FRENCH ECONOMIC INTERESTS IN THE ARAB WORLD

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600030146-7
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 17
• Document Creation Date: December 22, 2016
• Document Release Date: October 28, 2011
• Sequence Number: 146
• Publication Date: October 1, 1970
• Content Type: IM

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e/fi-fi)`1-F-Z/J:M -7,1-1 -'--
DIRECTORATE' OF
INTELLIGENCE
Intelligence Memorandum
French Economic Interests In The Arab World
C-onfidential
ER IM 70-145
October 1970
Copy No. 4 7
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law,
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CONFIDENTIAL
CENTRAL INTELLIGENCE AGENCY
Directorate of IntGlligence
October 1970
INTELLIGENCE MEMORANDUM
French Economic Interests in The Arab World
Introduction
French determination to become more active in
the Mediterranean area has focused renewed atten-
tion on France's political, economic, and cultural
ties with the Arab states. Once an important mar-
ket for the French, the Arab world is of immediate
economic importance to France as its principal
source of crude oil.* The French apparently fear
that increasing nationalism, growing Soviet in-
fluence, and, possibly, an East-West confrontation
in the area might endanger the vital flow of oil.
This fear is one of the major factors underlying
France's efforts to enhance its position in the
area. in the longer run, the French look forward
to an easing of tensions in the Middle East that
might provide opportunities for an increase in
French exports to the Arab world.
* The term Arab world as used in this memorandum
embraces (a) North Africa -- Algeria, Libya,
Morocco, and Tunisia, and (b) the Middle East --
Egypt, Iraq, Jordan, Kuwait, Lebanon, Saudi Arabia,
Syria, Yemen, and the Persian GuZf sheikdoms. The
term Maghreb refers to Algeria, Morocco, and Tuni-
sia. Use of the term Maghreb implies only a geo-
graphic association.
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the office of Current In-
telligence.and the Office of National Estimates.
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This memorandum examines French economic rela-
tions with the Arab world and the short-term pros-
pect for their expansion in support of French
policy objectives in the area. It reviews France's
key interest in crude oil and examines the main
trends in French-Arab trade (including the special
case of arms sales) and in flows of investment and
foreign aid to the Arab world.
Background
1. France developed pervasive influence in the
Arab world through its colonial possessions in
North Africa -- Algeria, Morocco, and Tunisia
and, following World War I, its mandates in Lebanon
and Syria. Although French cultural prestige re-
mains strong, particularly in the Maghreb, political
and economic influence was seriously eroded by
growing Arab nationalism, French participation in
the abortive Suez campaign of 3.956, the long and
bloodv- civil war in Algeria, and most recently the
rapid rise of Soviet influence. Nevertheless, in
addition to its oil interests in the Arab world,
France retains many economic links with the Maghreb
and Lebanon.
2. De Gaulle sought to reestablish France's
"special relation" with the Arab world. This was
facilitated by the negotiation of the Evian Accords
in 1962 which recognized Algeria's independence
and brought to a close the Algerian crisis. During
the early and mid-1960s, De Gaulle was able to
improve French political relations with the Arab
countries while continuing French military assist-
ance to Israel. His decision to embargo the ship-
ment of arms to the belligerents in the June 1967
Arab-Israeli war -- a move that adversely affected
only Israel -- represented a marked and overt pro-
Arab shift in French policy. More recently,
Pompidou's statements concerning the political
importance of the Mediterranean, the continued
embargo on arms shipments to Israel, and the in-
creased French efforts to sell military equipment
to selected Arab states 2Lll indicate a broadening
of the policy to restore and expand French influence
in the Arab world.
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0 CONFIDENTIAL
3. The principal immediate economic objective
of improved relations with the Arab world is to
secure an uninterrupted flow of oil. France de-
pends on imports to meet virtually all its crude
oil requirements, and the Arab countries account
for more than 90% of French crude oil imports.
Because the rising tide of nationalism, Soviet
influence, and anti-Western feeling make the Arab
world an increasingly unreliable source, Paris is
making strenuous efforts to develop alternative
sources. But prospects are dim. In the foresee-
able future, the Arab countries will remain the
only ones capable of meeting the rapidly growing
French demand for crude oil.
