Politicians pontificate and observers oscillate between repeating the views of the last person and the next to share a confidence. It’s still the money men that mostly matter and determine the tide in the (business) affairs of men, which taken at the flood, leads on to victory.

Ten days before the Turkish Constitutional Court determined that the ruling Justice and Development Party (AKP) had not been so naughty that it warranted disgrace and disbandment, most of the large international investment banks had come to the conclusion that the Istanbul market was a good place to be.

On July 30, the court ordered the AKP to be docked half its state funding for the year as a “serious warning” about its perceived “anti-secular activities.” The talk of crisis and chaos subsided, the unlikely prospect of yet another military takeover passed into oblivion, the markets moved upward and the currency strengthened.

Courting logic

The country and the court followed the Bush Sr logic. President George the Elder resisted entreaties from the military in 1991 to invade Baghdad. “What will you do when you get there?” asked the father. A dozen years later, the son, President George the Junior, gave the reply: Ask me when I get there. Thus it was with the prospect of dispatching to the ether a Turkish party that was supported by 47% of the electorate. What follows in a country where the opposition parties that form the alleged alternative expend most of their energies in making themselves unelectable? The Constitutional Court perhaps did not fancy finding out and the money men seem to have perceived this.

One source inside the Istanbul Stock Exchange (ISE) painted the scene. The ISE index moved in parallel to most emerging markets until mid-March when the AKP shindig initially looked as though it may get nasty. Market performance diverged so much from the norm that the average price to earnings ratio reached a 20-year low. Yet, as the market source added, companies were still reporting good results and the economy was growing — 6.6% in the first quarter of 2008. Then the classic giveaway quote: “A week or 10 days before we saw the ending of the deliberations of the closure case, most of the large international investment banks came up with very positive reports,” the source said, before adding that the decisive factor was the sure knowledge that the period of uncertainty was coming to an end. Whichever way the decision had gone, the market fundamentals were in place for a recovery.

Whether that was the entirety of their thinking, only the money men know. “This was a market-friendly decision,” said Veyis Fertekligil, chief economist of Turkland Bank. “If the ruling party had been closed, there would have been a strong knock-on effect for the stock market, government bonds and the exchange rate.”

In the wake of the announcement, there was immediate evidence of a strong effect for the good. The following day, yields on lira bonds dropped some 66 basis points to 18.92% — the largest fall since November 2006. Smart money had been ploughed into bonds somewhat earlier at a rate as high as 22% and when the Turkish lira was trading to the dollar in the mid-1.20s. Meanwhile, the ISE National 100 index, which has dropped almost 40% this year due in part to political worries, added 2.1%. The lira, which had also been falling, gained to 1.162 against the dollar, despite the greenback’s recent strong rally. By August 1, the lira had made its largest weekly gain against the dollar for two years, up 4.3% to 1.1543.

Investors surveyed in the local and international press indicated that their confidence in Turkey’s future had been renewed. “It’s a milestone decision,” Vassilis Karatzas of Levant Partners Greece SA told the international press. “In the next year or two, this decision will provide political stability in Turkey, which is important for markets.”

Standard & Poor’s Ratings Services changed its outlook for Turkey from negative to stable, reflecting “diminished near-term political uncertainties”. The message was that investment will continue to flow into the country and growth will continue.

“Turkey is leaving a tense situation and we very much hope that the decision by the court will contribute to restoring political stability,” said a spokeswoman for EU foreign policy chief Javier Solana. EU Enlargement Commissioner Olli Rehn indicated that Turkey’s on-off process of accession to the Union had received a fillip — though it would perhaps be more accurate to observe that the country’s hopes have not received a titanic setback.

Investor confidence

Much of Turkey’s recent growth has been driven by inflows of foreign direct investment (FDI), registering around $19 billion last year — down from $20 billion in 2006 but still equal to the FDI Turkey attracted in the 23 years between 1980 and 2003. There was evidence that investors started to withdraw their cash in the early days of political tension surrounding the court case rose.

However, relief at Turkey’s evasion of political calamity should be tempered with the knowledge that the country still faces some tough times. Inflation hit a four-year high of 12.1% in July, a troubling figure even given the fact that prices have been driven up by external factors. So far, the Central Bank of the Republic of Turkey (TCMB) has moved decisively to increase interest rates, reinforcing its reputation for tight monetary policy. However, this has also undermined the bank’s aim of normalizing rates (i.e. bringing them down to single figures) and has hit businesses. Therefore attention is turning to the government’s fiscal policy. Given its development and poverty-fighting brief, the AKP is reluctant to tighten spending but a degree of retrenchment may be needed if inflation is to be brought down.

