ECONOMIC DEVELOPMENT IN THE MIDDLE-EAST: I picked up an actual newspaper this morning, and found a great article in the business section of the LA Times by Jim Flanigan about the economy of the Middle-East. Naturally, the article is also online; free registration required. The article points out some of the difficulties involved in building a flourishing economic environment in this region of the world, and correctly links economic development with political and social development.

Mr. Flanigan notes (as others have, including myself), that the vast oil wealth of the Middle-east has not generated any actual economic development. For example, he writes that although there are 200 million people in the region, there are zero automobile manufacturing plants. In fact, there is almost no industry whatsoever except what is invovled with pumping oil from the ground, and most of that infrastructure was built by Western companies under contract.

But who will help to turn things around?

For starters, don't count on those living there. The richest families in Saudi Arabia, far from being enthused at the prospect of increased U.S. influence in the region, are looking to invest more money in Europe, not on their home turf. Similarly, investors in Lebanon and Kuwait are questioning "whether there will be stability and rule of law" across the Middle East after the war ends, according to an investment manager who has wealthy clients in those countries.

It is a pattern that is all too familiar. As of the end of last year, the oil-producing countries -- including Saudi Arabia, Kuwait, the United Arab Emirates, Oman and Qatar -- had piled about $70 billion into U.S. stocks and bonds.

That's $70 billion not looking for genuine business opportunities in the needy nations of Jordan, Lebanon, Syria, Egypt and the West Bank and Gaza areas of the Palestinian Authority.

Part of the obvious problem is that no one, including the political rulers of the countries in question, is confident that any investments made in the region will be secure. Not merely secure from economic risk (which is always present), but secure from military threats, government seizure, terrorist attacks, and the like. In such an environment, no one invests at reasonable rates; the oil infrastructure was bought with cash, and in cases where it was financed it was done so at absurd interest rates.



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