TRENDS IN THE DEVELOPMENT OF SOVIET BLOC ECONOMIC INFLUENCE IN THE ARAB WORLD (

Created: 5/29/1959

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INTELLIGENCE MEMORANDUM

L

TRENDS IN THE DEVELOPMENT OF SOVIET BLOC ECONOMIC INFLUENCE IN THE ARAB WORLD

CIA/RR79

INTELLIGENCE AGENCY Office of Research and Reports

COIfrEHTS

P-ffi

Introduction

Period of Initial Penetration 3> Period of Expansion and Entrenchment

ft. Trade with the

5. Bloc Influence in Arab Economic Development

Arab

Tables

Bloc Economic and Military Credits

to Arab9

Bloc Trade with Arab Countries,

nd January-June

Bloc Technicians in Arab Coun-

9

Following Page

Sino-Soviet Bloc Economic and Military Credits

to Arabpril

TRENDS IN THEF SOVIET BLOC ECONOMIC INFLUENCE IN THE ARAB WORLD*

Summary

In spite of the current strained relations between the USSR and the United Arab Republict is unlikely that either country vlll undertake any action in the near future vhlch may resultupture of political and economic relations, and it Is evident that the Soviet Bloc's economic offensive will continue to place emphasis on expansion of ties vlth Arab countries of the Middle East.

The Bloc's economic offensive in the Middle East, althoughopportunistic, nevertheless falls into two fairly well-defined phases. Tbe firsteriod of initial penetration, highlighted by unprecedented arms agreements with Egypt, Syria, and Yeman. The second phase,aaeriod of expansion and entrenchment in which emphasis has been placed on large-scale aid for long-term economic development.

Trade between the Bloc and Arab countries has been significant only for the UAR and Yemen, where sizable increases in trade followed implementation of the arms agreements.

The Bloc isajor source of external capital for economic development in the UAR, Iraq, and Yemen. Agreements to provideaid to these countries, however, followed the conclusion of the Initial arms agreements.**

here emerged in the Implementation of theaid agreement with the UAR the rudimentsev patternpenetration in which the European Satellites will cooperateof the projects included in tho economic credits extended by

'-- :

* The estimates and conclusions in this memorandum represent the best Judgment of this Office as

or the scope of Bloc economic and military aid to Arab countries, see the map, folloving p. 2.

The Soviet-Iraqi'economic aid agreement is similar to that of the Soviet-uar pact in its comprehensive character, and the geophysical surveys and exploration mayignificant bearing on the future development of Iraq's natural resources.

Table 1

Sino-Sovlet Bloc Economic and Military Credits to Arab9

Million us $

Country

Arab Republic

Syria

195

323

Yemen

kl

Bloc aid tocountries

aid to Arab countries asercent of total Bloc aid

?.

*

-

extensions of credit for the procurement of militaryhave been the primary means ofosition' of Influence In the economic life of the recipient countries. The willingness of the Bloc to provide large quantities of arms servesesture of support for the recipients' nationalistic aspirations,asis'for closer political and economic ties.' In the case of Egypt,,Syria, Yemen, and more recently Iraq,'military assistance agreements have preceded agreements providing for economic aid. The credits extended under these military agreements arc being utilized; to' equip the armed forces of these countries with Bloc arms. In the UAR,'Bloc'advisers are assisting ln reorganizing the Egyptian and Syrian.militaryalong Bloc lines and are engaged In teaching Soviet military doctrines to Indigenous military personnel. Extensions of economic credits during this period were minimall Uion)and were related to specific, small-scale projects or to the sale of machinery for light Industries, generally to private firms:

3' Period of Expansion and Entrenchment.

Since the Suez- crlsia inhe emphasis of the Blocoffensive has shifted to tbe development of long-range economic relations, although arms agreements continue to be an avenue ofThe Arab countries' heavy defease burdens,difficulties, and strong desires for rapid economic development afford the Bloc further opportunities for expanding its sphere of influence.

Syria concluded an economic aid agreement with the USSR7 providingredit of up8 million to be utilized fordevelopment In Syria. 8 the USSR agreed to providecredit5 million forear industrialization program, and, In the sameillion were extended to Yemen fordevelopment purposes. Alsoommunist China extended Its first credit to on Arab country vheo Yemenillion credit for constructionoad networkumber of small-scale manufacturing enterprises. The USSR successfully achieved acoup by announcing inredit0 million to cover the foreign-exchange costs of building the first stage of the Asvanesture which undoubtedly enhanced Nasser's prestige in the Middle East.

Three months after the Iraqi revolution inhe USSR0 million arms credit agreement with the nev Iraqi government, thuseachheadountry of majorand strategic importance to the Free World. Inraq announced the conclusion of an economic agreement with the USSRa Soviet credit3 million will bo available for Iraq'sdevelopment program. Thus, in the few months since the Iraqi evolution, the Bloc, encouraged by the Iraqi government, has employed all the techniques of its economic offensive toosition -of Influence and prestige In this country. The USSR, however, is now.-in the uncomfortable position of attempting to maintain good relations with tvo adversaries in the Arab worlda position normally occupied by the West. Bloc military and economic ossistanceotential rival to Nasser's leadership in the Arab world has created nevwithin Iraq and betveen Iraq and its neighbors which threaten the Middle East with another period of violence.

Trade with the Bloc.

Trade between the Arab countries and the Blocignificant only for the UAH and, in all probability, Yemen (see. , trade with the Bloc accounted for onlyercent of Egypt's total

* ollows on p. 5.

