North Africa

Tipping the scales

by Executive Staff
written by Executive Staff

As the European Union reaches its saturation point for fruit imports and chooses domestic options over those from abroad, Morocco is looking to strengthen its citrus industry through a strategy of export market diversification as the kingdom is reaching out to Eastern European markets.

Russia is currently the foremost choice among Morocco’s citrus exporters, who send 44% of their product to Russia each year at a value of $102 million. Looking forward, Russian appetite for the Maghreb’s citrus is set to rise by 50% in 2008. At the same time, Morocco is currently identifying other potential markets on the way to Russia, including other Eastern European markets such as Poland, Bulgaria, Hungary, and the Czech Republic.

A garden for Russia

The burgeoning Eastern European market has changed the nature of Morocco’s citrus export business as Western Europe, particularly France, has moved away from its role from being the leading destination for Moroccan citrus exports relying instead on inter-EU production. According to Ahmed Ait-Oubahou, professor of horticulture at Hassan II University, “Morocco used to be the garden of Europe.” He attributes the recent drop in Moroccan citrus exports to Europe to an increasingly competitive Spain, which has boosted production in its citrus industry reaching 6 million tons a year, four times more than what Morocco produces.

In addition to Spain’s overwhelming supremacy in output, favorable trade conditions between EU member countries is adding to the repositioning of sourcing citrus production. According to the Morocco’s National Citrus Sector Analysis, “a maximum tonnage limit is imposed on Morocco for fresh oranges totaling 306,800 tons from December 1 until June 31 and for fresh mandarins totaling 143,700 tons from November 1 till the end of February. In addition, during these periods, an entrance reference price applies and it is of $407 per ton for oranges and $747 per ton for mandarins.”

While its access to EU markets remains limited by protectionism, Morocco is looking to safeguard and enhance its citrus sector, which accounts for 20% of agricultural production, by securing important new trade partners. Experts remain hopeful but are somewhat weary about exports to the American market, which should be encouraged under the new Free Trade Agreement between Morocco and the United States.

Although the hopes are there, the US might not be able to supply the gap left by the EU’s waning demand as the country continues to maintain regulations on imported citrus, including ‘cold treatment’, a process which subjects citrus products to temperatures of 2 degrees Celsius for up to 18 days, which some consider harsh and damaging. While this requirement aims to reduce the risk of spreading the Mediterranean fruit fly to North America, it has not prevented the bug from reaching citrus states such as Florida and California.

Industry experts consider the process a soft form of protectionism aimed at maintaining domestic production in the face of more efficient foreign competition. For Morocco, which has never exported fly-ridden fruit to the US, the regulations seem overly stiff. “The US should open their markets” said Ait-Oubahou, who claims Moroccan citrus will not compete with America’s domestic citrus since they are not produced during the same period. “If you find different crops, this is better for the consumer. Some like mandarins, some navels … we must give a wide variety to consumers.”

It remains to be seen whether the Free Trade Agreement will lead to an increase in citrus exports to America. In the meantime, Russia and Canada are enjoying access to Morocco’s succulent citrus. In the winter of 2006, 30% of Russia’s winter crops were destroyed by a deep freeze. This reduction in domestic fruit production led to a rise in fruit imports, notably in apples from China, and to a shift in consumption to less expensive fruits like bananas and citrus.

The evolution of the Russian market over the last decade as well as an improvement in quality of life has corresponded with increased fruit consumption among Russia’s 140 million inhabitants. Federal Customs Services reports that although bananas are still Russia’s leading fruit import, citrus products are not far behind, particularly oranges, tangerines, lemons and grapefruits. With EU markets increasingly unattainable, Russia represents an important harbor for Moroccan fruit, and possibly a first step in the conquest of emerging Eastern European markets.

Pushing domestic citrus on international markets

Morocco currently belongs to the top five citrus producing countries, following Spain, Italy, Egypt and Turkey. However, those countries have been actively investing in expanding production, while in Morocco production is actually on the decline. Reports indicate that over the past decade, Moroccan citrus production has been stagnant, or even slightly declining. Lower production means fewer exports. If Morocco was exporting upwards of 700,000 tons a year in the early 1980s, in 2006, citrus exports were reported to be at only 450,000 tons a year.

Frequent droughts and erratic rainfall over the past few decades are partly responsible for lowered overall productivity in the agricultural sector, although climactic conditions have improved since 2001. In contrast, production of oranges in Turkey nearly tripled in the period between 1965 and 2005, and in Egypt production is also on the rise. Egyptian citrus is already competing with Moroccan citrus for dominance of the Russian market, and Turkey, given its geographical proximity, could pose a serious threat to the future of Moroccan citrus exports to Russia and Eastern Europe.

Is there a future in fruit?

Morocco’s unemployment and poverty levels are likely to be affected by any market movements in citrus as Morocco’s agricultural sector as a whole accounts for nearly half of Morocco’s employment. In the coming years, increased investment in the sector is expected to fund industry expansion and hopefully to develop the kind of production surpluses aimed for it to expand into new markets abroad and maintain industry employment levels.

Coming in second to citrus are Moroccan tomatoes, which have shown promising signs for the country’s agricultural industry. In 2007, Morocco experienced a 40% increase in tomato exports to EU markets. With citrus exports averaging 460,000 tons a year, tomato exports are not far behind at 300,000 tons a year.

However, Morocco’s citrus remains a favorite for its taste. The colorful fruit, ripened on Morocco’s sunny southern cost in December at a time when Muscovites are bearing below-freezing temperatures, will brighten the short days of many Russians for winters to come.

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North Africa

Taxed up the Nile

by Executive Staff
written by Executive Staff

Just outside South Sudan’s three-year-old capital, a stationary line of ancient Fiat and Bedford trucks are at the end of hundreds of dusty,  rough kilometers from Kenya,  bringing with them the cans of tuna, vegetables and soap on which the town depends. The last leg of the journey is to cross the one half of Juba’s bridge that still spans the Nile, but before they can enter  town, the traders will have to pay again for the goods they already cleared through border customs.

The South’s tax and investment laws, together with a mass of new

legislation, are still being developed. In the meantime businessmen and traders are facing a complex and shifting set of costs especially in the form of multiple taxes. These, they say, are keeping costs of goods high and maintaining Juba’s reputation as Africa’s most expensive capital.

On the other side of town trucks from Uganda pile up for another set of officials. They are bringing tomatoes that cost $2 for five and cabbages that sell for $2.50 a piece. Sugar, oil, spaghetti and even loaves of bread are all consistently priced far above the average in neighboring East African countries.

The 2005 peace deal between northern and southern Sudan ended more than 20 years of war and for the first time opened up the South to development and trade. Keen to encourage investment, the new semi-autonomous southern government — allowed for by the peace accord — set customs taxes fairly low; mostly under 10%.

But there are other, “unofficial” agents at the border and on the roads, and because Central Equatoria State, the governorate where the southern capital is located, also taxes businessmen on entry to Juba, the overall cost of bringing food or building materials can be as high as 30-40% of their value.

“The charges at the border you can calculate, but at Juba it can be anything,” one businessman said. “It depends on the guy’s mood.” He added that drivers’ papers from the border were sometimes torn up outside Juba and then declared useless.

“That cost is dumped on the consumer,” said Ram Sundaram, who works with Amla Distribution and has the exclusive distribution rights for Heineken and Amstel beers for the region.

Sundaram has also had problems predicting the varying cost of clearing goods across the last barrier into the capital, and has paid clearance to Central Equatoria State even if he only passed through Juba to other parts of the South. His trucks are often held for up to three days. “They don’t respect official letters. It’s all a mess and at the end of the day you just want to retrieve your goods so you pay,” Sundaram said.

Only certainty is insecurity

South Sudan is bristling with small arms massed during the conflict and the two main trade routes into Juba — from Kenya and Uganda — have both suffered spats of insecurity from bandits, leftover militiamen and other armed groups. The empty and burnt-out shells of trucks that met their end at the hands of the Ugandan rebel Lord’s Resistance Army, who moved into the thick southern bush before the peace deal, litter the roadsides.

Doing business in the South means taking a risk, entrepreneurs say, and the harassment of truck drivers by soldiers, who are also double or sometimes triple-taxed by seemingly legal officials, can seem an unfair addition to the struggle.

