Private assets

Privatisation of water assets have long been mooted as a solution to the Middle East’s water issues.

Privatisation of water utilities would not be disastrous but it is important not to pursue the policy simply because it’s fashionable, and history suggests that creating a win-win for all parties over the long term is far from assured.

The private operator has few economic incentives to promote water conservation because a corporation’s chief goal is to maximise profits, which often means encouraging increased consumption.

"Private water companies also have little reason to leave sufficient water for ecological needs, endangered species and other downstream uses.

Privatisation agreements may also result in reduced water quality because private water companies make decisions based on profitability rather than public health. Especially in the case of asset sales, there is concern about land that may be subject to development.

When a private operator purchases a municipality’s water-related assets, they may include the municipality’s watershed areas as well as industrial equipment.

Since preservation of watershed lands does not generate revenue, the operator may either want to develop the watershed area or sell it off to others for development.

In many US communities where water has been privatised, there has been an increased risk of rate hikes, inadequate customer service and reduced local control.

Therefore, governments in the Middle East embracing the path of privatisation should ensure that the terms include employing clear and consistent standards, strong public oversight and strict scrutiny of any deals by independent organisations."

a good overview of the expected demand on water in the gulf.

Reminder

"At the other extreme, the 29 countries in the near east region account for 14% of the world’s land area and are home to 10% of the world’s human population. Yet the whole region has only about 2% of the world’s renewable freshwater resources.[15] While the global average availability is 7000 cubic meters of water per person per year, in these countries the average is 1577 cubic meters of water per person per year.[15] In Jordan and the six Gulf Cooperation Council countries of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates only 170-200 cubic meters of renewable water resources are available per person per year, less than 3% of the global average.[15]"

Water gets scarcer

From a recent article by Lester Brown. Read it in the context of reduced food supplies and increasing grain prices.

"Saudi Arabia, a country of 25 million people, is as water-poor as it is oil-rich. Relying heavily on subsidies, it developed an extensive irrigated agriculture based largely on its deep fossil aquifer. After several years of using oil money to support wheat prices at five times the world market level, the government was forced to face fiscal reality and cut the subsidies. Its wheat harvest dropped from a high of 4 million tons in 1992 to some 2 million tons in 2005. Some Saudi farmers are now pumping water from wells that are 1,200 meters deep (nearly four fifths of a mile).

In neighboring Yemen, a nation of 21 million, the water table under most of the country is falling by roughly 2 meters a year as water use outstrips the sustainable yield of aquifers. In western Yemen’s Sana’a Basin, the estimated annual water extraction of 224 million tons exceeds the annual recharge of 42 million tons by a factor of five, dropping the water table 6 meters per year. World Bank projections indicate the Sana’a Basin—site of the national capital, Sana’a, and home to 2 million people—will be pumped dry by 2010.

In the search for water, the Yemeni government has drilled test wells in the basin that are 2 kilometers (1.2 miles) deep—depths normally associated with the oil industry—but they have failed to find water. Yemen must soon decide whether to bring water to Sana’a, possibly by pipeline from coastal desalting plants, if it can afford it, or to relocate the capital. Either alternative will be costly and potentially traumatic.

Israel, even though it is a pioneer in raising irrigation water productivity, is depleting both of its principal aquifers—the coastal aquifer and the mountain aquifer that it shares with Palestinians. Israel’s population, whose growth is fueled by both natural increase and immigration, is outgrowing its water supply. Conflicts between Israelis and Palestinians over the allocation of water in the latter area are ongoing. Because of severe water shortages, Israel has banned the irrigation of wheat."

Losing ground

"Brazilian exports to Syria have been presenting significant growth. Last year the equivalent to US$ 200.88 million were exported to the region, against US$ 166 million in 2005. From January to June this year, sales to the Arab country generated US$ 86.3 million, an increase of 126% over the same period last year. The main products shipped to Syria were sugar, coffee, vehicles, chicken, chassis and chemical paste for wood.

Last year, Brazilian imports of Syrian products totalled US$ 81.8 million. From January to July this year, Brazil purchased US$ 4.5 million from the Arab country, against US$ 40.2 million in the same period of 2006. Cumin seeds, aniseed, plastic fibres, pipes and handicraft are the main products imported."

Iranian gambit

"Agriculture, internal trade and distribution are mostly in private hands. Even so, estimates of how much of the economy the government controls range between 65% and 80%.