The government also has reason to be concerned about growing external imbalances. The current account deficit grew by more than 40% in the first half of 2008 compared to the same period of last year, according to the TCMB. June’s deficit was a striking 78.2% above that of the same month last year, and the government expects the current account to be $50 billion in the red this year, up from $38 billion in 2007. The IMF warned in August that the situation posed a serious risk to the country.

Both these problems could be eased by tighter fiscal policy and reforms designed to boost the economy’s competitiveness, which should help moderate prices and boost export performance. A leaner and more productive economy should also continue to draw in FDI. Competitiveness and a strong business climate are more important than ever at a time when capital conditions have tightened.

Not that the AKP can breathe wholly free from political concerns. At the time of writing, headlines had already started to turn back to a cloudier outlook. The chief prosecutor who launched the closure case is said to be readying a second, this time specifically targeting Prime Minister Recep Tayyip Erdogan. Meanwhile, amid concerns about the sustainability of emerging markets’ recent growth, and a continuing rise in the dollar, the lira softened again to 1.1835 against the greenback by August 15. This was partially down to profit-taking. Money men are not employed to be sentimental.

The government had previously stated that it would step up its reform and privatization drive in 2008, after international organizations and investors had started to worry that enthusiasm for liberalization had waned in 2006 and 2007. It has been somewhat blown off track by squabbles over lifting the headscarf ban in public universities and the subsequent court case, but the cause is certainly not yet lost.

Banking Islamic in Istanbul

Ironically Istanbul will host a major forum on Islamic finance next month, the International Islamic Finance Forum. Happily for the AKP, Islamic banks in Turkey are a blooming rose by another name — participation banks. The four of them, Albaraka Turk, Bank Asya, Kuveyt Turk and Turkiye Finans, administer assets worth around $21.5 billion, which represent 5% of the Turkish banking system. The target is to double that in the next decade.

Albaraka Turk has Bahrain’s Albaraka Banking Group as the major shareholder and Saudi Arabia’s National Commercial Bank bought a 60% stake in Turkiye Finans earlier this year for just over $1 billion. Kuwait Finance House has a majority stake in Kuveyt Turk and wants to increase the number of branches from 100 to 113 by the end of 2008.

One interesting item for participants in the forum is a study on the impact of politics on the underdevelopment of Islamic finance in Turkey.

Emerging on the scene in 2005, Saraya Holdings has undeniably raised the bar of development companies throughout the Middle East. Recently crowned the “Fastest Growing Company” in the region by Arabian Property Magazine, Saraya has reason to be proud. As a relatively new real estate development and asset management company, Saraya boldly invests in travel and tourism. Saad Hariri — owner of Saraya Holdings — says the aim of Saraya is that it “seeks to support the economic growth of the countries it invests in by developing projects that maximize shareholders’ value and contribute to the sustainable development of local communities.” Saraya strategically partners with both the private and public sectors in order to fully utilize and contribute to the local communities where it invests.

Owned by Saad Hariri and run by CEO Ali Kolaghassi, Saraya holds numerous subsidiaries under its umbrella divided into Saraya Destinations, Saraya Services, Millennium Development International (MDI), and Saraya Development Group (SDG). The latter is responsible for real estate development and asset managing for Saraya projects, while also acting as the property advisor to the MENA Fund — created by Saraya Holdings. The MENA Fund seeks to invest in underdeveloped locations in order to offer high growth potential with low competition, and where demand of MENA real estate and tourism are on the rise. MDI is the development management arm of Saraya, catering to her every need on its mixed-use projects around the region. The mammoth developer envisions itself as an international leader in luxurious accommodation, travel, tourism, and overall elite living.

Won’t you be my neighbor?

In December 2007 Saraya Holdings announced that it was relocating its headquarters to Jordan’s new downtown, Abdali. Saraya acquired a 3,600 square meter land parcel in Abdali, which will include its headquarters, a five-star luxury business hotel and hotel apartments, a limited number of serviced residences and an underground parking, costing Saraya a cool $113 million. Saraya’s new headquarters is expected for completion by early 2011.

