The Arab World and Latin America: Economic and Political Relations in the 21st Century 9781350988439, 9780857726025

Table of contents :
Front cover
Author
Endorsement
Title
Copyright
Dedication
Contents
List of Contributors
List of Illustrations
Abbreviations and Glossary
Preface
Framework of Cooperation
1. Arab–Latin American Relations in the Twenty-first Century: An Introduction
2. Arab–Latin American Dialogue: A Brazilian Perspective
3. Arab–Latin American Cooperation in Culture and Education
Trade Relations
4. Latin America and Caribbean Trade Relations with Arab Countries
5. Reflections on Mercosur–Arab Countries Bi-regional Preferential Trade and Investment Agreements
Investments and Finance
6. Moroccan–Brazilian Bilateral Cooperation: Achievements and Prospects
7. Investment Opportunities in Latin America: A Mexican Perspective
8. Brazilian Business Culture
9. Arab–Latin American Banking and Finance
Energy and Mineral Resources
10. Energy Cooperation with Latin America: An Arab Perspective
11. Mineral Resources Development: The Chilean Experience
Food Security
12. Water Resources and Agriculture in Arab Countries
13. Brazilian–Arab Cooperation in Food Production
14. Food Security in the Arab World: Theory and Practice
Technical Cooperation
15. Embrapa: Development of Brazilian Agriculture
16. Butantan Institute: New Frontiers in Immunological Sciences
Index

Citation preview

Fehmy Saddy (1941–2014) was Founder of FS Partners SA, a US-based international investment advisory firm. His career involved diplomacy, teaching, law practice, corporate management, and consulting. He served as advisor to governments, corporations and international development institutions, including the World Bank Group. He held an LLM in Law and a PhD in International Studies. He was the author of Arab–Latin American Relations: Energy, Trade and Investment and numerous scholarly articles on international politics, economics, law and banking and finance, including Islamic finance.

“This multi-authored compilation provides informative insights from Arab, Brazilian, Mexican, and Chilean intellectuals and illustrates the significant differences in scholarship on either side of the Atlantic.” William P. Glade, Professor Emeritus, Department of Economics, University of Texas at Austin “This book will be a good reference for students, scholars, decision makers and businesses in both developing and developed countries. It contains important and factual stories about investments and development projects in the Middle East and Latin America.” Isam Bashour, Professor, Faculty of Agricultural and Food Sciences, American University of Beirut

THE ARAB WORLD AND LATIN AMERICA Economic and Political Relations in the 21st Century

Edited by FEHMY SADDY

Published in 2016 by I.B.Tauris & Co. Ltd London • New York www.ibtauris.com Copyright Preface and chapter selection q 2016 Fehmy Saddy Copyright individual chapters q 2016 Celso Amorim, Faisal Awawdeh, Cecilia Baeza, Ce´sar Borges de Sousa, Arezki Daoud, Juan Carlos Guajardo, Boutaina Ismaili Idrissi, Jorge Kalil, Elena Lazarou, Maurı´cio A. Lopes, Geraldo Bueno Martha Jnr, Arash Nejatian, Fe´lix Pen˜a, Hugo Perezcano Dı´az, Osvaldo Rosales, Fehmy Saddy The right of Fehmy Saddy to be identified as the editor of this work has been asserted by the editor in accordance with the Copyright, Designs and Patents Act 1988. With special thanks to Amal Saddi, the editor’s sister. All rights reserved. Except for brief quotations in a review, this book, or any part thereof, may not be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher. Every attempt has been made to gain permission for the use of the images in this book. Any omissions will be rectified in future editions. References to websites were correct at the time of writing. Library of International Relations 75 ISBN: 978 1 78453 235 2 eISBN: 978 0 85773 946 9 ePDF: 978 0 85772 602 5 A full CIP record for this book is available from the British Library A full CIP record is available from the Library of Congress Library of Congress Catalog Card Number: available Typeset in Garamond Three by OKS Prepress Services, Chennai, India Printed and bound by CPI Group (UK) Ltd, Croydon, CR0 4YY

To the policy makers, government officials, scientists, business leaders and scholars from the Arab world and Latin America who are looking for unconventional ways to end the monopolistic position of the multinational food companies to provide food security to the growing population. And to the soul of the author who could not make it to see the publication of this book so that it rests in peace – the message is delivered.

Amal Saddi

CONTENTS

List of Contributors List of Illustrations Abbreviations and Glossary Preface Framework of Cooperation 1. Arab– Latin American Relations in the Twenty-first Century: An Introduction Fehmy Saddy 2.

Arab– Latin American Dialogue: A Brazilian Perspective Celso Amorim

3.

Arab– Latin American Cooperation in Culture and Education Cecilia Baeza and Elena Lazarou

Trade Relations 4. Latin America and Caribbean Trade Relations with Arab Countries Osvaldo Rosales 5.

Reflections on Mercosur–Arab Countries Bi-regional Preferential Trade and Investment Agreements Fe´lix Pen˜a

x xv xix xxv

3 33

50

71

91

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Investments and Finance 6. Moroccan– Brazilian Bilateral Cooperation: Achievements and Prospects Boutaina Ismaili Idrissi 7. Investment Opportunities in Latin America: A Mexican Perspective Hugo Perezcano Dı´az

107

127

8. Brazilian Business Culture Fehmy Saddy

152

9. Arab– Latin American Banking and Finance Fehmy Saddy

179

Energy and Mineral Resources 10. Energy Cooperation with Latin America: An Arab Perspective Arezki Daoud 11. Mineral Resources Development: The Chilean Experience Juan Carlos Guajardo Food Security 12. Water Resources and Agriculture in Arab Countries Faisal Awawdeh and Arash Nejatian

207 224

245

13. Brazilian– Arab Cooperation in Food Production Ce´sar Borges de Sousa

267

14. Food Security in the Arab World: Theory and Practice Fehmy Saddy

281

Technical Cooperation 15. Embrapa: Development of Brazilian Agriculture Maurı´cio A. Lopes and Geraldo Bueno Martha Jnr

305

CONTENTS

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16. Butantan Institute: New Frontiers in Immunological Sciences Jorge Kalil

329

Index

340

LIST OF CONTRIBUTORS

Celso Amorim has been the Brazilian Minister of Defense since 2011. He was previously Foreign Minister (1993–4 and 2003–10), Permanent Representative to the United Nations in New York (1995–9) and Geneva (1999–2001) and Ambassador to London (2001–2). Faisal Awawdeh is a specialist in Animal Sciences and holds a PhD in this field from Washington State University. His research focuses on animal nutrition and production. He held several technical and management positions in the Middle East at regional and international institutions, serving as coordinator for several international projects in Jordan. He is former Director General of the National Center for Agricultural Research and Extension (NCAR) in Jordan, and Regional Coordinator of the International Center for Agricultural Research in the Dry Areas (ICARDA) in the UAE. He is former President of the Association of Agricultural Research Institutions in the Near East and North Africa. Cecilia Baeza is Lecturer in International Relations at the Getu´lio Vargas Foundation in Sa˜o Paulo. She holds a PhD in International Relations from Sciences Po Paris, and spent two years as a post-doctoral fellow at the University of Brası´lia (UnB). The primary focus of her research is on the relations of the Arab Palestinian diaspora in Latin America. She has published several articles on South American foreign policies towards the Middle East, with a special focus on the Palestinian issue, and is working on a book based on her doctoral dissertation.

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Ce´sar Borges de Sousa is Vice President of Caramuru Alimentos, SA; President of the Brazilian Association for the Producers of Non-Genetically Modified Grains (ABRANGE); and Vice President of the Brazilian Association of Food Industries (ABIA). He holds board memberships and advisory positions in several Brazilian organizations, including the Brazilian Agribusiness Association (ABAG); External Advisory Committee of Embrapa; Consultative Council of the World Trading Center in Sa˜o Paulo; Supreme Council of Agribusiness (COSAG) of Federation of Industries of the State of Sa˜o Paulo (FIESP); and Permanent Council of Infrastructure (CNI). He holds a postgraduate degree in Financial Administration from Fundac
a˜o Getu´lio Vargas in Sa˜o Paulo. Arezki Daoud is Publisher and Editor of The North Africa Journal, a Boston-based publication that analyses political and economic affairs in the Maghreb and Sahel regions. The journal reaches over 50,000 government officials, diplomats, and business executives worldwide. He is also the founder and lead analyst at MEA-Risk Assessment Services, which provides in-depth analysis and risk assessment on the region and beyond to governments and corporate clients. Daoud attended the Algerian Hydrocarbon Institute (now part of the University of Algiers) for his undergraduate education in oil and gas economics, and Suffolk University in Boston for his postgraduate studies in International Economics. Juan Carlos Guajardo is Executive Director of CESCO, a think tank that specializes in mining public policies. Previously, he worked as Research and Policy Planning Director at the Chilean Copper Commission and as Economist for the International Copper Study Group. He holds a BA in Business Administration from Pontificia Universidad Cato´lica de Valparaı´so, and Diploma de Estudios Avanzados in Economics from Universidad Complutense de Madrid, where he is a PhD candidate in International Economy and Development. He has worked as a consultant for several national and foreign organizations and has published several articles and studies on copper mining in Chile. Boutaina Ismaili Idrissi is Professor of Economics at University Mohammed V Rabat, and holds an MBA from the University of Central Lancashire (United Kingdom) and a PhD in Economics from the University of Perpignan (France) covering structural issues related to the Euro-Mediterranean region.

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Jorge Kalil is Professor, School of Medicine, University of Sa˜o Paulo, Director of Instituto Butantan, and President of the International Union of Immunological Societies. He graduated in Medicine, Doctor of Science at Jean Dausset’s laboratory (Nobel Prize for HLA), and Doctor Honoris Causa at Universite´ de Paris Sorbonne. He was Visiting Professor at Stanford School of Medicine, and International Scholar at Howard Hughes Medical Institute. Dedicated to the study of mechanisms of immune recognition, he has published over 350 articles (ISI) and has several patents. He was decorated with the Brazilian Grand Cross – National Order of Scientific Merit, and as Chevalier – French National Order of Merit. Elena Lazarou is Assistant Professor at the School of Social Sciences of the Getu´lio Vargas Foundation in Rio de Janeiro and Head of its Center for International Relations. Dr Lazarou received her PhD in International Relations from the University of Cambridge. She held research positions at the University of Cambridge and the London School of Economics and Political Science. Her research interests include foreign policy analysis, multilateralism and regional integration with a focus on Europe, Brazil and Turkey. She has published several articles, edited volumes and book chapters in English, Greek and Portuguese and is a regular contributor to the Brazilian press. Maurı´cio A. Lopes is President of the Brazilian Agricultural Research Corporation (Embrapa). He is an agronomist (Federal University of Vic
osa, Brazil), with an MSc in Plant Genetics (Purdue University), a PhD in Molecular Biology (University of Arizona) and a post-doc in Sustainable Genetic Resources Use (FAO Headquarters, Rome). He has been at Embrapa since 1989 where he served as Deputy Head of R&D at Embrapa’s Maize and Sorghum, and Genetic Resources and Biotechnology, and former Head of Embrapa’s R&D Department. More recently, he was a member of the Scientific Council of Agropolis Foundation (Montpellier, France), Coordinator of Embrapa’s Labex in South Korea, and Embrapa’s Executive-Director for R&D. Geraldo Bueno Martha Jnr is an agronomist with a PhD in Agronomy/ Animal Science and Pastures from the University of Sa˜o Paulo/ESALQ, and a post-doc in Economics from the University of Brası´lia. He is a researcher at the Brazilian Agricultural Research Corporation (Embrapa),

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and former Deputy Head of its Strategic Studies. He is a member of Embrapa’s Strategy Management Committee, and the Commission for Sustainable Development in Agriculture of the Ministry of Agriculture, Livestock and Food Supply. He is Coordinator General of Embrapa Strategic Intelligence System (Agropensa), and the research group on Land-use Dynamics and Cerrado Regional Development at the National Council for Scientific and Technological Development. Arash Nejatian is Coordinator of the Arabian Peninsula Regional Program of ICARDA (International Centre for Agricultural Research in Dry Areas). His professional experience spans 17 years working with different national and international organizations dealing with agricultural development programmes. His previous positions include Senior Expert in Monitoring and Evaluation of Extension Methodologies, Ministry of Agriculture, Iran. He was Junior Professional, Extension and Research Component of the Irrigation Improvement Project in Iran, financed by the World Bank. He has a master’s degree in Agricultural Extension and Education from Iran, and has recently completed his PhD in Sociology from the United States. Fe´lix Pen˜a is Director of the Master in International Trade Relations at UNTREF and Director of the Institute of International Trade, ICBC Foundation. He has a Law degree from Universidad del Litoral in Santa Fe, a doctorate degree in Law from Universidad de Madrid, and a European Law degree from the Catholic University of Louvain. Among other activities, he has been Undersecretary of Foreign Trade in the Ministry of Economy of Argentina; Undersecretary of Economic Integration in the Ministry of Foreign Affairs; Manager for Integration at IADB; Undersecretary of Economic International Relations in the Ministry of Foreign Affairs; and Director of INTAL-IADB. Hugo Perezcano Dı´az is an independent consultant in Mexico offering advice on legal matters in areas of international arbitration, international trade regulation, international law and corporate and transactional law. As a former Mexican official, he was Head of the Trade Remedy Authority, General Counsel for International Trade Negotiations under the WTO, NAFTA and other free trade and bilateral investment agreements, and Lead Counsel for Mexico in State–State dispute settlement proceedings initiated under the WTO and NAFTA. He served as Counsel for Mexico

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in trade negotiations with several Latin American countries during the NAFTA and Uruguay Round Negotiations. He was a professor and has written for numerous specialized publications. Osvaldo Rosales is a Chilean economist and Director of International Trade and Integration ECLAC, United Nations. He is former ViceMinister of Trade and Chief Negotiator of FTA between Chile and the United States. He has advised governments and business organizations on trade negotiations and trade policy (Colombia, Ecuador, Bolivia, Costa Rica, Dominican Republic, Panama, Uruguay, Peru, Egypt and Korea). He was awarded the Latin America Public Figure Award 2008 by Latin American Chambers of Commerce and Industry. He holds a master’s degree in Economics and has lectured in Latin America, Canada, the United States, China, Japan, Russia and Korea.

LIST OF ILLUSTRATIONS

Figures Figure 4.1. Latin America and the Caribbean: trade in goods with Arab countries (in millions of current and constant 2005 dollars).

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Figure 4.2. Latin America and the Caribbean: breakdown of trade in goods by partner, average 2011– 12 (percentages of total). 75 Figure 4.3. Arab Countries: breakdown of trade in goods by partner, average 2011–12 (percentages of total).

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Figure 4.4. Sub-regions of Latin America and the Caribbean: trade with Arab countries, 1990– 2012 (in millions of current dollars).

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Figure 4.5. Latin America and the Caribbean: main exporters and importers to/from Arab countries, average 2011– 12 (percentages of total).

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Figure 4.6. Arab countries: main exporters and importers to/from Latin America and the Caribbean, average 2011– 12 (percentages of total).

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Figure 4.7. Latin America and the Caribbean: breakdown of trade in goods with Arab countries by technological intensity, 1990–2012 (percentages of total).

82

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Figure 4.8. Latin America and the Caribbean: composition of trade with Arab countries by main products, average 2011–12 (percentages of total). Figure 6.1. Share of Brazil in Morocco’s trade.

84 110

Figure 6.2. Coverage ratio of imports by exports with Brazil (%). 111 Figure 6.3. Moroccan imports from Brazil, 2002–12.

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Figure 6.4. Moroccan exports to Brazil, 2002–12.

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Figure 6.5. Foreign Direct Investment from Brazil in Morocco (million MAD), 2007– 13.

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Figure 7.1. Mexico: total exports (million USD).

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Figure 7.2. Mexico: total imports (million USD).

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Figure 7.3. Mexico: exports 2013 (380.0 billion USD).

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Figure 7.4. Mexico: imports 2013 (381.2 billion USD).

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Figure 7.5. Mexico: total trade 2013 (761.3 billion USD).

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Figure 7.6. Mexico: FDI inflows (million USD).

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Figure 7.7. Latin America: FDI inflows, 2000– 12 (million USD). 133 Figure 7.8. Mexico: FDI inflows, 2000 –12 (million USD).

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Figure 7.9. Mexico: average FDI, 2000–13 (million USD).

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Figure 7.10. Mexican– Arab Total Trade (USD).

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Figure 7.11. Mexico’s main trading partners in the Arab world, 2009–13.

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Figure 7.12. Mexican– Arab Total Trade (USD).

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Figure 7.13. Mexico: total exports to the Arab world, 2009–13.

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Figure 7.14. Mexico: total exports to the Arab world, 2009–13.

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Figure 8.1. Distribution of persons of 10 years and more based on classification per minimum salary – Brazil 2010.

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Figure 11.1. Private and state-owned copper production in Chile (1990– 2011, in thousands of MT).

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Figure 11.2. Patent applications submitted by the mining industry in Chile (2000–9).

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Figure 11.3. Patent applications submitted in the mining industry by large companies in Chile (total 2000– 9).

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Maps Map 12.1. The Arabic-speaking world: Arabic as the sole official language (in dark shade), and one of the several official languages (in light shade).

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Map 12.2. Global water stress, 1995–2025.

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Tables Table 4.1. Latin America and the Caribbean: trade in goods with selected partners, 2003– 12 (average annual variation rates, in percentages).

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Table 4.2. Sub-regions of Latin America and the Caribbean: trade in goods with Arab countries, 2003–12 (average annual variation rates, in percentages).

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Table 4.A1. Latin America: top five products exported to Arab countries (percentage of total).

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Table 4.A2. Latin America: top five products imported from Arab countries (percentage of total).

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Table 7.A1. Trade and investment agreements entered into by Mexico.

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Table 10.1. Petroleum dominating Arab exports to Latin America.

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Table 10.2. Petroleum products in Latin American exports to the Arab world.

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Table 10.3. Arab exports of mineral fuel, oil, gas and energy products to Brazil: Quarter 1, 2013.

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Table 10.4. MENA 2012 exports of crude oil to the world vs Latin America (1,000 b/d).

213

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Table 10.5. MENA 2012 exports of petroleum products to the world vs Latin America (1,000 b/d).

213

Table 10.6. Top 15 oil producers in 2013 (1,000 b/d).

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Table 10.7. Venezuela’s petroleum exports (1,000 b/d, 2012 data).

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Table 12.1. Population and areas of Arab countries (UN, 2013).

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Table 12.2. Water barrier differentiation proposed by Falkenmark (1989).

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Table 12.3. Total renewable water resources per capita (actual) (m3/capita).

250

Table 12.4. Number of dams and their reservoir capacities in some Arab countries.

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Table 12.5. Share of agriculture in gross domestic products in Arab countries (2011).

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Table 12.6. Number of live animals in Arab countries (1,000 animals).

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Table 12.7. Total number of goats and sheep (1,000 head) by each country.

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Table 12.8. Animal production (1,000 MT) in Arab countries.

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Table 12.9. Animal production (1,000 MT) in Arab countries during 2011.

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Table 13.1. Brazil: Growth in agricultural and livestock production.

275

ABBREVIATIONS AND GLOSSARY

ABANA: ABC: ABCD: ADR: ALADI:

AOAD: APEC: Arab Maghreb: ARD: ARLA: ARPC: ASA: ASPA: ASTI: Berbers: BIPA:

Arab American Banking Association Arab Banking Corporation The four leading commodities producers: ADM, Bunge, Cargill and Dreyfus Alternative Dispute Resolution Latin American Integration Association, which includes 13 Latin America’s biggest national economies: Argentina, Bolivia, Peru, Uruguay, Brazil, Chile, Colombia, Cuba, Ecuador, Mexico, Paraguay, Panama, Peru and Venezuela Arab Organization for Agricultural Development Asia– Pacific Economic Council Libya, Tunisia, Algeria, Morocco and Mauritania Brazilian Agricultural Development System The Arab Latin American Forum Algerian Agency for the Management of Major Cultural Projects Africa– South America Summit From Portuguese: The Summit of South AmericanArab Countries Agricultural Science and Technology Indicators Indigenous tribes who live in Arab Maghreb Bilateral Investment Protection Agreement

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BNDES: Bolivarian: BOVISTA: BRICS: Cacha Dois: CALC: CCI: CELAC: CELAC: Cerrado: CGIAR: CIMM: CNIC: CODELCO: CONICYT: Copersugar: CORFO: CSIRO: DIESSE: EFTA: EHEA: EIA: Embrapa: Empresa: Empresario:

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Brazil National Bank for Economic and Social Development Ideology of Simon Bolivar Brazilian stock exchange Brazil, Russia, India and China and South Africa English translation ‘Cash Box Number Two’. Accounting practice where accounts do not figure on company’s books. Cupula America Latina Caribe (Latin American Caribbean Summit) Climate Change Index Community of Latin American and Caribbean Countries Community of Latin American and Caribbean States The Brazilian Savanna Consultative Group on International Agricultural Research Chilean Center for Mining and Metallurgical Research Council on Innovation for Competitiveness Chilean Copper Corporation – the largest copper producer in the world Chilean Scientific and Technological Commission The marketing arm of 45 Brazilian sugar producers, manufacturers and refineries Chile Production Development Corporation (Corporacio´n de Fomento de la Produccio´n de Chile) The Commonwealth (Australia) Scientific and Industrial Research Organization Inter Trade Union Department of Statistics and Socio-Economic European Free Trade Association European Higher Education Area US Energy Information Administration Brazilian Agriculture Research Corporation Brazilian term for ‘Corporation’ A Brazilin term used to indicate a businessman with guts and extraordinary qualifications

ABBREVIATIONS

EPCM: EU: EU-LAC: FAO: FDI: FEALAC: FONDEF: FREAB: FTA: FTAA: G8 þ 5:

GATT: GCC: GDP: Ibn Khaldun: IBSA:

IDA: IM2: IMF: INPE: INTEC: KFTCI: KIC:

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Engineering, Procurement, Construction and Management European Union European Union–Latin America and the Caribbean Summit UN Food and Agriculture Organization Foreign Direct Investment Forum of East Asia Latin America Cooperation Fund for Promotion of Scientific and Technological Development Banque Franco-Arabe d’Investissement Internationaux Free Trade Agreement Free Trade Area of the Americas Is an international group that consists of the leaders of the heads of government from the G7 nations (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States), plus the heads of government of the five leading emerging economies (Brazil, China, India, Mexico, and South Africa) General Agreement on Tariffs and Trade Gulf Cooperation Council (countries of Saudi Arabia, Kuwait, Bahrain, Qatar, United Arab Emirates and Oman) Gross Domestic Product An Arab philosopher in the 14th century Conference held in Annapolis, United States, that included India, Brazil, and South Africa to revive the peace process between Israel and Palestine later knows as Annapolis Process International Development Association Chilean Mining & Metallurgy Institute International Monetary Fund National Institute for Space Research Chile Technological Institute Kuwait Foreign Trade, Contracting and Investment Company Kuwait Investment Company

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KIMS: LAIA: Levantines: Lima Declaration: MENA: Mercosur:

Mocarabes:

Moors: Mubadala: Murabaha: NAFTA: NARS: NIH: NPT: NYMEX: OAS: OCP: OECD: OFPPT: OPEC: PAHO: Polisario: QFI: R$: R&D:

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Knowledge Intensive Mining Service companies Latin American Integration Association People of Syria, Lebanon, Palestine and Jordan A substantive document pledging cooperation between Latin America and the Arab world Middle East and North Africa (region) A regional trade zone that initially included Brazil, Argentina, Uruguay, and Paraguay and was joined later by Chile, Bolivia and Ecuador as associated members Portuguese people of mixed blood who interacted with the Moors and New Christians – Jews compelled to convert to Christianity during the Spanish inquisitions The medieval Muslim inhabitants of the Maghreb, Iberian peninsula, Cecily and Malta Arabic Islamic financing transaction Arabic Islamic commodity contract for financing a transaction in accordance with Sharia law North American Free Trade Agreement National Agricultural Research System The US National Institute of Health Nuclear Non-Proliferation Treaty New York Mercantile Commodities Exchange Organization of American States Morocco’s Office Cherifien de Phosphates Organization for Economic Cooperation and Development Brazil National Manpower and Professional Training Bureau Organization of Petroleum Exporting Countries Pan American Health Organization The Saharan rebel national liberation movement to end Moroccan presence in the Western Sahara The Qatar Foundation International Rial – Brazilian currency Research and Development

ABBREVIATIONS

RCEP: RIMAAL: RwP: SABIC:

SAIS: SAPI: SENAI: Seven Sisters:

SSC: Sukuk: Tadawul: TATIP: TPP: Turcos: UBAF: UNASUR: UNCITRAL: UNCTAD: UNESCO:

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The Regional Comprehensive Economic Partnership (an agreement being promoted by Asia-Pacific region) The interdisciplinary research network on the Arab world and Latin America A concept introduced by Brazilian diplomats for supervising humanitarian intervention and stands for “Responsibility while Protecting” Saudi Arabia Basic Industries Corporation – the largest public company in SA active in chemicals and intermediaries, industrial polymer, fertilizers and metals School of Advanced International Studies (in Washington, DC) Spanish acronym for Corporation for the Promotion of Investments Portuguese language for National Service for Industrial Training Major oil companies which include, Mobile Oil, British Petroleum, Royal Dutch Shell, Esso/Exxon, Texaco, Gulf Oil and Standard oil of New York (SOCONY) South – South Conference for Development Islamic bonds Saudi Arabian stock market Trans-Atlantic Trade and Investment Partnership Trans-Pacific Partnership A Brazilian term referring to people of Syrian and Lebanese origin carrying Ottoman identity cards Union des Banques Arabes et Francaises A union of 12 countries created in 2008 as part of the continuing process of South American integration United Nations Commission on International Trade Law The United Nations Conference on Trade and Development United Nations Educational, Scientific and Cultural Organization

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UNICEF: UNIDO: UNMOVIC: UNSCOM: WHO: WTA: WTO: WTO 2.0: ZPCAS:

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The United Nations Children’s Fund UN Organization for Industrial Development The United Nations Monitoring, Verification and Inspection Commission The United Nations Special Commission World Health Organization Water resource vulnerability index. The ratio of total annual withdrawal to available water resources World Trade Organization A hypothetical WTO created by business scholar Richard Baldwin which aims at strengthening the WTO Zone of Peace and Cooperation Atlantic South

PREFACE Fehmy Saddy

This volume comes out 30 years after the first anthology I published on the same subject: Arab –Latin American Relations: Energy, Investment and Trade (Transaction Publishers, Rutgers University, 1983). It addresses the evolving relations between the Arab world and Latin America over a generation during which fundamental shifts have taken place in the global political and economic order under the impetus of globalization. These shifts constitute a radical departure from the past. On the Latin American side, the evolving relations with the Arab world reflect increased autonomy, particularly by leading Latin American countries with respect to policy decisions that serve their national interests. Although this sense of independence is less pronounced on the Arab side at a time when the entire Middle East and North Africa region is going through the most fundamental transformation in its modern history, closer relations with Latin American countries are evolving because of their interdependent trade and investment relations. This affirmative cooperation coincides – and has perhaps gained impetus from – the two regions’ rediscovery of their cultural bonds. However, these relations are evolutionary in nature and are neither symmetrical nor necessarily predictable. This volume examines Arab– Latin American economic and political relations, and the prospect for their growth in the context of the paradigm shifts in the international political and economic order. It brings together a select group of prominent government officials, scientists, business leaders, and academics from both regions to discuss some of the main issues of mutual interest, and predict future prospects

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for their further development. Their collective insights and experiences serve as an exemplary model of South– South inter-regional cooperation for mutual development. I have undertaken the task of analysing the above factors in the Introduction of this volume. I looked closely at developments that have taken place in both the Arab world and Latin America since the beginning of the new millennium, pointed out some of their principal motives, and concluded with an impressionistic assessment of their overall directions. As former Minister of Foreign Affairs of Brazil, Celso Amorim presented the rationale and broad outline of the new Brazilian foreign policy toward the Arab world in which he played a leading role. This led to initiating and advancing an Arab–Latin American Dialogue on several political and economic issues of mutual interest to Arab and South American countries. Cecilia Baeza and Elena Lazarou discussed the evolving cultural and human relations between the two regions since launching the Dialogue from an inter-regional cooperation model perspective. After laying out the political, economic and inter-regional framework of Arab– Latin American relations, this volume explores five areas of interest to both regions: trade relations, investment and finance, energy cooperation, food security, and technical cooperation. Osvaldo Rosales reviewed empirically the trade relations between Latin American and Caribbean countries, and their Arab counterparts. Fe´lix Pen˜a offered some “reflections” on the possibilities and potential hurdles that both regions are likely to face in seeking to conclude inter-regional preferential and trade agreements. In their analyses of the current state of investment and financial relations between the two regions, Boutaina Ismaili presented the case of Morocco’s relations with Brazil. She provided a picture of current relations and an assessment of their progress, and offered some recommendations regarding their potential evolution in the future. Hugo Perezcano Dı´az looked at Mexico’s relations with Arab countries, pointed out their strengths and weaknesses, and offered some valuable ideas on how they could be improved. I took a close look at the Brazilian business culture and pointed out the similarities that they share with the Arab business culture. I also reviewed earlier experiences of Arab banking financial institutions in Latin American countries, discussed some of the reasons for their re-establishment, and presented one mechanism to advance them further.

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In respect of cooperation in energy and mineral resources, Arezki Daoud looked at Algeria’s investment in the Peruvian oil industry and pointed out some potential areas for Arab investments in the energy sector in other Latin American countries. Juan Carlos Guajardo presented an overview of the Chilean copper industry and its evolution, and how local research and development helped the creation of national mineral resource-related services, which lessened Chile’s reliance on foreign companies. He offered Chile’s experience in the copper mining industry as a model for Arab countries in their search to develop their mineral resources. Turning to food security, Faisal Awawdeh and Arash Nejatian outlined the difficulties that Arab countries face in developing their agricultural sectors in light of their scarce water resources. They offered some recommendations to overcome these difficulties, particularly the use of technologies pertinent to arid areas where Brazil has an enormous expertise. Ce´sar Borges de Sousa presented an overall picture of Brazilian agriculture and the factors that have led to Brazil’s advanced status as a major supplier of commodities to the global market. He offered several ideas on how Arab investments in Brazilian agriculture could not only meet the Arab world food security requirements, but also create platforms to challenge the monopolistic position of the multinational food companies on the global market. I discussed the theories and practices of food security policies in the Arab world and provided a critical analysis of the underlining social and economic factors that are at the roots of Arab agricultural stagnation. I suggested capacity building through education by developing integrated and inter-disciplinary educational programmes with view to making more efficient Arab agricultural policies. I also took issue with the current Gulf Arab agricultural investment strategy and suggested, instead, a strategy based on the development of the agricultural sector in Arab countries, and placing investments in agriculturally mature countries in Latin America. Finally, Maurı´cio Lopes and Geraldo Bueno explained how Embrapa’s research and development activities led to the phenomenal development of the Brazilian agriculture sector. Its research on Brazil’s arid areas offers a model for Arab countries. They discussed Embrapa’s international cooperation with other countries in Latin America and Africa, including Algeria and Morocco. Jorge Kalil provided a glimpse of Butantan Institute, a pioneering research facility and a world leader in

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immunological sciences. Both Embrapa and Butantan Institute offer opportunities for Arab– Brazilian cooperation in innovative research and technology transfer. This volume and the ideas it presents are novel and, admittedly, they may be considered unconventional, and even controversial in some ways. Indeed, some reviewers who expressed admiration for tackling such a wide array of subjects in a single volume also offered some critical commentaries. For example, a US university publisher expressed concern about the general tone of the volume in terms of its criticism of US policy, and even more so in its censure of certain actions of the Israeli government. A law professor took issue with my criticism of US relations with Latin America and the focus on North–South relationships generally in time of globalization, while admitting that such focus is intellectually justified. Another professor lauded the dissection of the myth of the Brazilian middle class in my chapter on Brazilian business culture, while expressing concern about my failure to consult the works of Brazilian sociologists on the subject. However, the least of my concern is the warning I received from some reviewers of my chapters that I was too direct in my discussions of the politics of some Arab countries, particularly their banking practices and investment policies. In my view, however, telling the truth is liberating. The success of this volume is credited to my co-authors, the outstanding policy makers, former officials, scientists, business leaders and scholars, who invested their thoughts and poured their honest beliefs into an undertaking aimed at promoting Arab–Latin American relations. However, whatever failures, misjudgements or other contentious matters that may have transpired through this volume are entirely mine.

FRAMEWORK OF COOPERATION

CHAPTER 1 ARAB—LATIN AMERICAN RELATIONS IN THE TWENTY-FIRST CENTURY: AN INTRODUCTION Fehmy Saddy

The Arab and Latin American countries span three continents: Asia, Africa and America. In spite of geographical and ethnic diversity, these countries share irresistible bonds of history, cultural, social and economic development. After the 1492 collapse of the Arab rule in the Iberian Peninsula, the Spanish rulers sought without success to sever these timeless connections in Spanish and Latin American colonies. Later, Northern colonial rule in Africa and Asia also failed to end the cultural affinities and political aspirations that stirred these peoples. Indeed, their bonds strengthened during colonial rule, in part due to their search for political independence and economic development. The Arab world consists of the Middle East and North Africa (MENA) region, which may be divided into the following sub-regions: the Levant sub-region includes Syria, Lebanon, Palestine and Jordan, whose Arabized people are commonly referred to as Levantines. The Gulf-sub region includes Kuwait, Bahrain, Qatar, United Arab Emirates, Oman and Saudi Arabia, members of the Gulf Cooperation Council (GCC), whose people are commonly referred to as Gulf Arabs. Iraq saddles both sub-regions and is considered part of the Gulf

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sub-region in the south, and part of Levant in the west as its tribal population identifies with Syria. Located in the southwest corner of the Arabian Peninsula, with long shores on the Red Sea and the Arabian Sea, Yemen is considered a category by itself as the source of the Arab nomads who migrated north throughout history. In North Africa, there is Egypt, the “mother of the world” – as Egyptians are wont to say – a distinctive cultural entity, a mixture of native Egyptians and Arabized Africans who share historical ties and cultural values with both the Levant and Africa. The Arab East African sub-region includes Sudan, Somalia and Eritrea, consisting of Arabized Africans who are commonly referred to as African Arabs. Finally, the Arab Maghreb, consisting of Libya, Tunisia, Algeria, Morocco and Mauritania, has a mixture of Arabs, Berbers and Africans who are referred to as Maghreb Arabs. In spite of this racial and cultural diversity, however, the Arab– Latin American connection to Moorish Spain, essentially a blended Arab– African link, seemingly becomes manifest whenever the need arises for Arab– Latin American cooperation. Abdullah H. Tariki, Saudi Arabia’s first Director of the Oil and Mineral Affairs Department – that became the Ministry of Petroleum and Mines – recalls from personal experience this special bond, as he related his narrative of OPEC’s origin. In an essay on early Arab – Latin American cooperation in the energy sector, he described how he attended Venezuela’s 1951 National Petroleum Congress, as an uninvited guest, since Venezuela had no diplomatic relations with Saudi Arabia at that time.1 Tariki described in vivid detail the excitement that his visit elicited in Venezuela, one of the world’s major oil suppliers. He discussed the strategic coordination that followed with regard to oil policies and approaches for dealing with multinational oil companies that operated in both countries. This close cooperation, that other Arab oil-producing countries later joined, led to the formation of OPEC in 1960. The process initiated by Venezuela and Saudi Arabia represented a significant precedent and a great leap forward for oil-producing countries. It was a rare display of Arab–Latin American political and economic cooperation that posed a challenge to the dominance of Western multinational oil companies. Indeed, these companies – with strong backing from their governments – sought to hinder cooperation among oil producers that occurred independently from their oversight. The United States, in particular, considered closer Arab – Latin

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cooperation in the energy field as a threat to its national security. What followed is now history. The United States led Western countries in their assault on OPEC – which was designated as a cartel – notwithstanding the close coordination of multinational oil companies, better known as the “Seven Sisters” of their oil policies to control global oil production and prices.2 Venezuela’s decision to cooperate with other oil-producing countries was an anomaly in US –Latin American relations. For much of their history, Latin American countries had long and deep-rooted political and economically dependent relationships with the United States, which entailed virtual subservience to US political and economic interests. In the context of Arab–Latin American relations, for example, this subservience was displayed glaringly when the Question of Palestine was brought to a vote at the UN General Assembly in 1948. Latin American countries voted unanimously in favour of the controversial proposition of partitioning of Palestine, which was opposed by the Arab countries. Indeed, the emergence of Israel in 1948 was made possible because the United States delivered the votes of Latin American countries, which constituted more than one-third of all votes.3 The influence of the United States over Latin American countries persisted in later years. In 1975 Latin American countries voted in favour of the UN General Assembly Resolution 3379 that equated Zionism with racism. However, they had to reverse their positions later under US pressure.4 Therefore, for a great many years the adversary position of Latin American countries concerning the Question of Palestine – the Arab world’s most important issue – coloured the position of Arab countries toward Latin America and stymied their political and economic relations. The Arabs dismissed Latin American countries as a mere collection of banana republics headed by petty dictators and steered by the United States whenever the Question of Palestine was brought to a vote at the United Nations. Nonetheless, in spite of this negative perception, cooperation between Arab and Latin American countries continued to take place within the United Nations and its agencies, particularly the Group of 77, UNCTAD and the forum of South–South Cooperation for Development (SSC). However, this cooperation was superficial and confined to expressions of solidarity on issues of interest to both regions, and to other developing countries in general without advancing their political or economic relations significantly.

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However, the climate that engulfed the world in the post-9/11 atmosphere witnessed a radical change in these relationships, particularly after the much-criticized US-led invasion of Iraq. The reversal in sympathies resulted from the widespread perception in Latin America, as well as in other developing countries, that the invasion of Iraq was an assault on the Arab world, more generally on the Muslim world, and by extension on the developing world. The prevailing perception was that the United States was willing to invoke excessive force to ensure access to foreign natural resources, particularly energy resources. Latin American countries recalled that they suffered from exploitation since their discovery in the sixteenth century by Spain’s brutal resource extraction policy. The United States employed a seemingly more subtle policy, yet one still based on securing Latin America’s resources through intimidation and occasionally the use of force.5 This perception gradually altered the attitude of Latin American countries and has come to shape their behaviour toward both the United States and the Arab world in recent years. This coincided with the start of a new millennium with perceptible shifts in the international political and economic relations under the impetus of globalization. China’s ascendency, in particular, has posed a serious challenge to an otherwise unassailable Northern political, economic and military supremacy and hinted at a general Northern decline.6 Indeed, the United States has been trying to reverse without success its declining position in Latin America where China has made inroads into its traditional sphere of influence.7 Meanwhile, new economic power centres surfaced in the relatively underdeveloped geopolitical South, such as Brazil, India and South Africa. These shifts constituted a radical departure from the past. Globalization, technological innovations and instant communication have transformed the world into a “global village” with the proliferation of alternative power centres and diffusion of power within an increasingly multilateral world. This has shifted attention from the state as the principal actor to a wide network of non-state actors such as multinational corporations, business associations, civil societies, social media and others. However, in the developing world, including Arab and Latin American countries, the state remains the principal political and economic actor and the main engine of growth that spurs economic development and creates change.

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Nevertheless, in spite of the hegemonic shifts in the international and economic order, and the diffusion of power, the North continues to sculpt relations for most Arab and Latin American countries with the rest of the world. Most Arab countries, whether in North Africa (with France) or the Gulf (with the United Kingdom and the United States), have retained rather strong post-colonial relationships with the North. This is particularly true of US relations with the Gulf oilproducing countries that are dependent entirely on the United States for their security and the survival of their conservative ruling families, particularly in a turbulent Middle East political environment.8 Indeed, Arab rulers are invariably concerned about the potential reaction of Western powers, particularly the United States, to their political and economic policies, and feel the need to clear their decisions beforehand. Hence, their regional and international relations continued to be closely coordinated with the West. The Arab countries are dependent on the North’s industrial equipment, consumer goods and financial assistance for their development. Their lack of significant production capacity – aside from oil and gas and some raw materials concentrated in few countries – has limited their participation in the world economy and prevented them from taking full advantage of the opportunities created by globalization. In addition, their dysfunctional political systems exemplified by oppression, in one form or another, but notably by the widespread corruption throughout their political and economic systems, have failed to meet the aspirations of their peoples for economic development and true democracy. In time, these factors have led to political and economic stagnation and popular resentment resulting in chaotic civil wars verging on nihilism, as shall be discussed later. This is also true of most Latin American countries where the United States began to witness the gradual erosion of its position in the region. Even Latin American countries that have sought to project an image of independence from the United States are always mindful of their need for US multinational companies and their investments.9 Nevertheless, Latin American political and economic relations with Arab countries have continued to evolve on matters of mutual interest. This affirmative cooperation also coincided – and perhaps gained impetus from – the two regions’ rediscovery of their cultural bonds. This introductory chapter will discuss the evolutionary nature of Arab– Latin American relations since the beginning of the twenty-first

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century. It will cast the development of these relations in the context of a political paradigm revolving around North– South and South– South relations. On the Latin American side, this evolution reflects increased autonomy, particularly by leading Latin American countries relative to policy decisions that serve their national interests, and their ability to engage with other countries independently of their relationships with the North. The South–South paradigm may seem to be a relic of the past, and thus irrelevant in the present globalization environment. As stated earlier, however, the state remains the principal actor for change, and this paradigm continues to be relevant in Arab and Latin American political and economic environments. Therefore, a brief review of this paradigm is useful to trace its evolution, which would help explain the recent shifts in the global political and economic power structures, and suggest future prospects for Arab–Latin American relations as well.

South –South Cooperation The concept of South –South Cooperation for Development (SSC) was articulated in recognition of the mutual benefits that intra-regional cooperation offered for developing countries.10 It presumed that unique benefits would accrue to each party when developing countries engage among themselves in preferential trade agreements and share resources and know-how to accelerate their social and economic development. In fact, SSC’s roots are deep and ascertainable. They lay in Indonesia’s April 1955 Bandung Conference, which drew 29 Asian and African countries, and listed such larger-than-life leaders as India’s Jawaharlal Nehru, Egypt’s Jamal Abdel Nasser, China’s Zhou Enlai, and Indonesia’s Sukarno. At the following conference, which would convene in 1961 in Belgrade under President Josip Tito of Yugoslavia, the gathering gained some renown as the Non-Allied Movement. The Bandung Conference focused on peaceful co-existence in a bipolar system dominated by the US and the Soviet Union. Four main issues were taken up at Bandung’s discussions: colonialism, imperialism, apartheid, and France, which was immersed at the time in a desperate, unending conflict in Vietnam. The Non-Allied Movement’s persistent advocacy of independence for countries under colonial rule resulted in the emancipation of a large number of developing countries. It is notable, however, that not a single Latin American country participated in the formative years of the

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Non-Allied Movement and its struggle for decolonization and independence. Decolonization paved the way for the establishment in 1978 of the Group of 77 at the United Nations. The UN General Assembly established several forums, notably SSC in response to the developmental needs of the Group of 77. However, irrespective of the efforts of the Non-Allied Movement and the solidarity exhibited by the Group of 77, Latin American countries continued to toe the line charted for them by the United States. President James Monroe’s 1823 Monroe Doctrine had declared Latin America as the exclusive sphere of influence of the United States, which often used gunboat diplomacy to enforce this policy. In fact, Latin American countries that joined the Group of 77 displayed an uncharacteristic audacity at that time, which set the stage for a gradual change of their relationships with the United States in later years. Throughout the twentieth century, the North’s hegemony over the South was maintained due to the North’s colonial dominance, advanced industry and financial control. Latin American dependency theorists argued that economic development was unlikely to materialize as long as Latin American countries were tethered to the North via a network of dependent political and economic relationships. Therefore, the dissolution of these relationships through self-reliance was essential for Latin America’s true political independence and economic development.11 Foreign aid has been, and is still being used as a key instrument in the seeming chain-link fence that perpetuates developing countries’ economic dependency on the North. Indeed, experience reveals that foreign aid programmes to developing countries have consistently fallen short of their declared objective of sustainable development. In the Arab world, as in Latin America, developmental assistance programmes not only fell short of their developmental objectives, but have also been instrumental in fomenting institutionalized corruption among the ruling elites and abetting the growth of totalitarian regimes. The linkage between foreign aid, corruption and dictatorship in the Arab world was illustrated in a presentation during the 2010 IMF/ World Bank Annual meetings. The presentation covered development assistance by nine GCC development institutions to other Arab countries from 1962 to 2008, a total of $155 billion (in 2007 US$). It was intended to show the generosity of Gulf Arab oil countries toward

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their poor cousins. These development institutions boasted that their financial assistance is noteworthy for its partnership and solidarity with recipient countries and therefore, no conditionality was attached to their aid. In addition, no mechanism was established to monitor the use of funds or measure their effectiveness.12 In spite of this generosity, extended as it were over four decades to other brotherly countries – as Arabs refer to each other – the MENA region still has appallingly high illiteracy rates. It is estimated that approximately 20 per cent, or 70 million of MENA region’s 350 million inhabitants are illiterate, twice the world’s average.13 Whether Gulf Arab oil countries apply non-conditional policy, direct their contributions toward self-interested projects, or make protection payments to “mischievous” Arab brothers who could undermine their security, this suggests that the cost and collateral damage of financial assistance to recipient countries are not only wasteful but also harmful. Latin America’s dependent relationships with the United States have had the same effect, particularly in the small Central American and Caribbean states. The various forms of US assistance have benefited US companies and consultant firms delivering “services”, but have not produced tangible or meaningful development. Indeed, in most cases, they have served as instruments for dictatorship, abuse of power and corruption. The politics of aid and manipulation has not been lost on developing countries as they realized that the various UN platforms for South– South Cooperation for Development might yield relatively modest accomplishments. Not only did the United States maintain a lead role in these platforms, but it also tried to insert itself in the core of the process by promoting triangular relationships that would needlessly involve third, presumably Western partners.14 Therefore, the push for triangular relationships gained little traction in most developing countries as they realized that the disparity in power and resources between the North and the South delayed, and even derailed, progress otherwise attainable through direct reciprocal trade and investment. The inherent asymmetry in North–South relationships precipitated a host of new political and economic arrangements among developing countries. National autarky gradually replaced development assistance, and bilateral South– South cooperation became the preferred approach for sustainable development. Viewed in this context, the argument presented in this chapter maintains that cooperation between Arab and Latin America countries,

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particularly the more advanced ones, presents a more viable alternative to their traditional relationships with the West. This cooperation is based on the premise that self-reliance and sharing development experiences, as equal partners, are more conducive to development than aid programmes that induce corruption within a framework of patron/ client relationship. In the relatively advanced Latin American countries, such as Brazil, Argentina, and Chile, for example, self-reliance strategy, open economy and democratization have served as drivers for growth. These countries offer more viable models for Arab countries to emulate, which could also result in democratization and sustainable development. This recognition has been made possible by important events that began to unfold during the latter part of the twentieth century, but became clearer with the start of the twenty-first century.

Paradigm Shift in World Order The 1973 Arab oil embargo and the wealth accumulated by a handful of Gulf Arab oil producing countries was an important milestone that ushered in a change of the international economic and political order. For the first time in history, transfer of financial resources from the North to the South was made on a large scale. The North/West discovered that its access to inexpensive OPEC oil could no longer be taken for granted. The balance of power between Western multinational oil companies and OPEC countries was altered forever. This recognition was a catalyst for unprecedented political and economic adjustments that created new realities. Indeed, the altered paradigm gave rise to the concept of interdependence.15 A further paradigmatic shift in the international political and economic order took place some 20 years later with the collapse of the Soviet Union and the disintegration of global socialism. Many in the West argued that the collapse of the Soviet Union rendered the United States the sole global superpower. However, the euphoria that initially promised to be the dawn of the ‘New American Century’ suggested, instead, a wasted moment, as the United States overestimated its ability to project its power around the globe. With simultaneous and questionable wars in Afghanistan and Iraq, the United States squandered its wealth and dissipated its moral authority at approximately the same time that China emerged as an economic and political power, and,

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potentially, as a formidable military contender.16 In addition, the reemergence of Russia in recent years under a new leadership determined to challenge the US role in Europe and elsewhere in the world also undermined the US rash proclamation of sole super power status. Two decades after the collapse of the Soviet Union, Russia today is a wealthy country with a clear strategy focused on rebuilding its military power and determined to reinstate Russia’s traditional role in world affairs.17 In fact, the New Century is anything but American. The paradoxical chain of events since the beginning of the twenty-first century has progressively diluted US capabilities in an international system in which its supremacy in political and economic terms has come under challenge.18 This paradigmatic shift became more pronounced with the rise of a group of economically emerging countries, known as the BRICS (Brazil, Russia, India, China and South Africa). While maintaining their traditional access to the North’s technology and markets, BRICS countries have taken major steps to forge among themselves closer coordination in political and economic matters. They have sought to develop alternative institutions to shield themselves from global financial crises originating in the North. Their economic and political power spread into traditional US and European spheres of influence in developing countries by making South– South cooperation the centrepiece of their economic strategies.19 In fact, the rationale for such strategies emerged in the aftermath of the 2008 global financial crisis that was wrought – as it were – by the collapse of a single American investment firm. The crisis demonstrated the fragility of the North’s financial architecture and highlighted the risk and cost associated with interdependence. It signalled that the Western financial architecture could not be relied upon for growth in the future. Concepts such de-linkage and de-coupling emerged as better suited to describe the evolving global political and economic order. Prominent economists, and even conventional and conservative Western bankers hinted at new operational frameworks.20 The North’s centrality to traditional finance gave way to a new normal, a concept born from the demise of the old global financial order.21 The resurgence of an independent spirit by BRICS countries, has led them to forge strategic linkages with other countries in the South to reduce their dependence on the US and European markets.22

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Therefore, in the span of little more than 50 years since World War II, the structure of the international political and economic system has drastically changed. From an historical perspective, the system passed through several stages, each crafting incremental changes that altered the relationship between the North and the South. Arab and Latin American countries benefited from this paradigm shift and sought increasingly to develop direct relationships on bilateral and multilateral levels, as shall be discussed.23

Latin America: Search for New Frontiers For much of the twentieth century, Latin America was run by military dictatorships. Traditionally, Latin American militaries received training under American auspices and functioned as the Southern Hemisphere’s guardians of US political and economic interests. The Organization of American States (OAS) was created as an umbrella organization in which to resolve political, economic and social issues in Latin America, but generally to ensure compliance with US policy. Latin America’s transformation into democracies was a slow process that gradually weakened this organization. Ironic as it may seem, it was US President Jimmy Carter’s policy of human rights and democratization in Latin America that had a large impact in bringing this transformation. Democracy opened new vistas for the region. However, long before this policy, Latin American political and economic elites had grown discontented with the OAS and the overwhelming US influence in international institutions. They grew particularly resentful of the conditionality that the International Monetary Fund (IMF) imposed. Considering that the United States was the driving force behind the IMF, Latin American elites viewed conditionality as a hindrance to their economic development. Quotas on Latin American exports to the US market also became the subject of frequent contentiousness, which invited recriminations from emerging Latin American countries. US advocacy of privatization in Latin America, particularly during US President Ronald Reagan’s administration, forced some indebted and fragile democracies, such as Argentina, to follow US policy recommendations. Privatization proved not only wasteful of state assets but also led to the retrenchment of American economic interests in the host country. These factors gradually led Latin American elites to the

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widely held conviction that some US policies and actions were instrumental in limiting the growth potential of their economies. At last, dependency theorists felt vindicated.24 This general atmosphere nurtured the emergence of progressive regimes throughout Latin America, from Venezuela in the North, to Argentina in the South, and to Chile and Bolivia in the West. The rallying point of all these regimes was the need for disengagement from the exclusive relationship with the United States. The first step was to create a platform for greater economic integration among Latin American economies. This led to the establishment of Mercosur, a regional trade zone that initially included Brazil, Argentina, Uruguay and Paraguay, and was joined later by Chile, Bolivia, Peru, Venezuela, Colombia and Ecuador, as associated members. A further step toward political disengagement from the United States was the establishment of the Union of South American Nations to circumvent the Organization of American States. The South American Defense Council was established with the objective of increasing military cooperation among the Latin American member states and resolving regional disputes. In reality, it was intended to limit US influence over Latin American military institutions. The quest of Latin American countries for drastic disengagement of the Southern Hemisphere from the United States took place in December 2008 at the Sauı´pe Summit, a small town close to Salvador da Bahia, Brazil. The Summit was convened at the initiative of Brazilian President Luiz Ina´cio Lula da Silva who envisioned closer cooperation between Latin American and Caribbean countries. The Latin AmericanCaribbean Summit (Cu´pula Ame´rica Latina-Caribe – CALC in short) was the first time ever that Latin American and Caribbean countries gathered diplomatically without the presence of the United States or Canada. Indeed, it was an impressive landmark. Since the discovery of the Americas in the sixteenth century, never before had countries of the Southern Hemisphere met without external tutelage. The CALC Summit led two years later in 2011 to the establishment of the Community of Latin American and Caribbean Countries (CELAC) in Caracas, Venezuela. Promoted by Chile’s conservative President Sebastia´n Pin˜era, leftist Presidents Hugo Chavez of Venezuela and socialist Rau´l Castro of Cuba, CELAC explicitly excluded the United States and Canada. In the opinion of an American– Cuban analyst, this move was a watershed in US – Latin American relations:

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A historic first for a hemispheric organization with huge symbolic importance, because it answers a long-standing dream for unity of the subcontinent that harks back to Simo´n Bolı´var and the struggles for independence from the European colonial powers. Beyond the symbolism, however, it is strategically crucial: It means that there is now a subcontinent bloc of developing nations that can speak with one voice, and also serve as a counterweight to US political and economic hegemony.25 In January 2013, CELAC held its second meeting, which was attended by 31 heads of states. The meeting emphasized integration and coordination through work groups and events in areas as diverse as the world financial crisis, the creation of regional financial structures, sustainable development and environmental issues, a regional energy strategy, new mechanisms for regional collaboration, education, poverty alleviation, food security, and social justice. Prior to this meeting, CELAC held a meeting with a number of European leaders and the European Community that focused on collaboration in trade and investment, and called for ending the embargo against Cuba. However, it was Brazil, under President Luiz Ina´cio Lula da Silva, that set the foreign policy tone for Latin America’s greater openness and trade diversification toward other developing countries. Economic growth and democratization have allowed Brazil to look beyond its traditional US and European markets, and to expand trade and economic relations with the rest of the world. Within a few years China replaced the United States as Brazil’s largest foreign investor and second largest trading partner. China and Brazil also developed a strategic alliance and pledged to coordinate their positions in international forums.26 With respect to the Arab world, Brazil took the lead in launching regular high-level meetings between South American and Arab leaders. It hosted the first Arab– South American Summit in Brası´lia in May 2005. The Second Summit was held in Doha in 2009, and the Third Summit was held in Lima in October 2012.27 The Summit issued the Lima Declaration, a substantive document pledging cooperation between the two regions in multiple spheres: economic, political, cultural, social, trade, tourism, investment, and research and technology. The Declaration also called for concluding bilateral trade agreements and coordinating Arab– Latin American positions on issues presented at

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the World Trade Organization. With respect of the Question of Palestine, it supported all UN resolutions in favour of the Arab position with the following statement: Reaffirmed the need to reach a just, durable and comprehensive peace in the Middle East on the basis of the principle of land for peace and relevant resolutions of the Security Council and of the General Assembly of the United Nations, in particular Security Council Resolutions 242 (1967) and 338 (1973), as well as the Madrid Framework and the “Arab Peace Initiative” adopted at the Beirut Summit (2002) and the following Arab Summits, to ensure the realization of peace and security for all countries in the region . . . Reaffirm the need for the realization of the legitimate national rights of the Palestinian people, including to self-determination and return, and for the implementation of relevant United Nations Resolutions, including Security Council Resolution 1515 (2003), and the achievement of the independence of the State of Palestine, based on the 1967 lines, with East Jerusalem as its capital, living side by side with the State of Israel in peace within secure and recognized borders.28 In fact, the Lima Declaration was a total reversal of traditional Latin American positions of earlier years. Brazil, in particular, has continued to make concerted efforts to cast itself as an emerging power in the Global South. In the Arab world, it has tried to project its influence by taking an active role in the Arab– Israeli conflict and calling for an independent Palestinian state. The overtures of Brazil and other progressive Latin American countries, such as Venezuela and Bolivia, were well received in the Arab world. Brazil condemned Israel’s military assault on Gaza in December 2008, and Venezuela and Bolivia broke diplomatic relations with Israel. In the third Israeli military operation against Gaza in July 2014 dubbed “Operation Protective Edge”, several Latin American countries, including Brazil, Ecuador, El Salvador, Peru, and Chile recalled their envoys from Israel because of its “indiscriminate bombardment” of Gaza that amounted to “collective punishment” of the Palestinians.29 Venezuela suspended its diplomatic relations with Israel. The President of Brazil stated: “I don’t think it’s genocide, but I think it’s a massacre.”30

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Chile’s UN ambassador declared: “Israel does not respect fundamental Principles of Humanitarian rights.”31 The President of Uruguay said: “Israel is committing an act of barbarism”, and was joined by Fidel Castro who accused Israel of “macabre genocide committed against the Palestinian people”.32 Bolivia’s president went further, saying that “Israel does not guarantee the principle of respect for life and the basic right to live in harmony and peace in the international community”, adding that Israel was “passing onto the list of terrorist states”.33 Most importantly, the summit of the regional bloc Mercosur issued a statement condemning “the disproportionate use of force on the part of the Israeli armed forces in the Gaza Strip, force which has almost exclusively affected civilians, including many women and children”.34 The unified and strong position of Latin Americans against Israel and in support of the Palestinians was explained by a Mexican political analyst: “Latin America sent a double message: that it supports the Palestinians and it will no longer render diplomatic tribute to the United States.”35 In contrast, Egypt and Jordan, the only two Arab countries that recognize Israel formally, kept their envoys and maintained their diplomatic relations with business as usual. It was reported that Prime Minster of Israel Benjamin Netanyahu and President of Egypt Abdul Fattah el-Sissi “maintained close ties throughout Operation Protective Edge”, and that Netanyahu was said to be “very pleased with the relationship”.36 Saudi Arabia blamed the Islamic resistance movement Hamas for inciting troubles and forcing Israel to launch the military operation in Gaza.37 The League of Arab States reacted meekly and kept its usual silence. On the streets of Arab capitals, protestors lauded the Latin American countries for their integrity and courage, and castigated Egypt, Jordan and other Arab Gulf countries – except Qatar – for their betrayal of the Palestinians.

The Arab World: Search for Direction Arab countries differ substantially from each other in their perceived identities and distinctive features as sub-regions. These differences are shaped by their self-perception and colonial past, which have influenced their relations with Latin America. The Levant sub-region has had the closest relations with Latin America and exhibits cultural similarities not shared with other Arab sub-regions. Historically, these relations go

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back to the Omayyad Caliphate in Damascus in the seventh century when Arabized Levantines spearheaded the Arab conquest of the Iberian Peninsula under the banner of Islam. Their mixing with its indigenous people nurtured a common heritage that embodies the basic characteristics of the Levantine and Latin American cultures today, as manifested in various aspects of their lives, their value systems, traditions, and sentiments.38 Latin America’s largest and most influential Arab communities are found in Brazil, where immigrants from Syria and Lebanon started to arrive in the latter part of the nineteenth century, and early twentieth century.39 After the first Arab–Israeli War in 1948, Palestinian refugees flocked to Latin America and settled mostly in Chile and Central American states. Egyptians started to arrive in Latin America in the 1970s after the government opened the door for emigration. In recent years Moroccans have been settling in Brazil in great numbers.40 In contrast, immigrants from the Gulf sub-region traditionally looked toward the Indian sub-continent, East Asia, and East Africa. The people who lived in southern Iraq along the Gulf’s Arabian shores – in today’s Kuwait, Bahrain and Qatar – were mostly fishermen and divers for pearls in the Gulf’s shallow waters, and some were traders with India.41 Omani Arabs were historically linked to Zanzibar, present-day Tanzania, where they ruled for a brief period. Arab spice traders from Hadramout in South Yemen ventured into East Asia – Indonesia, Malaysia and Singapore – where they established flourishing businesses. The coastal Arabs in today’s United Arab Emirates were buccaneers roaming the Arabian Sea and intercepting maritime trade between Europe and South and East Asia until Britain forced them to sign truce agreements.42 The nomadic tribes in today’s Saudi Arabia roamed the desert between the Syrian hinterland and the Arabian Peninsula, with no interaction with the outside world until the twentieth century.43 Most Arab countries started their experiments in self-governance as independent states after World War II. However, they have failed to exhibit the attributes of modern states with stable institutions and true independence. Dictatorial rule in one form or another replaced colonialism. To a large extent, European powers, but increasingly the United States, continue to be central to their relationships with the outside word. Therefore, Arab rulers have retained a servile mentality and feel obligated, consciously or subconsciously, to consult with

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Western powers, particularly the United States before making major policy decisions. In fact, the Gulf Arab countries are the only ones in known history that have opted voluntarily to remain colonized with US military presence on their soil and shores, which they finance to secure the survival of their ruling elites.44 The revolts that erupted in 2011, first in Tunisia and Egypt, which spread to Libya, Yemen and Syria – and also reignited the ethnic and religious conflict in Iraq – have been called collectively the Arab Spring. Preceded by the bread revolts in Egypt in past years, these revolts highlighted the misery in which the Arab people find themselves, in spite of the astonishing wealth accumulated by their ruling elites. Even though Arab countries are predominantly agrarian societies, the acute shortages of food that characterized these revolts have demonstrated the utter incompetence of Arab governments to develop their own food resources and their continued dependence on food imports. Indeed, the increased price of fuel in some Arab countries in a region that is a major world supplier of oil has often spurred public discontent and demonstrations. All politics is about power, but in the Arab world all power is singularly about wealth accumulation. The obsession of Arab ruling elites with power as the main instrument to control national wealth has produced corruption on an unprecedented scale. Social communication networks have exposed the corrupt practices of the elites and the disparity of wealth distribution within Arab countries. These practices fomented internal conflicts that have escalated into civil wars, often drowning these countries in blood and destruction. Indeed, a recent survey conducted by Transparency International has revealed that corrupt practices have worsened in Arab countries since the Arab Spring.45 Therefore, control of state resources by splinter and factional groups in the Arab countries where popular revolts have taken place has dominated the political struggle for power, even at the risk of dividing these countries and spinning them off as independent enclaves. Control of the levers of power gives these groups access to oil and other resources and makes room for the new elite classes to enrich themselves. It is too early to predict which direction the Arab world would take in the midst of political, cultural and ethnic upheavals that are currently raging in some Arab countries. Many analysts see the current conflicts

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as simply the tip of the iceberg. In a region where the average birth rate (2.34 per cent per annum) is double the world average rate (1.16 per cent), where unemployment rates are some of the highest in the world, and with limited economic opportunities, more uprisings are expected to take place. In time, the revolts are likely to engulf the Gulf Arab countries where the ruling families control most of the wealth and some of their bizarre spending habits have become anecdotal.46 They are currently attempting to shield themselves from the upheavals the surround them in the region by expanding expenditure on housing and social programmes to appease their people. However, they are unlikely to succeed due to the resistance of their social and political structures to change in both form and substance.47 In spite of the fact that economic opportunities are available in Gulf countries to absorb their increased population, their economies remain dependent on foreign labour because their nationals are incapable, but mostly unwilling to perform manual works, such as agriculture, which are considered beneath their Arab status. The spontaneous outbursts manifested in the Arab Spring have exposed the Arab countries’ archaic political structures and the absence of a strategic direction since their emergence as independent states. In a fundamental sense, the Arab Spring is the Arab world’s search for its soul, identity and future direction. The foundations of the modern state itself, even in countries that have not experienced revolts, have been put into question as inspiration is sought from the seventh-century Islamic state. Indeed, the course that the Arab Spring has taken, which has betrayed its earlier promises of reform, democratization and participation, and its failure to dislodge entrenched dictatorial rules and absolutism in much of the Arab world, makes the case about the irrelevance of the Arabs themselves in the modern world.

Arab –Latin American Cooperation: Three Models Arab– Latin American economic relations exhibit three distinctive features: First, they are taking place outside the framework of UN platforms, particularly the triangular relationships with the North. Second, SSC relationships are developing on a bilateral basis. And third, they are institutionalized with a strategic view of the future in some cases. Most of the growth in these relations has been in trading

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commodities and foodstuffs, in exchange for petroleum and petrochemical products. However, substantial relationships are emerging in other sectors as well. The scope and structure of these relations involve several forms of cooperation, including investment in infrastructure and technology transfer. The following will examine three representative samples of the scope and qualitative nature of the emerging relationships between some Arab countries and Brazil, which offer different approaches for mutual cooperation and development. They demonstrate the importance that some Arab countries attach to long-term strategic relationships with Brazil, while others seek to meet temporary needs, particularly food, without a clear strategy or interest in the future.

Brazil– Algeria Cooperation Cooperation between Algeria and Brazil is evolving with a long-term strategic perspective. Algeria is the fourth market for Brazilian exports to the MENA region, consisting mostly of commodities and food products: sugar, beef, soy oil, whole milk and agricultural equipment. In 2013, Brazilian exports to Algeria amounted to $1.2 billion. Algeria ranks second in terms of Brazil’s imports from the region, mostly petroleum and petrochemical products. Brazilian imports amounted to slightly over $3 billion.48 For many years, Brazil has tried to redress the trade imbalance by increasing the share of Brazilian companies in Algerian infrastructure projects. Algerian – Brazilian relations strengthened after the establishment of a Brazil – Algeria Joint Commission consisting of official and private sector participants. Discussions have revolved around the potential role of Brazilian companies in Algeria’s Five-year Development Plan (2010 – 14) for projects worth $280 billion. In a visit to Brazil in the summer of 2010, Algeria’s Minister of Foreign Affairs invited Brazilian companies operating in Algeria to increase their shares in projects in the healthcare, energy and construction sectors. Also under discussion were projects in the industrial and agricultural sectors. With respect to agriculture, the two countries concluded agreements to assist Algeria in its dairy and cattle industry. The Brazilian Agricultural Research Corporation (Embrapa), which is credited for the phenomenal growth of Brazilian agriculture, is to assist Algeria in developing its agricultural resources.49

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Brazil– Egypt Cooperation Cooperation between Algeria and Egypt is also evolving with a longterm strategic perspective. Egypt is the third market for Brazilian exports to the MENA region (behind Saudi Arabia and the United Arab Emirates). In 2013, Brazilian exports amounted to $2.2 billion, mostly agricultural products: beef, sugar, chicken, processed meat, tobacco, and soy oils, and industrial products (iron ore, aluminium, bus chassis, and diesel engines). However, Egypt ranks eight in terms of Brazilian imports form MENA region, which amounted to only $276 million.50 To address the large trade imbalance, Egypt has made concerted efforts to increase its exports to Brazil. In August 2010, Egypt signed a free trade agreement with Mercosur, which covers 90 per cent of its trade with Brazil.51 Discussions included encouraging Brazilian companies to participate in Egypt’s infrastructure projects, such as roads and railways. The two countries also discussed an agreement to transfer Brazilian technology and know-how, including standardization of industrial quality, technical assistance in agriculture, livestock, irrigation, seeds, agricultural machinery and ethanol. Discussions also have included plans to expand the export of Egyptian fertilizers to Brazil.52 Brazil– Saudi Arabia Cooperation Saudi Arabia is Brazil’s leading trading partner in the MENA region. In 2013, Brazilian exports amounted to $2.84 billion, all commodities and foodstuffs. Its imports from Saudi Arabia amounted to $3.2 billion, all petroleum and petrochemical products. Saudi Arabia is dependent on food imports to feed its increasing population. Its early experiment with agriculture failed due to lack of arable land and water resources, which rendered agriculture costly and inefficient. The steep rise of global food prices in 2008 prompted the Saudi government to establish investment programmes in agriculture abroad. The Saudi government invests along with the Saudi private sector in agricultural projects abroad. The list of targeted countries includes 31 countries, three of which are Latin American (Argentina, Uruguay and Brazil).53 In 2010, Saudi delegations of official and private sector participants visited Brazil and the Brazil–Saudi Arabia Business Council and Saudi–Brazilian Friendship Society were established with view to bring together politicians, businessmen and prominent personalities

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from both countries. Other ideas included concluding a tax agreement for the avoidance of double taxation and facilitating the participation of Brazilian companies in Saudi infrastructure projects. However, none of these ideas have translated into concrete actions. With respect to investment in Brazilian agriculture, Saudi Arabia proposed the participation of an “agribusiness multinational with Saudi investment, Brazilian know-how and land, and possible participation of companies in other countries”.54 In other words, Saudi Arabia would feel comfortable investing in Brazilian agriculture only with the participation of Western multinational companies, notwithstanding Brazil’s highly successful agriculture and the fact that Brazil is a major supplier of commodities to the global market, including Saudi Arabia itself. Evidently, this is irrelevant. In the thinking of Saudi Arabia, the investment structure must fit into the triangular framework that involves Western institutions. Indeed, this is precisely what happened soon thereafter. The Jeddah-based Islamic Development Bank, the alterego of Saudi Arabia, structured an Islamic fund to undertake agricultural investments in Muslim African countries under the management of Rabo Bank, a Dutch banking group.55 Former Brazilian Minister of Foreign Affairs Celso Amorim reflected on this mood in his comments on trade negotiations with Gulf countries. He admitted that negotiations over petrochemicals and food products were not progressing well, and added with uncharacteristic frankness for a diplomat, that the case “needs a little intelligence”. He said that over the course of eight years as Brazil’s Foreign Minister, he made 60 trips to the Arab world, concluded 44 bilateral agreements with several countries in the region in different sectors, and succeeded in establishing Brazil’s presence in the Arab world. But he failed to conclude a single bilateral investment agreement between Brazil and any Gulf country.56

Prospects for Arab –Latin American Cooperation The emerging global political and economic order provides countries of the South a greater sense of independence and more options to structure their relations with other countries in pursuit of their mutual interests. The rise of new centres of political and economic power from the rank of developing countries has demonstrated that countries of the South are

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capable of charting their own road to development independently from the North. Once the mythical centrality of the North to development of the South was shattered, alternative roads to development opened. The disentanglement of emerging Latin America countries from the United States, the adoption of self-reliance strategies, and search for alternative partners and markets provide clear evidence that development of the South could be achieved without traditional dependencies. Indeed, in a remarkable reversal of fortunes, BRICS countries were called upon to shoulder some of the debt burden of few European Community members.57 Arab – Latin American relations present an example of the emerging global order. Further developments of these relations are likely to continue on their present path based on rational thinking and recognition of new global realities. This perspective has significant implications for the prospects of increased trade, investment and economic cooperation between Arab and Latin American countries. However, the level of this cooperation is uneven. As shown, the comparison between trade and investment policies of Algeria and Egypt, on one hand, and Saudi Arabia, on the other, represents two different strategies. Algeria and Egypt aim to structure long-term political and economic relations with Brazilian partners by creating platforms for sharing development experiences compatible with their social, cultural and economic conditions. These platforms call for multi-faceted cooperation that will inure to their mutual benefits well into the future. On the other hand, Saudi Arabia has a developmental model based on the export of petroleum and petrochemical products to the international market, principally relying upon the demand of the North. Its relations with Brazil are structured as short-term, long-arm, purely commercial transactions: petroleum and petrochemical products in exchange for food. To a large extent, this policy is influenced by its close relationship with the United States, which keeps Saudi Arabia under its protective military umbrella and safeguards its wealth at US Treasury Department.58 Other Gulf oil producers that base their economies on the same development model risk perpetuating their dependence on the West as well. This is likely to condemn them to irrelevance once their oil and gas wells dry out, or the value of their natural resources declines. Indeed, the potential development of a global carbon mitigation regime poses a unique threat to their economies. If a global carbon emissions

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reduction mandate is developed, Gulf oil producers will have the very basis of their economic model destroyed. Evidently, Gulf countries are not interested in a strategy that charts an independent path from the North, particularly the United States; nor are they capable of doing so. Latin American progressive models that derive growth from self-reliance and democracy would pose a threat to their regimes as they could incite their peoples to emulate them. Indeed, the image of former presidents Hugo Chavez of Venezuela and Ina´cio Lula da Silva of Brazil embracing the leaders of Syria and Iran were regarded with disdain by the Gulf ruling families.59 The two leaders represented populist ideologies and development models strikingly opposite to their models anchored in dependent relationships on the West. However, change is inescapable because without it societies are destined to wither away under the invisible forces of time. Therefore, irrespective of their ideological and political differences with Latin American countries, Gulf countries will remain dependent on food imports from Latin America in the foreseeable future. The adoption of a rational growth model similar to the model pursued by Latin American countries would allow them to broaden and deepen their trade and investment relationships with other emerging countries. However, this model entails the diversification of their trade and investments beyond Europe and the United States. Latin America provides Gulf countries access to food resources and attractive opportunities to invest some of their excess liquidity. Partnerships may be formed in food production, food processing, natural resources development, and technology transfers through joint research and development. This would enable Gulf countries to develop their own indigenous resources to engineer growth in various non-oil sectors for their sustainable development in the future. In conclusion, Arab–Latin American relations have experienced significant growth in recent year amid a great deal of enthusiasm and goodwill, particularly on the Latin American side. The cultural bonds and political relations between certain Arab and Latin America countries preceded the recent Arab uprisings and will continue afterward, regardless of future developments in the Arab world. The pace of growth of these relations, however, varies substantially from one Arab subregion to another, depending on their historical ties, perceived political and economic interests, and level of independence from Western

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influence. Most importantly, Latin American countries offer the Arab world an opportunity to learn from their centuries-long experience in dealing with the dominance of their “Big Brother” in the North. The Arabs could learn from Latin American progressive countries how to reclaim their dignity, shed intimidation, develop a Bolivarian-like spirit of liberation, harness indigenous human and material resources, build stable and functioning democratic institutions, explore new international frontiers, and move beyond their traditional dependency on Europe and the United States. This would enable the Arabs to become active participants in shaping their own future and contribute to a multicultural human civilization, not to remain spectators on the world stage. The Arab Spring represents the aspirations of young Arabs to move into this direction. It is hoped that they will succeed.

Notes 1. Abdullah H. Tariki, “Arab-American Cooperation in the Energy Field”, in Fehmy Saddy, ed., Arab-Latin American Relations: Energy, Trade, and Investment (Rutgers University: Transaction Publishers, 1983). 2. See Aljazeera’s series on the history and policies of the Secret of the Seven Sisters. http://www.aljazeera.com/programmes/specialseries/2013/04/20134410523 1487582.html. 3. Fred Khouri, The Arab-Israeli Dilemma (Syracuse: Syracuse University, 1971), 55. 4. Account of the pressure applied by the United States on Latin American countries to reverse their earlier positions provided to the author by Sergio Correa da Costa, then Brazil’s Ambassador to the United Nations. 5. Eduardo Galiano, Open Veins of Latin America: Five Centuries of the Pillage of a Continent (New York: Suny Press, 1998 and Serpent’s Tail, 2010). 6. “China Boosts Defense Spending 12% as Xi Strengthens Military”, Bloomberg, 4 March 2014. http://www.bloomberg.com/news/2014 – 03 – 05/china-boostsdefense-spending-as-xi-pushes-for-stronger-military.html. 7. Joshua Goodman, “Biden Circles Xi as U.S. Duels China for Latin America Ties”, Bloomberg, 29 May 2013. 8. Jeffery Goldberg, “U.S. Plays Relationship Therapist in Gulf”, Bloomberg, 27 May 2014. http://www.bloombergview.com/articles/2014 – 05 – 27/u-splays-relationship-therapist-in-gulf. 9. Recently a seminar was organized in Sa˜o Paulo by a US consulting firm to train Brazilian finance and legal professionals in the application of US compliance regulations. The question was raised whether the astute consulting firm would be willing to offer training in the application of Brazilian compliance regulations to US professionals in New York (www. worldcompliance.com).

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10. Fehmy Saddy, “The Emergence of New Arab Latin American Relations: A Case of Cooperation among Developing Countries”, PhD Dissertation (1976). 11. Celso Furtado, Obstacles to Development in Latin America (NY: Anchor Books, 1970). 12. M. Rouis, “Arab Development Assistance: Four Decades of Cooperation.” MENA Knowledge and Learning: Quick Notes Series (The World Bank, August 2010). Financial assistance was initially extended as grants, but in the last 20 years it has consisted mostly of trade finance. 13. UNESCO. International Literary Statistics: A Review of Concepts, Methodology and Current Data (UNESCO Institute of Statistics, Montreal, 2008). 14. The United Nations Conference on South– South Cooperation was held on 1 –3 December 2009. The Conference’s two main themes were South – South and Triangular Cooperation for Development. http://southsouthconference.org. 15. See Fehmy Saddy, “A New World Economic Order: the Limits of Accommodation,” International Journal, vol. 34, no. 1 (Canadian Institute of International Affairs, 1978– 9). 16. Tony Cappacio, “China has World’s Most Active Missile Programs, US Says”, Bloomberg, 10 July 2013. http://www.bloomberg.com/news/2013 – 07 –10/chi na-has-world-s-most-active-missile-programs-u-s-says.html. 17. Vladimir Yakuin, “Political Tectonics of the World Today: Shifting Trends”, World Affairs, vol. 17, no. 4 (October – December 2013). 18. Michael Lombardi, “U.S. Debt-to-GDP Ratio This Year to Surpass Greece’s 2009 Danger Level”, Profit Confidential Online, 15 March 2013. http://www.profi tconfidential.com. 19. During the BRICS Summit in 14 July 2014 held in Brazil, its leaders established a development bank with a capital of $50 billion to counter balance the World Bank and International Monetary Fund. In addition, a reserve fund of $100 billion would be established to support their economies in time of crisis. See Raymond Colitt, Unni Krishnan and Arnaldo Galvao, “BRICS Agree on $50 billion Bank with Something for Everyone”, Bloomberg, 15 July 2014. 20. S. Kennedy, “World Economy Decoupling from US Returns as Wall Street View”, Bloomberg, 4 October 2010. 21. The concept was articulated by Mohammad El Aryan, former Chief Investment Officer of Pacific Investment Management Company (PIMCO) during a lecture at the Annual meetings of the IMF/World Bank in 2010. 22. Kennedy maintains that BRICS countries’ exports account for almost 20 per cent of their gross domestic products, but their sales to the United States comprise less than 5 per cent of their GDPs. He maintains that even if US growth slows to 2 per cent, the drag on these countries would be about 0.1 percentage point. 23. The earliest investigation on the subject by this author 30 years ago showed limited economic cooperation between Arab and Latin American countries to the point of irrelevance. See Saddy, Arab-Latin American Relations. 24. Furtado, Obstacles to Development in Latin America. 25. Manuel R. Gomes, “The Monroe Doctrine Turned on Its Head”, Counterpunch, 1 – 3 February 2013.

