Friday, August 26, 2011

Egypt's yarn price hike causes disruption

By Paul Cochrane for

While Egypt's garment sector appears to have weathered the political upheaval that swept through the country earlier this year, the key textile sector has been hit hard by the quadrupling in price of locally-produced yarn.

The Egyptian economy is struggling along in the wake of the revolution that ousted President Hosni Mubarak earlier this year, even though protests continue and workers demand more rights and better pay.

But while the garment sector appears to have weathered the crisis, expecting to export more than US$2bn in clothing this year, the spinning sector has been hit hard by the quadrupling in price of locally-produced yarn over the past six months, rising from EGP10 (US$1.68) to EGP42 (US$7.06) per kilogram.

Some 51% of all textile factories in the Nile delta city of Al Mahalla el-Kobra stopped operating in June due to the spike, according to The Egyptian Gazette, and an estimated 650,000 workers are in danger of losing their jobs.

The country's largest yarn producer, the state-linked Holding Company for Spinning and Weaving (HCSW) has not been helping.

Worried that it would be undercut by cheaper imports, which are approximately US$1 cheaper per kilo than locally-produced yarn, it requested the ministry of trade and industry in April to impose anti-dumping duties on yarn imports.

However, mindful of stepping into a potential row between elements of the country's important textile industry, the interim government (parliamentary elections are slated for September) has not however implemented any bans on imports or exports of raw cotton. Egypt itself produces some 130,000 tonnes of cotton a year.

"There has not been a significant move by the government to stop cheap cotton imports," said Gilbert Ammar, general manager of GilClaude and the International Textile Industry in Alexandria, which sells to hypermarkets and catalogue companies in Europe.

Instead, there have been efforts to ease the problems. Pending hoped-for government support, the HCSW and other state-linked cotton and spinning companies - which employ 60,000 people and accounts for one-fifth of Egypt's public sector workforce - have reduced the cost of yarn from EGP31.5 a kilo (US$5.29) to EGP27.5 (US$4.62) for the domestic market.

The government has also extended EGP14bn (US$2.3bn) in debt settlements to spinning and weaving companies, while banks have extended their grace period on loans.

There could be more price disruption to come. On top of the yarn price increases, the minimum wage is to be increased to EGP700 (US$117.8)-a-month - although this will only affect the public sector, with private companies generally unfazed by the planned increase.

"The government is talking about a minimum salary per month while the workers are wanting EGP1,200 [US$201). I don't think the government can pay more than EGP700 as the public sector does not have the funds to do so," said Ammar.

He added that a primary problem for the spinning sector is not just cheap cotton imports, but that the machinery used by most state-linked spinning companies are antiquated and unable to process high quality cotton.

"It will be a bad year for the spinning companies. But they have to improve their quality and connection with the manufacturing process to stay alive and be more competitive, for they are operating far from the reality of the market," said Ammar.

Meanwhile, garment producers are directly sourcing their own cotton to avoid breakdowns in the production chain, and are banking on an increase in orders this year from Europe to take advantage of the short delivery time. A vessel takes one week to go from Alexandria to La Havre in France, for example.

"I think exports will increase over US$2bn this year as more big buyers are placing orders," said Ammar.

Photo from just-style -

Friday, August 12, 2011

Minimal capital flight but the Syrian economy is on a slippery slope downwards

Workers erect a poster of President Bashar Assad in Damascus. On the poster behind it says "Minhubak" - "We love you" in reference to Assad.