Saraya destinations

Boasting six opulent destinations — Saraya Aqaba (Jordan), Saraya Dead Sea (Jordan), Saraya Ras Al Khaimah (UAE), Saraya Bandar Jissah (Oman), stretching as far as Kazakhstan with Saraya Aktau, and all the way to Russia with Saraya Sochi — the company thinks big. Each project possesses a unique character of its own, providing a variety of facilities making up large mixed-use developments.

As the first project launched by Saraya Holdings, Saraya Aqaba is valued at approximately $1 billion. The project — founded by Saraya Holdings, Social Security Corporation, Aqaba Development Corporation, and Arab Bank — was introduced in 2005 at the World Economic Forum in the Dead Sea and is expected to be complete by the end of 2009. Located on the Red Sea, Saraya Aqaba will combine the ancient and historically rich city of Aqaba with exclusive residences (villas, apartments, town houses, lofts, and beach club duplexes), shopping facilities (traditional souks), entertainment, a water park, offices, restaurants, a wharf promenade and waterfront, six first-class hotels (three by Jumeirah and the other three by Starwood Hotels & Resorts Worldwide), and cultural activities. All of this will be centered in plush gardens and glistening waterways, built around a man-made lagoon — which will add 1.5 km of exquisite beachfront to the Gulf of Aqaba. The master plan development — totaling 617,000 square meters — will, without a doubt, create a culturally lavish ‘city within a city’, glorifying Jordanian culture and its natural wonders. 

Being Saraya’s second project in Jordan, Saraya Dead Sea is a top destination for pure serenity. Saraya imports its luxurious exclusivity to yet another ancient site, the Dead Sea. Located at 400 meters below sea level, the project is on “the lowest point on earth,” but, swanks Saraya, “[brings] the highest standard of luxury.” Only 65 km from Jordan’s capital, the project offers numerous deluxe facilities such as an 18-hole signature golf course with a clubhouse, boutique and world-class hotels, residential units, a sumptuous health spa, recreational amenities, a botanical garden, as well as a temple reminiscent of Stonehenge. Outside of Jordan, Saraya has three other developments underway.

Saraya in the UAE

Saraya Ras Al Khaimah (RAK) is Saraya’s first project in the UAE, which will turn an unappreciated scenic location into a vibrant hub of various investment opportunities in one of the fastest growing economies in the world, for locals and foreigners alike. For its first Emirates project, Saraya partnered with the Investment and Development Office of the RAK government, Arab Bank, and Saraya Real Estate MENA Fund. Based off the northern tip of the UAE on the Gulf and nestled in between the Hajjar Mountains, Ras Al Khaimah is affluent in natural landscape, history, and culture. The project will stretch over 5.5 km of four naturally interconnected islands and a main village — which is connected to Al-Marsa (the main island) by a naturally lush boulevard and the Dubai Airport (via the Emirates Road). The RAK project is estimated to be 1.4 million square meters — ordaining 65% to residential (villas, lagoon view townhouses, terraced apartments) and commercial areas (such as first-class hotels, exotic bungalows, luxurious spas and retreats, a yacht club, a Wild Wadi water park, serviced residential units with private gardens, etc.) and 35% to beaches, landscaped areas, and open-air activities. Saraya prides itself that its aim is “to build a modern representation of RAK’s seafaring heritage over contemporary technology. The themed development will create an environment where history and modern life will co-exist in a manner that will offer an integrated experience between the past and the present.”

Extending this dream further in the region, Saraya announced its ambitious project in Oman. Located a mere 25 km southeast of Muscat, Saraya Bandar Jissah destination follows Saraya’s trend of targeting inherent beauty. In a valley surrounded by Oman’s magnificent mountains and natural splendor, Saraya Bandar Jissah is situated on prime beachfront. The project will be built on 2.4 million square meters of land, featuring luxuriant villas, duplexes, a premium spa, two first-class hotels, souvenir shops, a heritage village (constructed around an archeological site), as well as a recreational and commercial center with restaurants, supermarkets, a social club, and sports facilities. Saraya partnered with OMRAN — an Omani government-owned company endorsing tourism projects and freehold property destinations — in order to promote the sultanate as an incomparable leading Middle Eastern destination.