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26. M. Werz, and W. Chen, “Brazil in the Middle East: A Regional Power in a Changed Hemisphere”, paper presentation at the Center for American Progress, 17 June 2010. 27. See, Third Summit of South American – Arab Countries (ASPA), Lima, Peru. http://www.aspa3.com/index.php?lang¼ en. 28. See Section 2 on Political Coordination, The Lima Declaration, 2 October 2012, 3–7. 29. “Israel ‘Disappointed’ by Latin American Envoys Recall”, AFP, 30 July 2014. 30. “Brazil’s Leader Calls Gaza Conflict a Massacre”, AP, 28 July 2014. http://bigs tory.ap.org/article/brazils-leader-calls-gaza-conflict-massacre. 31. Ministry of Foreign Relations of Chile, 29 July 2014. http://www.minrel.gob. cl/comunicado-oficial/minrel/2014 –07– 29/114843.html. 32. “Mujica y Fidel Castro condenaron el ‘barbarismo’ y el ‘macabro genocidio’ de Israel en Gaza”, Telam, 5 August 2014. http://www.telam.com.ar/notas/ 201408/73542-fidel-castro-israel-palestina-guerra.html. 33. Laura Carlsen, Director of the Americas Program of the Center for International Policy in Mexico City, “Why Latin American Leaders are standing up to Israel”, Aljazeera America, 16 August 2014. http://america.aljazeera.com/opinions/ 2014/8/latin-america-israelgazahumanrights.html. 34. “Mercosur Rejects Disproportionate Israeli Force in Gaza, Ambassador Recalled”, In Serbia, 31 July 2014. http://inserbia.info/today/2014/07/mercos ur-rejects-disproportionate-israeli-force-in-gaza-ambassadors-recalled/. 35. Laura Carlson, “Why Latin American Leaders are standing up to Israel”. 36. “Natanyahu and Sissi said to Spek Frequently and at Length”, Times of Israel, 24 August 2014, www.timesofisrael.com/netanyahu-sissi-said-to-speakfrequently-and-at-length/#ixzz3BKIyzKWc. 37. The Times of Israel reported the statement made by Turki Al Faisal, former intelligence chief of Saudi Arabia and bother of its foreign minister blaming Hamas, the Islamist resistance movement that controls Gaza, for the start of hostilities in July 2014. 38. Gilberto Freyre, The Masters and the Slaves: A Study in the Development of Brazilian Civilization (Gutenberg: Knepf, 1964). Published in Portuguese as Casa Grande e Senzala, the volume is considered the authoritative reference on Brazil’s sociological history. For a more elaborated discussion on this subject, see the author’s chapter in this volume on Brazilian Business Culture. 39. John Tofik Karam, Another Arabesque: Syrian-Lebanese Ethnicity in Neoliberal Brazil (Philadelphia: Temple University Press, 2007). 40. Moroccans are making the greatest cultural impact on Brazilian society today because of their common roots with the Levantine Arabs. Today Moroccans exhibit the genuine Arab cultural traditions, some of which have been lost in the Arab world itself. In a sense, the Moroccans are the guardians of these traditions, whether reflected in Andalusia ballads (Mouwashahat), or crafts depicting Arabesque and Islamic geometric art forms.

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41. Kuwaitis who were active traders with India married Indian women and brought them back home. Most of Kuwait’s merchant class families have Indian grandmothers; yet Indians in Kuwait are considered inferior human beings and treated as slaves. See Fehmy Saddy, “Indian House Servants in Kuwait: Survey Finding.” Study submitted to the Anti-slavery Society, London 1978. 42. Donald Hawley, The Trucial States (George Allen & Unwin, 1971); Malcolm Peck, The United Arab Emirates (Westview, 1986); Ragaei El Mallakh, The Economic Development of the United Arab Emirates (Croom Helm, 1981). The seven emirates were known as the Trucial States. In the context of the United Kingdom’s East of Suez’s policy to withdraw from its former colonies they were coaxed into forming a single federal state, which became the United Arab Emirates. 43. These tribes survived by raiding caravans of Muslim pilgrims on their way to Mecca to perform the annul Haj, a religious requirement for Muslims who can afford it. In the 1920s, the US government supported a chieftain of a raiding tribe in Najd by the name of Abdul Aziz bin Saud, to unseat his rival in Mecca, Sharif Hussein, who was supported by Great Britain. Bin Saud established control over the trade and pilgrimage routes and formed a state carrying his own name, Saudi Arabia. The arrival of American oil companies soon thereafter was the nomadic state’s first interaction with the outside world. See T.E. Lawrence, Seven Pillars of Wisdom (Hertfordshire: Wordsworth, 1997). 44. Con Coughlin, “Britain’s Old Friends in the Gulf are Luring Us East of Suez Once More”, 8 August 2013. http://www.telegraph.co.uk/comment/columnists/ concoughlin/. 45. Andrew Torchia, “Corruption Worsened in Arab Countries Since Uprisings”, Reuters, 9 July 2013. 46. Bloomberg reported recently the story of the young Saudi prince who reserved the entire Disneyland Paris for three days at the cost of $19 million to entertain 60 colleagues in celebration of their graduation. He is reported to have replied to his critics that he does not do that very often. 47. Sources in the Saudi opposition claim that the Saudi royal family retains 70 per cent of all oil revenues and allocate the remaining 30 per cent for all government expenditures. The large allocation of revenues is needed to sustain an ever growing royal family whose exact numbers are estimated to exceed 10,000. It is common knowledge in Saudi Arabia that a member of the royal family is entitled to receive a monthly allowance of US$15,000 from the day he/she is born. In addition, senior members of the royal family – defined as those with a direct bloodline to the founder of Saudi Arabia – receive allocations of oil contracts concluded between ARAMCO, Saudi Arabia’s oil company and foreign buyers. The sizes of such allocations vary depending on the ranks and positions of senior family members. 48. Arab – Brazilian Chamber of Commerce, Trade Balance (2012– 13). 49. “Algeria Wants Brazilian Infrastructure Companies”, Agencia de Noticias Brasil A´rabe, 20 July 2010. 50. Arab – Brazilian Chamber of Commerce, Trade Balance (2012– 13).

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51. “Mercosur Signs Agreement with Egypt”, Agencia de Noticias Brasil A´rabe, 2 August 2010. 52. “Egypt and Brazil Discuss Logistics”, Agencia de Noticias Brasil A´rabe, 5 August 2010. 53. See “42 Saudis Seeks Overseas Ago Investments”, Arab News, 18 July 2014. http://www.zawya.com/story/pdf//42_Saudis_seek_overseas_agro_investments -ZAWYA20140719040517/. 54. Interview with Mohamad Amin Ali Kurdi, Ambassador of Saudi Arabia to Brazil. http://www.brazzilmagcom/component/article/63/9821-saudi-arabialooks-for-brazilian-land-to-feed-saudi-population.html. 55. See “IDB, Robeco to Launch $600 m Agri-food Fund”, Saudi Gazette, 12 June 2012. 56. See “Minister Preaches Continuation of Foreign Policy”, Agencia de Noticias Brasil A´rabe, 14 August 2010. 57. C. Harper, “Banks ‘Quietly’ Lobby BRICs for Greece Aid”, Bloomberg, 16 September 2011. http://www.bloomberg.com/news/2011 – 09 – 16/globalbanks-quietly-ask-brics-to-subsidize-greek-aid-with27 – 6-billion.html. 58. Saudi Arabia and other Gulf oil producers are currently the main buyers and holders of new issues of long-term US Treasury bonds. Pacific Investment Management Company (PIMCO), the largest investor in US Treasury bonds has been reducing its holdings since early 2014. China holds two trillion US$ worth of US Treasury bonds and has frozen its participation in new issues. It has been reported that Russia has reduced its US Treasury holdings from $150 to $30 billion subsequent to the US and European sanctions in 2014. 59. A colleague drew my attention to a statement made by Turki Al-Faisal, former security chief of Saudi Arabia at a conference at St Anthony’s (Oxford University) in which he emphasized the “historical threats” posed to Saudi Arabia by socialist countries in the Arab world. Saudi Arabia supported the 2003 American invasion of Iraq and provided logistical facilities to US troops. See “Governmental Positions on the Iraq War Prior to the 2003 Invasion of Iraq”. http://en.wikipedia.org/wiki/Governmental_positions_on_the_Iraq_War_prior_ to_the_2003_invasion_of_Iraq. Saudi Arabia has financed the civil war in Syria, which changed the character of the civil war from a nationalist uprising to a religious Jihad. UN and Arab League’s former envoy to Syria Lakhdar Brahimi said in a recent interview that Saudi officials refused to meet with him and added: “I think they didn’t like what I was saying about a peaceful and negotiated settlement with concessions from both sides.” See “Syria becoming warlord-run failed state – former peace envoy”, Reuters, 8 June 2014.

References AFP, “Brazil’s Leader Calls Gaza Conflict a Massacre”, 28 July 2014. http://bigstory. ap.org/article/brazils-leader-calls-gaza-conflict-massacre. ——— “Israel ‘disappointed’ by Latin American Envoys recall”, 30 July 2014.

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Ageˆncia de Noticias Brasil A´rabe, “Algeria Wants Brazilian Infrastructure Companies, 20 July 2010. ——— “Mercosur Signs Agreement with Egypt”, 2 August 2010. ——— “Egypt and Brazil Discuss Logistics”, 5 August 2010. ——— “Minister Preaches Continuation of Foreign Policy”, 14 August 2010. Al Jazeera English, “The Secret of the Seven Sisters”. N.p., 26 Apr. 2013. Web. Arab News, “42 Saudis Seeks Overseas Ago Investments”, 18 July 2014. Arab-Brazilian Chamber of Commerce, Trade Balance (2012– 13). Bloomberg News, “China Boosts Defense Spending 12% as Xi Strengthens Military”, 4 March 2014. Web. Cappacio, Tony, “China has World’s Most Active Missile Programs, US Says”, Bloomberg, 10 July 2013. Web. Carlsen, Laura, “Why Latin American Leaders are standing up to Israel”, Aljazeera America, 16 August 2014. http://america.aljazeera.com/opinions/2014/8/ latinamerica-israelgazahumanrights.html. Colitt, Raymond, Unni Krishnan and Arnaldo Galvao, “BRICS Agree on $50 billion Bank with Something for Everyone”, Bloomberg, 15 July 2014. Coughlin, Con, “Britain’s Old Friends in the Gulf are Luring Us East of Suez Once More”, 8 August 2013. http://www.telegraph.co.uk/comment/columnists/ concoughlin/. Furtado, Celso, Obstacles to Development in Latin America (New York: Anchor Books, 1970). Freyre, Gilberto, The Masters and the Slaves: A Study in the Development of Brazilian Civilization (New York: Knopf, 1964). Galiano, Eduardo, Open Veins of Latin America: Five Centuries of the Pillage of a Continent (London: Sunny Press, 1998 and Serpent’s Tail, 2010). Goldberg, Jeffery, “U.S Plays Relationship Therapist in Gulf”, Bloomberg View, 27 May 2014. Web. Gomes, Manuel R., “The Monroe Doctrine Turned on Its Head”, Counterpunch, 1 –3 February 2013. Goodman, Joshua, “Biden Circles Xi as U.S. Duels China for Latin America Ties”, Bloomberg, 29 May 2013. Khouri, Fred, The Arab-Israeli Dilemma (Syracuse: Syracuse University, 1971), 55. Harper, C., “Banks ‘Quietly’ Lobby BRICs for Greece Aid”, Bloomberg, 16 September 2011. http://www.bloomberg.com/news/2011 – 09 – 16/global-banks-quiet lyask-brics-to-subsidize-greek-aid-with27 – 6-billion.html. Hawley, Donald, The Trucial States (London: George Allen & Unwin, 1971). In Serbia, “Mercosur Rejects Disproportionate Israeli Force in Gaza, Ambassador Recalled”, 31 July 2014. http://inserbia.info/today/2014/07/mercosur-rejects disproportionate-israeli-force-in-gaza-ambassadors-recalled/. International Journal, vol. 34, no. 1 (Canadian Institute of International Affairs, 1978–9). Karam, John Tofik, Another Arabesque: Syrian-Lebanese Ethnicity in Neoliberal Brazil (Philadelphia: Temple University Press, 2007). Kennedy, S., “World Economy Decoupling from US Returns as Wall Street View”, Bloomberg, 4 October 2010. Lawrence, T.E., Seven Pillars of Wisdom (Hertfordshire: Wordsworth, 1997). The Lima Declaration, 2 October 2012, 3– 7. Lombardi, Michae, “U.S. Debt-to-GDP Ratio This Year to Surpass Greece’s 2009 Danger’ Level”, Profit Confidential Online, 15 March 2013. Web.

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El Mallakh, Ragaei, The Economic Development of the United Arab Emirates (London: Croom Helm, 1981). Ministry of Foreign Relations of Chile, 29 July 2014. http://www.minrel.gob.cl/ comunicado-oficial/minrel/2014-07-29/114843.html. Mohamad Amin Ali Kurdi, Ambassador of Saudi Arabia to Brazil, interview. http://www.brazzilmagcom/component/article/63/9821-saudi-arabia-looksforbrazilian-land-to-feed-saudi-population.html. Peck, Malcolm, The United Arab Emirates (Boulder: Westview, 1986). Rouis, M., “Arab Development Assistance: Four Decades of Cooperation”, MENA Knowledge and Learning: Quick Notes Series (The World Bank, August 2010). Saddy, Fehmy, “The Emergence of New Arab Latin American Relations: A Case of Cooperation among Developing Countries”, PhD Dissertation (1976). ——— “Indian House Servants in Kuwait: Survey Finding.” Study submitted to the Anti-slavery Society, London 1978. Saudi Gazette, “IDB, Robeco to Launch $600m Agri-food Fund”, 12 June 2012. Tariki, Abdullah H., “Arab-American Cooperation in the Energy Field”, in Fehmy Saddy (ed.), Arab-Latin American Relations: Energy, Trade, and Investment (Rutgers University: Transaction Publishers, 1983). Third Summit of South American – Arab Countries (ASPA), Lima, Peru, 2012. http://www.aspa3.com. Times of Israel, “Natanyahu and Sissi Said to Speak Frequently and at Length”, 24 August 2014. www.timesofisrael.com/netanyahu-sissi-said-to-speakfrequentlyand-at-length/#ixzz3BKIyzKWc. Torchia, Andrew, “Corruption Worsened in Arab Countries Since Uprisings”, Reuters, 9 July 2013. UNESCO. International Literary Statistics: A Review of Concepts, Methodology and Current Data (UNESCO Institute of Statistics, Montreal, 2008). Werz, M. and W. Chen, “Brazil in the Middle East: A Regional Power in a Changed Hemisphere”, paper presentation at the Center for American Progress, 17 June 2010. Yakuin, Vladimir, “Political Tectonics of the World Today: Shifting Trends”, World Affairs, vol. 17, no. 4 (October – December, 2013).

CHAPTER 2 ARAB—LATIN AMERICAN DIALOGUE: A BRAZILIAN PERSPECTIVE Celso Amorim1

The great Palestinian-American thinker Edward Said once spoke of the “splendid tapestry of Arab life”.2 This tapestry, I might add, is interwoven with the multi-layered fabric of Latin American societies. Latin America benefitted significantly from the successive waves of Arab migration, which began reaching the shores of Argentina, Brazil, Chile, Colombia, Venezuela, and elsewhere from the nineteenth century onwards. Arabs have taken an active part in social, cultural, economic, and political life throughout Latin America. Their contribution has left a lasting imprint in our arts and sciences.3 In spite of obvious differences, both regions, as part of the developing world, face a range of similar challenges. Both have much to learn from one another, and stand to gain from cooperation on every area. Yet dialogue among them used to be, until very recently, infrequent and unsystematic. During the Cold War, geopolitical conditions discouraged independent and pluralist approaches to foreign policy, and therefore, did not stimulate the opening of direct political channels. Besides sporadic contacts in the United Nations, the emergence of such fora as the NonAligned Movement and the Group of 15 did provide for some opportunity of interaction between countries from different parts of the world. From the beginning of the 1990s onwards, some rhetoric tribute was paid to

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South–South cooperation. But the world power centres did certainly not encourage creative political interaction between whole regions of the developing world. It also faced scepticism on the part of the more conservative sectors of domestic polities in developing countries. In discussing Arab– Latin American relations, I find it advisable to recall the words of caution by the fourteenth-century philosopher and historian Ibn Khalduˆn: “if the soul is infected with partisanship for a particular opinion or sect, it accepts without a moment’s hesitation the information that is agreeable to it. Prejudice and partisanship obscure the critical faculty and preclude critical investigation.”4 Arab– Latin American dialogue, whether bilaterally or multilaterally, could only come about as a result of a collective will to overcome barriers – often mental – to diversify partnerships and to foster a multipolar world. As the pursuit of these objectives gained momentum in the first decade of the twenty-first century, Arab– South American relations developed remarkably. In this chapter, I would like to address this process from a Brazilian perspective. Inevitably, I will dwell on facts of which I had a more direct experience. At this point, one clarifying remark is in order: although Latin America is perhaps a more widespread concept, and rightly so on a number of dimensions, South America has become the fulcrum of a much more advanced process of integration. It therefore provides a more cohesive framework for interregional dialogue.5 The inflow of immigrants from the Ottoman Empire to Brazil started in earnest circa 1870. Estimates put their total number at 70,000 to 105,000 persons until 1930.6 This surge in migration was the combined result of changing social, economic, and political conditions in the Ottoman Empire and the perceived opportunities of life in a new continent. Although the great number of mixed marriages – a distinctive feature of Brazil’s often-celebrated “melting pot” – makes estimates rather imprecise, members of the community put the present number of Arab descendants somewhere between 10 and 12 million. This means roughly 5 per cent of a population formed by generations of immigrants coming from every corner of the world. The contribution of Brazilians of Arab descent has gone far beyond sheer demographics (this by the way can also be said of Brazilian Jews). The number of prominent politicians, writers, filmmakers, and

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businessmen bearing an Arab last name is hard to miss. A few years back, in the elections for Sa˜o Paulo’s mayoralty, the leading players and power brokers were almost all children or grandchildren of Syrian or Lebanese immigrants, so much so that the characterization of the election as a dispute for the City Hall of Beirut became a common joke. For all the contributions of Arab immigrants to Brazilian society and the economy,7 Brazilian foreign policy tended to keep itself aloof from Middle Eastern and North African affairs in the first half of the twentieth century. Even our presence with a battalion of peacekeepers in Suez after the 1956 crisis is attributable to the perception that Brazil should take part in the UN collective security system rather than to develop direct interests in the Middle East. During the Cold War, a greater proximity with Arab countries was not seen as a priority by those in Brazil who favoured special relations with one of the superpowers. There were exceptions to this conservative approach. In 1958, Helio Jaguaribe, one of Brazil’s foremost intellectuals, called for Brazil and Argentina to lend support to Arab countries in the struggle for decolonization. He also called upon these countries to act jointly in order to help mediate superpower rivalry.8 While this proposal was surely difficult to implement, it revealed a clear-sighted understanding of the moderating and balancing role emerging countries may play. The same way of thinking would somehow inspire actions taken several decades later by President Luiz Ina´cio Lula da Silva, especially with regard to the search (alongside with Turkey) of a negotiated solution for the question of the Iranian nuclear programme.9 For most of the intervening period, Brazil’s position on a range of Middle Eastern issues was basically made public in the United Nations.10 From the outset, Brazil supported the internationalization of Jerusalem and expressed concern with the question of Palestinian refugees. In the aftermath of the 1973 oil crisis, Brazil expanded its diplomatic presence in the region, even as trade relations increased, spurred largely by our dependence on Arab oil. During President Ernesto Geisel’s term, from 1974 to 1979, Brazil firmly advocated the Palestinians’ right to self-determination. An office of the Palestine Liberation Organization was opened in Brası´lia in 1975. In the following years, high level contacts were intensified with the countries of the Gulf, mainly on topics related to energy and economy. Trade and investment between Brazil and Arab countries from the

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Maghreb to the Gulf increased significantly. In Mauritania and Iraq, Brazilian companies built roads, as Brazilian-made cars crisscrossed the streets of Baghdad. In the case of Iraq, of course, all this was disrupted in the wake of the Gulf War. People-to-people connections between Brazil and countries such as Lebanon and Syria, from where most of the Arab immigrants came, remained strong. This was not reflected in a corresponding intensification of direct political dialogue. However, all the aforementioned factors, alongside the perception among many Arab partners of Brazil’s balanced postures at the UN, did not escape the minds of decision-makers in the Arab world. A fact worth noting on account of its symbolism happened during my first tenure as Foreign Minister. In 1994 President Itamar Franco was the only Latin American leader to be invited to the signing ceremony of the Jordan– Israel peace treaty. I had the honour of representing the President in that event, at the Wadi Araba/Arava border crossing point. In practice, my personal contacts with Arab ministers and leaders, which were to prove of great utility later, started on that occasion. From Jordan, I would travel directly to Casablanca where a conference on economic relations in the Middle East had been convened. Again, Brazil was one of the few Latin American countries invited to participate. Since I had to change planes in Beirut, the Lebanese authorities insisted on transforming the stopover into an official visit. The Lebanese capital was still marked by the terrible destruction wrought by civil war, which had ended only a couple of years before. This offered me my first direct impression of the complex problems, which still beset the Middle East. I distinctly remember asking the Lebanese head of protocol who was escorting me on the way back to the airport, how a conflict that had lasted for such a long time and caused so many victims, eventually ended with no clear victor. His reply, which may still hold some validity to current situations, was simple and direct: “I guess the different sides were just worn out”. My lightning-quick trip to Beirut also provided me with the opportunity for reaffirming, from the steps of the Foreign Ministry building – one of the few remaining ones in central Beirut – Brazilian support for Security Council resolutions that called for the respect of the national integrity of the Lebanese State. Another illustration of the perception of Brazil’s potential role as a promoter or at least facilitator of peaceful negotiated

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solutions was the visit by the Iraqi Foreign Minister Mohammed Said Al-Sahaf to Brazil in 1994, in which he sought the easing of the sanctions imposed in the aftermath of the Gulf War. In 1998–9, Brazil was a non-permanent member of the UN Security Council. After my first, short stint as Foreign Minister, I had become Permanent Representative of Brazil to the United Nations. In January 1999, I was faced with the challenge of presiding over the Council at the critical juncture that followed “Operation Desert Fox” – the bombing of Iraq by the United States and the United Kingdom without the Council’s authorization. France, Russia and China met the armed action with fierce opposition. Deadlock among the five permanent members of the Council jeopardized its work on every topic of the agenda. After intense bilateral and multilateral consultations conducted by Brazil, the Council decided to establish three panels, under my chairmanship, to deal with disarmament, humanitarian issues, and prisoners of war. These panels helped shape the core of a new inspections regime on Iraq. The UN Special Commission (UNSCOM), seen by many as unnecessarily hostile to Baghdad, was turned into a relatively more flexible mechanism, the UN Monitoring, Verification and Inspection Commission (UNMOVIC). It was under UNMOVIC that Hans Blix developed his efforts to find a solution to this thorny question.11 Even though Blix’s efforts were destined to fail, for reasons that went far beyond UNMOVIC’s scope, our successful engagement showed that dialogue was viable and indeed preferable to armed action in dealing with one of the Council’s most pressing issues.12 It is worth noting that this demarche did not result from rational analysis alone. It also had to do with empathy towards the suffering of the Iraqi people, who were being unjustly punished for the mistakes of their leaders. Another topic relating to Arab states, to which Brazil gave some important input in this period, refers to the sanctions on Libya, which were adopted as a response to terrorist acts against civilian flights in Lockerbie and Niger. Mainly concerned with the humanitarian impact of the sanctions and distressed with the total paralysis on the theme in the so-called “informal consultations”, Brazil proposed an open debate of the Security Council on the subject. This idea was tantamount to breaking a taboo, and was initially vigorously opposed by the United States and the United Kingdom. In the event, and certainly owing to other pressures as

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well, the formal meeting took place, and was an important step in the process that led to the suspension of the sanctions.13 When Brazil occupied a non-permanent seat in the Council in 1993–4, it had already indicated its concern with the absence of clear exit strategies to sanctions regimes. This concern was especially justified in the situations involving Iraq and Libya. Ambassador Ronaldo Sardenberg, our Permanent Representative during President Itamar Franco’s government, in an intervention regarding the sanctions on Libya, stated that “Such acts must be specifically set out by the Council so that the State on which sanctions are imposed may be able to know in advance, and beyond all doubt, that the sanctions will be lifted as soon as those specific requirements are met”.14 As President Lula took office in January 2003, the invasion of Iraq by the so-called “coalition of the willing” loomed on the horizon. Lula’s first bilateral visits were to France and Germany, whose president Jacques Chirac and Chancellor Gerhard Schro¨der, respectively, led the opposition to the war. Having been again invited to take charge of the Ministry of External Relations, I made one of my first visits abroad to Russia, another vehement opponent of the use of force against Baghdad. Brazil expressed in no uncertain terms its confidence in the inspections regime led by Mr Blix. It coordinated intensely with partners ranging from the UN Secretary General Kofi Annan to the President of Chile, Ricardo Lagos, whose country was serving as a non-permanent member of the Security Council. The war, which effectively started on 19 March, was a worrisome reminder of the resilience of unilateralism and readiness for the use of force. The following day, President Lula made a statement to the nation deploring the invasion and the unlawful resort to violence.15 In May, during a meeting of the World Economic Forum at the Dead Sea, I had meetings with Secretary-General Annan and with my countryman and friend Sergio Vieira de Mello, a brilliant UN civil servant who had just been appointed Annan’s envoy to Iraq. The main purpose of the UN assistance mission was to confer upon the reconstruction of Iraq a multilateral dimension. Vieira de Mello found it essential that the international community as a whole be involved in this process, and envisaged a relevant role for Brazil. At that point in time, the human toll of the strife was becoming clear. This was the last time I was with him. Three months later, a suicide attack on the Canal Hotel, the UN headquarters in Baghdad, took the life of Vieira de Mello and

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21 other people. Not only was this a tragedy for the UN and for Brazil, it also marked a terrible escalation of sectarian violence that has not yet abated, over one decade later. The instability caused by the war reinforced the need for a more balanced international system. On the one hand, an overhauling of global governance was required, not only in security institutions but also in areas such as finance and trade; on the other, diversification of bilateral partnerships and creation of new regional and inter-regional mechanisms were imperative. Under President Lula, Brazilian foreign policy undertook concrete action towards a multipolar world. Brazil rejected the idea that global politics was to remain centred only in the capitals of the traditional big powers. There are several ways international relations can be shaped, and we believed Brazil could make a difference. On top of that, it was very clear that without peace in the Middle East, there could be no peace in the world. And the fact that contributing to peace should be an objective of Brazilian foreign policy has long been ingrained in the spirit of most Brazilians. Deepening relations with Arab countries played a central role in this strategy.16 As early as June 2003, during a trip to Evian to attend a Group of Eight plus Five meeting (G8 þ 5), President Lula began toying with the idea of calling a South American–Arab countries summit. In late June invitations were sent to heads of state from North Africa and the Middle East. My chief of staff, Ambassador Mauro Vieira, was dispatched to Palestine, where he met President Yasser Arafat in the Muqataa bearing a letter from President Lula, which underscored the importance of increasing coordination on issues of common interest in multilateral fora and of intensifying relations among the countries of both regions. Emissaries were also sent to other Arab capitals. As Foreign Minister, I availed myself of every possible opportunity to develop ties with Arab countries. Cairo and Beirut were among some of my first official trips early in 2003. In December 2003 President Lula embarked on a trip that took him to Syria, Lebanon, the United Arab Emirates, Egypt, and Libya. This was the first time a Brazilian head of state visited the Middle East since 1876, when Emperor D. Pedro II went to Turkey, Palestine and Egypt. The Emperor had already been to Egypt in 1871. However, both expeditions were of a private nature.17 On the first stop of his five-country trip, President Lula stated what was to become an oft-repeated expression:

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“Developing countries must convince themselves that it is in their power to transform the economic –commercial geography of the world, without confrontation, though very firmly.”18 During his stay in Cairo, President Lula met Palestinian Foreign Minister Nabil Shaath, who made a blockade-ridden car trip from the West Bank to Egypt especially for this purpose. Two suggestions made by Minister Shaath were adopted soon thereafter. First, the opening of a diplomatic mission of Brazil in Ramallah and, second, the creation of the post of ambassador-at-large for Middle Eastern affairs in Itamaraty, the Brazilian Ministry of External Relations. President Lula also visited the League of Arab States headquarters in Cairo, to which Brazil had been invited to become an observer. Brazil was the first Latin American country to hold this status. In every bilateral meeting he had during this tour, President Lula presented the idea of a bi-regional summit. I recall his meeting with Muammar Gaddafi, which took place in a tent in the Libyan desert. Gaddafi did not entirely grasp the political nuances emanating from the distinction between the concepts of Latin and South America. He spoke of the need for a summit bringing together countries from Africa and Latin America. While Brazil did promote, at a later stage, an Africa – South America summit, President Lula retorted that his vision for interregional dialogue involved greater approximation between South America and the Arab world. From about this time to early 2005, I was constantly in contact with Arab counterparts in preparation for the biregional summit in ministerial meetings especially convened for that purpose and at the sidelines of other gatherings in the UN headquarters, both in New York in Geneva. Throughout this period, I was able to acquire a better understanding of the differences and nuances of politics in the Arab world. Opposing views between Arab countries regarding details of a possible settlement of the Israel– Palestine conflict were perhaps the thorniest issue in the Marrakech ministerial meeting, where the draft declaration of the summit was prepared. Our policy of closer relations with the Middle East, and especially President Lula’s five-country tour, were fiercely criticized in the Brazilian press. “Grave concern” was voiced by self-anointed pundits regarding the impact of these moves on relations between Brazil and the United States. Some even suggested Brazil should not have undertaken this foreign policy decision without prior consultations with the US government, a striking illustration of the mind-set prevailing among conservative

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circles in Brazil. But politics sometimes changes faster than traditional mind-sets. In March 2004, i.e. only four months after President Lula’s visit, it was the British Prime Minister, Tony Blair, who himself landed in Tripoli in order to establish close relations with Libya. One anecdote captures well the progressive change of heart regarding relations to the Middle East. On a trip to Cairo in 2003 I was asked by an EgyptianBrazilian journalist, a young lady with rather progressive views, why Brazil was putting so much effort into such an unorthodox move. My explanation about the several avenues that cooperation between both regions would open was met with scepticism. In March 2005, during the Marrakech ministerial meeting that preceded the summit, the same journalist again interviewed me. Only this time she asked: “Why was the proposal for such a summit not put forward before?”19 The Summit of South American–Arab Countries took place in Brası´lia on May 2005. ASPA, as it is known in its Portuguese and Spanish acronyms, attracted a lot of attention from foreign governments and international media alike. It was often the target of fierce attack by the conservative press in Brazil. Notwithstanding this, ASPA was a launching pad for cooperation on several areas. Cultural exchange and academic dialogue had an enormous potential of growth, which led to the creation of an ASPA Library and Research Centre. A business conference at its sidelines helped foster inter-regional economic exchange. Trade between Brazil and the Arab countries was to increase almost fivefold from 2003 to 2013. In time, Mercosur, the customs union that links Argentina, Brazil, Paraguay and Uruguay (Venezuela became the fifth member in 2012), would sign free trade agreements with Palestine and Egypt. Mercosur also signed framework agreements on economic and trade matters with a number of Arab countries, as well as with the Gulf Cooperation Council. In all fairness, some of them have not as yet come to full fruition. It should also be noted that Mercosur signed a free trade agreement with Israel, due care having been taken to exclude products from the Occupied Territories. At the political level, the Summit agreed on the Brası´lia Declaration, which set forth a common view on pressing international issues. The Declaration stressed the need for effective movement towards universal adherence to the Nuclear Non-Proliferation Treaty (NPT). In this regard, it called for the establishment of a nuclear weapon-free zone in the Middle East. It also emphasized the importance of combating

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terrorism in all its forms, in strict compliance with the UN Charter, international law and principles of human rights. It reaffirmed opposition to foreign occupation, and recognized the right of resistance to it, in accordance with international humanitarian law and with international law. It called for the establishment of an independent and viable Palestinian State, as well as for the withdrawal of Israel from all occupied Arab territories to 1967 lines. The Declaration expressed concern with unilateral sanctions levied by the United States against Syria. It encouraged democratic transitions in Somalia and Iraq. With respect to Iraq, it reiterated the pivotal role of the United Nations in the reconstruction of the country. At the same time, it recalled the need for broad UN reform, in order to lend greater efficiency, democracy, transparency and representativeness to its main organs. I draw at length from this Declaration due to its pioneering importance as an exercise in consensus-building among two regions hitherto far apart not only in geographical terms but also in people’s minds. In spite of all contextual differences, the considerable scope of common ground revealed a collective willingness to stand for valued principles of international relations, such as non-intervention, selfdetermination and multilateralism. In a world not free from hegemonic structures, the pursuit of an autonomous inter-regional agenda was of great political importance. Without renouncing these principled positions, Brazil had to keep some balance in order to remain a valid interlocutor to all parties in the Middle East. About two weeks after the ASPA summit I paid a visit to Israel. As I arrived in Tel Aviv, a full decade had elapsed since a Brazilian External Relations Minister had last been to Israel. One of my objectives in this visit was to dispel doubts about the purposes of ASPA and reaffirm the traditional bonds of friendship between Brazil and Israel. In mid-2006, hostilities between Hezbollah and Israel escalated, and eventually turned into a war between Israel and Lebanon. A few thousand Brazilians were living in Lebanon at the time, and the Lebanese community in Brazil followed their ordeal with apprehension. Brazilian diplomacy swiftly condemned the attacks, and deplored the military escalation of the crisis caused by aerial bombardments of the entire Lebanese territory by the Israeli air force. All the while, the Brazilian government set in motion its biggest-ever rescue of nationals abroad. In a very short time, 3,000 Brazilian (and sometimes their Lebanese

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relatives) were taken out of Lebanon and flown back to Brazil. Seven Brazilians are known to have died in the attacks. I went twice to the Turkish town of Adana, where a great part of our citizens were gathered (an important number fled to Damascus) after leaving Lebanon and embarked to fly home. I was deeply touched by the stories I heard of women and children surviving under their destroyed homes and by the expressions of gratitude by some of these refugees. A lady in her late fifties or early sixties told me: “This is the third time I have had to flee a war, but it is the first time the Brazilian government has come to my assistance.” One day after the ceasefire, I landed in Beirut’s airport (indeed on what was left of the runway) on a Brazilian Air Force cargo plane carrying essential goods donated, for the most part, by the Lebanese community in Brazil. The devastated sight of the city was made particularly moving when an adviser called my attention to a Brazilian national team jersey amid the rubble. No image captured better Brazil’s close connection to the tragedy unfolding in Lebanon. It was to a large extent this realization that stimulated Brazil to contribute more directly to the maintenance of peace in Lebanon. Milton Hatoum, the noted Brazilian writer of Lebanese ancestry, once said that “Lebanon is very Brazilian and Brazil is very Arab.”20 Perhaps this was never truer than in the summer of 2006. The invitation to participate in the Annapolis Conference in November 2007, called by the United States to discuss the Israel – Palestine conflict, was yet another recognition of Brazil’s potential as a player and a facilitator in the region. Very symbolically, India and South Africa, Brazil’s partners in the IBSA Dialogue Forum, were also invited to Annapolis. These were the only non-Muslim, non-permanent members of the Security Council, and non-traditional donors represented in the meeting. India, Brazil and South Africa are vibrant democracies, large developing countries, multi-ethnic and multicultural. The idea that Brazil should be called to participate in a conference on the re-launching of the peace process had been explored in bilateral dialogue with different countries. It was firmly pursued by the Palestinian Authority, especially by its leader Mahmoud Abbas, who took the initiative to propose it to its future host and organizer. The US, in turn, would not issue such an invitation without consulting with Israel. In some way, this was a vindication of our insistence on a balanced approach. As to India and South Africa, their potential role in this kind

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of dialogue was the object of extensive discussion between Condoleezza Rice, US Secretary of State, and myself in March 2007. Brazil also participated in donors’ conferences on Palestinian reconstruction and came to approve a sum of $10 million for socio-economic projects in the West Bank. At the time, we evaluated the Annapolis Conference as an important landmark on several accounts. First and more obviously, it re-launched the peace process. Second, it involved most countries directly interested, including Syria, which after some reluctance decided to participate. Third, and from our point of view very significantly, Annapolis was meant to inaugurate a new format in dealing with the Israeli– Palestine conflict, by bringing together a representative group of nations. As President Lula and myself used to say, it brought fresh air into the hitherto unproductive and sterile efforts of the Quartet, formed by the United States, the European Union, Russia and the Secretariat of the United Nations. The composition of the Annapolis process, which in principle should have had a follow-up, was, in our view, an intelligent way of going round the challenge posed by Israel’s resistance to dealing with the matter in the UN (dominated by “biased automatic majorities”, according to Tel Aviv). On the other hand, such a composition was a significant step to use multilateralism on the issue, a strategy favoured by the Palestinians. Brazil was very keen on helping foster the Annapolis process. Partly because of this, I visited the Middle East again in February 2008. My main purpose was to join forces with other actors such as Norway, Spain and the High Representative of the European Union, who were intent on ensuring the follow up of the Annapolis process. I had discussions on the subject with the main partners in Israel and Palestine, and in Saudi Arabia, Jordan, and Syria as well. In the course of these visits, in which other subjects became prominent, especially the situation in Lebanon, the confidence in Brazil as a facilitator of dialogue was demonstrated in one episode. Damascus was, in our view, an important player in the peace process given, among other things, the influence it was supposed to have on Hamas. I had a long conversation with President Bashar Al Assad, who was at the time very interested in the possibility of “proximity talks”, mediated by Turkey, on the question of the Golan Heights. I brought this message to the then Prime Minister of Israel, Ehud Olmert, who reacted positively. Curiously, this

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facilitating role was reactivated in 2010, in several conversations involving President Assad and the new Prime Minister of Israel, Benjamin Netanyahu, at a time when Turkish mediation became impossible due to the incident known as the Gaza Freedom Flotilla. The conflict in Gaza, which began in late 2008, was a setback to the prospects of a just and lasting peace between Israel and Palestine. Brazil condemned the Israeli invasion and appealed for the immediate cessation of hostilities. I took this message of peace in a visit I made in January 2009 to Jordan, Israel, the West Bank, Syria, and Egypt. Through Jordan, our party donated food and medical supplies to the besieged people of Gaza. Brazil pledged a further $15 million to Palestine in the conference on Gaza reconstruction that gathered in Sharm el-Sheikh two months later. In April 2010, at the sidelines of the BRICS/IBSA Summit in Brası´lia, IBSA foreign ministers received the head of Palestinian diplomacy for a working breakfast. Ryad Al-Maliki made the long transatlantic trip for the sole purpose of participating in this event. Direct negotiations between Israel and the Palestinian Authority remain indispensable for the creation of a sovereign, democratic, contiguous Palestinian State within 1967 lines, having Jerusalem as its capital and living peacefully with Israel. However, this objective is becoming more and more elusive as a result of the Israeli policy of expanding its settlements. In December 2010, Brazil, therefore, recognized the State of Palestine, an action meant to stimulate negotiations. A number of Latin American countries followed suit. During the first decade of the twenty-first century Brazil went to the Arab world just as much as the Arab world came to Brazil. To mention one official statistic, President Lula made 12 visits to this region in eight years in office, and received the visits of 15 heads of state or government. President Lula put it well in the opening session of the II ASPA Summit, which took place in Doha in 2009, at the height of the global financial crisis: the “new economic-commercial geography of the world”, which in 2005 had been an “inchoate reality”, had by now become an “imperative need”.21 One decade after the invasion of Iraq, the world is no doubt more multipolar. But in order that it become more stable, global governance reform must proceed, and the potential of cooperation among developing countries and regions must be fully realized. Brazil’s steadfast commitment to building close ties with the Middle East and the Arab world remains unchanged under President Dilma

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Rousseff. President Rousseff attended the III ASPA Summit, which took place in Lima, Peru, in October 2012. Under the auspices of Foreign Minister Antonio Patriota, the Brazilian Foreign Ministry sponsored a conference in 2012 gathering the Arab and the Jewish diaspora in Brazil as means to foster a culture of peaceful coexistence between different ethnic and religious groups. Also, in November 2012, Brazil supported Palestine’s status as a non-member Observer State to the United Nations. Since 2011, a frigate is deployed in the Mediterranean Sea as flagship of the UN Interim Force in Lebanon maritime task force. A Brazilian admiral heads this naval contingent, which assists the Lebanese Navy in preventing the entry of illegal arms in the country. As Minister of Defence, I visited Beirut in 2012. The so-called Arab Spring has posed a host of challenges to South American– Arab dialogue. Centrifugal forces are at work in the region. As I write these lines, Libya and Syria are prime examples of this tendency. In Egypt, whose evolution will surely influence the whole of the region, the consequences of the ousting of the Muslim Brotherhood from power are far from clear. On this point, I would like to recall a personal experience. In mid-2011, in a brief period while I was not in government in Brazil, I accepted an invitation to give a couple of lectures in Egypt. The country was still fresh from the overthrow of Hosni Mubarak. I could not help noticing that the organizers of the events I was going to attend had looked to Brazil and South America for inspiration. This was not without reason. Brazil has some experience with democratic transition and social progress, having overcome a twodecade long authoritarian regime and having lifted dozens of millions of people out of poverty. As I said then, lessons cannot be taught; but lessons can be learned. Whatever the future holds in stock for Egypt, President Morsi’s visit to Brazil – the first-ever visit of an Egyptian head of state to Brazil – was interesting especially as regards cooperation on social issues. In a way, the “new geography” – economic and commercial, but cultural, social and political as well – was already at work. In an article I wrote in 2011 at the invitation of the editors of The Cairo Review of Global Affairs, I quipped the well-known American song that spoke of the bumpy “road to love” in analysing the democratic transition in Egypt.22 With hindsight, I can add that this road is perhaps even bumpier and longer than expected.

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Notes 1. The author wishes to thank Filipe Nasser and Luiz Feldman for their assistance in preparing this text. 2. Edward Said, The Politics of Dispossession: the Struggle for Palestinian SelfDetermination (London: Vintage, 1995), 379– 83. 3. The integration of Arab immigrants in Latin American societies was the object of a photo exhibition and a book titled Amrik on the occasion of the first ASPA Summit in Brası´lia in 2005. 4. Ibn Khalduˆn, The Muqaddimah: An Introduction to History. Translated from the Arabic by Franz Rosenthal (New York: Princeton University Press, 1989), 35. 5. Talking to my interlocutors in the Arab world during the initial demarches for the South American – Arab Countries Summit (ASPA), I was frequently faced with the need to correct the interpreters (in spite of my non-existent knowledge of Arabic), as I perceived that they wrongly translated “South America” as “Latin America”. The processes that led to the creation of Mercosur, and most notably of Unasur, have been the object of a large number of books and articles, most of which, though, are in Spanish and Portuguese. 6. Monique Sochaczewski Goldfeld, “O Brasil, o Impe´rio Otomano e a Sociedade Internacional: Contrastes e Conexo˜es (1850–1919)”. PhD Dissertation, Fundac a˜o Getu´lio Vargas, 2012; Mehmet Necati Kutlu, “Reflexo˜es sobre o inı´cio das Relac o˜es Otomano-Brasileiras”, in M. N Kutlu et al. (eds), Impe´rio OtomanoAme´rica Latina: Perı´odo Inicial (Ankara: University of Ankara, 2012). 7. See Oswaldo Ma´rio Serra Truzzi, “A Imigrac a˜o de Libaneses e Sı´rios ao Brasil entre 1880 e 1940: Padro˜es de Mobilidade e Identidades Socioculturais na Nova Pa´tria”, in Fundac a˜o Alexandre de Gusma˜o (ed.), Relaco˜es entre o Brasil e o Mundo A´rabe: Construca˜o e Perspectivas (Brası´lia: Fundac a˜o Alexandre de Gusma˜o, 2001). 8. Helio Jaguaribe, O Nacionalismo na Atualidade Brasileira (Rio de Janeiro: Educam, 2005), 260. 9. I recounted Brazil’s participation in this matter in a keynote address to a Nuclear Policy Conference at the Carnegie Endowment for International Peace. The transcript is available at: http://carnegieendowment.org/files/Welcome_ and_Keynote.pdf. 10. See, for instance, Norma Breda dos Santos, “As Posic o˜es Brasileiras nas Nac o˜es Unidas com Relac a˜o ao Oriente Me´dio (1945 – 2002): Equidistaˆncia, Pragmatismo e Realismo” (Revista Cena Internacional, v. 5, n. 2, 2003). 11. Hans Blix, Disarming Iraq (New York: Pantheon, 2004). 12. I dealt with this issue at more length in Amorim, Celso, “Guerra Contra o Iraque e´ Evita´vel”, Folha de S. Paulo, 25 September 2002. A comprehensive analysis can be found in Gisela Padovan, Diplomacia e Uso da Forca: os Paine´is do Iraque (Brası´lia: Funag, 2010). 13. See my interventions to the Council, reprinted in Gelson Fonseca Jnr., O Brasil no Conselho de Seguranca da ONU: 1998– 1999 (Brası´lia: IPRI/Funag, 2002), 112 – 17.

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14. Statement by H.E. Ambassador Ronaldo Sardenberg on the Three Thousand Three Hundred and Twelfth Meeting of the United Nations Security Council, New York, 11 November 1993. Document S/PV. 3312. Available at: http:// daccess-dds-ny.un.org/doc/UNDOC/PRO/N93/871/59/PDF/N9387159.pdf? OpenElement. 15. For a more detailed narrative of Brazil’s position in the Iraq crisis, see Celso Amorim, Breves Narrativas Diploma´ticas (Sa˜o Paulo: Benvira´, 2013), chapter 1. 16. Brazilian foreign policy in the Fernando Henrique Cardoso government (1995 – 2002) stimulated trade relations with the Arab world, but avoided political engagement. See Nizar Messari, “O Brasil e o mundo a´rabe”, in H. Altemani & A. C. Lessa (eds), Relaco˜es Internacionais do Brasil: Temas e Agendas (Sa˜o Paulo, Saraiva, 2006). 17. See Reuven Faingold (ed.), D. Pedro II na Terra Santa: Dia´rio de Viagem – 1876 (Sa˜o Paulo, Seˆfer, 1999). 18. Luiz Ina´cio Lula da Silva, Discurso do presidente da Repu´blica, Luiz Ina´cio Lula da Silva, no jantar oferecido pelo Presidente da Sı´ria, Bashar Al-Assad, em Damasco, em 3 de dezembro de 2003 (Resenha de Polı´tica Exterior do Brasil, n. 93, second semester 2003), 219. 19. Something very similar happened regarding Brazilian foreign policy toward Africa. President Lula’s first African tour took place in November 2003. Opposition in the Brazilian press was intense. Many put in doubt the relevance of the move. However, in 2005, after the first African tour by Chinese Prime Minister Hu Jintao, I was asked if Brazil was not losing ground to the Chinese. See my “Breves Narrativas Diploma´ticas,” quoted above, chapter 7. 20. “Celebrated Writer Milton Hatoum Brings the Arab Out of Brazil”, http:// www.brazzil.com/component/content/article/174-december-2006/9751.html. 21. Lula da Silva, Luiz Ina´cio. Discurso do presidente da Repu´blica, Luiz Ina´cio Lula da Silva, na Sessa˜o de Abertura da 2a Cu´pula Ame´rica do Sul-Paı´ses A´rabes. Doha, 31 de marc o de 2009. Resenha de Polı´tica Exterior do Brasil, n. 104, first semester 2005, 77. 22. Celso Amorim, “Brazil and the Middle East: Reflections on Lula’s South – South Cooperation”, The Cairo Review of Global Affairs, n. 2, 2011.

References Amorim, Celso, “Brazil and the Middle East: Reflections on Lula’s South – South Cooperation”, The Cairo Review of Global Affairs, n. 2, 2011. Blix, Hans, Disarming Iraq (New York: Pantheon, 2004). Brazzil, “Celebrated Writer Milton Hatoum Brings the Arab Out of Brazil”. http:// www.brazzil.com/component/content/article/174-december-2006/9751.html. Faingold, Reuven (ed.), D. Pedro II na Terra Santa: Dia´rio de Viagem – 1876 (Sa˜o Paulo, Seˆfer, 1999).

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Ibn Khaldu¯n, The Muqaddimah: An Introduction to History. Translated from the Arabic by Franz Rosenthal (New York: Princeton University Press, 1989). Jaguaribe, Helio, O Nacionalismo na Atualidade Brasileira (Rio de Janeiro: Educam, 2005). Lula da Silva, Luiz Ina´cio, “Discurso do presidente da Repu´blica, Luiz Ina´cio Lula da Silva, no jantar oferecido pelo Presidente da Sı´ria, Bashar Al-Assad, em Damasco, em 3 de dezembro de 2003”, Resenha de Polı´tica Exterior do Brasil, 2003. Messari, Nizar, “O Brasil e o mundo A´rabe”, in H. Altemani & A. C. Lessa (eds), Relaco˜es Internacionais do Brasil: Temas e Agendas (Sa˜o Paulo, Saraiva, 2006). Necati Kutlu, Mehmet, “Reflexo˜es sobre o Inı´cio das Relac o˜es Otomano-Brasileiras”, in M. N Kutlu et al. (eds), Impe´rio Otomano-Ame´rica Latina: Perı´odo Inicial (Ankara: University of Ankara, 2012). Said, Edward, The Politics of Dispossession: The Struggle for Palestinian SelfDetermination (London, Vintage, 1995). Santos, Norma Breda dos, “As posic o˜es brasileiras nas Nac o˜es Unidas com relac a˜o ao Oriente Me´dio (1945-2002): equidistaˆncia, pragmatismo e realismo”, Revista Cena Internacional, v. 5, n. 2, 2003. Sardenberg, H.E. Ambassador Ronaldo, on the Three Thousand Three Hundred and Twelfth Meeting of the United Nations Security Council, New York, 11 November 1993. Document S/PV. 3312. http://daccess-dds-ny.unorg/doc/ UNDOC/PRO/N93/871/59/PDF/N9387159.pdf?OpenElement. Serra Truzzi, Oswaldo Ma´rio, “A Imigrac a˜o de Libaneses e Sı´rios ao Brasil entre 1880 e 1940: Padro˜es de Mobilidade e Identidades Socioculturais na Nova Pa´tria”, in Fundac a˜o Alexandre de Gusma˜o (ed.), Relaco˜es entre o Brasil e o Mundo A´rabe: Construca˜o e Perspectivas (Brası´lia: Fundac a˜o Alexandre de Gusma˜o, 2001). Sochaczewski Goldfeld, Monique, “O Brasil, o Impe´rio Otomano e a Sociedade Internacional: Contrastes e Conexo˜es (1850 – 1919)”. PhD Dissertation, Fundac a˜o Getu´lio Vargas, 2012.

CHAPTER 3 ARAB—LATIN AMERICAN COOPERATION IN CULTURE AND EDUCATION Cecilia Baeza and Elena Lazarou

Introduction Cultural and educational cooperation is at the roots of inter-regionalism. Knowledge based on artistic work or academic research fosters better understanding between peoples of the regions involved, and supports economic ties and political coordination. At the same time, being a low-politics area, cultural and educational policy does not stumble on the same political sensitivities as other policy areas, and offers itself as a convenient and conducive starting point for international cooperation. The Summit of South American-Arab Countries (ASPA), a bi-regional mechanism, which gathers 22 member countries of the League of Arab States and 12 countries of South America, is no exception. The Declaration of the first ASPA meeting in Brası´lia in June 2005 strongly encouraged cultural exchange programmes, interaction between promoters of culture in both regions, and scholarships and exchange of visits of university professors, among other initiatives. In fact, ASPA is one the first governmental forums to promote South–South cultural and educational cooperation between developing countries. This chapter will discuss ASPA and assess its achievements since its establishment in 2005. The first part of the chapter will review briefly

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the theoretical framework of inter-regionalism and how scholars analyse inter-regional dynamics, as well as the importance they attribute to education and culture in inter-regional arrangements. In the second part, both the successes and the limitations of ASPA will be assessed. Finally, the chapter will shed some light on the role of non-state actors in strengthening the educational and cultural ties between the two regions. The role of NGOs and diaspora organizations will be highlighted as well.

Cultural and Educational Inter-regionalism The concept of regionalism evokes much controversy on many different levels. By and large scholars agree that we are experiencing a transition between an old system and a new one, however the causes and contours of this new system are up for debate.1 This so-called “new regionalism” also carries with it a strong component of external region-to-region engagement, introducing new dynamics to international relations. Rather than engage in state-to-state relations, states are keen to enter into inter-regional agreements, in a range of areas from trade to research, to security and, most notably for this article, education and cultural cooperation. Heiner Ha¨nggi distinguishes between three types of these interregional arrangements: (a) pure bi-regionalism, with relations between two regional organizations, generally custom unions; (b) trans-regionalism, with regional and state actors representing world regions through a wide membership; and (c) hybrid inter-regionalism, with relations between regional groupings and single powers, or inter-continental relations where only one party is a formal union.2 The Summit of South American-Arab Countries falls into this category, which consists of the League of Arab States, an organization founded in 1945, which includes currently 22 members, and the UNASUR, a union of 12 countries created in 2008 as part of a continuing process of South American integration. The origin of this type of region-to-region dialogue dates back to the 1960s and 1970s, but it became common in the 1990s.3 The European Union (EU) led this process with relations established with a dozen of regional organizations from other continents. The EU has constantly sought to develop a comprehensive approach of interregional cooperation beyond trade and investment on a wide range of issues, such as

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environment, education, and institution building. This policy contrasts with the approach, which is focused on bilateral or multilateral relations for the creation of large free trade zones, like the Asia-Pacific Economic Cooperation (APEC) or the EU–US Transatlantic Trade and Investment Partnership Agreement, currently under negotiation. Latin America’s approach regarding interregional arrangements was inspired by the European model, which in principle treats interregional relations as a foreign policy objective with a high degree of institutionalization.4 However, the region’s participation in those processes has proven more flexible. For example, the first EU– Latin America and the Caribbean Summit (EU-LAC) was held in Rio de Janeiro in 1999 where Latin America was not represented formally as a regional grouping. However, with the creation of the Community of Latin American and Caribbean States (CELAC) in 2011, the process was elevated to a group-to-group dialogue, and in 2013 the first EU-CELAC Summit was held in Santiago, Chile. In contrast, the Forum of East AsiaLatin America Cooperation (FEALAC), which was officially launched in 2003, included 17 Latin American countries that are still participating in their individual capacity. The process of inter-regional arrangements with South America as a regional grouping started with the inauguration of the first ASPA Summit in Brası´lia in 2005. The same model was replicated with the first Africa – South America Summit (ASA) that took place in Nigeria in 2006. The 12 countries of Latin America’s sub-region formalized their association in 2008 by creating the Union of South American Nations (UNASUR), which became the entity representing South America in both ASPA and ASA’s interregional processes. The literature on inter-regionalism has identified three main functions of interregional cooperation.5 The first is a “soft balancing” function: by participating in interregional forums, smaller or weaker states seek to pool a greater percentage of resources, increase their institutional power on the global stage, and thus balance US hegemony.6 Brazil clearly had this in mind in launching the ASPA Summit, particularly with regard to US and European dominance in the United Nations (UN) and global economic and financial institutions. The Arab countries, for their part, sought to rally the support of Latin American governments for their political agenda, particularly with respect to the Palestinian question. This rapprochement was well understood by the

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Bush administration, which communicated its concern to South American governments.7 The second function is what Christopher Dent calls “multilateral utilities”.8 According to Dent, interregional frameworks facilitate dialogue by reducing the security dilemma and creating incentives for states to cooperate within a numerically smaller space for dialogue. Therefore, interregional forums provide a more efficient process of coordination and production of “global public goods” that can then be elevated to the international level. Climate change, reform of the United Nations, and international trade negotiations are examples of issues that could be better addressed by linking regional and global policy processes. The focus here is on the need to manage the increasingly complex interdependence caused by globalization. These “multilateral utilities” are evident in the ASPA process, which included in its discussions important topics such as food security, climate change, dialogue of civilizations, and “Responsibility while Protecting” (RwP), a concept introduced by the Brazilian diplomacy for supervising humanitarian interventions. Third, inter-regionalism performs a regional identity-building function. The argument is that “interregional interaction sharpens differences between the regional self and regional other(s), generating and internalizing a repository of shared norms and beliefs and thus enhancing regional cohesion”.9 Regional partners of an interregional arrangement have to make intra-regional agreements prior to meetings, a process of consensus building that helps create a sense of collective identity and presence.10 In other words, inter-regionalism may be seen as a process in which regions, through their mutual interactions, come to identify themselves as such. In the case of ASPA, the idea of former President Lula was to promote a South American identity different from the rest of Latin America, through the creation of UNASUR. By strengthening the ties between South American countries, Lula aimed to build a space where Brazil could exert a regional leadership far from its Mexican rival in the north. This latter function is particularly relevant to educational and cultural cooperation, which aims directly to promote interregional society-to-society (rather than government-to-government) ties. In creating space for cooperation in research, higher education and cultural policy, and following a constructivist logic, this type of

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interregional engagement creates space for collective identity production: both within the individual regions (identified in the interregional process as units) but also between regions, which are through agreements and treaties reconstructed as a united space of cultural dialogue, educational exchange and research. Cast within the above framework, cultural and educational interregional cooperation helps to strengthen the social and cultural bonds that constitute the invisible inner workings of a long-term relationship. It is a practical means to overcome the mutual indifference and ignorance of each other’s society, which often hamper the development of bi-regional relations. Well-organized and funded student exchange programmes forge interpersonal ties across both regions and enrich the learning and intercultural experience of young people by exposing them to different lifestyles, political systems and languages. Inter-regional intellectual dialogue, channelled through academic events, common research programmes, university partnerships and student and professors’ exchanges, is also a powerful tool for deconstructing stereotypes and increasing mutual understanding. Again here, the EU has long understood that educational cooperation could be a vector for the transmission of values.11 The Bologna Process, which led to the construction of the European Higher Education Area (EHEA), as well as the – increasingly global in their reach – Erasmus Mundus exchange programme and Marie Curie Actions, are some of the most important examples of the incorporation of higher education, research and culture into the regionalism and inter-regionalism dynamic of the EU. Cultural cooperation also contributes to building bridges between societies. Facilitating the mobility of artists and artworks, organizing exhibitions and establishing joint work experiences among artists and cultural managers, are just a few examples of what can be done for encouraging and promoting cultural diversity and creativity. In that sense, cultural and educational exchanges are probably the best vehicle for the dialogue of civilizations, a value especially praised in ASPA declarations and actively promoted by the Brazilian and the Qatari governments which hosted, respectively, the third and fourth United Nations Alliance of Civilizations’ forum in 2010 and 2011. Finally, educational cooperation has a special relevance for emerging regions. It is widely recognized that human resources constitute a

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decisive factor in poverty alleviation and economic and social development. Inter-regional academic dialogue helps identify the strengths and weaknesses of each region in order to target human resources development where it is most needed, and to foster scientific cooperation in areas where one region is better positioned to assist the other. In this regard, think tanks have an important role to play in guiding policy debate and long-term strategic thinking. For example, the Asia – Europe Meeting (ASEM) has established regular events to link together representatives from the academic, government, private sector and civil society at high-level meetings.12

ASPA’s Plans for Education and Culture In many ways, the ASPA initiative came as a result of Brazil’s opening up to the Arab world under President Lula. Perhaps an even clearer sign of the intention to bring the Arab world closer can be detected in the number of Brazilian diplomatic representations established after 2007. In fact, more than half of current Brazilian representations in the Gulf countries were opened during that period. The growing number of embassies and consulates is directly linked to a growth of trade and investment, but ultimately paved the way for “spill over” of economic ties into thoughts and initiatives about cooperation and strengthening of ties in other areas, such as culture and education. Following the then President’s suggestion, the first Summit of Heads of State and Government of South American and Arab countries took place in Brası´lia in May 2005 with the objective to promote “interregional cooperation and to act as a forum of political coordination, with the aim to bring closer the leaders of the two regions, which are characterized by political, economic and cultural affinities”.13 Cultural and educational cooperation has been a constitutive chapter of the ASPA process since its very beginning in 2005. Indeed, the Brası´lia Declaration affirmed the importance of cultural cooperation under Section 3 and emphatically announced a list of concrete projects to be undertaken. Two of them were particularly ambitious: the first was the establishment of an Arab– South American Library (BibliASPA) in two sites, with a publisher and research centre in Brazil, and a library in Algeria that would benefit from the donation of books from all ASPA member countries to constitute its collections. The Algerian

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government promised the construction of a library to host the collections. The second was the proposal of the Government of Morocco to establish a South American Research Institute in Tangier. This Institute would provide a space for academics to exchange their ideas and work. Regarding follow-up mechanisms, Algeria launched the initiative of establishing a regular joint meeting of South American and Arab Ministers of Culture. The inaugural meeting was held in February 2006 in Algiers where it was decided to create a Committee on Cultural Cooperation for the programming and follow-up of cultural commitments. However, it was not until the second meeting in Rio de Janeiro in May 2009 that a Plan of Action was defined. ASPA countries’ representatives approved ten items. In addition to the two projects mentioned above, the plan included several other activities, including financing and programming of itinerant exhibitions, shows and festivals; setting-up audio-visual co-production mechanisms; putting together a list of books to be translated into Arabic from Spanish and Portuguese, respectively; establishment of programmes of interchange and cooperation in the field of museum administration and archaeology research; concluding agreements between universities; and financing language studies scholarships.14 Notably, education appeared as the weakest dimension in the above plans, which made it necessary to reinforce the mechanisms of cooperation. In October 2009, ASPA committee that met on the sidelines of the 35th UNESCO General Conference decided to rename itself ASPA Committee on Cultural and Educational Cooperation in order to reflect the many instances in which culture and education intertwine and are dealt with together, as well as the matters addressed in international fora such as the UNESCO.15 In 2011, an ASPA– UNESCO Contact Group was created with the objective of organizing an ASPA cultural forum at UNESCO in 2013.16 However, in November 2011 culture and education were decoupled during the first official meeting of the ASPA Ministers of Education in Kuwait. They issued their own Action Plan on education alone, stressing members’ commitment to increase the exchange of experiences and to build an educational and scientific database.17 A second meeting of ASPA Ministers of Education convened in Peru in October 2013.18 Meanwhile, the third meeting of ASPA Ministers of Culture took place

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in April 2014 in Riyadh, Saudi Arabia19, where the Fourth ASPA Summit of Heads of State and Governments is scheduled for 2015.

Achievements and Limitations What has been accomplished so far, and what parts of those action plans have been effectively implemented? To begin with, ASPA’s sponsored initiatives have produced a series of cultural events. The first was the holding of “Amrik”,20 a travelling photographic exposition on the Arab influence in South America. Since 2005, the exhibition has been showcased in a dozen cities in different countries of the two regions. Other manifestations include the realization in Brazil, Argentina and Uruguay of four editions of the “South American Festival of Arab Culture” since 2010, and the co-organization in Sa˜o Paulo in 2011 of the exposition: “Islam: Art and Civilization” with 350 objects mostly from Syria and Iran21 making it the largest exhibition on Islam in Latin America. With support from the National Libraries of Algeria, Brazil and Venezuela, BibliASPA-Brasil published several books translated from Arabic into Portuguese and Spanish and vice versa. BibliASPA-Brasil also edits its own cultural magazine, Fikr, Review of Arab, African and South American Studies.22 It recently signed a memoranda of understanding with UNESCO, the National Library of Qatar, the Qatar Foundation International (QFI), and the National Council for Culture, Arts and Letters of Kuwait. The partnership with QFI supports an Arabic Language and Culture Program (literacy, spelling, calligraphy, and Arabic grammar) for South American students in Sa˜o Paulo and Curitiba. A central component of the programme is to provide an opportunity to lowerincome students to learn Arabic and to study the Arab culture.23 While BibliASPA-Brasil’s activities have been numerous, the Arab ASPA member countries have shown much less political will to fulfil their promises. Cultural and educational cooperation is in fact quite disappointing. The exchange of students and professors between the two regions is almost at a standstill, and ASPA has not financed any major research programme. The two most ambitious projects – the Arab– South American Library in Algeria and the Research Institute in Morocco – have been delayed. In 2009, four years after its commitment made during the first ASPA Summit, the Algerian government assigned three hectares of land for the

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library building but has done little for its realization. In 2006, following approval of the project by the first meeting of ASPA Ministers of Culture, Algeria appealed to Oscar Niemeyer, the renowned Brazilian architect, who in 1969 had designed the Houari Boumediene University in Bab-Ezzouar and the Mentouri University in Constantine, to present a project for the library. Niemeyer’s studio delivered the sketches in 2009, but it was not until 2012, after several bureaucratic processes, that a contract was officially signed with the Algerian Agency for the Management of Major Cultural Projects (ARPC). The contract stipulates that the project will occupy 40,000 square meters in the municipality of Zeralda, and will be equipped with an auditorium, an exhibition hall, a restaurant, and accommodations. The cost was estimated at 8 billion Algerian dinars (around US$100 million). A call for competitive bidding was launched at national and international levels to select the construction company, and work was expected to start in January 2014.24 However, with the death of Oscar Niemeyer in December 2012 and the need to find another office to supervise construction, work was postponed again. The website of the ARPC now announces that the realization of the building should have started in November 2014 and lasted 40 months.25 In the end, the project is likely to take a decade to come into existence. The South American Research Institute in Morocco is in a similar state. In 2008, the Moroccan government assigned two hectares for its building, and a project was presented and approved at the Fifth ASPA High Officials Meeting in Doha. However, since then the project has been dormant. It is believed that the rivalry between Morocco and Algeria has something to do with the situation.26 The Moroccan government does not seem interested in a project that may be interpreted as competition with Algeria. The two projects are representative of some of the problems raised by ASPA. The combination of bureaucratic delay, slowness of decision-making, infrequent meetings, lack of political will when projects require financial expenses, and rivalries between member states converge to produce disappointing results and explain why projects fail to materialize.27

The Role of Civil Societies Civil societies in both regions have a prominent role to play in fostering cultural and educational exchanges. As other experiences have shown, a

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political top-down approach is not sufficient for developing successful cooperation, particularly in culture and education. Arab and Latin American societies have cultural connections and affinities that can be a powerful driver for deepening their relations. For example, Latin American soap operas are broadcast by almost all Arab satellite channels and are hugely popular from Morocco to the United Arab Emirates. In the 1990s, Venezuelan and Mexican telenovelas like “Kassandra”, “Juan el Ghool”,28 “Maria Mercedes” or “Marimar” were present in almost every Arab home.29 More recently, the Brazilian Globo TV network sold “Cordel Encantado” to a company in the Emirates and found a large audience in Dubai and Egypt.30 The popularity of such cultural products can be instrumental for improving interregional cooperation.31 The Arab diaspora in Latin America constitutes another bond that can be revived. Well represented in Latin America’s political and business leaderships, descendants of Syrian, Lebanese and Palestinian immigrants also have a strong presence in the cultural and intellectual domains of their respective countries. Their interest in bridging the gap between Latin America and the Arab world constitutes one of the major forces behind bottom-up cooperation. Over the last few years, several academic and cultural initiatives have emerged in Latin America and the Arab world outside ASPA framework. Diaspora members have launched most of these initiatives. The Latin Arab International Film Festival (LAIFF)32 is a case in point. The Festival was inaugurated in Buenos Aires in 2011 by Cine Fe´rtil, a non-governmental organization founded by Edgardo Bechara El Khoury, a young Argentine of Lebanese origin, with the objective of promoting Arab film production in Argentina. The Festival was conceived as a “platform for Arab filmmakers to find audiences eager to discover films otherwise rarely distributed on commercial circuits and festivals in the region”. The first edition screened around 40 films with the involvement of filmmakers and producers of international renown, and organized a series of workshops and master classes on the contemporary Arab movie industry. The second edition of LAIFF was held in November 2012 and reached a significant audience with more than 4,000 people attending 30 films shown at the Festival. In 2013, the audience reached 21,000 people throughout the year. Two teams, one based in Beirut and the other in Buenos Aires organized the Festival.

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Several major sponsors supported the initiative, including the Arab Fund for Arts and Culture (AFAC), the Argentine Institute of Cinema and Audio-visual Arts (INCAA), and the Doha Film Institute (DFI). Leveraging its successful start, the Festival has expanded to other major Latin American cities.33 In Sa˜o Paulo and Rio de Janeiro for example, Cine Fe´rtil partnered with the Institute of Arab Culture (Icarabe) for organizing the Arab World Film Festival.34 At the academic level, cooperation is still in its infancy. In the Arab countries, there are only two universities with research centres dedicated to Latin American studies. The Holy Spirit University of Kaslik (USEK), a Maronite university in Lebanon, was the first to found a Latin American Studies and Cultures Centre (LASCC) in 2010.35 The creation of the Centre was rationalized by the fact that “Latin America is one of the world’s regions which hosted the majority of the Lebanese emigrants [. . .] and maintains, till today, a strong human relation with Lebanon”. The current Director of LASCC is Roberto Khatlab, a Brazilian-born writer and researcher of Lebanese origin who went to Lebanon in the 1990s. Since the inauguration of the centre, the USEK has partnered with four Latin American universities36 – the Pontifical Catholic University (PUC) of Goia´s, the Federal University of Parana´ (UFPR), the University of Monterrey (UDEM), the Central University of Chile (UCEN) and the University Tres de Febrero (UNTREF) in Buenos Aires. Three of these universities are run by presidents of Lebanese descent.37 A second research centre was inaugurated in December 2012 at the University of Jordan. The Leonel Fernandez Centre for Latin American Studies (LFC) is named after the former President of the Dominican Republic for his support to the Centre. The main partner of the Centre is FUNGLODE, a think tank founded by Leonel Fernandez in Santo Domingo, which donated US$100,000 toward establishing the Centre38. It does not offer certificates at the moment, but holds “debateoriented lectures delivered by former Latin American presidents, officials and academicians on several hot-button issues”.39 The Centre plans to issue monthly newsletters and annual journals and publications in Arabic, Spanish and English. Latin American universities are still better equipped to study Arab societies and cultures, with ten research institutions all over the region, such as the Centre of Arabic Studies of the University of Chile,40 the Centre for Contemporary Middle Eastern Studies (CEMOC) in

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Argentina,41 and the Centre for Middle Eastern and North African Studies (CEMOAN) in Costa Rica.42 Although not having established such structures yet, other Latin American universities have also developed partnerships with Arab counterparts. For example, the University Tres de Febrero in Argentina has agreements with USEK in Lebanon and University Mohammed V in Morocco. However, lack of resources for common research programs between these universities limit the interchange of people and ideas. This is probably one of the major difficulties of South– South cooperation, even though conditions are improving. The Gulf Research Meeting (GRM), an annual academic conference established by the Gulf Research Centre,43 is currently one of the few established platforms that conducts regular workshops on Latin America– Middle East relations, thanks to financing provided by the scholars participating in the event themselves. The workshop organized and led in 2012 by Professor Alejandra Galindo of the University of Monterrey resulted in the publication of the first book on Gulf – Latin America relations.44 The Interdisciplinary Research Network on the Arab World and Latin America (RIMAAL) was founded in 2011. RIMAAL is a transnational academic network aimed at diffusing publications and fostering links between researchers from both regions. With a focus on social sciences and humanities, RIMAAL started with a simple and affordable online platform,45 and rapidly gathered scholars from more than ten countries. Thanks to partnerships with local academic institutions, RIMAAL organized two international conferences, one in Buenos Aires in 2011, and the other in Beirut in 2012. This academic platform has proven to be more effective than ASPA’s expensive architectural projects, yet to materialize. These architectural projects seem to be motivated more by national ambitions and international visibility than effective inter-regional cooperation. However, pitting non-state actors against governments is the opposite of what should be done to enhance interregional cooperation. Certainly, mechanisms ensuring a better dialogue between ASPA member states, on one hand, and academic and cultural institutions, on the other, need to be found. Although it should not be idealized, the participation of non-state actors in interregional forums is one of the best ways for improving governance performance.46 Establishing an academic

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forum on the sidelines of the ASPA summit would be an important step in this direction. While the private sector has already been included through South American and Arab businessmen forums, interaction with universities is still missing in ASPA framework. Indeed, this kind of interaction has become common in interregional processes. The BRICS Academic Forum, the ASEM Rectors’ Conference, and the Academic Summit CELAC-EU are just few examples of this practice. The Arab Latin American Forum (ARLA Forum), a newfound institution created in 2010 by Leonel Fernandez, who was President of the Dominican Republic at that time, tries to fill this function. With representatives from academia, the business sector, and political circles in both regions, ARLA Forum offers a platform for a multistakeholders dialogue. Notably, it is not South America alone, but Latin America as a whole, which is represented in the organization. As stated in the declaration of the forum held in Abu Dhabi in December 2012, “the Forum and its work seek to enlarge the number of stakeholders, maximize existing commonalities and develop new avenues of leverage in the important project of building closer regional ties and expanding the sectors in which a new and stronger partnership is being forged”. The institution will deal with broad thematic areas, but education and culture already have been declared as top priorities. For example, Sergio Bitar, former Minister of Education of Chile, proposed setting a target reaching 5,000 higher education students in 2025 as part of exchange programmes between Arab and Latin American universities.

Conclusion Regionalism and inter-regionalism have traditionally been trade and security oriented with little or no emphasis on cultural and educational cooperation. Yet, in the past decade, following the successful example of the European Union, the areas of culture, education and research are becoming increasingly relevant and incorporated into interregional agreements and agendas. To a great extent this stems from the recognition of the ideational and identity factors involved in the process of regionalism and inter-regionalism and from the growing importance of knowledge and its diffusion within and across societies through mobility and exchange, among other things.

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Thus, nowadays, education and culture have become part of the regionalism and inter-regionalism agenda in most parts of the world. While the success of regionalism in these areas is easier to assess through regional programmes, inter-regionalism still remains a big challenge. While regional groupings increasingly include education and culture within their framework agreements, joint action plans and summit declarations, the concrete tools and means for cooperation to flourish in reality need to be further developed. This is also the case of educational and cultural cooperation within the ASPA framework. The ASPA process provides an important framework to enhance South–South cooperation and to foster greater academic and cultural ties between two dynamic regions of the emerging world. The leaders of both regions have made it clear that cultural and educational cooperation should be an integral part of their strategic rapprochement. However, in comparison with other interregional processes, which have invested substantially in educational and cultural cooperation, ASPA’s results are disappointing. It is always a great challenge for developing countries with scarce resources and pressing economic needs to prioritize culture and education in the context of their inter-regional dialogues. But leaders from the developing world are increasingly becoming aware of the potential long-term benefits that stronger academic and cultural ties can bring. These benefits include transfers of technology, higher quality of goods and services, and an increased attractiveness of education and research, to name a few. Moreover, not everything is about financing: better procedures, less bureaucracy, and smarter allocation of resources would help improve cooperation. The participation of non-state actors is increasingly becoming a feature of “new inter-regionalism”,47 because it helps improve the governance of inter-regional cooperation. Several institutions already understand the importance of this governmental – civil society dialogue. However, a better coordination between the different stakeholders is needed. Latin Americans of Arab descent, in particular, could play a major role in bridging the gap between the societies of both regions. Finally, given the significance of public– private partnerships in interregional arrangements, ASPA countries could envision creative instruments in order to promote culture and education, such as a

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privately financed fund for initiatives in culture, with public support for publicity and candidacy procedures, or privately funded fellowships and scholarships for interregional educational and research exchanges. But any initiative of this type should be planned and foreseen with a medium and long-term vision, as both education and culture are areas that require time and continuity in order to successfully achieve their goals.

Notes 1. See Leonardo Baccini, and Andreas Du¨r, “The New Regionalism and Policy Interdependence”, British Journal of Political Science 42.1 (2012): 57 – 79; Kathy Powers, and Gary Goertz, “The Economic-institutional Construction of Regions: Conceptualization and Operationalization,” Review of International Studies 37.5 (2011): 2387– 415; and Richard Baldwin, 21st Century Regionalism: Filling the Gap between 21st century Trade and 20th Century Trade Rules. No. ERSD-2011 – 08. WTO Staff Working Paper, 2011. 2. Heiner Ha¨nggi, “Interregionalism: Empirical and Theoretical Perspectives”, St Gallen, University of St Gallen (2000). 3. Alan Hardacre and Michael Smith, “The EU and the Diplomacy of Complex Interregionalism”, The Hague Journal of Diplomacy 4.2 (2009):168 – 9. 4. Matthew Doidge, The European Union and Interregionalism: Patterns of Engagement (Farnham: Ashgate Publishing Ltd, 2011). 5. Ju¨rgen Ru¨land, “Balancers, Multilateral Utilities or Regional Identity Builders? International Relations and the Study of Interregionalism,” Journal of European Public Policy 17.8 (2010): 1271–83. 6. Robert A. Pape, “Soft Balancing Against the United States”, International Security 30.1 (2005): 7 – 45; Julie Gilson, “New Interregionalism? The EU and East Asia”, European Integration 27.3 (2005): 309. 7. Juan Jose´ Vagni, “La cumbre Ame´rica del Sur-Paı´ses A´rabes (ASPA): Balances de un acercamiento estrate´gico”, Revista de Estudios Internacionales Mediterra´neos 8 (2009): 185 – 96; Cecilia Baeza and Elodie Brun, “La diplomacia chilena hacia los paı´ses a´rabes: entre posicionamiento estrate´gico y oportunismo comercial”, Estudios Internacionales 44.171 (2012): 70. 8. Christopher M. Dent, “The Asia-Europe Meeting and Inter-regionalism: Toward a Theory of Multilateral Utility”, Asian Survey 44.2 (2004): 213 – 36. 9. Ru¨land, “Balancers, Multilateral Utilities or Regional Identity Builders?”, 1278. 10. Hardacre and Smith, “The EU and the Diplomacy of Complex Interregionalism”, 179; Gilson, “New Interregionalism?”, 309. 11. Ian Manners, “Normative Power Europe: A Contradiction in Terms?”, JCMS: Journal of Common Market Studies 40.2 (2002), 235– 58. 12. Si Hong Kim, “ASEM 7 and Developments of Its Socio-cultural Dimension”, (presented at the International Conference held in Burapha University of Thailand on 1 August 2007, 13).