4. The French have no illusions that the Arab
world represents a promising market ripe for im-
mediate expansion. They believe, however, that
their present pro-Arab stance will give them an
advantage over other Western powers in seizing
whatever opportunities might arise for increasing
sales to the area in a post-crisis era. An in-
crease in exports is seen as one means-of enhancing
French influence and offsetting some of the rapidly
rising costs of oil imports.
French Trade With the Arab World
The Rising Import Bill
5. With French demand for petroleum products
rising at an average annual rate of over 12%, crude
oil imports from Arab countries more than doubled --
from $530 million in 1960 to $1.3 billion in 1968.
Total French imports from the Arab world rose more
slowly -- from $1.2 billion in 1960 to nearly $1.7
billion in .1968, or about one-third (see Table 1).
French purchases of Arab goods other than oil --
primarily fruits and vegetables, wine, and selected
minerals from the Maghreb -- fell from $680 million
to $421 million. France's failure to live up to
the terms of its wine agreement with Algeria, one
of the continuing irritants in Franco-Algerian
relations, was the major cause of this decline.
Under strong pressure from domestic wine growers,
imports of Algerian wine fell from $235 million in
1960 to about $50 million in 1968.
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French Foreign Trade With the Arab Countries a/
Million US $
Percent Change
Imports
Exports
Imports
1960
1964
1968
1960
1964
1968
1964/1960
1968/1964
1964/1960
1968/1964
Total French trade
6,868
8,997
12,708
6,284
10,073
13,986
31
41
60
39
Of which:
All Arab countries
1,528
907
993
1,210
1,409
1,674
-41
9
16
19
Maghreb states
1,418
790
720
780
910
787
-44
-9
IT
-14
Algeria
1,093
495
471
514
610
557
-55
-5
19
- 9
Morocco
200
187
169
196
232
189
-6
-10
18
-19
Tunisia
125
107
80
70
68
41
-14
-25
-3
-40
Other Arab
countries
110
117
273
430
499
886
6
133
16
78
Egypt
29
17
64
12
16
16
-41
276
33
0
Iraq
2
5
20
158
151
270
150
300
-4
79
Kuwait
6
7
12
142
176
126
17
71
24
-28
Lebanon
35
45
75
2
2
4
29
67
0
100
Libya
11
16
30
Negl.
45
175
45
88
--
289
Muscat and Oman
0
1
15
0
27
150
--
1,400
--
456
Qatar
Negl.
1
2
35
28
61
--
100
-20
118
Saudi Arabia
4
6
19
65
42
76
50
217
-35
81
Syria
18
13
24
16
t0
7
-28
85
-38
-30
Others
5
6
12
Negl.
2
1
20
100
--
-50
Beeauss of rounding, components may not add to t e totals s own.
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Export Trends
6. French exports to the Arab world -- pri-
marily machinery and manufactured consumer good;; --
followed two distinct patterns during the 1960s.
Reflecting the severance of colonial ties, exports
to the Maghreb declined nearly 50%, with most of
the decline occurring between 1960 and 1964.
Exports to the other Arab countries more than
doubled, with most of the increase occurring from
1964 to 1968. Because the Maghreb traditionally
has been France's most important market in the area,
the net effect was a substantial decline in total
French exports to the,Arab world -- from $1.5 bil-
lion in 1960 to $900,million in 1964, recovering
slightly to $1.0 billion in 1968. Preliminary
data suggest that 1969 exports remained at approxi-
mately the 1968 level. The Arab countries' share
in total French exports dropped from 22% in 1960
to 8% in 1968. The sharp reduction in exports,
combined with increased imports, produced rapidly
rising deficits -- nearly $700 million in 1968 --
replacing the former surpluses in French trade
with the Arab world. These trade deficits contrib-
uted to the drain on foreign exchange reserves
that ultimately led to the August 1969 deva.uation
of the franc.
7. The decline in French exports to the Mag-
hreb is attributable primarily to the sharp drop-
off in sales to Algeria from $1.1 billion in 1960
to less than $500 million in 1964. Although sales
to Algeria have stagnated at approximately that
level in recent years, the French share of the
Algerian market declined from about 80% in 1964 to
60% in 1968. Prior to its independence, Algeria
was considered an integral part of metropolitan
France and absorbed nearly three-fourths of French
exports to the Arab world. The drastic reduction
in French exports to Algeria after 1962 was precip-
itated by the large-scale emigration of French
colons and the consequent sharp decline in overall
Algerian economic activity.