Saraya further extends its vision beyond the Middle East, reaching into Eastern Europe. In Russia, Saraya Sochi is positioned on a green hill overlooking the Black Sea. Here Saraya partnered with Sistema Hals — one of the most diverse real estate companies in Russia and the Commonwealth of Independent States. The development is envisaged to cover an area of 6.3 hectares, making up approximately 95,000 square meters of built-up area. This unique project is another Saraya mixed-use resort, comprising a five-star hotel, residential units, entertainment, and retail facilities. Saraya intends to completely renovate the beach, to include a summer restaurant, commercial kiosks, sports areas, as well as plush relaxation and leisure amenities. The project seeks to preserve the lush forested areas of Sochi’s shoreline.

Kazak developments

As Saraya’s most recent addition to its expanding portfolio, Saraya Aktau in Kazakhstan is certainly ready to become the core of vivacity in the city. Aktau is said to be the center of emerging oil, gas and tourism industries in all of Kazakhstan; clearly, Saraya chose wisely. Saraya partnered with Kazemir Aktau Development Ltd (Kazemir Aktau) — a leading master developer and landowner in Kazakhstan — by signing a MoU to develop the opulent mixed-use enterprise. Kazemir Aktau appointed MDI as the chief development strategist and manager of the site. The project will stretch over a 400,000 square meters site, possessing a beachfront of 650 meters overlooking the spectacular Caspian Sea. Comprising a five-star hotel resort, serviced villas, a world-renowned spa and branded villas, the project is sure to accelerate the predicted economic boom of Kazakhstan. Saraya Aktau is expected to be operational by 2011.

All are currently works in progress, but Saraya does not sell itself short — with the creation of Saraya Services, the developer aims to complement its travel hot spots with customized services, to complete the Saraya experience.

Offering escape on a silver platter

Providing a bouquet of intricately tailored services, Saraya is definitely one of a kind. Aiming to complete the ‘Saraya experience’ of pure luxury and exclusivity, Saraya Skies, Saraya Roads, Saraya Seas, Saraya Holidays, and Saraya Realty were born.

Saraya Realty (SR), established in fall of 2007, acts as the exclusive property sales, leasing and re-sales arm for all of Saraya destinations. Saraya Realty offers one-of-a-kind personalized property selection services, including interior designing and furniture selection. SR partners with globally renowned real estate agents like Better Homes (UAE, KSA and UK) and ASTECO (Jordan), across their internationally expanding network. Currently, SR has showrooms in Aqaba, Amman, Dubai, Riyadh, London, and is soon coming to Muscat. SR states that it “aspires to deliver customer and shareholder value and to earn the loyalty of Saraya destinations’ owners through achieving [the] highest levels of customer satisfaction.”

Continuing their unparalleled legacy of superior travel and tourism, Saraya created Saraya Roads and Saraya Seas. Offering luxurious road transport services to all of its customers, Saraya Roads provides limousines and car rentals to ensure the individuality of customized services for its clients. Saraya Seas will capitalize on the latest maritime service trends to stay in line with the latest water-tourism frenzy. The first class services include yacht club membership, high-end marinas for palatial mega-yachts and more.

Delivering an “unmatched flying experience,” Saraya Skies is definitely the cherry on top for elite customers. Those wanting — and with the means — to travel in an exceptional way now have the option of flying to and from anywhere in the world with this elite air-carrier. Saraya Skies is made up of a fleet of private jets (three P180 Avanti II aircraft, and three G450 business jets) to cater to customers’ every last whim and desire. The aviation arm of Saraya began operations as of June 2008, and is sure to go above and beyond customers’ expectations of superior travel.

Encompassing all of their services is Saraya Holidays — Saraya’s own travel agency for corporate and leisure travel — that provides MICE (Meetings, Incentives, Conferences, and Events) services, FIT (Free Individual Travel) services, destination club packages, or customized packages to choose from.

Saraya’s solid commitment to turn locations into luxurious destinations whilst simultaneously providing every possible service is working out quite well. At this rate, Saraya is truly redefining the notion of a luxury travel, tourism, and everyday living.

In brief, Saraya’s unique fusion of travel, tourism and real estate is truly reshaping the notion of elitism and luxurious living. Saraya is, without a doubt, integrating the best of all worlds to ensure highest standards of utmost perfection to its clientele around the world.

Possessing a diverse and vast background in business creation and development, vice chairman and CEO of Saraya Holdings, Ali Kolaghassi, is quite an influential individual; he is also vice chairman of Saraya Aviation, vice president of Saudi Oger Ltd., senior advisor to Saad Hariri, chairman of Saraya Real Estate MENA Funds, and the list goes on. Executive sat down with Mr. Kolaghassi for an exclusive one-on-one interview.

E How would you describe Saraya’s ownership structure?