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13. Ministe´rio das Relac¸o˜es Exteriores. http://www.itamaraty.gov.br/temas/ mecanismos-inter-regionais/cupula-america-do-sul-paises-arabes-aspa. 14. “Rio Plan of Action for Cultural Cooperation”, Annex I of the Rio Communique´. 15. “Final Report of the VI Meeting of the Council of High Officials of the Summit of South American-Arab Countries”, Quito, Ecuador, 26–7 February 2010, §5.1 16. Lima Declaration, §4.10. 17. “Arab-South America Educationalist Meeting Concludes”, Kuwait News Agency (KUNA), 30 November 2011. 18. “Education, a Path Towards Development and Social Inclusion”, Lima, 4 October 2013 (Andina). 19. “Arab and South American Countries Start Their 3rd Meeting”, Qatar News Agency, http://www.qna.org.qa/en-us/News/14043007380077/Arab-SouthAmerican-Countries-Start-Their-3rd-Meeting. 20. The term “Amrik” refers to the manner in which the Arabs called “America” at the end of the nineteenth century, when they began to migrate to the region. 21. “Mostra ‘Isla˜: Arte e Civilizac a˜o’ reu´ne 300 pec as em SP”, O Estada˜o (Sa˜o Paulo), 17 January 2011. 22. http://www.bibliaspa.com.br/revistas.jsp. 23. Qatar Foundation International, http://www.qfi.org/page/39/1/BibliASPA. 24. Vinyculture, http://www.vinyculture.com/prochain-lancement-du-projet-degrande-bibliotheque-arabo-sud-americaine-a-alger/. 25. ARPC, http://www.arpc.dz/?q¼fr/biblith%C3%A8que-arabo-sud-am%C3% A9ricaine.html. 26. “Ame´rique du Sud-Pays arabes: une balbutiante coope´ration Sud-Sud,” Le Monde (Paris), 3 October 2012. 27. Significantly, at the end of the third meeting of ASPA Ministers of Culture (2014), a representative of the Algerian delegation told journalists his dissatisfaction with the final approved text. “I’m not satisfied. Much literature, but little concrete progress” he said. The Moroccan representative Morad Rifi also acknowledged that the Action Plan outlined in Rio de Janeiro (2009) “has not met the aspirations of the people”, in “Cumbre cultural a´rabe – sudamericana termina sin nuevos acuerdos”, El Universo (Guayaquil, Ecuador), 30 April 2014. See also Riyadh Communique, III Meeting of Ministers of Culture in the Arab and South American Countries (ASPA), Riyadh, Saudi Arabia, 28 – 30 April 2014. 28. The original name was Corazon Salvaje (Wild Heart). 29. Morocco World News, http://www.moroccoworldnews.com/2012/06/42477/ why-are-some-moroccans-crazy-about-mexican-and-turkish-soap-operas/. 30. Brazil-Arab News Agency, http://www2.anba.com.br/noticia/20484712/arts/ brazil-exports-soap-opera-to-arab-countries/?indice¼10. 31. Turkish soap operas are a good example of the importance of popular culture in interregional relations. These TV shows have found a considerable audience in the Arab world and had a great impact on the image of Turkey in the Arab cultural and social discourse.

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32. LATINARAB, http://cinefertil.org/latinarab/. 33. Bamarte, http://bamarte.com.ar/index.php/ceinee/festivales/item/5661-ii-latinarabinternational-film-festival. 34. Brazil-Arab News Agency, http://www2.anba.com.br/noticia/21040774/arts/ icarabe-to-hold-8th-arab-world-film-festival/. 35. USEK: Universite Saint-Esprit De Kaslik, http://www.usek.edu.lb/en/Research/ Latin-American-Studies-and-Cultures-Center. 36. “Goia´s e Lı´bano tera˜o intercaˆmbio universita´rio”, ANBA (Sa˜o Paulo), 26 December 2012. 37. Zaki Akel Sobrinho (UFPR), Antonio J. Dieck Assad (UDEM), and Anibal Jozami (UNTREF). 38. See http://lfc.ju.edu.jo/Pages/Forms/DispForm.aspx?ID¼8. 39. “Former Dominican President Inaugurates UJ’s Latin Studies Centre”, Jordan Times (Amman), 11 December 2012. 40. Universidade de Chile, http://www.estudiosarabes.uchile.cl/. 41. See http://www.cemoc.com.ar/. 42. See http://www.wiphala.org/publicemoan.html. 43. Gulf Research Meeting, Cambridge, http://grm.grc.net/index.php?pgid¼MTY3. 44. Alejandra Galindo (ed.), The Gulf and Latin America: An Assessment of Expectations and Challenges (Geneva: GRC publications, 2013). 45. Rimaal, http://www.rimaal.org. 46. Sebastian Bersick, “The democratization of inter- and transregional dialogues: the role of civil society, NGO and parliaments,” in Ju¨rgen Ru¨land, Gunter Schubert, Gu¨nter Schucher, and Cornelia Storz (eds), Asia – Europe Relations: Building Block or Stumbling Block for Global Governance? 244 – 70, (London: Routledge, 2008); Paola Panichi, “Civil Society and Non Official Diplomacy in Interregional Relations,” Briefing Paper 2013/1, European Institute for Asian Studies. 47. Gilson, “New Interregionalism?”.

References ANBA, “Goia´s e Lı´bano tera˜o intercaˆmbio universita´rio”, (Sa˜o Paulo), 26 December 2012. Andina, “Education, a Path Towards Development and Social Inclusion”, Lima, 4 October 2013. Baccini, Leonardo and Andreas Du¨r, “The New Regionalism and Policy Interdependence”, British Journal of Political Science 42.1 (2012), 57 – 79. Baeza, Cecilia and Elodie Brun, “La diplomacia chilena hacia los paı´ses A´rabes: Entre posicionamiento estrate´gico y oportunismo comercial”, Estudios Internacionales 44.171 (2012), 70. Baldwin, Richard, “21st Century Regionalism: Filling the Gap between 21st Century Trade and 20th Century Trade Rules.” No. ERSD-2011 – 08. WTO Staff Working Paper, 2011.

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Dent, Christopher M., “The Asia-Europe Meeting and Inter-Regionalism: Toward a Theory of Multilateral Utility”, Asian Survey 44.2 (2004), 213 – 36. Doidge, Matthew, The European Union and Interregionalism: Patterns of Engagement (Cambridge: Ashgate, 2011). El Universo, “Cumbre cultural a´rabe – sudamericana termina sin nuevos acuerdos”, (Guayaquil), 30 April 2014. Estada˜o, “Mostra ‘Isla˜: Arte e Civilizac a˜do’ reu´ne 300 pec as em SP”, (Sa˜o Paulo), 17 January 2011. “Final Report of the VI Meeting of the Council of High Officials of the Summit of South American-Arab Countries”, Quito, Ecuador, 26–7 February 2010, §5.1. Galindo, Alejandra (ed.), The Gulf and Latin America: An Assessment of Expectations and Challenges (Geneva: GRC publications, 2013). Gilson, Julie, “New Interregionalism? The EU and East Asia”, European Integration 27.3 (2005), 309. Ha¨nggi, Heiner, Interregionalism: Empirical and Theoretical Perspectives (St Gallen: University of St Gallen, 2000). Hardacre, Alan and Michael Smith, “The EU and the Diplomacy of Complex Interregionalism”, The Hague Journal of Diplomacy 4.2 (2009), 168 – 9. Kuwait News Agency (KUNA), “Arab-South America Educationalist Meeting Concludes”, 30 November 2011. Jordan Times, “Former Dominican president Inaugurates UJ’s Latin Studies Centre” (Amman), 11 December 2012. Manners, Ian, “Normative Power Europe: A Contradiction in Terms?”, JCMS: Journal of Common Market Studies 40.2 (2002), 235– 58. Le Monde, “Ame´rique du Sud – Pays arabes: une balbutiante coope´ration Sud – Sud”, (Paris), 3 October 2012. Powers, Kathy and Gary Goertz, “The Economic-institutional Construction of Regions: Conceptualization and Operationalization”, Review of International Studies 37.5 (2011), 2387–415. Pape, Robert A., “Soft Balancing Against the United States”, International Security 30.1 (2005), 7 – 45. “Rio Plan of Action for Cultural Cooperation”, Annex I of the Rio Communique´. Riyadh Communique, III Meeting of Ministers of Culture in the Arab and South American Countries (ASPA), Riyadh, Saudi Arabia, 28– 30 April 2014. Ru¨land, Ju¨rgen, “Balancers, Multilateral Utilities or Regional Identity Builders? International Relations and the Study of Interregionalism”, Journal of European Public Policy 17.8 (2010), 1271– 83. Si Hong Kim, “ASEM 7 and Developments of Its Socio-cultural Dimension” (presented at the International Conference held in Burapha University of Thailand on 1 August 2007). Vagni, Juan Jose´, “La cumbre Ame´rica del Sur-Paı´ses A´rabes (ASPA), Balances de un acercamiento estrate´gico”, Revista de Estudios Internacionales Mediterra´neos 8 (2009), 185–96.

TRADE RELATIONS

CHAPTER 4 LATIN AMERICA AND CARIBBEAN TRADE RELATIONS WITH ARAB COUNTRIES Osvaldo Rosales

Introduction Political and economic relationships between Latin America and the Caribbean and Arab countries are a topic that has received little attention. However, it is important to note that both regions have a long common history that began with the arrival of the first Arab immigrants to South America and the Caribbean at the second half of the nineteenth century. In comparison with the trade they have with the rest of the world, trade between the two regions is still very modest. However, bilateral relationships have been strengthened in the last decade, as evidenced by the Summit Heads of State and Government of South American and Arab Countries (ASPA) – held since 2005 – which has stressed the importance of facilitating trade between both regions. This chapter will analyse the trade relations between Latin America and the Caribbean and Arab countries.1

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Latin America and the Caribbean Bilateral Trade with Arab Countries Evolution of Trade Flows In the last decade, bilateral trade (exports plus imports) in goods between Latin America and the Caribbean and Arab Countries grew more than four times, from 8.5 billion dollars in 2003 to around 40 billion dollars in 2012. Also, the higher growth of exports relative to imports led in this period to a nearly fivefold increase in the region’s overall trade surplus with Arab countries (see Figure 4.1A). However, given the composition of these trade flows – highly skewed towards commodities and commodity-based manufactures – both exports and imports growth were largely determined by the high commodity prices that have prevailed since the early 2000s. A somewhat different picture emerges when flows are measured at constant prices (see Figure 4.1B). Although exports exhibit a quite steadily increasing trend since 2000, the average growth rate was less than half of that observed at current prices (around 8 per cent annually between 2003 and 2012, compared with 18 per cent for the latter). In the case of imports, they only show a significant increase by the end of the decade (with an average annual growth of around 10 per cent in 2003–12, compared with 18 per cent for imports at current prices) (see Table 4.1). As a result, in real terms, the region’s overall trade surplus with Arab countries experienced a more moderate increase than that observed at current prices, with a decreasing trend by the end of the period. Compared with other trading partners, in the last decade the region’s trade with Arab countries has been among the more dynamic ones, both in current and constant terms (see Table 4.1). However, the participation of Arab countries in the region’s total exports and imports is still very small, averaging only 2.3 per cent and 1.4 per cent, respectively, in 2011– 12 (compared with 1.4 per cent and 1 per cent, respectively, in 2003) (see Figure 4.2). The United States, the region itself, the European Union, China, and the ASEAN (Association of Southeast Asian Nations) þ 5 grouping2 are the major trading partners of Latin American and the Caribbean countries. As for Arab countries, the main export destinations are Asia (including China), the European Union, and the United States – which accounted for 53 per cent, 15 per cent, and 8 per cent, respectively, of

B. Constant prices (2000 2012)

Figure 4.1 Latin America and the Caribbean: trade in goods with Arab countries (in millions of current and constant 2005 dollars). Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (ComTrade) and International Monetary Fund (IMF), and price information from the International Monetary Fund (IMF), United Nations Conference on Trade and Development (UNCTAD), United States Bureau of Economic Analysis (BEA), United States Bureau of Labor Statistics and World Bank.

A. Current prices (1990 2012)

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Table 4.1 Latin America and the Caribbean: trade in goods with selected partners, 2003 – 12 (average annual variation rates, in percentages) Current prices Partner Arab countries Latin America and the Caribbean United States European Union ASEAN þ 3a Total

Constant 2005 prices

Exports Imports Exports Imports 18.4 15.5 7.3 11.4 22.6 12.5

18.3 15.1 8.4 12.8 21.8 14.0

8.4 10.6 2.2 3.3 11.8 5.6

9.8 10.2 4.0 8.9 19.1 9.6

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (ComTrade) and International Monetary Fund (IMF), and price information from the International Monetary Fund (IMF), United Nations Conference on Trade and Development (UNCTAD), United States Bureau of Economic Analysis (BEA), United States Bureau of Labor Statistics and World Bank. a The ASEAN þ 3 group comprises the member countries of the Association of Southeast Asian Nations (ASEAN) plus China, Japan, the Republic of Korea, the Chinese special administrative regions of Hong Kong and Macao, and Taiwan Province of China.

total exports in 2011 – 12 (see Figure 4.3A). On the other hand, Arab countries’ imports concentrate in Asia, the European Union and the grouping itself – with average shares of 36 per cent, 27 per cent, and 12 per cent, respectively, in 2011 – 12 (see Figure 4.3B). Trade with Latin America and the Caribbean represented only 1 per cent of these countries’ total exports and 3 per cent of their total imports in 2011 – 12. A breakdown of trade relationships between Latin America and the Caribbean and Arab countries by sub-region shows that they are dominated by flows from/to South American countries (see Figure 4.4). Particularly, Mercosur is the largest trading partner of Arab countries in the region (accounting for 89 per cent of exports and 78 per cent of imports in 2011– 12), and shows an increasing bilateral trade surplus since the early 2000s (until 2011). By contrast, the Andean community explains a very small share of the region’s trade with Arab countries

United States 37

Others 10

Rest of Africa 1

Arab Countries 2

LAC 19

EU27 14

China 15

United States 31

ASEAN +5 12

B. Imports

Others 5

Rest of Africa 1

Rest of Europe Arab 2 Countries 1

Figure 4.2 Latin America and the Caribbean: breakdown of trade in goods by partner, average 2011 – 12a (percentages of total). a The ASEAN þ 5 group comprises the member countries of the Association of Southeast Asian Nations (ASEAN) plus Japan, the Republic of Korea, Australia, New Zealand, and India. Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (ComTrade).

LAC 19

EU27 12

Rest of Europe 3 ASEAN +5 China 7 8

A. Exports

EU27 15

United States 8

Others 11

Rest of Europe 0

LAC 1

Oceania 1

Arab Countries 7

Rest of Asia 25

EU27 27

China 11

Africa 4

Rest of Europe 2

United States 8

Others 8

Arab Countries 12

B. Imports

LAC 3

Oceania 0

Figure 4.3 Arab countries: breakdown of trade in goods by partner, average 2011 – 12 (percentages of total). Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (ComTrade) and International Monetary Fund (IMF).

Rest of Asia 44

China 9

Africa 4

A. Exports

D. The Caribbean

C. Central America

Figure 4.4 Sub-regions of Latin America and the Caribbean: trade with Arab countries, 1990–2012 (in millions of current dollars). Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (ComTrade) and International Monetary Fund (IMF).

B. Mexico

A. South America

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(around 1 per cent of its exports and 3 per cent of its imports in 2011– 12), showing a fluctuating bilateral trade balance. In the case of Mexico, its trade represents a considerably higher share of the region’s imports from Arab countries than that of exports (around 11 per cent and 5 per cent, respectively, in 2011– 12), and bilateral trade balance shows a persistent deficit for Mexico since the late 1990s (except in 2009 when imports decreased more than exports due to the effects of the global economic crisis). Notwithstanding this, both exports and imports have experienced a significant growth during the last decade (see Figure 4.4B and Table 4.2). In contrast with Mexico, the Central American sub-region – which accounted for around 1 per cent of Latin America and the Caribbean’s trade with Arab countries in 2011– 12 (both in exports and imports) – presents a steadily positive trade balance with these partners, with a strong increase in exports since 2009 (explained, mainly, by Costa Rica). However, in the last ten years imports growth has been significantly higher than that of exports (see Figure 4.4C and Table 4.2). As for the Caribbean, trade with Arab countries –less than 1 per cent of the region’s exports to this destination and around 4 per cent of its imports in 2011– 12 – presents a persistent deficit since the late 1990s, Table 4.2 Sub-regions of Latin America and the Caribbean: trade in goods with Arab countries, 2003–12 (average annual variation rates, in percentages) Current prices Sub-region South America Mexico Central America The Caribbean Latin America and the Caribbean

Constant 2005 prices

Exports Imports Exports Imports 18.3 21.2 16.6 9.9 18.4

18.5 16.2 28.0 14.0 18.3

7.9 17.2 8.2 3.9 8.4

9.3 11.8 21.4 1.4 9.8

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (ComTrade) and International Monetary Fund (IMF), and price information from the International Monetary Fund (IMF), United Nations Conference on Trade and Development (UNCTAD), United States Bureau of Economic Analysis (BEA), United States Bureau of Labor Statistics and World Bank.

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which contrasts with what was observed previously in that decade (see Figure 4.4D). This inversion in the sign of the trade balance is explained by the higher growth experienced by imports, relative to exports (see Table 4.2).3 In most sub-regions, both exports and imports growth were largely driven in the last decade by the surge in commodity prices, as evidenced by the significantly lower variation rates observed in this period for flows measured at constant prices (see Table 4.2). The analysis by country shows that Latin America and the Caribbean’s exports to the Arab economies are highly concentrated in three origin countries, which accounted for 91 per cent of total exports in 2011 –12: Brazil (62 per cent), Argentina (24 per cent) and Mexico (5 per cent) (see Figure 4.5A). Also, Brazil concentrates most of the region’s imports from Arab countries, followed by Mexico and Argentina (with shares of 72 per cent, 11 per cent, and 5 per cent, respectively, in 2011–12) (see Figure 4.5B). Among Arab countries, Saudi Arabia is the main trading partner for Latin America and the Caribbean, accounting for 28 per cent of these countries’ exports to the region and 19 per cent of their imports in 2011–12 (see Figure 4.6). Other important partners are Algeria, Morocco, Egypt, and the United Arab Emirates. The most important bilateral relations between countries in the two regions include Brazil’s exports to Saudi Arabia, Egypt and the United Arab Emirates (which accounted for 14 per cent, 12 per cent, and 10 per cent, respectively, of total exports of Latin America and the Caribbean to Arab countries in 2011–12). Next in importance are Argentina’s exports to Algeria and Egypt (6.9 per cent and 6 per cent, respectively, of the region’s total exports to Arab countries in 2011– 12). As for bilateral relationships involving imports from Arab Countries, stand out those of Brazil with Algeria and Saudi Arabia (in both cases, around 23 per cent of the region’s imports from Arab markets in 2011–12).

Breakdown of Bilateral Trade by Technological Intensity Primary products and manufactures based on natural resources have traditionally accounted for the largest share of Latin America and the Caribbean’s exports to Arab Countries (65 per cent and 25 per cent, respectively, of total exports in 2012) (see Figure 4.7A). In the last decade, this product pattern intensified as the share of medium-technology

Mexico 5

Argentina 24

Brazil 62 Brazil 72

Mexico 11

B. Main importers

Others 9

Peru 1

Chile 2

Argentina 5

Figure 4.5 Latin America and the Caribbean: main exporters and importers to/from Arab countries, average 2011 –12 (percentages of total). Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (ComTrade) and International Monetary Fund (IMF).

Chile 2

Uruguay 1

Others 6

A. Main exporters

Others 9

United Arab Emirates 6 Kuwait 5

Iraq 6

Qatar 9

Saudi Arabia 19

Egypt 18

United Arab Emirates 16

Others 21

Algeria 14

B. Main importers

Tunisia 3

Oman 4

Morocco 6

Figure 4.6 Arab countries: main exporters and importers to/from Latin America and the Caribbean, average 2011 – 12 (percentages of total). Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (ComTrade) and International Monetary Fund (IMF).

Saudi Arabia 28

Algeria 25

Morocco 12

A. Main exporters

B. Imports

Figure 4.7 Latin America and the Caribbean: breakdown of trade in goods with Arab countries by technological intensity, 1990 –2012 (percentages of total). Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (ComTrade).

A. Exports

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manufactures decreased (from 12 per cent in 2003 to 8 per cent in 2012) while those of low- and high-technology manufactures remained marginal (between 1 per cent and 3 per cent of total). Latin America and the Caribbean’s imports from Arab countries are also strongly concentrated in primary products and natural-resourcebased manufactures (see Figure 4.7B). However, during the last decade the share of primary products decreased significantly (from 63 per cent in 2003 to 49 per cent in 2012), in benefit of medium-technology manufactures (which doubled their share in total imports, from 8 per cent in 2003 to 16 per cent in 2012). Also in this case, low- and hightechnology manufactures accounted for a marginal share of total imports throughout this period.

Main Products Trade between Latin America and the Caribbean and Arab countries is also highly concentrated in terms of products. In the 2011 –12 biennium, the top nine products exported by the region (eight of which were primary products or manufactures based on natural resources) accounted on average for almost 80 per cent of its total exports to this destination (see Figure 4.8A). On the other hand, oil, gas, and oil-based manufactures (such as fertilizers and polymerization products) represented in this period almost 90 per cent of Latin America and the Caribbean’s imports from Arab Countries (see Figure 4.8B). This reveals an inter-industry trade pattern between the two regions. The analysis by country shows that the high level of concentration of exports to the Arab economies, in terms of products, is a feature shared by all Latin American countries, with the top five products accounting for between 61 per cent and 100 per cent of total exports (see Table 4.A1 in the Annex). In most cases, main exports concentrate in agricultural and agricultural-based products (such as maize, wheat, oilseeds, vegetable oils, fruits, sugar, honey, coffee, meat, and seafood) and minerals and metals (such as iron ore and concentrates, and copper). Unlike other countries in the region, Mexico’s exports to Arab countries consist mainly of manufactures not based on natural resources (vehicles, civil engineering machines, and telecommunication equipment). Other countries (like the Dominican Republic, El Salvador, and Panama) also present some manufactures not based on natural resources among their main exported products.

Unmilled maize 10.8

Meat 16.1

Sugar and honey 18.7

Iron ore and concentrates 11.5

Others 22.9

Gas, natural and Manufactured 12.4

Fertilizers, Manufactured 12.4

Polymerization Products 3.5

Petroleum products, refined 30.6

Others 11.8

B. Imports

Petroleum oils 31.0

Figure 4.8 Latin America and the Caribbean: composition of trade with Arab countries by main products, average 2011 – 12 (percentages of total). Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (ComTrade).

Vegetable oils 4.9 Feed for animals 5.4

Wheat 4.6

Oil seeds and oleaginous fruit 2.7

Civil engineering machines 2.4

A. Exports

TRADE RELATIONS

WITH

ARAB COUNTRIES

85

Latin American countries’ imports from Arab economies are also highly concentrated in few products (with the top five products accounting for between 59 per cent and 95 per cent of total imports) (see Table 4.A2 in the Annex). In most cases, main imports consist of oil (crude and refined), gas, manufactured fertilizers, and polymerization products.

Conclusions Although relations between Latin America and the Caribbean and Arab countries can be traced back to the second half of the nineteenth century – when the first Arab immigrants arrived to the region – bilateral trade levels have been very modest to date. The analysis presented in this report also shows that trade flows are highly concentrated in terms of the countries involved, with Brazil and, to a lesser extent, Argentina and Mexico accounting for the bulk of the region’s exports and imports to/from Arab countries. In addition, the composition of these trade flows is heavily skewed towards commodities and commodity-based manufactures, which makes them vulnerable to variations in commodity prices. Also, both exports and imports are highly concentrated in terms of products. Both regions have shown interest in increasing their bilateral trade, in order to reduce their dependency on the economies of Europe and the United States. The greatest opportunities for Latin American and the Caribbean countries, in terms of exports, are in the food sector, given the region’s comparative advantages in agricultural production and the fact that Arab countries are net food importers. In addition, Arab economies’ financial resources combined with some Latin American and the Caribbean countries’ technology – especially that of Brazil – represent significant opportunities for cooperation in high-yield agricultural products. Notwithstanding this, both regions should work towards a further diversification of their export baskets. Bi-regional relations present important challenges that need to be addressed in order to realize common objectives. Among them, the instability of the Middle East region, divided by religious differences and conflicts. As for Latin American and the Caribbean countries, the main issues relate to their high levels of inequality, weak infrastructure, low levels of workforce skills, as well as their sometimes divergent interests.

Share in exports

62.1

24.3

4.5

1.9

1.1

1.0

1.0

0.9

0.5

Brazil*

Argentina*

Mexico*

Chile*

Uruguay*

Guatemala*

Venezuela**

Paraguay*

Ecuador*

Second product

Petroleum products, refined (37) Oil seeds and oleaginous fruit (48) Fruits and nuts (74)

Spices (72)

Fresh crustaceans and molluscs (14)

Crude vegetable materials (3)

Copper (19)

Civil engineering machines (12)

Iron ore and concentrates (18) Vegetable oils (14)

Third product

Wheat (10)

Wheat (9)

Unmilled maize (6)

Fourth product

Sugar confectionery and other sugar (2)

Wood, simply worked (16) Butter (10) Oil seeds and oleaginous fruit (7) Sugar and honey Fruits and nuts (1) Special transactions (24) and goods (1) Ships, boats and Pig iron, spiegeleisen, Residual petroleum products (9) sponge iron, iron or floating steel (19) structures (20) Vegetable oils Unmilled maize (12) Meat (5) (27)

Sugar and honey Meat (25) (29) Unmilled maize Feed for animals (28) (21) Passenger Vehicles for vehicles (14) transport of goods (18) Fruits and nuts Iron ore and (26) concentrates (20) Rice (37) Wheat (14)

First product

Latin America: top five products exported to Arab countries (percentage of total)

Country

Table 4.A1

4. ANNEX

Fruit preparations (1)

Coffee and coffee substitutes (1) Ores and concentrates of base metals (9) Wheat (5)

Ores and concentrates (4) Milk and cream (7)

Oil seeds and oleaginous fruit (6) Telecommunications equipment (7)

Wheat (3)

Fifth product

94

97

93

99

75

85

61

78

81

Top 5

0.4

0.1

0.0

0.0

0.0

0.0

0.0

0.0

Peru*

Costa Rica*

Nicaragua*

Panama***

Bolivia*

Dominican Republic* Honduras****

El Salvador*

Sugar and honey Sugar confectionery Coffee and coffee Coal, lignite and Live animals (9) and other sugar (9) substitutes (8) peat (5) chiefly for food (32) Ores and Milk and cream Zinc (4) Gold, non-monetary Fresh vegetables (3) concentrates (61) (5) (4) Fruits and nuts Other wood in Coffee and coffee Sanitary, heating, Edible products (4) (41) the rough (17) substitutes (7) lighting (6) Sugar and honey Coffee and coffee Fresh crustaceans Cheese and curd Gold, non-monetary (76) substitutes (21) and molluscs (2) (0.3) (0.2) Perfumery Recording Fresh crustaceans Waste of iron and Automatic data products (31) devices (24) and molluscs (11) steel (8) processing machines (5) Vegetable oils Fruits and nuts Fresh vegetables (5) Jewellery and Petroleum products (72) (7) goldsmiths (3) (3) Manufactured Footwear (20) Clothing for men (6) Underware (4) Fresh crustaceans tobacco (47) and molluscs (3) Fruits and nuts Coffee and coffee Sugar and honey (18) Manufactured Textil machinery (1) (46) substitutes (28) tobacco (6) Furniture and parts Coffee and coffee Printed matter (6) Fish, crustaceans Medicinal and (9) substitutes (8) pharmaceutical and molluscs, products (19) prepared or preserved (37) 79

99

80

90

79

100

75

77

63

Notes: a) *average 2011–12, **average 2010– 11, ***2011, ****2009. b) Share in exports refers to each country’s participation in total exports to Arab countries in 2011– 12. Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (ComTrade) and information from the External Trade Data Bank for Latin America and the Caribbean (BADECEL).

0.5

Colombia*

Share in imports

71.7

11. 3

4.8

2.5

1.2

1.1

0.9

0.5

0.5

Brazil*

Mexico*

Argentina*

Chile*

Peru*

Colombia*

Ecuador*

Uruguay*

Venezuela**

Second product

Third product

Fourth product

Fifth product

Crude oils (41)

Manufactured Gas, natural and Polymerization Petroleum fertilizers (12) manufactured (7) products (1) products, refined (33) Manufactured Gas, natural and Aluminium (10) Crude fertilizers (6) Petroleum fertilizers (3) products, refined manufactured (17) (46) Polymerization Alcohols, phenols Crude fertilizers (3) Gas, natural and Manufactured fertilizers (20) products (4) (3) manufactured (56) Manufactured Television receivers Gas, natural and Polymerization Pumps for liquids products (16) (3) fertilizers (2) (1) manufactured (71) Crude fertilizers Television receivers Aluminium (2) Polymerization Wire products (11) (2) products (49) and fencing grills (25) Iron structures Manufactured Clothing for women Polymerization Petroleum (10) fertilizers (10) (6) products (28) products, refined (12) Polymerization Aluminium (6) Organo-inorganic Gas, natural and Waste derived products (10) and heterocyclic from petroleum manufactured compounds (6) (17) (49) Manufactured Crude fertilizers Polymerization Other machinery Aluminium (2) fertilizers (57) (20) products (4) and equipment (2) Crude fertilizers Manufactured Other crude Organo-inorganic Steam boilers (17) fertilizers (10) minerals (8) and heterocyclic water generators compounds (4) (20)

First product

Latin America: top five products imported from Arab countries (percentage of total)

Country

Table 4.A2

59

85

88

66

89

93

86

82

94

Top 5

0.4

0.3

0.2

0.1

0.1

0.1

0.0

0.0

Costa Rica*

Guatemala*

Paraguay*

Panama**

El Salvador*

Bolivia*

Nicaragua*

Honduras***

Clothing for women (20)

Heating and cooling equipment (45) Polymerization products (85)

Aluminium (44)

Floor coverings (29)

Manufactured fertilizers (64)

Polymerization products (71)

Gas, natural and manufactured (85) Crude oils (68)

Crustaceans and molluscs, prepared or preserved (1) Other clothing (9)

Civil engineering machines (5)

71

92

71

92

65

Fabrics, woven, of man-made textile materials (7) Telecommunications equipment (1)

Lime, cement and construction materials (9) Crustaceans and molluscs, prepared or preserved (4) Polymerization products (5)

Parts and accessories of vehicles (9) Manufactured fertilizers (18)

88

Radio-broadcast receivers (2)

Spices (2)

89

Polymerization products (6)

Other inorganic chemicals (2)

95

92

Paper and paperboard (2)

Other inorganic Lime, cement and chemicals (1) construction materials (1) Clothing for women Clothing for men (1) (1)

Condensation products (3)

Polymerization products (12)

Clothing for women (2)

Other power generating machinery (8) Paints and Clothing for women Special related materials transactions and (2) goods (2) (2) Fish, crustaceans Clothing for men Manufactured and molluscs (17) (13) fertilizers (10)

Other inorganic chemicals (8)

Polymerization products (25)

Ships, boats and floating structures (13) Wire products and fencing grills (11) Petroleum products, refined (14) Perfumery products (11)

Polymerization products (3)

Notes: a) *average 2011– 12, **2011, ***2009. b) Share in imports refers to each country’s participation in total imports from Arab countries in 2011– 12. Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (ComTrade).

0.4

Dominican Republic*

90

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AND LATIN

AMERICA

Notes 1. The Latin America and the Caribbean countries considered in this report are Antigua and Barbuda, Argentina, Bahamas, Barbados, Belize, the Plurinational State of Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, Uruguay, and the Bolivarian Republic of Venezuela. The Arab countries included are Algeria, Bahrain, Comoros, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Palestinian territories, Qatar, Saudi Arabia, Somalia, Sudan, the Syrian Arab Republic, Tunisia, United Arab Emirates, and Yemen. 2. The ASEAN þ 5 group comprises the member countries of the Association of Southeast Asian Nations (ASEAN) plus Japan, the Republic of Korea, Australia, New Zealand, and India. 3. It should be noticed that the availability of bilateral trade data for some Caribbean countries is rather limited, which leads to combine different sources of information and may affect the analysis.

CHAPTER 5 REFLECTIONS ON MERCOSUR—ARAB COUNTRIES BI-REGIONAL PREFERENTIAL TRADE AND INVESTMENT AGREEMENTS Fe´lix Pen˜a

Introduction Three summits involving Latin American and Arab countries have taken place. The most recent was in Lima in October 2012.1 Also in November 2012, an Arab – Latin America Forum was organized in Abu Dhabi.2 Most probably those meetings at the governmental, business and civil society level will continue in the future. They are necessary even if it is difficult to predict their real results with respect to further economic cooperation and preferential trade and investments. From a practical point of view, most developments related to the economic relations among countries of both regions have been at the bilateral level. Even if some trade agreements have been signed between Mercosur and different Arab countries3, nothing similar to a complex network of effective rules and institutions related with bi-regional preferential trade and investments exists. In the future, the possibility of increasing bi-regional economic cooperation between Arab and Mercosur countries will probably depend on how

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the South – American integration process itself evolves. Eventually, an agreement between Mercosur and Gulf Cooperation Council’s countries (GCC) could be the first step toward more systematic relations along the lines of other preferential trade agreements among developing countries. This chapter will present some preliminary reflections concerning the conditions that could contribute to the development of a future network of preferential trade and investment relations between Mercosur and Arab countries. They are based on Mercosur’s accumulated experiences in its international trade negotiations, and assume that Mercosur will overcome its more recent difficulties. The main idea is that the signature of preferential trade agreements is only one step and its practical relevance will depend of many other steps on both sides of the relationship.

Some Conditions to Navigate a Diversified, Dynamic and Complex International Trade Scenario In an attempt to diagnose the possible – and uncertain – evolution of the current international scenario in the perspective of the future of global trade and the main fronts of multilateral and preferential trade negotiations, three features seem relevant: The first is the diversity of actors. Today there are many countries with the capacity to have a significant impact at the international level. Some of them – for example China and India– have centuries of accumulated experiences. It is also the case of Arab countries. Understanding the multiple options they have with respect of their respective international strategies and, in particular, the cultural differences and perceptions of their interests and values is now something of increasing importance for all nations and regions. The second feature is the strong dynamics of change. The ability to grasp in a timely manner those events loaded with future implications, as well as the major trends manifested in the international arena are also necessary, difficult and relevant for individual countries and their business environments. The third feature is complexity. It implies the ability to take on the existing differences and to resist any tendency to simplify reality. The least advisable in attempting to understand the world today and its

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future development and pretend that what is happening is only similar to what has been happening since, for example, the creation of GATT or even the WTO. In at least three levels it would seem advisable for a country and its businesses to draw operational conclusions on how to navigate a world marked by multiple diversities, dynamics of continuous change and notorious complexities. The first is the development of synergies between the government, business and academic sectors (national and local) for a continuous assessment of the evolution of the international context in view of their common interests and of each sector, activity or specific product. This, in particular makes it more necessary to fully harness the diagnostic capabilities that may be developed in academic institutions, provided that they interact closely with government institutions and production sectors. Understanding the international context and its evolution within each concrete perspective is a key requirement for a successful integration of countries and businesses in the world of today and the future. A second level is that of joint action strategies with other countries and other companies within the same region and globally. This involves innovative and sometimes unorthodox approaches – for example taking advantage of the embedded flexibilities of the existing institutional frameworks and ground rules – both to address international trade negotiations and to ensure an effective development of productive integration schemes across the multiple variants of transnational value chains. Both the development of Mercosur as its current negotiations with the EU and among others with the Arab countries, for example, would require a strong capacity for innovation that would enable, additionally, to capitalize on the experiences and assets accumulated since they were initially outlined. And the third level is that of a national strategy for the international economic integration that, while articulating the interests of all the sectors of society, leads to generate viable agreements with other nations and regions, which are both flexible and predictable. This would help aspire to have an actual impact on productive investment and on the ability to project to the world what the country can offer in terms of goods and services that are attractive for other countries.

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The Relevance of International Trade Negotiations Preferential international trade negotiations among a group of countries, particularly those that are relevant players in global economic competition due to their economic dimension, could have a strong impact on the design of the map of international trade and perhaps also in the map of world power. However, this is not always the case as demonstrated by the experience of the FTAA and perhaps also the attempted strategic partnership between the EU and Mercosur. This is the reason why they need to be followed closely by other countries and companies with active integration in world markets, even while not directly involved in a specific negotiation. This is so because the design of the ground rules of the global trade of tomorrow defines the winners and losers with all the political implications this entails when competing for access or presence in those markets that are the most attractive. In an era of proliferating global value chains the trade of tomorrow begins with the productive investments of today, and the effects of international trade negotiations in progress on a country and its businesses, even when not participating directly in them, can be noticed in the very short term. The above considerations become ever more relevant today due to two concurrent facts: on the one hand, the relative stagnation that dominates the front of multilateral trade negotiations within the WTO and, on the other hand, the size of the economies involved in the current negotiations of mega interregional preferential trade agreements, such as the TransPacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TATIP), or agreements that are being promoted by the countries of the Asia-Pacific region – the Regional Comprehensive Economic Partnership (RCEP) – and the EU itself, especially with India, Canada and Japan. These events evoke conflicting diagnoses. In some cases they focus on the need to preserve and even strengthen WTO’s multilateral trading system; in others – to the contrary – they lead to recommend a new organization with participation limited to a restricted group of countries, a hypothetical WTO 2.0 as stated by Richard Baldwin.4 With respect of WTO, there are no promising prospects so far for the future of the Doha Round. With respect of the mega interregional preferential trade agreements currently under negotiation, it is important to note that a process has started and could involve the

BI-REGIONAL TRADE AGREEMENTS

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incorporation of Japan to the TTP and eventually Korea, the Philippines and Thailand. Expanding the number of countries and the diversity of situations and interests at stake may nevertheless accentuate the doubts regarding the possibility of effectively reaching the conclusion of the negotiations within the proposed deadlines or, at least, in a reasonable period of time. The other front to follow very closely concerns the negotiation of the corresponding preferential trade agreement between the EU and India. Understanding the evolution of the various fronts of international trade negotiations implies, moreover, the ability to interpret the major trends that are affecting the definition of the new map of global power and even of the different regions. In order to do this we must acknowledge that, as noted by Pascal Lamy,5 geopolitics has returned to the international trade negotiation table. On the same note, Zaki Laidi6 has referred to the fact that these negotiations of interregional preferential trade mega-agreements highlight the fact that power politics has come back to influence the strategies of the major players in world trade. Perhaps this was always the case. But until recently there was a tendency to consider that economic factors were what really mattered, sometimes nuanced in certain analysis by the influence that the political factors could have on them. But it was only a nuance, given that many analysts did not view politics as the central aspect in these negotiations.

The Importance of Preparing Each Country for the “Day After” Preferential Trade Negotiations Preparing for the “day after” would seem to be a priority for any country involved in preferential trade negotiation with a view to signing a concrete agreement. As a result of this, both Mercosur and participating Arab countries will have much to explore in terms of the joint utilization by their businesses of the new economic space that would open up if any future agreement were to be concluded and implemented. Any differences in the intensity and quality of the respective preparatory processes aimed at capitalizing on the opportunities resulting from a bi-regional agreement could contribute to emphasize the asymmetries in size and level of development of the countries involved on both sides of an agreement.

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Thus, a new agenda for the joint work between Mercosur members and Arab countries would be required. It involves their respective governments, businesses and social and academic sectors. This agenda is related with the preparation that will be required in order to take full advantage of the eventual agreement if such process were to be concluded successfully. Therefore, a pessimistic outlook of the possibilities that could emerge by any concrete negotiation and a passive attitude, particularly from the business sectors, due to lack of preparation to sail successfully into the “day after”, could later mean the loss of business opportunities that normally require considerable time to be restored fully. Such preparation would entail decisions for productive investments and for the incorporation of technical advances that demand a positive perception of the possibilities of concluding the agreement within a reasonable period and of the density and reliability of the commitments that are undertaken. Within this perspective, excess of pessimism or scepticism could be the equivalent of a self-fulfilling prophecy. Many successful countries in the global economic competition have become so by developing an optimistic vision of what can be achieved both by negotiating and by carrying out aggressive penetration strategies in foreign markets. In any case, the mere fact that the negotiations are launched constitutes in itself a positive factor that prompts us to reflect on some of the requirements that may arise when outlining and developing a strategy for any of the participating countries with intent to expand foreign trade penetration within a new scenario involving the eventual conclusion of a preferential trade agreement. It should be noted in this regard that the current world scenario has multiple developing countries players with attractive markets – though differentiated in their size and level of complexity and development – and with enough capacity to influence both global economic competition and the ground rules that result from international trade negotiations. We are not referring exclusively to the so-called BRICS countries. This fact generates a wide range of options for any country that has the intention and potential to profit from them, including Mercosur partners and associates, as well as Arab partners involved in concrete negotiation and eventual conclusion of an agreement. The vast range of options has a strong influence in the scope and methods of economic coalitions and associations – which will always

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carry a dose of strategic and political support, either explicitly or implicitly – that may be formed between pairs and groups of countries. The trend towards the proliferation of cross-alliances and of variable geometry will influence the demand for flexibility of the operational instruments and mechanisms that will be increasingly present in the negotiations of new preferential trade agreements. In this respect, there is not a single model to follow but many variations that may be compatible in their preferential trade aspects with World Trade Organization (WTO) rules (article XXIV of GATT and V of GATS). It will be increasingly evident that, in spite of the importance of an association with a single country or group, every country that has the possibility to do so will attempt to preserve some room for manoeuvre, even an ample one, to craft its own network of simultaneous partnerships with as many countries as possible. In this sense the countries associated with Mercosur will be no exception, whatever their relative economic weight may be. In addition, this is a trend that will increase the demand for the consolidation and reestablishment of the WTO as a space for the development of collective disciplines that are efficient and effective. The relative stagnation of the current Doha Round may even offer an incentive to start an in-depth debate on the future of the global multilateral system of world trade. Three courses of action gain particular relevance in the outline of a strategy for the inclusion of Mercosur and Arab countries within the new world international commercial scenario. This strategy also involves preparing these countries for the “day after” any negotiations of similar importance that may be undertaken in the future with other relevant players of the global economic competition. The three courses of action are interrelated and could not be considered separately when confronting the task of outlining and developing an effective country strategy for foreign trade inclusion. They refer to different modalities and intensities of the production clusters at a transnational level; the quality of connectivity between different national spaces; and the creation of ground rules that affect global or regional economic competition. The public –private synergies that result from the interaction between public policies and the strategies for productive investment may have the strongest influence on the modalities and intensities of the transnational productive clusters in which the producers of goods and

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services of a country may participate – or even encouraged. Within the current global economic competition, the fragmentation of the value chains in multiple countries at the global or regional level is one of the most profound changes that has taken place in the last decades – and one that will continue to accentuate in the future. Among other factors, this has been triggered by the impact of the multiple technological advances and subsequent disappearance of physical and cultural distances between the diverse economic spaces. This has originated multiple mechanisms of cross-border articulation at the level of production and distribution of goods and provision of services. Considering the wealth of natural and human resources in Mercosur and South American countries, the contribution of intellectual value (knowledge, innovation and technical progress) to external productive and marketing processes, as well as inclusion in transnational productive networks, are key factors at the moment in capitalizing on the competitive advantages that each country can develop within the new global scenario of economic competition. The increasing urbanization, growth of the middle classes, sensitivity to the quality of goods and services, the “green” awareness, and even the increase in the number of “older adults” in many countries, are other factors that need to be taken into account when outlining a country strategy that helps maximize what the country has to offer in terms of goods and services, recreational activities and talent. This becomes evident for example in food and agribusiness value chains, where the strategy of Mercosur countries – or of any of its South American partners – should focus on “green” and “intelligent” products destined for aisles all around the world – including Arab countries – and on specialized services that incorporate cutting-edge technologies for agricultural development. The public–private synergies will also have an effect on the quality of the connectivity with other economic and cultural spaces. This refers not only to physical connections but also to the ability that any country may develop to fully grasp and understand the cultural diversity that impacts the tastes and preferences of consumers all over the world. Mercosur partners are especially well prepared for this task due to the cultural crossbreeding that characterizes its population, including those of Arab origin. In reference to the creation of ground rules that affect global economic competition, they are the result of the rulemaking process in

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which the country participates – or sometimes of those rulemaking processes that only involve other relevant nations whose businesses and producers form part of the competition. These rulemaking processes can be global and multilateral, such as the case of those originating within the WTO, or regional, as in the case of Mercosur and its incipient network of preferential trade agreements with other countries or economic blocs, including in this particular case the Arab countries. However, these are also national rulemaking processes, either of one’s own country or of those countries in which there are future plans to produce goods and provide competitive services. In this regard, it should be noted that international trade negotiations translate into ground rules that give shape to international legal instruments. They generate binding rights and obligations. Their quality determines their efficiency to promote productive investments in terms of the enlarged markets. Often this is the main reason behind preferential trade agreements. Additionally they may generate mechanisms for the creation of rules that make the development of the objectives of the partnership possible through time. They also enable the adaptation of the partnership and its functional instruments and mechanisms to the new realities that result from the dynamic changes that can be observed in international trade and in the global economic competition (for example through “evolutionary clauses”), as well as to elude any unforeseen difficulties derived from the behaviour of the respective markets (for example through contingency measures or “safety valves”). The ability to negotiate with other countries and, at the same time, to be prepared to take advantage of the opportunities that arise from any resulting agreements, are then two inseparable elements of the foreign trade strategy of any participating country in a concrete preferential trade negotiation. One aspect is inherently built on the realization of the other aspect, considering that the results of an international trade negotiation need to take into account the degree of preparation that can be reasonably expected from the country and its productive sectors. The experience gathered, for example, by Latin American countries that have already negotiated with the European Union (EU) or with the United States – such as those concluded by Chile, Mexico, Peru, Colombia and Central America – or others that are currently negotiating with the EU – such as India, Indonesia and Singapore, among others – can be of

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great service for Mercosur partners and Arab countries in their own biregional preferential trade negotiations. On this plane, the academic sector could play a valuable role through the analysis of the experiences accumulated by these countries and, especially, of the interaction between the negotiations and the preparation of the respective country and businesses for taking advantage of the opportunities that may be generated by the enlarged markets. However, this becomes more complex when an international preferential trade negotiation involves countries with different levels of development and different international experiences. This is the case of the negotiations between Mercosur – with its own internal asymmetries – and the EU, which, aside from the current crisis, still has a much higher level of organization and economic development. Nevertheless, the experience of many countries demonstrates that complex and difficult tasks are not necessarily impossible to accomplish.

The Quality for Commercial Diplomacy and Its Role in the Future Mercosur – Arab Countries’ Trade Relations The quality of commercial diplomacy is an important factor for the effectiveness of a strategy of active integration of a country in international economic competition, both at the global scale and in the different regions, beginning with its own region. It seems that this factor will be of increasing importance in the future. Among other possible unfolding factors is a good quality commercial diplomacy that involves making other markets aware of what a country can offer of value in terms of goods, services, technology, capitals, ideas as well as job opportunities, training and business cooperation. And, in turn, it can convey what it desires to obtain from those with which it aspires to maintain close trade relations. It implies knowledge and, above all, an understanding and appreciation of the multiple diversities, especially cultural, between countries in order to maximize them in terms of more intense relations. It also involves generating conditions for building an ideal framework to promote optimal economic interactions with each of the other countries. One can hope to achieve all this, not only through an active, consistent and non-sporadic presence and through negotiations – usually governmental – but also through other kinds of actions that lead to the creation of an image, and the

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development of different kinds of coalitions and alliances, especially multiple forms of social networking. It is possible to witness how the new international realities are impacting the way in which countries face the development of their commercial diplomacy. These are the result, among other things, of technological changes that are shortening the physical, economic and cultural distances; relative economic power shifts between countries and regions; the growing importance of non-state actors; the development of transnational production chains; the rise and empowerment of urban consumers with middle class incomes, and the proliferation of “private clubs” in world trade. In many cases these impacts involve radical changes to what has prevailed in commercial diplomacy until recently. In fact, governments and in particular their diplomatic services are ceasing to be the only or even the main protagonists of an activity that is becoming multifaceted, complex and very dynamic. Increasingly we are seeing multiple other players who can help develop an effective commercial diplomacy, considered in the broader sense as raised here. Besides government technical areas other possible players through their presence and activities can be, among others, businessmen, athletes, artists, musicians, intellectuals, scientists and scholars, travellers, backpackers, tourists, politicians and union leaders, students and workers and those members of many diaspora. Many times without being aware of it they become like trade agents for their country. They can be carriers of a country’s image and readers of other realities. They are transmitters of visions, insights and information that may be critical for the competitive intelligence of their country. They are also relevant actors in the web of interrelations that helps facilitate the economic interactions between countries. Their potential can be increased in the measure that a country has sufficient focal points able to capture and process information that helps develop a strong capital of competitive intelligence which is, today, a key factor in a country’s ability to negotiate and compete in the world. Often times, such capital results from a dense and adequate interaction between the government, business and academic sectors. The aforementioned becomes more important still if we consider the fact that global economic competition takes place simultaneously in different scenarios with different intensities of connection between each

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other. Hence, the commercial diplomacy of a country now resembles a game played on multiple boards simultaneously. However, that game would not necessarily be chess but something closer to poker, given that a key factor for success, besides luck, is bluffing.

Conclusions The multiple scenarios of bi-regional trade agreements between Arab and Latin American countries can be individual countries, especially when these are of great economic dimension, but spaces are increasingly becoming regional and interregional. In a multi-spatial commercial diplomacy the key is then to be able to identify the communicating vessels that exist or that may be developing, sometimes imperceptibly, between countries and regions. They can be different forms of transnational value chains. And so are the new axes or corridors of transportation, trade and investments. Being able to detect what these interconnections may mean for the international trade integration of Mercosur and Arab countries is one of the core qualities of an effective and modern commercial diplomacy agenda. Investment and trade corridors have existed for many centuries. In the past they were the Silk Roads or spices trade routes.7 Highly valued merchandise continuously travelled back and forth through them, but also people, ideas, technical knowledge, customs, beliefs. They were not static corridors. They were of variable geometry and changed over time. For many centuries in the past camels, horses and, above all, merchants travelled through these corridors, as did wooden ships and warriors. The trade corridors had a deep geopolitical impact. They were power vectors. In the new trade and investment corridors of the twenty-first century we find goods, services, technologies, financial resources and people. We can also find drugs and weapons. They travel in containers as a result of the continuous technological evolution of intermodal transportation – for example, the growing size of container ships and their subsequent impact on the capacity of ports – or they travel through digital channels, through the internet. Also, workers, businessmen, technology agents and tourists, among others, travel in ever-larger aircrafts with more efficient economic performance. In the perspective of Mercosur and Arab countries, the multi-space commercial diplomacy of the future will have to take into account the

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communicating vessels that are beginning to intensify within the different regions and between them. Sometimes they result from international agreements that do not meet pre-established models. As mentioned before, this involves monitoring closely the agenda of trade negotiations and economic integration of the various spaces and being able to detect the novelties. In a world of regional and interregional multiple spaces with different degrees of connectivity and complementarities, it is through commercial diplomacy as an expression of its development strategies and international integration that a country can produce the necessary articulations. Concerted efforts and synergies generated both internally as well as with other countries and regions, and in the measure that they involve a large number of all types of players, can be a key factor for the success of a strategy for the active integration of a country in global economic competition. The advantage of Mercosur countries – but also of their South American neighbours and partners – is that there are no reasons to prevent a commercial diplomacy that is open in all directions (“tous les azimuts”). The country’s geographic location, resource endowment, cultural mixing and remoteness from the main international tension lines, enables it precisely to have an external trade integration of multi-regional scope. It is noteworthy in this regard that in December 2012 the Arab– Latin American Forum was held in Abu Dhabi. Its theme was precisely the prospect of a closer relation between the two regions.8 A relevant fact in the future development of this interregional relation is that the GCC countries, in particular Qatar and United Arab Emirates, are fast becoming major hubs linking the large economies and regions of the South. It is reflected in the increasing links between Arab countries with China, India and other Asian countries as well as with African and now Latin American ones. The air links between Asia and South America (especially in the corridor Buenos Aires– Sa˜o Paulo– Rio de Janeiro with China and India via Doha and Dubai) help develop connectivity with huge possibilities, including great potential in the field of energy, food, construction, and financial and productive investments, among others.

Notes 1. See http://www.aspa3.com/index.php?lang¼ en. 2. See http://www.arlaforum.com/.

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3. For the different modalities of trade agreements concluded by Mercosur with Arab countries, see the points 3.36; 3.38, 3.39 of the “Brazil Government Report to the WTO Trade Policy Review Body” (WT/TPR/G/283 – 17 May 2013), http://wto.org/english/tratop_e/tpr_e/g283_e.pdf. 4. Richard Baldwin, “WTO 2.0: Global Governance of Supply-Chain Trade”, Centre for Economic Policy Research (CEPR), Policy Insight no. 64, London, December 2012, in: http://www.cepr.org/. 5. Pascal Lamy, “Putting Geopolitics Back at the Trade Table”, Delhi, 29 January 2013, http://wto.org/english/news_e/sppl_e/sppl264_e.htm. 6. Zaki Laidi, “Free-trade Deals Show that Power Politics is Back”, Financial Times, 1 April 2013, http://www.laidi.com/. 7. Ben Simpfendorfer, The New Silk Road: How a Rising Arab World is Turning Away From the West and Rediscovering China (New York: Palgrave Macmillan, 2009). 8. See note 2.

References Baldwin, Richard, “WTO 2.0: Global Governance of Supply-Chain Trade”, Centre for Economic Policy Research (CEPR), Policy Insight No 64, London, December 2012. http://www.cepr.org/. “Brazil Government Report to the WTO Trade Policy Review Body” (WT/TPR/ G/283 – 17 May 2013). http://wto.org/english/tratop_e/tpr_e/g283_e.pdf. Laidi, Zaki, “Free-trade Deals Show that Power Politics is Back”, Financial Times, 1 April 2013. http://www.laidi.com/. Lamy, Pascal, “Putting Geopolitics Back at the Trade Table”, Delhi, 29 January 2013. http://wto.org/english/news_e/sppl_e/sppl264_e.htm. Simpfendorfer, Ben, The New Silk Road: How a Rising Arab World is Turning Away From the West and Rediscovering China (New York: Palgrave Macmillan, 2009).

INVESTMENTS AND FINANCE

CHAPTER 6 MOROCCAN—BRAZILIAN BILATERAL COOPERATION: ACHIEVEMENTS AND PROSPECTS Boutaina Ismaili Idrissi

Historical Note Moroccan – Brazilian relations find their roots in their common history and the cultural heritage of Portugal, which is decisive in the case of Brazil, and surely significant in Morocco. Several villages and trading posts along Morocco’s coastline served as staging points for African trade with North and South America, as late as the eighteenth century. From these localities and their vicinities, Portuguese explorers and Jewish Moroccans left for Brazil where some of them settled in the Amazonian region and established an important cultural legacy in Bele´m and Manaus. Indeed, little is known in Brazil and the Arab world of the historical connection between Morocco and Brazil. The Moroccan city of Mazaghan, its original Berber name, was a Portuguese colony until 1769 when it was taken over from Portugal after 250 years of occupation and renamed El Jadida, or the New City, its current Arab name.1 Its population, including Portuguese, and Moroccan Jews in particular, were expelled to Brazil and settled in Amapa, Amazonia where they established a settlement by the name of Nova Mazaga˜o, in Amapa.

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Therefore, the early presence of a Jewish Moroccan community in Brazil forged a cultural link with Morocco that is part of Brazil’s unique Lusitano culture. It is worth noting that in the nineteenth century the first book ever published in Morocco was written in the language of two Brazilian literary figures, Camo˜es and Machado de Assis.2 Morocco was the first African country to recognize Brazil’s independence from Portugal in 1822. Indeed, Morocco was the first African country with which Brazil has established diplomatic relations. In 1884, Brazil opened a consulate in Tangier, then an international centre of commerce.3 In 1906, Brazil’s Plenipotentiary Minister in Lisbon presented his credentials to Sultan Moulay Abdelaziz of Morocco. Full diplomatic relations were established when Brazil appointed an ambassador in Rabat in 1962. Five years later, in 1967, Morocco opened an embassy in Rio de Janeiro, Brazil’s former capital.4

Current State of Moroccan– Brazilian Relations Today, Moroccan – Brazilian relations fall within the broad concept of South–South cooperation, which has become increasingly important in international trade and investment. The search for beneficial economic relations has encouraged many southern countries to promote a new framework of cooperation between their economic actors in order to boost their bilateral trade and support joint ventures in economic activities to accelerate growth and create new jobs opportunities. While this feature is clearly observed through the regional integration process within countries in the same geographical region, we are experiencing the rise of new forms of South–South cooperation between countries belonging to different regions. This type of cooperation involves not only bilateral relations, but also opens possibilities for triangular relationships by extending the scope of cooperation to third countries. Moroccan – Brazilian relations represent an example of this type of cooperation. Both countries enjoy high growth potential and hold prominent positions within their respective regions. This should permit both countries to establish strong economic ties. However, in spite of this potential, and the encouraging steps undertaken by Morocco and Brazil to prop up their trade and investment relations, the state of their cooperation remains below their expectations. Many constraints persist,

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which impede the two countries from taking full advantage of the various opportunities available to them. Therefore, this chapter will shed some light on the dynamics of cooperation between Morocco and Brazil. It will analyse critically the strengths and weaknesses of their relations. Finally, it will explore some options for enhancing their bilateral relations and on the regional level. The two countries signed in 1999 a memorandum of understanding on political consultations between their respective Ministries of Foreign Affairs. These relations received a boost following the visit of His Majesty King Mohammed VI to Brazil in 2004, as part of a tour in Latin America.5 On the occasion of the first session of the Moroccan–Brazilian Joint Commission held on 24– 5 June 2008, the two Ministries of Foreign Affairs highlighted the new dynamic in the two countries, which has helped to expand their bilateral cooperation in various areas and to capitalize on their promising partnership, particularly at the economic and scientific levels. During last few years, official visits were undertaken to reinforce these bilateral relations.6 Cooperation between Morocco and Brazil covers several political, economic, social, cultural, scientific and technical agreements, which include the following in particular: Air Transport Agreement of 1975; Trade Agreement of February 1983; Agreement on Scientific, Technical and Technological Cooperation of 1984; Cultural Agreement of 1984; Addendum to the Agreement on Scientific and Technical Cooperation Agreement of June 1994 between OFPPT and Brazilian SENAI on Vocational Training; Agreement on Cooperation in the Field of Tourism, of November 2004; Framework Agreement for Trade, of November 2004 between Morocco and the MERCOSUR member countries, which includes Brazil.7 The most recent agreements were signed during the first session of the Joint Commission, held in Rabat on 24–5 June 2008, which included: Veterinary and Health Agreement; Memorandum of Cooperation in the field of Environment and Management of Water Resources; and several amendments to the Agreement on Scientific, Technical, and Technological Cooperation.8 As for decentralized cooperation, a Cooperation Framework Agreement was signed on 15 November 2008 in Marrakech between the Council of Marrakech and the Brazilian city Florianopolis. This

2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 0%

5%

10%

Export

Import

Figure 6.1 Share of Brazil in Morocco’s trade. Source: Office des changes, author’s calculation. Source: Chelem Database, author’s calculation.

Import and Export to Brazil (In millions of MAD)

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agreement covers several areas of cooperation, such as health, environmental protection and wastewater treatment. At the cultural and technical levels, several groups of Brazilian artists participated in various festivals and cultural events in Morocco. Similarly, Morocco participated in several cultural and artistic events in Brazil.

Moroccan– Brazilian Trade In 2012, Brazil became the fourth export market for Morocco, and its seventh supplier.9 Its weight in total Moroccan exports has grown steadily, especially since 2007. The share of Brazil in total Moroccan exports has increased during the period 2002 –13 from 2 per cent to 7 per cent, respectively. This reflects the rapid growth of Morocco’s exports to Brazil, which has emerged as an important trade destination. However, the weight of Brazil in total Moroccan imports remains stable at around 2 per cent during the same period. The slow development of imports can be explained partially by the low level of involvement of Brazilian firms targeting the Moroccan market, or as a conduit to regional markets. It is worth noting that Morocco views the Brazilian market not only for its own potential, but also as an entry point to the wider South American markets. This aspect constitutes a strong argument regarding the prospect of improving further cooperation between the two countries. 180% 165% 160% 134% 140% 125% 107% 120% 94% 88% 100% 68% 80% 58% 55% 65% 60% 47% 39% 40% 20% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Figure 6.2 Coverage ratio of imports by exports with Brazil (%). Source: Office des changes, author’s calculation.

Figure 6.3

Sugar 66%

Construction equipments 1%

Cereals 33%

Aerospace Fat 3% products 2%

2012

Sugar 61%

Construction equipments 1%

Moroccan imports from Brazil, 2002 –12. Source: Chelem Database, author’s calculation.

Cereals 12%

2002

Fat products 21%

Aerospace 0%

Figure 6.4

Fertilizers 36%

Electronic components Inorganic 3% basic chemicals 22%

Minerals 6%

Refined petroleum 28% Fertilizers 61%

Electronic Inorganic 2012 Fish components basic 2% 1% chemicals 2%

Moroccan exports to Brazil, 2002 – 12. Source: Chelem Database, author’s calculation.

Minerals 8%

Refined petroleum 31%

Fish 2002 0%

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As shown in Figure 6.2, except for 2009, and to a lesser extent in 2010 – due to the financial and economic crisis that has affected both economies – Morocco’s balance of trade with Brazil has improved steadily from the previous period (2002– 7) when Morocco ran a trade deficit. Following their exceptional rise in 2008, Morocco’s exports to Brazil have increased steadily since 2011 at a level that has allowed Morocco to have trade surpluses. The year 2013 was exceptional, with a trade ratio of 163 per cent, exceeding largely the level attained in 2008. The weight of phosphates and its derivatives exports explains this trend. Looking at the main products imported by Morocco from Brazil from 2002 to 2012, more than three quarters are dominated by food. More than half of these products consist of sugar. Cereals come in second position, which have been increasing since 2008 to reach 33 per cent. Fat products have decreased from 21 per cent in 2002 to only 2 per cent in 2012. Morocco acquired Brazilian planes for the first time in 2010. With regard to Morocco’s exports, they are dominated by phosphates and derivatives. In 2012, these products accounted for 63 per cent of Moroccan exports to Brazil. Fishery products, mainly sardines, occupy the fourth place with about 2 per cent of total exports. Morocco’s Office Che´rifien de Phosphates (OCP) is a leading provider of phosphate products to Brazil through Bunge Fertilizers of Brazil, which is the largest importer and distributor of fertilizers in South America. Brazil is the first customer of Morocco for natural and chemical fertilizers (3.2 billion dirhams in 2010), the second for phosphoric acid (542 million dirhams), and the seventh for raw phosphates (434 million dirhams). Morocco exported to Brazil the equivalent to US$521 million in the first half of 2014, down 21.5 per cent in relation to the first half of 2013. The main items commercialized were fertilizers, naphtha, sardines and electric material. However, Brazilian exports to Morocco amounted to US$221 million, a decline of 29 per cent in relation to the first half of 2013.The main products were sugar, corn and soy.10

Brazilian Direct Investments in Morocco In contrast with its important position in Morocco’s external trade, Brazil figures among the countries with limited and irregular

4.6 1.9 0.8

4.0 0.2

FDI inflow from Brazil

2007 2008 2009 2010 2011 2012 2013

37.8

504.4 2007: Industry 2008: Energy & Mining; Miscellaneous 2009: Real estate; Services 2010: Real estate 2011: Real estate 2012: Real estate 2013: Real estate

Figure 6.5 Foreign Direct Investment from Brazil in Morocco (million MAD), 2007 – 13. Source: Office des changes, author’s calculation.

-

100.0

200.0

300.0

400.0

500.0

600.0

Areas of FDI inflow from Brazil by year

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investments flows to Morocco. Brazilian investments in Morocco stood at a very low level. In spite of the fact of Brazil’ substantial investments abroad, no investment was undertaken in Morocco by Brazilian firms between 2001 and 2006. In 2010, Brazil invested only 1.9 million dirhams, ranking the 50th investor in Morocco. Thus, of the $11.5 billion that Brazil invested abroad in this year, Morocco received only $0.2 million. The largest Brazilian investment in Morocco was recorded in 2008 in the amount of 504.4 million dirhams, representing 1.8 per cent of the total FDI received by Morocco during that year. This investment was part of the “Jorf Lasfar Partnership” joint venture between OCP and Bunge Fertilizers of Brazil for the production of fertilizers.11 In 2012, Brazilian investment in Morocco totalled 4 million dirhams, representing just 0.01 per cent of total FDI received by Morocco. The recent withdrawal of Bunge Fertilizers from its joint venture with OCP cast a shadow on the future collaboration of both countries in fertilizers production. The low level of Brazilian investments in Morocco contrasts with the dynamics of Morocco as an attractive FDI destination, both from developed and emerging countries. Considering the high improvement of Morocco’s business environment, one of the explanations that could be offered is that the Brazilian firms seem less informed about the various business opportunities in the Moroccan market. This corresponds with the limited impact of economic promotion structures in both countries on direct Brazilian investment flows toward Morocco. Of course, the fierce competition within the Moroccan market, especially from European firms, which holds strong positions in many economic activities, could be considered as a constraining factor for Brazilian firms to embark on investment projects in Morocco. This type of situation can be resolved, however, through specific incentives, given the political will of the two countries to develop further bilateral cooperation.

Moroccan Migration to Brazil Brazil has received in recent years a steady flow of young Moroccan immigrants who are encouraged by the economic and social opportunities that Brazil offers. It is estimated that 1,500 Moroccans

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live in Brazil. However, fewer than 500 are registered at the Consular Section of the Embassy of the Kingdom in Brası´lia, while the rest hold Brazilian nationality. Almost 90 per cent of Moroccan immigrants live in Rio de Janeiro, Sa˜o Paulo and Curitiba, and the rest are distributed in Brası´lia, Salvador, Fortaleza and Manaus in the north. Most Moroccan immigrants are involved in trade, industry and services. A limited number of Moroccan professionals are involved in engineering, administration or higher education. In 2010, the Brazil – Morocco Association of Friendship and Cooperation was established to strengthen the long-standing relations between the two communities. This represents an important platform to promote economic, social, human and cultural exchange between the two communities.

Assessment of Moroccan –Brazilian Relations A cursory review of Moroccan– Brazilian cooperation shows that their bilateral relations have remained below the expectations proclaimed by their mutual diplomatic discourse. The weakness of the institutional framework for such cooperation and the lack of efforts for closer economic relations contrast sharply with the willingness of both countries to translate their common assets, such as history and geography, into a transatlantic agreement.12 The following are some factors to be considered.

A Positive Dynamic of Political Relations, But Much has to be Done at the Trade Level Moroccan – Brazilian relations have always been perceived through the cultural – historical perspective drawn from their Portuguese heritage. Recently, political and economic factors have emerged as a part of the perception that each country holds vis-a`-vis the other. The evolution of their bilateral relations reflects the diplomatic ties between the two countries. Brazil seems to adjust its perception of Morocco through a pluralistic vision, combining economic, political, social and cultural dimensions. This perception is, to some extent, consistent with the image that Brazil holds of itself at the international level. Brazil is defined as a

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multicultural democracy, which has achieved political transition successfully. Therefore, Brazil represents a model for a country such as Morocco, which has pursued the same process. This self-perception is a fundamental element of the Brazilian diplomatic action that is engaged in the construction of an image that presents Brazil as a partner for democracy and a politically stabilizing power. Brazil considers Morocco a reliable partner and a country with multiple identities: Atlantic, Arab, African, and Mediterranean. The progress made by Morocco as reflected in the last constitutional reform has been supported by Brazil. Morocco is considered as a strategic interlocutor in the Arab world, particularly with regard to its democratic progress. From the Moroccan perspective, there is an increasing awareness among decision-makers that foreign policy may no longer be structured through geopolitical considerations, but should increasingly take into account geo-economic mutations as part of a strategy of diversification of partnerships.13 Therefore, taking into account recent developments in the international and regional environments, some key points should be highlighted regarding Moroccan– Brazilian relations. First, recognizing Brazil’s international role in light of its global economic standing and its leadership in South America would open areas of cooperation for Morocco by creating opportunities for building and promoting a multipolar world system. Second, strengthening relations with Brazil through political dialogue and concluding a trade agreement with Mercosur would lead to mutual benefits in the context of South Atlantic Dialogue. And third, pursuing bilateral relations by increasing the number of meetings of the Joint Committee and official visits. Indeed, the last visit by HM King Mohammed VI to Brazil on 26 November 2004 opened up a new chapter in bilateral relations. Both countries expressed their support for a balanced international order, rather than one dominated by a single superpower. They also agreed to coordinate their efforts toward a multilateral approach to global governance. Morocco supported the proposed reforms of the UN system and Brazil’s candidacy for membership at the Security Council. Both countries also agreed to provide mutual support for their respective candidates in international organizations. With respect of South –South cooperation, the two countries agreed to coordinate their actions in various forums, such as the Africa– South America Process (ASA), the Summit of South American and Arab

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Heads of State (ASPA), and the Zone of Peace and Cooperation Atlantic South (ZPCAS). The objective of these forums is to promote stronger partnerships between Arab and African countries, and those of South America.

Brazil’s Neutral Position Regarding the Issue of Moroccan Sahara Brazil does not recognize the Polisario and maintains a policy based on neutrality and peaceful resolution of the Sahara issue within the UN framework. Brazil abstained from voting on this issue when it was brought before the UN General Assembly and the Security Council. Nevertheless, the pro-Polisario activism of some Brazilian members of parliament has provided an opportunity for Algeria to exert pressure on Brazil. Indeed, Latin American socialist parties have called for the recognition of Polisario during the Brazilian Socialist Party conference held in Brası´lia on 6 December 2011.14 Strategic Agendas with Similar Priorities Brazil ascended to the global stage thanks to its economic standing and the strategic orientation of its foreign policy. Therefore, Morocco has shown great interest in developing closer relations with the only Latin American country with the status of an international power. In fact, relations between Morocco and Brazil put both countries on the same path in their respective regions. Brazil is involved in South America where it maintains leadership. Similarly, Morocco aims to preserve its geopolitical position in the Arab and Mediterranean region while trying to establish its leadership in Africa.15 The two countries have a common strategic maritime space, which allows them to serve as a bridge between Africa and the Arab world, on the one hand, and the South American sub-continent on the other. The two countries could build an important strategic partnership. Their agenda seems to have similar regional priorities, based on the diversification of their international relations. A Political and Legal Framework That Should be Enhanced Further The political and legal framework that governs Morocco and Brazil’s bilateral relations is quite rich. Nevertheless, in spite of the several agreements that have been signed, no agreements of strategic importance

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have been concluded, such as strategic dialogue, investment agreement or security cooperation. First, the lack of a common statement with respect of their strategic interests deprives both countries of significantly leveraging their relationship. The rate of high-level mutual visits is discontinuous or unbalanced. For example, the visit of the Brazilian President to Morocco has been postponed several times. The institutional mechanism of bilateral relations also seems to have stalled. In fact, no meeting of the Moroccan– Brazilian Joint Committee has taken place since the first one held on 24 June 2008. In contrast, the Algerian–Brazilian Joint Committee has met four times since 2007. Second, the absence of a bilateral investment treaty explains, among other things, the limited Brazilian investment flows to Morocco. Agreements that relate to the promotion and protection of investments, as well as the avoidance of double taxation, are essential for the expansion and diversification of trade and investment between the two countries. Lastly, the lack of security cooperation has an adverse effect on the prospect of a genuine partnership between the two countries. Both countries are parts of the Atlantic Ocean space, and therefore concluding a security cooperation agreement would enhance cooperation in safety and maritime security.

Weak Involvement of Non-State Actors A close look at Moroccan–Brazilian relations reveals lack of involvement of non-state actors and large industrial and financial groups from both sides. Apart from the limited activities of the Morocco – Brazil Parliamentary Friendship Group, the presence of OCP in Brazil, and certain actions limited to some decentralized cultural cooperation, there are no significant parallel actions through which both countries could establish and sustain their mutual interests and the convergence of views and strategic outlooks.

Looking Toward the Future In spite of increased trade between Morocco and Brazil, their relations have not reached their potential. Brazil’s tremendous natural resources and the size of its market make it a great potential trading and investment partner for Morocco. Whether in primary production (agriculture, energy), or in

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industrial production, Brazil holds significant competitive advantages. Therefore, Brazil could serve as a source of imports at competitive prices, while offering Morocco a platform to enhance its exports. Brazil’s regional position could serve Morocco as a gate to the wide market of Latin America, particularly the Mercosur member countries. On the other side of the Atlantic, Morocco offers Brazilian companies the opportunity to invest in the inter-continental markets where it could serves as an export platform at the crossroads of European, African and Arab markets. Morocco has concluded a number of free trade agreements, which could be used beneficially by Brazilian firms looking to extend their international operations. Expanding trade relations with Brazil could be beneficial for Morocco because this would reduce its dependency on trade with Europe. The 2008 global financial crisis has shown the severe impact of dependency on export markets. Having new partners in emerging countries creates new networks that would lessen such dependency and bring more balance into the international trading system.16

Moroccan Domestic Market Potential as a Lever to Promote Bilateral Trade and Investment Relations The Moroccan domestic market is experiencing rapid growth, which makes it attractive for both local and foreign firms. This situation reflects the dynamic of economic convergence on which Morocco has embarked in terms of its economic modernization and increased revenues. Ambitious sectorial strategies, particularly “Morocco Green Plan” and the “New Industrial Compact” are also suitable platforms for investment by Brazilian firms, especially with a view to important incentives provided by the Moroccan government. Morocco has all the assets needed to attract Brazilian investments. It has an appropriate business climate and a suitable infrastructure that improves steadily. Partnerships may include sectors such as the car industry, agro-business, chemicals and pharmaceuticals, as well as the information technology sector. Morocco wishes to increase agricultural GDP to US$17 billion (140 billion dirhams) by 2020. In 2013, the sector generated US$11.56 billion (95 billion dirhams). A strategy was announced in 2008 that aimed to promote Moroccan agribusiness with new investments of US$1.1 billion (9 billion dirhams) by the end of the decade of 2020.

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With a view to expanding production, Morocco started leasing land for agriculture projects. Participation is open for both Moroccan and foreign investors. At the present, 100,000 hectares of land has been leased, and another 600,000 hectares are to be leased by 2020. In addition, 31 foreign projects have been approved with a total land lease of 7,800 hectares. The leased land may be used for a period of more than 40 years, with the possibility for contract renovation, and the conditions for participating in the process are the same for Moroccans and foreigners. The aircraft industry is considered among the emerging sectors in Morocco. In this area, Brazilian company Embraer17, the world’s third aircraft manufacturer (after Airbus and Boeing) could benefit greatly from expanding its current investment in Morocco.18

Export Potential for Moroccan Firms Except for the phosphates sector, the current state of development of the Moroccan economy does not allow Moroccan firms to invest directly in the Brazilian market. Therefore, available opportunities are limited to exports. Currently, Morocco’s main agricultural products are oranges, milk, beef and vegetables. Olives offer an export opportunity for the Brazilian market, which is a net importer of olive oil. For example, the Meknes region produces various types of olives (Moroccan, Greek, Spanish and Italian) with the best quality olive oil that meets the highest international standards. Currently, most of the Moroccan olive oil is exported to the United States. Morocco could have a share of the Brazilian market, particularly in the high-end olive oil segment. Other sectors that hold great potential for cooperation, in particular, are agriculture, fisheries and bio-energy. Brazil is a major agricultural powerhouse with great experience and huge potential in the sector, and therefore could serve as a strategic partner for Morocco’s Green Plan and Plan Halieutis. Morocco could also target the Brazilian market for other industrial components, especially electrical cables, car industry components, thus offering new markets for the emerging Moroccan industry. The Tourism Sector The Moroccan real estate market could attract Brazilian investors and tourism professionals who could contribute to the creation of an

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integrated tourist market beneficial to both sides. A new direct airline operated by the Royal Air Morocco (RAM) connecting Casablanca and Sa˜o Paulo was opened on 20 December 2013, making RAM the fourth African airline to fly to Sa˜o Paulo. The direct line would help establish closer economic links to boost economic cooperation, trade, investment and tourism between the two countries. Morocco is already the first African destination of Brazilian tourists with nearly 15,000 Brazilian visitors in 2012. In 2013 Moroccan visitors to Brazil numbered 2,900, an increase by more than 15 per cent compared to 2012.19 The importance of tourism rests on its ability to have a positive effect on other economic sectors, particularly the service sector that accounts for a substantial part of global trade.20 This effect could be amplified further if placed within a regional context in which both countries would grasp opportunities in the Maghreb and South American markets.

Morocco as a Key of Entry to Regional Markets The importance of Moroccan phosphate exports to Brazil, coupled with the free trade agreements between Morocco and the United States, on the one hand, and between Morocco and the European Union, on the other, explain the interests of Southern Common Market (Mercosur) in negotiating a similar agreement with Morocco. Negotiations started in November 2004 to establish a zone of progressive free trade with Mercosur. Once concluded, the agreement would ease trade barriers and open new opportunities for both countries. Indeed, Morocco has concluded a set of important free trade agreements with several developed, developing and emerging countries. These agreements provide Morocco with access to a global market of almost one billion consumers. This permits Morocco to enjoy a central position, highly attractive for Brazilian firms looking for business opportunities in Africa and the Arab markets. Morocco’s proximity to Europe is another asset, particularly with respect of its advanced status at the European Union.21 Other significant assets could facilitate the status of Morocco as an export platform serving neighbouring markets. This platform is supported by the quality of Moroccan labor force, its infrastructure and easy connections, as well as the positive image that Morocco enjoys in Africa and the Arab world.

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The Role of Non-State Actors Several institutions could facilitate the expansion of relations between the two countries and provide support for strengthening their economic cooperation. These include, in particular: Arab– Brazilian Chamber of Commerce in Sa˜o Paulo that promotes increased trade between Arab countries and Brazil; Moroccan–Brazilian Chamber of Trade, established in 2007; and Honorary Consuls of Morocco in Brazil (Sao Paolo, Rio de Janeiro, Floriano´polis, Curitiba, Belo Horizonte and Vitoria), who contribute to boosting cooperation ties. It is essential for both countries to promote relationships between their respective civil societies in order to create a sustainable base for their cooperation. Agreements do not create trade flows; close relationships between business and non-state actors do. Therefore, it is important to expand relations among private sector participants, civil society organizations and representative institutions in order to translate effectively the political will into economic outputs within a win – win strategy.

