Manufactures

Goods made from raw materials, originally by hand; also those made by machinery.

In antiquity and into the Byzantine Empire, the Middle East was the center of Western civilization and the region from which a wide variety of goods were first made and traded. The settled farming society allowed time for handicrafts, between crop work, and for market days and market towns. Regional trade became established by land caravan, by riverboats, and by coastal vessels that sailed the Mediterranean, the east coast of Africa, and beyond Arabia, into the Indian Ocean.

Pre-1900

The ancient Near East was the seat of civilizations that traded with one another - luxury goods for the urban elite and utilitarian items for both urban dwellers and for rural agricultural, herding, and artisan folk. Specialty products included textiles, metals, glassware, pottery, chemicals, and, later, sugar and paper. By the fourteenth and fifteenth centuries, however, Europe had progressed to the point that it was exporting to the Middle East not only high technology goods, such as clocks and spectacles, but refined types of textiles, glassware, and metals. During the following centuries the flow from Europe to the Middle East increased; by the nineteenth century, Europe overwhelmed the region with goods produced cheaply and abundantly by the machinery of the Industrial Revolution, including the railroads and steamships that transported them. The Anglo - Ottoman treaty of 1838 (called the Convention of Balta Liman) fixed import duties to the Ottoman Empire at a low 8 percent. These factors drove thousands of Middle Eastern craftsmen and artisans out of business, but some managed to retain their shops and others found employment in the new textile factories of the late nineteenth century.

1900 - 1945

World War I exposed the region's lack of industry and, with the achievement of total or partial independence, the various governments began to take measures to encourage development. Around 1930, the Commercial and Navigation Treaties regulating tariffs lapsed, and most countries regained full fiscal autonomy. They immediately raised tariffs to favor local industry. They also promoted manufacturing in various other ways, such as encouraging people to buy national goods and giving such goods preference for government purchases. Moreover, they set up special banking, such as the Sümer and Eti banks in Turkey and the Agricultural and Industrial banks of Iran and Iraq, to promote manufacturing and mining; they also channeled credit through existing banks, such as Bank Misr in Egypt. Local entrepreneurs also became more active in the economic field, including manufacturing. In Egypt, the Misr and Abboud groups set up various industries, and in Turkey, the Iş Bank promoted development. In Palestine, where some European and Russian
Jewish immigrants brought with them both capital and skills, some set up factories or workshops in a wide variety of fields.

It is difficult to estimate the rate of industrial growth: In Turkey, between 1929 and 1938, net manufacturing production increased at 7.5 percent a year and mining advanced at about the same pace. In Egypt, the rate of growth was slightly lower and in the Jewish sector of Palestine distinctly higher. In Iran, between 1926 and 1940, some 150 factories were established with a paid-up capital of about US$150 million and employing 35,000 persons. Nevertheless, industry still played a minor role in the basically agricultural Middle Eastern economy. By 1939, employment in manufacturing and mining was everywhere less than 10 percent of the labor force, and in most of the countries it was closer to 5 percent. Industry's contribution to gross domestic product (GDP) was put at 8 percent in Egypt, 12 in Turkey, and 20 in the Jewish sector of Palestine; in the other countries it was lower. Industry still depended on imports of machinery, spare parts, raw materials, and technicians - and there were no exports of manufactured goods. A wide range of light industries, including textiles, food processing, building materials, and simple chemicals, had developed in Egypt, Turkey, Iran, Palestine, and, to a smaller extent, in Lebanon, Syria, and Iraq. In addition, Turkey had the beginnings of heavy industry - iron, steel, and coal. Petroleum production and refining had become important to Iran, Bahrain, and Iraq. Several countries were meeting most of their requirements of such basic consumer goods as textiles, refined sugar, shoes, matches, and cement.

Post - 1945

World War II gave great stimulus to Middle Eastern industry. Imports were drastically reduced and Allied troops provided a huge market for many goods. The Anglo - American Middle East Supply Center helped by providing parts, materials, and technical assistance. By 1945, total output had increased by some 50 percent. With the resumption of trade, from 1946 to 1950, many firms were hit by foreign competition, but the governments gave them tariff and other protection, so output continued to grow at about 10 percent per annum from 1946 to 1953. This rate was maintained, and in some countries (like Iran) exceeded through the 1970s, but in the 1980s it fell off sharply because of such factors as the Iran - Iraq War, the Sudanese and Lebanese civil wars, and the 1980s fall in oil prices.

Table 1 shows a breakdown of the structure of Middle Eastern industry. The main industries are still textiles (including garments); food processing (sugar refining, dough products, confectionery, soft drinks, beer); tobacco; building materials (cement, bricks, glass, sanitary ware); and assembly plants for automobiles, refrigerators, radio and television sets, and so forth, with some of the components produced locally. Important new industries have also developed - notably chemicals - including basic products, fertilizers, and various kinds of plastics; basic metals and metal products; and many types of machinery. A particularly rapidly growing branch is petrochemicals, using gases produced in the oil fields or in refineries. Only in petrochemicals, textiles, and food processing does the region's share approach or exceed 5 percent of world output. Similarly, only in phosphates and chromium is the region's share of mineral production significant.

