The Arab countries are entering the new millennium with mixed fortunes. The daunting task of addressing the development challenges of a globalized world cannot be managed without a proper strategy that successfully integrates Arab countries with the global economy. As part of formulating this strategy and building future visions, the Arab Planning Institute in Kuwait in cooperation with the University of Mohammed V, Rabat, Morocco, organized a three-day conference on the Arab development challenges of the new millennium. This book is a compilation of the papers presented there. The objective of this introductory chapter is to give a quick overview of the issues and recommendations raised at the conference. The second part of this chapter reviews, in abstract form, the contents of the papers presented and discussed at the conference.

The actual economic performance of most Arab countries is not of the best, compared to other regions in the world. There are several reasons for this. Most Arab countries still rely on traditional exports as their main source of wealth. Given low per capita economic growth, and the projected future demographic transitions as manifested by an increase in the dependency ratios, productivity should be much improved in order to face this transformation, especially the increase in female participation in the labour markets, and the expected decline in the size of the public sector. This sector is very large when judged by international standards. The unemployment rate in some Arab countries is near 30%, with youth and graduate unemployment rates even higher. These factors call for a reform of the Arab labour markets in line with globalization challenges.
The debate in Arab circles is no longer about Arab participation in a globalized world, but about how to maximize the benefits and minimize the costs of integration into the new world economy. One way to achieve such strategies is to engage in genuine reforms and apply policies that aim at transforming Arab economies into modern, vibrant and open societies without losing their cultural identities. In terms of economics, Arab policy makers must begin to reduce inward-looking development strategies, and concentrate more on export-promotion policies. This requires the enhancement of Arab competitiveness and an improvement of the business environment to attract foreign direct capital. Finally, growing labour market pressures and public sector retrenchment requires the adoption of a development strategy based on the promotion of manufactured goods exports and greater participation of the private sector.

The current skill level of the Arab labour force puts the Arab countries at a disadvantage in an open, globalized world. To reverse the equation, deep reforms in the education system are required in order to increase the pace of technology mastery and absorption, especially in information technology and in tapping into global knowledge. Arab countries are clearly lagging behind in the use of computers, the internet and modern technologies; Arab policy makers must introduce such technologies at a faster rate in order to close this gap within a reasonable period of time.
Another major impediment to Arab modernization is the decay of Arab institutions that have the task of managing the Arab development process. Most institutions have not evolved in line with modern requirementsâ??those which facilitate growth and enhance peopleâ??s capacities in managing the development process. As a result, it is natural that the impact of global integration is negative in the areas of labour and poverty. Without the required transformations, it is expected that poverty and unemployment will increase as Arab economies become less competitive, and the traditional sources of growth are no longer capable of absorbing population growth.

The inability of Arab economies to face globalization challenges highlights the need for consolidation and reform. Arab countries have the option to develop strategic regional cooperation and integration as a means of facing such challenges. This strategy does not contradict globalization, but facilitates the process of integration into the global economy. This is achieved through the creation of a vast economic area that justifies investment and foreign capital mobility. Economic openness will also consolidate foreign and intra-Arab trade.

Globalization trends are marked by the unprecedented development of new technologies and resulting changes in competitive patterns. This calls for serious studies on the impact of such technologies on the Arab economies and the possible extent of their absorption. Such new technologies are characterized by an intensive embedded knowledge, and a high rate of depreciation. As for research and development activities in the Arab countries, all the indicators reflect a weak level of exploitation, the quasi-absence of the private sector, and a dominance of public sector institutions. In fact, Arab expenditure on research and technology is less than one percent of their gross domestic product. Arab decisions makers should encourage the private sector to undertake applied research that enhances productivity, competitiveness and profitability in the industrial sector.

Arab countries also face very serious challenges at the regional level. These concern deepening Arab economic integration, which remains far from the potential level of cooperation. Regional integration policies so far have been unrealistic and have sometimes contradicted the development goals of certain Arab countries. Countries in the region could enhance the prospects of Arab integration by adopting gradual, realistic economic integration policies; the European Union experience provides a rich example. However, political willingness is the key to any deepening of Arab regional integration.
The Euro-Med partnership aims at the integration of Arab economies with the European economy. Arab Mediterranean countries still need to appreciate the costs and benefits of the Euro-Med association partnership. In the eventual absence of good strategy it could amplify the negative impacts of globalization. The proper strategy should gear the agreements towards transforming the free trade area into an investment and growth-promoting zone. Despite the embedded dangers in these agreements, they are not in contradiction with Arab integration if properly managed. They should also serve to lock the Arab economies into reform paths, and provide some financial resources for undertaking needed adjustments.

Intra-Arab trade is estimated at less than ten percent of total Arab foreign trade. The bulk of the exports are oil and gas and their derivatives. The outcome of this situation is well known; the non-diversification of the Arab economies and a high level of intra-Arab competition. Arab integration efforts should concentrate on developing and promoting potential intra-Arab trade by using all the tools of regional integration policies.

The launch of the Euro will probably have deep repercussions on Arab economies. These will essentially be felt in the areas of trade, capital and debt, foreign exchange, and exchange rate management. Without a proper strategy of dealing with such issues, Arab competitiveness will suffer. The European Monetary Union (EMU) will lead to significant economic changes at the European level in the areas of growth, capital markets, prices and interest rates. Given the fact that Arab countries are major trading partners with Europe, these changes will have an inpact on Arab economies. The depreciation of the Euro since 1999 and the use of the interest rate to stabilize European inflation will put immense pressures on Arab currencies that are linked to the dollar, and also increase the cost of servicing the Arab debt. Managing such risks call for active Arab exchange rate policies, and a reduction of foreign trade and debt flow mismatches.
It is now clear that facing the challenges of the new millennium requires mastering global knowledge, improving governance, and modernizing institutions. Most Arab countries suffer from the inefficiency of their educational systems and the decay of institutions. Human development levels are still low, with exception of the Arab Gulf states. Poverty and unemployment are widespread. These challenges require education policies geared toward improving its quality and efficiency, as well as finding other sources of finance in light of shrinking government resources.