Notes 1. The city was taken over from Portugal during the reign of Sultan Mohammed ben Abdallah al-Khatib who was Sultan of Morocco from 1757 to 1790 under the Alaouite dynasty. http://en.wikipedia.org/wiki/Mohammed_ben_Abdallah. 2. “Ambassador Highlights Strength of Brazil-Morocco Dialogue”, Brazil-Arab News Agency (ANBA), 18 September 2013. http://www2.anba.com.br. 3. Workshop report on “ Le Maroc et le Bre´sil”, 25 March 2011. http://iehl.um5a. ac.ma. 4. Statement made by Farida Jaidi, former Ambassador of Morocco to Brazil, “Les enjeux strate´giques des relations Maroc-Bre´sil”, at a conference held by the Royal Institute for Strategic Studies, Rabat, 11 July 2011. 5. Foreign policy in South America, Ministry of Foreign Affairs and Cooperation, Kingdom of Morocco, www.diplomatie.ma. 6. Official visits included, in particular: visit to Morocco on 8 – 9 February 2012 by a delegation comprising senior officers of the Brazilian Army led by Mr Celso Amorim, Brazil’s Minister of Defence; visit to Brası´lia on 26 – 9 November 2012 by a Moroccan delegation from the House of Representatives; visit to Morocco on 21 January 2011 by Senator Suplicy from the Workers’ Party to participate in the Forum of Deposit Offices organized by the Deposit and Management Office (CDG) in Marrakech; visit to Morocco on 24 May 2011 by Senator Cristovam Buarque from the Workers’ Party to participate in a conference on education held at Mohammed V University in Rabat; visit to

MOROCCAN –BRAZILIAN BILATERAL COOPERATION

7. 8.

9. 10. 11.

12.

13.

14. 15.

16.

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Morocco on 5 September 2011 by Mr Antonia Patriota, Brazil’s Minister of Foreign Affairs during which he stated that Morocco and Brazil are “multicultural democracies” sharing common values. Foreign policy in South America, Ministry of Foreign Affairs and Cooperation, Kingdom of Morocco. www.diplomatie.ma. Addendum to the Agreement on Scientific, Technical and Technological Cooperation on the implementation of the Project “Support for the Establishment of a Pilot School in Civil Construction Jobs”; Addendum to the Agreement on Scientific, Technical and Technological Cooperation on the implementation of the Project “Support for the Office of Vocational Training and Working towards the Establishment of Seven Training Institutions for the Disabled”; Addendum to the Agreement on Scientific, Technical and Technological Cooperation on the Implementation of the Project “Partnership in the Field of Textile Clothing between ESITH/ Casablanca and the Technology Centre of Chemical Industry and Textile-CETIQT/RIO; Addendum to the Agreement on Scientific, Technical and Technological Cooperation on the Implementation of the Project “Capacity Building for Trainers in the Field of Civil Construction”; Addendum to the Agreement on Scientific, Technical and Technological Cooperation on the Implementation of the Project “Training for Trainers in the Field of Computer Literacy for the Blind and Visually Impaired”; Addendum to the Agreement on Scientific, Technical and Technological Cooperation on the Implementation of the Project “Support of Urban Development of Morocco”. Data collected from Chelem Database, Brazil was the fifth largest customer of Morocco and its tenth supplier of goods country in 2010. “Moroccan Exports of Phosphates Down 12%”, Brazil-Arab News Agency (ANBA), 18 July 2014. http://www2.anba.com.br. This joint venture includes a production of sulphuric acid (1,125,000 ton/year); production capacity of 375,000 ton/year of the phosphate-acid plant; and a fertilizer production plant with a capacity of 300,000 ton/year. Statement made by Said Moufti, Research Director at the Royal Institute for Strategic Studies at a conference on “Les relations Maroc-Bre´sil”, organized by Ecole Hassania des travaux publics (EHTP) in Casablanca, 19 March 2014. This aspect has been highlighted in various speeches addressed by HM King Mohammed VI on Moroccan diplomacy; the latest was delivered on 30 August 2013. “Les Partis Socialistes d’Ame´rique Latine Appellent le Bre´sil, l’Argentine et le Chili a` Reconnaıˆtre la RASD”, 6 December 2011. http://www.spsrasd.info. This can be perceived through the various agreements concluded with subSaharan African countries as well as the investment of Moroccan firms in several countries of west and central Africa in “Economic Report, Finances law”, Ministry of Economy and Finance, 2014. Boutaina Ismaili Idrissi, “Le Partenariat Euromed Face Aux Nouvelles Donnes Concurrentielles Internationales”, PhD dissertation, Universite´ de Perpignan, 2009.

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17. Embraer delivered over 50 planes to the following Arab countries: Egypt, Jordan, Libya, Bahrain, Oman, Saudi Arabia and Lebanon. 18. Among the parts produced in Morocco for Brazilian aircrafts are devices to reduce engine noise by up to 90 per cent, which are installed in the 170 models. 19. Statement made by Frederico S. Duque Estrada, Brazil’s Ambassador to Morocco at the conference organized by Ecole Hassania des travaux publics (EHTP) in Casablanca on “les relations Maroc-Bre´sil”, 19 March 2014. 20. UNCTAD Statistics, published in April 14, 2014. http://unctad.org/en/pages/ Statistics.aspx. 21. Boutaina Ismaili Idrissi, “Analysis of Morocco-European Union Partnership Within the Framework of the Advanced Status: Main Features and Challenges”, Europautredningen, Norway, Report no. 21, September 2011.

References Brazil-Arab News Agency (ANBA), “Ambassador Highlights Strength of BrazilMorocco Dialogue”, 18 September 2013. http://www2.anba.com.br. ——— “Moroccan Exports of Phosphates Down 12%”, 18 July 2014. http://www2. anba.com.br. Duque Estrada, Frederico S., Brazil’s Ambassador to Morocco at the conference organised by Ecole Hassania des travaux publics (EHTP) in Casablanca on “les relations Maroc-Bre´sil”, 19 March 2014. Foreign policy in South America, Ministry of Foreign Affairs and Cooperation, Kingdom of Morocco. www.diplomatie.ma. Idrissi, Boutaina Ismaili, “Le partenariat Euromed face aux nouvelles donnes concurrentielles internationales”, PhD dissertation, Universite´ de Perpignan, 2009. ——— “Analysis of Morocco-European Union Partnership Within the Framework of the Advanced Status: Main Features and Challenges”, Europautredningen, Norway, Report n821, September 2011. IEHL, “Le Maroc et le Bre´sil, 25 March 2011. http://iehl.um5a.ac.ma. Jaidi, Farida, former Ambassador of Morocco to Brazil, “Les enjeux strate´ giques des relations Maroc-Bre´sil”, at a conference held by the Royal Institute for Strategic Studies, Rabat, 11 July 2011. Ministry of Economy and Finance, “Economic Report, Finances law”, 2014. Moufti, Said, Research Director at the Royal Institute for Strategic Studies at a conference on “Les relations Maroc-Bre´sil”, organized by Ecole Hassania des travaux publics (EHTP) in Casablanca, 19 March 2014. Sahara Press Service, “Les partis socialistes d’Ame´rique latine appellent le Bre´sil, l’Argentine et le Chili a´ reconnaıˆtre la RASD”, 6 December 2011. http://www. spsrasd.info. UNCTAD Statistics, published in 14 April 2014. http://unctad.org/en/pages/ Statistics.aspx.

CHAPTER 7 INVESTMENT OPPORTUNITIES IN LATIN AMERICA: A MEXICAN PERSPECTIVE Hugo Perezcano Dı´az

20 Years of NAFTA: An Introduction The 1990s marked a new age for Mexico’s economic policy including, importantly, foreign trade and international investment. In little over a decade, Mexico went from being a closed economy based on high barriers to trade: import substitution, limitations to foreign investment, significant government intervention in economic activities through regulatory barriers, activities reserved to the state, and expropriations and nationalization, to an open economy. Although important changes can be traced back to the early 1980s (for instance, Mexico’s tax reform of 1982), Mexico’s accession to the GATT in 1986 is what really marks the starting point. In 1990 Mexico began discussions with the United States with a view to entering into a free trade agreement. Shortly thereafter, Canada, who already had a free trade agreement in force with the United States, joined the talks. Trilateral negotiations formally started in 1991. The three countries signed the North American Free Trade Agreement (NAFTA) in December 1992 that came into force on 1 January 1994.1 Mexico then conducted an aggressive trade negotiations policy. It was a party to the Uruguay Round of International Trade Negotiations and became a founding member of the World Trade Organization, which

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came into being on 1 January 1995. It joined the Organization for Economic Cooperation and Development (OECD) and the Asia-Pacific Economic Cooperation forum (APEC), and it has entered into NAFTAlike comprehensive free trade agreements (FTAs) with several Latin American countries,2 and Japan – comprehensive in the sense that they include substantive disciplines on both trade (goods and cross-border services) and investment, and related matters such as intellectual property. Mexico also entered into free trade agreements with the European Union, the European Free Trade Association and Israel. While these FTAs do not contain substantive investment disciplines, the European agreements are supplemented with bilateral investment protection agreements (BIPAs) that Mexico has entered into with several countries in the region.3 Mexico has also entered into BIPAs with other countries with which it does not have an FTA.4 Thus, at the time of writing, in addition to being a member of the WTO, Mexico has entered into seven comprehensive trade and investment agreements; three FTAs that lack substantive investment protections and an investor– state dispute settlement mechanism, although two of them (those with the EU and the EFTA) are supplemented with several BIPAS; and 30 BIPAs, for a total of 40 agreements with 57 countries. Table 7.A1 of the Annex provides a list of all such agreements. At the beginning of 2014, Mexico and its Pacific Alliance partners (Colombia, Peru and Chile) concluded an FTA.5 Mexico already had comprehensive FTAs with its three partners, but while Colombia and Chile had a similar agreement between them, Colombia and Peru did not, and the agreement between Chile and Peru was more limited in scope. Mexico was mainly concerned with furthering tariff elimination beyond what it had achieved in prior trade agreements with the other Pacific Alliance members, and attaining integration for the purposes of the origin of goods. Mexico also views this agreement as a stepping-stone towards a deeper regional integration involving not only free movement of goods, services and capital, but also of persons. Shortly thereafter, Mexico also concluded an FTA with Panama. At the time of writing both the Pacific Alliance and the Panama FTAs are pending legislative approval in the corresponding countries and are therefore not yet in force. Mexico is also party to the Trans-Pacific Partnership (TPP) FTA negotiations, which were scheduled to finish in 2013, but have dragged

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on and it is not certain when they will be concluded.6 When completed, the agreement will create one of the most important trading regions in the world. While its trade and investment agreement network is a very important part of Mexico’s economic policy, Mexico also undertook very significant domestic regulatory reform, which complements its international obligations, and is equally important. As already noted, it undertook major tax reform (the only truly major one in recent times). It privatized many government-owned enterprises; conducted agrarian reform, which modified the land tenure system; carried out an extensive deregulation programme, which included enacting modern laws concerning almost all areas of economic activity (for instance, foreign trade and foreign investment, intellectual property, technical standards, financial services, telecommunications, land transportation, expropriation, among many others), and, more importantly, it eliminated limitations on foreign investment in all but a few sectors. Furthermore, it created several modern, autonomous regulatory bodies in key sectors, such as the Economic Competition Commission, the Energy Regulatory Commission, the Federal Telecommunications Commission, the Industrial Property Institute, among others. It also adopted sound macro-economic policies that have led to financial stability, including granting autonomy to the Central Bank (Banco de Me´xico). As shown in Figure 7.1 below, Mexico has reaped huge benefits from its current economic policy and, certainly, its wide network of

Mexico: total exports (million USD)

Figure 7.1

Source: Secretariat of the Economy, Mexico.

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international agreements. Mexico’s exports went from $26.7 billion in 1985, the year before Mexico joined the GATT, to over $60 billion in 1994, the year that the NAFTA entered into force. They more than tripled in the following ten years: Mexico’s exports increased to more than $188 billion in 2004, and to over $380 billion by 2013. It can also be seen that, prior to joining the GATT, oil accounted for the majority of Mexico’s exports. While oil continues to be its single largest export, Mexico vastly diversified its export base as well since the NAFTA came into force in 1994. Mexico’s imports have also similarly increased, going from $65.4 billion in 1994 to close to $200 billion in 2004 and over $381 billion in 2013 as shown in Figure 7.2 below. However, Mexico is heavily dependent on the North American market. Trade under the NAFTA with the United States and, to a lesser extent, with Canada takes by far the largest share. It has been this way since the NAFTA came into force. It should be noted, however, that today China is Mexico’s second largest trading partner, even though they have no trade agreement in force between them outside the WTO framework. Figures 7.3 to 7.5 below show the shares of Mexico’s trading partners. Mexico has also been successful in attracting foreign investment but, even though foreign direct investment (FDI) inflows have increased significantly since the NAFTA came into force, results are less impressive than those of trade in goods. While there clearly has been an

Mexico: total imports (million USD)

Figure 7.2

Source: Secretariat of the Economy, Mexico.

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Mexico: exports 2013 (380.0 billion USD)

Figure 7.3

Source: Iqom.

Mexico: imports 2013 (381.2 billion USD)

Figure 7.4

Source: Iqom.

upward trend, Mexico has been unable to maintain a steady increase in its investment inflows as shown in the number of peaks and valleys on Figure 7.6. Also, statistical information does not reflect an accurate picture, because many of the record figures respond to individual transactions, for instance the sale of one of Mexico’s largest banks to Citigroup in 2001 for over $12 billion; the sale of Mexico’s second largest brewery to Heineken for over $7 billion in 2010, and the sale of

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Mexico: total trade 2013 (761.3 billion USD)

Figure 7.5

Source: Iqom.

Mexico: FDI inflows (million USD)

Figure 7.6

Source: Secretariat of the Economy, Mexico.

Mexico’s largest brewery to Anheuser-Busch in 2013 for over $13 billion. If those transactions are set aside, the figures show a more modest – but by no means negligible – average of around $20–22 billion in yearly FDI inflows. Brazil remains the major FDI destination in Latin America, as shown in Figure 7.7 below). The NAFTA also accounts for the largest share of FDI into Mexico, as shown in Figure 7.8 and Figure 7.9 below, but again, these statistics do not reflect an accurate picture. The Netherlands and Spain have consistently been Mexico’s other two sources of FDI. In contrast, Belgium figures as one of the top investors because of one transaction in

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Latin America: FDI inflows, 2000–12 (million USD)

Figure 7.7

Source: UNCTAD. Mexico: FDI inflows, 2000–12 (million USD)

45,000.0 40,000.0 35,000.0 30,000.0

Others

25,000.0

UK

20,000.0

Belgium

15,000.0

Spain

10,000.0

Netherlands NAFTA

5,000.0 0.0 3 201 2 201 1 201 0 201 9 200 8 200 7 200 6 200 5 200 4 200 3 200 2 200 1 200 0 200

-5,000.0

Figure 7.8

Source: Secretariat of the Economy, Mexico.

2013. FDI from Belgium averaged $103.1 million from 2000–12, but close to $1 billion from 2000–13. In my view, this is explained, in large part, first by Mexico’s decision in the 1980s to modify its economic policy and the impetus with which it carried it out during the following decade both by modifying its domestic legal and institutional framework, and by entering into a number of international trade and investment agreements; but also by the loss of that impetus in the first decade of the century. Indeed, those sectors that Mexico failed – or refused – to deregulate and open to competition (for example the energy, telecommunications and railway transportation sectors), have remained largely untouched. Thus, Mexico

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Mexico: average FDI, 2000–13 (million USD)

Figure 7.9

Source: Secretariat of the Economy, Mexico.

experienced a significant growth in foreign investment during the 1990s, but then it bogged down in the first decade of the twenty-first century. Mexico has been unable to recover and has consistently remained well under Brazil as a destination of foreign investment in Latin America. However, Mexico has recently amended its constitution to open up the energy sector to private investment, until now an economic activity exclusively reserved to the state. At the time of writing, the Mexican Congress is debating secondary legislation that will implement those constitutional changes. This is the most important regulatory change since the 1990s and indeed one of the most important in terms of economic policy in Mexico’s recent history. It will, no doubt, provide new impetus to foreign investment and domestic growth, but Mexico must follow through with the implementing legislation and opening up other sectors of the economy. If it wants to fully capitalize on this initiative and achieve sustained levels of growth, it must also forthrightly address other serious problems that afflict it. Insecurity is perhaps the most visible one, but widespread corruption is more deeply rooted and no serious efforts seem to have been made to openly confront and resolve it.

Mexican –Arab Trade Trade with certain regions of the world has never figured prominently in Mexico’s agenda. Africa and the Arab world are two such regions. Total

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Mexican–Arab total trade (USD)

Figure 7.10

Source: Iqom.

trade between Mexico and the Arab world7 increased 77 per cent over the last five years, more than Mexico’s total trade (which increased 64 per cent in the same period), going up from $1.6 billion in 2009 to $2.9 billion in 2013, as shown in Figure 7.10 above. Yet, it is a very small part of Mexico’s overall trade. It amounted to less than 0.40 per cent of Mexico’s total trade in 2013 of over $760 billion. Mexico’s main trading partners in the Arab world over the last five years were Saudi Arabia, the United Arab Emirates, Qatar, Morocco and Algeria. Trade with Saudi Arabia and Qatar represented more than onehalf of Mexico’s total trade with the Arab world between 2009 and 2013, and one-third of that consisted of Mexico’s imports of gasoline and natural gas (Figure 7.11). Imports into Mexico from the Arab world went up from around $740 million in 2009 to over $1.3 billion in 2013, a 78 per cent increase. They peaked in 2011, when they reached over $1.8 billion. They decreased over the following two years (Figure 7.12). In addition to gasoline and natural gas, aluminium (UAE, Qatar), calcium phosphate (Morocco) and clothing (Morocco) were Mexico’s most important imports. Mexico’s exports to the Arab world decreased from almost $900 million in 2009 to around $750 million in 2010, but have increased consistently since. They reached $1.54 billion in 2013 (Figure 7.12). Mexico’s main export destinations in the Arab world were the UAE, Saudi Arabia, Algeria, Egypt and Kuwait (Figure 7.13). Mexico’s main exports were motor vehicles (both for cargo and passengers), seamless steel pipe, wheat (most of which goes to Algeria) and gold (Figure 7.14).

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Mexico's main trading partners in the Arab world, 2009–13

Figure 7.11

Source: Iqom.

Mexican–Arab trade (USD)

Figure 7.12

Source: Iqom.

Arab Investment in Mexico Investment in Mexico from Arab countries has been negligible: only around $5.0 million in the past ten years. The most significant registered investment was $2.5 million from Qatar in 2006.8 As already noted, Mexico has entered into two BIPAs with Arab countries: one with

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Mexico: total exports to the Arab world, 2009–13 4% 4% 7%

1 UAE 2 Saudi Arabia

6 45 20%

42%

4 Egypt 2

5 Kuwait

23%

Figure 7.13

3 Algeria

1

3

6 Others

Source: Iqom.

Mexico: total exports to the Arab world, 2009–13 18% 38%

1 6 2 16% 5 4 7%

Figure 7.14

3 11%

1 Seamless steel pipe 2 Cargo vehicles 3 Wheat 4 Passenger vehicles 5 Gold 6 Others

10%

Source: Iqom.

Bahrain in November 2012, and another one with Kuwait in February 2013. Early in 2014 Mexico and Jordan also announced that they would begin negotiations with a view to entering into an FTA. While we can foresee that trade between Mexico and the Arab World will continue to grow, in my view it is unlikely that the current trade and investment levels will change significantly in the near future, even if the BIPAs with Bahrain and Kuwait go into force, and if Mexico and Jordan conclude

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the FTA negotiations successfully. Kuwait, Jordan and Bahrain are Mexico’s 8th, 10th and 12th largest Arab trading partners, respectively (92nd, 95th and 99th considering Mexico’s overall trade). In my view the BIPAs with Kuwait and Bahrain and the trade negotiations with Jordan are more circumstantial in nature in that they responded to certain diplomatic events – for instance King Abdullah’s visit to Mexico in 2014 – rather than reflect a change in Mexico’s foreign policy – or even its foreign trade and investment policy – vis a` vis the Arab world and, as such, can be seen more as isolated events. More is needed. A unified approach towards the Middle East and North Africa (MENA) region, while perhaps more challenging, would certainly make more sense for purposes of developing trade and investment between Mexico and the Arab world, rather than pursue individual initiatives, which are less likely to give a great impulse even bilaterally. A single, comprehensive FTA between Mexico and the MENA region that provides for tariff elimination, common rules of origin, uniform customs procedures, a common framework for the liberalization of services and investment as well as investment protections, and the protection of intellectual property rights, will do more to enhance trade and investment in a shorter time span than isolated efforts. This, of course, would require foresight, initiative and direction. Perhaps they can be found.

Mexico’s Legal Reforms and Emerging Investment Opportunities Whether the current and similar efforts to enhance trade and investment between Mexico and the Arab world yield greater or lesser benefits, or more farsighted initiatives are taken, Mexico offers other opportunities to invest. The venture capital market is still being developed, but the current legal framework offers certainty and the flexibility needed to structure investments adequately, including where Sharia compliance is required. Traditionally, the Mexican corporate framework has been quite rigid. Although it provides for several types of corporations and partnerships, the majority are now out-dated and have fallen into disuse. Two models are still the most widely used today. By far corporations (sociedades ano´nimas)9 are the most common, but there are also numerous limited

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liability companies (sociedades de responsabilidad limitada)10. Corporations and limited liability companies have been an adequate model for persons who seek to perform an economic activity – mainly of a commercial or industrial nature – on a continuous basis in the long term. In other words, they have been suitable for those who seek to develop a business and remain in business in the long run. However, unlisted companies in Mexico have many shortcomings as investment vehicles. The general corporate framework has been unsuitable for structuring appropriate shareholders’ protections and, therefore, equity financing is difficult to obtain. Consequently, companies often have no alternative but to resort to debt financing. The rigidity of the general corporate framework has also favoured the development of closely held companies that are controlled by small groups with strong family, friendship or similar ties, and often by a single person. Naturally, such companies are also less attractive to equity financing as they involve a higher risk for outside investors. It is not uncommon for non-controlling shareholders to see their investment “frozen”, as exit clauses, until recently, have been limited. Thus, even though shares are freely transferable as a matter of law, in practice there is no market for stock of unlisted companies and it is frequently difficult – if not impossible – to find outside investors willing to buy the shares only to end up in a similar position of the non-controlling shareholder who wishes to leave the company. Even if other shareholders within the control group are willing to purchase the shares, the adverse position of the non-controlling shareholder will negatively affect the price of the stock. Thus, the investor frequently is unable to realize the investment and this, in turn, limits the value of the investment for the company since the controlling shareholders must coexist with dissatisfied investors who often become a burden as business partners and sometimes even hostile. All these complications incur additional costs in terms of lack of corporate transparency driven by mistrust; excessive formalities; long-lasting and costly disputes, etc.; none of which benefits the business. In order to address this situation and promote the development of an over-the-counter market for unlisted companies, Mexico’s Federal Congress passed a new Stock Market Law in 2005. In addition to improvements to stock market regulation, it contemplates a new modality of corporation: the investment promotion corporation (sociedad

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ano´nima promotora de inversion, also known by its Spanish acronym SAPI). The law sought to correct two flaws of the corporate legal framework. First, it sought to protect the rights of investors, not through a preconceived corporate model, but by providing the necessary flexibility for investors to structure corporations according to their specific needs, including the possibility of providing for exit strategies that will allow investors to recover their capital contributions and earnings once the investment has matured, so that they can redirect it to other projects. The SAPI is not a new type of company. Rather, it is a modality of the corporation (sociedad ano´nima) where: † shareholders have flexibility to determine their rights and obligations; † there are rules on corporate governance; and † shareholders may agree to solve any disputes that may arise between them or between any of them and the company through alternative means of dispute resolution (ADR). In mid-June 2014, the Mexican Congress amended the General Law of Corporations (Ley General de Sociedades Mercantiles), which establishes the general corporate framework, in order to provide corporations many of the features that were adopted for SAPIs in 2005, among other things. Hence, corporations, in general, will be in a better position to attract investors and have access to equity financing. However, SAPIs have added flexibility and enhanced minority rights, and therefore will continue to be a better option for the development of the venture capital market in Mexico. The following is a brief overview of the main features of SAPIs, and corporations in general under the recent statutory amendments.

Shareholders’ Rights and Duties: Restrictions on the Transfer of Shares As noted earlier, although shares are meant to be freely transferable, the rigidity of the general corporate framework often made that difficult. Under the 2005 Stock Market Law it will be easier for stock to be traded in the emerging over-the-counter market, and the recent amendments to the General Law of Corporations will also facilitate the transfer of shares

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in general. However, it may be convenient to impose restrictions on the transfer of certain classes of shares. Such restrictions may serve different purposes. They are typically provided for in closely held corporations so that the control group may screen who acquires certain interests in the corporation, and to avoid take-overs. Restrictions may be imposed on other classes of shares, for instance those issued to managers or other key personnel.

Exclusion of Shareholders Providing for the exclusion of shareholders from the corporation, often through a forced sale, may be convenient in certain circumstances; for instance if the managing shareholder dies and the remaining shareholders do not wish to continue in the business with his or her heirs; or where the managing partner becomes incapacitated, falls into bankruptcy, resigns, or for similar reasons; or if a shareholder breaches certain duties towards the company or a shareholder’s agreement. Where the exclusion of shareholders is contemplated, the methodology for determining the prices of the shares and how the transfer will take effect should also be provided for. The new Stock Market Law and the recent amendments to the General Law of Corporations also contemplate the so-called “shotgun clause”, whereby a shareholder is given the right to make an offer to purchase the shares of another shareholder, but the latter is given the option of accepting the offer and selling his shares, or purchasing the former’s shares at the same offered price. In theory, this clause assures a fair price because the shareholder who makes the offer is not certain whether he will end up purchasing another shareholder’s stock, or selling his to the latter. In practice, however, this is not always the case because one shareholder may be in a more advantageous position than the other and would affect the price accordingly (for instance, if the latter does not have enough resources to buy the offering shareholder’s stock). In any event, the shotgun clause is one option, but other methods may be provided for. Exit Strategies Exit clauses are important for those who wish to invest in venture capital because the rates of return may be higher, but not necessarily committed to the underlying business. Therefore, once the investment matures, such investors may seek to redirect their capital resources

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towards other projects. Equity financing is also often used as start-up capital for small enterprises or to acquire distressed companies and make them profitable. It is important to devise exit strategies at the outset so that they can be implemented once the desired results or the objectives are achieved. The current legal framework gives shareholders the ability to provide for drag-along and tag-along rights. Drag-along rights protect minority shareholders, who may oppose a majority shareholder selling his shares, unless the purchaser is willing to acquire the minority’s shares as well. Tag-along rights, in contrast, allow a majority shareholder who wishes to sell his shares to force others to sell their own under the same terms, for instance, where the prospective buyer is only interested in acquiring all of the shares.

Classes of Shares Corporations are permitted to issue different classes of shares that confer different rights. However, prior to the enactment of the new Stock Market Law and the recent amendments to the General Law of Corporations, voting rights could be limited, but not cancelled. The current legal framework now provides wide latitude to structure shareholder’s voting and economic rights. Certain classes of shares may grant voting rights on particular matters only; they may confer only a right to vote, but not grant economic rights; they may grant the right to oppose (veto) certain decisions; they may not grant voting rights at all and only provide economic benefits; pre-emption rights and the right of first refusal may be granted or denied. Shareholders’ Agreements In addition to how the corporation may be structured in its incorporating documents and bylaws, shareholders may agree to regulate their ownership and voting rights differently; they may reach agreements regarding management of the company, for instance how to appoint certain directors or who may or may not act as one; they may provide for initial and future capital contributions and other financial arrangements, etc. They may also contain so-called “deadlock provisions”, that is provisions on how certain disagreements are to be resolved. Shareholders’ agreements may involve all stockholders or only some of them.

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Non-Competition Clauses SAPIs, but not corporations, may involve non-competition clauses, which prevent shareholders from engaging in competing businesses. However, such restrictions must be temporary (they may not exceed three years) and limited in scope and geographical coverage. Pre-emption and Other Subscription Rights Existing shareholders have a right to acquire new shares issued by the corporation in the same proportion to their ownership interest. The current legal framework allows that that subscription privilege to be broadened (a class of shares may grant a right to acquire shares in a greater proportion), or restricted and even cancelled. Shareholders may also agree in advance to subscribe and pay for shares at a given price. This may be useful in scheduling successive capital contributions to the company. Share Repurchase Corporations may not buy back their own shares, but SAPIs may. The repurchase of shares may be used as an alternative return on investment to dividends, which may also provide tax benefits. It may also be used to avoid an excessive dilution of the capital stock or to avoid takeovers. Minority Protection The current legal framework provides for enhanced minority protections. The recent amendments to the General Law of Corporations reduced the percentage needed to exercise certain rights (the right to postpone consideration by the shareholders’ meeting of certain matters, the right to sue directors for damages, and to oppose decisions adopted by the shareholders’ meeting: 25 per cent). Others remained unchanged (the right to appoint a director and an auditor (25 per cent), and to convene a shareholders’ meeting (33 per cent). However, SAPIs have enhanced minority rights. The percentages needed are reduced to 10 per cent, except for claims against directors, which may be brought by shareholders with a 15 per cent ownership interest.

Corporate Governance The legal framework applicable to SAPIs provides rules on corporate governance, which were not incorporated into the General Law of

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Corporations. SAPIs must be managed by a board of directors, and not by a single individual. They may choose to be managed in accordance with the rules that govern listed companies. Directors are subject to a duty of diligence – a duty to act reasonably, in good faith and in the company’s best interest – and a duty of loyalty – a duty to place the company’s and the shareholders’ interest before their own; to reveal any conflict of interest and abstain from deliberating and voting on any issue where they may have such a conflict. There are also rules on good corporate practices for directors where they may not engage in certain operations on account of their duties toward the company and the shareholders. Of course the breach of such duties would give rise to liability. SAPIs may choose to appoint an auditor under the general corporate framework, or set up audit and corporate practices committees, if they choose to abide by the rules that govern listed companies. The latter provides an enhanced corporate environment.

Dispute Resolution Judicial proceedings in Mexico can be long and costly. There is also lack of trust in the judicial system, which is not unfounded. However, the new Stock Market Law allows SAPIs to provide in their bylaws for recourse to ADR (arbitration, mediation, conciliation, etc.). Shareholders may so provide in their agreements as well. Mexico has a long tradition in arbitration and other types of ADR. It adopted the UNCITRAL Model Law on International Commercial Arbitration. Well-known, long-standing, internationally recognized, competent and trustworthy arbitral institutions operate in Mexico.11 Mexico is also a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention); the 1975 Inter-American Convention on International Commercial Arbitration (Panama Convention); and the 1979 InterAmerican Convention on the Extraterritorial Validity of Foreign Judgments and Arbitral Awards (Montevideo Convention). Thus, the Mexican legal framework offers an effective alternative to judicial proceedings for dispute resolution that provides legal certainty to relations between shareholders.

United States

North American Free Trade Agreement (NAFTA) Canada Austria Belgium12 Bulgaria Croatia Cyprus Czech Republic Denmark Estonia Finland France

Country

FTA No Substantive Investment Protections AA

FTA Comprehensive Trade and Investment Agreements þ

7. ANNEX Trade and investment agreements entered into by Mexico

Agreement

Table 7.A1

þ þ AA AA AA þ þ AA þ þ

AA

BIPA

Country Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg11 Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden

Agreement

Mexico – European Union FTA

FTA No Substantive Investment Protections þ

FTA Comprehensive Trade and Investment Agreements AA

þ þ AA AA þ AA AA þ AA þ AA þ AA þ AA þ þ

BIPA

Other BIPAs

Other FTAs

Mexico – Central America FTA

Mexico – European Free Trade Association FTA Lichtenstein Norway Switzerland Costa Rica El Salvador Guatemala Honduras Nicaragua Chile Colombia Israel Japan Peru Uruguay Argentina Australia Barhain13 Belarus

United Kingdom Iceland

AA

AA AA þ AA AA AA AA AA AA AA

þ þ AA þ þ þ AA AA AA AA

þ

þ

AA

AA AA AA AA AA þ þ þ þ þ

AA AA þ AA

þ þ

Country China Cuba India Korea Kuwait14 Panama Singapore Trinidad and Tobago 57

Agreement

Total

FTA No Substantive Investment Protections AA AA AA AA AA AA AA AA 3

FTA Comprehensive Trade and Investment Agreements AA AA AA AA AA AA AA AA 7

þ þ þ þ þ þ þ þ 30

BIPA

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Looking Beyond The current relations between Mexico and the Arab world offer opportunities to increase trade and investment flows. More could – and should – be done, but it does not seem that Mexico has the impetus to strengthen commercial ties and promote investment flows with the Arab region as a whole. Instead, it seems to be comfortable following-up on sporadic initiatives, as they arise. However, Mexico is seeking to develop a venture capital market. To that effect, it put in place a few years ago a legal framework that provides certainty and gives investors the needed flexibility to structure investments according to their individual needs. Recently it incorporated many of these features into its general corporate framework. The market offers to Arab investors investment opportunities within a legal framework that provides transparency and security. The energy reform legislation offers additional opportunities in a sector that the Arab oil producing countries know well and in which they have a vast experience.

Notes 1. This paper draws on the following official sources: Secretariat of the Economy, Mexico. http://www.economia.gob.mx/comunidad-negocios/comercio-exterior/ informacion-estadistica-y-arancelaria; and http://www.economia.gob.mx/ comunidad-negocios/competitividad-normatividad/inversion-extranjera-directa/ estadistica-oficial-de-ied-en-mexico. Iqom Inteligencia Comercial. http://www. iqomla.com. United Nations Conference on Trade and Development (UNCTAD), http://unctad.org/en/Pages/Statistics.aspx. 2. Mexico has entered into an FTA with Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua; and individual FTAs with Colombia, Chile, Peru and Uruguay. 3. At the time of this writing Mexico has entered into BIPAs with 16 of the 28 EU countries (Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Portugal, Slovakia, Spain, Sweden and the United Kingdom; it has not entered into BIPAs with Bulgaria, Cyprus, Croatia, Slovenia, Estonia, Hungry, Ireland, Latvia, Lithuania, Malta and Poland, Rumania), two of the four EFTA countries (Iceland and Switzerland; Mexico does not have investment agreements with Lichtenstein or Norway) and Belarus. 4. In the Americas, Mexico has BIPAs with Argentina, Cuba, Panama, Trinidad and Tobago and Uruguay (it should be noted, however, that although Mexico

150

5. 6.

7.

8. 9.

10.

11.

12. 13. 14.

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negotiated an FTA with Uruguay in 2004, which includes a chapter on investment that comprises both, substantive protections and an investor – state dispute settlement mechanism, it had previously entered into a BIPA (in 2002) that contains similar provisions and is still in force, as the parties were silent on the subject in the 2004 FTA). In Asia, Mexico has entered into BIPAs with Bahrain, China, India, Korea, Kuwait and Singapore. The agreements with Bahrain and Kuwait are pending legislative approval at the time of this writing. Mexico has an FTA with Israel, but it does not contain provisions on investment protection and the two countries have not negotiated a BIPA either. Mexico has also entered into a BIPA with Australia. The Pacific Alliance is a regional integration initiative created on 28 April 2011 between Mexico, Chile, Colombia and Peru. The members of the TPP at the time of this writing are: Brunei, Chile, New Zealand, Singapore, the United States, Australia, Peru, Vietnam, Malaysia, Mexico, Canada and Japan. The reference to the Arab world comprises the current 22 members of the Arab League. This chapter is strictly limited to matters concerning trade and investment between these countries and Mexico and therefore takes no view on Mexico’s or the Arab League’s respective positions on political events in the region. The following statistics are not available: trade and investment between Mexico and Palestine; exports from Mexico to Somalia; investment from Djibouti, Palestine and Somalia. Source: Secretariat of the Economy, Mexico. Sociedades ano´nimas or corporations are companies in which capital stock and ownership rights are represented by shares that are freely transferable. They are incorporated by a shareholders’ agreement. Both individuals and enterprises may be shareholders. They are separate legal entities with legal existence independent from that of their shareholders. Sociedades de responsabilidad limitada or limited liability companies are formed by agreement of its members. Like corporations, individuals and enterprises may be members and they are separate legal entities, with legal existence independent from that of its owners. Membership interests are not represented by shares and are not freely transferable. The principal arbitral institutions that operate in Mexico are the International Chamber of Commerce Court of Arbitration (ICC), the Mexican Arbitration Centre (Centro de Arbitraje Mexicano, also known by its Spanish Acronym CAM), and the Mexico City Commerce, Services and Tourism Chamber (Ca´mara Nacional de Comercio, Servicios y Turismo de la Ciudad de Me´xico, also known by its Spanish Acronym CANACO). The BIPA was entered into with the Belgium-Luxembourg Economic Union. The BIPA is not yet in force. Ibid.

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References Iqom Inteligencia Comercial. http://www.iqomla.com. Secretariat of the Economy. Mexico, http://www.economia.gob.mx/comunidadnegocios/comercio-exterior/informacion-estadistica-y-arancelaria. ——— http://www.economia.gob.mx/comunidad-negocios/competitividadnormatividad/inversion-extranjera-directa/estadistica-oficial-de-ied-en-mexico. United Nations Conference on Trade and Development (UNCTAD). http://unctad. org/en/Pages/Statistics.aspx.

CHAPTER 8 BRAZILIAN BUSINESS CULTURE Fehmy Saddy

Introduction During a recent conference held at the IFHC Foundation (Instituto Fernando Henrique Cardoso), Brazil’s former president stated that Brazilian society is part of the Western cultural tradition. Evidently, he was referring to western European immigrants who started to arrive in Brazil in the latter part of the nineteenth century and early twentieth. This includes northern Italians from the regions adjacent to France and Switzerland. Germans and Austrians started leaving Europe in increasing numbers after World War I and II, and were followed by Scandinavians from northern Europe. These people are distinguished by their fair skin and light hair colour and are strikingly different from southern Europeans, particularly Italians with dark complexions. However, ever since the discovery of Brazil in 1500 by the Portuguese navigator Alvarez Cabral, Brazilian society has consisted of adventurous Portuguese colonists and Moc a´rabes – Portuguese people of mixed blood who interacted with the Moors,1 and New Christians (Novos Crista˜os), who were Jews compelled to convert to Christianity during the Spanish Inquisition.2 These groups left Portugal to escape persecution and settled in the new Portuguese colony. Added to them were West African blacks that were rounded up by slave-traders and sold to colonists to work on plantations throughout North and South America.3

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In his authoritative study of Brazil’s social and political history, the noted sociologist Gilberto Freyre described the roots of the Brazilian culture. He writes that Portuguese descendants of the Moors instituted in the new colony an auto-colonization regime through large-scale property and slave labour. This was “an institutionalized form of agrarian, slave-holding and polygamous colonization, the patriarchal colonization, in short”. He writes that Brazil advantageously employed this system as practically the only system that could function in Latin America and summed up the Moca´rabes’ impact on Brazilian culture in the following passage: The point to be stressed is the presence of Moca´rabes’ descendants, not scattered here and there, but in large numbers among the early settlers, for they were the representatives of the energetic and creative plebeian strata. It was through this element that so many traces of Moorish culture were transmitted to Brazil.4 Today, the Moca´rabes’ influence is still present in Brazil, indeed throughout Latin America as manifested in the structure of extended family relations, literature, popular culture, folklore, as well as soulful music and melancholic ballads reminiscent of Spanish Quintas das Lagrimas.5 During the second part of the nineteenth century, Mediterranean people from southern Italy started to migrate to North and South America. Most of these early Italian immigrants were from Sicily, an island with limited resources. Some of them went to the United States and settled in New York and Chicago around the same time poor Irish immigrants went to North America to escape the potato famine and settled in New England. Sicilians had intermingled with other Mediterranean people since 750 BC when the island was first occupied by the Greeks and later passed to the Romans. After the destruction of the Roman Empire in the fifth century it was ruled during the early Medieval Ages in turn by the Vandals, Ostrogoths, Byzantines, Arabs and Normans. Under the Arab rule (827– 1091) the Sicilians adopted some of the Arab cultural traditions.6 Throughout its long history Sicily was ruled by outsiders and became part of Italy only in 1860. The early Italian immigrants to Brazil were Sicilians who settled mostly in Sa˜o Paulo and the hinterlands and were typically Mediterranean people with

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darker complexions and led a blended Mediterranean lifestyle. These southern Italians had nothing in common with northern Italians and other Europeans who started migrating to Brazil in the early part of the twentieth century. During the same period, another wave of immigrants from the Eastern Mediterranean started arriving in Brazil. This included Syrians and Lebanese from the Levant region that was part of the Ottoman Empire. Brazil and the Ottoman Empire concluded a friendship agreement during a visit by Brazil’s Emperor Pedro the Second to Constantinople in 1858. These Levantine people carried Ottoman identity cards and acquired the name Turcos, a somewhat pejorative term. Today, they are referred to politely as Sirio-Lebanese. Brazil has the largest number of people who trace their origin to the Levant region than any other Latin American country.7 Therefore, Portugal’s Moca´rabes, with successive waves of Mediterranean people from southern Italy and the Levant, came to shape Brazil’s social and cultural traditions. The business culture they forged is Mediterranean in style and modus operandi, reflecting age-old methods of doing business: bargaining, manipulation, boasting, and most notably corruption, as will be discussed later in this chapter. Indeed, Brazilian politics today tends to be dominated by people of Portuguese, Italian and Lebanese extractions, and their mercantilist business culture has shaped the way of doing business in Brazil. This business culture contrasts sharply with the western European business culture brought by Germans and northern Europeans who settled mostly in Brazil’s southern states. Their business culture was based on an organized form of business with transparency and respect for contractual obligations, which has allowed them to lay the building blocks of Brazil’s modern industry and commence. However, these Western business norms and standards have been gradually diluted with the increasing influence of the Portuguese and Mediterranean mercantilist business culture.

Population, Ethnicity and Class Structures Much has been written about the Brazilian “miracle”, the phenomenal economic growth experienced over the last decade, which has allowed Brazil to join the BRICS group of emerging economies. The rise of the

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middle class is often placed at the centre of this phenomenon. However, the genesis of this miracle – if true – and its fundamentals are not defined by statistical measurements alone. To understand the dynamics of Brazilian economic growth it is necessary to understand the reality of Brazil’s ethnic and class structure where economic standing is only one indicator. Therefore, in discussing the Brazilian “miracle”, and the central role of the middle class in Brazil’s growth, differentiation must be made between several categories of people defined by racial and economic standing in society.8 The Brazil Census 2010 put the population at 192 million, of which 84.4 per cent lived in urban areas and 15.6 per cent in rural areas. This Census contrasts sharply with the Census 1950 when the total population was 52 million, of which 36.2 per cent lived in urban areas and 63.8 per cent in rural areas. Migration from the rural areas to urban centres started after World War I and intensified particularly during the 1950s and 1960s, coupled with a birth rate of 2.99 per year.9 Today, the birth rate in urban areas is down to 1.17 per cent, a world average, while in rural areas it remains high at 2.8 per cent. However, the birth rate in urban areas varies substantially depending on race and economic level. Brazilian society is a true melting pot, an amalgam of different races. The early Portuguese colonists, who themselves were of mixed races, intermarried with black slaves and indigenous Indians. Brazilian society is an example of intermixing of races where certain categories of people have been created with hues of colour and combinations producing racial cocktails of non-discernible features. The generic Brazilian type is brown (Moreno). The type with European features, chocolate colour and smooth skin, the Mulatto, is a mixture of white and black. The Cafuzo is a mixture of black and indigenous Indian. Generally, there is no stigma attached to inter-racial relationships among these groups, whether by formal marriage or the more common concubinage, where Brazilian law recognizes a “stable relationship” as the functional equivalent of formal marriage with equal treatment under the law. Although Brazilian society is not defined by a dominant race, it is like the United States, where racial differentiation has been abolished by law but remains a strong undercurrent of class structure and social behaviour. Racial differentiation in Brazil endures in subtle forms expressed mostly by economic standing. The Census 2010 differentiates between several racial categories of the population on the basis of colour and race to “fundamentally

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understand its diversity and to study inter-racial relations”.10 The census survey used six categories with respondents’ self-identification of their respective percentages: White (47.7), Black (7.6), Brown (43.1), Yellow (1.1), Indigenous (0.4) and Not Declared (close to 0). It is interesting to note that in the Census 2000, Whites were 53.7 per cent, 6 per cent more than in the Census of 2010. Browns were 38.5 per cent, and Blacks were 6.2 per cent. Within a decade, Whites decreased by 6 per cent, and Browns and Blacks increased by 6 per cent. Even those who identify themselves as Yellow increased from the Census 2000 by 0.6 per cent. Primary school education (up to 10 years old) is compulsory and the national illiteracy rate is relatively low at 9 per cent. But it is slightly higher in rural areas due to lack of proper roads and distance between homes and schools. The highest illiteracy rate, among persons aged 65 years and more, accounted for 29.4 per cent.11 At the Census 2010, the national average personal income was R$ 1,202 (equivalent to $534 in 2014 average exchange rate). However, it varied between urban and rural areas, with the rural income representing 46.1 per cent of the urban income. The national household income, which includes several persons, was R$ 2,222. It also varied between urban household income of R$ 2,407, and rural income of R$ 1,051, which represents 43.7 of the urban income.12 The government uses a measurement unit called minimum monthly salary (salario minimo) to determine the income level of employees. It is similar to the hourly wage in the United States, which is the floor wage that should be paid to employees by law. However, unlike the United States, the minimum monthly salary in Brazil is a measurement, not a floor or legal requirement. In 2010, the minimum monthly salary was R$ 510.13 Figure 8.1 shows the disparity of income distribution in Brazil through a breakdown of several categories of minimum salary recipients and their respective percentages.14 The figure shows that 35.6 per cent of persons in urban areas and 45.4 per cent in rural areas have no income. Persons with less than half minimum salary accounted for 4.8 per cent in urban areas and 15.2 per cent in rural areas. In other words, persons living in urban areas who have no income or less than half minimum salary accounted for 40.4 per cent, and persons living in rural areas who have no income or less than half minimum salary accounted for 60.6 per cent. Persons who earned

No Income

35.6

45.4

Up to 1/2 Min. Salary

4.8

15.2

24.8

From 1/2 to 1 Min. Salary

20.5

From 1 to 2 Min. Salary

10.4

20.4

2.1

From 2 to 3 Min. Salary

7.0 1.3 From 3 to 5 Min Salary

5.7

0.7 From 5 to 10 Min. Salary

4.1

Rural

Urban

0.2 From 10 to 20 Min. Salary

1.4

More than 20 Salaries

0.5 0.1

Distribution of persons of 10 years and more based on classification per minimum salary – Brazil 2010

Source: IBGE, Demographic Census 2010.

Figure 8.1

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between half and one minimum salary accounted for 20.5 per cent in urban areas and 24.8 per cent in rural areas. To add the three categories, the percentage reaches 60.9 per cent in urban areas and 85.4 per cent in rural areas. The picture becomes even clearer with regard to income distribution in Brazil if the fourth category is added; i.e. persons who receive between one and two minimum salaries. In this case, the percentage of persons living in urban areas reaches 81.3 per cent and reaches 95.8 per cent in rural areas. It is difficult for an ingenious economist to claim that persons falling in the above four categories belong to the middle class that is responsible for Brazil’s phenomenal economic growth. Not even persons in the fifth and sixth categories, earning between two and five minimum salaries in urban areas (total 12.7 per cent) and rural areas (total 3.4 per cent) would qualify as such considering the high cost of living in Brazil.15 Perhaps Brazilian economists consider persons earning between five and ten minimum salaries (R$ 3,500 and 7,000, equivalent to approximately $1,500 and $3,000) as belonging to the middle class. But this category of earners constitutes only 4.1 per cent in urban areas and 0.7 per cent in rural areas. Even adding the more eligible category of persons earning between 10 and 20 minimum salaries in urban areas (1.4 per cent) and rural areas (0.2 per cent) would increase the middle class category to only 5.5 per cent in urban areas, and 0.9 per cent in rural areas. The above analysis of income distribution in Brazil gleaned from official statistics reveals a picture at great variance with the myth recounted by self-serving promoters in official and corporate circles. The Brazilian middle class is too insignificant in percentage terms to make a great difference or a significant contribution to the economic growth attributed to it. The reality remains, as it has always been since Brazil was founded, of the glaring disparity between the overwhelming majority of poor people and the concentration of wealth by a very small minority of economic elites. Slavery was abolished in Brazil in 1888, but it clearly still thrives in modern forms in both urban and rural areas.16 In a fundamental sense, Brazil is still defined by a culture of poverty, on one hand, and a culture of deep-seated greed perpetuated by privileged political and business elites, on the other. The Brazilian “miracle” and centrality of the middle class to economic growth are pure myths. The structural weaknesses of

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the Brazilian economy and the systemic risks to which it is exposed from global economic events are at the roots of its economic fragility and continued dependence on direct foreign investments. To a large extent, they are due to its traditional class structure, lopsided concentration of wealth, archaic institutions, and a political and business culture based on corruption, as shall be discussed below.

Economic Class Structure The Brazil Census 2010 provides for nine categories of income recipients, but does not rank them by class. For the purpose of discussion, however, the Brazilian economic class structure can be divided broadly into four categories: the rural poor, the urban poor, the middle class, and the upper class.

The Rural Poor The figures cited above show that more than 85 per cent of Brazil’s rural population consists of persons who either receive no income at all or income not exceeding one minimum monthly salary. In spite of its status as a BRICS country and its flamboyant elites, Brazil remains one of the most unequal countries on the planet. Conscious of the need to lift the poor out of their misery in a country of bountiful resources and join the exclusive club of emerging economies, the newly elected President Luiz Ina´cio Lula da Silva in 2003 set the goal to eradicate hunger and extreme poverty in Brazil. The Zero Hunger programme (Fome Zero) put into action the government strategy to guarantee the right to access to basic food. According to Wikipedia: The program takes a number of forms, ranging from direct financial aid to the poorest families (with the Bolsa Famı´lia card) to diverse strategies such as creating water cisterns in Brazil’s semi-arid areas, creating low-cost restaurants, educating people about healthy eating habits, distributing vitamins and iron supplements, supporting subsistence family farming and giving access to microcredit. Evaluation of the programme by The World Bank, UNDP and some universities reveal significant improvement of children’s education,

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positive impact on their growth and reduction of child labour. In a survey of Bolsa Familia recipients, 82.4 per cent reported eating better; additionally, it was reported to increase the incomes of the poorer families by about 25 per cent.17 However, there is still a long way to go before Brazil could declare the elimination of hunger entirely.

The Urban Poor The urban poor consist of the rural people that started migrating to the major metropolitan centres in the east and southeast of Brazil in the 1950s and 1960s in search of employment. The Census 2010 indicates that rural migrants were mostly women who took employment as house servants, cleaners and other menial jobs, while men remained in rural areas working in agriculture. This class consists predominantly of uneducated or undereducated people living in shanty towns ( favelas) that surround major cities and metropolitan centres. They provide the menial work force as janitors, domestic helpers, shops clerks, telemarketers, bus drivers and, when presentable, salespersons. As described above, the majority of persons in this class receive a minimum monthly salary, which may go up to two monthly salaries. However, the high cost of living, in cities where they could find employment, combined with an inflation rate that is effectively twice the rate published by the government, makes it a daily challenge to make ends meet. For all practical purposes, this barelysurviving class continues to live in poverty, which is evidenced by the skinny and malnourished body size of its members. Although the government provides public health services to all citizens, access to these services is theoretical due to long delays, aside from their low quality. Access to public schools beyond the primary education level is also theoretical. Primary schooling is compulsory and provided at no cost; however, few could afford to dedicate themselves to a higher level of education as earning a living takes precedence. In most cases, all members of the household live together and work to sustain themselves. The quality of education at public schools is also low as attested by the low salaries of teachers who are paid slightly over the minimum wage.18 Sa˜o Paulo, a metropolitan centre that swells to 20 million people during a working day, provides a vivid example. The sight of millions feeding into metro stations in the morning and later in the day conjures up images of herds of cattle forced into a narrow barn gate. Indeed, it was

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this class that led the demonstrations in 2013 that persisted for several months against raising the bus and metro fares from R$ 3.00 to R$ 3.20, an increase of 7 per cent, which represented a significant burden on their budget for their daily commute to work. This class is kept alive on a minimum salary, but is well entertained by TV soap operas filmed in wealthy settings depicting rich women flashing their wares, and long weekend’s popular programmes depicting barely clothed young women dancing to silly tunes. Avid players of the lottery, this class fits George Orwell’s description of “millions of Proles [common people] for whom the Lottery was the principal if not the only reason for remaining alive”.19 The question is often asked: why would 200 million people accept inequality and tolerate an archaic political and economic power structure? Often the answer is that Brazilians are good-natured people, but with a sense of hopelessness to change the system. Therefore, they compromise for the sake of survival. They even borrow a metaphor from the dancing floor to show their flexibility. The expression jogo de centura, which means shaking the lower part of the body to accompany the music, is often recommended instead for standing up and facing challenge. Poor Brazilians are always hopeful that their future will be better. Brazil is the country of the future, they keep hearing, and this sustains their dreams of better days, if not on this earth, then afterlife. This explains, at least partly the overwhelming success of Evangelical churches among Brazil’s poor communities where salvation is preached and heaven is almost assured if the 10 per cent of their income is paid regularly to the church on this earth in accordance with the Holy Scriptures.

The Middle Class The economic expansion that Brazil witnessed during the last decade due to increased government spending programmes has created economic opportunities for professionals. As seen above, members of this class may receive from the equivalent of three minimum monthly salaries and up to ten minimum monthly salaries. Some may even advance to higher levels and receive up to the equivalent of 20 monthly salaries. However, this level of remuneration is usually sought at US and European companies that operate in Brazil in line with their pay scales at home. Therefore, Brazilian professionals value working for foreign companies

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where they receive regular training to upgrade their skills and advance their careers. The elevated salary level and acquired knowledge gradually create within this class a unique business culture, partly related to indigenous Brazilian business culture, and partly to their newly acquired status by working for Western companies. It is natural therefore that the rise of economic standards and positions would be accompanied by behavioural change. The gain in economic standing often brings about exquisite behaviour with loss of spontaneity. As often observed, Brazilian professionals exhibit a measure of vanity manifested in their effort to impress their interlocutors with their positions, busy schedules and frequent travels, sometimes to the point of being comical. In the movie Analyze This Robert de Niro played the role of a mobster, and Bill Murray played the role of his shrink. The movie director presents a situation where the mobster uses his shrink to help him do his shady business. Obviously, the shrink cannot shrink from this assigned role because he has an offer he cannot refuse. Here enters a special category of Brazilian professionals pertaining to the middle class. They are referred to generically as executives (executivos). These executives occupy senior management positions where they are in charge of executing corporate plans, whatever they may be, and are willing to do whatever it takes to succeed. They are very well paid, indeed much better than US executives in similar positions. A Brazilian executive is recognized by his impeccable appearance: his smart suit, pressed shirt, cuff links, necktie, and shiny shoes. He projects the image of someone who knows his stuff, whether true or not. He tries to sell his project or idea to foreign investors by emphasizing the usual statistics about Brazil: population, rising middle class, market growth, economic expansion and government plans, etc. And he would not fail to make the point at the end of his pitch that his group is in discussions for the same project with other foreign investors from the usual places: the United States, Canada, Europe, China and Japan. More recently, South Korea and Australia have been added to the list. Indeed, Brazilian executives are recognized for their excellent “elevators pitch” and smooth talk in swaying foreign investors.20

The Upper Class It is not easy to classify persons that represent Brazil’s upper class. A rudimentary measurement could be the category of persons who

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earn more than 20 times the minimum salary, as shown in Figure 8.1 above. This class represents 0.5 per cent of persons in urban areas and 0.1 per cent in rural areas, for a total of 0.6 per cent nationally. However, Brazil’s upper class is often part of the oligarchy that controls the political and economic system, and both are interwoven in Brazil’s business power structure.

Brazilian Business Power Structure In Brazil, as in most developing countries, the state is the principal political actor and main engine of growth that spurs the economy and creates change. Therefore those who seek public office have presumably the power to direct public policies and resources. In Western countries, politics is often defined as the maximization of values. These values could be the prestige acquired by holding public office, or the pathological quest for power for its own sake. Politicians seeking office may have other motives as well, such as aspiring for higher office or serving their communities. Therefore, holding public office is often called public service, and bureaucrats are called public servants. Politicians are usually concerned about the needs of their communities and strive to meet them in order to get re-elected for additional terms. Hence, it is said that all politics is local. However, this is not the case in Brazil as shall be discussed below. Politics and business are inscribed on the two sides of a banknote, and both inscriptions are required to make it a legal tender.

The Politicians Brazilian politicians are an essential component of the economic structure and business culture. Politicians contest elections at all levels, using the well-known methods of winning elections in developing countries: bribery, horse-trading, and at times extortion. Winning elections is a matter of which candidates making fantastic promises to an overwhelming majority of simple, illiterate and poor people. Brazilians must register to vote under the law, and most people cast their votes while fully convinced that promises made by politicians are pure lies. Therefore, most often people cast a white ballot to fulfil a legal requirement. In Brazil, politics is not about public service, and much less about psychological gratification of power. It is about wealth accumulation

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within the shortest span of time while holding office.21 Any other motive is irrelevant and a pure waste of time. Politicians tend to think of public office as a dairy farm; whoever controls the dairy farm gets to milk the cows. This could be a cow for a simple policeman’s position, or a herd of cows for a higher office. Brazilian politics is based on a simple truism: whoever wins the elections gets to control the farm and milk the cows. Therefore, Brazilian politics is all about milk.

The Oligarchs The economic and financial structure in Brazil allows a businessman to evolve within few years from a tiny fish to a whale. It is not exactly Darwinian because evolution in nature takes too long; in Brazil, it is instantaneous. Indeed, this structure mirrors the situation in the United States at the turn of the twentieth century when great fortunes were created in the shadow of corruption and abuse. J.P. Morgan, Ford and Rockefeller are some prominent names to remember from that era. This form of crude capitalism – or rather cannibalism – was the product of an industrial revolution similar in style and consequences to what happened in England at the end of the nineteenth century. This led to the economic depression of 1929 that lasted until 1934 when serious banking and securities laws and anti-trust legislation were enacted to regulate banking and finance. Today, Brazil passes a similar phase of capitalism, with lax regulations, widespread corruption and government economic interventionist policies and incentives that are largely responsible for perpetuating economic cannibalism. Brazil has evolved a businessmen class called Empresa´rios.22 You may think of them as a businessman, entrepreneur, or chairman of a company (Empresa). In fact, the meaning goes much beyond that. A Brazilian Empresa´rio is a businessman with guts and extraordinary qualifications. He is usually the head of an Empresa or group of Empresas, in the plural. He could be someone with education who knows what he is doing, or someone with a long term vision, but these are not necessary qualifications, as in most cases he lacks both. It is sufficient for an Empresa´rio to be street-smart with the right political connections. He abhors two colours: black and white. He is into grey, 50 shades of grey. The legendary Brazilian way (geito Brasileiro) lends itself to variations of infinitely creative positions. An Empresa´rio has clout widely spread throughout the political, economic and financial system.

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He knows everyone that counts, and everybody is anxious to do favours for him: politicians, bureaucrats, the police, the general prosecutor, and of course, judges and courts. He is the central figure in the Brazilian political and economic structure. Most importantly, he has close relationships with banks, particularly state banks that dispense government funds to projects undertaken by Empresa´rios like him, as shall be discussed later in this chapter. The problem facing a starlet Empresa´rio is how to get access to the banks to fund his Empresa and its ambitious projects. First, the Empresa´rio approaches politicians. He scouts the market for the right ones through connections of friends and relatives. Obviously, there are plenty of them ready to accept his invitation to lunch, with an appropriate desert. The vexing issue is how to arrange the money to pay for the expensive guest. This is the interesting part of the story, which everyone knows but only few would be willing to discuss openly. It is an open secret that companies use creative accounting methods to escape, or at least to reduce the outrageous government taxes. Brazil is considered among the few countries in the world where several layers of taxes are imposed on the sale of products and services, but most peculiarly on the circulation of money in the form of a financial transaction tax, which is a small percentage fee imposed every time bank deposits are made or money transferred.23 A well-known creative accounting practice is known as Cash Box Number Two (Cacha Dois), an invisible account that does not figure on the company’s books. Essentially, this is a “slush fund” to finance activities not allowed under the law. Some companies establish several segregated cash boxes or slush funds to finance different activities. One cash box may be to finance the political campaigns of political friends and parties; another cash box to pay for services provided by helpful politicians and bankers willing not to look too closely at documents; and a third cash box to pay for entertainment expenses such as overseas trips, private jets, excursions, and occasionally escort services for important guests to ease their tension. The responsibility for creating and managing such accounts falls on the shoulder of a corporate officer who has the humble title of Commercial Director (Diretor Commercial). He is not very high on the corporate hierarchy, but his authority should not be underestimated. He is the person who buys and sells good and services for the company

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and therefore, he is in a position to negotiate prices, discounts, commissions and payments, against invoices or no invoices, for debt or for cash, and above or under the table. He is commonly known as the Orange (Laranja) that produces the juice. He works directly with executives at the upper management, and secures their cuts from the deals he makes for the company. Of course, such an important function cannot be left in the hands of the Financial Director (Diretor Financeiro) who handles official invoices, and accounts, and who must remain above suspicion. In this position, he could claim that he knows nothing about any dubious transactions beyond the invoices and official documents in his hands. If investigated, he could swear to that under oath any day of the week, including weekends. However, there is no reason for such needless investigations. The system works fine and everyone gets to benefit from the process, particularly the politicians whose job is to protect everybody in the value chain.

BNDES In 1956, Brazil established the National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econoˆmico e Social – BNDES) to overcome the stringent conditions of international banks and foreign lenders and accelerate Brazil’s economic and social development. However, BNDES has a unique structure not comparable to any other bank in the world. Unlike government banks in socialist countries during the Soviet era – and some still in China – that were set up to finance activities not taken up by the private sector, such as roads, bridges and other infrastructure projects, BNDES is a government bank that lends to the private sector to undertake such projects. BNDES is unlike international development banks, such as the World Bank, International Finance Corporation (IFC) or Inter-American Development Bank (IDB) that provide financing to governmental and public– private projects. These institutions lend only a portion of the project cost, usually up to 20 per cent in the case of IFC, on commercial terms with market rates and limited maturity terms. However, BNDES provides up to 90 per cent of the project cost, which is usually inflated to account for the remaining 10 per cent. In other words, a project could get initial funding of 100 per cent of its cost. In addition, BNDES provides loans with long-term maturities and preferential interest rates below the cost of money when inflation is taken into account.

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Considering Brazil’s history of inflation, the value of these loans is diluted over time as to amount effectively to grants. The closest model to BNDES structure is the International Development Association (IDA), the World Bank’s special facility specifically set up to provide long-term lending to the world’s poorest countries with nominal interest rates. However, IDA provides support for health, education, infrastructure, agriculture, and institutional development to the world’s poorest countries – half of which are in Africa.24 In most cases, these loans are forgiven or converted to grants. In contrast, the majority of BNDES loans are extended, not to health and education projects sponsored by the government, but to mega industrial projects owned by Empresa´rios in the private sector. Most interesting is how BNDES is regulated and its disbursements are supervised. Government banks are usually financed by public funds and are therefore treated as government entities supervised by the executive and legislative branches. As such they are subject to disclosure of information under freedom of information legislation. However, BNDES is not subject to supervision by Brazil’s Ministry of Finance that provides its funds, nor does it answer to the legislative branch. Instead, BNDES is treated as a private bank under the supervision of Central Bank. Just like other private banks, secrecy provisions protect it against revealing information regarding its operations, including committee deliberations, lending decisions and disbursements.25 Therefore, BNDES is immune from providing information on its operations. The manner with which BNDES operates has turned it into something akin to a money-dispensing machine for use by politicians and their Empresa´rios friends to siphon government funds. Its large budget constitutes a significant percentage of the Brazilian government allocations. For a country known for its elevated taxes, which are collected mostly from the poor – the class that has no way of hiding or shielding its earnings from the taxman – BNDES is, in essence, an institution funded by the poor whose resources are transferred to the rich. It functions just like the legendry Robin Hood who took money from the rich and gave it to the poor, except BNDES works in reverse. In fact, the new management of the International Monetary Fund (IMF) has recognized that this must change. The IMF now applies “special programmes to help resource-rich developing countries avoid the resource curse trap, where the discovery of extractive industries,

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such as oil and minerals, instead of helping a country progress economically, does little to reduce poverty and only benefit a few and increases corruption”.26 Since BNDES was established some 60 years ago the world has changed and Brazil has evolved economically to become the sixth world economy and has joined the rank of BRICS countries. In fact, Brazil joined recently other BRICS countries in setting up $50 billion development bank and an additional reserve facility of $100 billion to shield their economies against future global economic crisis, such as the one precipitated by the collapse of the US investment firm Leman Brothers in 2008.27 Yet it still operates on the same IDA principles. Even within IDA beneficiaries, many poor countries have graduated and are no longer eligible for its lending programmes. In fact, on the occasion of the 70th anniversary of the Bretton Woods Agreement on 22 July 1944, which established the global financial institutions, including the International Monetary Fund and the World Bank, some economists have even questioned whether the World Bank has not outlived its usefulness.28 Therefore, it is high time for BNDES to be phased out and its resources diverted to social and economic programmes that benefit Brazilian society at large, particularly in the health and education sectors. This could be the first step the Brazilian government could take in a serious structural reform, including the adoption of some economic policies similar to those pursued by other Latin American countries, particularly Colombia and Mexico, to bridge the gap in inequality that divides their populations.29

Commercial Banks Once BNDES approves a project for funding, it acquires instant credibility. This opens the doors for commercial banks to provide additional funding for expansion in the future. This also attracts local investors, pension funds and foreign institutional investors. Subconsciously, members of the financial community adopt a herd mentality. Just like a herd of sheep, they follow the leader and jump into the river only to be devoured by a pack of wolves when they emerge on the other bank. However, not all bankers are sheep. In fact, some of them are wolves in sheepskin. They are fully conscious of the commercial risk involved but use BNDES stamp of approval to justify extending more loans to projects and, sometimes at least, to make some money for themselves.

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Brazilian banks have been and continue to be deeply involved in the usury business. The history of high interest rates in Brazil goes back to the days when the Brazilian currency (Cruzeiro) was devalued daily in relation to the US dollar. These were the days when the Cruzeiro was depreciating at the rate of 2– 3 per cent per day, resulting sometimes in a yearly inflation rate approaching 1,000 per cent. When President Fernando Henrique Cardoso’s administration introduced the Real Plan in 1994, inflation was tamed, which came down to 5 –7 per cent per year, and has remained almost constant for the following two decades.30 However, Brazilian banks have ignored the government’s new economic policies, which brought stability to the new currency, and continued to charge their customers exorbitant interest rates, even when the Brazilian Real was appreciating against the US dollar, the Euro and other foreign currencies. Banks are required to keep a portion of their deposits, usually 15 per cent, at the Central Bank in accordance with Basel III rules, for which they receive interest hovering around 10 per cent per year. Commercial banks charge interest rates to their best corporate clients ranging between 15 per cent and 20 per cent per year. However, private borrowers must pay interest rates ranging from 2 and up to 9 per cent per month. There is no justification for charging such high interest rates, a practice reminiscent of the loan shark lenders during the Medieval Ages that were immortalized in Shakespeare’s character Shylock in the Merchant of Venice. Indeed, banks have a great incentive to induce corporate clients to borrow, even as they are fully conscious of the commercial risks involved. The exorbitant interest rates they charge, often to corporate clients already heavily indebted, is predicated on the premise that the client would keep making the interest payments for few years – precisely because he is heavily indebted and has no other choice but to make the payments regularly in order to keep operating. During this period, the bank would have recovered the principal of its loan fully. In case the client defaults the residual value of the loan, even if it is settled at a deep discount, would amount to a bonus, an additional icing on the cake. This modus operandi of Brazilian banks has drastic consequences for the Brazilian economy. It has the effect of defeating any government fiscal policy intended to keep inflation in check. The high interest rates they charge force borrowers to increase the prices of their products in order to service their high interest loans, thus perpetuating a viscous

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cycle of inflation. Indeed, Brazilian banks are at the roots of economic instability in Brazil.

The Investment Advisors Some Brazilian investment banks and advisory firms are engaged in what may be called the “fine art of sugar coating”. Creative accounting, minimizing serious risk factors, faulty due diligence analysis, flimsy documentation, glamorous PowerPoint presentations filled with misrepresentations and sometime outright lies, are the staples of their trade. There are cases where documents prepared by these firms failed to disclose all the risk factors, and intentionally hid the truth about their clients’ businesses. Presentations inflated the benefits and suppressed the potential risks to the extent that they amounted to propagation of fraudulent investment schemes. A recent notable case is Brazilian former billionaire Eike Batista whose fortune went down from over $30 billion to a mere $200 million within a single year. After his ascent to the top of the billionaires’ list, where he ranked eighth, he came crashing down.31 In an article he wrote in a leading Brazilian business weekly, he blasted his investment advisers for deceiving the 890,000 investors in his companies with highly inflated figures.32 Indeed, most of these firms operate as sales agents for their clients’ businesses, not investment advisors bound by professional and ethical standards under strict rules and regulations. It was suggested by the same Brazilian business weekly that if the professional standards of care of Western investment advisory industry were applied to these firms, most of them would not qualify to operate, and some of their senior officers would even serve jail terms. However, in Brazil the system is complacent about corruption; no one goes to jail for fraud. The lack of strict regulations and oversight, as well as lenient judiciary system, allow these firms to maintain their practices. The Judiciary An insightful Brazilian professional once commented on the Brazilian justice system by saying that it is designed for the poor and distracted (pobres e distraidos). He said, it is like the hair of a Catholic nun; everyone knows that it exists, but no one ever saw it.33 It is common knowledge in Brazil that judges cater to the business community and tend to rule in favour of Empresa´rios who hold the levers of political and financial power.

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Claims against Empresarios and their Empresas linger in courts forever by using all sort of technical procedures to delay decisions. Therefore, claimants are forced to accept settlements of small fractions of their claims. In most judicial administration cases, a procedure equivalent to Chapter 11 in US Bankruptcy laws, claims are usually settled from 15 per cent to 25 per cent of their amount. Even payment of these small fractions of claims is often deferred for 20 years or more. This is particularly common in claims related to government taxes and workers compensation. The Empresa´rios know that repayment of these amounts could stretch over a couple of decades and therefore, have no incentive to pay them on time. Indeed, in most cases these charges are forgiven with proper political intervention. Brazil has good law schools steeped in the Latin legal tradition. However, even competent lawyers are forced to play the judges’ game in a corrupt judicial system. Brazilian lawyers tend to go soft on companies owing money to their clients. First, they know that courts favour the Empresa´rios and are reluctant to fall out of favour with judges. Second, they fear that the doors would likely close in their faces for corporate business if they develop the reputation of hard-nosed lawyers. Therefore, they go with the flow and play the game. When inquired about their commitment to fight for their clients’ interest and try to get the best deal, they often reply that their practices are based on Brazil’s culture of doing business rather than the merit of the case or strict application of the law.

Case Study – Rede Energia SA Readers are invited to read about a case involving a prominent Brazilian Empresa´rio, a certain Mr Quiroz, who is the head of a large Empresa, Groupo Rede SA that sells electricity. There is no conceivable way of losing money by selling electricity, water or bread, whether in Brazil or anywhere else in the world. These are commodities in great demand by the public, rich and poor. But Mr Quiroz is a genius and managed to lose money on the sale of electricity and filed for bankruptcy protection under the judicial administration procedure.34 When Mr Quiroz started his business some 30 years ago, he did not have a single penny (centavo in Portuguese) in his pocket. He borrowed the down payment for his first acquisition of a small electricity company.

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However, he believed in Brazil’s greatness, where it is said that God restores during the night what Brazilians destroyed during the previous day. He had a great faith in his bountiful country that rejuvenated itself every night, in the generosity of his government, and in his goodnatured countrymen, and those close to his heart and his pocket, particularly politicians and bankers. In fact, Mr Quiroz did nothing unusual. He simply did what others in his class and standing know how to do best: cultivate personal relationships with political figures, government bureaucrats and, of course, bankers. He used the system to build an empire of energy distribution companies across Brazil. No suggestion is being made here, God forbid, nor is there any evidence to suggest that Mr Quiroz set up or used any slush funds, as described above, to get any benefits from the system. Nevertheless, in the span of 30 years, his group accumulated huge debts to acquire his energy companies. When he stopped payments to his creditors, and filed for re-organization under the judicial administration procedure, the debts of five of his companies stood at more than R$ 4.8 billion, equivalent to more than $2.8 billion. No one asked where the money ended up, nor wanted to know: not the court, not the general prosecutor, not the lenders, and certainly not the state bank BNDES. No one knew where the money went, except Mr Quiroz. It is a Da Vinci Code mystery-style novel, and readers need to follow the story to the usual places where money finds a welcoming home.35

Practical Guide for Arab Investors The above facts, discussions and analyses offered some snap shots of the political and economic power structure in Brazil and the principal vectors of economic activities. They provide a broad impressionist picture of its business cultural environment in a system that operates with such awkwardness to the point of absurdity. In the words of the light-hearted Brazilian professional quoted above, Brazil does not exist in reality; it is a pure fiction.36 There is an Orwellian side to this fiction where the Brazilian government tries always to project a futuristic vision loaded with creative statistics and paint images unrelated to the real world. This vision is shared by the principal vectors of economic power, which engage in pretentions and “doublethink”.37 Indeed, Orwell’s fictional institutions – the Ministry of Truth, the Ministry of

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Peace, the Ministry of Love, and the Ministry of Plenty – all come together in a patently Brazilian elite language: Newspeak. It is within this business culture that foreign investors must operate. Therefore, they must adjust their working methods to these cultural norms and conduct their business with additional cautionary measures that may not be needed elsewhere in the world. This would not necessarily guarantee that they would be immune from failure, but they would at least be aware of the potential risks involved and assess all the variables that they need to consider before making a decision to invest in Brazil. The breadth and depth of the Brazilian market offer great investment opportunities. Generally, Arab investors tend to do business with major business groups because of the perceived security this would afford them. There is a good reason for Arab investors to favour structuring partnerships with leading Western institutions because of their credibility and the legal, financial and regulatory scrutiny under which they operate. However, this is not applicable in Brazil. As a rule of thumb, the more important a Brazilian company or group is, the more prone it is to irregularities due to its unfettered and cosy relationships with politicians, government bureaucrats, bankers, and judges. Corporate defaults are so common in Brazil that they amount to a normal way of doing business. However, Arab investors could invest in Brazil safely if they would follow the modalities used by Western corporations and financial institutions with vast and well-established operations in Brazil. Arab investors usually use international accounting and auditing firms when doing business abroad. Brazilian offices of international accounting and auditing firms publish booklets on doing business in Brazil for consultation by their clients. These are documents that include statement of laws and procedures applicable in Brazil. However, these documents have limited usefulness because they do not discuss how these laws and regulations are actually applied in real life situations. The following are some suggested “golden rules” for doing business within the Brazilian cultural context.

Equity Participation Taking a minority interest in a Brazilian family-owned holding company presents the greatest risk of investment, even if the company’s

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board of directors consists of the Holy Trinity (God, the Son and the Holy Spirit). In Brazil, this translates into the owner, his wife and his son, and perhaps some close family friends. If taking 100 per cent ownership of the company is not possible, then taking no less than 51 per cent should be the minimum. With this simple majority, the investor should insist on taking over the management, assuming the presidency of the board of directors, replacing the senior management, dismissing the commercial director, and bringing in his own key personnel. Most importantly, the investor should bring in his own financial controller and internal accountants and have them produce detailed monthly and quarterly reports. Taking regular and spot inventory counts of warehouses is also highly recommended.

Syndication Participation in syndication, bond issues or a collective investment schemes, even with security is discouraged unless the company is publicly listed on the Brazilian stock exchange BOVISTA, and the syndication is managed by foreign banks. Assets in private companies have a way of vanishing, and tracing them is almost impossible. Brazilian business creativity is immense. For example, in a horizontal integration plan, a company bought a fleet of trucks to deliver its products to customers. It noticed soon thereafter that tires were replaced frequently costing large sums of money. The company found out that its truck drivers were selling the new tires and replacing them with used ones, which needed to be replaced frequently. The truck drivers were also selling gasoline. The company shifted to renting trucks.

Consulting and Legal Services When due diligence work is required, investors should contract the head offices of foreign auditing firms, not their Brazilian subsidiaries, so that potential legal recourse would not be subject to Brazilian law. Legal services in Brazil would be performed by Brazilian law firms, in partnership with foreign law firms operating in Brazil. However, engagement agreements for legal services in Brazil should be concluded with the head offices of these law firms if possible, or with their local offices. These law firms operate under codes of ethics well established in

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their home countries, and are not swayed by the need to conform to the “cultural” legal standards applied by Brazilian courts. Legal recourse also would not be subject to Brazilian law.

Jurisdiction The application of Brazilian law in the acquisition documents and agreements should be avoided as much as possible. The application of Brazilian law and recourse to the Brazilian court system would mean many years to obtain a judgment. Even if the case is won, execution of the judgment is by no means assured. Brazilian businesses use the court system to force creditors to negotiate down their claims. Recourse to arbitration in Brazil should be avoided for the same reason. In fact, almost all US, European and other foreign investors operating in Brazil use clauses providing for arbitration in European or US venues.

Investment in Real Assets Brazilian employees are the investor’s greatest assets. However, they must be compensated generously to ensure their loyalty. Government taxes and worker compensation charges should be paid on time. In other words, Arab investors should act and behave as model corporate citizens.

Notes 1. The Moca´rabes (Musta’ribeen, in Arabic) were Arabized Portuguese of mixed blood and darker skin who acquired Arab cultural traits, and were distinguished from the white Portuguese who claimed that the purity of their blood was evidenced by the visibility of blue veins on their white skin. 2. Numerous works and authors on Portugal’s New Christians are listed on Wikipedia. http://fr.wikipedia.org/w/index.php?search ¼ Novos þ Crista˜os þ &title ¼ Spe´cial%3ARecherc.he&fulltext ¼ 1. 3. It is estimated four million slaves had been imported from Africa to Brazil, forty per cent of the total number of slaves brought to the Americas. http://en. wikipedia.org/wiki/Slavery_in_Brazil. 4. Gilberto Freyre, The Masters and Slaves: A study of the Development of Brazilian Civilization (New York: Knopf, 1956), 221. 5. Nicholas J. Debbane´, L’Influence arabe dans la formation historique, la litte´rature et la civilisation du people bre´silien (1911); Adelino Branda˜o, “Influencias a´rabes na cultura popular e no folclore do Brasil”, Revista Brasileira de Folclore

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6. 7.

8.

9. 10. 11. 12. 13. 14. 15.

16. 17. 18. 19. 20.

