DEPARTMENT OF FOREIGN AFFAIRS

The Middle East - relations with Gulf States and Iraq

Presentation to the Parliamentary Portfolio Committee on Foreign Affairs

18 October 2005

THE MIDDLE EAST

Introduction & Overview of the Region in a Global Context

• DFA defines the Middle East region as stretching from Israel, Lebanon and Syria on the Eastern Mediterranean coast to Iran on the Persian Gulf, thus excluding Afghanistan.

•Region consists of 14 countries, e.g. approx 1 in every 14 of the 191 UN member states in the world, with only 5% of world population.

•Its impact on the global scene however much larger for the following reasons:

• It is the largest oil producing region in the world, accounting for 29% of total world production in 2004;

THE MIDDLE EAST

Introduction & Overview of the Region in a Global Context

• It is the birthplace of 3 of the world’s principal religions which have played - and continue to play - a major role in shaping world history.

• The long-lasting Israeli-Palestinian conflict, which is the focus of ongoing world-wide attention.

THE MIDDLE EAST

Introduction & Overview (cont)

SA objectives in the Region.

• In context of SA Government’s current domestic and international priorities, the DFA remains focussed on two principal objectives in the Middle East, namely:

• Political: Assisting international efforts aimed at solving the major conflicts in the region; and preventing the proliferation of WMD in the Middle East.

• Economic: Promoting Trade, Investment and Tourism, as well as scientific and technology exchanges, with countries in the region, also in context of NEPAD and the promotion of South-South relations;

THE MIDDLE EAST

Economic Relations

• SA two-way trade with ME in 2004 amounted to R45,68bn (compared to approx R5,6bn in 1994), but with SA exports accounting for only some 20% of that figure, due to large oil imports from Saudi Arabia (approx 45% of total oil imports) and Iran (approx 33%).

• During period Jan-June 2005, SA exports accounted for 21,4% of total two-way trade of R24,2bn.

• SA exports to region include coal, iron and steel, chemicals, machinery and agricultural products.

THE GULF REGION

Economic Relations• Focusing on the Gulf States sub-region, this comprises the following countries:

• Bahrain, Iran, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE), although DFA includes Yemen - which is situated not on the Persian Gulf but on the Red Sea - in the sub-region for practical reasons.

• Aside from Iraq, all the oil-producing countries of the Middle East are located in this sub-region.

• Gulf oil revenues expected to reach US $300bn in 2005, compared to US $ 61bn in 1998.

• Since 2001, stock markets of countries forming part of the Gulf Co-operation Council (GCC) - i.e. all the Gulf States excluding Iran and Yemen - up a collective 400%, mostly due to high oil prices.

THE GULF REGION

Economic Relations (cont)• Against this background, closer economic ties with the Gulf States region are regarded as a high priority for SA and promoted by means of:

• Residential diplomatic representation.

• Ministerial visits.

• The signing of appropriate agreements.

• The establishment of structural bi-lateral frameworks, I.e. Joint Commissions/Partnership Forums.

• Business seminars in SA provinces.

• South Africa has residential diplomatic representation in 6 of the 8 States in the Gulf sub-region - no such representation in Bahrain and Yemen.

THE GULF REGION

Economic Relations (cont) • Only Bahrain from the sub-region has no diplomatic representation in SA.

• DTI only represented at SA Consulates-General in Dubai and Jeddah.

• Ministerial visits from SA to Gulf region: Recent bi-lateral visits include those of Foreign Affairs Minister Zuma to Kuwait, Oman and the UAE; a visit by Trade and Industry Minister Mpahlwa to Bahrain, Kuwait, UAE and Yemen; and visits by Defence Minister Lekota to Saudi Arabia.

• Incoming Ministerial visits from the region: The Omani Foreign Minister visited SA during Sept 2005, while the Iranian Deputy Foreign Minister visited in July 2005 and the UAE Health Minister earlier this year.