Table 2

Sino-Soviet Bloc Trade vlth Arab Countriesnd8

Million US $

Bloc Trade

ercent of

4 7 Value Total Trade

epublic

83

.

.

?

3

2

Arab

Egypt Syria

Iraq

,

orocco

Sudan

Tunisia

audi Arabia, Libya, and Yemen do not announce any official trade statistics.

.b.

_ .

trade andercent of Syria's total trade. During tbemonthsovever, about one-third of Egypt's trade andpercent of Syria's trade vere conducted vith the Bloc. Ofis the importance of the Blocarket for cottonUAR. During the cotton-marketing year endingercent of Egyptian andercent of Syrian cottonwere shipped 'to the Bloc.

he framevork now existsapid expansion Df trade betveen Iraq and.the Bloc. .Byruq had signed trade agreements with all;majorBloc"Countries. Before this time, Iraqi exports to the Bloc; were.negligible, and Importb, primarily sugar and cotton piece-goods from Czechoslovakia, were lesoercent of Iraq's total Imports'. '

Trade between tbe Bloc and other Arab countries has been(see. Sudan's trade vith the Bloc, however, can be expected to Increasehe Sudanese government, faced with Increasing surpluses, of cottony has'reversed its position onagreements and, in the- last few nontha,has concluded agreements with most of the Bloc countries. Morocco and Tunisia also have signed, pacts with several..Bloc_.countrles_whiclt_call. for_Bltablc.Increases in trade. 8 the Libyan government removed Its prohibitions against trading with the Bloc,

5- Bloc Influence ln Arab Economic Development.

The Bloc, particularly the USSR, Isosition to Influence significantly the economic development ofhe Arab For example, the USSR isajor source of externalfor economic development In the UAR, Iraq, and Yemen. 'Itsto aid In implementing programs for economic development and its willingness to provide large capital credits and the concomitantassistance have encouraged the recipient countries'to undertake programs which Western organizations such as ICA, IBRD, and private corporations have considered inadvisable. Soviet advisers have, at times, recommended changes ln the rates of project implementation and generally encouraged over-all rates of development which the domestic resources of the recipient countries do not appear able to'support.

a. United Arab Republic.

Large numbers of Bloc technicians'arc currently engagedIndustrial and geophysical-surveys in the Egyptian"sectors of the UAR (see Ao tho Implementationprogresses, the volume of Imports from thc Bloc willIncrease, as will the number of Bloc technicians required to in- the equipment and provide training in its operation and

Duringthere emerged In the Implementation of the Soviet-Egyptian and Soviet-Syrian economic aid agreements theew pattern for Bloc penetration. There is sufficient evidence now to Indicate that the European Satellites will cooperate ln many of the projects Included In the credits extended by the USSR to Egypt and Syria. Bulgaria has undertaken the construction of the Ar-Rastan and Kuhardoh Dams in Syria, and Czechoslovakia and Hungary will provide equipmentumber of projects listed In thc Soviet-Egyptian The European Satellites also vlll participate ln theof the first stage of the Aswan Dam. This new Soviet-Satellite

P. ollows on p. 7.

rL

Table 3

Sino-Soviet Bloc Technicians in Arab Countries9

Economic Military Total

United Arab Republic

Egypt

- UOO .

Minimum estimates of. persons

on a

solely engaged in trade promotion or in military activities are excluded. Numbers are rounded to the nearest five.

cooperation affords tbe USSR the following advantages: it gathers under the control of .the USSR the full bargaining power of the Soviet Bloc, and It provides opportunities for_ the Satellites to secureperhaps unobtainable through)unilateral efforts. It alsothe USSRevice fcar^ exercising more effective control over Satellite activities in. underdeveloped countries. Thus, under the stimuli of Sovietatellite, as well as Soviet trade will expand.

b. Iraq.

8 million Soviet economic aid agreement with Iraqthe Bloc with an opportunity to influence the economicof Iraq. Soviet financial and technical assistance vlll bethe constructionariety of industrial installationsteel factory, textile factories, and other light0. The USSR willomplete geophysical survey of Iraq vhlch mayignificant bearing on the future development of Iraq's natural resources.

Although comprehensive details of Iraq's new developmenthave not been disclosed, it is likely that the Iraqiplace greater emphasis than did Its predecessor on projectshave an Immediate propaganda impact on the populace. investments in agriculture have contributed significantlyeconomic development of Iraq, they have had almost no effectgeneral living standards.of the. population as. a. *

It is clear that progress in the field of. economic.development, or the lack thereof, vlll have an appreciable effect on politicalin Iraq. The old regime played down the gap between popularand realization and engaged in projects whose long-range benefits outweighed immediate economic gains which the masses could appreciate. The new regimeopular mandate to eliminate this discrepancy and is committed to do so. Failure of the presentto produce tangible results which satisfy the aspirations of tbe populace will lead to disenchantment and may have serious political and economic consequences.

In assisting Iraq's developmenthe USSR will be confronted with the limitations common to mosthortage of skilled labor, an ineffective administrative system, and inexperienced economic planners. These deficiencies, on the other hand, willreater dependence on Bloc advisers and technicians.

c. Yemen.

For all practical purposes, Yemen is completely dependent onthe Bloc for assistance in developing itshe USSR istructing port and air facilities, Czechoslovakia and East Germany areumber of small industrialnd Ctommunist China is engaged in the constructionoad network and Inumber of small manufacturing enterprises.

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