8. The bitter struggle for Algerian libera-
tion considerably disrupted he close economic
ties that had developed with France. The exodus
of nearly one million French colons, who emigrated
in the wake of widespread nationalization and
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confiscation of French property, deprived Algeria
of almost 10% of its total population, including
the major part of its middle class and, more
seriously, its most important agricultural, indus-
trial, and commercial entrepreneurs, as well as
its cadre of trained government administrators.
The depressing effects of this loss led to a sharp
curtailment in Algerian import demand for both con-
sumption and investment goods. This decline was
aggravated by a reduction in French foreign aid
and, subsequently, by a deliberate government aus-
terity program designed to conserve foreign exchange.
Total Algerian imports declined from $1.2 billion
in 1960 to $640 million in 1966 before recovering
to, some $800 million in 1968. As Algeria's princ-
.,ipal supplier, France was most severely affected.
9. Because of the ties remaining from their
colonial period, Morocco and Tunisia still rank
second and third, respectively, among French export
markets in the Arab world. As with Algeria, how-
ever, the determined efforts of these countries to
reduce their economic dependence on the former
mother country have had an adverse impact on French
exports. France is still the most important sup-
plier to Morocco and Tunisia. But where once it
enjoyed virtually a captive market, France must
now compete increasingly with other industrial
countries. The result is clearly shown in Table 2.
French exports to both Morocco and. Tunisia declined
between 1960 and 1968, while those of other indus-
trial countries generally increased. As a result,
the French share of the Moroccan and Tunisian mar-
kets declined from 49% and 59%, respectively, in
1960 to 32% and 33% in 1968.
10. The other Arab countries in the Middle East
and in North Africa traditionally have been markets
of decidedly lesser importance. Except for Lebanon
and Syria, which were French mandates from 1919 to
1944 and 1946, respectively, most countries in the
area came within the Anglo-American sphere of in-
fluence and their economies were largely dominated
by British, Dutch, and US firms, especially oil
companies. French influence, already weakened be-
cause of the French debacle during World War II,
suffered a further blow as a result of France's
partic~,pation in the abortive Suez campaign.
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.France
WestGermany
Italy
United Kingdom
United States
Exports of Selected Industrial Countries to Morocco and Tunisia
Percent Change
Million US $
Percent Change
1960
1964
1968
1964/1960
1968/1964
1960
1964
1968
1964/1960
1968/1964
200
187
169
-6
-10
125
107
80
-14
-25
20
32
42
31
9
12
19
33
58
22
16
30
88
11
15
24
36
60
15
15
22
47
7
10
6
43
-40
34
41
65
21
59
21
33
47
57
42
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11. French efforts to Improve relations with
the Arab world following the settlement of the
Algerian crisis paid France some economic divi-
dends -- although generally not in the oil-rich
countries. As shown in Table 3, French exports to
non-Maghreb Arab countries increased more rapidly
between 1964 and 1968 than those of such key com-
petitor countries as the United States, the United
Kingdom, and West Germany, all of which are identi-
fied in varying degrees with military, political,
and economic support of Israel, a cardinal sin in
Arab eyes. France was thus able to increase its
market share in some non-Maghreb Arab states at
the expense of these traditional suppliers. in
the aggregate, however, the gains were relatively
small and in certain cases succeeded only in again
.establishing the export levels that prevailed
prior to the Algerian crisis. In 1968, France
still ranked only sixth among Frei: World exporters
to the area, providing less than half of the value
of goods shipped by-the United States, the leading
exporter (see Table 3).
Prospects for French-Arab Trade
12. While imports from the Arab world are
expected to continue to rise rapidly -- reflecting
the rising demand for crude oil -- France faces
formidable obstacles to a large-scale expansion of
its exports to the area. Paris believes improved
political relations with the Arab world will aid
the expansion of French exports to the Arab market.
But in the Maghreb, where remaining economic ties
should favor French suppliers, Morocco and Tunisia
lack the resources for rapid internal development
that would generate greatly rising import require-
ments. And Algeria, which has such resources,
tends to discriminate against French goods.