Now there is talk of large-scale privatisation to attract investment and improve productivity. Some privatisation has even taken place, though it often entails little more than shuffling assets from one state sector to another. In theory, the pace of privatisation should pick up, thanks to a new constitutional amendment that envisages moving all but 25 state-owned companies into private ownership within eight to ten years (though the government will keep a 20% stake). Ayatollah Khamenei, the supreme leader, was a critic of nationalisation in the 1980s and is said to be enthusiastic about the change. The impediment will not be an absence of political will at the top but the hesitation of investors.

In the longer run, Iran faces a different sort of vulnerability. It is finding it hard to acquire the foreign technology and capital it needs in order to boost production of its fast-depleting oilfields and realise its vast potential as an exporter of natural gas. Without this investment, all of Iran's big plans for a prosperous energy-fired future would be put in jeopardy. But Iran still has a few years to sort this out, whereas its mastery of uranium enrichment may be only a matter of months away."

Excellent Economist article on Iranian economics. Read about how Khomeini's legacy (Economics is for donkeys) and Ahmedinejad's populist, spur-of-the moment policies are sinking the Iranian economy. Read (but not enough) about the mullah's corruption. Read how the US and world financial systems are used to squeeze countries into domestic and foreign policies pleasant (ie subservient) to the US. But read also how Iran may still achieve nuclear capabilities and then pick itself up. Not a bad plan: get a single-track populist visionary like Ahmedinejad to move Iran into the elite nuclear club, then replace him with economic reformers to bring the country back within world economic standards and develop its full economic potential. The result: a military superpower and an economic powerhouse, sovereign and united.

Kenya maken

"The New Kenya Co-operative Creameries (KCC) have secured a market for milk products in Middle East worth Sh350 million ($5 million). New KCC chairman, Mr. Matu Wamae, said the creamery had received another order to supply 216 tonnes of powdered milk to Yemen.

"We are earning Sh50 million ($750,000) from powdered milk exported to Yemen every month and we hope the earnings will go up by January," said Wamae. He said the creamery had received another order for 100 million litres of milk from the Middle East and Asia.

Farmers currently produce about 350,000 litres of milk daily, which Wamae said was inadequate to satisfy the demand. "There is a huge demand for milk from the Middle East market and we are urging farmers to increase their output," he said."

Brace yourself for more structural adjustment

"The Middle East and North Africa region has become the fastest-growing area for investments from the World Bank's private sector arm, the International Finance Corporation (IFC), which surpassed one billion dollars for the first time last year, according to the Bank Information Centre, a Washington-based research group on international public lenders.

Egypt, the most populous Arab country, received most of the loans (283 million dollars) over the past five years, followed by Oman, Algeria and Iraq.

The report's authors say that the IFC is also taking advantage of new investment opportunities created by accelerated trade liberalisation and privatisation reforms in the region, which are often tied to the World Bank and International Monetary Fund (IMF) programmes.

Of all loans from multilateral financial institutions, including the African Development Bank, nearly a quarter again went to Egypt, which has implemented a rigorous World Bank-sponsored liberalisation programme.

Lending to Iraq is also forecast to grow in coming years. The World Bank has approved emergency loans worth around 400 million dollars to the country through its Iraq Trust Fund, while the IFC has committed over 100 million dollars in private sector operations.

The study notes that in 2001, the World Bank provided 507 million dollars to MENA -- only 2.9 percent of the total Bank lending that year. But in 2006, it gave out 1.7 billion dollars, more than half which went for finance and energy projects after several years of relatively minimal allocations to these sectors.

Lending projects in the water and sanitation, health and agricultural sectors dropped off almost entirely, it says.

In the last five years, Egypt has borrowed more from the World Bank than any other country, receiving over 1.2 billion dollars, followed closely by Iran, which has received 1.1 billion dollars from the Bank over the same period.

The study found that the Bank went into the region with the same ideology it imposes elsewhere in developing nations. It says its focus has been on instituting "comprehensive structural reform" to facilitate greater liberalisation measures such as the elimination of trade barriers to open up the region to increased private investment and economic integration. The authors of the report cite many of the Bank's own studies, which have revealed that income inequality in MENA is on the rise, despite increased economic growth and investment. "

The jury is still out about the significance of increased IFI investment in MENA for the region's people. The impacts of the influx of public financing on poverty, inequality, unemployment and the environment in MENA remain to be seen," the authors of the report said.

"Investment is not an unambiguous good, as it is often portrayed to be, nor is investment itself tantamount to development"."

In a nutshell: There out to get Iraq in financial chains, if it has a slight chance of ever becoming a country again, privatization will boom in the region, neo-lib policies will be fostered, trade will be unbridled, the rich will become richer, and they've already got Iran by the balls.