How decades of conflict with Israel has hindered economic development in the Arab world

Population growth

That support dates back to the late 1940s and the 1950s. Then – as now – the Arab street has supported the Palestinian cause.

But at the time when Israel was being established, the Arab world also began to face the challenge of rapid population growth.  

In 1950, the population of all Arab countries was estimated at 75 million. Egypt was the largest at 21 million. The rest of the countries had far less, with some countries having fewer than 1 million people.

Illiteracy, poverty, and unequal income distribution were commonplace, and agriculture represented the bulk of economic activity in countries such as Egypt, Syria, Sudan, Morocco, and Iraq.

The Gulf countries were yet to unlock the fortunes of the oil era and relied on trade with India and East Africa and the pearls they collected from the sea. Despite these modest economic conditions, Arab countries allocated significant funds to support the Palestinian cause.

Development held back

However, prioritising military spending has hurt Arab economic development. The flux of European Jews who settled in Israel boosted its economy by bringing educational and industrial know-how that allowed the country to flourish in areas such as industry, education and agriculture.

In the Arab world, the private sector was marginalised and often exploited to build up state militaries. However, no progress was achieved on the military front from 1948 to 1956 and 1967. It wasn't until the October War of 1973 that Egypt and Syria successfully struck Israel, and Egypt reclaimed the Sinai desert, which Israel had occupied.

Read more: The surprise Arab victory that changed the region

But even then, the costs of the 1967 defeat were still deeply felt. The Khartoum Conference, held in August of that year, saw Saudi Arabia, Kuwait, and Libya donate £147mn to support Egypt and Jordan.

These funds were intended to support the war effort to help liberate the Arab territories occupied after Israel, as well as to rebuild after the war.

At the same time, the Arab Fund for Economic and Social Development was also set up. It was the first time the importance of such a programme to the overall struggle against Israel was recognised.

The cost of war

Egypt was particularly exposed to the financial cost of the wars fought by Arab countries in the second half of the 20th century.

Egyptian budget data shows that military spending was about $510mn in 1967, comprising 8.9% of its gross domestic product (GDP). It rose to $1.25bn in 1973, or 13.5% of GDP.

This was a major burden on the national economy, and Cairo ended up borrowing heavily or relying on support from oil-exporting countries, as well as support from the Soviet Union, before 1973.

On his part, Egyptian President Anwar Sadat said that the October 1973 war was Egypt's last war. He signed the Camp David Accords which ushered in an era of peace with Israel and shifted his country toward economic development and improving living standards.

Syria also struggled with the financial burden of war after 1948, against Israel and via security operations in Lebanon during after its intervention since the 1976 civil war there.

This curbed Syria's potential to grow its economy and develop vital sectors such as tourism. Ever since the mid-1980s military spending, has accounted for around 8% of the country's GDP.

Liberating the Golan Heights, which were occupied by Israel in the 1967 war, was supposed to be the most important military objective. But many decades passed without Syria being able to do so, even after the victory in the October War in 1973.

And Syria, unlike Egypt, has not reached a peace settlement with Israel. Israel's invasion of Lebanon kept Syria focused on military spending and the army remained an important part of the national political system and a top priority for national spending.

Military spending

Spending on the military remains high across the world – at $2.2tn according to the international charity Oxfam – with developing nations feeling a need to spend on defence.

And that spending prevents money from going to other areas, which would benefit development, including urbanisation, education, healthcare, and environmental protection.

Oxfam's findings are stark: 9,000 people a day die from famines generated by wars and conflict, while the world spent an annual average of $112bn on arms imports between 2018 and 2022.

And Arab nations are at the forefront of the trade in those years, with Saudi Arabia, Qatar and Egypt among the biggest arms importers alongside India. The main weapons exporters are the United States, Russia, France, China, and Germany.

The continued imports of weapons by Arab countries keep funds away from where they could help spur development. And it comes due to the continued threats to their security due to the geopolitical risks which remain in the region, including threats from Iran alongside the conflict in Yemen and the worsening Israeli-Palestinian conflict.

The international community is still indifferent to these conflicts and has dealt with them lightly.

There has been a lack of global support for key Arab countries – including Egypt and Saudi Arabia – to address the conflicts and stop them from escalating or even just continuing.

As long as they persist, there is a danger that wars will promote extremism, not least by providing the environments in which terrorist organisations can flourish.  

Ending conflicts is essential

The dire living standards of Palestinians, Yemenis and others can only be improved if the conflicts that affect them end. Then, development programmes can be adopted locally and supported by international institutions such as the World Bank, the International Monetary Fund, the European Union and the United States, alongside the relevant Arab development funds.

In the coming years, the Arab world will continue to grapple with these stark challenges. Alongside them, there will be demographic shifts, which will also present new challenges.

Throughout, there are unprecedented developments in industry and technology that will have to be part of the process, which will unfold during the wider challenge of the major shift in the global energy economy.