Saraya Holdings is a DIFC registered company based in Dubai. We are a holding company that is primarily owned by Sheikh Saad Hariri, and he is the chairman of the board.

The model that we rely on primarily is the private-public [partnership], where governments come in as partners and they contribute the land to the project. We focus on this model because we want governments to be involved in our projects as they assist in permitting, the zoning, the approvals, etc.

As Saraya Holdings, we focus on emerging markets; we look at locations that we can turn into destinations. Wherever we feel is a unique spot that has a huge potential for growth, we focus on it. We don’t want to stop there: today, your biggest challenge in any opportunity — especially if you’re focusing on an ‘emerging spot’ — is how to make sure that the services are associated with everything you develop. We’re going beyond the traditional real estate developer, to enhance it with the services. Thus, we will provide you with a unique lifestyle experience; we will take care of you the minute you decide that you want to escape.

We also have our own transportation fleet, all types of luxurious categories. Our destinations are mixed-use destinations; we have hotels, retail, entertainment and residential. Our residential owner gets all the services that a hotel guest can get. Most importantly, he doesn’t have to worry about his facility in terms of regular maintenance. Also, we are studying options to offer our second home buyers opportunities to benefit from their investments by creating additional revenue streams such as studying rental program options, fractional ownership options, etc.

As a developer I’m interested in taking care of my investors, where I can maximize the return for them, and I want to maximize the return for my homebuyers. A homebuyer, also, becomes a source of revenue for the project, because he is coming with his family and they will use all of the facilities made available by us — i.e. the beach clubs, restaurants, water parks, etc.

To make us unique, we partnered with the best. For our projects, we brought in names like Jumeirah, Taj Exotica, W Hotel, St Regis, Westin, Luxury Collection, Banyan Tree, Nikki Beach, etc. Also, we’re partnering with experienced people to create Saraya Holiday packages.

We have a very aggressive plan in the pipeline. Three years ago we announced our first project at the WEF on the Dead Sea. So far we have five destinations around the globe: Saraya Aqaba, Saraya Dead Sea, Saraya Ras Al Khaimah, Saraya Bandar Jissah, and Saraya Sochi. We also have a few in the works that we will announce before the end of the year. We have plans to go into the financial market; that’s why we hired Deutsche Bank as our financial advisor.

We did this in a very short period of time — I rely on a very good team that I have, which enables us to do this. The spirit at Saraya is that we are a big family, and in order for us to succeed everybody has to have a specific role. More importantly, of course, from an operational perspective we did not create a separate management team for each project, because in my opinion that is not cost efficient, nor effective. Hence, we created a centralized pool that we named Saraya Development Group (SDG) that everybody is based in, and which is a house of expertise. You have competencies, whether in finance, corporate finance, MIS, program management, design and construction, marketing, etc. These take care of all the projects. Every project has a GM who reports to the board and is the check and balance between the pool and the board, because with every project there are different partners.

It is a unique setup and one that has allowed us to progress, to reduce the operational costs, to establish a learning curve and ultimately this house of SDG will graduate people of experience and knowledge … this is how you start building the team.

E What is the strategy you are implementing for your projects? What is the timeline of this strategy?

For every project we can’t say there is one specific strategy. Of course the locations differ for each project. We always talk about the private-public model, but for example Saraya Sochi was private-private; we partnered with Sistema Hals on a 50/50 basis in Russia. The concept for each project as a strategy is that we have to be the lead developer — we have our terms of conditions, we have our shareholder agreements, our Saraya Realty contacts, our centralized marketing, and our management. But to decide on a location, there must be a checklist, which has to be met. For example, does this place have a potential? Does it have the geographical requirements: the beach, the sand, the climate, etc.? Will they support us with the infrastructure, the initiatives, the master plan, etc? Is there easy access to the airport? All these elements are taken into consideration, because they are the only way for a project to succeed.

E What is your investment strategy? Has it remained consistent?

We have certain expectations for each project from a commercial return, but we look at each project as a stand-alone case. Sometimes in a project there are returns that are different from another — it all depends on the risk, the political risk, the importance, and how much we forecast as the increase in value. There are certain countries where you go for the security factor, and you’re happy with a 15-18% return. Other projects, the only way you will enter it in the first place is if you see a return in the high 30s. Each one is evaluated on its own criteria.

