Partners for Troubled Times

German Foreign Minsiter Guido Westerwelle and Libyan Foreign Minister Ashour bin Khayal. Source: dw.de

German Foreign Minsiter Guido Westerwelle and Libyan Foreign Minister Ashour bin Khayal. Source: dw.de

For Europe, the past few years have been a seemingly endless string of bad news: the 2008 financial crisis has lead to the destabilization of economies across the European Union, and foreign trade has fallen due to both intra- and extra-EU financial and political crises. As several Eurozone countries succumbed to sovereign debt crises and the rest of Europe struggled to support them, Germany—Europe’s ‘backbone’—shouldered the largest single portion of the bailouts and guarantees, totaling nearly EUR 300 billion. As the world’s third-largest exporter and with an export propensity of over 40 percent of GDP, recessions in its largest trading partners—other European countries and the US—could have meant economic disaster, yet the country continues to post modest-yet-positive economic growth.

Part of the reason for its continuing economic good fortune is Germany’s expanding trade relationships with non-Western countries—mainly the BRICs and Japan, but also with states in the Middle East and North Africa that have been supplying its energy needs, as well as a significant portion of its consumer textiles and fruit. Germany has an export base that is perhaps uniquely attractive to the Arab World; its major exports are automobiles (especially top-tier vehicles from famous brands like Porsche and Mercedes-Benz), machinery, chemicals, pharmaceuticals and medical technology, and engineering expertise.

Trade between Germany and the Arab World experienced strong growth in the first half of 2012, according to figures published by the German–Arab Chamber of Commerce (GHORFA). (Second half figures have not yet been released.) German exports to Arab states increased by 18.8 percent to reach a total of EUR 15.7 bn, while Arab exports to Germany climbed 18.5 percent, totaling EUR 7.3 bn. Speaking with The Majalla, GHORFA Secretary General Abdel-Aziz Al-Mekhali pointed out that this growth is part of a larger trend: “German–Arab trade has nearly doubled in the last ten years. If we look at the figures between 2001 and 2011, we can find that trade climbed from EUR 22 bn to EUR 40 bn.” While trade with Arab Spring countries was understandably affected by the political instability, trade between Germany and its strongest (and most stable) trading partners in the region, Saudi Arabia and the UAE, grew more than 30 percent according to the Federal Statistical Office of Germany. This offset declines in trade with Libya, Syria, and Yemen.

In general, Germany enjoys a strong trading relationship with all the GCC states; Germany imports oil from the GCC and the Gulf countries import both Germany’s technical expertise for new project development and its luxury consumer goods. For example, Saudi Arabia is one of Germany’s oldest and most consistent trading partners in the region. Formal trade links between the two countries were established in 1978 with the development of the German–Saudi Arabian Office for Economic Affairs, and since then the Kingdom has become Germany’s largest trading partner in the Middle East. The Kingdom retained that status in 2012, with GHORFA reporting that German exports to the country grew 35.8 percent in the first six months. In the first half of last year, trade increased by 47 percent when compared to the first half of 2011, to a total value of EUR 5 bn. Thanks to high oil revenue, Saudi Arabia has the ability to import large quantities of German services and products, and many German companies producing both consumer and industrial goods for export have very good reputations in the Kingdom.

Trade patterns between Germany and the other GCC countries follow a similar pattern to that between Germany and Saudi Arabia, with the notable exception of Qatar. The small Gulf state is the world’s largest exporter of liquefied natural gas (LNG), but Germany does not import gas from Qatar because it does not have the facilities to receive and store LNG. However, Al-Mekhlafi informed The Majalla that there is potential for new trade growth between the countries because Germany is considering building a gas receiving station in Bremerhaven.

In non-GCC Arab countries, the post-Arab Spring instability has often surpassed that experienced by Europe. It is therefore unsurprising that German trade with and investment in Arab Spring countries declined over the first half of 2012. Before the revolutions, Germany had been seeking to diversify its energy supply by investing heavily in upstream oil, mainly in North African countries. These investments largely did not come to fruition, but new governments in the Arab Spring states are providing different opportunities for growth and partnership.