On a day’s drive on one of the South’s main trade roads, the traveler meets several unofficial roadblocks, manned by armed soldiers from the South’s former rebel army.

Cars pass without problems but trucks carrying goods are waved down. A borehole drilling team recently reported having to pay soldiers $50 per truck; a fine levied because the drivers were wearing open-toed sandals. All truckers make sure they have plenty of small change to lubricate their trip.

“It’s blatantly getting worse, it is almost mandatory to bribe,” said Eritrean businessman Aron Hiwet.

Confusion reigns

South Sudan’s President Salva Kiir, also Sudan’s First Vice President, often calls for “illegal” road blocks to be dismantled but so far without complete success. Businessmen say central government officials are aware of the cost presumably legal state authorities are putting on their trade, and have agreed to try and help cut down on costs.

But a key promise of the southern rebels who now run the government was devolution of powers from central government to the states and Juba’s officials are not keen on now again taking away authority from state administrations.

The peace deal is also ambiguous on taxation. While customs are under the authority of the national government in Khartoum, different levels of government — including state authorities — are also allowed to tax. Until a legal system is established that makes it clear how, how much and by whom taxes can be levied, observers say southern and foreign businessmen will likely continue to face problems.

Officials from Central Equatoria agree that there is a problem with the high costs of basic commodities in the town but also say that they are “entitled to certain taxes according to our competencies.” But Leonard Logo Mulukwat, head of the state assembly’s finance body,

admitted that in the confusion practices are taking place that should be stopped, and that some individuals who should not be taxing, are.

A member of parliament in the state assembly explained that, officially, the Central Equatoria State Revenue Authority puts down a 10% charge on all goods entering the town; far higher than the official southern customs tax. Traders entering Juba might also have to pay a 10% tax to the central Ministry of Trade and Commerce if they do not already have a license, and a 22% customs tax if they do not have the correct paperwork from the border, far higher than official border costs.

But the border points themselves are also a challenge for traders, explained Agrey Tisa, undersecretary in the South’s Ministry of Finance.

“(Officially) the maximum cost at the border is 20% for a luxury car. A lorry would be 8-10% … (most goods are) between zero and five percent,” Tisa said. “But there are definitely shortcomings, people collecting revenue who should not be there. There are people collecting without books or receipts.”

Tisa said in some border posts, like Kaya or Nimule on the Ugandan border, there had been up to 12 taxing agents from county, state, South Sudan and national authorities as well as different ministries and tribal chiefs, each getting a cut. 

A National Problem

The irony for the southern government is that they are not yet receiving any money from customs, despite their efforts to try and make costs for businessmen interested in the South considerably lower than in northern Sudan.

During the conflict, southern rebels controlled the posts and towns along the borders with Kenya and Uganda. The hand-over to Khartoum, who under the peace accord will control all national borders and customs, is still not complete and the official taxes have remained at the rates set by the rebels, and many of the collecting officials remain the same, although they are now under the authority of Khartoum. Much of the money collected was lost to southern graft in 2006, but officials now claim the customs cash is sent to Khartoum.

The southern government is due half of all revenues collected in the South but still has not received anything from the national government.

“At the moment, the two rates, South Sudan and Khartoum’s are not yet harmonized,” Agrey said, adding that a committee has now been formed to decide how the two systems can be brought together. The same body is also supposed to calculate how much official customs money has been collected in the south. Half of that sum, which Agrey estimated could be about $50 million, will then be funneled back to the southern government.

Khartoum has also continued to collect taxes — at much higher national customs rates — in the former garrison towns including Wau, Malakal and the capital Juba.

Clearing customs in Juba is furiously expensive. Goods from satellite telephones to sodas are charged 25% customs tax and 15% VAT. Clearing a car through Juba customs will set the owner back 40% in customs, 50% in business profit tax and, of course, 15% in VAT.

This hits average southerners hard, and not just investors and businesses. As the state government begins to come down harder on vehicles without plates, the thousands of Juba residents who are dependent on their cheap Chinese motorcycles will need to clear them through this office. The cost of the motorcycle itself is only around $600, but clearance will add another $300 to the overall bill, too much for southerners struggling to survive.

More than one businessman described the taxes as killing the South’s tiny new economy and encouraging dealers to bring in substandard machines and materials in order to cope with the costs.  Or as Sundaram put it, “This kind of ‘power in hand’ way is not attractive to the investor.  Some days you just think, there’s got to be an easier way of making money.”

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GCC

Gulf drives for the green

by Executive Staff
written by Executive Staff

According to the World Wide Fund for Nature, the Gulf countries have some of the largest carbon footprints per capita in the world. Cheap gasoline, huge highways, the need for constant air conditioning and water desalination all contribute to this notorious ranking. But some Gulf states are looking to change that.

At the forefront of this development is Abu Dhabi, with its $15 billion Masdar Initiative, aimed at developing new forms of energy, from solar power to hydrogen power plants. The cornerstone project is the Masdar City — a $22 billion “carbon-free city” on the outskirts of Abu Dhabi city.

“We’ re trying to show a model for sustainable living that is independent of fossil fuel,” said Khaled Awad, the director of Masdar’ s Property Development Unit.

According to Awad, the self-contained city will be home to around 50,000 people, and 1,500 “green energy” oriented businesses. No cars are allowed in this pedestrian city. Anyone who commutes will park their car in garages on the outskirts and use mass transit: there will be an overhead train, in addition to a “personal transit system” below ground, which is akin to a horizontal elevator.

To make the streets bearable in the searing summer heat, Masdar City architects Foster and Partners borrowed from the design of traditional Arab cities. Narrow streets, shaded by solar panels and trees, will weave among tightly packed buildings.

“We’ve been keen to look at history, where people naturally evolve technology, thinking, planning for themselves, in these extreme conditions,” said David Nelson, Foster and Partner’s Head of Design. “So the buildings being close together, that’s the kind of knowledge that was empirical knowledge that existed let’s say three hundred years ago.”

Eco-innovations

But to engineer a self sufficient, zero-carbon emitting city in the middle of the desert, the designers have had to be creative. They are planning two wide swaths of trees that will cut through the city, to allow moist air from green space on the outskirts to cool the urban center. Recycled waste water will irrigate it, which will also serve as an area to grow food for the city.  Buildings will produce energy as well as conserve it: each roof will be topped with solar panels. Those solar panels will power the building’s air conditioning and provide shade by hanging over the narrow streets. The city’s main power source will, naturally, come from the abundant sunlight.

Masdar City’s ground breaking took place on February 9, 2008, although engineers have been testing an array of solar panels since December 2007. The first building that is planned to rise from the site will be the Masdar Institute of Science and Technology – developed in cooperation with Massachusetts Institute of Technology. Foster and Partner’s Nelson said Abu Dhabi wants to be the Silicon Valley of sustainable energy.

“That’s why, in the Masdar Initiative, the very first piece will be the university,” he explained. “The curriculum is to study everything on and around the issue of a sustainable future.”

Abu Dhabi, which sits on around 9% of the world’s oil reserves, might seem an unlikely candidate to promote sustainable energy. But some experts predict the emirate’s petroleum production is expected to peak in 2012 and then start to decline. So Abu Dhabi is trying to look beyond that. Environmental groups have praised the emirate for the Masdar plan, but they note that the rest of the city has done little to decrease its carbon footprint. There is no mass transit and building codes for energy efficiency do not exist.

“There’s a lot of things they could do that aren’t as ‘sexy’ as developing new energy resources and building a whole new city,” said Kateri Callahan of the Washington-based Alliance to Save Energy.  “But there’s no reason that the rest of the buildings (in Abu Dhabi) shouldn’t be done more efficiently built than (they are) currently being done now.”

In a literally shining example, as the World Future Energy Summit took place in January in Abu Dhabi, the building housing the Abu Dhabi Investment Authority stayed lit up all night, every night.  The architecture incorporates bright lights shining from each floor. It looks great, but must consume enough energy each night too power a village.

Although these contradictions abound when talking about sustainable energy in the Gulf, Abu Dhabi is trying. The emirate’s efforts include funding a new $3.5 billion “Desert Islands” eco-park on eight islands off the coast, and funding several green buildings as part of the Masdar Initiative, including the Masdar company headquarters.  And in the spirit of GCC competition, other member states are initiating their own green building and sustainable energy projects.