13. in the non-Maghreb states, the return to
traditional pro-Arab policies has significantly
improved the French image but will not help French
exporters much. The large oil-producing countries
are too closely tied to US and UK companies, and
their markets, as well as the Lebanese market, are
small. Egypt's imports are limited by a perennial
shortage of foreign exchange and heavy indebtedness
to the USSR. A substantial expansion of French
exports to Egypt would require large long-term
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Table 3
Exports of Selected Industrial Countries to Non-Maghreb Arab States a/
Million US $
Percent Change
1960
1964
1968
1964/1960
1968/1964
United States
439
679
599
55
-12
United Kingdom
351
-444
517
26
16
Italy
140
213
382
52
79
West Germany
287
310
350
8
13
Japan
122
190
333
56
75
France
110
117
273
a. .Inc u ing Bahrein, Egypt, Iraq, Jordan_, Kuwait, Lebanon, Libya., Muscat an
Oman, Qatar, Saudi Arabia, Syria, and Yemen.
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credits at favorable interest rates. Because of
poor repayments prospects, however, neither the
French government nor private business interests
have thus far shown any inclination to extend such
credits.
Arms Sales
14. French arms sales to Arab countries have
both benefited from and contributed to improved
Franco-Arab relations. With the United States and
the United Kingdom reluctant to aggravate the arms
race in the Middle East, and many Arab countries
hesitant to become totally dependent on Soviet
arms, French'military equipment has found ready
buyers, and France's readiness to supply arms has
enhanced ics political acceptability in the area.
Arms sales to the Arab world also yield economic
benefits to France.' They not only constitute a
welcome source of foreign exchange but also reduce
per unit costs of research and development for
weapon systems.
15. Some French arms sales to the Arab Middle
East were concluded in the mid-1960s, primarily
aircraft to. Lebanon and modest quantities of other
military equipment to Iraq, Jordan, and Saudi Arabia.
The French arms sales effort in the area was stepped
up following the Arab-Israeli war in June 1967.
Although France imposed an embargo on the shipment
of arms to all of the belligerents in the war, the
embargo was clearly directed against Israel, which
alone among the belligerents had come to depend
extensively on France for the supply of advanced
weapons, especially the French Mirage fighter planes.
16. French efforts to sell some 50 Mirage
fighters to Iraq in 1968 failed, reportedly because
of disagreements on price, but negotiations continue
for other military equipment. In 1969, France
signed an agreement with Algeria, providing for the
sale; of miscellaneous military hardware.' Although
the quantities involved were not large, this
agreement was significant because it was the first
to break the Soviet monopoly on arms sales to
Algeria and the first to provide French arms for
Algeria. since the Algerian crisis. The most impor-
tant French arms agreement with an Arab country
thus far was signed with Libya early in 1970.
10
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Providing for the sale of more than 100 Mirage
fighters during 1971-75, this agreement may involve
payments exceeding $300 million. With no end of
the political instability and arms buildup in the
Middle East in sight, and with US and UK influence
in the area declining, the French have the inside
track on Western arms sales to Arab countries.
Investments
17. A large share of French investments in the
Arab world was lost through expropriation following
the end of French colonial rule in the Maghreb
states. The most important of the remaining French
investments in the area is in the Algerian oil
industry, where French-owned companies -- primarily
the Compagnie Francaise des Petroles (CFP) and the
Entreprise des Recherches et d'Activites Petro-
lieres (ERAP) -- still account for about two-thirds
of annual crude petroleum production. France also
has a substantial investment in the Iraqi oil
industry. CFP owns a 23.5% interest in the Iraq
Petroleum Co., Ltd., a consortium of British,
Dutch, US, and French companies that accounts for
almost all the crude oil produced in Iraq. Finally,
France has extensive investments in Lebanon. While
detailed information is not available because of
the traditional Lebanese reticence to divulge
business information, French interests are strongly
represented in Lebanese banking, industrial, and
commercial enterprises.
18. In recent years there has been no e:ignif-
icant increase in the flow of private investment
into the Arab world. French direct private invest-
ment in the Arab world during 1964-68 averaged
approximately $150 million annually, somewhat more
than two-riftiiz ~;z total French private direct
investment abroad. Algeria received the lion's
share -- about $110 million annually -- much of
this pursuant to the Franco-Algerian oil agreement
which requires the French partner'in Cooperative
Association (ASCOP), the jointly owned French-
Algerian oil company, to put up 80% of total in-
vestment expenditures. New French direct invest-
ment in other Arab states averaged $40 million
annually during 1964-68 and declined during the
latter part of this period, when Arab-Israeli
tension was increasing.