The most notable relationship Germany had with an Arab Spring country was with Libya; Germany was Libya’s second-largest trading partner fifteen years ago. The European nation was a heavy investor in upstream oil in Libya under the Qadhafi regime, in a context of strict sanctions against Libya by the US government. The German–Libyan relationship suffered global scrutiny in 2011, when Germany abstained from a UN Security Council vote on a no-fly zone over the country and became the only EU and NATO country to avoid direct military intervention in the revolution—and many suspect this was due to its economic interests more than any political or moral stance. Their trade relationship has survived the revolution, however, with the transitional government proposing a ‘democracy support plan ’ to German Chancellor Angela Merkel in 2011. This proposal invited German companies to consult on and develop an impressive range of government infrastructure projects, including fifteen international airports, fifteen ports, and innumerable government buildings, schools, and hospitals. Recent reports show that German investment in—if not German trade with—the country is increasing, with companies including Siemens and BASF Chemical taking lucrative contracts in Libya.

At the grimmer end of the Arab Spring is Syria, where we can only expect trade figures and prospects to be dim. EU sanctions against Syria have been in place since September 2011 and have halted trade in a range of goods and services with the embattled country—most notably oil imports to Germany from Syria. While Germany was 20 percent of Syria’s oil market before the crisis and the European nation used to spend nearly EUR 1 bn on Syrian oil each year, Al-Mekhlafi emphasized that “Germany was only importing 1 percent of its oil from Syria”—hardly disrupting Germany’s trade figures, and difficult to contextualize on the Syrian side due to the ongoing conflict.

Iraq provides a likely model for re-expanding trade with post-revolution Arab countries. While Iraq and Germany were major trading partners in the 1970s and 1980s, business between the two countries decreased due to the decades of conflict in Iraq. But since the 2003 invasions and the subsequent change in government, Iraq has “started to restore its role in the Arab region,” says Al-Mekhlafi. (He noted that it is currently the second-largest oil exporter in the world, with an output of more than 3 mn barrels per day (bpd)—although German oil imports from Iraq are minimal.) While trade between Germany and Iraq is not especially significant, Germany and its EU partners have invested heavily in infrastructure and small business development in the country in the hope of expanding their trading relationship in the future. It is a substantial and likely effective—if expensive—option, and one which might be adapted to the Arab Spring countries in the hope of expanding trade over time.

Germany and the Arab World have much to offer one another. The GCC states have strong economies keen to export oil and gas and import the type of engineering and technological knowledge for which German companies are world-renowned. In other states, there may currently be instability, but there is an exceptional potential for growth: Al-Mekhlafi stressed that “if these Arab [Spring] societies become stable in the next few years and use their resources properly,” they will prosper. With its export-driven economy suffering from the Western downturn and its correspondent need to find new markets for its products, these new Arab markets will surely be an attractive prospect for Germany.

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The Majalla: What is your evaluation of German–Arab economic relations?

Secretary General of the GHORFA, Abdel Aziz Al-Mekhlafi:

[blockquote]The German-Arab Chamber of Commerce cares about balance in the economic relationship between Germany and the Arab World. We are interested in being partners with Germany, not merely a place to send German exports. German exports represent about 75 percent of the volume of trade exchange, while exports from Arab countries are 25 percent. One challenge is that when speaking about greater partnership and buying more goods from the Arab World, we discover that Arab goods are very similar: more than one Arab country exports oil, therefore it is the most important export commodity to Germany.

We need a sustainable relationship based on more than just exchange of goods. In the Arab World, we should invest in education and build technology institutes, benefiting from research institutes in Germany and its research and technological innovation in the traditional and renewable energy sectors. This could help build sustainable ties and might also help establish industries other than oil and gas in the Arab region, from which Germany (and also Europe) would benefit. We also have a growing manufacturing sector, through which key industries can be established. The products of an expanded manufacturing sector could be exported to the industrial world.

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