• Economic related agreements signed with the Gulf region: These include:

• Air Services (with Iran, Qatar, UAE and Yemen);

THE GULF REGION

Economic Relations (cont) • Double taxation and fiscal evasion (with Iran, Kuwait and Oman);

• Health (with Iran);

• Promotion and reciprocal protection of investments (with Iran, Kuwait; Qatar and Yemen);

• Trade (with Iran, Kuwait, Saudi Arabia, UAE and Yemen

• Structured bi-lateral frameworks:

• Joint Commissions are in existence with Iran and Saudi Arabia, with meetings normally held annually - alternatively in each country. Next sessions likely to take place in Jan 2006 with Saudi Arabia and in May 2006 with Iran - co-chaired by respectively T & I Min Mpahlwa & FA Min Zuma.

• Partnership Forums: Negotiations under way to establish such a forum with Yemen, co-chaired at senior official level - also engaging other Gulf States on this issue.

THE GULF REGION

Economic relations (cont)

• Business seminars in SA provinces: To create greater awareness in SA provinces of business opportunities in the Middle East and Asia, DFA in process of holding business promotion seminars in each SA province in co-operation with local Chambers of Business.

• Such seminars already held in Western Cape (Feb 2005) and KwaZulu-Natal (May 2005) - well attended by local business people and addressed by, inter alia, local ME diplomatic representatives at request of DFA.

• Air links and tourism: SAA does not fly to the Gulf region at present but has a code-sharing agreement with Emirates Air (UAE), which has 14 flights a week to SA.

• Other Gulf airlines flying to SA:

• Qatar Airways (4 flights a week);

• Saudi Arabian Airlines (2 flights a week);

THE GULF REGION

Economic relations (cont)• Yemenia (2 flights a week).

• Gulf Air is expected to operate 3 flights per week from Bahrain and Ittihad Airlines, 2 flights a week from Abu Dhabi, as from December 2005.

• Tourism: SA Tourism has no representation in the Gulf region, but the promotion of tourism from the region to SA a major objective for all SA diplomatic Missions based there.

• Last year some 8 100 tourists visited SA from the Gulf region, with Saudi Arabia, UAE and Iran the most important sources of tourism from the region. Figure however somewhat distorted due to exclusion of many foreign nationals from other countries working in the region.

• Current state of economic ties: • Many SA companies involved in projects in region, some valued at hundreds of millions US dollars.

THE GULF REGION

Economic relations (cont)• Prominent SA involvement in the construction industry (e.g. in the UAE); - also in the hotel & restaurant business, as well as in the medical field.

• SA investments in Gulf region:

• These include major petrochemical projects by Sasol in Iran and Qatar, retailers (Woolworths, Truworths) in the UAE and companies in the food industry (Nandos) in Oman, Qatar and UAE.

• Gulf investments in SA:

• These involve Kharafi Holdings of Kuwait (Pretoria Sherator Hotel & Towers, the Oubaai Golf Estate outside George), International Financial Advisors of Kuwait (Zimbali Coastal Resort), Saudi Oger (Cell C) and Al-Baraka Bank of Saudi Arabia.

• SA exports to Gulf region: UAE, Saudi Arabia, Iran & Oman most important markets during 2004, followed by Kuwait and Yemen.

THE GULF REGION

Economic relations (cont)• SA imports from region: Saudi Arabia, Iran, UAE, Qatar & Yemen most important sources from region during 2004.

• Economic skills enhancement for SA diplomats in region: At request of DFA, authorities of the UAE arranged a trade and investment promotion training course in their country for SA Heads of Mission in the Middle East during Sept 2005.

• Valuable insight was obtained during the training seminar as to the reasons why the UAE was able to establish itself as the economic hub of the region.

• Regional co-operation: A concerted effort is being made to increase active co-operation between SADC and the GCC (Gulf Co-operation Council).

• In this context, Executive Secretary of SADC and SG of the GCC agreed on regional co-operation with initial economic focus and on conclusion of MOU, during a meeting in Riyadh in June 2005.

THE GULF REGION

Political relations

• SA maintains good political relations with all the countries of the Gulf region, as exemplified by the recent Ministerial visits to and from the region already mentioned.

• There are no major conflicts in the Gulf region, aside from sporadic terror attacks in Saudi Arabia. DFA continues to monitor the situation closely, through its diplomatic and consular Missions in Riyadh and Jeddah.