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11 (1971); Marcuse Checke, “The Portuguese Character”, in H. V. Livermore (ed.), Portugal an Brazil: An Introduction (Gloucestershire: Clarendon Press, 1953), 44 – 5. Arab Sicily. http://en.wikipedia.org/wiki/Sicily#Arab_Sicily_.28827.E2.80. 931091.29. The first recorded flow of immigrants from Syria and Lebanon to Brazil arrived in 1880. On the eve of World War I, some 45,775 Syrian and Lebanese arrived in Brazil and their numbers increased after the collapse of the Ottoman Empire in 1918. They were largely Christians who escaped conscription in the Ottoman army. It is estimated that between 1900 and 1935, the Syrian and Lebanese immigrants controlled 70 per cent of Brazilian commence, 10 per cent of industry and 5 per cent of agriculture. Today, they are totally integrated in the fabric of Brazilian society with keen interest in politics. John Tofik Karam, Another Arabesque: Syrian-Lebanese Ethnicity in Brazil (Philadelphia: Temple University Press, 2007). See also Roberto Khatab, Lebanon Vision, November 2007. The information on ethnic and class structure of Brazilian society draws on data collected for Brazil’s Census 2010 and published by Instituto Brasileiro de Geografia e Estatistica (IBGE). It includes detailed statistics on population, race, education, housing and income, by rural and urban regions and sex, and compares the data with the Census since 1940. Most of the data are compared with the Census 2000. Census 2010, IBGE, 43– 4. Ibid., 75 – 6. Ibid., 84. Ibid., 91 – 2. As of July 2014, the minimum salary is around R$ 700 equivalent to US$300. Table 36 – Distribution of persons of 10 years and more based on classification per minimum salary, Brazil Census 2010, IBGE, 93. For example, Brazilians are the largest group of foreign buyers of properties in Florida due its low cost compared with Brazilian properties. Although Brazil is the world’s largest producer and exporter of meat, the cost of meat in Brazil exceeds its cost in the United States. Brazilian manufactured cars cost twice US prices, and consumer goods and clothing are at least as high. Chinese goods flood the Brazilian markets due to their low cost compared with Brazilian manufactured goods. Brazil was the last country in the western world to abolish slavery. See Note 3 above. http://en.wikipedia.org/wiki/Slavery_in_Brazil. See http://en.wikipedia.org/wiki/Fome_Zero. The average wage of a primary school teacher in 2013 was about R$ 900 per month. George Orwell, 1984 (London: Signet Classics, new edition, 1977), 85. “Elevator Pitch” is defined as “a succinct yet impassioned pitch that can be delivered in the time it would take to go a few floors in an elevator with a prospective customer or business partner”. Courtney Fingar, “Inside FDI: Your Brief? To Keep it Brief”, Foreign Direct Investment (August/ September 2013), 1. Former President Luiz Ina´cio Lula da Silva was a labor leader who came from the rank of workers at Volkswagen assembly plant near Sa˜o Paulo. His

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22. 23. 24. 25. 26. 27. 28. 29.

30. 31.

32. 33. 34.

35.

36. 37.

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administration was rife with corruption from his first term in office and continued into the second. Some of his close associates were investigated for corruption in the case known as the Mensala˜o scandal. It was a vote-buying case of corruption that threatened to bring down his government. Mensala˜o is a neologism and variant of the word for “big monthly payment” (sala´rio mensal or mensalidade). http://en.wikipedia.org/wiki/Mensala˜o_scandal. The word “Empresa´rio” is derived from “Empresa” or company. In its desperate search to raise revenues, the French socialist government adopted recently this ingenious tax. “The ABC of IDA, The World Bank’s Fund for the Poorest”, World Bank publication, Spring 2013. Blake Schmidt, “Batista Collapse has Prosecutors at BNDES’s Door: Brazil Credit,” Bloomberg, 18 July 2013. See the statement of Min Zhu, IMF Deputy Managing Director, The Banker, October 2013, 136. Raymond Colitt, Unni Krishnan and Arnaldo Galvao, “BRICS Agree on $50 Billion Bank with Something for Everyone,” Bloomberg, 15 July 2014. Editorial board, “Does the World Still Needs the World Bank?” Bloomberg, 21 July 2014. Colombia cut payroll taxes from 29.5 per cent to 16 per cent and increased personal income taxes from minimum 5 per cent to 20 per cent. The upper rate for high-income individuals was increased to 33 per cent. Mexico adopted the same reform policy. Interview with Colombia’s Finance Minster, “All things Being Equal”, Foreign Direct Investment, August/September 2013, 26. See Plano Real at Wikipedia. http://en.wikipedia.org/wiki/Plano_Real. Juan Pablo Spinetta, “Brazil’s Batista Loses Billionaire Status as Debts Mount,” Bloomberg, 25 July 2013. http://www.bloomberg.com/news/print/2013 – 07 – 25/brazil-s-batista-loses-billionaire-status-as-debts-mount.html. EXAME, No. 14, 7 August 2013, 115– 17. Alcindo Dell’Agnese of Arquitetos Associados (www.adarquitetura.com.br). Case Rede Energia SA Recuperac a˜o Judicial (Judicial Recovery Administration) before 2ed Vara de Faleˆncias e Recuperac o˜es Judicias do Foro Central da Caˆmara de Sa˜o Paulo (SP), Recuperac a˜o Judicial No: 0067341–20.2012.8.26.0100. Case electronic reference: https://esaj.tjsp.jus.br/cpo/pg/show.do;jsessionid¼688570 B4D3D9543FAA8E4D4910C4FC2B.cpo3?processo.foro ¼ 100&processo. codigo ¼ 2S0006TBR0000. Reuters, “Groupo Rede Energia Creditors OK Energisa Bid, Court to Decide”, 3 July 2013. http://www.reuters.com/article/2013/07/05/us-redeenergia-brazilbankruptcy-idUSBRE96411020130705. Alcindo Dell’Agnese of Arquitetos Associados (www.adarquitetura.com.br). George Orwell defines doublethink as “the power of holding two contradictory beliefs in one’s mind simultaneously, and accepting both of them”, Erich Fromm, “Afterward to George Orwell”, in 1984, 322.

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References Alcindo Dell’Agnese of Arquitetos Associados (www.adarquitetura.com.br). Brandao, Adelino, “Influencias a´rabes na cultura popular e no folclore do Brasil”, Revista Brasileira de Folclore 11 (1971). Case Rede Energia SA Recuperac a˜o Judicial (Judicial Recovery Administration) before 2ed Vara de Faleˆncias e Recuperac o˜es Judicias do Foro Central da Caˆmara de Sa˜o Paulo (SP), Recuperac a˜o Judicial No: 0067341 – 20.2012.8.26.0100. Case electronic reference: https://esaj.tjsp.jus.br/cpo/pg/show.do;jsessionid14688570B4D 3D9543FAA8E4D4910C4FC2B.cpo3?processo.foro14100&processo.codigo14 2S0006TBR0000. Checke, Marcuse, “The Portuguese Character”, in H. V. Livermore (ed.), Portugal and Brazil: An Introduction (Oxford: The Clarendon Press, 1953). Colitt, Raymond, Unni Krishnan and Arnaldo Galvao, “BRICS Agree on $50 billion Bank with Something for Everyone”, Bloomberg, 15 July 2014. Debbane´, Nicholas J., L’Influence arabe dans la formation historique, la litte´rature et la civilisation du people bre´silien (Cairo, 1911). Editorial Board, “Does the World Still Needs the World Bank?” Bloomberg, 21 July 2014. EXAME, No. 14, 7 August 2013. Fingar, Courtney, “Inside FDI: Your Brief? To Keep it Brief”, Foreign Direct Investment (August/September 2013). Foreign Direct Investment, Interview with Colombia’s Finance Minster, “All things Being Equal”, August/September 2013. Freyre, Gilberto, The Masters and Slaves: A Study of the Development of Brazilian Civilization (New York: Knopf, 1956). Instituto Brasileiro de Geografia e Estatistica (IBGE), Census 2010. Karam, John Tofik, Another Arabesque: Syrian-Lebanese Ethnicity in Brazil (Philadelphia: Temple University Press, 2007). Khatab, Roberto, Lebanon Vision, November 2007 Orwell, George, 1984 (New York: Signet Classics, new edition, 1977). Reuters, “Groupo Rede Energia creditors OK Energisa bid, court to decide”, 3 July 2013. http://www.reuters.com/article/2013/07/05/us-redeenergia-brazil-bankruptcy-idUSBRE96411020130705. Schmidt, Blake, “Batista Collapse Has Prosecutors at BNDES’s Door: Brazil Credit”, Bloomberg, 18 July 2013. Spinetta, Juan Pablo, “Brazil’s Batista Loses Billionaire Status as Debts Mount”, Bloomberg, 25 July 2013. http://www.bloomberg.com/news/print/2013 – 07 – 25/brazil-s-batista-loses-billionaire-status-as-debts-mount.html. World Bank, “The ABC of IDA, The World Bank’s Fund for the Poorest”, Spring 2013. Zhu, Min (IMF Deputy Managing Director), The Banker, October 2013.

CHAPTER 9 ARAB—LATIN AMERICAN BANKING AND FINANCE Fehmy Saddy

Introduction The story of Arab banking and finance is associated with the October 1973 Arab –Israeli war that was fought by Egypt and Syria to reclaim the lands they lost to Israel in the June 1967 war. The War triggered an oil embargo by Arab oil producers, which resulted in a phenomenal increase of oil prices. The price of a barrel of oil increased more than ten folds overnight, from $3 to over $35, in what became known in the West as the “oil shock”. This was followed by further increases between 1979 and 1981, which quadrupled the price of oil once more.1 For the first time in modern history, this was a massive transfer of financial resources from the western developed part of the world in the North to some largely underdeveloped countries in the South. Indeed, the windfall revenues were reaped by a few sparsely populated Arab countries that were portrayed in funny cartoons in the West depicting Arab sheiks with curved noses standing at gas stations brandishing pump nozzles. The vast amounts accumulated by oil-producing countries created their own terminology. They became known as “petrodollars”, “excess liquidity” and “surplus funds”. To compensate for this incredible loss, Western financial institutions thought that a reverse mechanism was needed to channel some of these “surplus funds” back to developed countries, and the term “recycling” was coined. The overflow of these

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funds created a frenzy competition among Western banks to capture some of the oil spoil. They claimed that the Arab oil-producing countries had a limited absorptive capacity to invest these funds locally, and were designated as “low absorbers”, yet another term in Western banks’ lexicology. Variations of these terms will come up in this chapter on Arab banking and finance, and their introduction at the outset makes it easier to follow the discussion.

The Internationalization of Arab Banks The expansion of Arab banking outside the Middle East took off after the steep increase of oil prices in 1973. A noted economist discussed the internationalization of Arab banks by tracing Arab banking and finance from their humble beginning in the mid 1950s to 1985.2 He described the historical role played by European banks, primarily British, French and Dutch in addressing the banking needs in Arab countries since the mid-nineteenth century. Their presence expanded in the early and mid-twentieth century after the discovery of oil. British banks, in particular were active throughout the Gulf region where they catered to governments and merchants as sources of deposits and trade finance activities. Arab banks benefited from the presence of foreign banks on their soil to modernize and gain experience. After World War II, however, most of the foreign banks that were established during the colonial era were nationalized, such as in Egypt and Algeria, while others, such as in Saudi Arabia, their shareholding interests were reduced while leaving them in control of the management. Lebanese and Kuwaiti banks were the first Arab banks to establish presence outside the region, although for different reasons and under different circumstances, to serve the expanding finance of international trade with the Middle East region. Historically, Lebanese banks were Western oriented, inclined toward France, a former mandatory power, where most of them had established branch offices to serve clients in both countries. The expansion of Kuwaiti banks internationally in the 1950s and 1960s, however, was intended to participate in financing the increased international trade and procurement of consumer goods and capital equipment for Kuwait’s developing economy, as well as placing some of Kuwait’s increased oil revenues abroad. The Kuwaiti government established specialized financial institutions to help with

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trade finance and investment activities abroad. Two joint stock companies were established in the 1960s with private sector participation: the Kuwait Investment Company (KIC) and the Kuwait Foreign Trade, Contracting and Investment Company (KFTCI). These two investment companies merged later with other Kuwaiti commercial banks and formed United Bank of Kuwait, which was established in London “to strengthen the position of Kuwaiti banks in international operations”. This was the first time a Gulf bank was established in a major international financial centre.3 After 1973, Kuwaiti banks expanded internationally to capture some of the increasing flows of government and private funds that were channelled through European banks. Some leading Kuwaiti business groups established new banks to participate in investing government oil revenues in competition with British banks. Naturally, they followed the money trail to London and other European capitals where they established branch offices. Banks in other Gulf countries, however, were still unprepared to venture outside the region. Foreign banks in these countries still dominated the banking sector and the few national banks operating at that time lacked sufficient experience and trained personnel to manage their own local banks, let alone international banking operations.

Consortium Banks Kuwaiti banks operating in Europe soon realized that they had limited capability to structure and manage sophisticated banking operations. Therefore, they resorted to forming consortia bank jointly with European banks, which gave them acceptance in European financial centres, access to European markets, and international banking experience. The first such consortia banks were formed in France. United Bank of Kuwait and Socie´te´ Ge´ne´rale formed Banque Franco-Arabe d’Investissements Internationaux (FRAB Bank), which was followed by establishing Banque Arabe et Internationale d’Investissement (BAII) to undertake investment activities for governments and private investors. Kuwait’s experience in France was well perceived by other Arab banks, which followed suit by forming the Union des Banques Arabes et Franc aises (UBAF) to promote economic and commercial relations between Europe and Arab countries.

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The participation of Kuwaiti banks in consortium banks allowed them to gain international experience in modern banking techniques and develop new financial mechanisms and banking products. Other Gulf Arab governments drew on Kuwait’s experience and encouraged their local banks to form consortia banks with Western partners to expand bilateral trade and investment relations. Several Arab European consortium banks were established: Banco Arab-Espanol (Aresbank) in Madrid (1975), Banco Saudi-Espanol (Saudesbank) in Madrid (1979), Arab-Hellenic Bank in Athens (1979), and Arab Turkish Bank in Istanbul (1977). Arab banks established other consortia banks, joint ventures and/or branch offices in major European financial centres in London, New York, Frankfurt, Switzerland, Luxembourg and Rome. Arab banks reached beyond Europe to Latin America with a view to develop economic and political ties between the two regions. They established Arab Latin American Bank (Arlabank) in 1977 in Lima to operate as a merchant bank to finance trade between the two regions and undertake joint ventures in mining, agriculture and petrochemicals.4 Arab banks’ experience with consortia banks, however, fell short of their objectives. Arab banks and their foreign partners had different mentalities and cultures that were difficult to blend. Both partners came into the consortia banks with different expectations. For Arab banks, consortia banks were intended to serve as platforms to get exposure to European markets and gain international banking experience. However, they discovered that their exposure and participation in management were limited. European partners looked at them as sources of funds and therefore they were left to play second fiddle in banking operations and management. For the European partners, their interest was to participate in financing the growing trade between Europe and Gulf countries, but most importantly to capture some of the “surplus funds” that were flowing from the rich Arab oil governments for investment abroad. Therefore, like typical marriages of convenience consortia banks were temporary and doomed to failure. Indeed, after Arab bankers acquired international exposure and some skills, the consortia banks lost their usefulness for them. One consortium bank, FREAB Bank was bought by its Kuwaiti partners, but most of the rest were liquidated. Only UBAF has survived because its Arab shareholders were governments that had political interests in France. They conceded the leadership and

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management to their French partners, and this has allowed the bank to operate until today. The increased flows of foreign trade and requirements of capital goods for development projects in the Gulf countries, as well as the mounting surplus funds for investment abroad created the need for international banking outlets to service both activities. Some Arab banks reached further to Asia and established branch offices in Hong Kong, Singapore and other Asian countries to finance the expanding Arab–Asian trade.5 However, the United States soon became the centre of their attention. It was a major supplier of foodstuff, capital goods and services to Gulf countries. It also offered a wide range of opportunities to invest their surplus funds. Indeed, some Arab bankers thought that only the US market had the “width and depth” to accommodate such large amounts of Arab liquidity for investment.6 Therefore, within a very short period of time 19 Arab banks were established in New York and founded the Arab American Banking Association (ABANA). However, the high hopes of Arab banks in the United States fell short of their expectations. They discovered that competing with US major money centre banks in trade finance was not easy. More importantly, however, Gulf countries were not inclined to trust the newly established Arab banks and preferred to deal with US banks and financial institutions in investing their surplus funds. As the trade business became more competitive and opportunities for capturing Arab surplus funds for investments dwindled, US-based Arab banks were progressively losing ground.7 Later on, the dramatic political events following 9/11 in 2001 diminished their status further and put them on the defensive. The US Patriot Act enacted by US Congress a month later in October imposed restrictions on Arab banking and financial transactions, which were subjected to close scrutiny by banking regulators.8 As the anti-terrorism rhetoric intensified and US government security agencies became more callous and abusive, Arab banks felt it increasingly more difficult to operate.9 For example, in a case that captured much attention, Arab Bank International, a subsidiary of Arab Bank of Jordan, the oldest bank in the Middle East founded in 1930 by a Palestinian family, was harassed with a claim that it was financing terrorist activities against Israel in the Palestinian territories occupied by Israel.10 In another case involving Arab Banking Corporation, a major Arab bank owned by the

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governments of Kuwait and Libya, its US branch in New York ABC International, was threatened with closure unless the Chairman of its parent bank in Bahrain, a national of Libya resigns his post, which he did. Therefore, the anti-Arab, anti-Islamic forces in the United States, which were supported by the Neo-conservatives and Israeli lobby have succeeded in driving away Arab banks and investments from the US market. Several Arab banks cut their losses and closed their operations. The few Arab banks that have remained are owned substantially by Arab governments, which have close political and economic ties with the United States.

Arab Investments in the West Foreign banks were the first to capture the increased amounts of Gulf surplus funds, which they channelled to their main offices in Europe for investment. Gulf countries historically favoured investments in the Western markets. The prevailing perception was that these markets were more secure and offered wider choices of financial instruments and opportunities for direct investments. In addition, political expediency called for Gulf countries to place the bulk of their surplus funds for reinvestment in the US and western European markets. Initially, London became the primary centre for recycling the Gulf excess liquidity. However, London ceded its primacy to New York soon thereafter. US government Treasury bonds became increasingly more important instruments as a depository for the Gulf countries’ mounting wealth in proportion to increased US military presence in the Gulf region. The patterns of Arab investment in the Western markets, however, shifted constantly as Arab bankers’ experiments with international banking through trial and error taught them some hard lessons for which they paid sometime heavy price. Their experiences have shown that it takes much more than large deposits and access to government surplus funds to generate profits from international operations. It takes deep knowledge of the industries in which investments are placed, intimate familiarity of the markets and players where they operate, critical assessments of the risk, long-term strategic planning, and most importantly research on global trends.

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During the ten-year period following the first oil price increase, from 1974 to 1984, Arab banks were entrusted with large sums of surplus funds for investment abroad. The pattern that emerged was perhaps the easiest they could manage at this early period, with the support of foreign banks. Special focus was placed during this period on Eurocurrency loan syndications. Between 1974 and 1984 syndicated Eurocurrency lending was the largest activity of Arab banks (aside from trade financing). The second largest activity was direct investment, while Eurobonds was the smallest of Arab bank activities. Activities of Arab banks during 1980– 4 constituted 86 per cent of cumulative syndicated Eurocurrency loans, 70 per cent of Eurobonds, and 49 per cent of direct investments. Between 1979 and 1983, the 20 leading Arab banks accounted for about 88 per cent of the total Eurocurrency syndications.11 A typical case showing the excitement and naı¨vete´ of Arab banks operating in the Western markets during this period is Arab Banking Corporation (ABC), which was established in 1980 with an initial capital of US $1 billion. Almost immediately, its capital was increased to $1.9 billion in response to enticing market conditions. By 1983, it had extended 236 loans, the largest number of loans by any Arab bank, and built a portfolio of assets of $8.8 billion within less than three years.12 The Banker magazine nominated ABC’s president as “Banker of the Year”, and the representatives of governments and international commercial bankers attending the International Monetary Fund and World Bank meetings in 1980 voted him one of the “Most Innovative Bankers”.13 When the Latin American debt crisis flared up in the following summer of 1981, ABC had already extended loans of more than $1.5 billion to Brazil, which went into default.14 This was the time when lending Arab surplus funds through syndications arranged by Western banks earning lucrative fees came to be known as Go – Go lending.15 The Latin American debt crisis drove Arab banks and their sources of liquidity from Gulf governments to reconsider their strategy, which shifted from lending and syndications to direct investment in the Western equity markets. However, the 1987 Wall Street crash caught them off guard. A decade later they were hit again by the US technology dot.com boom and bust, draining their investments further. And the world economy is still reeling under the weight of the 2008 global financial crisis caused by the collapse of a

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single US investment banking firm, Lehman Brothers, which brought down the house of cards of the US housing market, and triggered a global financial crisis. Western European markets were infected by the US financial crisis, the ripples of which still reverberate as evidenced by their continued anaemic growth, even after six years.16 Several southern European countries, part of the so-called “Mediterranean Beat”17 have experienced financial difficulties, some reaching the brink of default, while Greece had to be rescued. In all these crises, Gulf investments in the US and western Europe markets were significantly diminished, and even wiped out in some cases. Gulf governments had pinned high hopes on the Western markets as a depository of their wealth for future generations when oil revenues would vanish, or at least diminish. Gulf sovereign wealth funds have increased in staggering proportions in recent years as oil prices continued to climb.18 However, the cyclical nature of the Western financial markets has depleted these funds. Every decade or so, these sovereign funds go belly-up, are replenished, and started all over again. Arab banks, particularly those associated with Gulf governments that were placed in charge of investing surplus oil revenues came to the conclusion that the risks involved in the Western capital markets are too great to sustain. The Gulf sovereign funds decided to take control of the investment process and manage themselves their resources.19 The cyclical nature of the Western economies and the limited understanding of Arab banks operating in the Western markets of the inner-workings of these markets, as well as their lack of access to the movers and shakers – a cult group often involved in inside trading, but few are caught and rarely anyone indicted, reduced their capacity to predict events that could affect their investments.20 Therefore, they became dependent almost entirely on Western personnel and research put out by self-serving Western financial institutions. They were often treated with suspicion, contempt, but largely taken for granted and dismissed, which made them feel unwelcome and they gradually withdrew from the US market.

New Directions for Arab Banking and Investment The momentous events of 9/11 and subsequent US invasion of Afghanistan and Iraq marked a watershed in international Arab banking

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and finance. The politically motivated anti-Arab, anti-Muslim atmosphere that enveloped the United States forced them to reconsider their position in the US market. Gradually, their investments were liquidated, sometimes at a significant loss, to escape the restrictions placed by US Treasury regulations under the US Patriot Act.21 Arab investments leaving the United States were repatriated and directed to alternative destinations in western Europe or Arab countries, but most importantly to other emerging markets in Asia and Africa. Gulf governments had to admit to themselves after all that the United States was willing to use brute force arbitrarily to secure its control over vital economic interests in the Gulf region. With a view to keeping friendly relations with the United States and guarding their resources, accumulated wealth and political regimes from the rising influence of Iran on the opposite side of the Gulf, they accepted reluctantly US military presence on their soil. Meanwhile, they have continued to place substantial amounts of their oil revenues in US Treasuries and bonds with long-term maturities, without the slightest illusion that they will ever be redeemed. Therefore, most Arab investments that remain in the United States belong to Gulf governments for political reasons related to their own security.22 Gulf governments and their sponsored banks gradually shifted their strategy from total reliance on the Western markets to diversification toward new markets. Their most striking discovery was also the most obvious: investing in other Arab countries in the region, which they had shun in the past on the pretext that they lacked political stability. They also looked toward the Asian and African markets. Not only these countries shared with them a common culture, based largely on religion, but they also offered diverse lucrative investment opportunities with less risk. Indeed, there is no case in which Arab investments in other developing countries were ever expropriated or access to them was restricted in comparison with the United States where the practice of freezing assets for political reasons is well steeped in its history.23 The refocus of Arab banks on the Middle East and North Africa (MENA) region was a political decision made by Gulf governments, in conjunction with other decisions within a larger overall economic and political strategy. The MENA region consists of 22 Arab countries with a population of 350 million, the birth rate increasing 2.34 per cent per year, which is double the world’s average. The region represents

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huge markets for Gulf banks to operate. Therefore, in spite of perceived political instability, Gulf banks were steered toward other non-oil, cashstrapped Arab countries to establish presence, finance projects and create employment. Indeed, the Arab Spring uprisings in a number of Arab countries made it even more pressing for Gulf governments and their financial institutions to invest in the MENA region, and increase their investments substantially, even in their own domestic markets. Their fear of the Arab Spring reaching their doors compelled them to increase investments at home in projects and sectors they neglected for so long in order to appease their young population. In the case of Saudi Arabia, for example, this has translated into $500 billion of investments in infrastructure, public housing, education and employment.24 Finally, the long-held notion by Western bankers that the oil-producing countries and other Arab markets had limited absorptive capacity to invest their surplus funds stood on its head. The interest of Gulf governments in playing an increasingly important role in the development of other Arab countries, as well as in their own, led them to establish themselves as regional financial centres. Within a few years, Dubai and Doha, in addition to Bahrain, the first offshore banking centre in the Gulf region, began to rival London, New York, Hong Kong and Singapore. Even conservative Saudi Arabia, which has been traditionally protective of its financial market, has followed the same route, by developing its own stock market (Tadawul), and allowing foreign financial institutions to set up branch offices in the country. In a recent bold move, unimaginable only a few years ago, it has opened up its stock market for foreign investors.25 Therefore, Arab banks made a complete turnaround within only a few years of the US invasions of Afghanistan and Iraq. Indeed, after the devastating 2008 US financial crisis, leading US and European financial institutions flocked to the Gulf financial centres looking for financing, and some to increase their capital. For example, Citibank saw its shares tumble from $64 in early 2008 to $4. It would be rescued later with injection of fresh capital from Gulf financial centres. But the most telling example of the changes of time was when former prime minister of the United Kingdom Gordon Brown descended on the Gulf region accompanied by a large group of leading London banks, with hat in hand, seeking funds to bail them out.26

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In conclusion, Arab banks adopted new strategies to lessen their reliance on the US and European markets and re-established themselves solidly at home as well as in other Arab, Africa and Asian markets. Within a decade, these strategies seemed to pay off. An in-depth analysis of Arab banks by Banker magazine in 2013 revealed that in spite of the Arab Spring uprisings, Arab banks have managed to perform strongly, “showing an industry that is well-capitalized and well run”.27

Arab Banking in Africa The focus of Gulf governments and their banking institutions on Africa was triggered by the phenomenal increase of food prices in 2008 that accompanied the global financial crisis. Gulf governments were always conscious of their vulnerability by their total dependence on food imports, which amounted to about 95 per cent of their consumption, but they would only pay lip service to it. As long as they were able to pay for imported foods with abundant oil revenues, food security was a concept removed from their immediate concern. However, with their distressed investments in the Western markets on account of the 2008 global financial crisis and the rise of food prices by 30 per cent in the global markets, food security became a reality. Therefore, Gulf governments began to direct their business communities to invest, with government financial participation, in ventures in Arab and African countries. Investment funds and programmes were focused on Egypt, Sudan, Mauritania, Ethiopia and other countries to support investment in agriculture and related industries.28 Within a few years, Gulf banks proliferated and established presence in several African countries either by acquiring stakes of existing banks or setting up their own independent banks, particularly in north and east Africa.29

Arab Banking in Asia In the same vein, Gulf governments encouraged their banks to venture into the Asian markets. Within a few years Arab banks established presence throughout Central, South, and Southeast Asia, particularly in the large Muslim countries, such as Pakistan, Indonesia and Malaysia, as well as several in central Asian countries such as Kazakhstan. The presence of Gulf banks has also extended to Southeast Asian countries

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where Muslims represent only a minority, such as Thailand and the Philippines. Indeed, Malaysia has emerged as a leading centre of Islamic finance, which merits a more elaborate discussion on the gradual evolution of the Islamic banking and finance industry.

Islamic Finance It was precisely at this juncture in history that Islamic finance was reenergized and took a leap forward. Modern Islamic banking dates back to the mid-1970s with the establishment of three Islamic banks: Dubai Islamic Bank, Islamic Development Bank, and Dar al-Maal al-Islami. However, Islamic banks began to expand only during the last decade. The number of Islamic banks has increased to more than 300, including several Islamic banks in the United Kingdom. This trend continues to gather strength, particularly in Asian and African countries, even in non-Muslim countries like India. Meanwhile, Islamic finance assets have been increasing at the rate of 15 to 20 per cent per year, with global total assets reaching $1.658 trillion in 2013 and expected to reach $2.5 trillion in 2015.30 The growth of Islamic banking is manifested not only by the establishment of new Islamic banks, but also by the conversion of an increasing number of conventional banks to Islamic banks, particularly in the Gulf region, where Islamic banking is expected to overtake conventional banking soon.31 The expansion of Islamic finance is, to a certain extent, a reaction to the poor performance of Arab banks in the Western financial markets that operate within the framework of conventional banking. The record shows that Islamic banks have been more profitable than conventional banks, which explains partially its expansion mode.32 However, this expansion may also be seen, to some extent, as a reaction to the treatment of Arabs and Muslims in the West in the aftermath of 9/11 and the subsequent invasion of Muslim lands in Afghanistan and Iraq. Indeed, it may be seen as a symbol of the rising tide of Islam in the Arab and Muslim world, nourished by the increasing wealth of Gulf Arabs, which has fuelled the fundamentalist ideology in some quarters in the Arab world, as manifested in the context of the Arab Spring. Some have claimed that “Petro-Islam” represents the aspiration of Gulf countries to use their new wealth to exert an increasing influence over other Muslim countries, particularly in Asia and Africa. As Islam spread in the seventh

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century armed with a new religion, Islamic finance is the Arabs’ new instrument to carve a place grounded in their religion and culture in the modern world.33 Islamic finance is founded in certain ethical precepts, which represent a new way of doing business. Theoretically, it is based on the premise of sharing risks and rewards between the bank and its clients, not on a fixed return determined by interest rates, which is prohibited in Islam. It is also based on the premise that it is asset-based, and presumably less prone to be affected by financial crises. Therefore, it is claimed that Islamic finance is a more resilient system of finance than conventional finance.34 However, as often the case with new ideas, the practice did not always follow the theory. Indeed, Islamic finance sought to establish itself not only in Arab and Muslim countries, but also ventured into the Western markets. However, the muddling through approach pursued by Islamic banks has embroiled them in controversies and intense debates as Western banks have largely managed to mould Islamic banking in their own image. Indeed, Western banks and their lawyers have fostered the development of a wide range of “Islamic structured products and instruments”, which are intrinsically mirror images of well-known conventional financial products.35 For example, Islamic bonds or Sukuk (Suk in the singular) are not different from conventional bonds, except in name. A recent study conducted by the IMF of 131 Sukuk issues covering eight countries in the Arab Gulf and Malaysia between 2006 and 2013 found that about dozen types of Sukuk are in use worldwide; some resemble conventional bonds in important ways.36 Indeed, Sukuk have emerged as the instrument of choice of Western conventional banks, corporations and even sovereigns, such as the British government, to tap into the Gulf’ surplus funds. Sukuk issues are expected to reach 130 billion in 2014.37 Western banks use Islamic funds raised through Sukuks in their interest-based normal operations in manners remotely connected, and sometime even in contradiction to the precepts of Islam.38 Indeed, some of the Western banks that have benefited from Islamic Sukuks have been vehemently opposed to establishing Islamic banks in their countries.39 The infant Islamic financial industry continues its struggle to retain the purity of its soul while trying to integrate itself into the western global financial system, of which it is critical. Meanwhile, Islamic Sukuk

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has turned into a new instrument for Western financial institutions to capture Gulf wealth in the same manner it did some 30 years ago with syndications. If the past could serve as a guide, the structures and underlying assets of some current Sukuks issues, even in Islamic countries, point into the same direction.

Arab Banking and Finance in Latin America Once I posed the question to a Gulf banker who presided over a banking institution in charge of placement of funds for large financial institutions globally: what was his vision for placing funds in the Latin American markets? He replied immediately, without a blink of an eye, that Latin America was not on his radar screen. The astute banker may have less than a perfect global vision; nevertheless, he had a reason to disregard the entire sub-continent. The history of Arab banking in Latin America is fraught with bad experiences and sad memories. The debt crisis that flared in the summer of 1981, first in Mexico and later spread to Brazil and other South American countries, impacted Arab banks severely and left them with a bitter taste. They knew almost nothing about Latin America. They had trusted US and European banks to handle their large amounts of surplus funds through syndications. The managers of these syndications earned hefty fees for their “expertise”. Cynics claimed at that time that Western bankers would spend few days in Rio de Janeiro lounging on the beach, sign few loan agreements in late afternoon with whoever was willing to accept Arab money, celebrate their accomplishments with a few glasses of Caipirinha, and return to their bases in New York and London with a fabulous sun tan.40 Restructuring Latin American debts took some time to sort out in the Brady Plan to secure the interests of US creditor banks. Arab banks, however, opted out early and sold their loans in the Latin American secondary debt market for a fraction of their face values. The debt-equity swaps operations that were offered to them were too complicated to comprehend and/or manage, and they preferred to sell their loans at deep discount and stay away from syndications and Latin America altogether in the future.41 As discussed above, Arlabank was originally conceived as a pan-Arab merchant bank to promote economic and political relations between

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Arab and Latin American countries. That was during a period when the Non-aligned Movement was thought to be rising, and Third World solidarity was on the march. With the increased oil prices in 1973 and windfall surplus funds, some Arab countries, championed by a young and vigorous leadership in Libya, thought that extending their reach to Latin America would reap many benefits. The Gulf Arab governments and their bankers had ventured recently into the international banking arena and also wanted to show off their wealth. Therefore, some psychological considerations played a role in the birth of Arlabank, at least by some of its founding members. While its concept was fundamentally sound and well supported by political and economic reasoning, it was established prematurely without much preparation, and badly managed. Therefore, its life expectancy was short and it came to an end at the first sign of stress soon thereafter. Arab banks suffered deep losses in their early exposure in Latin America and wanted to forget about the entire region and erase it from their memories. Only Arab Banking Corporation, which was the main supporter of Arlabank, retained interest in Latin America and established ABC Brazil. The bet has proven to be well placed as it has constantly outperformed other ABC branch offices around the world. The success of ABC Brazil rests on its ownership by a sole parent, as opposed to the multilateralism of consortia banks that proved dysfunctional.

Renewed Arab Latin American Cooperation However, times have changed in Latin America from those days when inflation in Brazil could reach a thousand per cent a year. Since the 1980s, most Latin American countries have adopted structural reforms and democratization policies, which strengthened their systems and spurred economic growth. Mexico and Brazil, in particular, led the way with smaller countries, particularly Argentina, Uruguay, Chile, Colombia and Peru closely behind. Indeed, during the 2008 financial crisis, Western financial institutions, particularly US banks, found a refuge for their investments in Latin America. US banks invested substantial sums of the “free” money they received from the US Federal Reserve in Brazilian government securities at double-digit rates.42 In fact, the flow of these

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funds into Brazil threatened the stability of its financial market with the surge of inflation and appreciation of its currency. This prompted the Brazilian government in the summer of 2010 to impose a tax of 6 per cent on direct foreign investment (FDI) that sought short-term gains in the financial market. However, the expansion of Arab banking and finance toward the emerging markets in Asia and Africa could not disregard Latin America. This time, it was Arab governments and their counterparts in Latin America that took the lead. An Arab Latin American dialogue was initiated by former president of Brazil Luiz Igna´cio Lula da Silva, which has come to represent a new phase of cooperation between the two regions. The first Summit of Heads of State and Government of 22 countries of the League of Arab States and 12 South American countries was held in Brası´lia, Brazil, in May 2005. Better known by its Portuguese and Spanish acronym ASPA (Cu´pula Ame´rica do Sul-Paı´ses A´rabes), ASPA is a bi-regional mechanism for cooperation and political coordination. The Second Summit took place in Doha, Qatar, in March 2009. The Third Summit was held in Lima, Peru on 2 October 2012. ASPA issued the Lima Declaration, a lengthy document addressing diverse issues related to Arab Latin American relations in the political, social, cultural and economic domains, as well as technology transfer related to energy, mineral resources, agriculture, and technical cooperation in research and development. With respect of their economic relations, the Lima Declaration recognized the increased trade and investment flows between the two regions in recent years, and called for the establishment of an investment bank to support them.43

Arab –Brazilian Bank for Trade and Investment Trade and investment flows between Arab and Latin American countries were discussed extensively in several chapters in this anthology. Therefore, the following will focus only on Brazil as an example where Arab banking and finance could be most fruitful. Brazil is the largest Latin American country in terms of geography, population, and economy, which has achieved the status of being a BRICS member. It is also the largest trade and investment partner with the Arab region. The following discussion will focus on three areas: trade finance, agricultural

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investment and investment banking within the scope of activities of Arab Brazilian Bank for Trade and Investment (ABB), currently under organization.

Trade Finance In 2013, Brazil’s trade flows (exports and imports) with the 22 countries of the Arab region amounted to $24.43 billion. Brazilian imports consisted mostly of petroleum and petrochemicals (from Algeria and GCC countries) and phosphate (from Morocco), a total of $11.4 billion. Brazilian exports consisted almost entirely of commodities and foodstuff, a total of $14 billion. The trade flows between Brazil and Gulf Cooperation Council countries (GCC) account for 52 per cent of all Brazil’s trade with the Arab region. The sizable trade between Brazil and Arab countries is handled – almost entirely – by US and European banks. Their branch offices in Brazil ensure their control of a substantial part of the trade finance business. Brazilian banks are largely excluded. All Arab banks, including major Gulf money centre banks must confirm their letters of credit issued for their clients through US and European banks.44 Even at times when some of these banks were going under, they continued to play a supremacy role in financing trade flows. Naturally, the cost of bank confirmation adds to the price of food imports. There is no plausible reason why Arab banks and their clients should pay the extra cost of confirmation through US and European banks. Regrettably, no Arab bank has stepped up to the plate and established a bank in Brazil to support trade with the MENA region.

Agribusiness Investments Food security has emerged as a global concern in the context of world population growth. World population is projected to increase from its current level of 7 billion to 9 billion by 2050. Some well-known international development strategists fear the prospect of wars over food resources in the future.45 For Arab countries, food security has been a major concern for several decades. In spite of their efforts to achieve food security, at least in basic staple foods, this objective has been elusive. The problem of food

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shortage is compounded by population explosion. The Arab world population is estimated at nearly 360 million. Since 1990, it has grown by nearly 2.34 per cent per year, double the global annual growth of 1.16 per cent. Therefore, considering their growing population and the retraction of their agricultural sector, Arab countries will continue to be net importers of basic commodities in the foreseeable future.46 For Gulf countries the situation is even more serious where food imports amount to 95 per cent of their food requirements. Imports are expected to grow from $25.8 billion in 2010 to $53.1 billion in 2020. The UAE, which is the second largest market in the region behind Saudi Arabia, imports are expected to grow from $3.0 billion in 2011 to $8.4 billion in 2020. These projections were based on the expected population growth of the Gulf region, which could reach 50 million by the end of the decade.47 In view of the prohibitive interest rates charged by Brazilian banks, Arab Brazilian Bank could use Islamic financial instruments based on risk sharing instead of interest as investment vehicles.48 Islamic financial institutions could finance acquisitions of farms and agro-industries and support corporate borrowers in the agribusiness sector. The following are some examples.

Buy and Lease Back Farmlands Brazilian farms are usually large with thousands of hectares cultivating diverse agricultural crops: corn, soybeans, sugarcane, coffee, sorghum, cotton, etc. Many of these farms fall regularly behind on their highinterest loan payments. Very often, these farms file for judicial protection from creditors, similar to Chapter 11 in US bankruptcy law. An Islamic financial bond (Sukuk) could replace conventional bank loans, with a mortgage on the farm. The loan-to-value ratio would not exceed 70 per cent to maintain a comfortable margin of security. In most cases, it is attractive to purchase a farm and lease it back to the owner or to agricultural funds for a period of 5–8 years, with fixed lease payments. The lease would provide an exit option to sell back the farm at maturity at market value. Historically, Brazilian farmlands have increased in value by 10–12 per cent per year. There are judicial administration cases where an investor or a bank with ready cash could negotiate a reduction of existing loans to 20 per cent of their book value.

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Acquisition of Agricultural Industries Some agro-industries, such as sugar refineries face the same problem of high interest loans and fall back on their payments of high interest loans. Conventional loans could be replaced by Sukuks, where a sugar refinery would be acquired under a buy and lease back contract. When acquired under the judicial administration proceedings, sugar refineries may be purchased with their proper agricultural farmlands. Contracting Farmers for a Percentage of the Crops One of the oldest forms of Islamic finance is Muzara’a. This is an ancient profit-sharing formula widely used in the Arab and Muslim worlds whereby an investor advances a certain sum to the farmer for a percentage of the crops. The low cost of production and higher productivity of Brazilian farmers provides an investor a higher return. Arab Brazilian Bank could use this mechanism for the account of clients that favour using Islamic financial instruments. Contracting Farmers for the Production of Commodities Another form of agricultural financing is to advance certain sums to farmers to enable them to pay for seeds, fertilizers and other plantation expenses, in exchange for certain crops at pre-determined prices. In this case, the sums advanced would be secured by a mortgage on the farms. In fact, Cargill, ADM, Bunge and Dreyfus (ABCD), the four leading commodities producers and traders that control the global commodities market use this ancient Islamic financing method. Islamic Commodities Trading A controversial issue in Islamic finance today is focused on the commodity contracts, called Murabaha contracts, that some Islamic banks use to support their treasuries. In its basic form, an Islamic bank purchases the commodity contract at a certain price, with a delayed payment date, and sells it back immediately to the same seller (or a sister company) at a lower price for cash, without ever taking delivery of the underlying commodity or asset. The difference in price is, of course, the time cost of money, essentially an interest payment.49 Arab Brazilian Bank would structure genuine Murabaha transactions by financing actual commodities sale contracts to actual buyers in the Arab region. Islamic financial institutions dealing with such contracts

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may develop among themselves inter-banking Murabaha platform to generate liquidity for their own treasuries. Under this platform, Islamic financial institutions would buy and sell commodities contracts at prices that reflect different maturity dates and delivery schedules.

Investment Banking There is a dearth of information on Gulf investments in Brazil, but they seem to be gaining footholds, particularly in the energy and infrastructure sectors.50 This trend is likely to continue with Gulf countries adopting further investment diversification. However, in spite of the sizable trade flows and investment opportunities between Brazil and the Arab region, Brazilian banks have remained on the sidelines without taking an active role to capture some of this business. They have not been involved in participatory financing or structuring Gulf investments in Brazil. These financial services have been left in the hands of US and European banks operating in Brazil. Brazilian banks needing to raise capital from Gulf financial institutions and their sovereign wealth funds usually go through the same US and European banks for their fund raising exercises. ABB would offer investment banking services that are keenly needed in the Brazilian market. On one hand, it would cater to Brazilian companies in their financing requirements through borrowing or equity participation of strategic investors from the Gulf region with the financial capability to sustain and expand their operations. On the other, it would meet the needs of Gulf investors and sovereign funds in placing investments in the Brazilian market.

Notes 1. Naiem A. Sherbiny, Oil and the Internationalization of Arab Banks (Oxford: Oxford Institute for Energy Studies, F6, 1985), Table 1, Index Numbers of Average Oil Revenues of Arab OPEC Members (Algeria, Iraq, Kuwait, Libya, Qatar, Saudi Arabia and UAE), 16. 2. Ibid. 3. Ibid., 11. 4. Ibid., 24. 5. Barun Roy, “Arab-Asian Banking Ties Grow”, Arab Banking and Finance Handbook, Falcon Publishing, Manama, Bahrain, 1983, 29 – 35.

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6. See the presentation of Hikmat Nashashibi at a conference in Beirut in April 1974. 7. Fehmy Saddy, “The Moral Predicament of Arab Banking”, Journal of Arab Affairs, vol. 5, no. 2, 1986. 8. The US Treasury Department’s Office of Foreign Asset Control (OFAC), Terrorism and Financial Intelligence headed by Under Secretary David S. Cohen, and Assistant Secretary Daniel L. Glaser was in charge of implementing the regulations. They demonstrated zeal by publishing lists of Arab banks, finance companies and organizations based in the Middle East suspected of financing terrorism. However, not a single entity was indicted because of lack of evidence. http://www.treasury.gov/resource-center/sanctions/ Documents/tar2001short.pdf. 9. A recent report by Human Rights Watch and Columbia University School of Law Human Rights Institute titled “Illusion of Justice: Human Rights Abuses in US Terrorism Prosecutions” details a pattern of US law enforcement targeting American Arabs and Muslims in FBI “sting” operations. See William Roberts, “Rights groups say the US prosecution of terrorism cases targets Muslims and are fraught with abuses”. http://www.aljazeera.com/indepth/features/2014/07/ report-us-unfairly-targeted-arabs-muslims-201472711538316390.html. 10. “Arab Bank Asks Supreme Court to Rescue it from U.S. Plaintiff Lawyers”. http://www.forbes.com/sites/danielfisher/2013/07/11/arab-bank-asks-supremecourt-to-rescue-it-from-u-s-plaintiff-lawyers/. 11. Sherbiny, Oil and the Internationalization of Arab Banks, Table 4 – International Activities of Arab Banks, 26. 12. Ibid., Table A-1 – Largest Arab Banks, 55, and Table A-2 – Leading Arab Banks in Eurocurrency Syndicated Lending, 56. 13. See http://www.albaraka.com/default.asp?action¼category&id ¼ 19. 14. Fehmy Saddy, “The Debt Crisis: An Arab-Latin American Approach,” The Arab Banker, vol. 4, 1984. 15. Fehmy Saddy, “The Neo-Nihilists: Intellectuals, Bankers and the International Economic Disorder”, The Arab Banker, vol. 3, 1985. 16. Mark Gilbert, “Sausages, Cats and the ECB”, Bloomberg, 8 August 2014. http:// www.bloombergview.com/articles/2014– 08– 08/sausages-cats-and-the-ecb. 17. The term coined by Neamat Shafik, Deputy Managing Director of the International Monetary Fund in an interview in The Banker, October 2013, 134. 18. Melissa Hancock, “Reinvesting Sovereign Treasure”, The Banker, 158. 19. Ibid. 20. See the report of Freeman Klopott, Martin Z. Braun and Patricia Hurtado, “Bharara vs. Cuomo Emerges as Battle of Two N.Y. Sheriffs”, Bloomberg, 7 August 2014. The most telling example of cover up they cited is the case against Steven Cohen, the head of SAC Capital Advisors LP for insider trading. They reported that New York Prosecutor Bharara’s investigation of one of the biggest cases of insider trading that carried a $1.8 billion penalty was circumvented by New York Governor Cuomo who disbanded the anti-

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21. 22.

23.

24. 25.

26.

27. 28.

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corruption panel known as a Moreland Commission, which got Mr Cohen off the hook. http://www.bloomberg.com/news/2014 – 08 – 07/bharara-vs-cuomoemerges-as-battle-of-two-n-y-sheriffs.html. US Treasury Department’s Office of Foreign Asset Control (OFAC), note 8 above. Under international law, the state has the exclusive right to use force and take any other coercive measure to secure its interests. Unlike the state, however, individuals who resort to force, extortion, or exacting protection money or ransoms are considered outlaws. Therefore, states could use extortion with impunity. The United States still holds frozen assets of Germany dating back to World War I. Currently, more than two-dozen countries still have their assets frozen by the US government. Asset freeze is different from expropriation, which is a commercial dispute of civil nature that may be cured under international law by the payment of a “full, prompt, and effective” compensation for the expropriated asset. Asset freeze, on the other hand, is the capricious denial of access of the owner to his property or asset for political reasons for an indefinite period. Its legal definition is akin to hold-up, kidnapping and false imprisonment, which are felonies under criminal law. See, Fehmy Saddy, “The US Order Blocking Iranian Assets under International Law: Legality, Liability and Jurisdiction”, School of International Service, American University, Washington, DC, 1981; and Fehmy Saddy, “The US Order Blocking Libyan Assets under International Law”, Arab Bankers Association, London, 1986. Reported by Reuters, August 4, 2014. http://www.zawya.com/story/Saudi_mi nistry_asks_for_USD4bn_annually_to_spend_on_labour_reform. “Tadawul Opening may dampen IPOs”, Saudi Gazette, 2014. http://www. zawya.com/story/Tadawul_opening_may_dampen_IPOs-ZAWYA2014072 9052006/. Instead of acting with humility, the astute prime minister was reported to make a most extraordinary statement: “The Gulf states will have a vital role to play in agreeing [to] the plans to get the world economy moving again. They are an increasingly important source of inward investment to the U.K. As long as they play by our rules and operate in a commercial manner, we welcome investment from sovereign funds”. Bloomberg, 2 November 2008. In fact, Mr Brown was governor of Bank of England just before the flare up of the global financial crisis in 2008. Irrespective of his bashing of Arab financial institutions, the question was what rules he was referring to, and whether the banks accompanying him, which faced the prospect of collapse under his watch, were playing by the same rules. Fehmy Saddy, Presentation at the Round Table, “Exploring New International Growth Markets for Islamic Finance”, 15th Annual World Islamic Banking Conference, Bahrain, 23– 5 November 2008. Melissa Hancock, “Arab Banks’ Clean Bill of Health”, The Banker, October 2013, 112. “Final Frontiers”, AlifArabia, 8 February 2012; “IDB, Robeco to Launch $600 Million Agro-food Fund”, Saudi Gazette, 13 June 2012; “42 Saudis Seek Overseas Agro Investments”, Arab News, 14 July 2014.

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29. David French and Dinesh Nair, “Gulf Banks in Expansion Push as Recovery Kicks in”, Thomson Reuters, 3 November 2013. 30. Thomson Reuters, Islamic Finance Development Report 2014, launched on 3 September 2014 during the Global Islamic Finance Forum held in Kuala Lumpur (2 – 4 September 2014). 31. For example, in Kuwait five of the ten banks were established as Islamic banks or converted to Islamic banking, the latest is Commercial Bank of Kuwait, the fifth largest Kuwait bank by assets. See “Islamic Banking Takes Hold in Kuwait”, Oxford Business Group, 7 August 2014. http://www.zawya.com/story/ pdf//Islamic_banking_takes_hold_in_Kuwait-ZAWYA20140809082017. 32. Part of the reasons for the higher profitability of Islamic banks is due to the fact that they do not pay interest to clients on their deposits. In other words, there is no contractual cost for their funds. Second, most Islamic banks are located in Gulf countries, which are essentially tax haven jurisdictions. Third, banking employees are for the most part third country nationals, the majority of them hail from South Asia. Based on their nationality, they are paid significantly less than their European counterparts. Islamic banks do not pay bonuses and other incentives like conventional banks. Therefore, it takes a certain talent for Islamic banks not to be profitable! Nevertheless, in spite of the above factors, most Islamic banks incurred huge losses on account of the 2008 global financial crisis, and some were forced to increase their capitals. See, Fehmy Saddy, “Are We Resilient or are We at Risk?” Islamic Banking and Finance, vol. 7, Issue 1, no. 21, 2009. 33. Saudi Arabia spearheaded the establishment of the Organization of Islamic Cooperation (OIC) in Jeddah in 1969 (the name was changed in 2011 to Organization of the Islamic Conference), which includes 57 Islamic member states. http://en.wikipedia.org/wiki/Organisation_of_Islamic_Cooperation# History_and_goals. 34. Fehmy Saddy, “Are we Resilient or are we at Risk?” 35. Fehmy Saddy, “Sustainability of the Islamic Financial System: Future Directions”, Islamic Banking and Finance, vol. 7, issue 2, no. 22, 2009. 36. See Bernardo Vizcaino, “Not All Skukuk are Created Equal, IMF Finds”, Reuters, 14 August 2014, In Islamic Finance Gateway, 17 August 2014. http:// www.zawya.com/story/Islamic_Finance_Gateway_Weekly_Briefing__Issue_97_ 170814-pdf_170814121928/. 37. Bernardo Vizcaino, “Not All Skukuk are Created Equal, IMF Finds”, Reuters, 14 August 2014, In Islamic Finance Gateway, August 17, 2014. http://www. zawya.comstoryIslamic_Finance_Gateway_Weekly_Briefing__Issue_97_ 170814-pdf_170814121928/. 38. Fehmy Saddy, “Transparency in Banking”, Islamic Banking and Finance, vol. 5, Issue 3, no. 14, 2007. 39. Fehmy Saddy, “Islamic Finance in France: the Moral Dilemma”, Islamic Banking and Finance, vol. 7, Issue 5, no. 25, 2009. 40. Fehmy Saddy, “‘The Neo-Nihilists’: Intellectuals, Bankers and the International Economic Disorder.”

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41. Brazilian debt papers were sold for 20–5 per cent of their face value based on maturity dates. Fehmy Saddy, “Arab – Latin American Cooperation”, The Arab Banker, vol. 5, 1985; and Fehmy Saddy, “Arab Conversion Fund in Latin America”, The Arab Banker, vol. 9, 1989. 42. The US Federal Reserve’s “Fed Easing” policy provided funds to US banks at the low Fed funds interest rate of 0.25 per cent per year to help them meet their obligations and extend credit to borrowers in order to energize the US economy. US banks did not pass the Fed funds to borrowers and instead used them for investment and to build their balance sheets. 43. See The Third Summit of South American-Arab Countries (ASPA) Lima, Peru, 2012. http://www.aspa3.com/index.php?lang¼ en. 44. Thomson Reuters reported that Dubai Islamic Bank (DIB), the largest UAE bank, recently concluded an agreement with Deutsch Bank to assist with its trade; that is to confirm its LCs. DIB could conclude correspondent relationships with any number of Brazilian banks and save the confirmation fees. 45. Lester R. Brown, “The New Politics of Food”, Foreign Policy, May/June 2011. 46. “Arab Food Gap Crosses 18bn over Last Decade”, Emirates Business, 24 July 2010. 47. “GCC Import may Double to 53b by 2010”, Saudi Gazette, 26 February 2012. 48. This section draws on an article published by the author “Structured Islamic Finance in Brazil”, AlifArabia, 8 July 2012. http://alifarabia.com/2012/07/08/ structured-islamic-financein-brazil/. 49. Most Islamic scholars consider this method as a legal trick (Hyla in Arabic), which does not qualify it as genuine Murabaha under Islamic finance law (Sharia). 50. Examples of substantial Gulf investments in Brazil include Abu Dhabi-based Mubadala’s investment in EBX Group, and Dubai-based Port World’s investment in the Port of Santos.

References AlifArabia, “Final Frontiers”, 8 February 2012. Arab News, “42 Saudis Seek Overseas Agro Investments”, 14 July 2014. Fisher, Daniel, “Arab Bank Asks Supreme Court to Rescue it from U.S. Plaintiff Lawyers”, Forbes. http://www.forbes.com/sites/danielfisher/2013/07/11/arabbank-asks-supreme-courtto-rescue-it-from-u-s-plaintiff-lawyers/. French, David and Dinesh Nair, “Gulf Banks in Expansion Push as Recovery Kicks in”, Thomson Reuters, 3 November 2013. Gilbert, Mark, “Sausages, Cats and the ECB”, Bloomberg, August 8, 2014. http:// www.bloombergview.com/articles/2014 – 08–08/sausages-cats-and-the-ecb. Hancock, Melissa, “Reinvesting Sovereign Treasure”, The Banker, 158. ——— “Arab Banks’ Clean Bill of Health”, The Banker, October 2013, 112. Human Rights Watch and Columbia University School of Law Human Rights Institute,“Illusion of Justice: Human Rights Abuses in US Terrorism Prosecutions”, 21 July 2014. Klopott, Freeman, Martin Z. Braun and Patricia Hurtado, “Bharara vs. Cuomo Emerges as Battle of Two N.Y. Sheriffs”, Bloomberg, 7 August 2014. http://www.

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bloomberg.com/news/2014 – 08 – 07/bharara-vs-cuomo-emerges-as-battleoftwo-n-y-sheriffs.html. Nashashibi, Hikmat, Presentation at a conference in Beirut in April 1974. Roberts, William, “Rights Groups Say the US Prosecution of Terrorism Cases Targets Muslims and are Fraught with Abuses, Al Jazeera. http://www.aljazeera. com/indepth/features/2014/07/report-us-unfairly-targeted-arabs-muslims201472711538316390.html. Roy, Barun, “Arab-Asian Banking Ties Grow”, Arab Banking and Finance Handbook (Bahrain: Falcon Publishing, 1983). ——— “The Debt Crisis: An Arab-Latin American Approach”, The Arab Banker, vol. 4, 1984. Saddy, Fehmy, The US Order Blocking Iranian Assets under International Law: Legality, Liability and Jurisdiction (Washington, DC: School of International Service, American University, 1981) . ——— “The Neo-Nihilists: Intellectuals, Bankers and the International Economic Disorder”, The Arab Banker, vol. 3, 1985. ——— “The Moral Predicament of Arab Banking”, Journal of Arab Affairs, vol. 5, no. 2, 1986. ——— Presentation at the Round Table, “Exploring New International Growth Markets for Islamic Finance”, 15th Annual World Islamic Banking Conference, Bahrain, 23 – 5 November 2008. Saudi Gazette , “IDB, Robeco to launch $600 million agro-food fund”, 13 June 2012. ——— “Tadawul Opening may dampen IPOs”, 29 July 2014. http://www.zawya. com/story/Tadawul_opening_may_dampen_IPOs-ZAWYA20140729052006/. Shafik, Neamat, Deputy Managing Director of the International Monetary Fund in an interview in The Banker, October 2013, 134. Sherbiny, Naiem A., Oil and the Internationalization of Arab Banks (Oxford Institute for Energy Studies, F6, 1985). Thomson Reuters, Islamic Finance Development Report 2014, launched on 3 September 2014 during the Global Islamic Finance Forum held in Kuala Lumpur (2– 4 September 2014). US Treasury Department, Office of Foreign Asset Control (OFAC). http://www.treas ury.gov/resource-center/sanctions/Documents/tar2001short.pdf.

ENERGY AND MINERAL RESOURCES

CHAPTER 10 ENERGY COOPERATION WITH LATIN AMERICA: AN ARAB PERSPECTIVE Arezki Daoud

Introduction Although the distance between the Western-most Arab city of Agadir in Morocco on the Atlantic Ocean – one of the closest to the Latin American shore – and Caracas in Venezuela is relatively short, at only 3,941 miles (6,345 km), general economic exchanges between Latin America and the Arab world remain limited and marginal when compared to global trading activity. While state-to-state sponsored bilateral relations over the past decades have helped reduce the trade gap between the two regions, very little else has been developed that would enable a deepening of relations and the formation of sustainable economic momentum. This reality is certainly valid for the energy sector as well. Even though energy and petrochemicals account for a substantial share of Arab – Latin American trade, they remain minimal compared to the trade volumes between the two regions and the rest of the world. Relations between the Arab world and Latin America in the areas of energy and petrochemicals have been dominated largely by traditional import– export flows, with hydrocarbons and phosphates essentially moving from the MENA (Middle East and North Africa region) region into Latin American markets. This trade activity has been facilitated by

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the growing political will of governments on both sides of the Atlantic to diversify their trading sources and partners, and expand beyond their usual Western markets. On the Latin American side, trade with the Arab world has focused on the export of commodities, such as grains and meat, and machinery and industrial goods, and not so much on petroleum since the Arab world is generally self-sufficient on that front. In recent years, Arab investors have shown more eagerness to commit direct investments in Latin America’s petroleum sector, a trend facilitated by the growing clout of Arab oil corporations and their national sovereign wealth funds, combined with Latin America’s hosting of some of the most promising emerging markets in greater need for energy and petrochemicals to fuel their growth momentum. However, as is the case with imports and exports these investments are generally performed by investment funds and companies controlled by Arab governments. To flourish, trade and investment between the two regions must involve private sector players, not only statecontrolled entities. The root causes of the limited interaction in the energy sector between the two regions are relatively easy to spot. First, and perhaps most important is the fact that both regions have very active and vibrant petroleum industries. While Brazil has shown, so far, to be the most active importer of energy and petroleum products from the Arab world, it has also become itself more recently a major petroleum producer, alongside Mexico, Venezuela and other smaller Latin American producers. Therefore, there are very few complementarities with Arab energy exporters, a situation that is likely to worsen, given the expanding exploration programmes underway in Latin America, potentially turning the two regions into competitors. The second cause of limited activity between the two regions is cultural. Apart from some government-to-government efforts to boost bilateral relations, very little has been accomplished to create outside-ofgovernment initiatives that could drive greater interaction between the two regions. Such initiatives would include more efficient university exchanges, setting up trade offices, expansion of language and cultural studies, and establishing air links that would bring their peoples together. For example, in spite of the symbolic involvement of some Brazilian and other Latin American engineering and procurement firms (E&P) in the Arab world’s construction sector, such involvement has

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been largely insignificant and cannot expand without greater human and cultural exchanges. In this chapter, we shall analyse how the energy, petroleum and phosphates sectors fit in the global economic exchanges between the Arab world and Latin America and why such exchanges remain weak in comparison with global trading. We shall also discuss how Arab statecontrolled companies have been making direct investments in Latin America’s petroleum sector through equity participations in recent years.

MENA–Latin America: Some Similarities but Marginal Trade In analysing the two regions, we selected as a reference point the Latin American Integration Association (Asociacio´n Latinoamericana de Integracio´n), or ALADI, which comprises 13 of Latin America’s biggest national economies, encompassing in alphabetical order Argentina, Bolivia, Brazil, Chile, Colombia, Cuba, Ecuador, Mexico, Paraguay, Panama, Peru, Uruguay, and Venezuela. The selection of this group was useful in comparing it to the Middle East and North Africa region (MENA), which is comprised of 22 countries, stretching from Morocco in the west to Iraq and the Gulf oil producing countries in the east. The two regions exhibit many similarities. Their populations are roughly on the same level. MENA population is near 400 million, while that of ALADI exceeds slightly 500 million. Their global trade figures, which include petroleum and energy, show also interesting similarities in value terms. In 2012, ALADI imported between $1,017 billion1 and $1,038 billion2 worth of merchandise, compared to MENA’s global imports of $837 billion (including Iran). At about $1,480 billion, MENA (including Iran) global exports were a bit higher due to the strong weight of petroleum as a share of total exports. In 2012, ALADI exported $1,024 billion according to UN ComTrade and $1,049 billion according to the WTO, versus MENA exports of $1,480 billion.3 As suggested by Osvaldo Rosales, bilateral relationships between the two regions have witnessed a substantial strengthening over the last decade, as trade of goods and merchandise quadrupled.4 Yet in spite of such growth, there are weaknesses and gaps in the trade figures between the two regional blocs, even when oil and gas-related trade is included.

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Review of Global Trade between ALADI and MENA The two regions have been looking to upgrade their bilateral relations over the past decade, yet trade between them remains marginal. The two regions have a minimal, indeed negligible weight on each other’s global trade volumes and values that are derived from their trade. For the year 2012, MENA countries exported $20.4 billion worth of merchandise to ALADI countries. Although many would consider that number as a sign of a vibrant trade, it represented only 2 per cent of ALADI’s imports that year on a global scale. Indeed, Arab exports to the world in 2012 stood at $1.05 trillion, making its export activities to Latin America extremely marginal. Some would argue that the year 2012 might not be the proper reference period since many Arab countries faced unprecedented political upheaval. Indeed, even during the presumable politically stable year of 2010, ALADI’s global imports from the MENA region accounted for only 1.7 per cent at $13.4 billion. Therefore, there is no evidence that the so-called Arab Spring had a significant impact on trade between ALADI and MENA regions. Trade has struggled to show momentum in recent years as MENA exports to ALADI decelerated markedly in 2012, growing only 10.6 per cent from 2011, compared to a robust 37.3 per cent in the previous period of 2010 to 2011. Latin American exports to the Arab world are also marginal, accounting for only 3.1 per cent of the Arab world global imports in 2012. While the value of ALADI’s exports to MENA countries exceeded $32.9 billion in 2012, this figure also was down by 0.7 per cent compared to the previous year.5

Significance of the Petroleum Sector on Bilateral Relations The two regional blocs have been looking to find the right momentum to bring their trade to levels that make sense given their numbers (35 countries) and the size of their respective economies. Still, oil and gas in particular remains the Arab world’s biggest trade commodity with Latin America, albeit small on the global scale. The need for energy, petrochemicals and fertilizers in growing Latin American economies, from manufacturing to agriculture and consumer goods, is providing sustained opportunities for Arab hydrocarbon and phosphate exports to many of the emerging and high-growth markets in Latin America.

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Almost 56 per cent of the value of Arab exports to ALADI countries in 2012 was derived from the sale of oil, gas and related products, under the rubric of “mineral fuels, oils, distillation products, etc.” as shown in Table 10.1.6 Phosphates and fertilizers are reported separately. These figures have been rather stable over the previous two years, indicating the predominance of hydrocarbons in global MENA trade, including with Latin America. In contrast, in spite of the fact that Latin America is home to some major oil producers like Venezuela and Mexico, the share of oil and gas of LAIA (Latin American Integration Association) exports to the MENA region never reached the 4 per cent mark, as indicated in Table 10.2. As Latin America’s largest economy, Brazil represents also the biggest opportunity for Arab trade, in terms of both imports and exports. Brazilian exports to the MENA region, reached $14.03 billion in 20137. In spite of Brazil’s expansion of its own petroleum sector, Arab oil producing countries have maintained their hydrocarbons export momentum to Brazil. Arab oil exports to Brazil reached $2.76 billion in the first quarter of 2013 (see Table 10.3).8 According to the Arab-Brazilian Chamber of Commerce, however, Arab exporters of oil and gas to Brazil are not limited to Gulf producers. Saudi Arabia held close to 37 per cent share of Arab oil exports to Brazil in the first quarter of 2013, while Algeria was second with close to 32 per cent, as indicated in Table 10.3 below. This seemingly good news regarding general trade between the two regional blocs, however, is overshadowed by a lack of a much solid flow of hydrocarbons trade between them. Latin America represented a mere 1.1 per cent of global Arab oil exports in 2012, a figure that has been stable over the previous years (Tables 10.2 and 10.3). Extending the analysis into petroleum products processed in MENA refineries and

Table 10.1

Petroleum dominating Arab exports to Latin America

MENA exports to LAIA

In Thousands of US$ j Year 2012

All merchandise exports Petroleum exports Share of petroleum of Arab exports to LAIA

20,410,369 11,378,330 55.7%

Source: UN ComTrade.

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Table 10.2 world

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Petroleum products in Latin American exports to the Arab

LAIA exports to MENA

In Thousands of US$ j Year 2012

All merchandise exports Petroleum exports Share of petroleum of Arab exports to LAIA

32,982,886 1,091,569 3.3%

Source: UN ComTrade.

shipped to Latin America, that figure is also small, representing only 6.4 per cent of total MENA global sales. North Africa, driven by Algeria’s more aggressive approach to exporting refined products instead of crude, the share of petroleum products is bigger at over 15 per cent. Still, petroleum products exported by the MENA region accounted for a mere 2 per cent of all barrel-equivalent exports. See Tables 10.4 and 10.5.

Limitations on Arab –Latin American Energy and Petroleum Trade Several factors contribute to the limited trade of petroleum products between the two regions. Some are related to the lack of sufficient social, Table 10.3 Arab exports of mineral fuel, oil, gas and energy products to Brazil: Quarter 1, 2013. Exporting Countries

Value in Millions of US$

Share of Total

Saudi Arabia Algeria Kuwait UAE Iraq Libya Qatar Bahrain Total

1,000 868 508 130 104 78 36 1 2,725

36.7% 31.8% 18.7% 4.8% 3.8% 2.9% 1.3% 0.0% 100.0%

Source: Arab-Brazilian Chamber of Commerce.

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Table 10.4 MENA 2012 exports of crude oil to the world vs Latin America (1,000 b/d) Sub-MENA region

Export to World

Export to LatAm

Share of LatAm

Middle East North Africa Total

17,397 1,771 19,168

175 29 204

1.0% 1.6% 1.1%

Middle East exporters are: Iraq, Kuwait, Qatar, Saudi Arabia, UAE and Iran North Africa exporters are Algeria and Libya Source: OPEC, Annual Statistical Bulletin, 2013

economic and businesses drivers that would enable such trade to flourish between the two blocs. Others are related to the two regions’ hydrocarbons’ own industries’ profiles.

Insufficient Social Ties, and Weak Economic and Businesses Drivers The classic drivers that would have helped boost economic activity between the two regions are missing. There has been no deepening of general exchanges that would enable an increase in the density of trade. Traditionally, Gulf oil producers have been the Anglo-American sphere of influence, with oil trade predominantly targeting the markets of North America, Europe and other developed economies. Ties between Table 10.5 MENA 2012 exports of petroleum products to the world vs Latin America (1,000 b/d)* Sub-MENA region

Export to World

Export to LatAm

Share of LatAm

Middle East North Africa Total

3,141 490 3,631

156 75 231

5.0% 15.3% 6.4%

Middle East exporters are: Iraq, Kuwait, Qatar, Saudi Arabia, UAE and Iran North Africa exporters are Algeria and Libya Source: OPEC, Annual Statistical Bulletin, 2013 * Petroleum products are derived from refined crude oil produced by petroleum refineries

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the Gulf oil producers and the West date back to the early and midtwentieth century exploration era, when the West was able to set a solid foothold on the Gulf oil scene. Nevertheless, economic expansion of leading Asian countries has provided an opportunity for Gulf oil producers to expand their export to these markets. Although bilateral relations between Gulf countries and Latin America have been strengthened on the political and bilateral fronts, deep business ties have not developed sufficiently. Limited direct air links between the two regions, language barriers, and the predominance of the Anglo-American oil giants have all conspired to limit the growth prospects between the two regions. In the Maghreb region (North Africa), oil producers Algeria and Libya have had similar geographical focus due their colonial past. The former colonial powers, respectively, France in Algeria and Italy in Libya, have continued to shape their trade relations. However, they started expanding gradually into major developed economies of the United States, Europe, and Japan. Recently, they are seeking to grab additional business opportunities in China and other Asian growth markets. While these traditional links have enabled North African oil producers to strengthen their positions in mature economies, opportunities in emerging markets remain untapped, and Latin America can be an interesting growth markets for them. In sum, cultural differences have prevented the formation of tighter links between the Maghreb and Latin American countries. Language barriers, limited direct flights, and different business cultures are factors that have kept business opportunities limited to embryonic government-sponsored bilateral relations.

Reliance on Own Petroleum Industries and Competitive Stance The second factor limiting oil and gas trade between MENA and Latin American countries is that the two regions somewhat compete with each other in the global hydrocarbons market. While MENA’s oil-producing countries boast some of the biggest levels of production and reserves, Latin America has been extremely active in developing its own petroleum industries to fuel its own economic growth, such as the case of Brazil, and to export to the world markets, such as the case of Mexico and Venezuela. Indeed three of the top 15 oil producers in 2013 were Latin American countries, as shown below in Table 10.6.

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Top 15 oil* producers in 2013 (1,000 b/d)

Rank

Country

Production

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Saudi Arabia Russian Federation United States China Canada United Arab Emirates Iran Iraq Kuwait Mexico Venezuela Nigeria Brazil Qatar Norway

11,525 10,788 10,003 4,180 3,948 3,646 3,558 3,141 3,126 2,875 2,623 2,322 2,114 1,995 1,837

Source: BP, Statistical Review of World Energy 2014. Note* includes crude oil, tight oil, oil sands and NGLs (the liquid content of natural gas where this is recovered separately). Excludes liquid fuels from other sources such as biomass and derivatives of coal and natural gas.

International oil firm BP ranked Mexico as the tenth biggest producing country with over 2.87 million barrels per day. Venezuela ranked eleventh with production of more than 2.62 million barrels per day. At the 13th position, Brazil produced produced more than 2.1 million barrels per day.9 BP’s data suggests that in 2013 these three Latin American countries combined grew production by 3 per cent year over year. Latin America’s active hydrocarbon development programmes are creating a greater degree of self-sufficiency and self-reliance on its continental output, thus reducing the need for imports from MENA region. Indeed, the Latin American self-reliance strategy with respect of expanding domestic production plays a critical role in limiting MENA countries’ petroleum exports to Latin America. For example, the combined domestic consumption of petroleum in 2013 for the top three Latin American oil producers (Mexico, Brazil and Venezuela) was 5.76

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million barrels per day,10 versus a combined production of more than 7.61 million barrels per day. This leaves the three countries with a surplus of more than 1.84 million barrels per day for export, or about the same volume produced by Norway. Of the three major Latin American economies, only Brazil consumes more petroleum than it produces. Given the proximity of neighbouring markets, it is natural for Latin American producers to seek market opportunities within the Latin American zone, creating a sort of natural competition to Arab petroleum. OPEC’s 2013 Annual Statistical Bulletin, reflected in Table 10.7 below, shows that 36.4 per cent of all Venezuelan crude oil exports and 40.1 per cent of its petroleum product exports went to other Latin American markets.11

The Fertilizers Sector For some Arab producers, particularly Morocco, fertilizer exports are a sweet spot in their trade with Latin America. However, Arab exports of fertilizers remain marginal compared to petroleum exports. In 2012, the MENA region exported only about $13.8 billion worth of fertilizers, compared to more than $1 trillion for petroleum.12 The share of LAIA nations in global Arab export of fertilizer that year was better than in the case of petroleum, accounting for a healthy 17.1 per cent or almost $2.4 billion, but it may be below the potential of a better trade profile. Indeed Latin America should absorb an even greater share of Arab fertilizers since the World Bank reports that Latin America is home to about 28 per cent of potential new arable land that could be used to grow agricultural products in demand around the world. The World Bank also forecasts that by 2050, Latin America could be the source of one-third of the world’s meat export, a third of fruit and vegetables and half of Table 10.7

Venezuela’s petroleum exports (1,000 b/d, 2012 data)

Export destinations

Crude oil

Petroleum products

To world To Latin America Share of Latin America

1,725 628 36%

675 271 40%

Source: OPEC, Annual Statistical Bulletin, 2013.

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oilseeds. With that in mind, the role of fertilizers is likely to growth, creating fresh opportunities for MENA exporters.

Arab Investments in Latin America’s Energy Sector Looking at Arab – Latin American cooperation in the energy field outside of the import and export routes suggests early signs of an Arab proactive investment approach through equity participation in some of Latin America’s promising petroleum operation and related industries. With respect of direct investments in the energy sector, some Arab corporations and sovereign wealth funds have invested in equities by direct placements in Latin American petroleum-related firms, or participated in oil and gas development projects directly. One of the largest investments was the injection of United Arab Emirates’s Mubadala of $2 billion in Brazil’s EBX Group for 5 per cent stake in the group.13 The investment turned out to be less promising, considering that EBX Group filed for bankruptcy as a result of a cooling-off in commodity the market. Despite the risk it took, Mubadala’s investment in the EBX opened up new horizons for the UAE fund, and certainly provided valuable lessons on managing risk in its future placements in Latin America. Another high profile investment took place in early 2014, when Qatar Petroleum International spent $1 billion to purchase Royal Dutch Shell’s stake in Brazil’s Parque das Conchas oil project.14 Through similar projects and investments, Gulf oil producers are expanding their equity holdings in the lucrative Latin American petroleum sector. However, it is not only the wealthy Gulf oil companies or Gulf investment funds that are positioning themselves to take advantage of growth opportunities in Latin America’s oil sector. Some North African companies have made direct equity acquisitions in Latin America, most notably Algeria’s oil giant Sonatrach with an undisclosed investment in Peru’s Camisea gas project. In late 2003, Sonatrach purchased the Camisea stake from the Argentinean firm Pluspetrol in a project intended to produce natural gas in central Peru.15 The project was initiated in the summer of 1981 with an exploration contract linking the Peruvian government to Royal Dutch Shell. Five years later gas was discovered in Camisea, but extraction did not go full stream even though agreements were signed in December 2004 with a consortium

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comprised of Pluspetrol, Hunt Oil Company, SK Corporation, Repsol YPF, and Tecpetrol.16 Volatile politics and on-going changes in the legal framework governing the petroleum sector in Peru led to a slow pace in the development of the Camisea production and transport infrastructure. Indeed the discovery of the field coincided with the rise of the Peruvian insurgency group “Shining Path” (Sendero Luminoso), a leftist movement that sought to remove the Peruvian government of that time, thus making any industrial development in the Amazon a major risk for its promoters. In addition to the insurgency, Peru faced political crises during the tenures of Presidents Alan Garcia and Fujimori. As the political crises of the 1980s and 1990s have eased, interest in the Camisea project resumed. The gas fields became active again in the summer of 2004. For all key partners, including Sonatrach, Camisea is an important investment, given that gas reserves are estimated at more than 13 billion cubic feet of natural gas, with potential reserves of 482 million barrels of liquefied gas.17 As development work evolved, two major pipelines were completed, the first linking Camisea gas fields to Pisco Terminal over a distance of 540 miles. The second pipeline reaches Lima and Callao over a 444-mile distance. While Sonatrach’s stake in production was set at 10 per cent, its stake in the transport portion, which includes these two pipelines, was raised to 21 per cent. Seven years after making these investments, Sonatrach hinted in 2010 that its dividends from its Camisea gas project were slightly below $60 million.18 Yet this figure, although relatively small, it accounted for half of Sonatrach’s revenues originating from all of its international subsidiaries. Indeed there is a sense within Sonatrach that investing in the Latin American petroleum sector will end up paying good dividends in the long run. In the fertilizer business, Morocco’s state-owned OCP (Office Che´rifien des Phosphates) has been working to establish a direct presence in Latin America. OCP is the world’s largest exporter of phosphates and has recently consolidated this position by acquiring 50 per cent stake held by American firm Bunge Limited in Bunge Maroc Phosphore, their joint venture. Bunge Limited has used its Moroccan unit as a source of phosphates and related raw products to feed into its South American businesses. The transaction provides OCP with an opportunity to expand

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its capabilities and marketing channels in Latin America, particularly in Brazil where growth in agriculture is seen as an opportunity for OCP to expand in new markets. 19 Bunge Maroc Phosphore produces about 375,000 tons of phosphoric acid and 700,000 tons of fertilizers, bringing OCP’s production capacity in its Jorf Lasfar industrial complex on the Moroccan Atlantic Coast to three million tons per year. The company is making substantial investments to up its long-term capacity, largely to supply into growth prospect markets such as those in Latin America. Specifically, the Latin American connection to the Jorf Lasfar site is critical, because its increased demand for phosphates is giving OCP further impetus to invest in expansion projects within the Moroccan industrial site, with direct and positive social and economic implications in Morocco. OCP’s phosphate rock production from all of its combined sites amounts to 34 million tons. In spite of volatile prices and growing competition, major investments are underway to boost production to 50 million tons by 2020.20 Competition from Saudi Arabia, Peru and other suppliers is driving OCP to push aggressive sales and marketing campaigns in emerging markets. Latin America is expected to be a main target for the company going forward. As such, OCP acquired on 12 June 2014 a 10 per cent stake in Brazilian peer, Fertilizantes Heringer SA. The agreement also calls for OCP to provide long-term supply of phosphate-based products. 21

Risks and Rewards of Direct Investment In the case of OCP, export to the Latin American market is the primary route because it is perceived as a safer entry into Latin America than committing direct investments in a region that boasts different business cultures. In the case of Sonatrach, just like Mubadala, its direct investment in Peru highlights the potential risks and rewards a MENA company faces when approaching an unfamiliar region. Both cases confirm the premise that the lack of better ties and human relations between the two regions impacts negatively their potential economic benefits. This perception is shared on the Latin American side, as well. Even though Latin America boasts some of the best and technologically savvy

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engineering firms there have been very limited proactive engagements of such firms in the Arab world’s oil sector. Companies such as Brazil’s Odebrecht have the skills and capabilities to handle large engineering and procurement (E&P) contracts in the MENA region, but they have been more focused on their comfort-zone markets, including in Portuguese-speaking African countries where competition from Western companies is less significant. Therefore, increased energy and petroleumrelated cooperation between MENA and Latin American countries will inevitably require the involvement of Latin American engineering and construction firm in MENA development projects.