An abbreviated version of this article appeared in Executive, August 2011

The Economist recently ran an article on Syria's economy claiming that $20 billion has flowed out of the country since the uprisings began in March. The figure was quickly picked up and the rumor mill went into overdrive. A respected financial paper the Economist may be, but it clearly did not do its homework in this case.
With the overall economy worth $52 billion at the end of 2010, and total deposits in private and state banks close to $30 billion, such capital outflows would have been crippling to Syria.
“There is obviously capital flight, but it is impossible $20 billion left the country,” said Jihad Yazigi, editor of economic newsletter Syria Report. With the rumors abounding about billions leaving Syria, it was not Damascus that came out to deny the inflated figure the Economist attributed to “one estimate” but the head of the Association of Banks in Lebanon in July.
“The $20 billion figure is ridiculous as the deposits of private banks are $11 billion and the deposit base of the whole banking system is $29.8 billion,” said Freddie Baz, chief financial officer at Bank Audi to EXECUTIVE. “Estimates range between 15 to 18 percent drop in the deposit base of private banks, so there has been a decline of around $2 billion.” Bank Audi should know, with the Lebanese giant's Syrian arm, Bank Audi Syria, the second largest private bank with some 18 branches.
According to research by Bank Audi's Research Department drawing on Central Bank sources and Thomson-Reuters, bank deposits in Syria in the first five months of 2011 dropped by $1.388 billion. By comparison, Egypt has been far more affected, with deposits dropping $4.957 billion as of May from a deposit base of $164 billion in December 2010, and in crisis-struck Yemen, down $605 million from a deposit base of $7.13 billion.
“So far the impact is very minimal on the banking business. Indicators are almost similar to Egypt in terms of resilience,” said Baz. “But I believe the Syrian economy is more vulnerable to the political turmoil than Egypt, where there were a lot of buffers to shield the economy.”

Cash based society

If massive capital flight out of Syria had occurred this year Lebanon would have been one of the major beneficiaries, with banks a long-term depository for Syrian clients, estimated in the several billions of dollars. Yet bankers said there had been no notable up-tick in transfers from Syria while total deposits in in Lebanon this year, as of May, were $3.267 billion.
Foreign exchange bureaus in Beirut interviewed by EXECUTIVE had also not observed any noticeable increase in business or Syrians coming with duffel bags stuffed with Syrian pounds (SYP). “I am exchanging the same amount of SYP as in the past, there is no change,” said one dealer in Bourj Hammoud. “And I would change the equivalent of several thousand dollars in SYP; I am not concerned that the pound could become a worthless currency.”
There are also no indicators of any crippling runs on the banks. Bank Audi Syria has seen its deposit base drop 18 percent, but noted that much of that was requested by the bank itself as private banks are required to hold deposits with the Central Bank of Syria (CBS) at zero percent interest. “In difficult times zero percent interest at the CBS is ridiculous, so we voluntarily let go of some corporate deposits,” said Baz. “My opinion is overall withdrawals are around $2 to $2.5 billion, and the major chunk of cash is in peoples' homes.”
Syria is after all overwhelmingly a cash-based economy and the country's 12 private banks have struggled to attract depositors since entering the market in 2005 due to long-standing fears of re-nationalization, as happened when the Baath party took power in 1963. Banking penetration is very low even by regional standards, with one branch for every 47,700 people.
“Loans to gross domestic product ratios, bank accounts per household and so on are all are very weak. What we have witnessed is increased de-bankerization because of the situation,” said Baz.

Dearth of data

Getting accurate statistics on the current state of the Syrian economy is complicated by the lack of official data being released by the Central Bureau of Statistics and the CBS, with the last monetary reports released in March and May respectively.
“When the crisis started Syria had a fairly healthy level of foreign reserves which meant they were able to sustain the nominal exchange rate at remarkably stable levels, but the extent to which the CBS was able to intervene in the foreign exchange markets we don't know as the CBS is not publishing updates on foreign reserves,” said an economist at one of the world's leading financial institutions that wanted anonymity.
“At the same time the central bank is looking at further conservative policies to keep depositors reassured, as the whole idea is to prevent a run on deposits in the banking system and stop the nominal exchange rate getting into a depreciation spiral and weaken the economy faster. The CBS has been managing effectively its short term issue. The problem is we don't know how sustainable that is as don't know what is happening with the reserves.” The Minister of Finance, Mohammad al-Jleilati, recently said that Syria has $18 billion in foreign reserves.
One of the few real time indicators of the economy is the Damascus Securities Exchange (DSE) although it cannot be considered a real reflection of the economy due to its small capitalization. The Middle East's youngest bourse, which opened in 2009, has witnessed a decline in trading of some 37 percent as of June 20 from its peak in January. The other indicator is the currency, but as the economist noted has remained remarkably strong, only depreciating from 46 SYP to the US dollar at the beginning of the year to SYP 47.5 as of July.
Yazigi noted that a spike in gold sales has helped stop a run on the pound. “Gold sales are up and it is one reason the currency has not fallen,” he said.
With the financial sector and the DSE weak indicators of the real state of the economy, all eyes will be on how the CBS handles the situation and what happens to the pound. “The most important point is what happens to the currency. It is the symbol of stability of the state, and if it weakens then it is tantamount to saying the state is weakening,” said the source.