At time of writing, Bahrain had just installed three 29-meter wind turbines on the yet to be completed Bahrain World Trade Center Towers.  UK-based designers Atkins say the aerodynamic shape of the two towers will channel wind from the Gulf into the turbines, which will provide 15% of the building’s energy needs.

“This project has given us great optimism for the future because we have clearly demonstrated that we can create a commercial development which is underpinned by an environmental agenda,” said Shaun Killa, Chief Architect at Atkins and designer of the Trade Center.

Green Architecture

Atkins is very active in the green building trend in the Gulf.  The firm has partnered with the British University in Dubai to create a Masters Degree in the Sustainable Design of the Built Environment — where many new ideas on building “green” are originating.

Some of those ideas have flowed into current designs, including the cooling system for the Burj al-Arab, and there is ongoing research into ways to more efficiently cool buildings through the use of “district” cooling centers that would provide water cooled by gas power to whole clusters of buildings, instead of each building providing its own cooling system.  Also, developers are working with ideas on shading, positioning, and using solar technology to capture the sun’s energy.

Some planned and under-construction buildings are already flaunting their use of these technologies. In Dubai, the designers of the Lighthouse Tower bill it as the first “low carbon emission office building.” The Burj al-Taqa is being promoted as the first zero carbon tower, and will feature a rotating sunscreen that shades most of the building in the day and generates electricity. Qatar has gotten in on the act, with recent news reports suggesting the country is considering building one of the world’s largest solar power complexes, in addition to its development of battery powered taxis and busses in an effort to gear up for an Olympic bid in 2016.

Qatar’s hydrocarbon-centric “Energy City” will include green buildings and a sustainable energy research center, the designers say.  Even the world’s largest oil exporter, Saudi Arabia, plans to invest in solar power, the country’s oil minister said in March 2008.

“One of the research efforts that we are going to undertake is to see how we make Saudi Arabia a centre for solar energy research and hopefully over the next 30 to 50 years we will be a major megawatt exporter,” Saudi Oil Minister Ali al-Nuaimi told Petrostrategies, a French oil newsletter.  “In the same way we are an oil exporter, we can also be an exporter of power.”

Currently, Abu Dhabi and Masdar City seem to be on the cutting edge of the Gulf’s sustainable, green building trend, yet even these multi-billion dollar projects have their limitations.

Critics say a project like Masdar would be difficult to replicate in other parts of the world. The city is being built from scratch, they note, and it is not as easy to modify existing buildings, let along entire cities with millions of structures. Abu Dhabi’s desert climate is a much better location for solar power than, say, Northern Europe.  However, Jean-Paul Jeanrenaud, Director of WWF International’s One Living Planet program, pointed out that the fact that one of the world’s leading oil producers is going somewhat green may shame the rest of the world into taking action.

“It hopefully will act as an example of how people can act in future,” he explained. “How people can have all the things they need, and perhaps have some of the things they want, but without it costing the earth.”

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GCC

Kish: The reply to Dubai?

by Executive Staff
written by Executive Staff

While Kish might be overshadowed by its more prosperous Gulf neighbors, the tiny island will not remain insignificant to regional businessmen for long. Just off the south coast of Iran in the Persian Gulf is a free trade zone which is hosting joint business ventures intended to put Kish on par with the likes of Dubai, Bahrain and Kuwait. The challenges of governing the area pose the biggest threat to the zone’s future growth and development, but officials are troubleshooting to not miss the opportunity to attract some of the region’s riches.

With a purportedly more liberal social climate, the Kish Free Trade Zone Promotion Center (KFTZP) aims to mould Kish into a world-class destination for travelers and businessmen alike. The KFTZP’s two-pronged economic attack, tourism and business, will depend on the island’s ability to draw wealth from overseas, a hard task to accomplish given the island’s position across the Gulf from other major regional players. Nevertheless, with the help of the Iranian government, interested investors, and oil, Kish could turn into the next Dubai.

Part of the free trade zone’s master plan involves the creation of technology parks where various industries, from electronics to textiles, chemical products, food units and even automobile production take place. Tehran is currently taking an active role in seeing that these technology parks come to fruition with oversight from veteran technology park administrators. In March 2008, Mahmoud Salahi, the presidential advisor in charge of free trade toured the 270 hectare Pardisan Technology Park, located in northwestern Tehran. During his time there, he met with the president of Pardisan and emphasized the need to streamline the export process by better utilizing the free trade zones

Signs of confidence

While Iran is investing in its future through developing Kish’s technology and tourist infrastructure, other countries are eyeing Kish as a potential big player on the financial scene. The managing director of the Kish Free Trade Zone, Majid Shayesteh, announced recently that the Iranian-Bahraini joint banking venture, known as Futures Bank will open for business on Kish. This alliance, which came as a result of the merging of the Iranian banks Saderat and Melli and the Bahraini Ahli United Bank points to confidence on the part of Iranian and foreign companies in the future success of Kish.

Underscoring this confidence is the presence of Iran-Europe and Standard Charter Banks, already active on the island. With a growing financial presence, Kish might be able to attract the economic muscle needed to support large-scale projects in the coming years.

Selling finance

While technology parks and investment are undoubtedly important aspects of Kish’s development plan, oil must be the number priority given Iran’s preponderance of black gold and the strategic shipping lane within which Kish lies. In 2005, then Managing Director of the Kish Free Trade Zone Organization (KFTZO), Hossein Qassemi, announced the proposal for an oil bourse in Kish. Mohammad Javad Assemipour, the official in charge of the project added that the petroleum exchange could help create further transparency in the Oil Ministry’s performance and help attract more foreign investments in national energy industries

In 2008, the bourse became fully operation. In February 2008, the bourse traded 100 tons of polyethylene consignment. Although the exchange trades in Iranian Rials amongst other currencies, Iranian officials hope to establish another exchange in which euros will be the primary currency traded. The reason for this would be two-fold: by using euros, Iran can effectively price commodities traded in a stronger currency than the US dollar, as the greenback is continuing its downward slide on international markets and shows no sign of abating. In addition to price goods in stronger currencies, Iran can be one of the first to move forward with a new OPEC standard in valuing petroleum, a move which other OPEC members have been considering for the past few years.

As the fourth largest oil producer in the world and a powerful member of OPEC, the presence of an oil bourse on Kish could do much to attract capital to the mainland Iran’s inflation-stricken economy.

In the meantime, the 20-odd brokers at the Iranian bourse at the time of its opening lend credence to the idea that Kish is a hotspot for future Middle East and global investment. The Iranian government’s moves to establish Kish and other free trade zones may signal an end to state-run business and a glasnost of liberal economic policy, spearheaded by Iranian free trade zones such as Kish. The island free zone is not with out its obstacles, however.

How to say ‘parsimony’ in Persian?

Beyond carving out a reputation for itself based on finance, oil and tourism, features already found in throughout the region, Kish will have to decide whether it is strictly in line with Islamic law, or headed toward a more liberal social and political policy. With a moratorium on Israeli goods and alcohol along with other laws imposed by the Islamic government, we have yet to see how Kish and an Islamic Iran will handle an influx of foreigners beyond the familiar regional Muslim investors from Saudi Arabia, the United Arab Emirates, Kuwait and the like.

Nevertheless, with European and Middle Eastern travelers and businessmen turning their heads toward Kish, the island might prove to be the next boomtown for technological infrastructure, banking, and oil investment.

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GCC

Migrant Labor

by Executive Staff
written by Executive Staff

The latest major labor strike in the Gulf tore through Sharjah on March 18, 2008. At a maintenance company 1,500 migrant workers burned busses and cars, and smashed up the company’s administration office. Some of the workers told Gulf News they were rioting over low and unpaid wages. Riot police were called in, and the unrest eventually quelled.

These scenes have become common events in the Gulf. In February and March of this year, Dubai and Bahrain saw strikes that halted construction on billion dollar projects. In perhaps the most high profile strike just a few months earlier, in October 2007 thousands of workers on the Burj Dubai, soon to be the tallest building in the world, went on strike, then rioted, destroying the site office of Dubai construction firm Emaar. Like all GCC countries, the UAE and Bahrain prohibit labor unions. Strikes are legal in Bahrain, but prohibited in Dubai. The emirate later deported 4,000 striking workers back to their home countries. Bahrain initially had announced similar action but later retreated from threats to deport its striking workers.