• Principal international issue of concern in the region relates to the ongoing dispute between IAEA and Iran pertaining to that country’s nuclear programme.

• SA supports Iran’s right to develop nuclear energy for peaceful purposes, but continues with high-level efforts to achieve a solution satisfactory to both sides.

THE GULF REGION

Political relations (cont)

• These efforts include ongoing engagement with the Iranian authorities on confidence building measures which will effectively allay international fears regarding an Iranian nuclear weapons programme.

SA RELATIONS WITH IRAQ

Background

• Although having a small coast line on the Persian Gulf, Iraq is regarded by DFA as forming part of the Levant sub-region, which also includes Israel, Jordan, Lebanon, Palestine and Syria.

• Iraq’s economy is dominated by the oil sector, with the country having the second largest oil reserves in the world. The sector has traditionally provided approx 95% of the country’s foreign exchange earnings.

• Iraq continues to receive close attention from the international news media in the light of the ongoing violence in the country.

• Violence generally takes the form of suicide and other bomb attacks on the US-led coalition forces present in the country and against the newly established Iraqi authorities, notably its police force.

IRAQ

Background (cont)• Principal sources of violence appear to be foreign Islamic militants - notably Al-Qaeda supporters - opposed to the US-led occupation of Iraq, as well as disgruntled former members of the Saddam Hussein regime.

• The latter group are seemingly bent on regaining power through violence.

• Major issue of international concern is the apparent lack of political reconciliation between the minority Sunni and majority Shia communities, with calls for attacks by Sunni religious leaders on the Shias.

• Shia community mainly established in the south of the country, with the Sunni community in the center and a third important community, the Kurds, located in the north.

• This has led to fears concerning a possible future disintegration of Iraq into three separate entities, in the event of unsuccessful national reconciliation.

IRAQ

Background (cont)• The current Transitional Government of Iraq established after legislative elections in January 2005.

•This government replaced the Interim Government put in place under UN auspices in June 2004, following the overthrow of the Saddam Hussein regime by the US-led invasion of the country in March 2003.

• Principal task of transitional government was to negotiate a new constitution acceptable to a clear majority of all three communities in Iraq.

• Main concern was Sunni rejection of the constitution, possibly resulting in ongoing lack of national reconciliation and continued violence.

• National referendum on draft constitution scheduled for, and held on, 15 October 2005. Initial indications are that voter participation exceeding 60%, with more Sunnis and less Kurds voting than expected. Results are only expected later this week.

IRAQ

SA relations with Iraq

• At present SA has no diplomatic representation in Iraq, but developments in country are monitored and reported on by the SA diplomatic Missions in neighboring Jordan and Kuwait.

• Given the importance of the country, SA would like to establish a diplomatic Mission in Baghdad as soon as circumstances permit. Ongoing violence and lack of security are however principal obstacles.

• Iraq does have residential diplomatic representation in SA, with a new Iraqi Ambassador having presented credentials to President Mbeki during June 2005.

• High-level interaction with the current Iraqi government ensued through the recent visit to SA of the Iraqi Deputy Minister of Foreign Affairs, Dr Albayati, who had substantial discussions with his South African counterpart, Mr Aziz Pahad.

IRAQ

SA relations with Iraq (cont)• During these discussions, Dep Min Pahad indicated that the SA Government would start the process aimed at opening a SA diplomatic Mission in Baghdad.

• This would be done by sending an advance team as soon as the security situation permitted it.

• At meeting with Dep Min Pahad, the Iraqi Deputy Minister asked for SA assistance in supporting international efforts aimed at finding a peaceful resolution to the ongoing conflict in his country.

• In addition, SA assistance was asked on practical issues, such as in the training of Iraqi diplomats. Dep Min Pahad indicated that SA would look at the possibilities of providing such assistance.

• Economic ties: During 2004 SA goods to the value of R105,6 million were exported to Iraq, according to SA Revenue Service.

IRAQ

SA relations with Iraq (cont)• Exports mainly consisted of machinery, transport equipment, base metals, textiles, plastic products, chemical and mineral products and prepared foodstuffs.