A stagnant economy

The overall state of the Syrian economy is pretty grim. “By far the most affected sectors are tourism, industry, logistics and transportation, retail trade – people are saving not spending – manufacturing as no one is buying, and exports to the Arab world are down,” said Yazigi.
Tourism, which brought in $8.5 billion in revenues last year, has ground to a halt, reflected in Damascus' premier hotel, the 297-room Four Seasons, having just 12 guests over the course of a week last month.
“What matters about tourism is not just the size of its contribution to GDP – about 10 percent – but that it generates foreign currency earnings as the country is in dire need of currency,” said Yazigi. “Private investment is close to nil, including foreign direct investment,” which had surged from $110 million in 2001 to $2.9 billion in 2010. “The oil and gas sector is OK as output continues, but future investment is questionable as international companies are withholding investment,” he added. Indeed, it is the hydrocarbons and agriculture sectors that are essentially propping up the economy, accounting for 35 to 40 percent of total GDP.
Meanwhile the business of the country's largest conglomerate has essentially dried up. Cham Holding, which was established to much fanfare in 2007 and touted as a further indication of Syria's opening economy, had sanctions slapped on it in May by the United States due to the board of directors reading like a who's who of the Syrian elite and Assad's cousin, billionaire businessman Rami Makhlouf, a prominent board member. The whole board recently resigned and only five men were elected to the board, including two former ministers with no management experience, while there is no chairman due to the sanctions.
Curiously, real estate and construction is booming in Syria. “In a time of crisis and with the currency falling, people are investing in real estate as it is considered a safe investment,” said Yazigi. “The construction sector is trying to profit from the fact that the government is not being able to monitor the sector to check if buildings are going up without licenses. But the cost of building materials and labor has increased.”
The potential for a major economic slowdown is very real, primarily due to dwindling consumer confidence, which President Bashar Al Assad admitted to in his June 20 speech at Damascus University. But rather than suggest that the government has control of the situation, Assad further undermined confidence in the economy when he said: “The most dangerous thing we will face is the weakness or the collapse of the Syrian economy. A large part of the problem is psychological.” As Yazigi commented in an editorial in the Syria Report: “by merely pronouncing the word 'collapse' the president indeed only reinforced that psychological factor".
Analysts forecasts a contraction in the economy this year. “A decline of 20 percent is a conservative estimate but realistic,” said one source.

Photograph by Paul Cochrane

Thursday, August 04, 2011

Paying for the revolution

Commentary for Executive magazine

Keeping capital in the  country may well help in  keeping protesters off the streets for many-a-Middle Eastern regime

"Freedom ain't free” is a commonly used idiom in the United States. Somewhat jingoistic and trite it may be — certainly when used to justify a militaristic US foreign policy — there is still much truth to the expression.