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19. The prospects for large-scale new French
investment in the Arab world during the next few
years are not bright. The recent softening of
Algeria's harsh negotiating position on revising
the 1965 oil accord gives promise that a compromise
solution will be reached permitting French oil
companies to continue profitable operations while
affording the Algerian government larger revenues
from, and increased control over, Algerian oil
production. Nevertheless, the French oil companies
will remain wary and will be reluctant to increase
investment there.
20. Elsewhere in the Arab world, the continui.ig
political instability and the attendant threat of
nationalization -- the expropriation of Italian
holdings in Libya is the most recent drastic
example -- make investment highly risky. With the
requirements for additional investment in the
metropole rising rapidly, the French government
and private entrepreneurs are unlikely to commit
large additional resources where the risks are so
high.
Foreign Aid
21. French foreign aid to Arab countries is
concentrated almost exclusively on the Maghreb
states, primarily on Algeria. Aid expenditures
have declined steadily through the 1960s, in both
absolute and relative terms. The Evian Accords
set up a three-year French aid program on.a declin-
ing scale. In 1962, French government aid to
Algeria was nearly $360 million, more than two-
fifths of French official bilateral aid in that
year. By 1965, French aid to Algeria had declined
to $135 million, or 18.5% of the total. Since
the expiration of the three-year program, French
aid to Algeria has remained relatively constant,
somewhat more than $100 million annually. in
1968, Algeria's share of total French official
bilateral aid declined to 13%.
22. French aid to the Arab states outside the
Maghreb is restricted to technical assistance
(including teaching personnel). At present there
are no indications that Paris intends to expand
its aid program to the area or otherwise to use it
in support of political objectives there. in fact
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President Pompidou -- who repeatedly hac emphasized
the key importance of the Mediterranean area to
France -- has expressed hope that French aid will
concentrate increasingly on Dlack Africa, leaving
multilateral agencies to supply aid to the rest
of the "third world."
Conclusions
23. French economic interests in the Arab
world are still concentrated in the former colonies
of the Maghreb, although these long-established
ties are loosening. Apart from oil (mainly in
Iraq), French economic interests in other Arab
states are comparatively small.
24. France will remain dependent on Arab oil
in the foreseeable future, and its policies mast
take account of this fact. On the basis of recent
rates of increase, French crude oil imports in
1975 will exceed $3 billion, more than double the
$1.4 billion imported in 1968. Crude oil imports
from the Arab countries in 1975 may reach as high
as $2.7 billion. Although imports of other Arab
commodities are not expected to rise much during
the next few years, total imports from the area
may reach $3 billion to $3.5 billion.
25. The prospects for significantly expanding
French exports to the Arab countries during the
next few years are poor. Despite its improved
political image, France will continue to face
serious difficulties in overcoming rising Arab
nationalism and traditional trading patterns that
favor competitor countries.
26. Arms exports to the Arab world have a
promising potential. In addition to enhancing
France's political position in the area, they
provide a welcome source of foreign exchange and
reduce the domestic burden of research and develop-
ment costs in the French armaments industry. But
eve% under the most optimistic assumptions, arms
exports are not likely to cut substantially the
widening trade deficit with the area resulting
from rapidly rising French imports of Arab oil.
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27. Political instability, nationalization,
and xenophobia in the area create a hostile climate
for private foreign investment. And the French
government givee no indication of planning to
expand itb foreign aid programs in the area as a
means of gaining greater political leverage. In
fact, it is likely that aid to the area will de-
crease as budgetary strictures force the French
government to concentrate aid in Black Africa where
development projects promise early returns to the
French economy.
28. Expansion of its political influence in
the Arab world is an important objective of France's
foreign policy and will no doubt be given a high
priority in the next few years. The French see
their role as a counterweight to the growing Soviet
role in the area and they see the decline in US
and British influence as presenting opportunities
for extending their own influence. The economic
motivation of this policy, however, appears to be
relatively minor. The area's markets are either
too small or too protected to offer France much in
the way of commercial opportunity. Accese to oil
is important to France, as it is to the rest of
Western Europe, but France does not seem willing
to pay much of a price to expand its economic links
with the area. In general, it is clear to the
French themselves that, while the Arab states may
be one of the most promising areas for French polit-
ical initiatives, France's economic interests are
primarily bound up with the European community
and the industrialized countries generally.
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CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030146-7