These strikes have occurred for various reasons. Over the past two years, human rights organizations have documented some of the more horrific conditions workers endure in the six GCC states. Poor housing conditions, unsafe worksites, unpaid overtime, shifty middlemen overcharging workers for visas and travel, and long working hours in the searing summer heat have become acknowledged problems.

And as the Gulf has come under more scrutiny — including receiving the worst possible ranking in the US State Department’s 2005 Trafficking in Persons Report — some countries have tried to change their images, and even their policies.

Conditions of migrant workers

Population statistics for the GCC are notoriously unreliable, perhaps because the foreign labor population is breathtaking. According to United Nations figures from 2006, there are an estimated 12 million foreign workers in the GCC — around 30% of the total population. Around 8.4 million of those workers come from India, Pakistan, Bangladesh, Sri Lanka and the Philippines. The majority fill the menial tasks of everyday life that keeps the Gulf functioning: construction workers, maids, nannies and the service industry. And according to analysts like Nisha Varia of Human Rights Watch, the GCC countries do not appreciate their work.

“One of the issues is that despite all the benefit they’re getting from these workers, they haven’t extended adequate protections to them,” she said.

One of the workers is Sakamilee Nam, a 22-year-old construction worker from Pakistan. He lives in a room with six other men in a labor camp outside Dubai. Nam says as soon as he arrived in the UAE, his boss took away his passport to make sure he stayed on the job. Nam is not happy about it.

“If we don’t like things here, and want to go back home, then it’s going to be very difficult for us,” he said. “This is not right. Our passport should be with us.”

In fact, Human Rights Watch’s Varia pointed out that confiscating workers’ passports is illegal. However, like many labor laws in the GCC, the law prohibiting employers from keeping employee passports is not enforced. According to her, this is just one of the negative aspects of the Gulf’s notorious system of “sponsorship”. Under this system, individual employers “sponsor” migrants’ work visas, which mean workers cannot switch jobs, even if the employer is abusive or irresponsible.

Another problem is that recruiters charge high initial fees that then need to be paid back, over a long period of time. Pakistani worker Mohammed Youngeer earns about $270 a month. But it will take a long time for his family to see any of that money. Like many others, Youngeer had to borrow about $2,500 to pay a Pakistani employment agency to get him a job in Dubai. It essentially makes him an indentured servant for a year, or more.

“We’ll work hard here now for one whole year at least to recover that money and send it back home,” Youngeer said. “After that, what we do here, will probably count as profit, but for one year we are working to only pay off that money.”

However, Emirati officials say the treatment of migrant workers has improved.

“We are concerned with the protection of worker while they are here,” said Alex Zalami, an advisor to the UAE Labor Minister. “We provide better housing than before, better health insurance than before, and better safety conditions than before.”

Changes since 2006

After the State Department’s 2005 Trafficking in Human Persons Report, and a Human Rights Watch report called “Building Towers, Cheating Workers” in 2006, the UAE, and specifically Dubai, became one of the first GCC states to begin calling for, and implementing, reforms. By November 2007, the UAE’s labor ministry had set up a special labor court to resolve disputes. The government increased the number of inspectors to examine labor camps and worksites. The emirate also instituted health insurance for workers and developed mechanisms for the collection of unpaid wages.

Other countries are following suit. In November of 2007, India and Qatar signed a “labor protocol” that enacts new rules for the recruitment of Indian domestic workers. It also calls for the formation of two committees, one in each country, which are supposed to meet and discuss labor issues.

Qatar has also announced it will build a $1 billion “labor city” to house 50,000 workers. Near the capital of Doha, the city is slated to include “mosques, playgrounds, cinemas, a mall, motel, sports center, healthcare facilities, and a police and fire station.”

This announcement comes as the UAE continues construction on a series of labor cities within Dubai’s Industrial City development. According to developer Tatweer’s website, the housing will meet all Dubai’s municipal standards, and “providing business owners with affordable, high quality standard accommodation for laborers and supervisors.” The developers plan to house 87,000 workers in seven separate compounds within the confines of the Industrial City development. Rooms will sleep anywhere from one to nine workers, and the compounds will include cafes, health and fitness facilities, banks and other services.

And in January 2008, Abu Dhabi hosted what some hailed as a groundbreaking meeting between ministers from Asian and African countries that supply workers and the Gulf countries that receive them. Called “The Abu Dhabi Dialogue” it was the first time a GCC country hosted labor sending countries for conference specifically addressing workers’ issues.

The meeting was a success: the ministers signed the “Abu Dhabi Declaration”, a general agreement aimed at finding ways to crack down on dubious recruitment practices and employment agencies that take advantage of the sponsorship system. Brunson Mckinley, director general of the International Organization for Migration, said the dialogue indicated that Gulf states are trying to improve conditions.

“They’re all coming in the right direction,” he said. “There is an understanding all around that good treatment of workers is essential, because if they’re not treated right nor paid well, then they simply won’t come anymore. And it’s as simple as that.”

Labor shortage?

Indeed, the Gulf may be facing a huge labor shortage of up to 5 million workers. The reason is that India and other countries sending workers to the Gulf are now themselves booming, and funding their own construction projects.

“The golden days of cheap labor from Asia for the Gulf contractors are gone,” told Abdulmajeed al-Gassab, vice president of the Arabian Gulf Chapter of the Project Management Institute, to Bahrain’s Gulf Daily News in March 2008.

But others doubt that market forces will force the reforms needed to help the millions of vulnerable laborers in the Gulf right now. And Human Rights Watch’s Nisha Varia points out that huge numbers of people in India and Pakistan are continuing to be desperate for work — and thus they will not stop coming any time soon. She agrees, however, that the Abu Dhabi Dialogue, and the Declaration’s proposed reforms are steps in the right direction, yet she thinks the Gulf states need to do a lot more.

“These are really entrenched problems, and they have not gone so far as to protect certain rights, to bargain collectively, to form unions,” she said. “So we’ll see what they do and if action on ground is going to match up to rhetoric.”

As if the existing problems are not enough, now the GCC has to deal with another labor-related problem: as the US dollar plummets, and with it the GCC currencies pegged to it workers are striking more often because compared to the currencies in their countries of origin, their take-home wages are taking a dive. And the high inflation in the booming economies of the Gulf, and especially the UAE, means workers have even less money to send home each month.

In order to compensate for this, the Indian government earlier this year considered imposing a minimum wage on all contracts in Gulf countries. As the first efforts to enforce this new rule came into affect on March 1, 2008, Indian workers in Bahrain began to riot. The government of Bahrain blamed India for the trouble, reasoning that Indians already in the country would not settle for their colleagues being paid more. The Indian government backed down, and no minimum wage rule has been imposed as of yet.

But migrant worker advocate groups say the Gulf governments have a better chance of keeping their workers happy, and in place, if they would legislate a minimum wage for foreign workers, enforce existing labor laws, improve labor courts, and provide migrants with legal aid. They say this would make the Gulf not only one of the fastest developing parts of the world, but also a regional leader in protecting workers’ rights.

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Levant

A friend amidst foes

by Peter Grimsditch
written by Peter Grimsditch

The adage that “my enemy’s enemy is my friend” was a very simple concept (even if often misplaced) until Turkey put its own twist on that circular old saw.  Nowadays, Ankara has no problem in regarding my friend’s enemy as my friend. Turkey’s economic ties with Iran have strengthened considerably recently while Turkish companies also manage to turn a tidy profit in Kurdish Northern Iraq.  Trade with Iran was worth an estimated $8 billion in 2007, up nearly a fifth on the previous year. In the first month of this year, the rise was even more spectacular. Bilateral trade hit $700 million, an increase of 32.35% on the same month last year. So the visit to Ankara in March of Iranian Deputy Foreign Minister Alireza Sheikh Attar was a significant step in cementing ties.

