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Foreign Trade

German-Arab business relations impacted by "Arab Spring"

The revolutions in Libya, Tunisia and Egypt have impacted on the entire Arab region. German entrepreneurs initially hoped for a wealth of new opportunities, yet such lofty expectations are now giving way to skepticism.

The Arab states, when combined, almost run the economic gamet: From wealthy, highly developed oil-rich countries - mainly in the Gulf region - to mainly agrarian economies with little industrial production in the Maghreb region.

What they all have in common is a need for investment in infrastructure and education - and as a population that is young, and growing fast.

German entrepreneurs see a lot of potential for business cooperation there.

“We have high quality products and offer top-notch service,” Jürgen Hogrefe, who heads of a German consulting company that specializes in the Arab countries, pointed out. “Our products are expensive, but the Arabs know that what we offer is worth the higher price.”

Abdulaziz Al-Mikhlafi, the head of the German-Arab Chamber of Industry and Commerce

Abdulaziz Al-Mikhlafi sees an increase in interest from German companies

"We observe a heightened interest in the Arab countries that have undergone changes in leadership,“ said Abdulaziz Al-Mikhlafi, the head of the German-Arab Chamber of Industry and Commerce.

This he puts down to the expectation that the political transformation would trigger economic reforms too, making the decision-making process more transparent. "If the bidding process for projects is fair and open, then German companies can hope to get more orders,” he said.

According to the German statistics office, there has been a marked increase in business relations between Germany and the North African countries following the revolutions in Tunisia, Libya and Egypt.

In the first thee quarters of 2012, German exports to the Middle East and North Africa have increased by 19 percent and imports from the region to Germany increased by 22 percent. The bulk of the trade is with oil-rich Libya, which was keen to re-start oil exports and pump the revenues into  infrastructure development in the post-Gadhafi aera.

Still, 70 per cent of German trade with the Middle East is with the oil-rich, autocratic regimes in the Gulf region, often considered more stable and reliable as business partners.

Hope for economic reforms

While western societies as a whole welcome the move towards democracy in Arab countries, they are still waiting to see clear signs of reforms in the economic sector - like a reduction of red tape. But the political transition, according to German businessmen, has not yet had a positive effect on the countries' bureaucracies, where the administrations seem more hesitant than before to give approval to investment plans.

The Association of German Industries and Commerce has observed a certain reluctance on the part of German companies when it comes to investing in the Arab World.

"Trade relations are booming but companies are holding off a bit before deciding to make investments in the region,“ said Felix Neugart who monitors the region for the Association of German Chambers of Commerce and Industry (DIHK) "We just don't know yet what kind of a legal framework might develop from the political reform process after the rebellion, and this insecurity scares potential investors away."

Neugart said German companies remain keen to hold on to the production plants they set up in Tunisia and Egypt despite the political change three. But they are reluctant to open up new ones.

Consultant Jürgen Hogrefe expressed concern over the current German reticence to invest more and urged companies to reconsider. Germany, he warned, had been losing ground compared to its competitors.

"The Brits, the French, the Americans and South Koreans have built up a large presence there," he said, adding that Germany was losing ground while its competitors were forging ahead.

The International Monetary Fund (IMF) has said the new governments in the region tend to spend a large part of their revenues on subsidizing consumer goods rather than investing in infrastructure development.

Nemat Shafik, deputy to IMF head Christine Lagarde, calls for an “economic spring” for the Arab World. The Egyptian economist deplored in her blog last year that while political parties had been formed and constitutions drawn up and people were looking to shape a new future, hardly anyone was talking about the economy. What was worse, she wrote, all the economic indicators in countries without major oil reserves were pointing in “the wrong direction.”

As a consequence the IMF has repeatedly lowered its growth predictions for the region, currently forecasting an overall annual upswing of 3.3 percent of gross domestic product.