Economic Outlook: Military spending impacting MENA

Though the per capita income of most countries in the Middle East and North Africa region (MENA) did not witness a significant change, the military budget of the region is set to rise, according to the latest edition of The Military Balance 2003-04, a survey of world military capabilities by the International Institute for Strategic Studies (IISS) in London.

The total defence spending of the MENA region declined by 4.3 per cent last year to just under $58 billion from $60.5 billion in 2001, which amounts in average to ten per cent of the Gross Domestic Product (GDP) of the region.

The fall in spending came despite considerable regional tensions focused on the impending US-led invasion of Iraq and the continuing Palestinian Intifada in the West Bank and Gaza.

However, despite a general decline across the board, the fall in spending for the whole region was roughly equivalent to the fall in Saudi defence spending (which makes up over one-third of total spending) from $24.1 billion in 2001 to $21 billion last year.

The fall in the military spending in other countries, meanwhile, was roughly offset by the substantial increase in Iranian defence spending from $3.1 billion to $4.9 billion last year, a rise of 55.5 per cent.

MENA defence expenditure represented 6.9 per cent of the global defence expenditure of $843 billion last year, down from 7.7 per cent of global spending of $787 billion in 2001 (almost two-thirds of it spent by the United States of America).

Universal increase

Budgeted defence spending of MENA countries for this year continued to climb, following the trend of recent years, with an almost universal increase which averaged 8.6 per cent over budget figures for last year.


The total budget figure for this year is skewed by the absence of figures for Egypt, but including a putative figure of $3.4 billion for Egypt would bring the total MENA budget to almost $51 billion, a rise of around 6 per cent against last year.

Iran's 2003 defence budget rose 23.5 per cent against the budget for last year to $4.2 billion and, judging by past overspending, the actual figure could be substantially higher. Syria, another serial over-spender on defence, saw its budget spending increase 40 per cent against last year.

Despite the fact that this has been a normal feature of national budgets of the countries of the region, the need now to shift resources to economic development to offset rising negative indicators such as unemployment rate, inflationary pressures, among others, should make the impact of military spending increases more socially pronounced.

The increase in US military spending (by wars in Afghanistan and Iraq and hundreds of billions of dollars more on internal security) may be good for the American economy - creating more jobs in military industry, increasing public spending and thus activating economy.

That's because the US replaces its arms inventories with American production. In our region, except for a small amount produced locally, we mainly import arms and its technology.

This, in turn, puts more pressure on the region's trade balance, widening the deficit gap. The GDP in all Arab countries combined stood at $531.2 billion in 1999, less than that of a single middle-size European country, Spain, ($595.5 billion).

Over the period 1975-1998, real GDP in the Arab world (in the geographically selective sense adopted here) rose from $256.7 billion in 1975 to $445.7 billion in 1998 in constant prices.

To be able to put their economies on the right track, MENA countries must sustain an annual growth rate of over six per cent for a few years. With the anticipated increase in military spending, that prospected growth looks difficult to achieve.

Ahmed Mustafa is an Arab writer based in Qatar.