Turkey’s mildly Islamist Justice and Development Party (AKP) government certainly looks more favorably towards the Islamic Republic than the staunchly secular, Atlanticist governments of the past. In return, Iran has backed Turkey’s incursion into Iraq, comparing the PKK to its own Kurdish separatist movement, the PJAK (a somewhat spurious but politically useful conflation). More controversially, according to some reports, Iran used Turkey’s military operations as an excuse to conduct its own, shelling villages in Northern Iraq that it believes shelter PJAK militants. This will not play well with Turkey’s American allies. The US apparently supplied the Turkish military with strategic assistance in targeting PKK camps but its patience will be finite if Turkey’s attacks continue.

Turkey also has a difficult circle to square in its relations with both Iran, and its arch enemy, Israel – long a Turkish ally. Prime Minister Erdogan has strongly criticized Israeli assaults on the Gaza Strip, but may be embarrassed by the belligerent stance of Sheikh Attar, who brought up the Gaza issue while in Ankara, and whose government issues regular condemnations of Zionism. Israel’s government, in turn, has accused the Turks of double standards, comparing their incursion into Gaza to Turkey’s in Iraq. But then Iran too knows something about double standards. Israel supplied Iran with spare parts for its ageing F-4 fighters during the eight-year war with Iraq, partly in exchange for allowing Jews out of Iran.

The middleman for all sides

Despite a current diplomatic situation that is – on the surface – uncomfortable at times, Turkey sees trade with Iran continuing to grow.  Barring an unforeseen crisis and an unlikely end to Turkey’s ability to see profitable opportunity in every direction, this is a reasonable forecast.  Nor does Iran seem to view Turkey’s relations with the Jewish state as an impediment to commerce.

In turn, Turkey is showing willingness to help Iran boost its trade with the wider world, currently limited by sanctions. In March, Saltuk Duzyol, head of Turkish energy firm Botafl, floated the idea that the proposed Nabucco pipeline, which will carry natural gas across Turkey to Eastern and Central Europe, could transport Iranian gas. This raised eyebrows in Washington — the US has long supported the Nabucco project, seeing it as a key to diversifying Europe’s energy supply away from an increasingly belligerent Russia but is publicly opposed to

using Iranian gas, due to its equally public bitter disagreements with Tehran. Admittedly, Duzyol also raised the possibility of transporting Russian gas, which would seem to defeat the whole object of Nabucco.  That puts into question whether Turkey’s European partners in the pipeline project are receptive to his suggestions – or indeed take them seriously. The Iran gambit may also alarm Turkey’s ethnic cousins in Central Asia, who were originally intended to be Nabucco’s suppliers (though it seems that Kazakhstan has been bought off by Russian President Vladimir Putin). Turkmenistan’s President Kurbanguly Berdymukhamedov passed through Ankara in March, and the pipeline and his country’s role in it were on the agenda. But Duzyol’s statement can be seen as notice that Turkey still considers Iran a useful trading partner, as it has for decades.

The friend-enemy-friend syndrome appears politically even less logical in Northern Iraq but nevertheless its economic pragmatism has solid roots in history. Turkish-owned trucks made a very profitable (and wholly unofficial) living running a supply chain in and out of Northern Iraq throughout the days of Saddam’s rule in the era of sanctions. On the Kurdish question, the simplistic “Turkey is very wary of all things Kurdish” becomes muddied when muddled with money. Iraq’s response to the eight-day Turkish incursion into the Kurdish region in the north of the country at the end of February, and air strikes that were resumed in mid-March, has been muted. Days after ground troops pulled out, Iraqi President Jalal Talabani, himself a Kurd, visited Ankara, his first trip since assuming the role of head of state. Murat Ozcelik, Turkey’s special representative for Iraq said that, after the visit, “relations between Turkey and Iraq will gain a new momentum and we will enter a period in which a new page will be turned.” While the visit was described as a “working” trip rather than “official”, which was seen as a minor but deliberate snub to Talabani, the meeting was indicative of Ankara’s eagerness not to leave bad blood between the two countries.

Fortunes lost and gained in Iraq

Turkey’s interest in Iraq certainly extends beyond the problems of Kurdish insurgents. The Turkish-Iraqi Business Council estimated before the US-led invasion in 2003 that the cost of the two Iraq wars to Turkey is around $150 billion.  However, trade has recently received an “immense” fillip, according to Council president Ercüment Aksoy, who thinks that “the future may be brighter than we had foreseen in 2002,” if the unitary Iraqi state can be held together. Ironically, Turkey may actually have benefited from the occupation of Iraq, as its firms have had access to public tenders and more freedom to operate in the market than had previously been the case. Indeed, reports in the Turkish press in March suggested that Turkey had actually made a net financial gain from the US invasion.  However, Aksoy has warned that a break-up of Iraq could lead to the balance tipping drastically into loss again. Furthermore, analysts say that the increase in the price of Iraqi oil exports to Turkey (from $4.1 billion to $12 billion for Turkey’s annual 175 million barrel purchase), means that Turkey has, in fact, still lost out.

Nonetheless, the lifting of the sanctions imposed between 1991 and 2003 has allowed Turkish firms to sell their goods – particularly basic staples and household goods – across the border once more. Interestingly, the opening of the Kurdish region in the north, and its relative stability, has paid off; Turkish exports to it are lively. Last year Turkish-Iraqi business volume, which includes construction and other services, was estimated at around $7 billion, which Turkey is looking to increase to $10 billion; bilateral trade overall is worth around $4 billion.  The bulk of the business volume is Turkish activity in the three northern provinces of Iraq. While the saber-rattlers in the military and the nationalist opposition in Turkey have urged that the army press further into Iraq, the government assuredly sees the need to keep relations with the autonomous northern region at least cordial, and economic disruption to an absolute minimum. The feeling both sides of the border seems to be that, once the necessary damage is adjudged to have been done to the PKK’s infrastructure in Northern Iraq, business as normal can resume. In short, where business is concerned concepts of friends and enemies take on an altogether different hue.

Peter Grimsditch is editorial director at the Oxford Business Group.

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Levant

The dying sea

by Executive Staff
written by Executive Staff

Once one of the cradles of humanity — Jericho, one of the oldest human settlements sits near its northern shore — today the Dead Sea has become a prime tourist attraction and a source of revenue for Jordanian industry.

The Dead Sea is a liquid enclave caught between the mountains of Israel and Jordan. At about 400m below sea level it is the lowest point on earth. “A million years ago, a major earthquake causing the Syrian-African Rift created the Dead Sea, which was deprived of its natural outflow to the sea,” said Dr. Ussama Qutaishat from Jordan’s Universal Labs. It is fed by freshwater from the Jordan River as well as by small springs and streams. As the Dead Sea water evaporates, salts accumulate in the lake and in its sediments, a natural process resulting in high salt concentration estimated at 33%, over 10 times higher than the Mediterranean.

From this wonder of nature many industries have sprung to life, with hotels and spas rising around the salty lake, and tourists flocking to the area all year round, seeking the many benefits offered by the Dead Sea. On the Jordanian side, industrial conversion of sediments into products is done by one company. Qutaishat pointed out, “On the industry level, the Arab Potash Company is responsible for the production and marketing of a variety of chemical products extracted from the minerals of the Dead Sea as well as raw materials for the cosmetic industry.”

An expanding industry

The Dead Sea cosmetics industry revolves around the mineral-rich salts and mud harvested from the lake. Components are mainly magnesium, calcium, bromides and potassium. These ingredients are known for treating a variety of ailments and skin conditions such as arthritis, rheumatism, psoriasis, eczema, stress and other disorders. “Minerals also disinfect, purify and nourish, deep cleanse and firm as well as tighten the skin,” Qutaishat added.

The Dead Sea industry in Jordan began in the late 1980s. According to the Dead Sea Cosmetics Cluster by the Jordan Ministry of Planning, by 2003 there were around 48 registered companies, 36 of which are export-oriented small and medium companies engaged in manufacturing Dead Sea products, with a total investment capital of $10 million, and giving jobs to around 750 workers.

“Jordan and Israel are the only two producers of Dead Sea cosmetics in the world but Israel has been engaged in this particular activity long before us,” explained Munir Haddad, international marketing manager at Rivage (Al-Mawared Natural Beauty Products Corporation). According to the Dead Sea Cluster, in 2003 Jordan sold 2.7 million tons of Dead Sea cosmetics, while Israel supplied the world with 29.6 million tons.