The uprisings in the Arab world this year have certainly not come gratis. Many have paid the ultimate price — death — and the economic losses have been staggering. In post-revolutionary countries, economics has become a major focal point and it was arguably lop-sided economic development as much as political repression that sparked the uprisings in the first place, from Tunisia to Egypt and Bahrain, to Yemen and Syria. One of the economic factors that contributed to the uprisings and is a cause of much inequality throughout the developing world is capital flight, and while governments may have, to varying degrees, limited ability to stop legitimate investors from pulling up stakes, an area of enforcement where regional authorities have been lax is in stymieing the illicit flow of capital out of their countries. Between 2000 and 2008, according to Global Financial Integrity (GFI) research published this year, illegal capital outflows from the Middle East and North Africa (MENA) grew 24.3 percent, far ahead of any other region on earth.

Illicit capital flight refers to funds derived from corruption, money laundering, commercial tax avoidance and trade mispricing, where deals are made for transactions to end up in offshore havens to avoid being taxed. As a result, cash that could have stayed in the country of origin ends up elsewhere, leaving less capital to finance development. From 1970 to 2008, some $70.5 billion flowed out of Egypt, $25 billion out of Morocco and $25.7 billion out of Algeria. In Egypt, GFI estimates an average of $2.54 billion flowed out of the country each year through illicit trade mis-pricing alone. Tack on corruption and crime, and the figure is a whopping $6.36 billion a year that was not available to the Egyptian financial system and economy. Notably, as Egypt's gross domestic product spiked and the economy grew in the late 2000s, illicit outflows increased by leaps and bounds, meaning real economic growth was essentially two steps forward, one step back. In 2006, illicit outflows reached $13 billion, $13.6 billion in 2007, and as the global financial crisis hit in 2008, $7.4 billion. Ousted President Hosni Mubarak and his family siphoned off billions from the Egyptian economy, but Egyptian financial elites also helped to hobble the country's development through illicit outflows.

Addressing illicit capital flight is a concern for which revolutionaries should fight if the people are to improve their economic future. The problem right now, however, is that with the instability in the MENA, legitimate investors are also pulling their capital out of the region at worrying rates. Jordanian Finance Minister Mohammad Abu Hammour recently said at a meeting of the Union of Arab Bankers that capital flight in the Arab world is estimated at some $500 million a week. Unless such outflows are curbed, the capital needed to invest in post-revolutionary countries will be wanting.

Desperate for cash, these countries will either have to be beholden to donors, or to the conditionalities imposed by global financial institutions such as the World Bank and International Monetary Fund to stay afloat. In Egypt, with the government's hard currency reserves reportedly plunging from $36 billion in February to $25 billion in May, some analysts warned that the country could be as bankrupt as Greece by the end of the year.

How to tackle this is tricky. Capital is transferred at the click of a button. Some $1 trillion in illicit inflows enters the Western financial system every year — with an estimated 20 percent to the US — and billions go to offshore havens. Tough withdrawal measures by post-revolution countries may help, but this is both heavy-handed and against the principles of free trade. With an estimated 65 percent of illicit outflows in the form of commercial tax avoidance, ensuring greater transparency by companies and elites in paying tax is a more feasible solution.

In tallying the expense of what it has taken for the MENA region to reach this turning point in history, what must not be overlooked is that those who have a responsibility to help cover the costs should be made to do just that. After all, democracy must be paid for.

Monday, August 01, 2011

Leftists of America and the World, Wake up to Your Islamophobia!

by Paul Cochrane for, July 30th, 2011

A Spanish translation is also available -

Stephen Sheehi wrote Islamophobia: The Ideological Campaign Against Muslims to radically change the discourse surrounding Islamophobia in the mainstream in the US. But Sheehi,1 a scholar and veteran of the activist movement, is only too well aware that a controversial book distributed by a small social justice publisher is probably not going to make the inroads it should or be reviewed by the likes of the New York Review of Books or the Washington Post.

Rather, one of Sheehi’s primary aims was to challenge the Left, so-called “progressives” and liberals to face an uncomfortable truth, their own Islamophobia. “When people ask me at conferences, ‘What should be done?’ I tell them to stop asking questions about Islam. Just stop. It is racist to ask ‘Why are the Muslims different?’ or ‘I want to understand the Muslims so I am going to read the Qur’an’,” said Sheehi in Beirut.