Conclusion Competition between Latin America and MENA countries in the energy and petrochemical market is more likely to stiffen in the foreseeable future. Major investments in Latin America’s conventional and new sources of energy could be source of market tension with Arab producers, but on the positive side, it could also be a source of potential investment opportunities. In an in-depth assessment22 released in 2013, the US Energy Information Administration (EIA) stated that Latin America’s energy needs would expand significantly, with the share of natural gas expanding from 7.6 trillion cubic feet per day (ft3/d) in 2012 to 16 trillion ft3/d in 2040. Shale gas is expected to be a focal point in key regions, particularly in Brazil, Argentina and Venezuela, countries that have the biggest estimated reserves in the Latin American region. Argentina, for instance, is considered the world’s second largest source of recoverable resources of gas. In addition to Brazil and Venezuela, Mexico is also assessed as a potential giant producer, having been ranked sixth by the EIA. 23 As other Latin American countries seek to join the shale gas momentum, from Colombia and Uruguay, to Bolivia and Paraguay, opportunities for Arab investors are opened for direct investments or equity purchases of Latin American energy assets. Many of MENA’s largest petroleum and engineering firms could also export some of their skills and know-how to regions in Latin America where petroleum exploration, production and transport are relatively recent. State-oil companies from Algeria, Qatar, and Kuwait, for example, have shown

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proactive engagements in oil exploration in other countries and can contribute to the Latin American exploration sector. Equally, Latin American firms have substantial technical expertise to support the growth of MENA’s petroleum sector, from exploration to transport, and refining and marketing. As they seek to expand beyond their comfort-zone markets, Brazilian, Mexican, Venezuela and other Latin American engineering firms could leverage their strengths to contribute to MENA’s substantial expansion plans. Even countries like Libya that are struggling through their own political transitions could draw on the technical capabilities of Latin American companies. However, building bilateral relationships between the two regions requires a comprehensive approach, which includes human resources and cultural understanding. This should be a priority in order to build better bridges that would enable private enterprises to flourish in their respective markets.

Notes 1. WTO Statistical Database, http://stat.wto.org, and UN ComTrade Database. http://comtrade.un.org/. 2. UN ComTrade Database. http://comtrade.un.org. 3. WTO Statistical Database, http://stat.wto.org, and UN ComTrade Database. http://comtrade.un.org/. 4. Osvaldo Rosales, “Trade Relationships Between Latin America and the Caribbean and Arab Countries: Where Do They Stand?” Chapter 4 in Fehmy Saddy (ed.), The Arab World and Latin America: Economic and Political Relations in the Twenty-first Century (I.B.Tauris, 2016). 5. UN ComTrade Database. http://comtrade.un.org. 6. Ibid. 7. BQ Magazine. http://www.bqdoha.com/2014/03/brazil-exports-usd-14 – 037bn-arab-nations. 8. Ibid. 9. BP’s Statistical Review of World Energy 2014. http://www.bp.com/en/global/ corporate/about-bp/energy-economics/statistical-review-of-world-energy.html. 10. Ibid. 11. OPEC Annual Statistical Bulletin 2013. http://www.opec.org/opec_web/static_ files_project/media/downloads/publications/ASB2013.pdf. 12. UN ComTrade Database. http://comtrade.un.org. 13. Arabian Oil & Gas. http://www.arabianoilandgas.com/article-10096-mubadalapours-2bn-into-ebx-brazil-ep/.

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14. Stanley Reed, “Shell Selling a Stake in Brazilian Oil Project”, New York Times, 29 January 2014. http://dealbook.nytimes.com/2014/01/29/shell-selling-a-s take-in-brazilian-oil-project/?_php¼true&_type ¼ blogs&_r ¼ 0. 15. “Sonatrach to Buy 10% Stakes in Camisea Consortiums”, BN America. http:// www.bnamericas.com./news/oilandgas/Sonatrach_to_buy_10*_stakes_in_ Camisea_consortiums. 16. “Camisea Gas Project, Peru”, Hydrocarbons-Technology.com. http://www. hydrocarbons-technology.com/projects/camisea/. 17. Ibid. 18. Algeria Watch. http://www.algeriawatch.org/fr/article/eco/hydroc/sonatrach_ feuille_route.htm. 19. Press Release. http://www.prnewswire.com/news-releases/ocp-to-buy-outbunges-stake-in-bunge-maroc-phosphore-joint-venture-222572871.html. 20. Oxford Business Group. http://www.oxfordbusinessgroup.com/economic_ updates/le-maroc-veut-accroitre-sa-production-de-phosphate#english. 21. OCP, “OCP S.A. to acquire 10% stake in Fertilizantes Heringer S.A.”, 12 June 2014. http://www.ocpgroup.ma/media/corporate-news/ocp-sa-acquire-10-stakefertilizantes-heringer-sa. 22. “Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States”, US Energy Information Administration. http://www.eia.gov/analysis/studies/worldshalegas/. 23. “Technically Recoverable Shale Oil and Shale Gas Resources”.

References Algeria Watch. http://www.algeriawatch.org/fr/article/eco/hydroc/sonatrach_feuille_ route.htm. BN America, “Sonatrach to Buy 10% Stakes in Camisea consortiums”, http://www. bnamericas.com/news/oilandgas/Sonatrach_to_buy_10*_stakes_in_Camisea_ -consortiums. BQ Magazine. http://www.bqdoha.com/2014/03/brazil-exports-usd-14 – 037-bnarab-nations. BP’s Statistical Review of World Energy 2014. http://www.bp.com/en/global/ corporate/about-bp/energy-economics/statistical-review-of-world-energy.html. Hydrocarbons-Technology.com, “Camisea Gas Project, Peru”. http://www.hydro carbons-technology.com/projects/camisea/. OCP press release, “OCP S.A. to acquire 10% stake in Fertilizantes Heringer S.A.”, OCP, June 12, 2014. http://www.ocpgroup.ma/media/corporate-news/ocp-saacquire-10-stake-fertilizantes-heringer-sa. OPEC Annual Statistical Bulletin 2013. http://www.opec.org/opec_web/static_files_ project/media/downloads/publications/ASB2013.pdf. Osgood, Patrick, “Mubadala pours $2bn into EBX Brazil E&P”, Arabian Oil & Gas. http://www.arabianoilandgas.com/article-10096-mubadalapours-2bn-into-ebxbrazil-ep/. Oxford Business Group, http://www.oxfordbusinessgroup.com/economic_updates/ lemaroc-veut-accroitre-sa-production-de-phosphate#english.

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PR News Wire, “Ocp to buy-out Bunge’sstake in Bunge-Maroc phosphore joint venture press release”. http://www.prnewswire.com/news-releases/ocp-to-buyout-bungesstake-in-bunge-maroc-phosphore-joint-venture-222572871.html. Reed, Stanley, “Shell Selling a Stake in Brazilian Oil Project”, The New York Times, 29 January 2014. http://dealbook.nytimes.com/2014/01/29/shell-selling-a-stakeinbrazilian-oil-project/?_php14true&_type14blogs&_r140. Rosales, Osvaldo, “Trade Relationships Between Latin America and the Caribbean and Arab Countries: Where do They stand?” in Fehmy Saddy (ed.), The Arab World and Latin America: Economic and Political Relations in the Twenty-first Century (London: I.B.Tauris, 2016). UN ComTrade Database. http://comtrade.un.org/. US Energy Information Administration, “Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States”. http://www.eia.gov/analysis/studies/worldshalegas/. WTO Statistical Database, http://stat.wto.org.

CHAPTER 11 MINERAL RESOURCES DEVELOPMENT: THE CHILEAN EXPERIENCE Juan Carlos Guajardo1

Historical Background Mining has been a crucial economic activity for Chile throughout its history. The discovery and colonization of Chile and its incorporation into the Spanish Empire in the sixteenth century were motivated by interest in new mineral sources, especially gold, in territories outside the Viceroyalty of Peru. After a brief but intense exploitation of gold at the beginning of the colonial period, agriculture took the lead in the Chilean economy. Since the end of the nineteenth century, however, mining has again become the most important economic activity through production of silver, gold and copper. The industrial revolution in Europe in the latter part of the nineteenth century increased the demand for minerals around the world, and Chile was well placed to increase production of many of them, particularly silver, copper and nitrates. The exploitation of nitrates by British companies was Chile’s first experience with foreign capital taking control of its natural resources since its independence. The world economic crisis that was triggered by the depression in the United States in 1929, as well as the production of cheaper synthetic

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nitrates, led to the collapse of demand for nitrates, which drastically affected prices and the country’s income. Copper has been the most important activity in Chile since the beginning of the twentieth century. US companies have dominated the exploitation of copper mining, raising questions whether Chile possesses the necessary national entrepreneurial capacity – financial, managerial and technological – to develop an industry considered strategic for its development. More importantly, the question was raised whether the foreign companies actually contributed to the domestic economy. Due to the above concerns, a gradual process of government control of mining resources started in 1955 with the introduction of the Nuevo Trato policy (1955) that established the Departamento del Cobre, the first government entity dedicated to overseeing the copper sector in Chile. Soon thereafter Chile established partnerships with US copper companies in which it retained a majority in a process called the “Chilenization of Copper” (1964). Chile took control of marketing and sale of copper and promoted investments to increase production. Finally, the “Nationalization of Copper” (1971), completed the state’s control of large-scale copper mining through a constitutional reform approved unanimously by the Parliament. Since then, the state has operated nationalized mines though the Chilean Copper Corporation (CODELCO), which is the largest copper producer in the world. Under the military regime a decade later, significant reforms were introduced to allow private production of copper. Under the new Constitution of 1980, certain laws were passed to facilitate foreign investment in the sector, particularly Law No. 18,097 “Constitutional Organic Law on Mining Concessions, 1981”, and “Decree-Law 600, 1974”, which included significant legal arrangements for foreign investment. This facilitated the entry of foreign capital, especially after the return to democracy in 1990, which provided stability and reduced political risk.2 Investment by private companies was particularly intensive during the period from 1990 to 2006 and has grown at an average annual rate of 16 per cent since 1990, currently representing about 70 per cent of total copper production in Chile. Besides the increase in production, private companies, mostly international, brought modern technologies and standards to the country. The last two decades have witnessed consensual public policy in Chile based on a relative social agreement. Chile joined OECD in 2010, which

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6,000 5,000 4,000 3,000 2,000

0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1,000

State-owned producon

Private producon

Figure 11.1 Private and state-owned copper production in Chile (1990– 2011, in thousands of MT). Source: Cochilco.

was a sign of the soundness of its economic policies and international reputation. Today, the mining industry plays a key role in Chile’s national development. Measured by constant prices, the mining sector contributes about 13 per cent to GDP, while at nominal prices its share is estimated at over 18– 20 per cent in recent years as a result of increase of international prices of commodities. The extraordinary period of high copper prices in the last ten years, sustained by the economic development in China starting in 1978, has made Chile one of the countries that has benefited the most from the super recycle of commodity prices. This recycle coincided with the initial phase of the largest expansion in copper production in the history of Chile. Copper production increased from 1.6 million tons in 1990 to 4.9 million tons in 2003, and this timing enabled Chile to take advantage of increased demand in the market and to earn higher revenues, while other countries tried to increase production in order to catch up. Taking into consideration the link between mining and other productive sectors is key to appreciating the economic effects of the mining sector in the context of a mining-based development model. Some recent economic theories consider that the externalities derived from exploitation of a natural resource (productive linking) are sufficient to initiate and/or maintain a long-term growth process in

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view of the magnitude of those activities, which are capable of activating productive conglomerates or clusters. This current train of thought is inspired by the cases of development in countries like Canada, Australia, New Zealand, and some Nordic countries that base their development on initial productive processes closely linked to natural resources. A specific example of this approach is that some developed countries still export primary products in a proportion of about 60 per cent of total exports. The strategy of trying to develop economic activities with value added, based on competitive natural resources offers the advantage of being involved in productive activities on the technological frontier, which makes it possible to increase the possibilities that the country’s productive apparatus would be related to the technologies that should serve as the engines of the coming technological revolution. This situation marks a significant difference from attempts to develop industries with value added where no competitive advantage exists, because the technologies in those industries are usually mature, and therefore do not offer the opportunity to link with state-of-the-art technologies.3

Mining Innovation and Technology Development Technological innovation in mining is mainly focused on large-scale mining. A technological gap exists with regard to medium-scale mining, but fundamentally with small-scale mining and artisanal mining. Historically, mining development started in Chile during the first stage of large-scale copper mining, which extended from the beginning of the twentieth century to the 1960s. At that time the incorporation of state-of-the-art technologies in Chilean production took place through the major U.S. companies that operated in Chile. They applied technologies generated in the US, with the support of US laboratories and engineering companies to develop high-impact technological changes due to the particular condition of Chilean copper porphyries. Some significant examples of these technologies are: a) the flotation process at El Teniente (1912); b) leaching in trays with sulphuric acid and electrorefining at Chuquicamata (1915); c) the first Pierce-Smith converter at the Caletones Foundry (1922); and d) recovery of molybdenum as a by-product of copper floatation (1934).4

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Regarding research undertaken by the Chilean government, the first regular and systematic attempt at research was made in 1929.5 The Metallurgical Laboratory of the Caja de Cre´dito Minero (CACREMI) devoted its efforts to developing better floatation and cyanidation processes for gold ore and for extracting gold and silver from gold precipitates. Copper mining has benefited generally from mining research in other metals, especially iron and other basic metals, through the adaptation of technologies created originally for those ores. However, in the last part of the twentieth century technological advances in Chile and worldwide were influenced by a strong, steady reduction in international copper prices, especially in the 1970s and 1980s. This drop in prices was reflected in greater incentive for innovation and the organizational restructuring of mining companies in order to increase productivity and reduce production costs. This process changed the perception of mining activity as a mature industry, and significantly increased innovation, which led to a period of “technological rejuvenation of the mining industry”. Indeed, this was a drastic change from the prevailing thought throughout the world that the mining industry was a mature industry with a low rate of innovation, and production based on standardized technologies could be operated by personnel with low skill levels.6 This author suggests that a crucial factor in technological development and innovation at this time – especially in consideration of public policy to generate spill overs from mining into other productive sectors – was the impetus created by companies that specialized in providing mining services, known as the KIMS (Knowledge-Intensive Mining Service companies). Processes that were characteristic of mining companies through vertical integration were transferred to companies that provided services and engineering, research centres, and universities. The supplier companies became a mainstay in the process of innovation, technological transfer, and competitiveness of the mining industry, and at the same time an engine that reinforced complementary industries beyond the mining sector. In Chile the change in the organizational model has been evident since the 1990s, thereby creating an opportunity where it is possible to develop a cluster of supply companies that support local mining activities and export goods and services to the mining industry throughout the world.7 This organizational change has led the mining companies to focus on their main business, and outsource non-essential

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activities. Before this change mining companies were self-sufficient, supplying their own intermediate goods and services. The use of the model of contracting services from third parties or subcontracting has increased dramatically in the context of organizational restructurings. For example, 30 years ago the subcontracting rate at Codelco was one for every five of the company’s own employees; at the present for every five Codelco workers there are seven subcontracted employees that provide services at the company’s facilities. This proportion is similar to most of the large private mining companies. Although the change in the organizational model has made it possible to overcome the perception of an enclave that made it hard to transfer technology from mining, the question remains whether the KIMS that operate in Chile create an innovation dynamic that is sufficiently intensive in its use of local productive factors, since there is lack of information about the subject. It cannot be denied, however, that the process of technological rejuvenation identified by Urzu´a has also succeeded in eliminating technological barriers to entry in different markets, thus presenting an opportunity for emerging countries with abundant natural resources to develop an industry of suppliers sufficiently intensive in know-how on a par with the world mining industry. Although the development of suppliers is a global phenomenon, the conditions necessary for those companies to emerge and consolidate vary in different countries throughout the world. KIMS suppliers in countries like Australia, Canada and South Africa have emerged and have been key players in the technological innovation processes in the mining industry, gradually improving their international competitiveness and that of their own suppliers. In creating the conditions that enable this to occur, the development of mining clusters intensive in know-how has been fundamental, because it makes it possible to take advantage of important synergies that promote a competitive industry of suppliers.8 Although the mining industry in Chile has made important technological progress in the extraction process in the last few years, maintaining a significant level of competitiveness and consolidation in this important mining district in the world has represented a real challenge due to slow evolution of local suppliers. Chilean KIMS have a relatively strong presence in the local mining industry, but have not

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succeeded in consolidating their position at a competitive level in the rest of the world. This has had significant repercussions on the mining companies that operate in Chile, which tend to contract international KIMS to maintain their competitiveness. The participation of Chilean professionals, mainly engineers, has grown over time not only in local mining companies after nationalization, but also in engineering companies and supply companies, both locally and internationally.

Role of the State in Mining Technological Innovation Chile did not have a national policy of science and technology until the 1960s, nor did it promote plans for large-scale mining to create links with the capacities of Chilean universities in research and training of professionals. A significant change occurred with the creation of the Scientific and Technological Commission (CONICYT) in 1967, whose goal was to contribute to the country’s economic and social knowledge by using science and technology to solve national problems. The Chilenization and subsequent nationalization of the copper mining industry opened up an opportunity for new processes. In this context, state institutions like the Centro de Investigacio´n Minera y Meta´lurgica (CIMM) (Centre for Mining and Metallurgical Research) and the Instituto Tecnolo´gico Chile (INTEC) (Chile Technological Institute) were established in 1970s and the late 1960s respectively, under the Corporacio´n de Fomento de la Produccio´n (CORFO) (Chile Production Development Corporation) to develop technological innovation in Chilean companies.9 INTEC made significant technological contributions to Chilean mining in the area of solvent extraction, ionic exchange, and bacterial leaching as well as training professionals and developing the Lo Aguirre Project. The project belonged to the Sociedad Minera Pudahuel, which played a fundamental role in copper mining in Chile through the development and application of the processes known as “TL heap leaching” and “BTL leaching”.10 The technological centres and state universities (University of Chile, University of Concepcio´n, Technical State University) took on the new challenges of strengthening and creating competencies in mining,

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metallurgy and geology. In the mid-1960s they were required to selffinance their research, which forced them to provide services to the mining companies and debilitated the national system of research and technological development. INTEC ceased its research in technology and was reoriented toward environmental contamination. It finally disappeared entirely when its assets were transferred to Fundacio´n Chile in 2001. Since the 1990s technological innovation in mining has been developed through competitively awarded public funds administered by CONICYT (Fund for Promotion of Scientific and Technological Development, FONDEF) and CORFO (INNOVA program) with international contribution from Banco Interamericano de Desarrollo (Inter-American Development Bank). Since the early 2000s, these public funds have been offered to universities and companies to develop Research and Development projects (R&D). In 1998 CODELCO created a technological subsidiary, Instituto de Minerı´a y Metalurgia (IM2) (Mining and Metallurgy Institute) for mining-metallurgical subjects associated with the characteristics of its five major mining deposits at the time (Chuquicamata, El Teniente, El Salvador, Andina and Radomiro Tomic). The last significant state effort in the technological sphere was the creation of the National Council on Innovation for Competitiveness (CNIC) in 2005. The Council has provided guidelines on the importance of natural resources in order to maintain the country´s strategy for becoming a developed economy. This new institutional system arose in the framework of the introduction of a specific tax on mining activity (popularly known as the Royalty), which is allocated to the Innovation for Competitiveness Fund, administered by the CNIC, a public– private Council in charge of constructing and implementing a national strategy on innovation for competitiveness. The main objective of this public policy was to strengthen the country´s technological development, not only in mining, but in all other spheres as well. Although this entity has not succeeded in assuming the leadership required for such important task, some promising progress has been made, nonetheless. This includes a programme to attract Centres of Excellence promoted by CORFO, which has installed important institutions in Chile in partnership with local university and research entities like the Australian CSIRO (The Commonwealth Scientific and Industrial Research Organisation), one of the best-known R&D centres in the mining sector in the world. Other

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research institutions include Fraunhoger, a German centre active in the area of biotechnology; the French institute INRIA, which is dedicated to research in computer science, automation, and applied mathematics; and the Wageningen UR University and research centre, which will be oriented toward the food industry. A significant number of advances in mining innovation are managed by CODELCO, the state company that has been a natural promoter of R þ D activity in Chile. CODELCO is a major copper producer whose large deposits are facing significant technological challenges. Since the nationalization of copper in 1971, it has sought to create a mining culture in collaboration with universities and research institutions.11 At least three other significant contributions have been made in Chile thanks to large-scale copper mining: hydrometallurgy of complex oxidized copper ores, bioleaching of sulphur copper ore, and continuous, massive underground mining. In the first case, the operations of Mina Sur and Dump Gravel from Chuquicamata initiated in the 1980s were only possible after intensive local research had been done. The other two processes have been developed by CODELCO since the late 1990s with scientific studies and experimental scale designs, and industrial size tests have been started recently.12 More encouraging data is revealed by patent applications associated with mining. Patent applications submitted between 2000 and 2009 totalled 1090 of which applications by non-residents accounted for 58.6 per cent, and those by residents accounted for 41.4 per cent.13

90 80 70 60 50 40 30 20 10 0 2000

2001

2002

2003 2004 Residents

2005 2006 Non-residents

2007

2008

2009

Figure 11.2 Patent applications submitted by the mining industry in Chile (2000 –9). Source: Inapi.

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14

Outotec OYJ

15

Phelps Dodge Corporaon

15

BHP Billiton SA Limited

15

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17

BHP Billiton Innovaon PTY Ltd.

24

Nippon Mining & Metals Co., Limited Codelco

32

Orica Explosives Technology PTY LTD.

33 75

Codelco (IM2)

78

Outukumpu OYJ 0

10

20

30

40

50

60

70

80

90

Figure 11.3 Patent applications submitted in the mining industry by large companies in Chile (total 2000 – 9). Source: Inapi.

The number of applications for patents related to mining made by residents is favourable compared with the average submission of total patents in Chile by residents, which is only 14.4 per cent. This figure should be analysed in greater detail because most of the requests by residents are made by CODELCO and by companies residing in Chile that are subsidiaries of international companies. During 2012 and 2013 the Government of Chile decided to sell the assets of the Centro de Investigacio´n Minero Metalu´rgico (CIMM), which was created in the 1970s, thus sealing the destiny of the presence of the state as an entity involved in mining research and development.

Chilean Engineering Until the end of the 1960s the participation of local engineering consulting service companies in mining was low, as they were used almost exclusively to design facilities for the small and medium-scale copper mining industry. In large-scale mining, agreements in 1966 between the government of President Frei Montalva and US company Kennecott, started the process of Chilenization of the copper mining industry, which included, among other goals, an ambitious expansion plan at El Teniente (1966–70). The

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participation of local engineering consulting firms was no more than 5 per cent in this plan, and they were only involved in a few tasks in the detailed engineering of the plan. Since then, however, the development scenario proposed for large-scale mining has led to view mining as a sector of great interest for companies such as ARA, Cade-Idepe and Minmetal. In the years following the nationalization of copper (1971), this engineering capacity was available to carry out projects in various CODELCO productive areas. In the 1980s important local engineering companies involved in mining appeared, including JRI Ingenierı´a, Geote´cnica, NCL, Metalica, B&R, Esedei, Coprim and Subterra. Following the same trend with regard to the increase in mining activity and the greater complexity of projects, these local companies increasingly formed partnerships with major international engineering companies.14 The main areas where those companies made a contribution were in technological innovations in mining-metallurgical processes and in the piping and deposit of tailings. Two indisputable achievements in R&D were developed and installed in the local mining industry in this decade: a) acid curing of oxidized ore at SM Pudahuel,15 and at Chuquicamata-CODELCO, and b) the Teniente Modified Converter at El Teniente-CODELCO. During the 1990s there was a significant change in investments in the local mining industry because of new projects in the private large-scale mining sector that were developed after the return to democracy. Impositions made by the international banks on private mining companies had significant repercussions on the domestic engineering sector because they favoured the execution of projects through Engineering, Procurement, Construction & Management (EPCM) and turnkey projects. This meant that the engineering services companies assumed responsibility for administration and management of projects from beginning to start of operation, which required local engineering consulting firms to form partnerships with international companies that could potentially guarantee completion of projects to financing sources. Under this system, mining companies required a smaller contribution in terms of technological innovation because they tended to favour what was already known. The result in the medium term has been the continuous acquisition of local engineering companies by foreign companies and further distancing of national capabilities from R&D.

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Obviously, this does not favour the development of local suppliers for the mining sector in the numbers and the quality necessary to compete in the international market.

Technological Innovation in Mining and Development Strategy The lack of ability to absorb state-of-the-art technical innovations associated with natural resources constitutes a relevant barrier to growth of productivity and, consequently, to economic growth.16 Maloney believes that the causes of low economic performance of Latin America and its marked sense of dependence can be found in the resistance to technological adoption and innovation, which is probably deeply rooted in its history. He also proposes that the main failing was the deficient local “learning capacity”, which was exacerbated during the postwar period when economic policies guided by a policy of import substitution aimed inwards, thus limiting the use of state-of-the-art technological flows.17 In the past few years various public and private initiatives have attempted to diagnose the situation and make recommendations in order to strengthen the productive link with mining, with emphasis on scientific and technological development. Their findings agree that research efforts move forward without any connection to the needs of the industry, with an excessive proportion of the resources aimed at basic science. Little interest is observed on the part of the foreign mining companies that operate in Chile in participating in local initiatives, as they prefer to concentrate on technological research and innovation in their countries of origin.18 Therefore, it is crucial to promote the formation of clusters around natural resources as a development strategy and make use of the comparative static and dynamic advantages in a highly competitive globalized world of continuous technological change in order to avoid being displaced by competitor countries.19 This author suggests that there is a connection between clusters and technological innovation because they amount to local innovation systems on a reduced scale. An innovative cluster becomes a magnet that attracts new technology, specialized human capital, and resources to finance research and development. Cooperation between cluster members facilitates learning

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of the technological process and thus becomes a fundamental prerequisite to create innovations along the whole value chain; those innovations would focus on the links, both forward and back, that exist among producing companies, suppliers and consumers. Aware of the importance of strategies developed around mining and innovation, various attempts have been made in Chile to establish and strengthen a mining cluster. So far the results of those efforts have been rather limited, with incipient productive agglomerations persisting, although they are not well structured. Another important initiative is the “Development program for worldclass suppliers”, which seeks to identify and support the emergence of Chilean suppliers that are capable of servicing the needs of the major mining companies that operate in Chile.

Going Forward The size, scale, and degree of complexity that the mining sector has reached in Chile in the last two decades provides a unique opportunity to consolidate a process of technological innovation in large-scale mining that will break the historical trend characterized by the predominant adaptation of international technology. The history of local consulting engineering firms since the 1990s, as discussed above, provides a warning about the negative effects of the absorption of Chilean companies by world engineering companies, as this impedes the independent development of innovation in miningmetallurgical processes. A large number of global companies that provide very complex technological equipment participate in the mining supply sector in Chile. They are capable of contributing a wide variety of products in different economic sectors with a high degree of vertical integration and technological centres and engineering departments, generally located outside of Chile. In parallel, local technical skills coexist that are potentially capable of consolidating business niches in areas like manufacturing parts and components, some specialized materials, and mining services that are less intensive in know-how and technological requirements.20 One fundamental aspect is the role of local and international mining companies. As these companies channel their problem-solving

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methodologies into their operations in Chile, they will increase the possibilities of local innovation and development. The large mining companies that are capable of leading R&D efforts usually have their own research centres and networks established with other competent scientific and technological centres internationally. Using world historical experience as a reference, it is increasingly necessary to have better connections among stakeholders related to the technological innovation processes in order to increase competitiveness in the mining sector. Only through a fluid process where the needs of the state, the companies, and the universities converge will it be possible to join together in an innovation process where Chilean industry is the protagonist. The trend toward subcontracting in mining and the role of service suppliers is more pronounced in Chile than in other countries. The proportion of contracted workers compared to the total mining labour force is over 60 per cent, whereas it is 24 per cent in Australia and Canada, and 8 per cent in the US.21 This evolution in the organization of mining companies has permitted the competitive development of a number of Chilean companies specialized in providing services, and some even export their services,22 although the process is still in an early stage. The potential for increasing exports of Chilean mining technology is very high, taking as a reference other countries with abundant natural resources that have succeeded in developing activities complementary to mining. In countries like Australia, the US or Canada, exports of mining goods and services compared with their respective mining exports are much higher than in Chile. In the US and Canada, the mining equipment industry is strong. In Finland, services industries specialized in metallurgy and technology have been developed, and Australia has an active sector in the development of software for mining and the technology industry. Some trends in the mining industry increase the importance of innovation in the sector, especially the increased complexity involved in the extraction of lower-grade copper, requirements for environmental sustainability that demand more efficient use of resources like water and energy, and better treatment of waste and emissions of CO2. These trends pose new challenges and needs. A great potential is opened up for technological development and the provision of specialized services intensive in know-how due to their highly specialized nature. There is need

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for continuous innovation and the incorporation of technology in order to find more efficient solutions for mining projects and operations.23 In light of this analysis, Chile has made significant progress in mining innovation, especially over the last three decades, although the challenge that still lies ahead is to take advantage of the scale and the opportunities presented globally. The development of local capabilities that could compete with consolidated global suppliers requires longterm strategies where innovation must play a crucial role to enable Chile to occupy a market niche, catalyse learning processes, and constantly develop new technologies.

The Relevance of Chile’s Experience to the Arab World Like Chile, Arab countries have several mineral resources to exploit and have experienced the same problems in developing these resources. Arab oil producers, particularly in the Gulf and North Africa, derive the bulk of their income from the export of this commodity. The role of Western oil companies in the development of the petroleum sector in these countries is well known. Although their oil companies were nationalized, they still rely on Western companies for development. Other Arab countries, such as Jordan and Morocco are involved in mining phosphates and other resources, some of which is exported to Latin American markets. Western companies were originally in control of these industries, which were nationalized later. However, they still rely on Western technology, as well. Chile’s experience in copper mining is relevant to Arab countries in their search to develop their oil and mineral resources. First, the development of local human resources is an important factor in reaching technical competence, maturity and independence. Second, the evolving human resources competence thus leads to the development of local consulting firms and substitute foreign labour, which dominates the oil industry, particularly in the Gulf. Third, the development of technical competence leads to the proliferation of service companies in the various aspects of the oil and mining industries and creates a wide network of industry-related sectors. The lesson to be learned from Chile’s experience is that the proper development of the copper mining sector, or any sector for that matter, requires the development of a national research and technological

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base for future development of the sector. While cooperation with and learning from the experiences of foreign research institutions, universities and foreign companies is essential to reach an elevated level of competence in par with other players, it is imperative to have a national independent research infrastructure. In essence, developing countries that aspire for sustainable growth must develop their own indigenous research and technology and become participants in technological innovation, not mere consumer of technology.

Notes 1. This chapter is based on the significant contributions of Juan Enrique Morales and Osvaldo Urzu´a, who have worked and reflected in great depth on technological innovation in mining. The author would like to thank them for their generous contribution to this chapter. Special thanks to Rodrigo Balbontı´n. 2. Juan Carlos Guajardo, “La Agenda Minera En Chile: Revisio´n y Perspectivas” (Naciones Unidas, CEPAL, Div. de Recursos Naturales e Infraestructura, Santiago de Chile, 2007). http://www.cepal.org/drni/publicaciones/xml/7/ 28637/lcl2674e.pdf. 3. Juan Carlos Guajardo, “Mineral Rents and Social Development in Chile”, in Mineral Rents and the Financing of Social Policy: Opportunities and Challenges (Basingstoke: Palgrave Macmillan, 2012). 4. Juan Enrique Morales, “Evolucio´n de la Innovacio´n Tecnolo´gica y Desarrollo de Proyectos en Codelco”, paper presented at the 30 An˜os de la Nacionalizacio´n del Cobre, Santiago de Chile, 2001, 155– 80. 5. Herna´n Danu´s, Cro´nicas mineras de medio siglo, 1950 –2000 (Instituto de Ingenieros de Minas de Chile, and Corporacio´n Mineria y Cultura, Santiago de Chile: Ril Editores, 2007). 6. Osvaldo Urzu´a, “Emergence and Development of Knowledge-Intensive Mining Services (KIMS)”. Working Papers in Technology Governance and Economic Dynamics, 2012. 7. Jane Korinek, “Mineral Resource Trade in Chile” (OECD Trade Policy Papers, 1 March 2013). http://www.oecd-ilibrary.org/trade/mineral-resource-trade-inchile_5k4bw6twpf24-en. 8. Urzu´a, “Emergence and Development of Knowledge-Intensive Mining Services”. 9. Morales, “Evolucio´n de la innovacio´n tecnolo´gica y desarrollo de proyectos en Codelco”. 10. Jorge Beckel, “Una innovacio´n tecnolo´gica en la minerı´a cuprı´fera en Chile”, in Aglomeraciones mineras y desarrollo local en Ame´rica Latina, ed. Rudolf Buitelaar (Economia´ de Ame´rica Latina, Santiago de Chile and Bogota´, Colombia, CEPAL, Alfaomega, 2001).

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11. Jorge Katz, Jaime Ca´ceres and Kattia Ca´rdenas, Instituciones y tecnologı´a en el desarrollo evolutivo de la industria minera chilena (Serie Reformas Econo´micas 53, Naciones Unidas, CEPAL, 2000). 12. Juan Enrique Morales, “Innovacio´n tecnolo´gica en la Gran Minerı´a del cobre en Chile”, in La Gran Minerı´a En Chile (Santiago de Chile: Ocho Libros, 2014), 155 – 80. 13. INAPI Boletı´n. “Patentamiento en el cluster minerı´a del cobre: Ana´lisis de Presentaciones Realizadas En Chile”. INAPI, 2010. 14. Morales, “Evolucio´n” in note 4. 15. Domic Mihovilovic and Esteban Miguel, Hidrometalurgia: fundamentos, procesos y aplicaciones (Santiago de Chile, 2001). 16. Guajardo, “Mineral Rents”. 17. Daniel Lederman and William F. Maloney (eds), Natural Resources: Neither Curse Nor Destiny (Latin America Development Forum, 2007). 18. Comisio´n Chilena del Cobre, Desarrollo e innovacio´n tecnolo´gica minera en Ame´rica Latina: Estudio de casos (Cochilco, 2006). 19. Patricio Meller, La viga maestra y el sueldo de Chile: mirando el futuro con los ojos del cobre (Santiago de Chile: Universidad de Chile, Uqbar Editores, 2013). 20. Comisio´n Chilena del Cobre. 21. Fundacio´n Chile, Fuerza Laboral de La Gran Minerı´a Chilena. Diagno´sticos y recomendaciones: 2011– 2020 (Santiago de Chile, 2011). 22. Korinek, Mineral Resource. 23. Urzu´a, “Emergence”, note 6.

References Beckel, Jorge, “Una innovacio´n tecnolo´gica en la minerı´a cuprı´fera en Chile”, in Rudolf Buitelaar (ed.), Aglomeraciones mineras y desarrollo local en Ame´rica Latina (Santiago de Chile and Bogota´, Colombia: CEPAL, Alfaomega, 2001). Comisio´n Chilena del Cobre, Desarrollo e innovacio´n tecnolo´gica minera en Ame´rica Latina: Estudio de casos (Cochilco, 2006). Danu´s, Herna´n, Cro´nicas mineras de medio siglo, 1950– 2000 (Santiago de Chile: Instituto de Ingenieros de Minas de Chile, and Corporacio´n Mineria y Cultura, Ril Editores, 2007). Fundacio´n Chile, Fuerza Laboral de La Gran Minerı´a Chilena. Diagno´sticos y recomendaciones: 2011 – 2020 (Santiago de Chile, 2011). Guajardo, Juan Carlos, “La agenda minera en Chile: revisio´n y perspectivas” (Naciones Unidas, CEPAL, Div. de Recursos Naturales e Infraestructura, Santiago de Chile, 2007). http://www.cepal.org/drni/publicaciones/xml/7/28637/lcl2674e.pdf. ——— “Mineral Rents and Social Development in Chile”, in Mineral Rents and the Financing of Social Policy: Opportunities and Challenges (New York: Palgrave Macmillan, 2012). INAPI Boletı´n. “Patentamiento en el cluster minerı´a del cobre: Ana´lisis de Presentaciones Realizadas En Chile.” INAPI, 2010.

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Katz, Jorge, Jaime Ca´ceres and Kattia Ca´rdenas, Instituciones y tecnologı´a en el desarrollo evolutivo de la industria minera chilena (Serie Reformas Econo´micas 53, Naciones Unidas, CEPAL, 2000). Korinek, Jane, “Mineral Resource Trade in Chile” (OECD Trade Policy Papers, 1 March 2013). http://www.oecd-ilibrary.org/trade/mineral-resource-trade-inchile_5k4bw6twpf24-en. Lederman, Daniel and William F. Maloney (eds), Natural Resources: Neither Curse Nor Destiny (Palo Alto, CA: Latin America Development Forum, 2007). Meller, Patricio, La viga maestra y el sueldo de Chile: mirando el futuro con los ojos del cobre (Universidad de Chile: Uqbar Editores, 2013). Mihovilovic, Domic and Miguel Esteban, Hidrometalurgia: fundamentos, procesos y aplicaciones (Santiago de Chile, 2001). Morales, Juan Enrique, “Evolucio´n de la innovacio´n tecnolo´gica y desarrollo de proyectos en Codelco”, (paper presented at the 30 An˜os de la Nacionalizacio´n del Cobre, Santiago de Chile, 2001), 155 – 80. ——— “Innovacio´n tecnolo´gica en la Gran Minerı´a del cobre en Chile”, in La Gran Minerı´a En Chile (Santiago de Chile: Ocho Libros, 2014), 155 – 80. Urzu´a, Osvaldo, “Emergence and Development of Knowledge-Intensive Mining Services (KIMS)”, Working Papers in Technology Governance and Economic Dynamics, 2012.

FOOD SECURITY

CHAPTER 12 WATER RESOURCES AND AGRICULTURE IN ARAB COUNTRIES Faisal Awawdeh and Arash Nejatian

Introduction Arab countries cover an area that extends from the Atlantic Ocean (Morocco and Mauritania) in the west to the Arabian / Persian Gulf in the east. The Mediterranean Sea defines its northern boundary, and its southern boundary extends to the Arabia Sea and Horn of Africa. Map 1 below shows the Arab world boundaries.1 These countries are tied together as a region and share Arabic as a common language. While all of them use Arabic as the official language, some countries use other languages as well. These countries are all members of the League of Arab States, a regional organization formed in 1945. The region is inhabited by a population of 352 million who live on an area of 13,130,695 km2. In terms of size, Algeria is the largest country in Africa and the Arab world, with 18.2 per cent of total Arab land. Bahrain is the smallest Arab country with 758 km.2

Water in Arab Countries The Arab region covers the driest part of the world in which the gap between water availability and water demand is growing continuously.

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Map 12.1 The Arabic-speaking world: Arabic as the sole official language (in dark shade), and one of the several official languages (in light shade). Source: Keteracel, 2008.

Only 1 per cent of the world water resources are available in the Arab region. More than 87 per cent of the Arab land is desert with severe aridity and poor vegetation cover. Also the distribution of precipitation in Arab countries is not uniform. Out of an estimated precipitation of 2,148 mm per year in the entire Arab region, about 50 per cent of rainfall is in Sudan. The average annual precipitation in all Arab countries is about 156 mm, but it varies noticeably from one country to another, as well as within the countries themselves. Over 90 per cent of rainfall in the dry marginal rangelands is lost by evaporation. More than 50 per cent of the renewable water resources – estimated at 335 km3 per year – originate from outside the region via international rivers.3 The Cairo Declaration issued at the Second Arab Water Forum in 2011 revealed that 18 out of 22 Arab countries suffer from water scarcity, and that by 2050 the Arab region will face sharp water stress.4 Map 12.2 below compares the world total withdrawal of water as a percentage of total available water in different countries between 1995 and 2025.5 The Water Resources Vulnerability Index – also called the WTA ratio – is the ratio of total annual withdrawals to available water resources. Countries with annual withdrawals between 20 per cent and

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Population and areas of Arab countries

Country

Area (km2)

Pop

Algeria Bahrain Comoros Djibouti Egypt Iraq Jordan Kuwait Lebanon Libya Mauritania Morocco Oman Palestine Qatar Saudi Arabia Somalia Sudan Syria Tunisia United Arab Emirates Yemen Total

2,381,741 758 2,235 23,200 1,002,000 435,244 89,342 17,818 10,452 1,759,540 1,025,520 446,550 309,500 6,020 11,586 2,149,690 637,657 1,861,484 185,180 163,610 83,600 527,968 13,130,695

37,100,000 1,234,596 691,000 864,000 81,650,212 30,747,000 6,316,000 2,700,000 4,224,000 6,420,000 3,291,000 36,064,173 2,845,000 4,136,540 1,699,435 28,146,658 9,133,000 30,894,000 21,906,000 10,673,800 8,264,070 23,580,000 352,580,484

Source: UN 2013.

40 per cent of annual supplies are considered water scarce, and severely water scarce if withdrawals exceed 40 per cent.6 Based on the information presented in Map 12.2, it can be stated that most Arab countries are categorized as water scarce, and will be categorized as severely water scarce in 2025. This trend is likely to continue and the situation will be even worsened by 2050 due to several factors, including increased population, economic growth, urbanization, industrialization and expansion of irrigated agricultural lands. Furthermore, most of the potential water resources that have been developed are likely to diminish due to frequent droughts in conjunction with over-pumping of

Map 12.2

Global water stress 1995 – 2025. Source: Wolf 2008.

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groundwater from major aquifers. These factors have greatly reduced the availability of both renewable and non-renewable water resources. Conflicts over water resources are higher in Arab countries than anywhere else in the world, and limited co-operation among these countries on sharing water resources is also affecting their water safety. Several indicators have been developed in the past 20 years to measure quantitatively water scarcity or water shortage. There are many important facets to water use, supply, and scarcity that make the selection of indicators and criteria to assess water shortage not only difficult but also more related to policy considerations. However, the indicators related to human water requirements are still the most important indicators. Their logic is based on understanding of how much water is required per person to meet their demands. Water availability per capita can serve as a measurement of scarcity.7 The Falkenmark Indicator measures the fraction of total annual runoff available for human use.8 It is perhaps the most widely used indicator of water stress. Based on per capita usage, the water conditions in an area could be categorized as: no stress, stress, scarcity, or absolute scarcity. The Index’s thresholds of 1,700 m3 and 1,000 m3 per capita per year are used as the thresholds between water-stressed and scarce areas, respectively. Rates of water consumption per capita in Arab countries are the lowest in the world and continue to decline. Table 12.3 shows the total renewal water per capita in Arab countries. Out of 22 Arab countries 13 are categorized as absolute scarcity (,500). The average levels of available water resources per capita in Arab countries also show a downward trend. Based on population increase and other factors, this quantity is expected to drop to 350 m3 per capita by year 2050, if the total renewable water remains the same. There are 20 countries in the world with the lowest internal renewable fresh water Table 12.2

Water barrier differentiation proposed by Falkenmark (1989)

3

Index (m per capita)

Category/Condition

> 1,700 1,000 – 1,700 500– 1,000 < 500

No Stress Stress Scarcity Absolute Scarcity

Source: Falkenmark (1989).

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Table 12.3

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Total renewable water resources per capita (actual) (m3/capita)

Kuwait United Arab Emirates Qatar Yemen Saudi Arabia Bahrain Libya Jordan Occupied Palestinian Territory Algeria Djibouti Tunisia Oman Egypt Syrian Arab Republic Morocco Lebanon Sudan and South Sudan Somalia Comoros Iraq Mauritania Average

1992

1997

2002

2007

2012

10 74 119 159 140 223 155 246 370 439 505 539 689 971 1286 1129 1438 2315 2247 2609 4879 5408 1180

12 57 110 129 126 196 141 203 294 399 451 502 618 893 1131 1047 1252 2033 2166 2308 4143 4701 1041

10 46 93 112 112 181 129 188 249 371 392 477 608 817 990 985 1164 1801 1887 2024 3561 4071 921

8 28 49 96 94 125 116 165 225 344 358 454 547 745 870 935 1089 1598 1683 1767 3103 3548 816

7 19 31 85 85 88 109 148 202 324 331 434 492 694 809 899 1057 1445 1538 1592 2751 3219 744

Source: AQASTAT 2013.

supply, i.e. below the water stress threshold of 1,000 m3, out of which 15 are in the Arab world. The water demand of the increasing Arab population exceeds 200,000 m3 per year, of which about 60 per cent comes from renewable resources.9

Water and Climate Change in the Arab Region Like other regions in the world, the Arab region is subject to climate change, which produces negative effects, such as change in precipitation patterns, amount, and intensity, increase in temperature, and shortening

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of growing seasons. Frequent and more intensive droughts lead to reduction of crops. Historically, Arab countries sought to cope with harsh environmental threats such as desertification, biodiversity loss and pollution (marine, coastal and air), in addition to water quality and scarcity. Traditional threats and effects of climate change, which have been witnessed in recent years, are often interlinked. For instance, desertification leads to biodiversity loss; livestock increase and overgrazing lead to desertification; waste-dumping releases methane, which adds to global warming problems, which in turn lead to desertification, water scarcity, and many other ecological disasters.10 The effects of climate change place more pressure on available water resources. For example, the rise of sea level could affect 43 cities in the Arab world. This would result in the displacement of millions of people. According to the Climate Change Index (CCI) developed by Maplecroft, a British risk analysis consultancy, the Arab countries would be the most affected by global warming in the world.11 Many conferences and workshops have been conducted on climate change in the Arab region, in addition to a large number of research activities carried out by National Agricultural Research System (NARS) and International institutions. All these conferences and research came to the same conclusions and emphasized the importance of innovations, application of science and technology, establishing monitoring information systems, increasing investments in rainwater storage, and improving agricultural water productivity with a view to adaptation to the challenges posed by climate change. Developing a regional and integrated master plan for water usage in all sectors is very important. To do so, research and development activities are the main tools. In addition, an integrated information platform on water and climate related data should be developed, which would enhance regional and national capacities for coping with the negative effects of climate change. In the Arab world, the main water consumer sector is agriculture, which amounts to 83 per cent of total annual water use. In addition, due to low precipitation, low soil humidity and high temperature, irrigated agriculture is rapidly increasing where crop production depends more and more on irrigation using surface or groundwater resources. However, using other water resources such as marginal and treated wastewater has started in the region recently. While the irrigated areas in Arab countries are increasing, 80 per cent of agriculture in other parts of the world is rain fed, which provide about 60 per cent of the world food production.

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Using unconventional water resources such as desalination is another way to cope with water scarcity in the region. Gulf Cooperation Council (GCC) countries are highly dependent on desalination water, which is estimated at 30,000 m3/year. However, production of desalination water depends on proper access to seawater. For countries with limited or no access to seawater this presents more difficult problems. For instance, Jordan, which is considered as the poorest Arab country in water recourses, conducted a technical study to explore the possibilities of transferring water from the Red Sea to the Dead Sea, the world’s lowest area under sea level. Known as the Red-Dead Sea Project, it foresees desalinating about 600 million m3/year to serve the surrounding countries.12 On the other hand, the storage capacity of dams in the region is still low, even though 14 dams have proven to be crucial in protecting livelihood during drought periods. Table 12.4 shows the number of dams and their reservoir capacities in some Arab countries.13 Table 12.4 countries

Number of dams and their reservoir capacities in some Arab

Country Algeria Egypt Iraq Jordan Lebanon Libya Mauritania Morocco Oman Saudi Arabia Somalia Sudan Syria Tunisia United Arab Emirates Yemen Source: AQASTAT 2013.

Number of dams

Total dams reservoir capacity (million m3)

54 10 16 10 2 16 1 105 29 73

5,676 168,196 1518000 275 228 385 500 16,904 88 1,004

20 78 52 68 46

10,030 16,568 2,512 61 439

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Water Resources and Politics While water resources are vital to Arab countries, about 65 per cent of their surface water comes from outside their political borders.14 This is a very sensitive issue in their relations with neighbouring countries. Yet, shared water resources could be used as an instrument to promote political cooperation between Arab countries and their neighbours. However, fair and equitable allocation of water resources is a critical and challenging task. Some Arab countries are highly dependent upon rivers originated from outside their borders. The Tigris and Euphrates originate from Turkey and end in Iraq, and both pass through Syria. Without an agreement with Turkey, Iraq and Syria expect serious problems, which may lead to conflicts. Indeed, Syria and Iraq have serious concerns about the Turkish dam projects, such as Atatu¨rk dam on the Euphrates. A protocol has been signed between Turkey and Syria in 1988 whereby Syria obtained 500 m3 per second from Euphrates water. Two years later in 1990, Syria, Iraq and Turkey agreed that the quantity of Euphrates water originating from Turkey is to be shared 58 per cent and 42 per cent for Iraq and Syria, respectively.15 A similar situation exists between Egypt and Sudan and other African countries from which the Nile originates. Several agreements have been concluded between Egypt and countries sharing the Nile basin. An agreement has been concluded between Sudan and Egypt whereby the 84 billion m3 of Nile water that enters both countries would be divided one-third for Sudan and two-thirds for Egypt. Another example is an agreement concluded between Senegal and Mauritania to share the Senegal river.16

Arab Agriculture Agriculture is very important sector in any country in order to provide food for its people. In many developing countries, it has a significant contribution to gross domestic product (GDP). Agriculture is the sole source of income and livelihood for people in rural areas. It has a strong link to the environment and is susceptible to problems such as soil degradation, desertification, pollution and water scarcity. In Arab countries, agricultural is the main source of income and livelihood for people in rural areas. In 2011, out of 362 million,

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Table 12.5 Share of agriculture in gross domestic products in Arab countries (2011) Gross agriculture products

Gross domestic product

Share of agriculture in GDP %

162.1 309.9 83.7 2,853.9 821.9 686.0 12,843.5 843.9 40.3 314.2 7,528.7 2,124.0 16,110.6 3,800.8 558.9 4,332.9 32,656.6 13,392.0 23,853.9 820.0

171,476.1 160,939.4 29,157.5 338,690.0 69,971.9 36,688.4 669,506.7 28,881.0 1,237.7 7,480.0 163,034.4 40,094.0 198,769.1 46,430.8 4,063.7 31,407.4 235,463.8 93,574.2 69,960.1 1,300.0

0.1 0.2 0.3 0.8 1.2 1.9 1.9 2.9 3.3 4.2 4.6 5.3 8.1 8.2 13.8 13.8 13.9 14.3 34.1 63.1

Qatar Kuwait Bahrain Emirates Oman Libya Saudi Arabia Jordan Djibouti Palestine Iraq Lebanon Algeria Tunisia Mauritania Yemen Egypt Morocco Sudan Somalia Source: AOAD 2012.

155 million, or about 43 per cent, lived in rural areas. Yet, agriculture has an insufficient contribution to GDPs. The average percentage share of agriculture to GDP for all Arab countries was 9.8 per cent. This varies from one country to another and ranged from less than 0.5 per cent in Qatar, Kuwait, and Bahrain, to 63.1 per cent in Somalia. Table 12.5 above shows the gross agriculture product, gross domestic product and the share of agriculture in GDP for Arab countries in 2011.17 Agriculture provides employment to a large number of the labour force. The size of agricultural labour has increased from 28.4 million in 2003 to 125.4 million in 2011.18 However, the percentage of agricultural

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labour, in comparison with total labour force decreased from 32 per cent to 28 per cent during the same period. The percentage remains quite high in some countries such as Yemen where 50 per cent of the labour force works in agriculture. In addition, the annual share of agriculture sector per capita is estimated at $373 in 2011, which is very close to the global figure of $394. Based on the agriculture share per capita, Arab countries can be divided into three groups: .

. .

High domestic rate ($389) that includes Egypt, Sudan, Syria, Algeria, Morocco, Lebanon, Saudi Arabia, Oman, UAE, Tunisia, Libya and Iraq. Medium rate ($119) that includes Mauritania, Yemen, Jordan, Palestine, Bahrain and Somalia. Low rate ($46) that includes Djibouti, Qatar, Kuwait.

Agricultural lands consist of arable land cultivated with annual crops, and land not planted for several reasons. Annual crops represent about 67 per cent of total agricultural lands, estimated at 68.9 million hectares. This amounts to about 5 per cent of total Arab lands. This figure is about half of the global percentage (11.8 per cent). The percentage of cultivated land differs from one Arab country to another. For instance, the percentage is about 25 per cent in Tunisia, Syria and Lebanon, whereas it ranges between 3 to 16 per cent in Morocco, Palestine and Sudan, and is less than 3 per cent for the rest of Arab countries.19 Irrigated agriculture land makes up about 16 per cent of total agriculture land, which is close to the global (17 per cent). While this percentage in some countries such as GCC countries is almost 100 per cent, it is less than 10 per cent in Sudan and Libya. Rangeland amounts to 35 per cent of total Arab land, which is higher than the rest of the world (26.1 per cent). About 95.6 per cent of Arab rangeland is located in nine countries; namely Saudi Arabia, Iraq, Somalia, Sudan, Syria, Mauritania, Morocco, Tunisia, and Algeria. Forests are limited and cover only 6.8 per cent of total Arab land. The majority of forests (83 per cent) are located in Sudan, Somalia and Morocco.20 The Arab world population is estimated at 352 million. In 2012, the rate of population growth in Arab world is estimated at 2.06 per cent, almost twice the global average rate of 1.11 per cent.21 The rapid

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population increase places pressure on the limited agriculture resources and poses serious challenges to Arab governments. Moreover, the low return from agriculture, water scarcity, and lack of job opportunities, low income, and weakness of public services drive many farmers to abandon rural areas and migrate to cities in search of employment.

Livestock In spite the importance of livestock for the rural population, it has failed to achieve sustainable returns in most Arab countries due to insufficient access to water and poor grazing management. These constraints are magnified when policy makers do not sufficiently recognize the importance of livestock for rural development through enhancing the livelihood of the rural poor, or providing support with appropriate polices and incentives. In 2011, the total reported number of livestock in Arab countries was 336,684,100, of which sheep and goats represented about 78 per cent. Sudan has the largest number of livestock with about 27 per cent of the Arab total. In 2011, meat production in Arab countries reached 8,351,920 tons, of which the red and white meat represented 57 per cent and 43 per cent, respectively. Sudan, Somalia and Saudi Arabia are the leading red meat producers in the region. Sudan’s share of the total red meat production of all Arab countries amounted to 36 per cent. With respect of animal genetic resources, Arab farm animal resources combined report 38 sheep breeds, 54 goat breeds, and 38 of camel breeds, most of which are adapted with dry environmental conditions. Table 12.6 Type Cattle Buffaloes Sheep Goats Camels

Number of live animals in Arab countries (1,000 animals) 2011

2010

2009

Average during 2004 –8

52,586.58 4,292.51 174,139.85 88,126.95 17,538.18

64,218.94 4,120.08 180,566.61 100,004.81 17,250.49

63,640.97 4,131.01 179,738.50 99,216.02 17,117.60

62,186.18 4,249.92 180,043.51 113,531.42 15,309.94

Source: AOAD 2012.

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Total number of goats and sheep (1,000 head) by each country

Sudan Algeria Morocco Somalia Syria Yemen Mauritania Saudi Arabia Iraq Libya Egypt Tunisia Emirates Jordan Oman Djibouti Palestine Lebanon Kuwait Qatar Bahrain Total

2011

2010

2009

Average 2004 –8

69,945.0 28,400.4 23,934.0 23,750.0 20,365.3 18,465.0 14,450.0 13,478.0 9,748.0 9,700.0 9,623.0 8,280.7 3,400.0 3,016.8 2,149.9 980.0 786.6 655.0 648.7 431.4 59.0 262,266.8

95,520.0 26,956.1 23,444.3 23,500.0 17,567.6 18,222.0 14,360.0 12,149.0 9,464.0 9,700.0 9,698.0 8,530.0 2,984.0 2,927.4 2,107.7 978.0 832.4 669.2 517.4 385.4 59.0 280,571.4

94,825.0 25,366.7 22,376.7 23,160.0 19,844.0 17,970.0 13,810.9 12,904.0 9,197.0 9,300.0 9,731.0 8,816.3 2,944.0 2,990.7 2,066.4 978.0 950.0 780.0 517.4 365.5 61.0 278,954.5

92,863.6 23,060.7 22,333.4 41,061.8 21,536.9 16,473.4 14,190.6 16,924.2 7,996.8 8,400.0 9,074.4 8,789.5 2,555.6 2,609.7 1,960.1 978.1 1,084.7 792.7 535.6 289.4 63.6 293,574.9

Source: AOAD 2012.

Table 12.8

Animal production (1,000 MT) in Arab countries 2011

2010

2009

Average 2004 – 8

8,351.92 4,780.25 3,571.67 27,757.01 1,629.92 3,911.13

8,094.00 4,843.81 3,250.19 26,608.56 1,560.14 4,136.14

7,875.80 4,842.21 3,033.59 25,694.88 1,423.42 3,916.21

7,147.27 4,345.53 2,801.74 24,270.72 1,385.10 3,625.30

Type Total meat Red meat White meat Milk Eggs Fish

Source: AOAD 2012.

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In addition, there are 22 breeds of cattle, 9 breeds of horses, and 3 breeds of buffalo.22 Regardless of this large number of genetic resources in Arab countries, the animal productivity of meat and milk is considered sub-average or low. This low productivity is caused mainly by the deterioration of rangeland, shortages of feedstuff, lack of extension and veterinarian services, as well as weakness of technology adaptation and breeding programmes. Most of dairy production comes from foreign breeds raised in modern farms.

Fisheries Egypt and Algeria are the largest fish producers in the Arab region, producing 288,460 tons and 229,100 tons in 2011, respectively. In spite of the fact that Mauritania has thousands of kilometres of seashore, it produced less than 3000 tons per year. Fishery is an essential sector in some Arab countries like Morocco, Mauritania and Yemen where it contributes to the national economy. However, most fisheries use traditional methods and on a small scale. The potential of this sector is not yet fully realized. Most of the production depends on seas and rivers while there is a huge potential for fish farming. The current fish production of Arab countries could significantly increase by about one million tons above 2011 level with additional investment.23

Water Resources, Agriculture and Food Security The interplay of water resources and agriculture with food security in the Arab world is a complex issue that presents unique challenges to governments and people of the region. Globally, water used for agriculture and food production is one of the greatest pressures placed on fresh water resources where the agriculture sector accounts for an average 70 per cent of water use.24

Water Resources In the Arab region, agriculture is placing significant pressure on water resources. With increased population and industries, part of future fresh water used in agriculture at the moment will be directed to competing priorities such as drinking, and domestic and industrial uses. While the

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Table 12.9 Animal production (1,000 MT) in Arab countries during 2011 Red Meat Algeria Bahrain Djibouti Egypt Emirates Iraq Jordan Kuwait Lebanon Libya Mauritania Morocco Oman Palestine Qatar Saudi Arabia Somalia Sudan Syria Tunisia Yemen

7.8 0.7 36.4 0.6 1.5 0.4 0.5 5.1 23.5 2.6 0.7 0.0 0.9 44.0 96.6 131.9 1.2 7.7 2.6

Poultry

Milk

Egg

Fish

267.4 18.4 9.0 808.7 6.7 65.1 35.3 43.8 25.6 167.8 232.6 349.6 11.0 23.2 3.7 106.2 198.6 1,930.2 259.1 121.2 97.3

597.7 24.7 9.0 1,635.7 85.5 121.1 292.1 82.8 156.6 291.3 237.1 939.6 53.1 74.4 15.9 635.2 202.1 1,970.2 438.1 241.2 248.7

3,165.7 9.7

229.1 3.0

5,799.0 125.4 287.4 283.4 59.5 210.0 310.0 391.5 2,500.0 75.9 320.3 37.8 1,678.2 1,053.9 7,522.7 2,558.1 1,088.1 280.4

288.5 26.1 48.5 43.1 22.0 47.0 62.5 2.7 255.0 10.7 25.2 4.0 199.8 2.4 38.0 171.9 90.8 59.8

Source: AOAD 2012.

potential of generating new water resources in the region is either limited or costly, the best management approach would be to produce more with less water, i.e. increase water use efficiency and productivity. Therefore, innovative technologies with improved water productivity should be adopted widely in the Arab region. The application of the state-of-the-art science and technology is essential to enhance tolerance to biotic and abiotic stress. More research and development are needed especially for disciplines such as crops calendar modifications, more efficient water use practices, new crops cultivations with better adoption to the regional environment, and increased productivity of saline soils and saline waters. Policies should also move toward addressing the region’s needs, adopting approaches for integrated water resources

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management, and establishing better coordination among different sectors. These include allocating subsidies to water-use efficient crops, and to technologies with highest water productivity. Considering the scarce water resources in Arab countries, cooperation between the Arab countries themselves and with their neighbours in the region is crucial in order to face water scarcity. Arab countries need to explore how to promote more co-operation and integration of their water policies, and how to exchange benefits through dialogue and negotiation. They also need to develop new mechanisms for conflict resolution with each other and with their neighbours. Therefore, the establishment of an Arab Water Conflict Resolution Facility under the umbrella of the Arab Water Council should be considered. Civil society and non-governmental organizations could play an important role in bringing parties together to bridge the political and technical gaps, help avoid conflicts, and serve as platforms for dialogue among stakeholders. Arab countries and their neighbours in the region need to work on developing a regional legal framework and strategies that cover a fair water sharing, based on a joint vision of development, including a framework for preapproval of new waterrelated projects for common water resources. The following are some recommendations: .

.

.

.

Ensure the financial sustainability of the water sector through policies adapted with the specific aim of enhancing public and private partnership and cost recovery of investment. As the region becomes more dependent on non-conventional water resources, a practical management solution for utilizing rainwater harvesting, groundwater recharge, conjunctive use, and demand management should be expanded. Development of low-cost energy consumption technology for treated wastewater and desalination is very important. Priority should be given to the use of renewable energy resources such as solar energy as the sunny days could exceed 300 days per year in most countries of the region. Although Arab countries in general do relatively well with respect to access to clean water and sanitation, they need more investment in water in line with the Millennium Development Goal (MDG) target on water.

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With a view to improving water governance and close the gaps in institutional and human capacity, non-revenue water, cost-recovery, master-planning and public awareness, and countries should scale up their sector reform.

Agriculture There are huge technology gaps in Arab agriculture. Traditional agricultural methods and practices are still dominant, especially in the rain-fed areas and livestock management. This requires some drastic changes, including the following: .

.

.

.

Mechanization: the number of tractors is estimated at 9/1,000 hectares while the global figure is 20, which means using machines in agriculture needs to be enhanced. Fertilizer application: most fertilizers are used for soils under irrigation. Egypt, Jordan and Oman are the highest countries in fertilizer use with 367, 559, and 315 kg/hectare, respectively, while it is 7 kg/hectare in Sudan, Qatar and Somalia. The average fertilizer usage in Arab countries is 35.3 kg/hectare, while the global average is 94 kg/hectare. Modern irrigation systems: areas using modern irrigation systems are increasing in the Arab region over time. For instance, in 2009, it was 4.2 million hectares and reached 4.7 million hectares in 2011. One explanation for this expansion is the sacristy of water in the region. Using advance irrigation systems varies between countries. For example 35.3 per cent of Egyptian agricultural land use modern irrigation, while it is only 1.5 per cent in Lebanon. Improved seeds: there are significant shortages in improved seed production. Arab countries produce 23 per cent of their needs (wheat, barley, sorghum, millet, corn, and rice), estimated at 2,726 tons/per year. Arab countries import only 2.9 per cent of their needs, which means that about 77 per cent of the planted seeds are conventional. The shortage is much bigger in the oil seeds. Arab countries produce only 7 per cent of 140 tons they plant, and import 2.5 per cent. The rest is unimproved seeds. The same problem is with legumes. The mass of improved potatoes tuber needed for planting is approximately 700 tons/year, of which about 50 per cent is imported.

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Agricultural patterns: cereals comprise 51 per cent of the total planted area in the Arab region (68.5 million hectares), followed by oil crops (10.6 per cent), fruits (5.8 per cent), and vegetables and forage of about 3.6 per cent each. Agriculture research: research work and extension in the Arab world is not sufficiently capable to serve and develop the agriculture sector. Only a few Arab countries have agricultural research centres. The problem is that countries that have good infrastructure and qualified people lack funding to support agricultural research. In general, budget allocations for research in Arab countries are very low. Morocco allocates 0.81 per cent of its agricultural income to support research, while Yemen allocates only 0.2 per cent. These are much lower percentages than the World Bank recommendation of 2 per cent. Research on agricultural productivity is also very important to address the effect of climate change.

Food Security Although food production has continued to rise in recent years in Arab countries, food security still faces great challenges. These challenges include population growth, water scarcity, climate changes, low rain, lack of proper technology and the difficulty of adaptation to new technology, improper agricultural policy, high loss of post-harvest crops, degradation in rangeland productivity, failure of an Arabian food security strategy, and the continuous increase in global commodity market prices and, in some countries at least, weakness of the system of food distribution. Several Arab countries have reached their limit in terms of available water resources, and unconstrained water supplies are no longer viable options. Added to that the lack of direct control over climate change. In spite of Arab governments’ plans to fight hunger, the number of people suffering from malnutrition has grown from 13 million in the early 1990s to about 25 million in 2012. This trend is likely to continue as the region’s population is projected to increase to 621 million by 2050.25 Agriculture is increasingly becoming unable to meet the demand levels, thus leading to increased food imports resulting in elevated deficits in agricultural products trade, which has increased the challenges for food security. This situation is likely to worsen as climate change is expected to cause a decline in agricultural production by about 25 per cent globally.26

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Food security in Arab countries is essential for political, social and economic stability, which is strongly connected to water security.27 Food production within the region should be balanced with food imports to enhance food security. Agriculture will carry a very important task regarding food security in the Arab region. At the moment, agriculture is a major component of most Arab economies and has a significant impact on employment, especially in rural areas where the livelihood of low socio-economic classes is at stake. Ensuring food security and safety plays a major role in supporting development in the Arab region. Therefore, it is vital to design policies and programmes to enhance food security and ensure political and social stability. These policies should focus on three main strategies: .

. .

First, increase of local agriculture production, reduction of losses in value chain, and enhancement of distribution and food storage capacity in the region. Second, ensure stability of food prices with secure food supply in a price-controlled environment. And third, increase investments in agriculture outside the region. A regional strategy for self-sufficiency in certain food products in some Arab countries with comparative advantage is an option that should be considered. This is particularly important for GCC countries where platforms for public/private sector partnerships in food production have been developed. Some GCC investments have taken place in Arab countries with better land and water, such as Sudan and Egypt, and on a much smaller scale in some Latin American countries. Investment in agriculture is a strategic public policy priority, in conjunction with water security and energy strategies.

Notes 1. Keteracel, Arabic Speaking World, 5 27, 2008. http://en.wikipedia.org/wiki/ File:Arabic_speaking_world.svg#file. 2. UN, Statistical Yearbook 2011, United Nations Statistical Yearbook – Fifty-sixth Issue (United Nations, 2013). 3. State of Water Report in Arab Region (Arab Water Council, 2004). 4. 2nd Arab Water Forum, “Living with Water Scarcity; Cairo Declaration”. Final Forum Report, SYNTHESIS REPORT (Arab Water Council, 2011), i– ii.

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5. Aaron Wolf, Vital Water Graphics (Kenya: United Nations Environment Programme, 2008). 6. Amber Brown and Marty D. Matlock. A Review of Water Scarcity Indices and Methodologies (Fayetteville: University of Arkansas, The Sustainability Consortium, 2011). 7. Frank R. Rijsberman, “Water Scarcity: Fact or Fiction?” Agricultural Water Management 80, 2006, 5 –22. 8. Falkenmark, “The Massive Water Scarcity Threatening Africa – Why isn’t it being Addressed.” Ambio 18, no. 2 (1989), 112– 18. 9. Abu-Zaid, Khalid, Ahmed Wagdy, Omar Elbadawy, and Amr Abdel-Meguid, State of Water Report in the Arab Region (Egypt: Arab Water Council & CEDARE, 2004). 10. Mohamed Abdel Raouf Abdel Hamid, Climate Change in the Arab World: Threats and Responses (Washington, DC: The Henry L. Stimson Center, 2009). 11. Ibid. 12. MDCI, The Med-Dead Sea Project Frequently Asked Questions; Palmachim – Kayla Route of the Med-Dead Project. http://meddead.org/MD-FAQ.html. 13. AQASTAT. AQUASTAT Data Base, 2013. http://www.fao.org/nr/water/aquas tat/ dbases/index.stm. 14. UNESCO. UN Water World Day, 2013. www.unwater.org/water-cooperation2013/water-cooperation/facts-and-figures/. 15. Karen Frenken, Irrigation in the Middle East; region in figures – AQUASTAT Survey 2008 (Rome: FAO, 2009). 16. Olivier Hamerlynck, and Ste´phanie Duvail, The rehabilitation of the delta of the Senegal River in Mauritania (Switzerland and UK: IUCN, Gland and Cambridge, 2003). 17. AOAD, Arab Agricultural Statistical Year Book – Vol. 32. Khartoum: Arab Organization for Agricultural Development (AOAD), 2012. 18. Ibid., 2006. 19. Ibid., 2012. 20. Hedi Hadr, and Mustapha Guellouz, Forests and Rangelands in the Near East Region; Facts and Figures (Cairo: FAO office for the Near East, 2011). 21. WB, The World Bank Data: Population growth (annual %), 2012. http://data. worldbank.org/indicator/SP.POP.GROW. 22. ACSAD, The State of Arab Animal Genetic Resources for Food and Agriculture (The Arab Center for the the Studies of Arid Zones and Dry Lands, 2003). 23. Izzat H. Feidi, Fisheries Sector And Prospectives Of Development In The Region (Hammamet, Tunisia: Center For Marketing, Information & Advisory Services For Fishery Products In The Arab Region, 2013). 24. WWAP, Facts and Figure, Managing Water under Uncertainty and Risk (Rome: United Nations World Water Assessment Programme, 2012). 25. UNDP, Arab Human Development Report: Challenges to Human Security in the Arab Countries (New York: United Nations Development Program, 2009).

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26. W. Cline, Global Warming and Agriculture: Impact Estimates by Country (Washington DC: Center for Global Development and Peterson Institute for International Economics, 2007). 27. 2nd Arab Water Forum, “Living with Water Scarcity; Cairo Declaration.” Final Forum Report, Synthesis Report (Cairo: Arab Water Councile, 2011), i– ii.

References 2nd Arab Water Forum, “Living with Water Scarcity; Cairo Declaration.” Final Forum Report, SYNTHESIS REPORT (Cairo: Arab Water Councile, 2011), i–ii. Abu-Zaid, Khalid, Ahmed Wagdy, Omar Elbadawy, and Amr Abdel-Meguid (eds), State of Water Report in the Arab Region (Egypt: Arab Water Councile & CEDARE, 2004). ACSAD, The State of Arab Animal Genetic Resources for Food and Agriculture (The Arab Center for the the Studies of Arid Zones and Dry Lands, 2003). AOAD, Arab Agricultural Statistical Year Book – Vol 26 (Khartoum: Arab Organization for Agricultural Development (AOAD), 2006). ——— Arab Agricultural Statistical Year Book – Vol 32 (Khartoum: Arab Organization for Agricultural Development (AOAD), 2012). AQASTAT, AQUASTAT Database. 2013. http://www.fao.org/nr/water/aquastat/ dbases/index.stm. Arab Water Council, State of Water Report in Arab Region (Cairo: Arab Water Council, 2004). Brown, Amber, and Marty D. Matlock, A Review of Water Scarcity Indices and Methodologies (Fayetteville: University of Arkansas, The Sustainability Consortium, 2011). Cline, W., Global Warming and Agriculture: Impact Estimates by Country (Washington DC: Center for Global Development and Peterson Institute for International Economics, 2007). Falkenmark, M., “The Massive Water Scarcity Threatening Africa – Why isn’t it being Addressed”, Ambio 18, no. 2 (1989), 112– 18. Feidi, Izzat H., Fisheries Sector And Prospectives Of Development In The Region (Hammamet, Tunisia: Center For Marketing, Information & Advisory Services For Fishery Products In The Arab Region, 2013). Frenken, Karen, Irrigation in the Middle East; region in figures – AQUASTAT Survey 2008 (Rome: FAO, 2009). Hadr, Hedi and Mustapha Guellouz, Forests and Rangelands in the Near East Region: Facts and Figures (Cairo: FAO office for the Near East, 2011). Hamerlynck, Olivier, and Ste´phanie Duvail, The Rehabilitation of the Delta of the Senegal River in Mauritania (Switzerland and UK: IUCN, Gland and Cambridge, 2003). Hamid, Mohamed Abdel Raouf Abdel, Climate Change in the Arab World: Threats and Responses (Washington, DC: The Henry L. Stimson Center, 2009). MDCI, The Med-Dead Sea Project Frequently Asked Questions; Palmachim – Kayla Route of the Med-Dead Project, http://meddead.org/MD-FAQ.html. Rijsberman, Frank R., “Water Scarcity: Fact or Fiction?” Agricultural Water Management 80, 2006, 5 – 22.

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UN, Statistical Yearbook 2011, United Nations Statistical Yearbook – Fifty-sixth Issue (United Nations, 2013). UNDP, Arab Human Development Report; Challenges to Human Security in the Arab Countries (New York: United Nation Development Program, 2009). UNESCO, UN Water World Day, 2013. www.unwater.org/water-cooperation2013/water-cooperation/facts-and-figures/. Wolf, Aaron, Vital Water Graphics, 2nd Edn (Kenya: United Nations Environment Programme, 2008). World Bank, The World Bank Data: Population growth (annual %), 2012. http://data. worldbank.org/indicator/SP.POP.GROW. WWAP, Facts and Figure, Managing Water under Uncertainty and Risk (Rome: United Nations World Water Assessment Programme, 2012).

CHAPTER 13 BRAZILIAN—ARAB COOPERATION IN FOOD PRODUCTION Ce´sar Borges de Sousa

Introduction After a period of expansion at the beginning of this millennium, the world economy was impacted by two successive crises, the effects of which are still being felt today. The first was the sub-prime mortgage crisis, which broke out in the United States in 2008, causing a global impact. The crisis affected several European Union countries and created large imbalances of public finance. The impact was felt in Greece and spread soon to Portugal, Spain and, to a lesser extent, Italy. As a result, the world is experiencing a generalized economic downturn and outright recession in several countries. The second crisis was substantial increase of global commodities prices. The right to food was enshrined some 60 years ago in the United Nations Declaration of Human Rights. The UN Food and Agriculture Organization (FAO) estimates that 800 million people worldwide suffer from hunger. The largest increase of food prices affected the urban poor, women and children. Poor urban families spend up to 80 per cent of their income on food, which makes them especially vulnerable when food prices increase or when their income decreases.

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Global food prices dropped 75 per cent in real terms between 1974 and 2005. However, this situation underwent rapid reversal in a short period of time. According to FAO, the lower income countries spent $169 billion on food imports in 2008, 40 per cent more than the previous year, and more than four times since 2002. Overall global spending on food in 2008 was $215 billion, an increase of 26 per cent over 2007. This situation had led to increased hunger worldwide. According to UN agencies dealing with agriculture, the current situation is the worst and the most critical in more than half a century. Food prices should remain high due to increased global demand and the need to replenish stocks. The United States, the world’s largest food producer, has shown significant shortfalls in production in the last few years. Therefore, FAO and all other development institutions such as the World Bank are calling for increased investment in agriculture. Access to nutritive food is an essential dimension of food security. In Africa and Asia, urban families spend up to 50 per cent of their food budget on cheap processed food products, which frequently lack the vitamins and nutrients essential for health. Lack of vitamin A, for example, which causes blindness, is more severe among the inhabitants of poor districts in Dhaka than in poor rural communities elsewhere in the country. Fruits and vegetables are the largest natural sources of micronutrients, but in developing countries daily consumption of fruits and vegetables stands at only 20 per cent to 50 per cent of the levels recommended by the FAO and the World Health Organization (WHO). Cheap urban meals rich in fats and sugars, are also responsible for the increase in obesity and excess weight. Chronic diet-related diseases, such as diabetes, are a growing problem, principally in urban areas.

Brazil’s Global Position in Agriculture According to the 2009 UN World Water Assessment Report, Brazil has more than 8,000 billion cubic kilometres of renewable water per year, much more than any other country in the world. Brazil alone, with a population of 192 million, has as much renewable water as the entire continent of Asia with a population of 4 billion. Aside from the

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Amazon region, Brazil has the largest body of fluvial water in the world. For example, the state of Piauı´, which is one of the driest regions in Brazil, has one-third more water than the entire US corn-belt. Evidently, having renewable water and arable land in different parts of the country is not very helpful. This is the problem in most of Africa. Brazil has almost as much land receiving more than 975 millimetres of rain per year as entire Africa, and more than a quarter of all this type of land in the world. The relative resilience of the Brazilian economy is the result of a combination of factors. Particularly worthy of note are the continental dimensions of the country, which is the world’s fifth largest, and its immense domestic market. Brazil also has a highly complex and diversified industrial structure and abundant natural resources: vast extensions of land, a great deal of water, as well as the world’s biggest mineral deposits. The strength of the Brazilian economy rests on the potential of its agriculture and agro-business industry. Brazil has demonstrated great competence in exploiting its competitive advantages in this field, starting with a climate offering elevated levels of solar luminosity, enabling the cultivation of up to five grain-crops in a two-year period. Capitalizing on these advantages, Brazil is currently the largest global meat producer and exporter, and the leader in the production and international supply of soybeans, sugar, coffee, orange juice, tobacco and cane-based ethanol. In addition, it holds global ranking positions in the production of soybeans, corn, cotton, paper and cellulose, and fruits, among other products.

Technological Advances in Brazilian Agriculture In recent years, Brazilian food supplies are becoming more abundant and competitive due to the technological advances achieved by its agricultural producers. There was a significant leap forward in the second half of the 1960s with the conquest of the Cerrado region, a dry arid region previously considered inappropriate for agriculture. Norman Borlaug, a renowned American plant scientist, who is frequently called the father of the Green Revolution, was quoted in the New York Times that “nobody thought that one day those lands might be productive”. They seemed to be excessively acid and poor in nutrients.