The Jordanian Dead Sea cosmetic industry caters mainly to foreign markets. Haddad estimates that around 60% of the company’s production is exported to more than 35 countries in North America, Europe, the Arab World and the Far East. The manager also explained that, whereas Israel’s Dead Sea cosmetic exports are worth about $200 million, Jordan generates less than 10% of that amount.

Both cosmetic companies agreed that local consumption of Dead Sea products is hindered by the reluctance of Jordanians to use local products and their unfamiliarity with the many benefits offered by Dead Sea product lines, a factor which may account for the industry’s focus on export. “The Dead Sea cosmetic sector is still relatively new in Jordan and remains a very challenging one due to the Israeli competition. It has also taken some time to develop as it has been slowed by red tape and bureaucracy. Nonetheless, perceptions are slowly changing as people start realizing the importance of Dead Sea cosmetics,” said Qutaishat.

According to Haddad, Dead Sea products are mainly marketed through hotels and spas, and can also be found in department stores, pharmacies and airport duty free sections. Qutaishat pointed out that as of this year, his lines will be available in five Arab airports.

However, cosmetics are not the only products derived from the Dead Sea. Other items include potash for the agricultural and chemical industries, while some international companies also use Dead Sea salt in saline solutions.

These industries are closely linked to the fate of the Dead Sea. In recent years, the surface of the sea has shrunk significantly with water levels having fallen by about 26 meters, or an average 90 centimeters every year, according to Dr. Sufyan Tell, former director of the Jordanian Department. Too much of the Jordan River’s water, the Dead Sea’s lifeline, is used for agriculture purposes and in towns.

“The Dead Sea originally consisted of two basins, a larger, deep northern basin and a shallow southern one, which are separated by a peninsula called Al-Lisan — meaning ‘the tongue’ in Arabic,” Tell said. Today, the southern basin is essentially dry and includes evaporation ponds used by Israeli and Jordanian potash plants. Ecological damage to the Dead Sea lies in the loss of fresh water springs, river bed erosion, and the further decline of sea levels, which are likely to cause more severe environmental, cultural, and economic damage.

Reviving the Dead Sea

In 2005 Jordan, Israel and the Palestinian Authority publicly committed themselves to studying the feasibility of transferring water from the Red Sea to the Dead Sea, via a canal — dubbed “Red-to-Dead” — as a solution to stop the rapid decline of water levels in the Dead Sea. The project envisions desalinating water and generating energy for Jordan, Israel, and the Palestinian Authority by putting to use the 400 meter difference in elevation between the Dead Sea and the Red Sea to produce electricity.

“However, the project holds critical environmental and technical challenges and much of it will expand on Jordanian land. In addition, the Red Sea and Dead Sea waters will not mix properly, which will certainly alter water quality and structure in the Dead Sea,” Tell explained. The scientist expects the connection of the two seas to contribute to a layered effect in the Dead Sea rather than a deep mixing of the two solutions as a layer of seawater will come to rest atop the dense hyper-saline solution, leading to a change in water color. “The project will also negatively affect the industries derived from the Dead Sea, such as the Arab Potash company, which will be flooded while Israeli structures, built on higher grounds remain unscathed. The cosmetics industry will most probably be affected as well,” he believes.

Once the right level is reached, the rate of inflow would have to be adjusted to preserve the water balance between the fresh and salty water. Tell doubts that Jordan will truly benefit from the project, which is estimated to cost $4-6 billion and whose main positive effects will be on the Israeli side.

However, with the Dead Sea’s water level continuing to fall and a decline of water consumption from the Jordan River out of the question, the Red-to-Dead Canal may be the only way to ensure that in a few more decades the Dead Sea will be nothing more than a dry, salt-crusted hole in the ground.

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Levant

Euphrates trade flows

by Executive Staff
written by Executive Staff

Look at any map of maritime shipping routes and there are two geographically ideal ports for Iraq-bound goods: Umm Qasr for ships from Asia, and Lattakia/Tartus in Syria for cargo from Europe, the Americas and Africa.

Maps, however, do not convey the realities on the ground, with the obvious points of entry to Iraq fraught with complications. Umm Qasr’s ports are in a state of infrastructural disarray, shippers report corruption and theft, and some $13 billion is needed for the first stage of a the new ‘Larger Port’. Further billions are needed for the new Al-Faw port, and the other four harbors in the Shatt al-Arab all require serious upgrades.

Kuwait, a potential contender for major trade hub status with Iraq, is currently hampered by customs, high taxation and foreign ownership issues in addition to inadequate port facilities, although the development of the $1.2 billion Bubiyan island port facility will change this in coming years.

All of this has left Iran, Turkey, Jordan and Syria to take up the slack as the main maritime and land-based trade routes into beleaguered Iraq. The Islamic Republic, however, is benefiting in terms of exporting Iranian goods and machinery, Turkey likewise, leaving much of the maritime trade for Iraq to come through Jordan’s Aqaba port — logistically far from Iraq, particularly the urban zones of the Jazira — and better geographically positioned Syria.

Up and down trade

Syria, despite its proximity to Iraq, has not exactly pushed the boat out to capitalize on the geographic attributes that make it a natural trading partner with its easterly neighbor and a major transit route from the West and Africa. Official trade figures from 2004-2006 are only indicative of one particular trend, declining imports from Iraq, from $88.7 million in 2004 to $18.7 million in 2006.

The trend for Syria’s exports to Iraq can be best described as a reverse bell curve, from $469.1 million in 2004, down to $254.6 million in 2005, and then surging to $626.8 million in 2006. With the figures for last year yet to be released, it is not known whether Syria’s exports spiked or declined in 2007, and it is also unapparent what caused 2005’s plunge in exports — conversations with public and private sectors having not made the picture any clear.

On a recent Executive visit to the Syrian-Iraqi border at Abu Kamal/Al-Qaim in the north-east, there was no traffic to speak of and locals reported minimum activity. This was not overly surprising given the state and size of roads from Deir al-Zor to the border. Major highway infrastructure is also absent on the Iraqi side of the border despite Abu Kamal’s strategic position 648 km from Lattakia and 403 km to Baghdad, making it one of the shortest routes to the Iraqi capital and immediate north of the country.

The state of Syria’s infrastructure does beg the question of why Damascus is not doing more to improve connections to Iraq, although the Logistics Performance Index released by the World Bank last year offers an idea. Out of 150 countries reviewed, Syria ranked 135th, and 15th out of 16 countries in the MENA region, ranking highest for domestic logistics costs and worst for ‘logistics competence’.

Considering Abu Kamal’s logistical difficulties, the south-eastern border at Al-Tanf is the more favored crossing, connecting to a major highway in Iraq’s Anbar province that also merges with Jordanian traffic to Ramadi and Baghdad, clocking in at around 955 km from Lattakia to Baghdad.

“For security reasons a lot of people take cargo to Aleppo and then to Northern Iraq to the Kurds, as they have established some form of security,” said Samir Hamod, manager of Maersk’s trade coordination office in Lattakia.

Goods are also transported from Aleppo by train on a rather circuitous route via Qamishle in the far north to Mosul. “It’s the best way, safe and lower costs,” said an official with a Lattakia-based logistics company who preferred to

remain anonymous.

Syria is to improve this route however, currently laying a railway via Deir al-Zor that will run to Mosul and on to Iran, although when the Iraqi side will be operational is far from clear (the first stage of a 284 km railway around Baghdad, slated to cost $8 billion, is expected to take six years to complete).

Syrian port activity (2006)

Syrian trade with Iraq

Border closures and inferior products

One reason for such unpredictable trade, aside from security on the Iraqi side, is the accessibility of the border crossings. “It’s hard to know about the borders, they are sometimes open, and at other times closed, so trade is good at times, bad at others,” said the logistics company official.

Indeed, according to a Voices of Iraq (VOI) report in February 2008 that quoted the head of Al-Qaim’s city council, the border with Abu Kamal was only re-opened in November 2007 after being closing for an undisclosed time while security improved on the Iraqi side.