We have also tried to open to the public an opportunity to co-invest in Saraya, so we created the Real Estate MENA Fund with the Arab Bank for $250 million. Saraya has created the first fund, which saw its first investment in Saraya Ras Al Khaimah, and we are creating the second as well.

E What are the current issues and concerns that Saraya faces in Jordan and elsewhere in the MENA region?

If you ask me what the biggest challenge is — I’m not going to tell you execution or finance, I’m going to tell you it is human resources. In order to combine Saraya’s concept altogether, the only way to do this is by having all the right people on board.

Another big challenge, faced by any developer, is the escalating cost of materials. Of course, there is also a financial crunch in the international markets.

E What do you believe is the need for these kinds of mixed-use development projects? Is it a social, demographic need?

Today in our part of the world, it’s a young population; especially in Jordan and the GCC, about 50% of the population is still young and under the age of 18. These have requirements for housing, education, for entertainment. So whatever we develop on a local level as an opportunity has to be attractive to them for various reasons: number one, the cost of international travel has increased significantly.

In the destinations that we are developing, we can operate for nine to 11 months due to nice weather and it thus gives us a competitive edge. We can offer the same services as European destinations and the same qualities but at more competitive rates. Also, on an international level, a lot of markets are opening up to the Middle East. Russia, for example, is a big market that is opening up to the ME. Apparently, around 2% of the Chinese population are expected to become regular travelers to this part of the world. If we can capture a fraction of this, that will get the results that we have offered.

E How would you describe, overall, the nature of development projects in the MENA region?

Some people say there is an over-development to what is being offered in the market. But whatever is being offered is sold on the spot. The Dubai model, for example, is a perfect model. When the prices reached $1,500 we said, “It has reached a peak,” but today it is at $3,000. Tomorrow it may be at $4,000, but there will end up being a correction. Jordan, for example, is in its initial stages of development. We are operating with 100% occupancy; the rates have more than tripled in the last two years — Amman is a specific example. Now look at the Dead Sea: hotels are operating at close to 100% occupancy while the rates have more than doubled. Lebanon, with all its political turbulence, has 100% occupancy in its hotels; and the same happens in Egypt. There is a major growth in the number of tourists, whether on a national or regional level.

E How does Saraya demarcate its offer compared to other developers in the region?

We are not just a real estate developer, and that is exactly why we are different — because we want to offer a lifestyle. A lifestyle which comprises of all that a traveler may require from accommodation, transportation, entertainment and other specific needs and requirements. This put together as a package under one brand makes us unique. We believe when you are buying into a Saraya property, you are not just buying a house but also buying into a whole experience. If you buy into the destination club, you’re buying into all the other experiences and destinations.

E In ruling out the template, how adaptive could it be to regional and international markets? Or are you going to reconsider the whole concept for every country?

You have to examine each case-by-case. If you look at each market, each one has certain unique elements that you have to take into consideration. For example, are my tourists going to be local, regional, or international? For Ras Al Khaimah, for example, basically the tourists are sun seekers and they realize that Dubai is too expensive for them now and are willing to accept something that is 40 minutes away. In Oman, we are looking at the Indian subcontinent — the high end — because Oman is very appealing to them. Also, the English tourists love Oman. Here in Jordan it is more for the locals or for the Jordanians who live in the GCC. Every market is different in a way, but a template of the concept is what we have developed — and we will make adjustments and modifications as per the requirements for each project.

Syria is in the midst of its third year of drought. Some 90% of the barley has been lost due to crop failure, the wheat harvest is down by over 50% and ground water reserves are running low.

In the face of such a crisis, Syria has had to resort to the international wheat market for the first time in 15 years, no longer self-sufficient or able to export from what was, since antiquity, one of the region’s bread baskets.

This hydrological crisis could not have come at a worst time for Syria, which is attempting to implement widespread economic reforms and reduce subsidies while food, energy and living costs continue to spiral upwards. Furthermore, the international price of wheat has risen 83% over the past year, putting strain on Syria’s budget deficit and wheat reserves.

Such hard realities could not be further from the rosy picture presented by the media and investors in the wake of Syria’s economic reforms, who cite surging investments, the financial sector’s exponential growth, a stock market in the offing and rising tourism figures.

“People are bullish on Syria, but there are problems we are facing,” said Dr. Nabil Sukkar, managing director of the Syrian Consulting Bureau for Development and Investment. “Agriculture is not fashionable, people instead talk of industry and ICT, but it should be given the priority it deserves in Syria,” he added.