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Direct Seeding Brazilian agricultural producers pioneered the direct seeding system in which the land is not ploughed and the crop is not harvested at ground level. The crop is cut at the top of the stalk and the rest of the plant is left to rot and form a carpet of organic material. The following year’s crop is then sown directly into this carpet, thus retaining more nutrients in the soil. The areas using direct planting in Brazil increased rapidly from one million hectares in 1990– 1 to 17 million hectares in 2000– 1, and to more than 30 million hectares today. Currently, almost 75 per cent of the cultivated land uses direct planting. One of the main drivers for this expansion is the overall benefit the system provides for the soil and its positive chain reactions. This system minimizes soil degradation by erosion, leaching of fertilizers and silting up of water sources. At the same time, it helps preserve flora and fauna, while reducing production costs and boosting agricultural yields. Direct seeding not only helped boost Brazil to the status of an agricultural “superpower”, but also brought many benefits in terms of sustainability, through improvement and reduction of soil erosion, increased biodiversity, reduced energy consumption and higher yields. More recently, the contribution that direct planting has made to combating climate change has become evident, because the soil retains carbon as organic material and, since less equipment passes on the fields, much less fuel is consumed. Agricultural Mechanization The transformation that occurred in Brazilian agriculture was the result of heavy investment in overseas training for human resources, which enabled extensive innovations in mechanized agriculture. According to the Brazilian Automotive Industry Association (Anfavea), the infrastructure for the production of agricultural machinery and equipment is sufficient to support a high level of agricultural mechanization. This has also enabled a reduction in the ratio of tractors, sowing machines, harvesters and other equipment per area (hectare). Thanks to government support policies, agricultural producers have invested heavily in new machinery, increasing production potential in certain regions. An immediate result of these policies, harvesting technology initiatives have led to significant expansion in soy, corn, rice, coffee, and sugarcane crops since the end of the 1990s, particularly in the

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southern and central-west regions, reaching rates close to 1,193 hectares per equipment. The conventional soil preparation system for large areas and dry soils in the fall season (August/September and the beginning of October) is not sufficient to meet soil management requirements due to deficiencies in operating capacity and the limited power of machinery. The parallel mechanization system, using a tractor and a large quantity of implements (disc plough, heavy grader blade, disc grader and offset grader etc.) was substituted by one mechanization system that uses increased power and weight with the use of only one implement – the direct seeding kit – for the simultaneous cutting of crop residues, reduced preparation of the planting area and sowing. The use of this technology has enabled the adjustment necessary in the calendar of producers’ activities, thus permitting them to plant at the right time, with the right quality and improved levels of organic material in the soil. Therefore, the development of an efficient soil management and conservation system in Brazil’s tropical agriculture, allied with a new concept in agricultural machinery and equipment, gave rise to the use of the direct seeding system, which is environmentally correct, socially fair and economically rational. A new cycle in tropical agriculture permitted optimization of the use of agricultural areas aligned with the demand for adequate mechanization in the south, southeast and central-west regions, particularly in the Cerrado region. This has led to establishing an appropriate link between the agricultural equipment industry and producers’ requirements. This also stimulated the development of new machinery for large-scale operations, driving the expansion of the agricultural frontier in the Cerrado region. From this point on, direct seeding technology was adopted extensively, promoting conservation of natural resources and helping to adjust the agricultural operational calendar to the irregular rainfall distribution in the region. Agriculture in Brazil’s central-west region, with extensive flat areas is most suitable for the use of high technology agricultural mechanization systems, particularly in precision agriculture. Precision agriculture is the result of the recent incorporation of a number of improvements in agricultural projects involving machinery equipped with sensors, remote sensing and image-processing technologies (at ground level, aerial or via

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satellite) to facilitate production management. Precision agriculture technology enables the organization and maintenance of a data bank incorporating the spatial and temporal variability in crops, which is important for developing techniques aimed at the rational use of natural resources and agricultural inputs.

Agricultural Integration More recently, Brazilian agricultural producers started investing in a groundbreaking new technology: the integration of forestry, crops and livestock, thus promoting the symbiotic fusion of these three production systems. Some 90 million hectares of degraded pastureland may be incorporated into agricultural production, resulting in higher supplies of cheaper food and surpluses for export. In parallel, the federal government has shown increased interest in supporting agriculture and livestock production, in its latest Crop Plan announced in June 2013. For example, the Plan increased the ceiling of lines of finance for forestry, crop and livestock integration from R$ 1 million to R$ 3 million. The Plan also created new lines of finance of total R$ 25 billion for private sector investments in storage facilities over a five-year period. Innovative Research Brazilian agriculture and livestock breeding receives technological support from Embrapa (Empresa Brasileira de Pesquisa Agropecua´ria), the largest agricultural and livestock research centre in the tropics. Embrapa’s contribution to the development of Brazilian agriculture may be measured by the gains in agricultural productivity in recent decades. In 1973, the planted area was 24 million hectares and grain production totaled 35 million metric tons. In 2012– 13, the planted area was 53.2 million hectares and production reached 184.1 million metric tons. In other words, during this period, productivity grew by 147 per cent, soaring from 1.4 metric ton/hectare to 2.8 metric ton/hectare. A large part of this growth in production is due to innovative technologies developed by Brazilian researchers. Among these technologies are innovative practices, such as biological nitrogen fixation in soybeans, biological pest control, and genetic improvement of plants and animals. This research has enabled Brazil to increase agricultural productivity with innovations adapted to specific climates and soils in different

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regions. Consequently, Brazil has managed to boost production without significant growth of planted areas.

Grains Production Agribusiness development in Brazil accompanied the growth of grain production, which was initiated on a large scale from the mid-1960s. Before that, Brazilian agricultural was essentially centered on coffee and sugar. Little attention was paid to using Brazil’s immense land mass for grain production. The production of staple foods, such as corn, rice and beans was conducted at subsistence level, and the few surpluses in the market were insufficient to form a strong agribusiness chain along the lines common today. Initially based on the expansion of the planted area, mainly in border regions starting from the 1990s, competitive growth in production began to depend increasingly on the adoption of new production process technologies. The remarkable growth in grain production, particularly soybeans was the mainstay behind the transformation of Brazilian agribusiness, and its dynamic effects were soon felt throughout the economy. Initially, an immense industrial park grew up around the extraction of oil and bran from soybeans and other grains. The availability of large quantities of soybeans and corn bran enabled the development of sophisticated, modern infrastructure for swine, poultry and dairy production, as well as the installation of large breeding and industrial operations. This was accompanied by the emergence of an efficient supply system for modern inputs (fertilizers, crop defence products, agricultural machinery etc.), and a distribution network ranging from large supermarket chains to small local retailers. Brazil was also able to expand production and cultivable areas in regions that were previously not deemed viable thanks to the use of new technologies in whose development Embrapa played a crucial role. An example of this development is Brazil’s central region, known as the Cerrado (Savanna), which was previously covered by vegetation, and is now the largest grain-producing region nationwide, with special emphasis on soybeans, corn and cotton. Brazilian Savannas, such as the Cerrado and the Caatinga, are a form of vegetation whose features vary throughout the extensive territories they occupy. They constitute a zonal area, like the African Savannas, and correspond roughly to the Brazilian

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central plateau. The Cerrado region occupies 2,045,064 km2, covering parts of eight central Brazilian states: Minas Gerais, Goia´s, Tocantins, Bahia, Maranha˜o, Mato Grosso, Mato Grosso do Sul, and Piauı´, and the Federal District of Brası´lia.

Production of Livestock and Poultry The livestock sector also played a crucial role in Brazil’s economic stabilization plan and improvement of dietary standards for the poorer segments of society through consumption of animal protein. The most evident cause of the failure of the previous stabilization plans was the lack of meat on supermarket shelves. In poultry breeding, stable poultry and egg supplies and the maintenance of stable prices even with a rapid growth in demand, was central to economic stabilization and defeating inflation. Intimately linked to grain production, development of the poultry industry may be considered a symbol of the growth and modernization of Brazilian agribusiness. The functional structure of poultry breeding incorporates the three most important elements in economic calculations in the current configuration of capitalism: leading edge technology, production efficiency and diversified consumption.

Brazilian –Arab Relations In 2005, Brazil initiated a dialogue with the Arab world through the Summit of South American – Arab Heads of State, known as ASPA. The objective of ASPA is to promote economic and commercial interchange between the 22 Arab League member countries and members of the Union of South American Nations (Unasur). In addition, ASPA seeks points of convergence on political matters of global importance to both regions. ASPA held its third meeting in Lima, Peru in 2012, which was attended by Brazilian President Dilma Rousseff and 33 heads of state and governments. The main topics discussed were sustainable development, the increases in food prices, and food security. It is worth noting that the combined gross domestic products (GDPs) and population of South America and the Arab countries correspond to $5.4 trillion and 750 million inhabitants, respectively.

Source: IBGE & CONAB.

Million of metric tons Million of hectares Million of bags – 60 kg Million of metric tons Thousand of metric tons Thousand of metric tons Thousand of metric tons

Unit 68.2 35.6 29.0 223.0 3,144 5,005 1,230

1992 – 3

Brazil: growth in agricultural and livestock production

Grain production Grain area Coffee production Cane production Poultry production Beef production Swine production

Specification

Table 13.1

83.0 36.6 18.8 302.0 4,853 6,040 1,650

1997 – 8 122.9 43.9 48.4 320.0 7,645 8,503 2,698

2002 –3

141.0 47.1 36.0 495.0 11,032 8,835 3,005

2007 –8

165.9 50.8 43.5 571.0 13,249 8,465 3,395

2011 – 2

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President Rousseff stated at the summit that: the South American nations and the Arab nations need to ensure that the turbulences in the international economy do not create additional obstacles to the development of both regions. Currency devaluation policies are a disguised form of protectionism aimed at reducing the exports of developing countries. Without a doubt, we need to reinforce economic coordination and develop cooperation on an increasingly equitable and mutually supportive basis. A report published by the Latin American and Caribbean Economic System (SELA) in August 2012 noted that: “the countries of South America and the Middle East are better positioned to approve a rich collaboration agenda which benefits both regions”. This relationship could be further enhanced with the incorporation of Mexico, the Central American and Caribbean countries into this permanent dialogue, even though these countries are not members of ASPA.

Brazilian– Arab Trade Trade between South American and Arab countries in 2002 amounted to $4.9 billion. Between 2005, when ASPA was established, to 2011 trade between the two regions grew from $13.6 billion to $27.4 billion, an increase of more than 100 per cent. In 2012, a seminar was organized in Sa˜o Paulo at the Arab– Brazilian Chamber of Commerce in commemoration of its 60th anniversary. Held under the title “Outlook for Economic Relations between Brazil and the Arab Countries”, Tatiana Lacerda Prazeres, Foreign Trade Secretary of Brazil’s Ministry of Development, Industry and Foreign Trade stated: “there is great potential to diversify Brazilian exports to the Arab world”. According to the Arab– Brazilian Chamber of Commerce, Brazilian total exports to Arab countries in 2012 were close to $15 billion. In 2011, 59.2 per cent of Brazilian exports to Arab countries were basic products, while 40.8 per cent were industrialized, consisting largely of foodstuffs: sugar (27.4 per cent), meats (26.3 per cent), corn (7.1 per cent) and wheat (2.6 per cent). Sugar and meats account for more

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than 50 per cent of Brazilian exports. Since tariff barriers are relatively low and sanitary requirements have been met, there are favourable conditions for boosting Brazilian food exports to Arab countries. Currently, Brazil supplies these countries with sugar, beef, chickens, soybeans and soy oil, coffee, and juices, among other products. Opportunities are also available to add value by processing food for commercialization in the Arab world. One factor in favour of Brazilian exports to Arab countries is its ability to process Halal products in critical mass, in line with Islamic standards where the entire process is monitored and attested by certification companies established for this purpose. Training centres are located in the main Brazilian producing regions to ensure proper qualifications of Halal labour, including technicians, slaughterers, and religious supervisors. Brazil has a significant number of foreign labours, comprised principally of Moroccan, Lebanese, Algerian, Palestinian and Senegalese nationals. They are practising Muslims contracted exclusively by certification companies. In addition to the rigorous inspection by Islamic certification bodies, Brazilian slaughter facilities receive routine visits from sanitary, religious and diplomatic entities from a number of Muslim countries.

Convergence of Opportunities High food prices are considered one of the causes of the civil disturbances in the Arab world. The General Union of Chambers of Commerce, Industry and Agriculture of Arab Countries, a private arm of the League of Arab States, considers increased private sector participation in investments in food security in the region is a matter of strategic importance. With growing Arab population and limited cultivable land, internal supply depends heavily on imports. Other organizations involved in promoting agricultural investments include Kenana Sugar Company, which operates in the sugar-ethanol sector in Sudan, as well as international institutions, such as the United Nations Organization for Industrial Development (UNIDO), and the Arab Center for Investment and Entrepreneurship Training (ARCEIT) in Bahrain. There has been a considerable debate in the Arab world about food security, which has involved examination of pioneering experiences already undertaken, and how to finance and modernize the agricultural

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sector and the food industry. For example, the Arab Food Security Conference was held in Khartoum, Sudan, in May 2013, which was attended by 165 businessmen from other Arab countries, and representatives for at least 15 countries from outside the Middle East and North Africa region (MENA). More than 500 Sudanese nationals also attended the conference. In this respect, Arab countries may benefit from Brazil’s experience in Africa. The strengthening of relations between Brazil and several African countries has led to significant technical and agricultural cooperation with the Continent. Brazilian companies are involved in grain and cotton cultivation, and in several irrigation projects. Brazilian companies are also involved in the export of agricultural machinery and equipment to the Continent. Arab governments and investors have been investing in agriculture and livestock projects overseas, a strategy led by Gulf countries to ensure their food supplies. In this context, Brazil represents an important destination for Arab investments in agriculture. Joint commercial partnerships could be set up to increase exports of products and services to Arab countries. Potential areas of investments could include agriculture-related projects, such as storage and sanitation facilities, and cargo airports and logistics. Joint commercial partnerships could also involve bartering fertilizers and petrochemicals from Arab countries in exchange for commodities. These undertakings would increase opportunities for new players in the global commodities markets. In the energy security area, investments could be made in the development of sugarcane plantations, construction of mills and ethanol pipelines, either in Brazil or in Arab countries. In the case of Brazil, advantages include the availability of immense areas of land and the expertise available in the sugar-ethanol production chain. Ethanol produced in Brazil could be exported for blending with gasoline, thus generating significant added value. In this respect, it is important to note that Brazilian suppliers of machinery and equipment are involved in the projects undertaken by Kenana Sugar Company in Sudan with export credits provided by Brazil’s Banco Nacional de Desenvolvimento Econoˆmico e Social (BNDES). With capital from the Saudi Arabian, Kuwaiti and the Sudanese governments, Kenana is a pioneer in the production of ethanol on a commercial scale and plans to expand production significantly.

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Kenana started the commercialization of gasoline blended with ethanol in the first half of 2012. The product was named Nile Ultra E-10, a reference to the Nile river that supplies water for Sudanese agriculture and to the percentage of the biofuel in the composition. In addition to increasing its ethanol production, Kenana is planning significant expansion in sugar manufacture and use of biomass to generate energy. In the case of sugar, the plan is to increase production from the current level of 850,000 metric tons per year, produced by the company and its subsidiary White Nile, to 2 million metric tons annually in five years.

CHAPTER 14 FOOD SECURITY IN THE ARAB WORLD: THEORY AND PRACTICE1 Fehmy Saddy

Introduction Much has been written about food security since the surge of commodities prices on the global markets in 2008. High-level meetings of government officials, business leaders, academics and specialists, with the participation of international organizations, have resulted in a tide of commissioned studies, reports and international conferences with high flying recommendations.2 At a meeting in Berlin in early January 2014, the ministers of agriculture from 65 countries declared: “We know that we are facing immense challenges. We regard the eradication of hunger and malnutrition, and the realization of the human right to food as one of the greatest goals in the world.” And added: “Progressive scarcity of natural resources, the negative impacts of climate change, extreme natural disasters, and the loss of genetic diversity and soil fertility prevent agricultural potential from being fully realized.”3 Food security has become one of the most critical challenges the world must face in the years ahead, particularly in the context of world population, which is projected to increase from its current level of 7 billion to 9 billion by 2050. In fact, some international

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development strategists foresee the prospect of wars over food resources in the future.4 The theme of the IMF/World Bank annual meetings in 2013 was “End Poverty” by 2030. It is very unlikely that this goal would be achieved. UN Food & Agriculture Organization (FAO) estimates about 870 million people were undernourished in 2010– 12, and that food production must increase by 60 per cent between now and 2050 to meet the demands of increasing world population. It is also estimated that $70 billion in additional investment each year will be necessary to guarantee the supply of the global population by 2050.5

The Politics of Food In his pioneering research on the multinational companies that control the global food markets, Dan Morgan writes that “[Grain] is the only commodity in the world that is even more central to modern civilization than oil . . . But as much as oil, grain has its politics, its history, its effect on foreign affairs.”6 They were five multinational companies at that time he did his research in the 1970s, which have been reduced since to four: ADM, Bunge, Cargill and Dreyfus, better known by their acronym ABCD. In Brazil, they are referred to contemptuously as the “Four Mothers”. This designation is reminiscent of the “Seven Sisters”, the cartel of seven major oil companies that controlled oil production and prices until the creation of OPEC in 1960.7 At the end of the 1960s, the Seven Sisters still controlled 85 per cent of the world’s oil reserves, but they control just 10 per cent today. In contrast, the four multinational food companies today still control 70 per cent to 80 per cent of the world food supplies. They are horizontally and vertically integrated with related investments in land transportation, railroads, shipping, storage, fertilizers, food processing, and banking and finance. Their wide networks of subsidiaries, joint ventures, sales offices and direct relations with governments all over the world make them virtual sovereigns in their own right. Most interestingly, they remain private companies controlled by few families, with a dearth of information on their finances.8 Considering the overwhelming power of these companies, they are in a position to control food supplies and prices on the global markets. This was not lost on the Group of 20 agriculture ministers who met in Paris

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in 2011 to discuss what they called the “plague” of world food prices that “rose 37 per cent in a year, driving 44 million more people into poverty”. The ministerial meeting called for the creation of “central database on crops, limits on export bans, international market regulation, emergency stockpiles and a plan to raise global output”. Speaking at the meeting, French President Sarkozy said that: “lack of transparency in agricultural markets is exacerbating price swings, threatening economic recovery and food production.” And added: “A market that is not regulated is not a market, it’s a lottery in which fortune smiles on the most cynical, instead of rewarding hard work, investment and the creation of value.”9 The multinational food companies, however, are not much concerned about politicians making statements for public consumption. At the end of the day, these politicians would be back to them asking for contribution to their political campaigns. Indeed, the political clout of US multinational companies was exhibited glaringly in their defiance of the Senate Subcommittee on Multinational Corporations investigating the role of US multinational corporations in foreign policy. When the investigation turned to the US multinational food companies, Morgan writes: “Further scheduled hearings were adjourned – indefinitely – and there never was any questioning of Continental, Bunge, and the other big companies”.10 The multinational food oligopolies have their power structures and own advocates. They include no lesser authority than the Financial Times. Writing in December 2011 when food prices were still at their peak, it claimed that food prices are determined by supply and demand in the global market, which is effected by global economics, geopolitics and the weather. It wrote: “With such factors in play, one buzz word in the trading rooms of Geneva, London, New York, Houston and Singapore is ‘tail risk’ – low probability events that can have a sizeable impact on prices.” For example, a global slowdown triggered by the Eurozone could trigger a similar drop in prices. Another risk to markets is economic events in China, the world’s engine of commodities demand.11 While all these are valid arguments that factor in the supply and demand equation, apologists say nothing about who controls food supplies and how decisions are made that determine prices. Naturally, only those who have commodities in hand could determine the prices

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at which they would sell, in the present or future contracts. The multinational food companies have substantial commodities production contracts with farmers, even before crops are planted. Therefore, the future market of Chicago Board of Trade is where multinational food companies decide the price of commodities on the global market. Take for example, the New York Mercantile Commodities Exchange (NYMEX) and the London Commodities Exchange where sugar prices are quoted. The United States is not known as a major sugar producer, and the not sugar cane, but substantial sugar beet production. How then that the price of Brazilian sugar is determined on their commodities exchanges? The simple answer is that the multinational food companies have strong presence in Brazil and long-term contracts with sugar producers, as everywhere else on the planet, which allow them to set the price of sugar on the global market. Indeed, these multinationals are deeply involved in Brazilian agriculture at all stages of the agricultural cycle, from financing crops ahead of planting, to providing fertilizers to farmers on credit, to land transportation, storage, shipping and marketing. For example, it was reported recently that Cargill entered into a joint marketing agreement with Copersucar, a cooperative that operates as the marketing arm of 45 Brazilian sugar producers, manufacturers and refineries that controls one-third of all Brazilian sugar exports.12 This would not only exclude a formidable competitor from direct access to the global market, but would also ensure Cargill’s control of sugar production and price fixing on New York and London’s commodities exchanges.

Leveraging Fertilizers for Control Ironic as it may seem, Arab oil-producing countries, among others, enable the multinational food companies to maintain their grip on the global food market. Arab oil-producing countries count among the major fertilizer producers. The multinational food companies are their principal clients for fertilizers, which they supply to farmers through their worldwide distribution networks. These companies have long-term allocation contracts with fertilizers producers. In the normal course of the fertilizers business, these contracts include delayed payment terms, usually 210 days, which correspond to the eight-month crop production

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cycle from planting to harvesting. The size of these long-term contracts and the financial strength of the multinational food companies justify the delayed payment terms. Obviously, similar credit facilities are not available to independent traders with lesser volumes and financial capabilities, which effectively rule out any meaningful role for them in fertilizers trade business. Farmers are almost always strapped for money to pay for planting expenses as their credits at banks are usually capped at low levels. Therefore, they turn to the multinational food companies, which provide them with alternative financial sources to finance their operations from purchasing seeds and machinery, to even items for personal use like passenger cars. Most importantly, they provide fertilizers to farmers on credit on relatively the same financial terms extended to them by fertilizers producers. At harvest time, they normally receive payment for their fertilizers in kind, based on prenegotiated prices or as determined close to harvest. This allows the multinational food companies to know in advance the quantity of commodities they expect of control and determine future contract prices on the commodities exchanges. Therefore, Arab oil-producing countries contribute, to a certain extent, to strengthening the multinational food companies’ role in controlling commodities production, setting up prices and manipulating the global food market. There is no evidence to suggest that global food prices are tided to the price of fertilizers. Contracts for the sale of fertilizers are long-term contracts, often extended for 10 – 15 years at relatively stable prices, while prices of commodities are set by the multinational food oligopolies, based on their own assessments and calculations of the factors that they would include in determining commodities prices. This process involves a certain measure of speculation regarding what the global food market could bear in terms of prices, irrespective of the actual costs of commodities. Therefore, President Sarkozy was right when he described the unregulated global food market as a “lottery.” One might add, in fact, it is the multinational food companies’ private casino. Some Arab fertilizers producers have established marketing and distribution outlets in key markets where their products are in demand. For example, SABIC of Saudi Arabia, the world’s biggest producer of petrochemicals and fertilizers, set up in 1987 a marking

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office in the United States to broaden its client base. However, its marking strategy is focused on sales to major industries. SABIC Americas provides “basic and intermediate chemicals and fertilizer products to industries throughout the USA, Canada, Mexico, Central America, South America and the Caribbean”.13 Farmers in these countries remain dependent on the multinational food companies for their credit lines, including fertilizers. Similarly, the Office Che´rifien des Phosphates (OCP) of Morocco, which supplies one-third of phosphate to the global market, has resorted recently to direct marketing of its products in Brazil, which represents its biggest market. To a certain extent, this strategy was forced upon OCP. It concluded in 2008 a joint venture with Bunge Fertilizers, the global agribusiness food company and the largest fertilizers company in Brazil, for the production of several types of fertilizers.14 In 2012, Bunge sold its Brazilian fertilizers business.15 With the loss of access to Bunge’s Brazilian distribution network that supplied fertilizers directly to famers, the joint venture was terminated and OCP was compelled to develop its own distribution networks in the Brazilian market.16

Arab Food Security Arab countries depend on multinational food companies for most of their food requirements. Therefore, there is a growing concern that dependence on these multinational companies for food has far-reaching implications on their social, political and economic development. This is particularly true for small and poor countries that are dependent on food handouts from major donors through UN World Food Program (WFP).17 Indeed, the origin of the so-called Arab Spring could be traced to the bread riots in Egypt and elsewhere in the Arab world. Therefore, it is no coincidence that recent Arab revolutions were brewed in shanty towns and misery belts around major Arab metropolitan centres, not in intellectual circles and bourgeois salons, as conventionally believed. Food security may be defined as “access to secure and sustainable sources of food at reasonable prices”.18 Food security has been a major concern for Arab countries long before the 2008 food price increases. In spite of their efforts over several decades to achieve food security, at

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least in basic staple foods, this objective has remained elusive. Arab countries that have abundant arable lands and water resources, like Sudan, lack adequate infrastructure and are beset by seemingly unending political problems. Other Arab countries with available arable lands and water, like Egypt, can barely feed themselves.19 Still others that have agricultural infrastructure with arable lands, water resources, and until recently political stability, like Syria, have been faced with declining rainfall, poorly managed water resources, and policies that hindered agricultural expansion. The net result of these factors has been severe and constant shortages of all types of food products. The Khartoum-based Arab Organization for Agricultural Development (AOAD), which is part of the League of Arab States, reported recently that over a period of ten years (2000–9) Arab countries reeled under a cumulative food gap of more than $180 billion. Projections forecast even a wider gap in the future with low food production rates, increased consumption, population growth and continued political instability.20 At the end of 2009, the Arab world population was estimated at nearly 351 million, growing at nearly 2.34 per cent annually, which is double the global population growth rate of 1.16 per cent. Therefore, the import gap is likely to widen steadily with high population growth and poor performance of the agricultural sector in most Arab countries. This will drive them to continue to be net importers of essential commodities and foods in the foreseeable future. Turning to the six Gulf Arab countries, members of the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, United Arab Emirates and Saudi Arabia), these countries do not have suitable arable lands or adequate water resources to grow crops. Attempts to overcome these obstacles have failed. For example, Saudi Arabia sought selfsufficiency in grain, but the experiment has proven too costly and depleted its ground water reserves.21 Indeed, the food deficit in Gulf Arab countries is even more acute than other Arab countries as their imports amount to over 90 per cent of their requirements. They also consume a disproportionate share of Arab food imports. For example, in the period 2005– 9 their imports accounted for about 41 per cent of total Arab food imports, although their population of around 36 million accounted for only about 10 per cent of total Arab population. It is estimated that food imports of these countries would grow from

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$25.8 billion in 2010 to $53.1 billion in 2020, when their total populations are expected to reach 50 million by the end of the decade.22

Arab Investment in Agriculture In 2005, the Arab Organization for Agricultural Development (AOAD) approved a 15-year Arab common farm strategy. Three years later, in 2009, it reported that such strategy remained inefficient in the absence of the “right policies and sufficient funds”. Indeed, Arab countries have since become more reliant on food imports. AOAD recognizes that there are some known constraints on Arab agriculture, particularly the following: The Arab region is considered one of the most arid areas in the world and the per capita share of the water wealth is among the lowest as it has remained much below the global water poverty level of 1,000 cubic metres per year. In some countries, this level is even below 500 cubic metres . . . As for arable land, it is estimated at nearly 550 million hectares but only around 12 per cent is exploited. Even in that 12 per cent part, the farming efficiency does not exceed 60 per cent of the world level. This means the Arab World is facing a real problem of not only low exploitation of arable areas but low efficiency in the cultivated land and its productivity.23 These constraints could be remedied, at least partially, with dedicated resources and technological innovation. This, however, requires the deployment of capital. In assessing this aspect of Arab food security, AOAD noted: “What complicates the problem is that most wealthy Arab nations are still reluctant to invest heavily in farming projects in fertile [Arab] member states for political and security reasons.”24 Gulf Arab countries lack arable land, water resources, and agricultural history, which make them dependent almost entirely on food imports. Therefore, where to invest to secure their future food supplies is a critical decision. Should they invest in other Arab countries with arable land and water resources? Or invest in Asian and African countries where their agricultural resources are often incapable of catching up with their own growing population, and many of them depend on

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food subsidies? Or should they invest in countries with mature and efficient agricultural sectors and predictable and clear policies? Most importantly, what are the strategic objectives and motivations behind their investment decisions? As AOAD noted, Gulf Arab countries are reluctant to invest in other Arab countries. The only exceptions are Sudan and, to a lesser extent, Egypt. Saudi and Kuwaiti well-advertised investment in Sudan’s Kenana Sugar Company is often cited as an example. However, the purpose of this investment is to produce ethanol, specifically a fuel additive named Nile Ultra E-10, not to meet sugar consumption in Arab countries, whose imports accounted for $2.9 billion in 2009. Another example is the pioneering and much advertised agricultural investment of Al-Rajhi Group of Saudi Arabia in Sudan with a view to produce wheat for the Saudi market. Inside information, however, tells a different story. After more than 20 years, the Group has failed to produce the grains it hoped for, and still has to turn a profit. Increasingly, the investment seemed more like a real estate investment, a sector in which the group has excelled in Saudi Arabia. Other Gulf investors turned to non-Arab African countries. Examples of such investments include the investment made by Saudi Star Agricultural Development, a food company owned by al-Amoudi Group of Saudi Arabia.25 The company leased 10,000 hectares (24,711 acres) in Ethiopia’s western Gambella region for 60 years at a cost of $9.42 per hectare annually, and announced plans to rent an additional 290,000 hectares from the government. However, the investment was not without its own problems. Almost half of the region’s population is made up of the semi-nomadic Lou Nuer people, according to the 2007 Population and Housing Census. Therefore, critics of the investment have argued that domestic farmers are being dispossessed and the country should not rent land cheaply to foreign investors to grow cash crops when about 13 per cent of its approximately 80 million people still rely on food aid.26 In another report, John Vidal, writing in Britain’s Observer, quotes Nyikaw Ochalla from Ethiopia’s Gambella region: “The foreign companies are arriving in large numbers, depriving people of land they have used for centuries. There is no consultation with the indigenous population. The deals are done secretly. The only thing the local people see is people coming with lots of tractors to invade their lands.”27

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Gulf investments were also reported in a number of other African countries, including Tanzania, Mali, Liberia, and Kenya. These investments seem to focus on the purchase or lease of lands.28 Whether these investments in agricultural lands would translate into food production any time soon remains to be seen. However experts point out that these investments will likely take many years to realize any substantial production gains. The public infrastructure for modern market-oriented agriculture does not yet exist in most of Africa. In some countries it will take years just to build the roads and ports needed to bring in agricultural inputs such as fertilizer and to export farm products. Beyond that, modern agriculture requires its own infrastructure: machine sheds, grain-drying equipment, silos, fertilizer storage sheds, fuel storage facilities, equipment repair and maintenance services, well-drilling equipment, irrigation pumps, and energy to power the pumps. Overall, development of the land acquired to date appears to be moving very slowly.29 Notwithstanding the above constraints, the Jeddah-based Islamic Development Bank, the alter ego of Saudi Arabia, a multilateral development institution consisting of 57 Muslim member countries, launched in 2012 a $600 million fund to invest in African agriculture. The Fund would invest in projects that promote steady food supply and would be managed by Rebeco, the asset management arm of Dutch Rabo Bank. The Fund’s declared objective is: “Boosting regional food production, supply and trade, the fund’s investments will also lead to creation of jobs, transfer of technology, promotion of sustainable practices and poverty alleviation.”30 Saudi Arabia pushed agricultural investments further in non-Arab countries around the world. The King Abdullah Initiative for Agricultural Investment Abroad, which supports investment in agriculture in partnership with the Saudi private sector, has targeted 31 countries in Africa, Asia and Europe, with Egypt and Sudan as the only Arab countries.31 Interestingly, only three Latin American countries were placed on the priority list: Argentina, Uruguay and Brazil, which occupied numbers 28, 29 and 31, respectively. The three countries count among the major suppliers of food for Saudi Arabia. In fact, Saudi Arabia is Brazil’s

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first client in the Arab region. In 2013, Brazilian food exports to Saudi Arabia accounted for $2.8 billion.32

Arab Agriculture The constraints on Arab agriculture, such as lack of sufficient water resources, limited lands under cultivation, and deficient agricultural policies were noted above and have been addressed extensively elsewhere. The remainder of this chapter will address, in broad terms, some of the structural social and economic problems that impede agricultural development in Arab countries. It will offer some ideas on how Arab countries could benefit from the experience of Latin American countries for the development of their agriculture sectors. Finally, it will discuss education and capacity building for a sustainable Arab food security.

The Social Dimension Perhaps the most serious, but often neglected obstacle to agriculture development in the Arab region is inherently self-inflicted. It concerns the outlook of society on peasants in general. Even though the composition of Middle Eastern societies is largely agrarian, there is a stigma attached to agriculture as an occupation. Peasants and agricultural workers are perceived as a lower class on the social strata. Calling someone “peasant” ( fallah, in Arabic) is an insult associated with ignorance and degraded status. This perception is coloured by the Ottoman feudal system, which was inherited from the medieval period in Europe. The Ottoman feudal system lingered in the Arab world for a while after the demise of the Ottoman Empire in 1918. After World War II, new political leaders in the Arab world emerged from the ranks of the lower class, like in Egypt, Syria and Iraq, and implemented agrarian reform in order to strip the feudal lords of their power. They succeeded in breaking down the agricultural land ownership system, which was the source of power of traditional elites. However, the “agrarian reform” policy was a purely political instrument in the struggle for power, and it failed to address the needs of the new owners to enable them to make a decent living out of cultivating the small plots of lands allocated to them. The perception of the peasants’ low class status contrasts with the perception of agriculture as occupation in developed countries. In Old

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Europe, passing farms to subsequent generations is a matter of pride for farming families steeped in tradition. In the United States, the concept of gentleman farmer has been passed from the founding fathers to successive generations. The continuity of this tradition in Europe and the United States has served them well as they continue to be important sources of grain and agricultural products. This social outlook in Arab countries has led to insufficient concern for farmers and agriculture workers in general, which translated into inadequate protection of agriculture and poor agricultural policies. Being “peasants”, Arab farmers are generally less educated than other social groups, and therefore are less able to articulate their concerns, voice their grievances, and receive protection. Even those who “graduated”, so to speak, from a humble peasant class status to a higher social class, are often reluctant to speak up on behalf of their former class out of concern that they would be branded “peasants”. Therefore, peasants in Arab countries aspire to send their children to college to study medicine or engineering in order to escape the perception of inferiority. In the Arab mercantilist culture, wealth is associated with high class, irrespective of how it is obtained. Indeed, the educational system in Arab countries reinforces this perception. At Arab universities, applicants with higher academic performance are rewarded with access to disciplines that could garner better financial rewards like medicine, engineering and business. Those with inferior performance are relegated to disciplines such as social sciences and arts. In fact, agriculture ranks at the bottom on the priority list of disciplines of college applicants.

The Economic Dimension In the past, landlords provided peasants with the necessary tools to pay expenses associated with planting, harvesting and marketing. Left on their own without support from their former landlords, agricultural workers are incapable to cope today. Arab farmers have to deal with government bureaucrats and banks. Since farmers are generally not well educated, they cannot cope with all the necessary requirements of modern agricultural undertakings. They need to purchase seeds, fertilizers and machinery. They also need working capital. They are incapable of dealing with suppliers, bankers and lenders. Obtaining their rations of seeds and fertilizers are often impossible tasks. And dealing with banks, filing forms

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and loans documents, as well as appealing to “friends” of the bankers is very often a wasteful exercise. Middle East governments and banks have bad records in meeting the financial needs of farmers. Indeed, in most of the socially driven economies where agrarian reform was implemented, farmers are much worse off. They are subjected to direct and indirect taxation, and often to price control. Direct taxes are imposed in the form of levy on export sales. Sometimes, they are subjected to the compulsory sale of a large part of their production to the government at set prices. In addition, Arab farmers cultivate small farms. The growing size of farming families cannot be accommodated on the same small plot of land without the prospect of expansion. In conclusion, the above obstacles combined have resulted in the demise of the agricultural sector. The combination of benign neglect, misconceived agrarian policies, lack of incentives, and sometime corruption have led to forcing peasants to leave their agricultural lands and seek menial jobs in major cities, thus spreading chantey towns and misery belts.

Latin America: Lessons Learned Reshaping agricultural policies in the Arab countries require some fresh thinking. Arable lands and water resources alone are necessary but not sufficient to develop agriculture and produce crops. Modern agriculture is a complex and integrated system, which includes land, water, technical know-how, infrastructure, finance, fiscal incentives, logistics and marketing. The following will discuss some of these factors drawing on the Brazilian experience.

Economy of Scale At the risk of being deemed controversial, Arab countries must admit that agrarian reform has failed. It failed to provide framers with the needed tools to continue with farming efficiently. As it is presently applied, agrarian reform does not provide the basic elements of sustainability. Small may be beautiful, and even quite adequate for certain crops. However, with a view to meeting the increasing demand for basic commodities, size matters. Modern agriculture requires economies of scale to be efficient. Expansion of ownership to

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accommodate and encourage family members to remain in farming requires expansion of land ownership and other types of land holdings. Long-term leases of government-owned lands are one option to increase land cultivation.

Cooperatives In Brazil, modern agricultural farming has allowed the country to become a world leader in the production and export of commodities. Most of the problems that small farmers usually must face have been resolved through their affiliation with regional agricultural cooperatives. These cooperatives operate as collective bargaining organizations on behalf of their members. They negotiate wholesale prices of seeds, fertilizers, machinery and all other necessities that farmers need in their business. Cooperatives have their own storage facilities to which members deliver their products and receive warehouse receipts. Cooperatives also assist with marketing whereby they conclude longterm contracts for the sale of commodities in the internal and international markets. Financing Drawing on the Brazilian experience again, the Brazilian government does not operate banks dedicated to agriculture, as in some Arab countries. Instead, it allocates funds to designated private banks to provide loans to farmers at below market rates with easy payment terms. The government provides financial facilities dedicated to encourage planting in certain geographical areas, or to support planning certain crops. The guidelines are clear and straightforward and private banks have financial interest in accessing these financial facilities and passing them over to farmers. Technical Support Modern farming requires knowledge of soil, meteorological information and efficient farming techniques. In Brazil, farmers have access to state universities and laboratories for free advice on problems affecting their crops, such as diseases, fungus or any others. These universities have a wealth of information and research on food quality, nutrition and the adverse impact of genetically modified grains, such as wheat, corn and soybeans.

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Production Management In most Arab countries, traditional farming methods are outdated. How to plant, manage and monitor production, run a farm successfully, and make a living out of farming, is a business based on science. Drawing on the Brazilian experience again, modern farming techniques use latest technologies to plant and rotate crops, install management information systems to monitor and control consumption of fertilizers and nutrients. In large farms, use of GPS instruments in planting ensures proper spacing of planted seeds and efficient cultivation of crops. Farmers use agricultural consulting firms to assist them with all aspects of farming technologies.

Capacity Building for Arab Agriculture The development of Arab agriculture begins with a basic moral imperative: the recognition that every human endeavour entails selfrespect. When human beings lose their self-respect, they are rendered incapacitated. Therefore, capacity building is based on the fundamental belief that women and men are entitled to respect, whatever their pursuit in life might be. Therefore, there is a moral imperative on the part of educational institutions, from primary schools to academic centres of higher learning, to infuse in their constituencies the notion that a career in agriculture is as noble as a career in medicine, engineering or business. The notion that working the land as a profession is a less worthy undertaking than a white-collar occupation must be erased from the mind of the new generation. This is the beginning. This chapter touched briefly on subjects related to politics, economics, history, social behaviour, legal and financial issues, technology, and comparative models of agricultural development. Therefore, the adoption of a systematic approach to food security in Arab countries is fundamental for capacity building and development of agriculture. This is the mission of educational institutions. Structuring integrated educational programmes of food security must encompass several disciplines. Historians could teach how the land ownership regime was developed in Arab countries under the Ottoman rule. Jurists could explain the implications of leasing lands, short and long term, for efficient cultivation. Biologists could analyse the different types of soils and remedial measures that may be taken to improve

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yields. Nutritionists could teach how different crops could be cultivated and methodologies used to improve the nutritional value of foods. Economists could advise on economies of scale to achieve maximum benefits. Finance specialists could explain the financial tools that may be used to provide loans to purchase seeds, fertilizers and machinery, as well as working capital. Lastly, marketing specialists could teach the marketing techniques to place products on the market. The above are important and practical issues that need to be addressed. A successful food security programme needs to strike a balance between the theoretical and practical aspects of agriculture. It must be critically analytical, constructive, courageous and innovative. Examples of best practices and case studies would be parts of such a programme. In this context, it is worth quoting Professor Jessica P. Einhorn, former Dean of the School of Advanced International Studies (SAIS) in Washington, on the importance of food security studies: As agriculture moves to the forefront of public and private sector agendas, SAIS aims to play a leading role into the main current of discussions in international relations policy. Because agriculture is key to understanding the relations between nations, our future leaders need to be conversant about these issues. The study of food security is certainly far more important for the Arab region than the United States. Arab policy makers, government officials and bankers dealing with agriculture should be made aware of the spectrum of issues involved in food security. Students, who are the future leaders and professionals, ought to be trained to think of food security, not simply as a matter of water and land, or supply and demand, but as a matter of sovereignty and self-respect, as well. Dependence on others for daily food hand-outs is humiliating because it strips people of their dignity. Dignity and self-respect are essential prerequisites for social and economic development, including agriculture.

Conclusion The above discussion shows that food security is not simply about making land and water available and planting crops. It is a much more complex activity, an integrated system that involves multiple facets,

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including building infrastructure, know-how grounded in research and innovation, and a host of other factors. In a fleeting moment of history, geological formations in Gulf Arab countries have given them an unprecedented wealth. These countries have been scouting the four corners of the earth to invest in agriculture. The jury is still out on the merit of this strategy. However, the evidence so far suggests that this strategy would end up in failure like other illadvised investments in the past. Certainly, Gulf Arab countries have the financial resources to purchase lands in Africa, even at the risk of displacing indigenous poor people, generating resentment, and raising the level of global antipathy toward them. However, they are unlikely to succeed in planning the lands they acquire with a level of competence and efficiency necessary to achieve their food security. Gulf Arabs are desert people with a nomadic tradition that shuns agriculture, which they consider an occupation beneath their dignity. In light of all the difficulties that must be surmounted, particularly in Africa, operating farms, producing commodities and making profits is not for the novice. In fact, the multinational food oligopolies themselves, which control the global food markets do not operate farms, but provide services and platforms to farmers to produce crops. Naturally, Gulf investors are aware of these facts. Therefore, many of the investment programmes of Gulf Arab countries seem to be land grab ploys and speculative schemes to acquire lands at basement bargain prices, and sell them later to prospective buyers such as China and South Korea. In essence, their global strategy of investment in agricultural lands in largely poor African countries is a sham. It is based on leveraging their financial resources to purchase lands cheaply and flip them later to realize windfall profits, using their accumulated real estate expertise in their own region. A serious Gulf Arab agricultural investment strategy that is truly intended to achieve food security ought to follow a two-pronged approach: The first would focus on agricultural investment in other Arab countries. At least their sources of food will be secure and accessible to them in the region, while their access to food supplies in plantations in far away lands will carry economic uncertainty and substantial political risk. Obviously, this would increase the cultivated lands in Arab countries, generate employment, promote the development of the Arab agricultural sector, and enhance political stability in the Arab region.

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The second approach, in support of the first, would call for Gulf Arab investments in countries with mature agriculture sectors where they can secure and control their food sources. These countries are already major producers and exporters of food products to the Arab region. In addition, they have the tradition, know-how and technologies needed for modern agriculture, which could be transferred to the Arab world. In this respect, Latin America stands out as the ideal destination for joint investments in agriculture in their search for food security. This approach was discussed at some length in this volume in the chapter dealing with Arab–Latin American banking and finance.33 Indeed, a model for Arab investment strategy in the Brazilian agribusiness was developed as early as 2008, right after the global food price increase. MENA Brazilian Agribusiness Partnerships, an investment structure targeting investments in the Brazilian agricultural sector, was launched during an Islamic banking conference in Bahrain later that year.34 The Partnerships’ investments follow the same modalities used by the multinational food companies operating in Brazil, which include joint investments with Brazilian farmers, financing crops, and participating in the equity of agribusiness and food-processing companies.35 The Partnership was the first structure of its kind in accordance with Islamic principles (Sharia-compliant). Presentations were made on the Partnership to potential Gulf Arab investors, including the Corporation for the Development of the Private Sector (ICD), a subsidiary of Islamic Development Bank. ICD later used the Partnership ideas to launch its own agricultural investment fund in Africa, which validates the Partnerships’ business model.

Notes 1. This chapter is based on a presentation the author delivered at the Faculty of Agricultural and Food Sciences, American University of Beirut, on 2 October 2012. 2. See round table discussion of ministers from OECD and emerging economies on “Food and Agriculture: Securing the Future, OECD Observer, No. 278, March 2010. 3. Rudy Ruitenberg, “Farm Ministers Say World Faces Immense Challenges to Feed All”, Bloomberg, 19 January 2014. 4. Lester R. Brown, “The New Geopolitics of Food”, Foreign Policy, May / June 2011, 1– 12.

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5. “GCC Food Imports may Double to $53b by 2020”, Saudi Gazette, 26 February 2012. 6. Dan Morgan, Merchants of Grains (New York: Viking Press, 1979): Introduction, iiv. 7. See the four-part series The Secret of the Seven Sisters aired on Aljazeera English from 11 April 2013. 8. Morgan, Merchants of Grains, Introduction, xii. 9. Rudy Ruitenberg and Tony Dreibus, “France’s Sarkozy Urges Action Against the ‘Plague’ of Food Price Surges”, Bloomberg, 23 June 2011. 10. Morgan, Merchants of Grains, Introduction, ix. 11. Javier Blas, “Markets in Uncertain Furrow”, Financial Times Special Report, 21 December 2011. 12. See Copersucar PowerPoint presentation, “O Brasil como celeiro do mundo: a contribuica˜o de acu´car (Brazil supplier role to the world: the case of sugar)”, Seminar organized by economic journal Valor on the relations between Brazil and Arab countries, Sa˜o Paulo, 17 October 2012. 13. Website of SABIC Americas. http://www.sabic.com/americas/en/. 14. Bunge Maroc Phosphore SA (BMP) was created in 2008 to provide a source of phosphate-based materials for Bunge businesses in South America. It has a production capacity of 375,000 tons per year of phosphoric acid and other derivative products. http://www.reuters.com/article/2013/09/05/us-moroccobunge-phosphate-idUSBRE9840VK20130905. 15. “Yara to Acquire Bunge’s Fertilizer Business in Brazil”, 7 December 2012. http://www.yara.com/media/news_archive/fertilizer_business_brazil.aspx. http://www.grainnet.com/articles/OCP_Group_to_Buy_Bunge_s_50__Stake_ in_Morocco_Fertilizer_Joint_Venture-135011.html. 16. “OCP Group to Buy Bunge’s 50% Stake in Morocco Fertilizer Joint Venture”, 5 September 2013. http://www.grainnet.com/articles/OCP_Group_to_Buy_ Bunge_s_50__Stake_in_Morocco_Fertilizer_Joint_Venture-135011.html. 17. WFP provides food assistance to over 70 developing countries. 18. This definition is attributed to Lubna Al Qasimi, former Minister of Trade of the United Arab Emirates. See “GCC Food Imports” note 5. 19. “Egypt Imports 70% of its Food Requirements”, Aljazeera English, 2 February 2013. 20. Nadim Kawach, “Arab Food Gap Crosses $180bn Over Past Decade”, Emirates Business 24/7, 27 June 2010. 21. Elie Elhadj, “Experiments in Achieving Water and Food Self-Sufficiency in the Middle East: The Consequences of Contrasting Endowments, Ideologies, and Investment Policies in Saudi Arabia and Syria”, Dissertation.Com (10 March 2006). 22. “GCC Food Imports”, note 5. 23. Nadim Kawach, “Arab Food Gap Crosses $180bn Over Past Decade”. 24. Ibid. 25. William Davison, “Saudi Billionaire’s Company Will Invest $2.5 Billion in Ethiopia Rice Farm”, Bloomberg, 23 March 2011. http://www.bloomberg.com/

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26. 27. 28. 29. 30. 31. 32. 33. 34.

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news/2011 – 03 – 23/saudi-billionaire-s-company-will-invest-2 – 5-billion-inethiopia-rice-farm.html. Davison, “Saudi Billionaire’s Company Will Invest $2.5 Billion in Ethiopia Rice Farm”. Quoted in Brown, “The New Geopolitics of Food”, 8. “Final Frontier”, AlifArabia, 8 February 2012. Brown, “The New Politics of Food”, 9. “IDB, Robeco to Launch $600m Agri-food Fund”, Saudi Gazette, 13 June 2012. Sharif M. Taha, “42 Saudis Seek Overseas Agro Investments”, Arab News, 19 July 2014. Statistical data complied by Sa˜o Paulo based Arab Brazilian Chamber of Commerce for 2013. Fehmy Saddy, “Arab-Latin American Banking and Finance”, The Arab World and Latin America: Economic and Political Relation in the Twenty-first Century (I.B.Tauris, 2016). MENA Brazilian Agribusiness Partnership was launched by FS Partners SA, an investment advisory firm founded by this author and focused of Arab – Latin American business. See “Farming Sector Fund Launched”, TradeArabia News Service, Manama, 26 November 2008. “Brazilian Agribusiness on the Radar,” The Islamic Globe, Issue 39, 9 November 2011, 3.

References AlifArabia, “Final Frontier”, 8 February 2012. Al Jazeera English, “Egypt Imports 70% of Its Food Requirements”, 2 February 2013. Blas, Javier, “Markets in Uncertain Furrow”, Financial Times Special Report, 21 December 2011. Brown, Lester R., “The New Politics of Food”, Foreign Policy, May/June 2011, 1 – 12. Copersucar, “O Brasil como celeiro do mundo: a contribuica˜o de acu´car (Brazil supplier role to the world: the case of sugar)”, Presentation, Sa˜o Paulo, 17 October 2012. Davison, William, “Saudi Billionaire’s Company Will Invest $2.5 Billion in Ethiopia Rice Farm”, Bloomberg, 23 March 1011. http://www.bloomberg.com/ news/2011 – 03 – 23/saudi-billionaire-s-company-will-invest-2 – 5-billion-inethiopia-rice-farm.html. Elhadj, Elie, “Experiments in Achieving Water and Food Self-Sufficiency in the Middle East: The Consequences of Contrasting Endowments, Ideologies, and Investment Policies in Saudi Arabia and Syria”, Dissertation.Com. (10 March 2006). Graninnet, “OCP Group to Buy Bunge’s 50% Stake in Morocco Fertilizer Joint Venture”, 5 September 2013. http://www.grainnet.com/articles/OCP_Group_to_ Buy_Bunge_s_50__Stake_in_Morocco_Fertilizer_Joint_Venture-135011.html. The Islamic Globe, “Brazilian Agribusiness on the Radar”, Issue 39, 9 November 2011, 3.

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Kawach, Nadim, “Arab Food Gap Crosses $180bn Over Past Decade”, Emirates Business 24/7, 27 June 2010. Morgan, Dan, Merchants of Grains (New York: Viking Press, 1979), iiv, ix. OECD Observer, “Food and Agriculture: Securing the Future”, No. 278, March 2010. Ruitenberg, Rudy, “Farm Ministers Say World Faces Immense Challenges to Feed All”, Bloomberg, 19 January 2014. Ruitenberg, Rudy and Tony Dreibus, “France’s Sarkozy Urges Action Against the ‘Plague’ of Food Price Surges”, Bloomberg, 23 June 2011. SABIC Americas. http://www.sabic.com/americas/en/. Saddy, Fehmy, “Arab-Latin American Banking and Finance”, The Arab World and Latin America: Economic and Political Relation in the Twenty-first Century (London: I.B.Tauris, 2016). Saudi Gazette , “GCC Food Imports May Double to $53b by 2020”, 26 February 2012. ——— “IDB, Robeco to Launch $600m Agri-food Fund”, 13 June 2012. “The Secret of the Seven Sisters” aired on Aljazeera English from 11 April 2013. Taha, Sharif M., “42 Saudis seek overseas agro investments”, Arab News, 19 July 2014. TradeArabia News Service, “Farming Sector Fund Launched”, Manama, 26 November 2008. Yara International, “Yara to Acquire Bunge’s Fertilizer Business in Brazil”, 7 December 2012. http://www.yara.com/media/news_archive/fertilizer_business_brazil. aspxhttp://www.grainnet.com/articles/OCP_Group_to_Buy_Bunge_s_50_ Stake_in_Morocco_Fertilizer_Joint_Venture-135011.html.

TECHNICAL COOPERATION

CHAPTER 15 EMBRAPA: DEVELOPMENT OF BRAZILIAN AGRICULTURE Maurı´cio A. Lopes and Geraldo Bueno Martha Jnr

The history of Brazilian agriculture since the 1970s is a success story. The country is well known for its science-based development of successful tropical agriculture, i.e. farming that takes place between latitudes 23 N and 23 S in mostly acid, low-fertility, weathered tropical soils. The development of new crops and forage varieties tailored to the tropical environment and consequent establishment of a modern and competitive agriculture – a new environment for commercial production – shattered the thought that only temperate regions could effectively and efficiently feed the world.1 Thus, Brazil’s experience in tropical agriculture gradually evoked the interest of other tropical countries that wanted to know more about new developments and methods to boost their own agricultural production. This chapter is divided into three parts. The first part will discuss briefly the basic aspects of Brazilian agricultural development over the last 40 years. The second part will describe development of the Brazilian Agricultural Development System, or ARD, and how the Brazilian agricultural development model resulted in productivity gains in the past decades. Finally, the third part will highlight Embrapa’s international cooperation initiatives, including those undertaken with Arab countries.

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Brazilian Agriculture Modernization of Brazilian Agriculture Brazil is one of the largest countries in the world extending over 8,511,965 km2 of continuous land surface. It has plentiful water resources, which amount to 15.2 per cent of the world’s renewable water resources.2 Its vast territory accounts for 13.5 per cent of the world’s potential arable land.2 In addition, it has abundant solar energy and a rich biological diversity. Out of 250,000 higher plant species on planet earth, nearly 60,000 are native to Brazil.4 In addition to the world’s largest tropical forest, the country has more than 200 million hectares of Savannas (known as cerrados), whose enormous agricultural and livestock production potential was revealed in the early 1970s. The importance of the agricultural sector in the Brazilian economy dates back to the colonial period in the early sixteenth century.5 Until the 1930s the Brazilian economy depended on agricultural products destined for foreign markets. Coffee and some other agricultural commodity (rubber, cocoa, cotton) accounted for over 55 per cent of the exports until the 1960s.6 These externally oriented expansions, focused on a few products, were eventually translated into short-lived periods of boom and bust.7 Brazil’s highly volatile economic growth during this period – compared with developed countries – was a function of considerable external vulnerability.8 In the 1950s, the Brazilian government adopted an import substitution industrialization policy based on exchange control, multiple exchange rates to support capital good imports, and subsidized interest rates for loans extended by capital good industries. This economic policy also promoted consumer good imports and investments in energy and transport infrastructure. Government priorities were focused on building urban infrastructure, investments in housing and health, and salary protection. Food prices were kept artificially low to prevent pressure on urban salary.9 Politically, the industrialization policy shifted power from the rural areas to the cities, thus transforming Brazil into an increasingly urban society.10 In the government’s drive for industrialization, agricultural policies were subordinated to the major goal of industrialization.11 The impact of such distorting policies was to increase the rate of migration from rural to urban areas. In the span of 30 years, the rural population shrank

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from 64 per cent of the total population in 1950 to 32 per cent in 1980.12 In addition to rapid urbanization, the industrialization process from the 1960s to the early 1980s was associated with a growing population with a higher income level. The increasing opportunity cost of labour for farmers and the broad rural exodus led to a favourable environment for agricultural growth and modernization.13 The expansion of agricultural output enabled larger export volumes, as well as more diverse exports, which in turn provided the means for increased capital good imports. Thus, the modernization of Brazilian agriculture responded, to a great extent, to positive inducements on the demand side, which was prompted by the government industrialization policy that took place during that period.14 Three government policies played central roles in the agricultural modernization process: a) subsidized credit, mainly for capital goods and purchasing modern inputs; b) rural extension development; and c) support of agricultural research. With respect of subsidized credit, the government established in 1965 the National Rural Credit Program, which provided loans to finance modern technical inputs and equipment. Interest rates were subsidized, particularly from 1970 to 1985.15 The government’s response to the challenges posed by adopting a new agriculture strategy aimed at preventing a food crisis and taking advantage of the new opportunities to develop a well-structured, vibrant agribusiness sector was the establishment in 1973 of Brazilian Agricultural Research Corporation (Embrapa). The new entity was to serve as the “research arm” of the Ministry of Agriculture, Livestock and Food Supply, with a nationwide mandate. Several state governments also established their own agricultural research organizations. Embrapa was assigned the additional mission of coordinating the Brazilian Agricultural Research System, which included state agricultural research organizations, universities (agricultural colleges) and Embrapa itself. It became one of the largest agricultural research networks in the tropical world.16 A virtuous cycle of considerably expanded and strengthened tropical agricultural research began, and new science-based technologies fuelled the extension services.17

Productivity of Brazilian Agriculture Only during the past 40 years has Brazil successfully used its natural resources and wide range of climatic conditions that vary from temperate

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to tropical to effectively become a major world player in the agricultural sector. The country has also been able to use agricultural activities more effectively to boost backward and forward linkages in the economy. Traditional agriculture that prevailed in Brazil until the 1970s was steadily transformed into a modern, highly competitive, scientifically based agriculture in the following decades. The agricultural research effort proceeded relentlessly throughout that period generating important knowledge and technology spill-overs for the farmers and resulting in an array of positive outcomes for Brazilian society and the world at large.18 The case of major crops and animal products may be cited as an example. Production of rice, dry beans, corn, soybean, and wheat, which amounted to 23.4 million tons in 1970, doubled to 49.6 million tons by 1985, and further increased three-fold to 180.7 million tons by 2013. Production of these crops grew by 673 per cent over the last four decades, equivalent to an average annual growth rate of 4.9 per cent. The growth of sugarcane production was also remarkable: from 67.8 million tons in 1970 to 589 million tons in 2013, an average annual growth rate of 5.2 per cent. Sugarcane yields increased by over 70 per cent, from 40 tons per hectare in 1970, to nearly 70 tons per hectare in 2013. Breaking down the production factors for rice, dry beans, corn, soybean, and wheat into crop area expansion and yield improvements leads to the conclusion that more than 60 per cent of crop production growth during the 1970 – 2013 period was explained by land productivity gains (Martha, 2013), rather than crop area expansion. The latter accounted for less than 40 per cent of production growth. From 1950 to 1975, yield increased by only 4.4 kg/hectare/year; however, it increased to 60.8 kg/hectare/year in the period from 1975 to 2013. The case of meat production is equally successful. Production of beef, pork and poultry soared from 2.7 million tons in 1970 to 22.3 million tons in 2012, an average annual growth rate of 5.2 per cent. As in the case of major crops, productivity gains stepped up in the mid1980s. An in-depth review of the growth factors in the case of Brazilian beef showed that productivity accounted for less than 30 per cent of production growth until 1985 when pasture area expansion was the main factor for increased beef production. In the last two decades, however, productivity gains explain most of the production expansion,

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while pasture area increases played only a minor role.19 Animal performance gains in the Brazilian beef production systems increased by 130 per cent between 1985 and 2006, which has contributed significantly to reducing the intensity of methane emissions. Similar trends in productivity and efficiency gains were observed in the poultry and pork production sectors. In the poultry production industry, for example, the feed conversion ratio decreased from 3 to 1 to 1.85 to 1 (i.e. kg of feed to kg of weight gain). The average weight at slaughter increased to 2.45 kg, and the age at slaughter is now in the 42– 4 days range (UBA, 2008).20 In the pork production industry, theaverage weight at slaughter increased to 83.3 kg and sow productivity is now around 22 finished animals per year.21A major benefit to the environment arising from the overall land productivity gains in Brazilian agriculture is the so-called land-saving effect; i.e. land left uncultivated because new technologies have increased the agricultural output per unit of area. During the 1950 –2013 period, productivity gains brought about by the growing adoption of technology in major crops (rice, dry beans, corn, soybean, wheat, sugarcane), as well as beef production, accounted for a land-saving effect of more than 600 million hectares.22 In fact, without technological advances it would have been necessary to put into cultivation, as pasture or cropland, an additional area roughly equivalent to 70 per cent of Brazil’s contiguous surface area in order to achieve the current agricultural production. The expansion of the crop area, as was the case with sugarcane and soybean, was mainly a consequence of the small initial cultivated area. In any event, the considerable productivity gains in the pastoral system, especially after mid-1990s, made significant extensions of pasture available to expand crops, effectively minimizing the loss of native vegetation.23 Better governance, an array of policies, and an ever-increasing commitment of the private sector to the implementation of sustainable technologies and practices were instrumental in reducing deforestation rates. According to data from the National Institute for Space Research (INPE, 2012)24, there were two deforestation peaks in the Legal Amazon: 29,059 km2 per year in 1995, and 27,772 km2 per year in 2004. However, a steep downward trend in the deforestation rate was observed beginning in 2005. The data for 2012 show a deforestation rate in the Amazon of 4,656 km2 per year, only 16 per cent of the 1995 peak value.

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This virtuous growth path of Brazilian agriculture, strongly based on productivity gains, explains how the country managed to become one of the world’s top agricultural producers, while maintaining more than 60 per cent of its territory preserved. In spite of this progress, it is necessary to recognize the need to move even further on the path of sustainability.

Expansion of Food Production Food supply in Brazil in the last 40 years has increased at higher rates than the domestic and export demands and, consequently, food prices have fallen dramatically. Food price data provided by Inter Trade Union Department of Statistics and Socio-Economic Studies (DIEESE), which focuses on a standard food basket for the City of Sa˜o Paulo, showed that the food basket price in 2013, in real terms (after discounting for inflation), was equivalent to 50 per cent of the price paid by consumers in January 1975. In other words, food prices were reduced by half over the past 40 years as a consequence of the expansion of agricultural production. Even when food prices peaked in 2008, there was very little impact on the prices paid by Brazilian consumers. The increased food supply resulting from technological gains during the period under analysis, together with the deregulation of markets in the 1990s, had two very important effects on society. First, there was a significant transfer of income from farmers to consumers. Such gains in consumer surplus occurred, to a certain extent, at the expense of lower incomes for Brazilian farmers. Lower food prices benefited consumers, particularly poor families in cities and rural areas, since the poor spend a larger proportion of their income on food. Thus, reducing food prices functions as an income transfer mechanism without having to reallocate income within the society.25 Needless to say the substantial decline in food prices played a decisive role in maintaining urban salaries at competitive levels during the import substitution industrialization period up to the mid-1980s. Thereafter, low food prices continued to help promote exports and were also instrumental in reducing the impact of hyperinflation in the 1980s and 1990s. Brazilian Agricultural Exports The large and persistent increases in agricultural production were keyfactors behind increased exports and decreased real food prices for Brazilian consumers.26 The export portfolio also became more diversified

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and several new foreign markets were opened for Brazilian agricultural products. Brazilian trade with Arab countries, for instance, increased significantly in the last decades, especially in the past 15 years. In 1997, Brazil– Arab countries trade flows (exports plus imports) in agribusiness was $1.34 billion. In 2012, such trade flow increased to $11.02 billion, representing a remarkable annual growth rate of 15.1 per cent relative to 1997. The share of Brazilian agribusiness exports to Arab countries jumped from 4.3 per cent of the total, in 1997, to 9.8 per cent in 2012. In 2012, Brazilian exports totalled $242.58 billion, generating $19.44 billion trade surplus.27 Agricultural exports accounted for $95.81 billion representing 39.5 per cent of total exports. Current agribusiness exports show that soybean, meats, and the sugar-ethanol complex, as well as the forestry sector, hold a higher share of the total. The agribusiness’ balance of trade was $79.41 billion in 2012 (2.5 per cent increase over the previous year of $77.47 billion). The lower trade surplus for Brazil as a whole, as compared to the agribusiness sector alone, reflects the fact that other export sectors in the economy had imported more than exported. Despite the increased importance of Brazil in the international agricultural market, domestic food supply has been assured. Averaging the exports for the last three seasons (2011–13), corn exports represented 22 per cent of production, while soybean exports totalled 46 per cent. Beef and pork exports fall in the 16–18 per cent range, while poultry exports are somewhat higher at 30 per cent. This pattern is likely to be maintained for at least another decade. Export projections of specific products by 2023 point to 29 per cent of corn production, 39 per cent of soybeans production, and between 16 per cent and 24 per cent of meat production.28

Key Technologies in the Development of Brazilian Agriculture The three major determinants of agricultural productive capacity are human capital, technology generation and dissemination, and adequate natural resources and weather conditions.29 Brazil has abundant natural resources, which have been protected by the enormous land-saving effects resulting from the productivity gains in Brazilian agriculture in the last decades. Weather conditions (rainfall, radiation, temperature) are conducive to at least one good crop per year, and in many grain-producing regions, for two and sometimes three crops

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annually. As a rule, weathered tropical soils (mainly Oxissols) do not have physical problems. The technologies that became available in the last 40 years have lifted the constraints imposed by the nutrient-poor, acid soils of the Cerrado. The following discussion provides examples of notable technologies that transformed Brazilian agriculture in the last four decades.

Biological Nitrogen Fixation All soybean varieties in Brazil are inoculated by bacteria taking nitrogen from the air and provide nutrient to the plant. Soybean varieties that require no fertilizer nitrogen were selected,30 and yields of up to 6 t/ha have already been recorded.31 Recommendations include re-inoculating soybean crops, even in soils with Bradyrhizobium occurrence.32 In the case of non-leguminous crops, there is evidence that it is possible to obtain up to 50 kg N per hectare per year from biological nitrogen fixation in tropical pastures (Brachiaria spp. and Panicum maximum), but it is still necessary to access such contributions in pastures under grazing conditions.33 Positive results in biological nitrogen fixation have been observed for plants such as rice34 and sugarcane.35 Integrated Crop– Livestock Systems Integrated crop– livestock systems are an example of the resourcesaving technologies, which received much attention from researchers worldwide.36 The main agronomic/environmental benefits of these systems are improved chemical, physical and biological properties of the soil; reduction of disease, pest and weed outbreaks; and higher crop and animal productivity.37 Due to improved herbage quality (nutritive value and consumption), integrated crop – livestock systems can contribute to lower methane emissions per unit of live-weight gain in the case of grazing animals. As summarized by Vilela et al.,38 the implementation of these mixed systems in the Brazilian Cerrado region has been associated with the following gains: (a) 15 per cent increase in the organic matter content of the soil, when compared with the native Cerrado; (b) up to 90 per cent increase in phosphorus use efficiency in corn– soybean rotations; (c) soybean yield gains in excess of 10 per cent following rotation with productive pastures; (d) up to three-fold (cow-calf phase) and four-fold

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(rearing/finishing phase) increase in animal productivity for grazing cattle, when compared with traditional, extensive pastoral beef systems. The potential economic benefits of the integrated crop-livestock systems may reflect economies of scope (reduced costs associated with producing multiple outputs) and/or the risk-reducing effects of diversification. The benefits of crop rotations (including pastures) may also include reduced yield variability and overall higher yields. The accurate measurement of interactions between crop and animal (pasture) components to allow for improved and unbiased decision-making is an issue that requires further refinement.39 As pointed out by these authors the design of innovative financing mechanisms will probably be essential to foster and accelerate large-scale adoption of the integrated crop – livestock system technology.

Development of the Brazilian Cerrado Development of the Cerrado (e.g. the Brazilian Savanna) for agricultural purposes required a wide array of technologies, which have transformed the region into one of the most important grain and beef producing regions in the world. Agricultural development of the Brazilian Cerrado was driven by technology, which included soil improvement to sustain farming, introducing new crop and pasture varieties, and improved productivity of farm animals, particularly beef and dairy cattle.40 The most important discoveries were related to soil fertility improvement,41 biological nitrogen fixation;42 new plant varieties and hybrids (the grain and oilseed section of the edited work by Albuquerque and Silva 2008);43 no-tillage systems;44 and more recently integrated crop–livestock systems.45 These technologies were compatible with sustainable production and took into account human and environmental needs. As discussed earlier, the increased yields saved millions of hectares of native vegetation and tropical forests.46 In 1970, major crop’s production in the Cerrado was 8 million tons. By 2006 it increased six-fold to 48.2 million tons, an average annual growth rate of 5.2 per cent over 36 years.47 Until 1980, crop production in the Cerrado followed an extensive margin. Thereafter, production in the Cerrado region grew at a much faster pace than the rest of Brazil. Consequently, the Cerrado’s share of total Brazilian grain and oilseed production increased from 35.4 per cent in 1970 to 49.2 per cent in 2006. In other words, the Cerrado, which extends over 25 per cent of

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Brazil’s territory, accounted for nearly 50 per cent of grain production, a truly remarkable success, considering the acidity and low fertility of soils in the region. Beef production in the Cerrado totalled 830,000 tons in 1975. By 2006, production increased to 2.89 million tons, a notable 4.1 per cent annual growth. Beef production in the Cerrado, as a percentage of Brazil’s total production, exceeded 38 per cent in all agricultural census years from 1975 to 2006, and went as high as 53.1 per cent in 1996. Milk production in the Cerrado averaged 2.2 million litres in 1970, but steadily increased at a yearly rate of 3.6 per cent thereafter to reach 8.1 million litres in 2006. From 1975 to 2006, milk production in the Cerrado varied from 37 per cent to 45 per cent of total milk production.48 These productivity gains in beef and milk production had a land-saving effect that played a pivotal role in making land available for crop expansion and minimized pressure on natural resources.49

The Brazilian ARD System Brazil’s Research & Development (R&D) capability experienced a surge in the 1970s. Coordinated policies (infrastructure, regional development initiatives, storage, rural credit, price support mechanisms, R&D, and extension services) brought about the modernization of agriculture. In the late 1980s and throughout the 1990s, some compensatory policies favoured the expansion of production in central Brazil, supported by the development of innovative technologies for the Cerrado region. Brazil has developed a large and complex agricultural research base consisting of public institutes, universities, private companies and nongovernmental organizations. The Brazilian research capability is one of the most comprehensive and efficient in the world’s tropical belt.50 Beginning in the 1970s, Brazil improved its research structure and capacity substantially by developing a two-tier system of federal and state-based agencies, called the National System for Agricultural Research and Innovation (SNPA). SNPA developed and promoted a wide array of technological innovations that have resulted in the expansion of agribusiness over the past four decades. SNPA is responsible for organizing, coordinating and implementing research that contributes to the development of agriculture and sustainable use and preservation of natural resources. Implementation of the SNPA concept led to the

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strengthening of Brazil’s agricultural R&D capacity through improved infrastructure, enhancement of human resources, implementation of appropriate management mechanisms, and application of support policies on a national scale.51 The major components of the SNPA system are state research organizations, universities, and Embrapa. Federal and state universities conduct research at more than 100 agricultural sciences colleges and schools. Only a few private universities carry out agricultural research in Brazil, and the non-profit sector still plays a modest role.52 Embrapa is by far the largest component of the SNPA system. The Organization is a semi-autonomous federal agency under the Ministry of Agriculture, Livestock and Food Supply. It is the largest agricultural R&D organization in Latin America in terms of staff and budget.53 Embrapa’s headquarters are located in Brası´lia, but its operations are spread throughout the country. It has 46 research centres and service units, 17 administrative units.54

Agricultural Research Spending The global public agricultural R&D investment (including governmental, non-profit, and higher education sectors) totalled $39.6 billion in 2008 (in 2005 dollars). High-income countries accounted for 73 per cent of the overall agricultural R&D investments (of which 34 per cent were public and 39 per cent were private). R&D investments in low and middle-income countries were predominantly public (26 per cent of world total). Private agricultural research in these regions accounted for only 2 per cent of global R&D investments.55 Brazil increased agricultural R&D expenditure from 1.15 per cent of its agricultural GDP in 1981 to 1.81 per cent in 2006 (CGIAR/ASTI, 2012),56 close to the developed world’s average of 2 per cent of the agricultural GDP in that year.57 However, R&D investments in Brazil declined to 1.5 per cent of agricultural GDP in 2008, but total amount of R&D funds in the agricultural sector actually increased. Embrapa’s budget reached approximately $1 billion in 2011, which accounted for 55– 60 per cent of the overall public agricultural R&D expenditure in Brazil. Embrapa’s capital expenditures (renovation and construction of labs, purchase of new machinery and equipment, etc.) grew at 11.1 per cent per year during the 2001– 11 period. Revitalization of the agricultural R&D investments is obviously an

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important step toward the realization of future economic, social and environmental objectives. Embrapa receives funding mostly from the Brazilian government, although it also receives resources from private partners. During the period 2000 – 7, almost 90 per cent of Embrapa’s funding was from direct government allocations; 4 per cent from the sale of products and services (such as seeds and royalties and research contracts with private and public organizations); and 2 per cent from other external sources. In addition to this direct funding, Embrapa receives indirect funding from partners in agricultural research and technology transfer activities.58

International Cooperation The focus of Embrapa’s international initiatives lies in research cooperation, technology transfer, and more recently capacity strengthening. Embrapa was open to the outside world at an early stage of its development when Brazil’s external exposure was still very low. After the creation of Embrapa in 1973, a strong post-graduate programme sent hundreds of young professionals abroad, mostly to the United States and Europe, including the United Kingdom, Spain, the Netherlands, Germany, and to a lesser extent to Canada, Australia and Japan. These graduates helped form important bridges with the academic world abroad. Training programmes financed by the World Bank, Inter-American Development Bank and the Japanese government have been instrumental in developing human resources to equip Embrapa’s research units. These programmes were well designed and implemented and they solidified the image of Embrapa as a serious and responsible organization.59 As of 2012 Embrapa had 78 bilateral agreements with 89 institutions in 56 countries. It also had multilateral agreements with 20 international organizations. At the project level, there are numerous agreements involving several countries, organizations and research networks. For example, Embrapa’s ties with the Consultative Group on International Agricultural Research (CGIAR) system were at its origin, and the relationship developed with CGIAR’s International Centres has brought many good results. This relationship was very important, especially at the beginning of Embrapa in setting directions for research and training

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scientists. Embrapa recognizes that important shares of the Brazilian seed market of wheat, maize, beans and rice are derived from varieties improved by using genetic material received from CGIAR centres.60 The relationship with the CGIAR system continues to be very important, especially for their joint work in Africa, Latin America and Asia.61 The processes of technological innovation that emerge in different countries required Brazilian R&D organizations to have a clear vision of the future by building strong partnerships and alliances abroad to maintain their efficiency and competitiveness. Therefore, in the 1990s Embrapa developed and implemented a new international cooperation initiative involving Brazilian scientists with the best research organizations abroad.62 In 1998, Embrapa developed and implemented the innovative concept of Virtual Laboratory, or Labex, as a means to increase scientific and technological ties with advanced research organizations around the world. Instead of building its own platform abroad, Embrapa has used the virtual lab concept, or lab without walls, to access the facilities of partner organizations. The concept has been tested and validated in partnership with the Agricultural Research Service of the US Department of Agriculture (USDA). Given the success of this partnership, Labex Europe was created in Montpellier, France, and later in The Netherlands and the United Kingdom. In 2009, it was extended to Asia, in partnership with South Korea’s Rural Development Administration (RDA). More recently, Embrapa’s Labex were established in China and in Germany. The success of Brazilian tropical agriculture has motivated countries with similar problems and challenges to seek Embrapa’s information and support for technology transfer. In the last five years Embrapa significantly expanded its participation in technical cooperation projects in other tropical regions, broadening the possibilities for fruitful partnerships with other countries. This participation takes place through the Brazilian Cooperation Agency of the Ministry of External Relations (ABC/MRE). In addition to its traditional instruments of support, Embrapa posts researchers in developing countries, as in the cases of Embrapa Africa in Accra (Ghana) in 2006, and Embrapa Venezuela in Caracas in 2007. In 2010, Embrapa initiated Embrapa Americas with a base in Panama to which it assigned one researcher and one technology transfer analyst to support the organization’s collaborative undertakings in Mexico, Central America, the Caribbean, Colombia, Ecuador and Peru.

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With respect to collaboration with the Arab world, Embrapa is carrying out collaborative efforts with two North African counties: Algeria and Morocco. In Algeria, technical cooperation focuses on biotechnology, genetics, plasticulture, dairy cattle, citriculture and food security. In Morocco, the same technical services are provided, in addition to ruminant nutrition, conservation agriculture, horticultural crops and plant – microorganisms’ interactions. The increasing involvement of Embrapa in developing countries is important, and indeed welcome. High-income countries agricultural R&D has dramatically decreased in the past two decades. According to Pardey and Alston,63 this is attributable to several factors. First, the types of technologies currently being developed may no longer be as readily applicable to developing countries as they were in the past. Second, technologies that are applicable may not be as readily accessible because of increasing intellectual property protection rights and, more importantly, the expanding scope and enforcement of biosafety regulations. Third, technologies that are applicable and available are likely to require more substantial local development and adaptation that call for more sophisticated and extensive forms of scientific R&D than in the past. Both the Labex model and the transfer of technology structures in developing countries are flexible models that can be expanded by sharing scientists’ experiences among countries with common interests. Indeed, this is already benefiting agriculture and helping combat hunger in developing countries.64

Conclusion In spite of Embrapa’s successful record, enormous challenges still lie ahead as agriculture is forced to simultaneously focus on two important fronts: competitiveness and sustainability. Therefore, the future of agriculture would be shaped by multifunctional concepts, methods and applications far beyond the current conventional views of agriculture as a system dedicated to the production of food, fibre, energy and environmental preservation. More efficient technologies will be necessary for Brazil to meet its needs of food, feed, fibre and feedstock, as well as to produce surpluses for exports and contribute to global food, nutritional and energy

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security. Technological advances should help conserve natural resources like soil, water, forests, and biodiversity and deal with global warming and its potential negative effects on agricultural production. More research is needed to mitigate the effects of extreme weather events, increase the system’s resilience, and allow adaptation to new presumptive scenarios of heightened biotic and abiotic stress, as well as energy insecurity. In spite the magnitude of these challenges, technological advances achieved so far on several fronts have been quite impressive. They should increase the chance of finding successful responses as needed. Scientific revolutions are taking place in various fields of knowledge, such as in biology with genomics; in physics and chemistry with nanotechnology; and in information technology and communication. These innovations should increase Embrapa’s ability to understand and respond to future opportunities, risks and challenges. In recent years, biology has advanced tremendously with the study of genomes and has broadened our understanding of the complex mechanisms of plants, animals and microorganisms. Such advances will engender further innovations, boosting the development of novel agricultural production systems with more potential to add value and ensure increased productivity. This should lead to safer and higher quality food with other agricultural products and better environmental services. These innovations will have enormous implications for the future value chains of agriculture. However, countries must invest in human resources training to benefit from such technological gains and remain competitive. They must also adopt new sophisticated processes, methods and instrumentation. Information and communication technologies also promise to further revolutionize the methods of managing agricultural production, market access, logistics, and the relations between producers and consumers. They could also change existing behaviours and require increasing attention to consumer demands and focus on agriculture. The processes of technological sophistication that emerge in different countries and institutions require Brazil’s R&D institutions to develop a clear vision of future agricultural innovation to establish partnerships and alliances that ensure efficiency and competitiveness. Enhancing international cooperation would be essential for designing agricultural value chains in different regions of the world. This would

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enable Embrapa to access and incorporate the progress and gains achieved at the international level. Lastly, when evaluating the magnitude and complexity of the challenges ahead, the consolidation of a strategic intelligence becomes increasingly important in times of rapid changes and shattered paradigms. The world changes very quickly, and the targets become increasingly pervasive and mobile, requiring quick and timely decisions and actions. The sustainability of Brazilian agriculture is contingent upon the anticipation of risks, opportunities and challenges, and coordination of the decision-making process to ensure that actions are taken at various levels. Such capability is essential in order to provide guidance and input for the decision-making process leading to designing future strategies for Brazilian agriculture.

