On Problems of Modern Industrialization in the Arab World

Written by an Arab economist

This article was published in 1951, fifth edition, Al-ra’ed Al-‘arabi

In this introductory article, we have decided not to go into detail regarding the industrialization process – whether it relates to new installations or to the expansion of current facilities as well as their efficiency and production level – in each individual Arab country. Instead, we will attempt to consider some of the main issues that are shared throughout the entire Arab world, on both the African and Asian continents. That is, we view the current divisions and the general economic developments – all of which were imposed by the age of colonialism – as being radically at odds with the critical interests of the inhabitants of this vast region, which possesses the ample capacities needed for achieving the economic progress that is considered to be the true basis on which any progress in the political and social spheres rests. If the problems that the industrial growth process face are similar, then this is because the economic situations – regardless of a relative difference between each country, however large or small – are similar. As a result, the solutions for these problems will be identical or similar.

In the Interest of Economic Integration

What captures our attention first – disregarding the mining activity in search of petroleum and phosphates, which is controlled by foreign capitalists who adopt a harmful position that follows their own particular interests and those of their country – is that despite the establishment of several transformational industries, the truth is, agriculture still constitutes the basic activity for the overwhelming majority of the population. This matter has much more importance than the the aspect that we are covering here. Small consumer industries possessing a relationship in one form or another with agriculture – which in most parts of the Arab world do not go beyond weaving, textiles, leather tanning, vegetable oil production, sugar and vegetable foodstuffs – are based, to a certain extent, on competition and not integration. This trend, which appeared in the past, is still prevalent and reflects the local tendencies to not enter a domain more expansive than the domestic. The danger resulting from this phenomenon should make us think deeply for the common good; success in manufacturing is not merely measured in terms of establishing industrial facilities of different types and sizes, but rather in terms of its ability to gradually develop in such a way that the industries soon become capable of occupying a prominent place in competitive markets with foreign industries. Perhaps what prevents a noticeable number of industries from attaining this status is the narrow scope of the domestic market, and therefore, for several reasons, we should not neglect the importance of the population in Arab states – with the exception of some, such as Egypt – as is clarified by the following numbers:

Country Population

Iraq  6,538,100
Lebanon 1,400,000
Yemen 4,500,000
Libya 1,200,000
Tunisia 3,683,169
Jordan 1,600,000

B - Considering these modest numbers, in our view, it appears that at the forefront of what ought to be of concern is an initiative for creating a suitable apparatus for industrial planning, on the level of the entire Arab world, such that assignment is based on serious local priorities, so as to result in healthy economic production, in terms of production itself and marketing. As a result, harmful competition will cease between small units that can barely stand on their own two feet, in a competitive market. This planning – which we are calling for and that we hope is achieved – will make way for Arab industries to flourish, improve their methods, and decrease production costs due to the fact that their markets will become large and extensive rather than local, limited, or small. What you will find are expansive markets that include approximately 85 million people. For example, if it became apparent that one or more Arab countries are greatly suited for exploiting petroleum and its derivatives, as well as natural gas and for establishing one or more petro-chemical industry branches; then a plan ought to be put in place for opening up all the Arab markets to this industry. If one or more countries had suitable circumstances for the producing vegetable oil varieties such that it is possible for its products to be sold in other Arab markets for prices that cannot be matched by a similar product in another Arab country due to high production cost, then an agreement on the principle of allocation has become necessary. This would prohibit a harmful trade relationship between two Arab countries where one has circumstances allowing cheaper production of a material and the other cannot keep up. Additionally, if it becomes apparent that an Arab country is able hold its ground against foreign competition in a large industry – such as that of steel or iron – then this country’s industry ought to be propped up and the other Arab countries must rely on its production and if necessary, assist it with improving and expanding its production.

C-There must be a sufficient amount of the types of industries that the local market requires. This is a basic condition for meeting the demand of present and future domestic markets. Satisfying the local market is important as a first step and from there, launching into foreign markets where the competition is fiercest for more than one reason, first and foremost among them being the technical expertise that has been previously gained by the older producers and the capabilities that they possess, which make it difficult for any new producer to surpass them. In addition to the [issue of] competitive prices – which are predominantly secured by the older producer rather than the new producer that is beginning from square one – it is necessary for the new producer to begin with its local market, then its “brother” markets, after which – if it finds that it has the ability and ambition –, it will take on the foreign and global markets, which are the most difficult to penetrate.

D- Availability of foreign currencies- Large industries require much capital, mostly in the form of foreign currencies. Here, we must weigh the foreign capital that these large industries need to satisfy a small or limited local market against our continuing to import similar foreign products. If we find that the margin is large and favors importing, then we must continue with this importation and refrain from squandering capital of high expense on producing something that is not possible to market because of its high cost and therefore high selling price. For example, if Iraq were to consider establishing an automobile industry to meet its domestic need, and the operation was of no economic benefit due to the small volume of local consumption and the inconceivability of competing with large companies in Arab markets, then it becomes necessary to turn away from establishing industries like this and to direct this capital to other industries more in line with local needs and more likely to succeed, such as the production of tractors or other types of farming equipment.