Although trade has increased since then, local traders complained to VOI of second-level quality or expired goods entering from Syria. “Despite the Al-Qaim border now being open, I am still importing foodstuff items from Turkey because Turkish products are of a much higher quality and competitively priced when compared to similar Syrian products. Locally consumed products in Syria are high quality, and Syrians export low quality products to Iraq,” a trader is quoted as saying.

According to Jihad Yazigi, editor of the economic and business newsletter The Syria Report, Syria’s manufacturing sector has benefited from bolstered trade with Iraq, as following the 2005 Greater Arab Free Trade Area (GAFTA) pact local production began developing higher quality products and packaging.

“Usually the Syrian manufacturing sector has difficulties exporting, and Iraq is an easy market. It has given breathing space to a lot of manufacturers, with Iraqis coming and paying cash,” said Yazigi. He added that goods exported to Iraq are primarily foodstuffs and manufactured products.

Port development

Syria still has a lot to do in developing infrastructure for trade with Iraq, but its major ports are getting much needed investment. In February 2008, a cooperation agreement was inked between Syria and the Japan International Cooperation Agency to modernize and improve goods shipping and infrastructure at Lattakia’s port. A Chinese firm is also to install a gantry crane in the next three months.

Meanwhile, the Tartus International Container Terminal is being upgraded by a Filipino firm, ICTSI, which is also to manage the port as part of a 10-year concession.

According to Yazigi, “For Syrian decision makers the country’s position as an infrastructure route is so strategic that at the Tartus port they contracted a private company to manage it. This is new for the government, to encourage BOTs (Build Operate Transfer), and this is a significant contract.”

Although Tartus is geographically better suited for trade with Iraq, the port currently handles considerably fewer containers than Lattakia, with 38,649 containers in 2006 compared to Lattakia’s 471,970. Cargo weight at Tartus, however, is significantly higher, at 12.76 million tons as opposed to Lattakia’s 8.09 million tons.

But just as customs issues need to be ironed out at the Iraqi border, Maersk’s Homod said Lattakia’s port authorities need also need to streamline their inspections.

“Lattakia can handle a lot of containers but one problem we are suffering from is customs. A lot of commodities have to be inspected, strip searched inside the port so that causes congestion. The normal procedure at a terminal is to go to a warehouse and empty it there,” he explained.

Influx of Iraqis

Legislation and regulations are certainly not lacking for trade with Iraq to flourish, with bilateral agreements in place, gas and electricity networks in operation, and relations between Damascus and Baghdad warmer than they have been for 30 years. Turkey, Iraq and Syria have even agreed, just last month, to set up a joint water institute to share their water resources. Syria’s first private airline, Sham Wings, is also now flying to Baghdad, competing directly with Iraqi Airways.

“It’s not so much legislation [that needs to be amended] as attitude,” said Dr Nabil Sukkar, Managing Director of the Syrian Consulting Bureau for Development and Investment. “We are liberalizing trade, but it’s difficult to know what is happening on the ground. That has to be talked about rather than through legislation.”

As economists and businessmen point out, aside from official trade statistics there is minimal information about the scale of trade, what is traded, and where it is bound.

“We know the origin of containers but it’s difficult to determine where the cargo will go,” said Homod. “A lot of cargo is declared in transit, or to the free zone, and can then go to Jordan, Turkey, Iraq or Lebanon.”

Informal trade with Iraq is extremely high, as are inflows and outflows of cash to the 1.36 million Iraqi refugees in Syria. The number of refugees increased 19% last year, triggering inflation, higher rents and costing the treasury some $1 billion a year, but also strengthening ties.

“There has never been as strong a relationship between the two countries as due to the refugees — intermarriage, contracts and investment in factories, and a private university,” Said Yazigi. “A lot will also stay on when there is stability in Iraq.”

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Levant

Trading heritage

by Executive Staff
written by Executive Staff

Syria’s trading heritage spans empires. But while the famed souks of Damascus and Aleppo still bustle with activity, a new shopping experience is being demanded: the air-conditioned souk, commonly known as the shopping mall. Unlike its neighbors, Syria has long been barren ground for shopping malls. The country has, however, undergone something of a retail revolution in recent years and the appearance of foreign goods and international retail chains is one of the most obvious signs of the country’s economic liberalization. Four shopping malls have opened in as many years and the same number are presently under construction. Upwards of six more are on the drawing board. All expect to find a warm welcome from a public which, until 2003, was banned from importing many foreign goods.

Syria’s new-found retail spirit has not, however, been without the odd hiccup. The Hejaz Souks project was to transform the central business district of Damascus, giving one of the world’s oldest trading hubs a shinny new commercial heartland. Yet three and a half years after the contract to build the 60,000 square meter commercial and retail development was signed, and two years after the multi-million project was expected to be finished, it remains a large hole in the ground.

Urban management problems

Work started on the five-story shopping mall, which will include a rail link joining the city center to the airport on a Build-Operate-Transfer (BOT) basis, in 2004. But little progress has been made since the foundations were dug three years ago. Urban management problems such as where to park cars and how to solve ever increased conjunction in front of the station, along with opposition from heritage groups concerned about the project’s impact on the character of the near 100-year-old Hejaz Station, has reportedly bogged down progress on the development which is being backed by the country’s largest holding company, Cham Holding.

“There has been a lot of opposition to the project from various NGOs, including the Friends of Damascus Society, to preserve the Hejaz building,” said Nabil Sukkar, managing director of the Syrian Consulting Bureau for Development and Investment.

But while the country’s flagship retail development has been tangled in delays, others are happy to take the title. Four shopping malls are now up and running in the country’s capital including the 35,000 square meter Town Center located on the southern outskirts of Damascus, the 8,000 sqm Cham Center situated in the recently developed up-market Kafer Souseh area, the 10,000 sqm Skiland shopping and entertainment venue incorporating Syria’s first ski-rink and the 2,500 sqm Damascus Boulevard, the country’s premier high end shopping address adjoining the Four Seasons Hotel. All are doing a brisk trade and have whetted the nation’s appetite — the core demographic of which is young — for the shopping mall experience. As Mohamed Awa, manager of Damascus Boulevard which opened last September, pointed out, “Syrians are no longer strangers to the shopping mall model, there is a big demand for this kind of shopping service and experience.”

The 55,000 square meters of dedicated shopping mall space in Damascus is still, however, far below that of other regional capitals. Amman boasts 200,000 sqm, Cairo 600,000 sqm, while Beirut’s City Mall and ABC mall by themselves provide more than four times the dedicated shopping mall space than what is on offer in Syria. And then there are those 1.3 million sqm in Dubai. “Syria is still quite underdeveloped in Western retail terms when compared with the leading Gulf states or even Jordan and Lebanon, despite the current economic downturn in the latter,” said Simon Thompson, head of Retail International.

That, however, is about to change. The next few years is set to see Syria come up to shopping mall par, with upwards of 10 malls being planned for the country’s two major cities of Damascus and Aleppo, several of which are vying to be the largest in the Levant. The next to open will be the Damasquino Mall, a 20,000 sqm enclosed mall centered on a hypermarket and adjoining the Cham Center in Kafr Sousah. Work has also begun on the high profile Eighth Gate development by Dubai-based Emaar Properties and Investment Group Overseas (IGO), an offshore company owned in majority by Syrian expatriate businessman Mouaffaq Al-Gaddah. The project — what is essentially a private city — will include a 55,000 sqm mall, along with a five-star, 15-story hotel, a similar tourist apartment building and a 30-story office tower, all spread over 300,000 sqm. The $550 million project is located in Yafour on the Damascus-Beirut highway.

More projects a coming

The company is also finalizing the details of its second major Syrian project, Damascus Hills, another multi-use development spread over 5 million sqm containing considerable retail space. Located on the northern outskirts of Damascus near the highway leading to Homs, early estimates have put the project’s total cost at more than $3 billion.

Construction has also begun on Yafour Gardens, a mixed-use development being backed by the Syrian-based Urban Development Group. The $120 million project has a built up area of 100,000 sqm and will include a hotel, furnished apartments, sporting facilities, shopping mall and supermarket.

Another Gulf heavyweight, the Majid Al-Futtaim Group, is backing a $1 billion integrated tourism city in Sabboura on the outskirts of Damascus. The project will have a built up area of 1.5 million sqm and contain a 200,000 sqm shopping mall boasting some 350 retail shops. When completed the mall is set to be the largest in the Levant.