Israel, however, has a large diamond-cutting industry and is a significant exporter of precision instruments. It is also a large exporter of arms, as is Egypt; in the late 1980s each country exported more than US$1 billion worth of weapons; they ranked third and fourth, respectively, among exporters from developing countries, and twelfth and fifteenth, among world exporters of arms. The Arab boycott has, of course, restricted some of Israel's economic pursuits within the region as well as with some international trade.

Today, manufacturing plays an important part in the Middle East's economy, accounting in many countries for 15 to 20 percent of GDP. Industry,

in the broader sense, which includes mining (and therefore oil), construction, electricity, water, and gas as well as manufacturing, generally constitutes over 30 percent of GDP. In the major oil nations it is 60 percent or more, usually employing 20 to 30 percent of the labor force (including immigrant labor).

Factors for Low Productivity

With rare exceptions, industries still export very little and survive through government protection. Productivity is low; for example, gross annual value added in 1974 was only worth US$4,000 to US$5,000 in most countries (compared to $20,000 in West Germany). This is particularly marked in the more capital-intensive industries, such as steel, automobiles, and aircraft. In the late 1970s, in the Turkish state-owned steel mill in Iskenderun, a ton of steel took 72 worker-hours, compared with 5 in the United States and 7 in Europe; in Egypt, annual output per worker in the automobile industry was one car, compared with 30 to 50 in leading Japanese firms. In the more labor intensive industries, such as textiles, however, physical output per worker is about 30 to 50 percent of European output. Here, very low wages offset low productivity and enable the Middle East to compete. In 1980, hourly wages in the textile industry were equal to US$1 in Syria and Turkey and 40 cents in Egypt, compared to US$8.25 in Western Europe.

Low productivity in the Middle East is caused by many factors. First, capital investment per employee is low, although governments have poured large amounts into industry; in the late 1970s the share of manufacturing, mining (including oil), and energy was over 40 percent of total investment in Egypt, Iraq, and Syria, and 30 percent in Iran. In the Gulf region's petrochemical industry, however, capital intensity is high and up-to-date machinery is used. Second, industry is greatly overstaffed; many governments compel firms to take on more workers - to relieve unemployment or for other political purposes. Third, the poor health, education, and housing of workers adversely affect their productivity - but conditions are improving. Fourth, there has been much bad planning, with factories being located far from suitable raw materials or good transport.

General conditions are also unfavorable for industrial development. The region is, on the whole, poor in raw materials. Wood and water have become very scarce. Minerals are generally sparse, remote, and often low grade. Most agricultural raw materials are of poor quality, lacking the uniformity required for industrial processes. The protection given to manufacturers of producers' goods (e.g., metals, chemicals, sugar) creates a handicap for industries that use their products. The main exceptions are natural and refinery gas, which are available almost free of cost, and raw cotton, which is of fine quality. The small size of the local market makes it impossible to set up factories of optimum size and the general underdevelopment of industries prevents profitable linkages among industries; both factors raise unit costs. Although the infrastructure has greatly improved, it still does not serve manufacturing adequately; for example, the frequency of power failures led many firms to install their own generators and transport costs remain high. A dependence on imported machinery, spare parts, and raw materials, although declining, is still great - hence, when a shortage of foreign exchange curtails imports, factories work below capacity, further raising unit costs.

Middle East industry also suffers from a lack of competition. Because of the small size of the local market and the high degree of protection, firms often enjoy a quasi monopoly - and behave accordingly. Finally, a great shortage of industrial skills exists at both the supervisory and foreperson levels. Even more serious is the shortage of managers; this is compounded where the government has nationalized the bulk of industry - as in Egypt, Iran, Iraq, Sudan, and Syria. Here market discipline has been replaced by bureaucratic control, so efficiency has been sharply reduced.

On the whole, then, manufacturing does not make the contribution to the Middle East's economy commensurate with either the efforts or the capital invested in it. Conditions may be expected to improve, however, as the society and the economy continue to develop and as some measure of peace takes hold.

Bibliography

Aliboni, Robert, ed. Arab Industrialization and Economic Integration. London: St. Martin's, 1979.

Economist Intelligence Unit. Industrialization in the ArabWorld. London, 1986.

Hershlag, Z. Y. Contemporary Turkish Economy. London and New York: Routledge, 1988.

Issawi, Charles. An Economic History of the Middle East and NorthAfrica. New York: Columbia University Press, 1982.

Turner, Louis, and Bedore, James. Middle East Industrialization. Fainborough, U.K., 1979.

United Nations. The Development of Manufacturing in Egypt, Israel, and Turkey. New York, 1958.

— CHARLES ISSAWI