well-to-do economies. Because they are themselves still developing, Arab countries, in giving aid, are dipping into their capital: the proceeds of their one, exhaustible and unrenewable natural resource - oil. Taking note of this fact, World Bank President Robert McNamara suggested in 1974 that in calculating the GNP of the major oil exporting countries a "depletion factor" of 30 percent should be included. If that were done, the ratio of aid to GNP in the United Arab Emirates would rise from 10 percent to 13 percent and that of Qatar from 7.4 percent to 9.6 percent - unprecedented ratios in the history of economic assistance by the richer countries to the poorer ones.

On a dollar-for-dollar basis, to be sure, the United States is the world's largest contributor of foreign aid, with Saudi Arabia second. But in terms of GNP, Saudi Arabia's aid far exceeds that of the United States; in those terms Saudi Arabia - even without McNamara's "depletion factor" - gives 23 times more aid than America. According to the OECD, Saudi Arabia disbursed no less than $3.6 billion in 1976, which worked out to be 5.8 percent of the kingdom's GNP, compared with about 0.25 percent for the United States. Put another way, every Saudi man, woman and child contributed between $500 and $800 in aid that year. Kuwait is another generous contributor to foreign aid projects, and has been since long before the oil price increases of the mid-1970s permitted the Arabs to launch or expand their now massive programs of assistance. According to the Ministry of Finance, Kuwait's total aid to developing countries for the period 1962-77 was $5 billion. In addition, Kuwait contributed $1.6 billion in subscribed capital to international development organizations. The United Arab Emirates' aid record is equally impressive. Its foreign aid budget for 1977 was $1 billion - nearly 10 percent of the oil income of Abu Dhabi, the richest of the seven emirates - with 75 percent of the total in the form of outright grants. Saudi Arabia, Kuwait and the United Arab Emirates are the giants among Arab aid donors but, in fact, all the Arab members of the Organization of Petroleum Exporting Countries (OPEC) sponsor significant foreign aid programs, particularly Libya, Algeria, Iraq and Qatar. "Aid from the Organization of Petroleum Exporting Countries to the poorer developing countries has been quick and substantial, several times bigger in percentage of GNP than that from the industrialized countries," says Robert Stephens in The Arabs' New Frontier.

Oil exporting countries, moreover, continue to expand their aid. World Bank figures show that while aid contributions by developed countries increased in real terms - that is, adjusted for inflation - by only four percent in 1977, to $14.6 billion, aid contributions from OPEC nations jumped over 10 percent to $9 billion. Besides increasing the magnitude of their aid, the Arab countries have also changed their initial approach. Whereas, two or three years ago, almost all Arab aid went to needy sister Arab states, more than half now goes to non -Arab countries. According to a study by a subsidiary of Chase Manhattan Bank, less than half of Arab aid is disbursed within the Arab world: in 1977 nearly 60 percent of Arab aid went to non-Arab nations, with 34 percent granted to Africa, 16.7 percent to Asia, 7.1 percent to Latin America and 1.8 percent to southern Europe.

Arab donors channel their aid in a variety of ways: bilaterally through such state institutions as the Saudi, Kuwait and Abu Dhabi funds; via regional organizations such as the Arab Fund for Economic and Social Development, the Islamic Development Bank and the OPEC Special Fund; and through such international institutions as the United Nations, the World Bank and the International Monetary Fund. Some aid consists of outright grants - particularly in emergency situations - and some, depending on conditions in the recipient country, of "soft" loans - that is, with interest rates as low as a half percent, grace periods of up to 10 years before repayment starts, and up to 50 years to repay.

In a few special cases donor countries have responded to what they felt to be unusual circumstances by providing, often on a government-to-government basis, extremely generous assistance in a remarkable combination of ways: under varying terms, through a number of different agencies and from several different countries acting both individually and in concert. Egypt is the prime example of such a beneficiary: her deep-rooted economic difficulties reflect overpopulation as well as underdevelopment exacerbated by a long-term burden of heavy defense commitments.

It would be difficult to calculate exactly the total aid extended to Egypt by her sister Arab countries in recent years. According to the Paris-based Arabic magazine Al-Mustaqbal, from late 1973 through 1978 Egypt received as much as $17 billion from Arab oil-producing states, including $5.5 billion from Kuwait alone. The authoritative newspaper Al-Riyadh reported in May this year that Saudi Arabia's contributions to Egypt during this same period had totaled more than $7 billion. This figure included cash, bank credits and long-term loans made either directly by the government or through regional funds and organizations, the paper said. It excluded military cooperation and Saudi private investment in Egyptian industry. Arab countries strive to make their aid-giving efforts more effective by meeting regularly to coordinate loans and grants. The increasing emphasis on cooperation between Arab aid donors is evident in such projects as the $142-million Selingue Dam in Mali, which is being financed in part by Saudi Arabia, Kuwait, Abu Dhabi, Qatar and the Arab Bank for Economic Development in Africa. Altogether, those countries and the bank have committed a total of $60 million to the dam.