E-Interest should be directed toward industries that leave behind potentially beneficial byproducts whether be it directly or by setting up a small facility for exploiting these byproducts. Also, perhaps there already exists a facility where it would be easy for us to add a certain unit in order to produce a commodity that will benefit a local industry. In this case it is more expedient to refrain from building a new, independent facility for producing something like this secondary commodity.

F-Maintaining the utmost precision and accuracy in studying byproducts of the desired industrial project’s elements – especially with regard to its costs: it is possible that a disparity will occur between preliminary estimations and the actual eventual costs because of an increase in the prices of machinery and imported equipment, as well as in the prices of raw materials – be they of local or foreign production; or because of changes in the exchange rate with respect to the local currency, as well as other considerations. All these worst case scenarios must be taken into consideration during the exploratory stage. Generally, this precautionary element tends to be between five and ten percent from the preliminary estimations; there is no doubt that thorough deliberation, studying and researching, will spare us an increase in production cost and prevent us from falling into traps that hinder project execution, which could hinder the distribution process and could have negative consequences – on a more dangerous scale – for the progress of the general national development plan that has been put in place.

G-Additionally, there needs to be a precise measurement of the labor elements that the project requires, including those in charge of administration, the technicians, and the skilled workers. Considering this, necessary measures shall be taken to provide these elements, whether they be drawn from natives themselves or by temporarily recruiting an expert team of foreigners and preparing to train the largest number of natives possible, especially in foreign institutes and factories. The reality is that the human element problem is an enormous matter that countries desiring to escape from endless backwardness face and which necessitates adopting the industrialization process. Human resources that are qualified to work on advanced industrial projects are quite limited; it is a deficiency that we inherited from the ages of colonialism, when it was undesirable to develop manpower in spheres that could perhaps lead someday to competition with the occupying states’ production. Therefore, it will be necessary to take this deficiency into consideration while putting into place an industrial planning program so that the project – at least at first – is consistent with available human and technical capacities, while preparing to make a transition to a more advanced and developed stage, when the preparation of the workforce is completed. We have seen examples of what we are discussing in Asia and South America where industries and economies underwent decline and bankruptcy because of a shortage of affordable, well-trained, native human resources.

The Matter of Protection

The matter of industrial planning, in accordance with the considerations that we have discussed, raises a very important issue: customs protection. Industry’s relationship to this is like the case of the organism; it passes through successive stages of growth, requiring assistance and guidance until it becomes able to stand on its own feet and catch up to the industries of advanced states. This is what explains the basic justification for providing protection to nascent industries. This was the course that several states followed and continue to follow. Thanks to protection, some of them have achieved great progress in the industrial field. However, we must not look at this matter in absolutist terms. Protection should be provided only to industries that we know beforehand have valuable assets and capabilities that make it able to succeed on the local and international stages. For this reason, the financial committee that was formed in 1923, to look into the state of industry in India stated, “the industry ought to be that which is eventually capable of facing off against global industry.” This is what was achieved in India; after the country had been importing cotton textiles before World War I, it then became the largest exporter. In 1950 it exported what amounted to 1,109 million yards of cotton fabric. The steel industry in the South African Union was subjected to strong protection from the very beginning, which enabled the country to meet its domestic needs for prices that were less than those of the imported products. This also occurred in Australia; there, in 1939, Australian produced steel became cheaper than that of any other country.

On the other hand, we should be aware that if protection extends for a time that exceeds what is required, this results in unnecessary increase in costs; just as it could lead to weakening incentives for improvement and raising production level, which eventually will hinder general economic development. All the measures that are adopted to isolate domestic industry from the forces of foreign markets could have negative results sooner or later, the mildest of them being a decline in quality and an increase in prices, from which the consumer will suffer.

Therefore, there must be a periodic review of the customs tariff that is put in place in order to protect a specific industry, and this occurs through the assessment of future competition. This matter is not only the function of the economic and technical successes that this industry achieves as a result of protection, but also the changes that could befall the demand for its production and the changes in the relative costs of competing commodities and products. Due to the fact that the men in charge of industry would be aware of the facts in this periodic review that is to be conducted by the state, they will expend effort for the sake of improving their industrial methods and lowering expenditures, in order to eventually be capable of succeeding against foreign industry.

There is little doubt that what we are pointing out here will motivate business men and factory owners to thoroughly think about their choices of business ventures that they wish to fund and establish. They will only embark upon those that exhibit the components of success, continuity, and progress. It will make them more cautious in assessing the projects that are proposed to them, either for their funding or participation. Some foreign companies – as has been noticed – prey on the backward or developing countries and present to them uneconomical ventures. This is because these companies, their brokers, and their clients are not concerned by the future of industry; rather, what concerns them is selling and trading machines and equipment produced by their companies. Before 1952, Egypt saw a number of these industries that quickly failed, in a most regrettable manner. The state must subject proposals like this to the examination and scrutiny of neutral, expert, and sincere apparatuses, so that chaos and shocks will not befall the national economy.