Notes 1. Pedro Antonio Arraes Pereira, Geraldo Bueno Martha Junior, Carlos A. M. Santana and Eliseu Roberto de Andrade Alves, “The Development of Brazilian Agriculture: Future Technological Challenges and Opportunities”, in Agriculture & Food Security 1 (2012), 1 – 12. 2. World Resource Institute (WRI), World Resources 2008: The Roots of Resilience – Growing the Wealth of the Poor (Washington, DC: WRI, 2008). 3. Food and Agriculture Organization (FAO), Land Resource Potential and Constraints at Regional and Country Levels (Rome: FAO, 2000). 4. Maurı´cio A. Lopes, “The Brazilian Agricultural Research for Development (ARD) System”, in Improving Agricultural Knowledge and Innovation Systems: the OECD Conference Proceedings (Paris: OECD, 2012), 323, 334. 5. Werner Baer, The Brazilian Economy, 6th edn (Boulder, CO: Lynne Rienner Publishers, 2008). 6. Rosemary Thorp, Progress, Poverty and Exclusion: An Economic History of Latin America in the 20th Century (Inter-American Development Bank, 1998). 7. Baer, Brazilian Economy. 8. Amauri Gremaud, Marcos Antonio Sandoval de Vasconcellos, and Rudinei Toneto Junior, Economia Brasileira Contemporaˆnea, 5th edn (New York: Atlas, 2004). 9. Eliseu Roberto de Andrade Alves and Afonso Celso Pastore, “Import Substitution and Implicit Taxation of Agriculture in Brazil”, American Journal of Agricultural Economics 60 (1978), 865– 71; Gremaud et al., Economia Brasileira; and Baer, Brazilian Economy. 10. Guilherme Leite da Silva Dias, and Cicely Moitinho Amaral, “Mudanc as Estruturais na Agricultura Brasileira, 1980–1998”, in Renato Baumann (ed.), Brasil: Uma De´cada em Transica˜o (Cepal/Campus, 1999), 223–54.

EMBRAPA: DEVELOPMENT 11. 12. 13. 14. 15. 16.

17.

18.

19.

20. 21.

22.

23. 24.

25.

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Baer, Brazilian Economy. Pereira et al., “Development of Brazilian agriculture”, 1 – 12. Alves and Pastore, “Import Substitution”, 865– 71. Pereira et al., “Development of Brazilian Agriculture”, 1 – 12. Carlos Nayro Coelho, “70 Anos de Polı´tica Agrı´cola no Brasil (1931– 2001)”, Revista de Polı´tica Agrı´cola 10 (2001), 3 – 58. Alves and Pastore, “Import Substitution”, 865– 71, Jose´ Garcia Gasques and Junia Cristina P. R. da Conceic a˜o, orgs, Transformaco˜es da Agricultura e Polı´ticas Pu´blicas, Brası´lia: (IPEA, 2001); Jose´ Garcia Gasques, Eliana Teles Bastos, Mirian P. R. Bacchi, and Junia Cristina P. R. da Conceic a˜o, Condicionantes da Produtividade na Agropecua´ria Brasileira, Brası´lia: (IPEA, 2004); Jose´ Garcia Gasques, Eliana Teles Bastos, and Mirian R. Piedade Bacchi, “Produtividade e Fontes de Crescimento da Agricultura Brasileira”, in Joa˜o Alberto De Negri and Luis Claudio Kuboca (eds), Polı´ticas de Incentivo a` Inovaca˜o Tecnolo´gica no Brasil, (IPEA, 2008), 435– 59; Geraldo Bueno Martha Junior, Elisio Contini and Eliseu Roberto de Andrade Alves, “Embrapa: its Origins and Change,” in Werner Baer (ed.), The Regional Impact of National Policies: The Case of Brazil, (Cheltenham: Edward Elgar Publishers, 2012a), 204– 26. Eliseu Roberto de Andrade Alves, and Elisio Contini, “Modernizac a˜o da Agricultura Brasileira”, in Antonio S. Branda˜o (ed.), Os Principais Problemas da Agricultura Brasileira: Ana´lise e Sugesto˜es (IPEA/INPES, 1998), 49 – 98. Antonio Fla´vio Dias A´vila, Luis Romano, and Fernando Luis Garagorry Cassales, “Agricultural Productivity in Latin America and the Caribbean and Sources of growth”, in Prabhu L. Pingalli and Robert Evenson (eds), Handbook of Agricultural Economics, edited by (Elsevier, 2010), 3713–68; Eliseu Roberto de Andrade Alves, “Nosso Problema de Difusa˜o de Tecnologia,” Revista de Polı´tica Agrı´cola 21 (2012): 3–4; Martha Junior et al., Embrapa, 204–26. Geraldo Bueno Martha Junior, Eliseu Alves Roberto de Andrade, and Elisio Contini, “Land-Saving Approaches and Beef Production Growth in Brazil”, in Agricultural Systems 107 (2012b), 173–7. Unia˜o Brasileira de Avicultura (UBA), Relato´rio Te´cnico Anual 2007/2008 (Sa˜o Paulo: UBA, 2008). Associac a˜o Brasileira de Indu´strias Processadoras e Exportadoras de Carne Suı´na (ABIPEC) and Empresa Brasileira de Pesquisa Agropecua´ria (Embrapa), “Levantamento Sistema´tico da Produca˜o”, Embrapa, 2008, www.cnpsa.embrapa.br. Martha Junior, Alves, and Contini, “Land-saving”, 173 – 7; Geraldo Bueno Martha Junior, “Expansa˜o da Cadeia de Cana-de-Ac u´car e Suas Implicac o˜es para o Uso da Terra e Desenvolvimento do Cerrado,” Final Report, Conselho Nacional de Desenvolvimento Cientı´fico e Tecnolo´gico, Brası´lia, 2013. Martha Junior, “Expansa˜o da Cadeia de Cana-de-Ac u´car.” Instituto Nacional de Pesquisas Espaciais (INPE), “Projeto PRODES: Monitoramento da Floresta Amazoˆnica Brasileira por Sate´lite”. http://www. obt.inpe.br/prodes/index.php. Pereira et al., “Development of Brazilian Agriculture”, 1 – 12.

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26. Ibid. 27. Ministe´rio do Desenvolvimento, Indu´stria e Come´rcio Exterior (MDIC), “Come´rcio Exterior: Balanc a Comercial Brasileira”. http://www.mdic.gov.br/ sitio/interna.php?area¼5&menu1161. 28. Ministe´rio da Agricultura, Pecua´ria e Abastecimento (MAPA), Projeco˜es do Agronego´cio Brasileiro: Brasil 2012/2013 a 2022/2023: Projeco˜es de Longo Prazo (Brası´lia: MAPA, 2013). 29. Geraldo Bueno Martha Junior, Eliseu Roberto de Andrade Alves, Elisio Contini, and Simone Ramos, “The Development of Brazilian Agriculture and Future Challenges”, Revista de Polı´tica Agrı´cola 19 (2010), 91 – 104. 30. Johanna Dobereiner, “Biological Nitrogen Fixation in the Tropics: Social and Economic Contributions”, in Soil Biology and Biochemistry 29 (1997), 771 – 4. 31. Martha Junior et al., “Development of Brazilian”, 91 – 104. 32. Mariangela, Julio C. Hungria, Rubens J. Campos Franchini, Carla C. Crispino, Jose´ Z. Moraes, Rubson N. R. Sibaldelli, Ieˆda C. Mendes, and Joji Arihara, “Nitrogen Nutrition of Soybean in Brazil: Contribution of Biological N2 Fixation and Nitrogen Fertilizer to Grain Yield”, in Canadian Journal of Plant Science 86 (2006), 927–39. 33. Robbert Michael Boddey, Joa˜o Carlos de Moraes Sa´, Bruno Jose´ Rodrigues Alves, and Segundo Urquiaga, “The Contribution of Biological Nitrogen Fixation for Sustainable Agricultural Systems in the Tropics”, in Soil Biology and Biochemistry 29 (1997), 787– 99. 34. Jose´ Ivo Baldani, and Vera Lucia Divan Baldani, “History on the Biological Nitrogen Fixation Research in Graminaceous Plants: Special Emphasis on the Brazilian Experience”, in Anais da Academia Brasileira de Cieˆncia 77 (2005), 549 – 79. 35. Johanna Dobereiner, Vera Lucia Divan Baldani, and Veronica Massena Reis, “The Role of Biological Nitrogen Fixation to Bio-energy Programmes in the Tropics”, in Carlos Eduardo Rocha-Miranda (ed.), Transition to Global Sustainability: the Contribution of Brazilian Science (Rio de Janeiro: Academia Brasileira de Cieˆncias, 2000), 195– 208. 36. Reuben Mark Sulc, and Benjamin F. Tracy, “Integrated Crop-Livestock Systems in the U.S. Corn Belt”, Agronomy Journal 99 (2007), 335 – 45; Mario Herrero, P. K. Thornton, A. M. Notenbaert, S. Wood, S. Msangi, H. A. Freeman, D. Bossio, J. Dixon, M. Peters, J. van de Steeg, J. Lynam, P. Parthasarathy Rao, S. Macmillan, B. Gerard, J. McDermott, C. Sere´, and M. Rosegrant, “Smart Investments in Sustainable Food Production: Revisiting Mixed Crop-Livestock Systems”, in Science 327 (2010), 822– 5; and Vilela et al., “Sistemas de Integrac a˜o Lavoura-Pecua´ria”, 1127– 38. 37. Sulc and Tracy, “Integrated Crop-Livestock”, 335– 45; Herrero et al., “Smart Investments”, 822– 5; and Vilela et al., “Sistemas de Integrac a˜o LavouraPecua´ria”, 1127– 38. 38. Vilela et al., “Sistemas de Integrac a˜o Lavoura-Pecua´ria”, 1127– 38.

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39. Geraldo Bueno Martha Junior, Eliseu Roberto de Andrade Alves, and Elisio Contini, “Dimensa˜o Econoˆmica de Sistemas de Integrac a˜o Lavoura-Pecua´ria”, Pesquisa Agropecua´ria Brasileira 46 (2011), 1117– 26. 40. Pereira et al., “Development of Brazilian Agriculture”, 1 – 12. 41. Wenceslau Goedert, Solos dos Cerrados: Tecnologias e Estrate´gias de Manejo, Planaltina: Embrapa-CPAC/Nobel, 1987; Djalma Martinha˜o Gomes de Sousa, and Edson Lobato (eds), Cerrado: Correca˜o do Solo e Adubaca˜o (Embrapa Informac a˜o Tecnolo´gica, 2004). 42. Dobereiner, “Biological Nitrogen Fixation”, 771– 4; Dobereiner, Baldani, and Reis, “The Role of Biological”, 195– 208; and Baldani and Baldani, “History on the Biological Nitrogen”, 549– 79. 43. Ana Cristina Sagebin Albuquerque and Aliomar Gabriel da Silva (eds), Agricultura Tropical: Quatro De´cadas de Inovaco˜es Tecnolo´gicas, Institucionais e Polı´ticas, Vol. 1 (Embrapa Informac a˜o Tecnolo´gica, 2008). 44. Jose´ Eloir Denardin, Rainoldo Alberto Kochhann, Benami Bacaltchuk, A. Sattler, Norimar D’A´vila, Denardin, A. Faganello, and S. Wietholter, “Sistema de Plantio Direto: Fator de Potencialidade da Agricultura Tropical Brasileira”, in Agricultura Tropical: Quatro De´cadas de Inovaco˜es Tecnolo´gicas, Institucionais e Polı´ticas, edited by Ana Cristina Sagebin Albuquerque and Aliomar Gabriel da Silva, vol. 1, (Embrapa Informac a˜o Tecnolo´gica, 2008), 1251–73. 45. Lourival Vilela, Geraldo Bueno Martha Junior, Manuel Cla´udio Motta Macedo, Robe´lio Leandro Marcha˜o, Roberto Guimara˜es Ju´nior, Karina Pulrolnik, and Giovana Alcantara Maciel, “Sistemas de Integrac a˜o Lavoura-Pecua´ria na Regia˜o do Cerrado”, in Pesquisa Agropecua´ria Brasileira 46 (2011), 1127– 38. 46. Martha Junior, Alves, and Contini, “Land-saving”, 173 – 7; Martha Junior, “Expansa˜o da Cadeia de Cana-de-Ac u´car”. 47. Pereira et al., “Development of Brazilian Agriculture”, 1 – 12. 48. Ibid. 49. Martha Junior, Alves, and Contini, “Land-saving”, 173– 7. 50. Gasques and Conceic a˜o, orgs., Transformaco˜es da Agricultura; Jose´ Pastore and Eliseu Roberto de Andrade Alves, “Reforming the Brazilian Agricultural Research System”, in Thomas M. Arndt, Dana G. Dalrymple, and Vernon W. Ruttan (eds), Resource Allocation and Productivity in National and International Agricultural Research (University of Minnesota Press, 1976), 394 – 403. 51. Nienke M. Beintema, Antonio Flavio Dias A´vila, and Philip G. Pardey, Agricultural R&D in Brazil: Policy, Investments and Institutional Profile (IFPRI, Embrapa and Fontagro, 2001). 52. Ibid. 53. Pastore and Alves, “Reforming the Brazilian Agricultural”, 394 –403; Alves and Contini, “Modernizac a˜o da Agricultura Brasileira”, 49 – 98; Gert-Jan Stads, and Nienke M. Beintema, “Public Agricultural Research in Latin America and the Caribbean: Investment and Capacity Trends”, (International Food Policy Research Institute, 2009); Beintema, A´vila and Pardey, Agricultural R&D in Brazil (2001).

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54. Beintema, Nienke M., and Gert-Jan Stads, “Public Agricultural R&D Investments and Capacities in Developing Countries: Recent Evidence for 2000 and Beyond”, in Agricultural Science and Technology Indicators (Washington: ASTI Background note, 2010), 1 – 8. Note prepared for the Global Conference on Agricultural Research for Development (GCARD), Montpellier, 27 – 30 March 2010. 55. Nienke M. Beintema and Howard Elliott, “Setting Meaningful Investment Targets in Agricultural Research and Development: Challenges, Opportunities and Fiscal Realities”, in Piero Conforti (ed.), Looking Ahead in World Food and Agriculture Perspectives to 2050 (Food and Agriculture Organization of the United Nations, 2011), 347– 87. 56. Agricultural Science and Technology Indicators (ASTI) and Consultative Group on International Agricultural Research (CGIAR), “Agricultural Science and Technology Indicators – Brazil,” http://www.asti.cgiar.org/brazil. 57. Agricultural Science and Technology Indicators. 58. Beintema and Stads, “Public Agricultural R&D”, 1 – 8. 59. Eliseu Roberto de Andrade Alves, “Embrapa: a Successful Case of Institutional Innovation”, Revista de Polı´tica Agrı´cola 9 (2010), 64 –72. 60. Beintema, A´vila and Pardey, Agricultural R&D in Brazil. 61. Alves, “Embrapa: a Successful Case”, 64– 72. 62. Ibid. 63. Phillip G. Pardey, and Julian M. Alston, U.S. Agricultural Research in a Global Food Security Setting: Report to the CSIS Task Force on Food Security (Center for Strategic and International Studies, 2010). 64. Alves, “Embrapa: a Successful Case”, 64– 72.

References Agricultural Science and Technology Indicators (ASTI) and Consultative Group on International Agricultural Research (CGIAR), “Agricultural Science and Technology Indicators – Brazil”. http://www.asti.cgiar.org/brazil. de Andrade Alves, Eliseu Roberto and Afonso Celso Pastore, “Import Substitution and Implicit Taxation of Agriculture in Brazil,” American Journal of Agricultural Economics 60 (1978): 865–71. de Andrade Alves, Eliseu Roberto and Elisio Contini, “Modernizac a˜o da Agricultura Brasileira,” in Os Principais Problemas da Agricultura Brasileira: Ana´lise e Sugesto˜es, edited by Antonio S. Branda˜o (Rio de Janeiro: IPEA/INPES, 1998), 49 – 98. de Andrade Alves, Eliseu Roberto, “Nosso Problema de Difusa˜o de Tecnologia,” Revista de Polı´tica Agrı´cola 21 (2012): 3– 4 Baer, Werner, The Brazilian Economy, 6th edn (Boulder: Lynne Rienner Publishers, 2008). Baldani, Jose´ Ivo and Vera Lucia Divan Baldani, “History on the Biological Nitrogen Fixation Research in Graminaceous Plants: Special Emphasis on the Brazilian Experience,” in Anais da Academia Brasileira de Cieˆncia 77 (2005), 549 – 79.

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Beintema, Nienke M., Antonio Flavio Dias A´vila, and Philip G. Pardey, Agricultural R&D in Brazil: Policy, Investments and Institutional Profile (Washington, DC: IFPRI, Embrapa and Fontagro, 2001). Beintema, Nienke M. and Gert-Jan Stads, “Public Agricultural R&D Investments and Capacities in Developing Countries: Recent Evidence for 2000 and Beyond,” in Agricultural Science and Technology Indicators (Washington: ASTI Background note, 2010), 1 – 8. Beintema, Nienke M. and Howard Elliott, “Setting Meaningful Investment Targets in Agricultural Research and Development: Challenges, Opportunities and Fiscal Realities,” in Looking Ahead in World Food and Agriculture Perspectives to 2050, edited by Piero Conforti (Rome: Food and Agriculture Organization of the United Nations, 2011), 347– 87. Boddey, Robbert Michael, Joa˜o Carlos de Moraes Sa´, Bruno Jose´ Rodrigues Alves and Segundo Urquiaga, “The Contribution of Biological Nitrogen Fixation for Sustainable Agricultural Systems in the Tropics,” in Soil Biology and Biochemistry 29 (1997), 787 – 99. Bueno Martha Junior, Geraldo, Eliseu Roberto de Andrade Alves, Elisio Contini, and Simone Ramos, “The Development of Brazilian Agriculture and Future Challenges,” Revista de Polı´tica Agrı´cola 19 (2010), 91– 104. Bueno Martha Junior, Geraldo, Eliseu Roberto de Andrade Alves, and Elisio Contini, “Dimensa˜o Econoˆmica de Sistemas de Integrac a˜o Lavoura-Pecua´ria,” Pesquisa Agropecua´ria Brasileira 46 (2011), 1117– 26. Bueno Martha Jnr, Geraldo Elisio Contini and Eliseu Roberto de Andrade Alves, “Embrapa: Its Origins and Change,” in The Regional Impact of National Policies: The Case of Brazil, edited by Werner Baer (Northampton: Edward Elgar Publishers, 2012a), 204– 26. Bueno Martha Junior, Geraldo, Eliseu Alves Roberto de Andrade, and Elisio Contini, “Land-Saving Approaches and Beef Production Growth in Brazil,” in Agricultural Systems 107 (2012b), 173– 7. Bueno Martha Junior, Geraldo, “Expansa˜o da Cadeia de Cana-de-Ac u´car e Suas Implicac o˜es para o Uso da Terra e Desenvolvimento do Cerrado,” Final Report, Conselho Nacional de Desenvolvimento Cientı´fico e Tecnolo´gico, Brası´lia, 2013. Dobereiner, Johanna, “Biological Nitrogen Fixation in the Tropics: Social and Economic Contributions,” in Soil Biology and Biochemistry 29 (1997), 771 – 4. Dobereiner, Johanna, Vera Lucia Divan Baldani, and Veronica Massena Reis, “The Role of Biological Nitrogen Fixation to Bio-energy Programmes in the Tropics,” In Transition to Global Sustainability: The Contribution of Brazilian Science, edited by Carlos Eduardo Rocha-Miranda, Rio de Janeiro: Academia Brasileira de Cieˆncias, 2000, 195– 208. Eloir Denardin, Jose´, Rainoldo Alberto Kochhann, Benami Bacaltchuk, A. Sattler, Norimar D’A´vila, Denardin, A. Faganello, and S. Wietholter, “Sistema de Plantio Direto: Fator de Potencialidade da Agricultura Tropical Brasileira,” in Agricultura Tropical: Quatro De´cadas de Inovaco˜es Tecnolo´gicas, Institucionais e Polı´ticas, edited by Ana Cristina Sagebin Albuquerque and Aliomar Gabriel da Silva, vol. 1 (Brası´lia: Embrapa Informac a˜o Tecnolo´gica, 2008), 1251– 73. Fla´vio Dias A´vila, Antonio, Luis Romano and Fernando Luis Garagorry Cassales, “Agricultural Productivity in Latin America and the Caribbean and Sources of

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growth,” in Handbook of Agricultural Economics, edited by Prabhu L. Pingalli and Robert Evenson (Amsterdam: Elsevier, 2010): 3713– 68. Food and Agriculture Organization (FAO), Land Resource Potential and Constraints at Regional and Country Levels (Rome: FAO, 2000). Garcia Gasques, Jose´ and Junia Cristina P. R. da Conceic a˜o, Transformaco˜es da Agricultura e Polı´ticas Pu´blicas (Brası´lia: IPEA, 2001). Garcia Gasques, Jose´, Eliana Teles Bastos, Mirian P. R. Bacchi, and Junia Cristina P. R. da Conceic a˜o, Condicionantes da Produtividade na Agropecua´ria Brasileira (Brası´lia: IPEA, 2004). Garcia Gasques, Jose´, Eliana Teles Bastos and Mirian R. Piedade Bacchi, “Produtividade e Fontes de Crescimento da Agricultura Brasileira,” in Polı´ticas de Incentivo a` Inovaca˜o Tecnolo´gica no Brasil, edited by Joa˜o Alberto De Negri and Luis Claudio Kuboca (Brası´lia: IPEA, 2008), 435– 59. Goedert, Wenceslau, Solos dos Cerrados: Tecnologias e Estrate´gias de Manejo (Planaltina: Embrapa-CPAC/Nobel, 1987). Gremaud, Amauri, Marcos Antonio Sandoval de Vasconcellos and Rudinei Toneto Jnr, Economia Brasileira Contemporaˆnea, 5th edn (Sa˜o Paulo: Atlas, 2004). Herrero, Mario, P. K. Thornton, A. M. Notenbaert, S. Wood, S. Msangi, H. A. Freeman, D. Bossio, J. Dixon, M. Peters, J. van de Steeg, J. Lynam, P. Parthasarathy Rao, S. Macmillan, B. Gerard, J. McDermott, C. Sere´ and M. Rosegrant, “Smart Investments in Sustainable Food Production: Revisiting Mixed Crop-Livestock Systems,” in Science 327 (2010), 822 – 5. Instituto Nacional de Pesquisas Espaciais (INPE), “Projeto PRODES: Monitoramento da Floresta Amazoˆnica Brasileira por Sate´lite”. http://www.obt.inpe.br/ prodes/index.php. Leite da Silva Dias, Guilherme and Cicely Moitinho Amaral, “Mudanc as Estruturais na Agricultura Brasileira, 1980-1998,” in Brasil: Uma De´cada em Transica˜o, edited by Renato Baumann (Rio de Janeiro: Cepal/Campus, 1999), 223 –54. Lopes, Maurı´cio Antoˆnio, “The Brazilian Agricultural Research for Development (ARD) System,” in Improving Agricultural Knowledge and Innovation Systems: The OECD Conference Proceedings, 323– 4 (Paris: OECD, 2012). Mariangela, Julio C. Hungria, Rubens J. Campos Franchini, Carla C. Crispino, Jose´ Z. Moraes, Rubson N. R. Sibaldelli, Ieˆda C. Mendes, and Joji Arihara, “Nitrogen Nutrition of Soybean in Brazil: Contribution of Biological N2 Fixation and Nitrogen Fertilizer to Grain Yield,” in Canadian Journal of Plant Science 86 (2006), 927– 39. Martinha˜o Gomes de Sousa, Djalma and Edson Lobato (eds), Cerrado: Correca˜o do Solo e Adubaca˜o (Brası´lia: Embrapa Informac a˜o Tecnolo´gica, 2004). Ministe´rio da Agricultura, Pecua´ria e Abastecimento (MAPA), Projeco˜es do Agronego´cio Brasileiro: Brasil 2012/2013 a 2022/2023: Projeco˜es de Longo Prazo (Brası´lia: MAPA, 2013). Ministe´rio do Desenvolvimento, Indu´stria e Come´rcio Exterior (MDIC), “Come´rcio Exterior: Balanc a Comercial Brasileira”. http://www.mdic.gov.br/sitio/interna. php?area¼5&menu1161. Nayro Coelho, Carlos, “70 Anos de Polı´tica Agrı´cola no Brasil (1931-2001),” Revista de Polı´tica Agrı´cola 10 (2001), 3 – 58. Pardey, Phillip G. and Julian M. Alston, U.S. Agricultural Research in a Global Food Security Setting: Report to the CSIS Task Force on Food Security (Washington, DC: Center for Strategic and International Studies, 2010).

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Pastore, Jose´ and Eliseu Roberto de Andrade Alves, “Reforming the Brazilian Agricultural Research System,” in Resource Allocation and Productivity in National and International Agricultural Research, edited by Thomas M. Arndt, Dana G. Dalrymple and Vernon W. Ruttan (Minneapolis: University of Minnesota Press, 1976), 394 – 403. Pereira, Pedro Antonio Arraes, Geraldo Bueno Martha Junior, Carlos A. M. Santana and Eliseu Roberto de Andrade Alves, “The Development of Brazilian Agriculture: Future Technological Challenges and Opportunities,” in Agriculture & Food Security 1 (2012), 1 – 12. Sagebin Albuquerque, Ana Christina and Aliomar Gabriel da Silva (eds), Agricultura Tropical: Quatro De´cadas de Inovaco˜es Tecnolo´gicas, Institucionais e Polı´ticas, Vol. 1 (Brası´lia: Embrapa Informac a˜o Tecnolo´gica, 2008). Stads, Gert-Jan and Nienke M. Beintema, “Public Agricultural Research in Latin America and the Caribbean: Investment and Capacity Trends,” (Washington, DC: International Food Policy Research Institute (IFPRI), 2009). Sulc, Reuben Mark and Benjamin F. Tracy, “Integrated Crop-Livestock Systems in the U.S. Corn Belt,” Agronomy Journal 99 (2007), 335– 45. Thorp, Rosemary, Progress, Poverty and Exclusion: An Economic History of Latin America in the 20th Century (Washington, DC: Inter-American Development Bank, 1998). Unia˜o Brasileira de Avicultura (UBA), Relato´rio Te´cnico Anual 2007/2008 (Sa˜o Paulo: UBA, 2008). Vilela, Lourival, Geraldo Bueno Martha Junior, Manuel Cla´udio Motta Macedo, Robe´lio Leandro Marcha˜o, Roberto Guimara˜es Ju´nior, Karina Pulrolnik, and Giovana Alcantara Maciel, “Sistemas de Integrac a˜o Lavoura-Pecua´ria na Regia˜o do Cerrado,” in Pesquisa Agropecua´ria Brasileira 46 (2011), 1127– 38. World Resource Institute (WRI), World Resources 2008: The Roots of Resilience – Growing the Wealth of the Poor, (Washington, DC: WRI, 2008).

CHAPTER 16 BUTANTAN INSTITUTE: NEW FRONTIERS IN IMMUNOLOGICAL SCIENCES Jorge Kalil

Historical Note In 1900, a commission formed by Dr Emı´lio Ribas, Director of Health Services of Sa˜o Paulo State, Dr Adolpho Lutz, Director of the Bacteriological Institute, and Dr Vital Brazil Mineiro da Campanha, his assistant, proposed the creation of a Serum Therapy Institute in Sa˜o Paulo, to be installed at the Fazenda Butantan, a locality apart from the capital at that time. The foundation and direction of the Serum Therapy Institute of the State of Sa˜o Paulo (current Butantan Institute) was granted to Dr Vital Brazil, with the immediate responsibility of producing serum to be used against the epidemic of bubonic plague afflicting the country. The Institute was officially established on 23 February 1901. The first vials of anti-bubonic plague serum were produced in June and the Institute has continued its work over the years in many different activities, becoming principally known as an important producer of several anti-ophidic sera and a ground-breaking scientific institute.

Mission and Activities Today, Butantan Institute, linked to the Sa˜o Paulo State Secretary of Health, has a mission to develop biological products for public health,

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undertaking basic and applied research, and promoting scientific knowledge. The Institute is currently responsible for providing 40 per cent of all of the nationally produced sera and vaccines1 that are distributed, free of charge, to the entire population of the country by the Brazilian Health Ministry through the Unified Health System (SUS). The Institute develops and produces immunobiological and biopharmacological products of interest to public health, generates new information through scientific research, educates and trains human resources in the areas of science and technology, and seeks to promote and stimulate scientific understanding among the general population (especially young people). World renowned for the study of poisonous animals and the venoms and toxins produced by them, Butantan Institute has always attracted new scientific leaders. Together with researchers and postgraduate students, they develop research projects in many different areas, such as biology and systematic classification of serpents, arthropods and parasites, biochemistry and pharmacology of venoms and their components, physiopathology of venoms, immunology in response to exposure to venoms and pathogenic microorganisms, genetic basis of immune responses, and cytogenetics and genetics of poisonous animals. These studies cover many fields and involve considerations of biodiversity, ecology, natural history of animals, clinical aspects of human poisoning, mechanisms of action of venoms, bio-prospection for toxins with therapeutic potential, and the development of new antivenin sera and alternative therapies. Therefore, the objectives of Butantan Institute compose a stable tripod consisting of cultural promotion/education, research and production. Butantan’s Cultural Development Centre deals with intellectual dissemination and research based on Education, Museology, and the History of Science and Public Health. The Centre undertakes projects designed to promote scientific research developed within the institute, publishing materials that are made available in its documentation unit, library, museums and educational sections. In addition to four museums – Emilio Ribas holding a collection of documents produced by the public health system of the State of Sa˜o Paulo), Biological, Microbiological, and Historical – the Cultural Development Centre is also responsible for the coordination of temporary and itinerant exhibitions that reach over 300,000 visitors every year.

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By way of the Amazonian Butantan Project and the National Institute of Toxin Sciences and Technology (INCTtox), Butantan Institute became a collaborator and partner in the definition of archive policies in the municipality of Belterra, Para´ State, through the “Research Group in Heritage and Memory”, with activities designed to preserve and protect Brazil’s material and immaterial heritage. Organizing material and interviews of historical value, workshops to recover oral histories and activities related to Cultural Heritage Education and public health in the municipality of Belterra are also objectives of the Amazonian Butantan Project and INCTTox, which seeks to bring a greater integration between the institute and the community. These researchers identify practices for preventing and treating accidents caused by poisonous animals used by the communities established along the Tapajo´s River in western Para´ State and among traditional communities in the interior of Sa˜o Paulo State. Researchers in the focal communities of Belterra and Juquitiba maintain programs aimed at public health education, biology, and cultural heritage, considering the practices in those communities as traditional knowledge. The collection and organization of documents detailing the history of public health in Belterra resulted in the creation of the city Memory Centre, inaugurated in 2010. The Centre was designed to hold, preserve, and make available documents concerning the history of the municipality, as well as a space for research. At the same time, it will stimulate the community to participate in the process of historical protection under IPHAN – PAC Historical Cities,2 and to promote the importance of the citizens’ life histories as part of the nation’s cultural heritage.

Research and Development The Research and Production Centre of Butantan Institute includes 35 scientific laboratories; the Centre for Technological Innovation; a specialized hospital (Hospital Vital Brazil); three vivaria (one each for mammals, spiders, and serpents); seven vaccine production centres, including one for veterinary use; a centre for plasma fractioning; and 11 bio-product manufacturing sites. These research and production centres employ approximately 180 researchers with 220 additional masters, doctoral and postdoctoral students, who undertake scientific missions within the country as well as throughout the world through the World

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Health Organization (WHO), the Pan American Health Organization (PAHO), UNICEF and the UN. They also cooperate in combating epidemics together with the Sa˜o Paulo State Secretary of Health and the Brazilian Health Ministry, the US National Institutes of Health (NIH), and the Bill & Melinda Gates Foundation. Fully focused on the development of scientific research and the production of immunobiological products used in public health campaigns, Butantan Institute publishes in all of its areas of expertise, and offers internships as well as extension and postgraduate courses (Masters, Doctorate, and MBA). The productive complex of the Institute has dominated the technologies for producing at least 12 types of serums and six vaccines that are distributed by the Brazilian Health Ministry. Within the processes of innovation and development of technologies for vaccine production, Butantan Institute has been working with Technology Transfer from public and private producers in industrialized countries, as well as with its own independent production. The first technology transfer completed in Brazil was carried out with significant success by the collaboration of Sanofi-Pasteur and the Butantan Institute for the production of the influenza vaccine. Technology transfer is a multifaceted, complex and delicate process. It involves not only transferring basic knowledge, but also techniques for quality control and quality guarantees, the knowledge of the regulatory processes, clinical studies to insure the adequacy of production, as well as the capacity to adapt to local conditions, which requires the renovation and updating of production facilities to international standards of quality. After a process initiated in 1999, the Butantan Institute industrial complex was inaugurated in 2007 and is capable of producing vaccines against various subtypes of the influenza virus, such as H1N1, swine flu, H5N1 and avian flu. Four years later the first batch of vaccines against influenza entirely produced in Brazil was delivered, and the institute received, in 2012, a certificate of Good Production Practices from the Brazilian National Agency of Public Health (ANVISA). Recently, a new agreement for the development and production of a vaccine against HPV in Brazil through technology transfer was signed between the Merck Sharp & Dohme (MSD) international laboratory and the Butantan Institute. In 2014 the vaccine started to be offered to the public health network to immunize girls aged between 11 and 13.

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Approximately 77 per cent of the immunobiological products currently used by the Brazilian Health Ministry are produced in country. With the specific objective of strengthening the national production capacity of immunobiological products and establishing a production policy in Brazil, the Health Ministry created, in 1985, the National Program of Self-Sufficiency in Immunobiologicals. This programme has since invested considerable resources in official laboratories, the recuperation of infrastructure, the modernization of installations and equipment, the construction of new laboratory facilities, specialized professional training, the development of national technologies, and technology transfer for the production of new vaccines. Production and modernization on the subject of immunobiologicals require the technological development of cell culture infrastructures and vivaria, investments in biotechnology, updating equipment and installations used for storage and conservation, quality control, public health, and the production of new vaccines. The entire process is designed to certify that national companies can produce vaccines that adhere to international standards and offer the newest, most secure and most efficient products on the market.

International Cooperation The technical competency of Butantan Institute and its investments in improvements on production facilities in terms of both national and international standards (FDA, WHO, ANVISA) have stimulated the interest in partnerships with other institutes dedicated to public health and international universities. Technology transfer between public sector producers in industrialized countries offers the advantage of both parties complementing efforts to bring vaccines to the market under reduced timelines – and the partners can take advantage of all the biotechnological innovations created by each party as an additional gain from the jointly developed work. Examples of these partnerships and of the work under development include collaboration with: . .

National Institutes of Health (NIH) for the production of vaccines against Rotavirus and the Dengue virus; Boston Children’s Hospital at the Harvard Medical School for a vaccine against pneumococcus;

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Sabin Institute and the George Washington University for a vaccine against schistosomiasis (the parasites Necator and Schistosoma); Infectious Diseases Research Institute in Seattle and the University of Washington for a vaccine against Canine Leishmaniasis.

Additionally, since the mid-1980s, the Butantan Institute has independently produced a trivalent vaccine against diphtheria, tetanus and pertussis (whooping cough), as well as a vaccine against Hepatitis B. The first clinical tests of an oral vaccine against Hepatitis B have also started. Following its vocation as a centre for the study of the venom of poisonous animals, and with the support of the Sa˜o Paulo Research Foundation (FAPESP) and the Ministry of Science and Technology, Butantan Institute inaugurated an advanced campus in Santare´m (Para´ State). Researchers, students, and health professionals from the Butantan Institute and from the region offer courses there, collect specimens, stimulate research, and improve treatments and care for accidents with venomous animals. The prestige of the Butantan Institute in the area of animal toxins and microorganisms was decisive in hosting one of the Centres for Research, Innovation and Diffusion supported by FAPESP since 2002 – the Centre of Applied Toxinology. In 2013, the Centre for Research in Toxins, Immune Responses and Cellular Signalling started developing studies concerning the biochemical, molecular and cellular mechanisms of the actions of toxins showing therapeutic potential, with the objective of establishing proof of concept based on the analyses of molecular signalling networks. The results of this research will be transferred to the industry through a process mediated by the Technology Transfer Office of the Butantan Institute. Educational and knowledge diffusion activities are also planned for the institute’s museums. At the international level, the Butantan Institute maintains more than 80 partnerships and international agreements with researchers, universities, governmental entities, foundations, institutes, science museums, and laboratories designed to promote its internationalization3 through collaborative research and development of new products and technologies. Additionally, researchers from the Butantan Institute are working, through grants provided by financing agencies in Brazil (FAPESP, CAPES, CNPq, BNDES, and the Fulbright Foundation – Science Without Borders

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Program)4, in various projects in cooperation with scientists from different international institutions. A number of international agencies have demonstrated interest in Brazil in terms of furnishing vaccines, and there are demands from Colombia and some African countries for technology transfer agreements to produce Butantan’s antisera.

Looking Ahead With 113 years of existence and a history marked by technological advances directed towards public health issues, the Butantan Institute is considered one of the major scientific centres in the world. Having an important role in the scientific and technological development of the country, one of its greatest challenges is to maintain the highest levels of excellence in the production of vaccines and sera while also bringing together research and production – so that Brazil will stay at the forefront of progress in public health considerations. With those objectives in mind, the Butantan Foundation was created in 1989 as a private non-profit institution, with the mission of collaborating with Butantan Institute through investments and facilitating its legal attributions, as well as those relative to scientific, technological and cultural development, the production of immunobiologicals and other products, and rendering public services to the community. The Butantan Foundation has allowed the continued development and improvement of the Butantan Institute as it has established an agile system that allows the efficient utilization of funds obtained from supplying immunobiologicals to the Brazilian Health Ministry and their reinvestment in new production plants. The Foundation’s contracts with national and international public and private organizations include financing research and undertaking technological improvements in laboratories. The efficient use of budgetary and extra-budgetary funds, and reinvestment of income derived from the commercialization of sera and vaccines, has allowed a significant increase in the initiatives undertaken by the Butantan Institute. In 2012, the Butantan Institute’s budget was $210 million. For the next five years, its investment perspective is $700 million. During the year 2012 the integration of the structures of the Butantan Institute and the Butantan Foundation was initiated to

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promote important synergies between administrative processes and strategic alignment. This integration was completed with the implementation of the Centre for Shared Services (CSC), in which the two management levels – administrative and financial – operate sideby-side under the best practices of corporate governance. Scientific and Technological Institutions (STIs) such as universities and research institutes have been, without a doubt, fundamental in the development of immunobiological products and in advancing scientific and technological knowledge. The key role of knowledge in social and economic development in the last decades has helped consolidate the expression “knowledge-based economy”. At the present time, any sophisticated economic system depends on the exchange of ideas between STIs and businesses. The government, the academic sector and industry have been debating strategies on how to make Brazilian science more competitive, and the education and training necessary to develop human resources qualified to work with innovation are at the centre of their agenda. The rapid evolution of technological innovations, competition from large multinational laboratories, and the necessities of Brazilian public health all impose upon national laboratories the enormous challenge of seeking at efficiency, sustainable operations, technological development and innovation. It is fundamental to be technologically competitive to survive in the modern world. In order for scientific knowledge to generate a competitive product it is necessary to act with efficiency to protect intellectual property (including patents, licenses, commercialization) – aggregating value to discoveries being made, to production engineering, and to its safety when introduced to society. The Butantan Institute is proposing the creation of the Butantan Institute for Biotechnological Innovation (IIBB) to use its accumulated technical-scientific experience in a system of institutional management that strives for agility in the administration of innovation. IIBB is designed to promote interactions with private partners for the development of its discoveries and innovations and to incorporate new products into actions directed toward public health. IIBB’s mission resides in becoming an instrument that would strengthen the science and technology binomial while supported by technological developments under the responsibility of small enterprises and autonomous start-up projects. This model is designed to facilitate

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the production of essentially any biotechnological product, pharmaceutical, or new discoveries that would contribute to promoting public health by cost control and innovations – thus allowing Butantan Institute to devote itself to further development of its primary vocation, which is scientific research. At first, the IIBB model will be anchored in projects linked to Butantan Institute itself and in projects with national and international partners. Yet, always following the pattern of cumulative competence building, IIBB will develop innovative5 and similar6 bio therapeutic products, all of which are related to what is known as Red Biotechnology.7 As such, IIBB will have as its primary objective the incubation of promising projects until they could become spin-offs of the Institute and/or associated companies, thus catalysing the link between basic and experimental research with advanced research, intermediate costs and risks, and leveraging their potential of becoming successful new products or processes. This work will necessarily emphasize research support, applied research, services, patenting, and licensing. The Butantan Institute still retains the state and federal governments as its most important sources of funding. Nonetheless, regulatory frameworks and new financing policies instituted in Brazil in the last 10 years have stimulated private investments in research and development and interactions among the various players in the sector. The possibility of associating Butantan Institute with private sector initiatives to obtain additional extra-budgetary resources will not only relieve the State of many expenses, but will also demand that the Institute’s scientific and technological production adopt the highest international standards of quality and competitiveness. The development of new products by private companies based on discoveries and innovations originating at Butantan Institute will promote the expansion of scientific knowledge in Brazil as a whole and strengthen the growth of national production of health products. The financial benefits resulting from these partnerships may guarantee the sustainability and autonomy of the Butantan Institute and allow it to direct itself specifically to the implementation of programmes and projects in science and technology, and to the production of knowledge in activities related to public health.

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Conclusion The health sector today is highly competitive, mobilizes enormous resources, and is concentrated in the United States, England, France and Switzerland – with the largest production laboratories in the world. These markets’ reserves and corporate interests often compromise the social benefits that could otherwise result from increasing investments in public health. Important changes in the global and political systems have been taking place over the past years both in Latin American and in Arab countries. Lessons from the Latin American experiences may be quite relevant to the processes occurring in the Middle East today as they lead to important engagements with other nations and to the establishment of policy decisions that serve national interests in the leading countries. Such changes offer an opportunity to rethink the development models in those regions. Beyond investment relations and interdependent trade interests it is important to focus on research and innovation as key priority elements for building societies based on knowledge and expertise. Inter-regional cooperation for mutual development is essential for the consolidation of development and competitiveness. And the Butantan Institute is interested and open to new cooperation with the aim of bridging knowledge gaps and promoting scientific research, technological development, and regional competitiveness.

Notes 1. Vaccination programmes in Brazil are coordinated by the National Immunological Program (PNI) of the Secretary of Public Health of the Health Ministry. Created in 1973, this programme is designed to protect the Brazilian population against illnesses that can be avoided by the use of immunobiologicals, including vaccines. The PNI coordinates and defines norms, technical and scientific procedures through systematic strategic actions of vaccinations of the general population based on epidemiological monitoring of immune-preventable diseases and technological innovations. At the same time the programme assumes the role of acquiring, conserving, and distributing the immunobiologicals that are part of the national vaccination calendar. 2. IPHAN – PAC: the Historic and Artistic National Heritage Institute (IPHAN) program for Growth Acceleration of Historical Cities (PAC). 3. The partnerships are concentrated in the United States, United Kingdom, France, Germany, Italy, Spain, Portugal, Switzerland, Mozambique, Japan, Australia, Mexico, Cuba, Costa Rica, Argentina, Chile, Colombia and Uruguay.

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4. FAPESP (Fundac a˜o de Amparo a` Pesquisa do Estado de Sa˜o Paulo) – Sa˜o Paulo Research Foundation; CAPES (Coordenac a˜o de Aperfeic oamento de Pessoal de Nı´vel Superior) – Coordination for Enhancement of Higher Education Personnel; CNPq (Conselho Nacional de Desenvolvimento Cientı´fico e Tecnolo´gico) – National Council for Scientific and Technological Development; BNDES (Banco Nacional de Desenvolvimento Econoˆmico e Social) – Brazilian Social and Economic Development Bank; Science Without Borders program – Brazilian Ministry of Science, Technology and Innovation (MCTI) and the Ministry of Education (MEC). 5. Innovative bio therapeutics: products whose efficiency, security and quality have been scientifically established at the time of their registration (brand-name drugs). 6. Similar bio therapeutics: products that contain the same active ingredient, the same concentrations, pharmaceutical nature, mode of administration, posology, and therapeutic indication as the reference medicine, but are not bio equivalents (cannot substitute the brand-name drugs on the prescription. Although they have their quality assured by the Ministry of Health, they have not yet passed by tests for bioequivalence). 7. Red Biotechnology includes the use of processes related to medicine and pharmacology that are based on the genetic manipulation of organisms. Antibiotics, diagnostic techniques, vaccines, gene therapy, genetic testing, are some examples of applications in this area.

INDEX

ABANA (Arab American Banking Association), 183 ABC (Arab Banking Corporation), 184– 185, 193, 317 Afghanistan, 11, 186, 188, 190 Africa, 4, 6–7, 12, 18, 39–40, 43, 48, 118–119, 123, 125, 134, 138, 167, 175, 187, 189–190, 194, 209, 212–214, 229, 238, 268–269, 278, 290, 297–298, 317 agribusiness agrarian, 19, 129, 153, 291, 293 agriculture, 20 – 23, 120, 122, 160, 167, 182, 189, 194, 210, 219, 247, 249, 251, 253– 259, 261– 263, 268– 272, 277– 279, 282, 284, 288, 290– 298, 306– 315, 317– 320 buy and lease back, 196– 197 capacity building, 295 Embrapa, 21, 272– 273, 307, 309, 311, 313, 315– 320 investment, 195– 196 Islamic Commodities Trading, 197 MENA– Brazilian Agribusiness Partnership, 298 production management, 295 technical support, 294

Algeria, 4, 21 –22, 24, 29, 32, 55 – 58, 79, 90, 119, 135, 180, 195, 198, 211–214, 217, 220, 247, 250, 252, 254– 255, 257– 259, 318 ARPC (Algerian Agency for the Management of Major Cultural Projects), 58 aluminium, 22, 88 – 89, 135 Amazon, the, 218, 269, 309 Ankara, 47, 49 Annan, Kofi, 38 Annapolis, 43 – 44 Annapolis Process, 44 AOAD (Arab Organization for Agricultural Development), 254, 256–257, 259, 287– 289 APEC (Asia– Pacific Economic Council), 52, 128 Arab world Arab American Banking Association, 183 Arab Banking Corporation, 183, 193 Arab diaspora in Latin America, 46, 51, 59, 101 Arab Maghreb, 4, 36, 123, 214 Arab Organization for Agricultural Development, 288 Arab people, 29 – 30, 32, 47 – 49, 64 – 65, 67, 175, 181, 194

INDEX Arab Spring, 19 – 20, 26, 46, 188– 190, 210, 286 Arabesque, 28, 32 Arabization, 4, 18, 175 Arab– Latin America ARLA (Arab Latin American Forum), 62 bi-regional preferential trade, Ch 5 passim, 92 – 103 culture and education, 51– 64 dialogue, 34, 36–37, 40–41, 43–44, 46, 51–55, 61–63, 66, 68, 118, 120, 124, 126, 260, 274, 276 relations, 5 – 11, 13 – 14, 17 – 18, 20 –21, 24 –26, 31, 54, 74, 79, 92, 108, 120, 124, 155, 165, 172– 173, 209, 221, 276, 316– 317 trade relations, 73, 75, 77, 79, 81, 83, 85, 87, 89 arable land, 22, 216, 255, 269, 287– 288, 293, 306 Arafat, Yasser 39 ARD (Brazilian Agricultural Development System), 314, 320 Argentina, 11, 13 – 14, 22, 35, 41, 57, 59, 61, 79, 85 – 86, 88, 90, 147, 150, 193, 209, 220, 290 ARLA Bank, 182, 192– 193 ASA (Africa – South America Process), 52, 118 Asia, 18, 52, 55, 64, 66 – 68, 72, 74, 103, 150, 183, 187, 189– 190, 194, 268, 290, 317 ASEAN (Association of Southeast Asian Nations), 72, 74– 75, 90 ASPA (Summit of South American – Arab Heads of State), 28, 31, 41 – 42, 45 – 47, 51 – 59, 61 – 65, 67, 103, 119, 194, 274, 276 Australia, 75, 90, 147, 150, 162, 227, 229, 237, 316 Austria, 145, 149

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Baghdad, 36 – 38 Bahia, 14, 274 Bahrain, 18, 90, 126, 137– 138, 150, 184, 188, 198, 212, 247, 250, 254–255, 257, 259, 277, 287, 298 banking and finance Arab investment in the West, 184– 186 Arab – Brazilian Bank for Trade, 194 Arab – Latin American Cooperation, 193 Consortium Banks, 181– 183 and finance in Latin America, 192 internationalization of Arab Banks, 180– 181 and investment, 186– 189 Islamic finance, 190– 192 barley, 261 bran, 273 Beirut, 16, 35 – 36, 39, 43, 46, 59, 61, 298 Belarus, 147, 149 Belgium, 132– 133, 145, 149– 150 Berbers, 4 BIPA (Bilateral Investment Protection Agreement), 128, 136– 138, 145–150 Bloomberg, 26 – 27, 29 – 32, 279, 298 Bolivia, 14, 16 – 17, 87, 89 – 90, 209, 220 bonds, 4, 7, 25, 30, 42, 54, 59, 174, 184, 187, 191, 196– 197 Brası´lia, 15, 52, 55, 117, 119, 124, 194, 274, 315 Brazil BNDES (Brazil National Bank for Economic and Social Development), 166– 168, 172, 278 BOVISTA (Brazilian stock exchange), 174 Brazil – Algeria cooperation, 21 Brazilian agricultural exports, 310– 311

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Brazil– Egypt cooperation, 22 Brazil– Saudi Arabia cooperation, 22 Brazilian – Arab cooperation in food production agricultural integration, 272 agricultural mechanization, 270 Brazil global position, 268– 269 Brazilian – Arab relations, 274, 276 Brazilian – Arab trade, 276 direct seeding, 270 grains production, 273 livestock, 22, 251, 256, 261, 272, 274, 278, 306– 307, 312– 313, 315 technological advances, 269 Brazilian business culture, 153– 156, 158– 175 Brazilian business power structure, 163– 170 Bunge Fertilizers, 114, 116, 197, 218– 219, 279, 282– 283, 286 Cruzeiro, 169 guide for Arab investors, 172– 175 OFPPT (Brazil National Manpower and Professional Training Bureau), 109 population, ethnicity and class, 154– 156, 158 Bulgaria, 145, 149 Cacha Dois (Cash Box Number Two), 165 Cairo, 39 –41, 46, 48 –49, 246, 263 CALC (Latin American Caribbean Summit), 14 Canada, 14, 94, 130, 145, 150, 162, 215, 227, 229, 237, 286, 316 capitalism, 164, 274 Caracas, 14, 317 Cargill, 197, 282, 284 Caribbean, 10, 14, 52, 72 – 85, 87, 89 – 90, 221, 276, 286, 317 Casablanca, 36, 123, 125– 126

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Castro, Raul, 14, 17, 28 CCI (Climate Change Index), 251 CELAC (Community of LatinAmerican and Caribbean Countries), 14 –15, 52, 62 Cerrado, the, 269, 271, 273– 274, 306, 312–314 cereals, 112, 114, 262 corn, 114, 196, 261, 269– 270, 273, 276, 294, 308 –309, 311–312 CGIAR (Consultative Group on International Agricultural Research), 315– 317 Chavez, Hugo, 14, 25 Chicago, 153, 284 Chile, 11, 14, 16 – 18, 28, 31, 38, 52, 60, 62, 86, 88, 90, 99, 128, 147, 149–150, 193, 209, 225– 233, 235–238 CODELCO (Chilean Copper Corporation), 225, 229, 231– 234 CORFO (Chile Production Development Corporation), 230– 231 IM2 (Chilean Mining & Metallurgy Institute), 231, 233 INTEC (Chile Technological Institute), 230– 231 China, 6, 8, 11 – 12, 15, 26 – 27, 30– 31, 37, 72, 74, 92, 103–104, 130, 148, 150, 162, 166, 214– 215, 226, 283, 297, 317 climate, 6, 53, 121, 250– 251, 262, 269–270, 272 CNIC (National Council on Innovation for Competitiveness), 231 coffee, 83, 86 – 87, 196, 269–270, 273, 277, 306 Colombia, 14, 87 – 88, 90, 99, 128, 147, 149– 150, 168, 193, 209, 220, 317

INDEX commerce, 29, 32, 108, 124, 150, 211– 212, 276– 277 competition, 58, 94, 96 – 101, 103, 116, 129, 133, 143, 180– 181, 216, 219– 220 ComTrade, 73 – 78, 80 – 82, 84, 87, 89, 209, 211– 212, 221 conflict, 8, 16, 19, 28, 31, 36, 40, 43 – 45, 85, 144, 249, 253, 260 Congress, 4, 134, 139– 140, 183 construction, 21, 54, 56, 58, 64, 66, 89, 103, 118, 125, 208, 220, 234, 278, 315 Copersucar, 279, 284 corruption, 7, 9 – 11, 19, 29, 32, 134, 154, 159, 164, 168, 170, 293 Costa Rica, 26, 61, 78, 87, 89– 90, 147, 149 cotton, 196, 269, 273, 278, 306 Croatia, 145, 149 crops, 196– 197, 251, 255, 259– 260, 262, 269– 273, 283– 284, 287, 289, 293– 298, 308– 309, 311– 314, 318 CSIRO (The Commonwealth Scientific and Industrial Research Organisation), 231 Cuba, 14 – 15, 90, 148, 150, 209 culture, 18, 28, 46, 51, 54 – 60, 62– 67, 108, 153– 155, 158– 159, 161– 163, 165, 167, 169, 171, 173, 175, 182, 187, 191, 214, 219, 232, 292 Cyprus, 145, 149 Damascus, 18, 43 – 44 debt, 24, 27, 31, 139, 166, 172, 185, 192 deficit, 78, 114, 262, 287 deforestation, 309 Delhi, 104 democracy, 7, 13, 25, 42– 43, 118, 125, 225, 234

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democratization, 11, 15, 20, 66, 68, 193 dependence, 12, 19, 24, 35, 159, 189, 235, 286, 296 desalination, 252, 260 desert, 18, 37, 40, 165, 246, 297 desertification, 251, 253 dictatorship, 9 –10, 13 diplomacy, 9, 42, 45, 53, 64, 66 – 68, 100–103, 125 Djibouti, 90, 150, 247, 250, 254– 255, 257, 259 Doha, 15, 45, 48, 58, 60, 94, 97, 103, 188, 194 dollar, the, 72 – 73, 77, 169, 315 Dominican Republic, 60, 62, 66 – 67, 83, 87, 89 – 90 Dreyfus, 197, 282 drought, 247, 251– 252 Dubai, 59, 103, 188, 190 ECLAC (Economic Commission for Latin America and the Caribbean), 73– 78, 80 – 82, 84, 87, 89 economy economic dimension, the, 292 economists, 12, 158, 168, 180, 296 Economy of Scale, 293 Ecuador, 14, 16, 65, 67, 86, 88, 90, 209, 317 education, 15, 51 – 56, 59, 62 – 65, 67, 117, 124, 156, 159– 160, 164, 167–168, 188, 291, 315 EFTA (European Free Trade Association), 128, 149 Egypt, 4, 8, 17, 19, 22, 24, 30, 32, 39– 41, 45 – 46, 59, 79, 90, 126, 135, 180, 189, 247, 250, 252–255, 257–259, 261, 263, 279, 286– 287, 289– 291 EIA (US Energy Information Administration), 220 El Salvador, 14, 16, 83, 87, 89 – 90, 117, 147, 149, 231

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embargo, 11, 15 employment, 160, 188, 254, 256, 263, 297 Empresa, 164– 165, 171, 272 Empresario, 164– 165, 167, 170– 171 Energy and Mineral Resources ALADI (Latin American Integration Association), 209– 211 Arab investments, 217 bilateral relations, 210– 211 energy cooperation, 209, 211, 213, 215, 217, 219, 221 fertilizer sector, 216 global trade, 210 MENA exports of crude oil, 213 MENA– Latin America similarities, 209 oil producers, 215 petroleum trade, 212 risk and rewards, 219 US energy, 220 engineering, 83, 86, 89, 117, 208, 220– 221, 227– 228, 230, 233– 234, 236, 292, 295 enterprises, 129, 142, 150, 221 environment, 7 –8, 52, 92, 109, 116, 118, 144, 172, 253, 259, 263, 307, 309 Enlai, Zhou, 8 equity, 139– 140, 142, 173, 185, 192, 198, 209, 217, 220, 298 ethanol, 22, 269, 277– 279, 289, 311 EU– LAC (European Union – Latin America and the Caribbean Summit), 52 Eurobonds, 185 Eurocurrency, 185 Europe, 12, 18, 25 – 26, 55, 64, 66– 68, 85, 121, 123, 162, 181 –182, 184, 186– 187, 213– 214, 290– 292, 316– 317 European Union, 44, 51 – 52, 54, 62, 64, 67, 72, 74, 93 – 95, 99 – 100, 123, 126, 128, 146, 149

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exploitation, 6, 225– 226, 288 exploration, 208, 214, 217, 220– 221 FAO (UN Food and Agriculture Organization), 268, 282, 320 farming, 159, 258, 288, 292– 295, 313 farmers, 197, 256, 284–286, 289, 292– 295, 297– 298, 307– 308, 310 farmlands, 196– 197 farms, 164, 196– 197, 256, 258, 279, 288, 290, 292– 293, 295, 297– 298, 313 FDI (Foreign Direct Investment), 115–116, 130, 132– 134, 194 fertilizer, 22, 83, 85, 88 – 89, 113– 114, 116, 125, 197, 210– 211, 216–219, 261, 270, 273, 278–279, 282, 284– 286, 290, 292, 294– 296, 312 finance, 12, 19, 26 – 27, 31, 39, 125–126, 165–167, 180– 183, 187–188, 190–191, 194– 197, 231, 235, 272, 277, 282, 285, 293, 296, 307 Finland, 145, 149, 237 food, 19, 21 – 25, 30, 32, 45, 85, 87, 98, 103, 114, 159, 189, 195– 196, 232, 253, 262– 263, 268– 269, 272–274, 277–279, 282– 291, 294, 296– 298, 306– 307, 310–311, 315, 318– 320 food production, 25, 251, 258, 262– 263, 283, 310 beef, 21 – 22, 122, 277, 308– 309, 311, 313– 314 fisheries, 87, 89, 113, 164, 257– 259 grains, 208, 269, 272–274, 278– 279, 282, 287, 289– 290, 292, 294, 311, 313– 314 maize, 83, 86, 317 pork, 308– 309, 311

INDEX poultry, 259, 273– 274, 308– 309, 311 seed production, 22, 86, 197, 261, 285, 292, 294– 296, 316– 317 food security, 15, 53, 189, 195, 258, 262– 263, 268, 274, 277– 278, 283, 285– 289, 291, 293, 295– 298, 318, 320 ABCD (ADM, Bunge, Cargill and Dreyfus), 197, 282 AOAD (Arab Organization for Agricultural Development), 287 Arab agriculture, 291 cooperatives, 294 fertilizers for control, 284 “Four Mothers”, 282 GCC (Arab Gulf countries), 287 lessons learned, 293 NYMEX (New York Mercantile Comodities Exchange), 284 OPEC (Organization of Petroleum Exporting Countries), 4 – 5, 11, 198, 213, 216, 221, 282 Politics of Food, the, 282 SABIC (Saudi Arabia Basic Industries Corporation), 285– 286 water resources, 258 forestry, 272, 311 France, 7 – 8, 37 – 38, 145, 149, 180– 182, 214, 279, 317 fruit, 83, 86 – 87, 216, 262, 268– 269 FTA (Free Trade Agreement), 128, 137– 138, 145– 150 FTAA (Free Trade Area of the Americas), 94 fuel, 19, 208, 211– 212, 214– 215, 270, 289– 290 Gaddafi, Muammar, 40 GATT (General Agreement on Tariffs and Trade), 93, 97, 130

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Gaza, 16 – 17, 28, 31, 45 GCC (Gulf Cooperation Council), 9, 92, 103, 195, 252, 255, 263, 279 GDP (Gross Domestic Product), 27, 31, 121, 226, 253– 254, 274, 315 Geneva, 40, 66 – 67, 283 geography, 40, 45 – 46, 117, 194 geopolitics, 95, 104, 283 Germany, 38, 146, 149, 316– 317 globalization, 6 – 8, 53 Greece, 27, 30 – 32, 146, 149, 186 Guatemala, 86, 89 – 90, 147, 149 Gulf oil, 24 – 25, 30, 209, 213– 214, 217 Hamas, 17, 28, 44 harvesting, 260, 270, 285, 292 health, 109, 111, 160, 167– 168, 268, 306 Honduras, 87, 89 – 90, 147, 149 Hong Kong, 64, 67, 74, 183, 188 honey, 83, 86 –87 housing, 20, 186, 188, 289, 306 hydrocarbons, 210– 211, 213– 215 Ibn Khaldun, 34, 47 – 48 IBSA (conference), 43, 45 Iceland, 147, 149 IDA (International Development Association), 167– 168 illiteracy, 10, 156 IMF (International Monetary Fund), 9, 13, 27, 73 – 74, 76 –78, 80 –81, 167, 185, 191, 282 immigrants, 18, 34 – 36, 47, 59, 85, 116–117, 153–154 income, 57, 101, 156, 158– 161, 225, 238, 253, 256, 262, 268, 307, 310, 315, 318 India, 6, 8, 12, 18, 29, 43, 75, 90, 92, 94– 95, 99, 103, 148, 150, 190 indigenous peoples, 18, 25 – 26, 155–156, 162, 289, 297

346

THE ARAB WORLD

Indonesia, 8, 18, 99, 189 industry, 9, 21, 59, 83, 115, 117, 121– 122, 125, 154, 167, 170, 184, 189– 191, 196– 197, 208, 213– 214, 217, 225– 230, 232– 235, 237– 238, 258, 269– 271, 274, 276– 278, 286, 306, 309 industrialization, 7, 21 – 22, 120– 122, 129, 139, 164, 167, 208, 218– 219, 231– 232, 258, 269, 273, 277247, 306– 307, 310 inequality, 85, 161, 168 inflation, 160, 166– 167, 169– 170, 193– 194, 274, 310 innovation, 6, 93, 98, 185, 227– 232, 234– 238, 251, 259, 270, 272, 288, 297, 314, 317, 319– 320 see also R&D INPE (National Institute for Space Research), 309 investment Arab investment in agriculture, 288– 291 bankers, 12, 165, 168, 172–173, 182– 185, 188– 189, 192– 193, 292– 293, 296 banking, 9, 23, 27, 30 –32, 40, 44 –45, 73 –74, 78, 87, 129, 131, 159, 165– 170, 172, 174, 180– 198, 216, 231, 234, 262, 268, 272, 282, 285, 290, 292– 294, 298, 316, 320 bankruptcy, 141, 171, 196, 217 Brazilian Direct Investment, 114– 116 financing, 56, 61, 63, 139–140, 142, 166, 180, 182–183, 185, 188, 195, 197–198, 234, 284, 294, 298, 313 investment opportunities, 149, 187, 198 Mexican trade and investment agreements, 145– 149

AND LATIN

AMERICA

Mexico’s legal reforms, 138– 144 Moroccan – Brazilian Bilateral Cooperation, Ch 6 passim Iran, 25, 57, 187, 209, 213, 215 Iraq, 6, 11, 18– 19, 30, 36 – 38, 42, 45, 47– 49, 90, 186, 188, 190, 198, 209, 212– 213, 215, 247, 250, 252–255, 257, 259, 291 Ireland, 146, 149 iron ore, 22, 83, 86 – 88, 159, 228 irrigation, 22, 251, 261, 278, 290 Islam, 18, 57, 190–191 Islamic finance, 190 Islamic bonds, 191, 196– 197 Islamic Development Bank, 23, 190, 290, 298, Israel, 5, 16– 17, 28, 31– 32, 36, 40– 45, 128, 147, 150, 183 Israel– Gaza human rights, 28, 31 Italy, 122, 146, 149, 153– 154, 214 Japan, 74 – 75, 90, 94 – 95, 128, 147, 150, 162, 214, 316 Jeddah, 23, 290 Jerusalem, 16, 35, 45 Jordan, 17, 36, 44 – 45, 60, 66 – 67, 90, 126, 137– 138, 183, 238, 247, 250, 252, 254– 255, 257, 259, 261 Khartoum, 278, 287 King Abdullah Initiative for Agricultural Investment Abroad, 290 Kuwait, 18, 29, 32, 56– 57, 65, 67, 90, 135, 137– 138, 148, 150, 180–182, 184, 198, 212– 213, 215, 220, 247, 250, 254– 255, 257, 259, 287 KFTCI (Kuwait Foreign Trade, Contracting and Investment Company), 181 KIC (Kuwait Investment Company), 181

INDEX

347

LAIA (Latin American Integration Association), 211–212, 216 Latvia, 146, 149 laws, 129, 164, 171, 173, 225 lawyers, 171, 191 legislation, 134, 149, 164, 167 leadership, 12, 53, 59, 118– 119, 182, 193, 231 Lebanon, 18, 28, 32, 35 – 36, 39, 42 – 44, 46, 60 – 61, 90, 126, 154, 180, 247, 250, 252, 254– 255, 257, 259, 261, 277 Levant, the, 4, 17, 18, 154 Libya, 4, 19, 37 – 41, 46, 90, 126, 184, 193, 198, 212– 214, 221, 247, 250, 252, 254– 255, 257, 259 Lima Declaration, 15 –16, 28, 31, 65, 194 London, 29, 32, 47 –48, 68, 104, 181– 182, 184, 188, 192, 283– 284 Lou Nuer, 289 Lula da Silva, Luiz Ina´cio, 14 – 15, 25, 35, 48 – 49, 159, 194, 313, 320 Luxembourg, 146, 149– 150, 182

208–209, 211, 214– 215, 220, 276, 286, 317 migration, 34, 116, 155, 306 mineral resources, 4, 83, 88, 113, 168, 194, 211– 212, 225, 227, 229, 231, 233, 235, 237– 238, 269 Chilean Experience, the development strategy, 235–236 history, 225 mining innovation, 227– 230 role of state, 230– 233 technology development, 227–230 mining Chuquicamata, 227, 231– 232, 234 CIMM (Centre for Mining and Metallurgical Research), 230, 233 coal, 87, 215 KIMS (Knowledge-Intensive Mining Service companies), 228– 230 Morocco, 18, 28, 58, 65, 108– 109, 111–114, 116–126, 218– 219, 277 Mubadala, 217, 219, 221 Murabaha, 197, 198 Muslims, 29, 190, 277

Madrid, 16, 182 Malaysia, 18, 150, 189– 191 Malta, 146, 149 Marrakech, 40 –41, 109, 124 Mauritania, 4, 36, 90, 189, 247, 250, 252– 255, 257– 259 meat, 22, 83, 86, 208, 216, 256– 259, 269, 274, 276, 308, 311 Mecca, 29 Mediterranean, 46, 118– 119, 153– 154, 186 Mercosur, 14, 17, 22, 28, 30 – 32, 41, 47, 74, 92 – 100, 102– 104, 109, 118, 121, 123 Mexico, 28, 77 – 79, 83, 85 – 86, 88, 90, 99, 128– 140, 144– 147, 149– 151, 168, 192– 193,

NAFTA (North American Free Trade Agreement), 128, 130, 132, 145 Nasser, Jamal Abdel, 8, 47 Nehru, Jawaharlal, 8 Netanyahu, Benjamin, 17, 28, 32, 45 Netherlands, the, 132, 146, 149, 316–317 New York, 26, 40, 47 – 49, 104, 144, 153, 182– 184, 188, 192, 269, 279, 283– 284 New Zealand, 75, 90, 150, 227 Nicaragua, 87, 89 – 90, 147, 149 Nigeria, 52, 215 Nile, the, 253, 279, 289 North America, 130, 145 Norway, 44, 126, 147, 149, 215– 216 NPT (Nuclear Non-Proliferation Treaty), 41

348

THE ARAB WORLD

OAS (Organization of American States), 13 OCP (Morocco’s Office Cherifien de Phosphates), 114, 116, 120, 218– 219, 279, 286 OECD (Organization for Economic Cooperation and Development), 128, 225, 279, 298, 320 oil, 22, 83, 86 – 89, 211 Oman, 18, 90, 126, 247, 250, 252, 254– 255, 257, 259, 261, 287 Palestine, 5, 16, 35, 39 – 41, 43 – 46, 52, 150, 247, 254– 255, 257, 259 Panama, 83, 87, 89 – 90, 128, 144, 148, 150, 209, 317 Paraguay, 14, 41, 86, 89 –90, 209, 220 Paris, 29, 65, 67, 282, 320 Peru, 14, 16, 28, 31, 46, 56, 87 – 88, 90, 99, 128, 147, 149–150, 193– 194, 209, 217– 219, 274, 317 petroleum, 4, 21 – 22, 24, 86 – 89, 113, 195, 208– 218, 220– 221, 238 exports to the Arab World, 212 gasoline, 135, 174, 278– 279 petrochemicals, 21 – 24, 182, 195, 208, 210, 220, 278, 285 Royal Dutch Shell, 217 Philippines, the, 95, 190 phosphates, 114, 122– 123, 125– 126, 135, 195, 209– 211, 218– 219, 238, 286 Poland, 146, 149 Polisario, 119 Portugal, 28, 41, 56 – 57, 108, 117, 124, 146, 149, 153–155, 171, 175, 194, 220 poverty, 15, 46, 55, 158–160, 168, 282– 283, 288, 290, 320 power, 6 – 8, 10 – 12, 15 – 16, 18 – 19, 23, 28, 31, 34 – 35, 39 – 40, 46, 51 – 52, 64, 66 – 67, 89, 94 – 95,

AND LATIN

AMERICA

101–102, 104, 118– 119, 161, 163, 170, 172, 180, 214, 271, 282–283, 290–291, 306 Qatar, 17 – 18, 57, 90, 103, 135– 136, 194, 198, 212– 213, 215, 217, 220, 247, 250, 254– 255, 257, 259, 261, 287 QFI (The Qatar Foundation International), 57, 65 R&D, 25, 231, 234, 237, 251, 259, 314–315, 318–319 Rabat, 108– 109, 124, 126 rainfall, 246, 271, 287, 311 RCEP (Regional Comprehensive Economic Partnership), 94 refugees, 18, 35, 43 regionalism (and inter-regionalism), 51– 54, 62 – 64, 66 – 67 religion, 187, 191 research and development, see R&D revolution Green, 269 industrial, 164, 224 scientific, 319 technological, 227 rice, 44, 86, 261, 270, 273, 308–309, 312, 317 Rio de Janeiro, 47, 49, 52, 56, 60, 65, 103, 108, 117, 124, 192 Riyadh, 57, 65, 67 Russia, 12, 30, 37– 38, 44 RwP (“Responsibility while Protecting”), 53 SABIC (Saudi Arabia Basic Industries Corporation), 279, 285– 286 Sahara, 119, 125 sanctions after Gulf War, 37 on Libya, 38, 42 SAPI (Corporation for the Promotion of Investments), 140, 143– 144

INDEX Sardenberg, Ronaldo, 38, 48 – 49 Sarkozy, President, 279, 283, 285 Saudi Arabia, 4, 17 – 18, 22 – 24, 28 – 30, 32, 44, 57, 65, 67, 79, 90, 126, 135, 180, 182, 188, 196, 198, 211– 213, 215, 219, 247, 250, 252, 254– 257, 259, 278– 279, 285, 287, 289–291 security, 5, 7, 10, 16, 30, 35 – 39, 43, 48 – 49, 51, 53, 62, 64, 67, 118– 120, 149, 164, 173– 174, 183, 187, 193, 196, 263, 277– 278, 288, 319 SENAI (National Service for Industrial Training), 109 Senegal, 253 Serbia, 28, 31 “Seven Sisters”, 5, 26, 30, 279, 282 Sicily, 153 Singapore, 18, 99, 148, 150, 183, 188, 283 El-Sissi, Abdul Fattah, 17, 28, 32 slavery, 29, 32, 158, 175 Slovakia, 146, 149 Slovenia, 146, 149 SNPA (National System for Agricultural Research and Innovation), 314– 315 socialism, 14, 30, 119, 166 soil, 19, 180, 187, 251, 253, 259, 261, 270– 272, 294, 296, 312– 314, 319 Somalia, 4, 42, 90, 150, 247, 250, 252, 254– 257, 259, 261 soybeans, 196, 269, 272– 273, 277, 294, 308– 309, 311– 312 Spain, 4, 6, 44, 56 – 57, 122, 132, 140, 146, 150, 149, , 153, 194, 316 SSC (South –South Cooperation for Development), 5, 8 – 9, 20 Sudan, 4, 90, 189, 246– 247, 250, 252– 257, 259, 261, 263, 277– 278, 287, 289– 290 Suez, 29, 32, 35

349

sugar, 21 – 22, 83, 86 – 87, 112, 114, 170, 197, 268– 269, 273, 276–279, 284, 289, 311 sugarcane, 196, 270, 278, 308– 309, 312 Sukuk, 191– 192, 196– 197 Sweden, 146, 149 Switzerland, 147, 149, 182 Syracuse, 26, 31 Syria, 4, 18 – 19, 25, 30, 36, 39, 42, 44– 46, 57, 247, 250, 252– 253, 255, 257, 259, 279, 287, 291 Tadawul, 188 Tangier, 56, 108 Tanzania, 18, 290 Tariki, Abdulla H., 4, 26, 30, 138, 290 TATIP (Trans-Atlantic Trade and Investment Partnership), 94 taxation, 23, 120, 293, 320 taxes, 165, 167, 171, 175, 293 technical cooperation development of Brazilian agriculture, 306– 320 Embrapa (Brazilian Agricultural Research Corporation), 307, 309 expansion of food production, 310 international cooperation, 316– 318 key technologies, 311– 314 modernization of Brazilian agriculture, 306– 307 productivity of Brazilian agriculture, 307– 310 R&D, 314– 316 technology, 12, 15, 21 – 22, 25, 63, 79, 83, 85, 98, 100, 102, 121, 125, 185, 194, 225, 227– 231, 233, 235–238, 251, 258– 262, 270–274, 290, 295, 298, 307–309, 311–314, 316– 319 biodiversity, 251, 270, 319 biotechnology, 232, 318

350

THE ARAB WORLD

CONICYT (Scientific and Technological Commission), 230– 231 terrorists, 17, 37, 183 Thailand, 64, 67, 95, 190 tobacco, 22, 87, 269 Tobago, 90, 148, 150 tourism, 15, 109, 122– 123, 150 TPP (Trans-Pacific Partnership), 94, 128, 150 trade international trade, 92 – 95 Mexican– Arab Trade, 134– 137 negotiations, 94 – 96 regional trade, 93, 95, 97, 99, 101, 103 trade finance, 195 WTO (World Trade Organization), 93, 94, 97, 99, 128, 130, 209 WTO 2.0, 94 tribes, 18, 29 Trinidad, 90, 148, 150 Trucial States, 29, 32 Tunisia, 4, 19, 90, 247, 250, 252, 254– 255, 257, 259 Turcos, 154 Turkey, 35, 39, 44, 65, 253 UNASUR, 47, 51 – 53, 274 UNCITRAL (United Nations Commission on International Trade Law), 144 UNCTAD (United Nations Conference on Trade and Development), 5, 73 – 74, 78, 126, 133, 149, 151 UNESCO (United Nations Educational, Scientific and Cultural Organization), 27, 31, 56 – 57 United Arab Emirates, 18, 22, 29, 32, 39, 59, 79, 90, 103, 135, 215, 217, 247, 250, 252, 254, 257, 259, 279, 287 United Kingdom, 7, 37, 188, 190, 316, 317

AND LATIN

AMERICA

university, 26, 28, 30 – 32, 47 – 49, 54, 56, 58, 60 – 62, 64, 66 – 67, 124, 159, 208, 228, 230– 232, 237, 292, 294, 298, 307, 314– 315 UNMOVIC (United Nations Monitoring, Verification and Inspection Commission), 37 UNSCOM (UN Special Commission), 37 urbanization, 98, 247, 307 Uruguay, 14, 17, 22, 41, 57, 86, 88, 90, 147, 149– 150, 193, 209, 220, 290 US Treasury, 24, 184, 187 vegetation, 246, 273, 309, 313 Venezuela, 4 – 5, 14, 16, 25, 41, 57, 86, 88, 90, 208– 209, 211, 214– 216, 220–221, 317 Vietnam, 8, 150 war, 7, 11, 19, 195, 282 Washington, 296, 320 waste, 87 – 88, 164, 237, 251 water resources animal production, 259 Arab agriculture, 254 climate change, 250 fisheries, 258 politics, 253 renewable water, 246, 249– 250, 268– 269, 306 wastewater, 111, 251, 260 water in Arab countries, 246– 247, 249 wealth, 11, 19 –20, 24, 98, 158– 159, 163, 184, 186– 187, 190, 192–193, 198, 208, 217, 288, 292, 294, 297, 320 West, the, 4, 7, 11, 14, 24 – 25, 40, 44– 45, 104, 125, 184, 190, 209, 214, 271 wheat, 83, 86, 135, 261, 276, 289, 294, 308–309, 317

INDEX WHO (World Health Organization), 4, 10, 14, 17 – 18, 29, 35 – 38, 40 – 41, 43 – 44, 58, 60, 62, 101, 116, 122, 124, 139, 141– 142, 153– 156, 158– 160, 162– 167, 170– 171, 175, 192, 268– 269, 282– 283, 292, 296

351

WTA (Water resource vulnerability index), 246 Yemen, 4, 18 – 19, 90, 247, 250, 252, 254–255, 257–259, 262 ZPCAS (Zone of Peace and Cooperation Atlantic South), 119