Magnitude of the problem

The scale of Syria’s hydrological woes is forcing the government to rethink its agricultural policies as wheat and barley reserves dwindle. Last year, Syria produced 4.1 million tons of wheat, more than enough to meet demand for the 4 million tons consumed domestically. But the government estimates this year the harvest could be as low as 2 million tons, a drop of more than 50%, if not lower. Barley, which accounts for 10% of Syria’s grain production, has declined 90%, having an immediate knock-on effect on the livestock sector which had used 60% of Syria’s barley production as animal feed. Many small-scale farms have been forced to close as a result.

The reduced production is attributed to low rainfall, the land freezing at the beginning of this year and the over-usage of groundwater resources.

“Everywhere received only 50% of rain, and in agricultural areas this is a major problem,” said Dr. Abdullah Droubi, director of water resources at the Arab League’s Arab Center for the Studies of Arid Zones and Dry Lands (ACSAD) in Damascus. Other areas received only 15-30% of their normal precipitation levels — with the exception of the coastal regions — resulting in an average of 2 inches of rainfall or less between September 2007 and April 2008, according to the United States Department of Agriculture’s Foreign Agricultural Service (FAS).

The water shortage is most severe in the northern governorates of Al Raqqah, Al Hasakah and Aleppo, which together account for 75% of the country’s wheat production. The problem is further compounded by Syria obtaining an estimated 85% of its renewable water from the Euphrates, Tigris and Orontes rivers, but with poor rainfall in neighboring Turkey, where the first two rivers originate, Syria is struggling to meet its water needs.

“They are trying to irrigate some places with supplementary water and from ground water, but as ground water is not recharged, it is a closed cycle — no precipitation means groundwater will decrease,” said Droubi. Utilizing ground water also means less water flows into lakes and rivers, as well as increasing the salinity of ground water reserves.

Pollution, inefficient usage of water and above all a surging population — growing at 2.11% a year — is putting further strain on resources. Additionally, demand for domestic potable water is growing at 4.5% per year and consumption is expected to increase by 40% per year over the next 15 years, according to research by Makram Shakhshir at the University of Damascus.

The problem is particularly acute in urban areas such as Damascus, home to six million people, a third of the country’s population.

The growth of Damascus has impacted directly on the city’s water table, as the capital expanded from 1,900 hectares in 1945 to 8,500 today. The surrounding Ghuta oasis, a prime source of water and arable land, has also shrunk, from 25,000 hectares to 10,000 hectares, and continues to lose some 200 hectares per annum as the city expands outwards.

The Barada water basin, located under Greater Damascus, has also retreated in the past 20 years, from 50 meters below ground to 200 meters. Some experts suggest this could drop to 400 meters in the next 20 years, exacerbated by the fact that some 87% of the 25,000 wells around Damascus are illegal, according to Francesca de Chatel, author of Water Sheikhs and Dam Builders. Furthermore, due to Damascus’ ground water table shrinking, sewage is reportedly seeping in and contaminating the water below. 

With greater demand and a rising population, Droubi pointed out that Syria’s water problems are only likely to worsen. “Drought is a very big issue in the region and related to climate change, but no one knows to what extent. As for the future, the region will suffer from more drought and lowering precipitation — a 20% reduction in 50 years is one scenario,” he said.

Walking a fine line

To offset the crop reduction, Syria received 190,000 tons of wheat in aid from Abu Dhabi, and canceled a deal with Egypt to exchange 176,000 tons of wheat for rice. The government is also dipping into its estimated 4 to 5 million tons of wheat reserves to keep bread affordable as other food prices have risen by an average of 20% in the last six months, according to the World Food Programme.

“Rice went from 20 SYP ($0.40) to 120 SYP ($2.25) a kilo; olive oil, which we have for breakfast, lunch and dinner, has also risen in price. People are hurting,” said Yassir Hamod, a storeowner in Damascus.

To counter rising prices, the government raised public salaries by 25% earlier this year, but with accommodation and energy costs also surging, it may be only a matter of time before people take to the streets to protest, as has occurred in 30 countries around the world in the past year over rising food costs.

“We have not seen real repercussions from the rise in prices,” said a political analyst with close ties to the Syrian government. “Maybe in February or March 2009, when people feel the repercussions of winter fuel costs coupled with food expense, here is the test, and so we may witness some disturbances, but the crisis is not yet mature.”