• Given the prevailing security situation in Iraq, SA business visits to that country cannot be encouraged by DFA at present, but possibility of Iraqi business visits to SA discussed during visit of Dep Min Albayati to SA.

• The latter also extended invitation to SA to invest in the oil, gas and mineral sectors in Iraq.

• Business contacts between two countries further promoted and encouraged during a business seminar organised in Amman, Jordan, during May 2005, through the involvement of the SA Embassy in that country.

IRAQ

SA relations with Iraq (cont)

• Considerable number of SA citizens reportedly present in Iraq, said to be involved in the provision of physical security to some foreign companies and other entities, resulting from the current worrying security situation in the country.

• While the possibility exists that these persons are engaged in activities in contravention of the Foreign Military Assistance Act, it is difficult to obtain accurate information in this regard, given absence of SA Mission in country.

CONCLUSION

Challenges facing SA diplomacy in Gulf region and Iraq• In oil-rich Gulf States, recent unprecedented high oil prices have resulted in a substantial increase in financial revenues in these countries.

• Challenge for SA is to attract a sizable percentage of these funds invested abroad for FDI in our country, as well as on the rest of the African continent, in the context of the NEPAD.

• A similar challenge exists in attracting substantial tourism from the region, given the obvious impact which increasing oil revenues have on the disposable income of inhabitants in these countries.

• Diplomatic activities focused on attracting tourism need to include medical tourism, i.e. ensuring that Gulf States inhabitants regard South Africa as a credible and attractive destination for first-class medical treatment.

CONCLUSION

Challenges facing SA diplomacy in Gulf region and Iraq (cont)

• Both as regards investment and tourism, SA should endeavour to capitalise on anti-ME sentiments perceived in some Western countries following the 9/11 attacks in the United States, resulting in ME citizens allegedly feeling less welcome in these countries.

• Practical consequences hereof demonstrated by substantial withdrawal of Arab funds from US after 9/11, with annual new investments from Arab countries in US amounting to US$1,3bn between 2001 and 2003, compared to US$25bn before 9/11.

• In violence-stricken Iraq, the challenge for SA is to effectively assist the process of national reconciliation in the country in the (hopefully temporary) absence of a residential diplomatic Mission in Baghdad.

CONCLUSION

Challenges facing SA diplomacy in Gulf region and Iraq (cont)•In this context, even visits by official SA delegations are very problematical at this stage, given the high-level of physical risk involved.

• In view of the country’s enormous oil wealth and large reconstruction needs, it would clearly be to SA’s benefit to developed extensive economic ties with Iraq.

•The challenge here would however be striking a balance between encouraging and facilitating increasing SA business sector involvement in Iraq with a need to avoid exposing our business people to any unnecessary physical danger.

•One solution is perhaps to encourage an increasing number of visits to SA by the Iraqi business community.

• This will however not obviate the need for SA business people to be physically present in Iraq if their purpose is active involvement in the rebuilding of that country’s physical and services infrastructure.

CONCLUSION

Challenges facing SA diplomacy in Gulf region and Iraq (cont)

• Much will therefore depend on a successful process of national reconciliation in Iraq and the ability of its authorities to bring about a sharp decline - and eventual elimination - of sectarian and fundamentalist violence.

CONCLUSION

Reasons for SA involvement in the Middle East

• Finally, it is evident that it is very much in SA’s interest to remain actively engaged in the ME region.

• This is necessary, firstly, in the context of ensuring that this engagement makes a substantial contribution to the economic development of our country and the African continent as a whole.

• This would be done if such engagement results in job creation, as well as transfer of appropriate technology and skills, both in SA and elsewhere on the African continent.

• Secondly, SA engagement is essential in the context of making an effective contribution to world peace and security.

CONCLUSION

Reasons for SA involvement in the Middle East

• This should be done by actively assisting international efforts to bring about an end to the serious conflicts which have plagued the ME region and have been perceived by some as contributing to a so-called clash of civilisations.

• DFA remains eager to play a significant role in this regard.

• Thank you for your attention.