Souria Holding, one of the country’s new holding companies, is also backing a number of high level developments. The company is behind plans to develop the Baramkeh area in central Damascus, turning the former transport hub into a mixed-use development including a five-star hotel, serviced apartments, office tower and considerable retail space containing a hypermarket and cinema. The $280 million development will be located on 3,700 sqm of land, with a built up area of 260,000 sqm.

The company is also backing a $70 million, 49,000 sqm mixed-use development on the Mezzeh Highway in Damascus which is expected to include around 17,400 sqm of retail space. In addition, it recently signed a BOT contract with the City Council of Aleppo to build and develop Aleppo’s Gate, a 300,000 sqm development that will include a shopping mall and new transport hub for the city. The project is expected to cost $60 million. The company has also finalized a deal with the Middle East hypermarket retailer Spinneys to establish outlets in each of its retail developments.

Finally, Mövenpick Hotels and Resorts will manage a five-star hotel in a 49,000 sqm complex, again in the Kafr Sousah area, of which 6,300 sqm will be dedicated to retail space. A further 75,000 sqm tourism development to be constructed next the Sheraton Hotel in Damascus and, also, contain a shopping mall.

Adding to the retail boom

Numerous factors are driving the country’s retail boom. The 2003 decision allowing the import of foreign goods has seen an ever growing array of international brands appear on Syrian shelves. The successful move by Syria’s garment industry to begin producing international clothing brands under license has also seen a number of high profile clothing lines appear throughout the country and Syria’s new malls are heavy in clothing outlets. “Greater consumer confidence in Syrian manufactured garments, gained from the production of clothing under the license of international brands since the early-1990s, has preempted the shift from the souk to the high street,” a recent report by Colliers International on Syria’s retail sector found.

Syria’s withdrawal from Lebanon — and the subsequent political tension between the two countries — has also aided the country’s retail conversion, with more affluent Syrians choosing to spend their pounds in Damascus rather than Beirut, generating a viable retail market. “Before, the closest market was Lebanon,” Muhannad al-Mallah, general manager of the Damasquino Mall, said. “These days, not a lot of people are going there. They are excited to find the kinds of brands they found in Lebanon right here.”

The country’s young demographic is also starved of leisure amenities and shopping — or window browsing at the very least — is fast becoming a national past time. “The popularity of shopping and dining as a key leisure activity in Syria for both the middle and high classes and increases in consumer purchasing power have also stimulated demand for retail malls with strong brand representation,” Colliers International concluded.

Syria’s retail sector is becoming an increasingly important driver in the national economy. The sector is estimated to employ 27% of the country’s workforce and stands as the third largest contributor to GDP at 17%. It is also one of the main reasons 4.8 million day visitors from neighboring Arab countries, including 1.8 million from Lebanon, crossed into Syria in 2006, the last year hard figures are available.

Yet obstacles remain. The most common complaint being the high tariffs levied on many imports, which can reach as high as 50% on some items, hampering the development of high end shopping. “That’s why we are trying to choose middle range brands,” al-Mallah said. “The high-end would be too high with tax.” A lack of diversification among outlets, particularly clothing brands, has also been singled out as a weakness. The rising cost of raw materials is also seeing the costs of projects throughout Syria balloon.

For now, however, its full steam ahead — the simple guide being, if you build (and air-condition) it, they will come.

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Fighting the same enemies

by Norbert Schiller
written by Norbert Schiller

On the fifth anniversary of “Operation Iraqi Freedom,” the ‘operation’ part is still far from over. When the Iraqi military was neutralized in the first few weeks of the war it was hard to imagine that, five years later, the battle for Iraq would still be raging. Saddam Hussein had two bitter enemies: Iran, Iraq’s historic rival, and Sunni fundamentalists. Now that the old guard is gone, US forces are left fighting against the same people Saddam Hussein was bent on destroying: al-Qaeda and Iranian-backed Shiite militias.

Twenty years ago this month, I was standing on the frontlines of a war that has been compared in brutality to the trench warfare in Europe during World War I. Iran and Iraq were in the last stages of a conflict that had lasted eight years and claimed over a million lives. Chemical and biological weapons, which had been banned under the Geneva Convention after WWI, were once again in play and so too were the use of children ‘volunteers’ who ran ahead of soldiers to clear mine fields. Such was the devastation inflicted on both sides that when a truce was finally brokered in the summer of 1988, reconciliation between the two warring nations was impossible to achieve. Relations between the two enemies were at such a low that it took over 10 years to repatriate prisoners of war.

The animosity between these two nations is nothing new and goes back to 636 A.D. when a few thousand ill-equipped Arabs defeated a well organized Persian army in four days at the battle of Qadissiya. There are many accounts as to why the Persian army was defeated, but to many Arabs the victory over the Sassanid Empire is still a source of pride. For Iranians, the defeat is still a bitter pill to swallow. It has even been said that the eight-year war with Iran was Saddam Hussein’s modern-day Battle of Qadissiya.

With the war over and neither side able to claim victory, Saddam Hussein turned to his Arab neighbors for support. But instead of getting a pat on the back for containing Iran, he was asked to repay billions of dollars in debts he had incurred to finance the war. The sacrifices made by Iraq were too numerous to hide. Besides the casualties, the country was in shambles. Iraq’s infrastructure, which had been on par with the other Gulf Arab states before the war, was in ruins. So too was Iraq’s third largest city, Basra, which had taken the brunt of the bombardments. There were few buildings still standing and the port and oil exporting facilities were largely destroyed. I toured Basra, the port area, and the Shatt al-Arab water passage shortly after the war ended and found hundreds of derelict ships either stranded at the port or partly submerged in the water. Because there were so many sunken ships and other obstacles left behind by the fighting, the Shatt al-Arab, Iraq’s most important outlet to the sea, was not navigable.

Inside Iraq, pressure was exacerbated when tens of thousands of unemployed soldiers hit the streets looking for work. In rural areas clashes broke out when returning soldiers found their farms occupied by Egyptians and other Arabs who were brought in during the war to help cultivate the land. After body bags turned up at Cairo’s airport, Egypt’s President Hosni Mubarak was forced to intervene in order to get compensation from the Iraqi government for the loss of life.

Desperate to be reckoned with and re-equipped with new weapons, Saddam Hussein began making demands. Because the Shatt al-Arab was unusable, he wanted to use two Kuwaiti controlled islands in the Gulf. But when Kuwait refused, he only became more frustrated. The crisis reached its boiling point at the beginning of 1990 when Saddam Hussein accused both Kuwait and the UAE of overstepping oil production quotas. At the Arab Summit in May 1990 he pointed out that every dollar drop in a barrel of oil resulted in an annual loss of billions of dollars for Iraq. He then accused Kuwait of stealing oil from the Rumaila oil fields which straddle the border area. With no concessions going his way, Saddam Hussein ultimately turned to his military and invaded Kuwait.

Until that point, Iraq had played a central role in the region. Not only was it home to Babylon, the cradle of the ancient civilization, but it was also the battle-hardened eastern flank of the Arab World. With the fall of the shah and the rise to power of an Islamic revolutionary regime in Iran, Iraq suddenly had become the front line of defense against the spread of this new type of revolution. Even though the US remained officially neutral during the Iran-Iraq war, it was no secret where its sympathies lay. Not only was Saddam Hussein able to get support from its trusted ally, the Soviet Union, but was also able to secure loans from Arab neighbors and European and US banks to buy weapons.

After almost a decade of war, the world was about to change and alliances were about to shift. Soon after the war ended, Iraq’s one time ally the USSR began to crumble. With tensions on the rise with his Arab neighbors, Saddam Hussein turned to the West hoping to get financial assistance to rebuild his war-ravaged country. The Americans kept a channel open to hear his grievances but first they wanted to see a halt to his biological, chemical, and nuclear program.

The irony is that part of the American policy had actually worked and when the day of reckoning came there were no weapons of mass destruction. Instead, what happened by removing Saddam Hussein, the Americans left the door wide open for Iraq’s arch enemies, Iran and al-Qaeda.

Norbert Schiller is a Dubai-based photo-journalist and writer.

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