Nevertheless, with so many issues converging at once, Syria is struggling to find the right balance between keeping the populace placated through cheap food and fuel — spending an estimated 15% of GDP on fuel subsidies alone — and implementing reforms that will phase out subsidies that have been a mainstay of the Baathist socialist system. Finance Minister Muhammad al-Hussein was quoted in April as saying removing bread subsidies is a “red line,” particularly as consumption of bread has increased as other staples have risen in price. But with the wheat harvest now at only half the level of domestic demand, Syria could use up much of its wheat reserves this year alone, forcing the country to buy on the international market where prices have risen 83% over the past year. Such an outcome would have an immediate impact on Syria’s budget deficit, which was 10% of GDP last year. Furthermore, Syria is now a net importer of oil and with demand for oil rising, as well demand for electricity up 5% in the first half of 2008, the budget deficit is expected to soar this year.

“It is a mounting crisis and measures are minimal compared to the extent of the crisis,” the analyst said. “The government doesn’t have a clear view on how to manipulate price rises and salaries; it is still very ad hoc and experimental. The government will support employees, but leave the others to the rule of the market,” he added.

Agricultural solution

It is in agriculture that the biggest changes need to be made, however, as it is the biggest net user of water with some 45% of the sector irrigated, a figure hydrologists consider an inefficient usage of water. And with the state the sole buyer of wheat, barely, sugar beet, millet and cotton, the onus is on the government to reform.

“The debate in Syria is what priority agriculture should take,” said the analyst. “In principle, what is needed is a revision of the state plan for agriculture regarding the distribution of crops and harvests.”

The government has already embarked on a scheme to reduce cotton production to solely cater for local needs, particularly as cotton is highly water-intensive as well as accounting for nearly 25% of the total global insecticide market — a further cause of land and water degradation. However, Sukkar said agriculture is still operating along traditional lines as land reform has not been implemented.

“We are faced with constraints, such as land reform laws which put a ceiling on ownership and prevent mechanization of agriculture,” he said. “Law 10 of 1986 allowed joint public-private projects in agriculture … It was meant to encourage commercial agriculture but it didn’t work — it was a failure,” Sukkar added.

In reforming other areas, such as reducing production of certain crops like tobacco and cotton, it will be a case of losing export dollars but at the same time helping to ensure water sources, said Droubi.

“Water policy should be more important than politics, as water decides economic development in the country, but this is lost in bureaucracy and the public sector is not at the right level,” Droubi said. “We need a technical revolution and support from developed countries, especially as the trouble in the region will impact on the Europe and the USA.”

One solution put forward is for Syria to build desalinization plants. “It was discussed during the peace process and has good potential,” said the analyst. But at $1.5 billion and upwards for a facility, as well as the time for construction, the suggested solution for the short term is improved water usage, stopping leakages, and public awareness campaigns.

“One of the key issues is people are wasting water, as there is not a culture of saving resources,” said Poul Gadegaard, team leader of the Syrian Enterprise Business Centre. “The government is more focused on petrol and diesel than water, but it should be the other way around. Water prices should rise as people need to learn to economize — I think this is a big, big problem.”

Hydropolitics

Syria’s water woes go beyond crops and potential social unrest to geopolitics. Hydropolitics is the proverbial 1,000lb gorilla in the room that somehow gets overlooked amid the region’s ongoing political crises.

“Water should be a top priority now; we are not in the 1960s or ‘70s. We can see that the situation is dropping very fast, and there is no time to even think of a solution,” said Droubi. “Cooperation is needed on a regional level.”

Some progress has been made, with Syria, Turkey and Iraq earlier this year agreeing to establish an institute to find solutions to water and environmental issues between the three water-linked countries.

“Where political relations have had an impact on the water crisis is that Turkey is now allowing more water through its dams to Syria,” said the analyst. But in rain-starved southern Syria the issue is still a political one. The Israeli-occupied Golan Heights provid an estimated 30% of the Jewish state’s water, while the water basin connects to Syria, Western Jordan and Northern Israel. Access to Golan water will be pivotal in any peace discussions between Damascus and Israel, but Syria should not bank on gaining much water, the analyst said, despite the Golan’s proximity to Damascus.

“Syria cannot expect big amounts of water to come from this area. I don’t think the Golan will add much — Syria should look for a solution elsewhere,” said the analyst.

Ultimately, unless a multi-pronged solution to Syria’s water woes is enacted — politically, socially and economically — the country could face rising socio-economic problems just as it is opening up to the world.