The Selingue Dam also illustrates what is a basic goal in most Arab aid projects: an improvement in local living standards. In Arab aid projects the emphasis is on infrastructural projects such as transportation networks, power and irrigation projects and welfare programs - never on prestige projects. Between 1975 and 1978, for example, total aid disbursed by the Saudi Development Fund - one of the kingdom's agencies for tunneling aid to the world - more than 35 percent was spent on transport, over 22 percent on water, sewer and electrical projects, over 16 percent on agriculture, more than 7 percent on health and education, and nearly 19 percent on other projects, most aimed at building infrastructural industries.

Unlike the West's early approach to aid - which usually disbursed money to governments - Arab aid, as a general rule, is more strictly controlled and thus may be more efficiently distributed. Arab development funds are paid by the donors directly and in installments to contractors and suppliers as the work progresses - an effort to insure that the funds go where they are supposed to go and to pay for work that has actually been carried out. Officials in charge of Arab development funds, moreover, normally monitor each stage of implementation to insure its success. Fund officials, for example, assist in planning, review specifications, help select firms to carry out the work, check the progress and the quality of construction closely and in some cases even help manage the completed project. "At one stage, this was resented by some aid recipients as interference in local affairs," says an Arab official, "but governments are getting to like and appreciate it. Some are already fully convinced that it is a wonderful service that they get free of charge."

Such, in fact, is the increasing professionalism of Arab aid programs that it has become something of a seal of approval: if a project qualifies for a loan from an Arab fund, its chances of attracting additional international financing are enhanced. This aspect is especially important today because Arab donors now rarely agree to finance a major project singlehandedly; they much prefer to share the burden and the risk with others in "consortium" lending. Arab aid differs in other ways too, officials say. They suggest that the goals of Arab aid are primarily humanitarian. Abu Dhabi, for example, frequently gives away large grants that are never even reported in the local press. "The fact that nobody is trying to coordinate the PR effect is a good indication that the basic impulse is humanitarian," says an Abu Dhabi-based diplomat.

Skeptics, of course, might question that, but Abu Dhabi officials quietly insist that its true and are willing to say why. "You have to have been here 10 years ago to know how we feel," says Nasser al-Nowais, who is now general manager of the Abu Dhabi Fund, but who has not forgotten his origins. The son of a pearling boat captain, he was born in a mud house where conditions resembled those still common in the Third World. "Then," he goes on, "we did not have any streets, any schools, any kind of infrastructure at all. People walked around barefooted. Life was very poor. All this is still very fresh in our minds, so we feel it is our duty to help other people now that we are in a position to do so."

To be sure, countries like Abu Dhabi, Kuwait and Qatar win a measure of respect in the world because of their generosity. But, in fact, their aid programs, by their very nature, buy little political influence or power outside their own borders. As Abdlatif Al Hamad, director general of the Kuwait Fund, says, "If you look at our record you will find we put greater emphasis on poorer, smaller countries ... countries that don't really matter politically. It is not politically important that the Comoros or Papua-New Guinea support us in international forums."

Unlike the Marshall Plan and other American aid programs - which specified that a high proportion of the funds be spent in the United States, and on American exports - Arab aid-granting funds cannot promote Arab exports because most Gulf states have nothing to sell except oil - and that hardly needs pushing. Arab aid, therefore, is never tied to buying products that the Arab countries produce. To the contrary, aid officials say, Arab aid actually benefits the industrial nations by generating orders for American, European or Japanese products, which most developing countries could not buy without Arab-loaned money.

In fact, says Roger F. Azar, a leading Arab investment banker, "it could be argued that the indirect benefit to industrialized countries of Arab aid to LDCs [less developed countries] exceeds the industrialized countries' own aid to the LDCs."

"The Kuwait Fund," adds Al Hamad, "is giving aid to countries with whom we have no direct relations, trade or otherwise. Take, for example, the Maldives; I never even knew they existed. I remember looking at a map to find out where they were. Yet we went there and tried to help them. So it is not materialistic. There is no feedback for us from it."

Arab officials, in sum, see their aid as a way of strengthening solidarity in the Third World, but also - an important element in the Muslim world - as a concrete manifestation of a religious duty called zakat: the obligation to give to those less fortunate. "Zakat" says an Arab official, "seems to have little to do with international politics and it is not, admittedly, the primary impulse behind Arab aid. But it is important, nevertheless. It's part of our whole psychology. It's what makes us tick."

This article appeared on pages 2-3 of the November/December 1979 print edition of Saudi Aramco World.


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