Indeed, as if people read the Vedas to understand militant Hinduism, the Torah to comprehend the mindset of Jewish colonial settlers in the West Bank or the Bible to make sense of the Tea Party movement. But such seemingly well-meaning questions about Islam by leftists and liberals of all stripes just goes to reinforce the notion of Muslims as the “Other,” set apart in need of “tolerance” and “understanding.”

“Despite the genuine and scholarly research into the topic, the questions must stop being about Islam and democracy, Islam and modernity, Islam and human rights, Islam and women, and so forth,” writes Sheehi. “We must stop searching for answers, or making accusations for that matter, based on the binaries of Islam and the Whatever. We must reach beyond the Jihad vs. McWorld dichotomy.”2

Coming to terms with the widespread prevalence of Islamophobia in the US mainstream and how it has been adopted consciously and unconsciously by the populace, the unsaid fears of Anglo-Saxon America of “brown people empowering themselves”, as Sheehi put it, and the myth of US exceptionalism all plays into the lengthy history of America’s racism, from the days of slavery to the Monroe Doctrine to the current racial profiling. “The US has to look at itself and ask, why are we so racist?” said Sheehi.

He writes that “Islamophobia is the ideological foil that allows the state to control its population, Muslim and non-Muslim alike, as well as institute military and political policies abroad (if not at the US’s own southern border).”3 Sheehi goes on: “Cultural Islamophobia and legislation are two of these mechanisms. The plight of non-American Muslims and Arab defendants is a more severe version of the plight of Muslims and Arabs in America.”4

For behind this foil is systemic racism and symbolic violence towards the minority, such as through structural exclusion or marginalization of those that do not embrace hegemonic ideologies.

As Sheehi observes in his work, this was manifest in the number of non-Muslims beaten up, abused and profiled in the wake of 9/11 because they “looked” Arab or Muslim. “In the end, Islamophobia is not about Muslims, for next up is Latinophobia,” said Sheehi.

So-called liberals always look for a scapegoat to justify Islamophobia and cling to the notion that it isn’t “us” perpetuating this divisiveness and ideology, it is someone else, another group, the right wing, the Neo-Conservatives, the Jews, Evangelical Christians and so on. Indeed, some presumed Sheehi would put the blame for Islamophobia squarely on the shoulders of the pro-Israel lobby.

The pro-Israel lobby and Zionist political action groups are of course a factor in shaping the discourse and ideology of Islamophobia, but that gives them too much credit. Islamophobia is more insidious, more widespread than that, and blaming “the Jews” is too easy as well as being off the mark. The same goes for lumping all the blame on the right wing. Sheehi doesn’t want the liberal conscious to be soothed as they are in fact a part of the problem.

“The Neo-Cons, the Republicans and the rampant racists got a raw deal with regard to Islamophobia, because they are a comfortable container of white liberal America to cordon off their own prejudices. Liberals state that they are “not against Muslims but only terrorists,” yet at the same time supporting the renewal of the Patriot Act, supporting the war in Afghanistan and believing Iraq is no longer occupied as the number of troops was reduced,” said Sheehi.5

The spirit of Islamophobia

Sheehi argues that Islamophobia was around well before 9/11 and Bush Jr’s administration, but the 2001 attacks proved to be a catalyst for Islamophobia to run wild. “9/11 allowed views that were on the fringe during the 1980s and even the 1990s to be seamlessly inserted into the American mainstream,” writes Sheehi. Pseudo-scholar Daniel Pipes “demonstrates how old racist and Orientalist tropes can be re-invented and inserted into a new political atmosphere with newness and urgency. In effect, the rants of the right create the conditions by which these diatribes then become relevant and lose their air of bigotry, if not lunacy.”6

One reason there are 54 pages of footnotes accompanying the 227 page text is that Sheehi, like hounded academic Churchill Ward, who wrote the foreword (the preface is by Mumia Abu Jamal), is to back up research in the face of legal action over opinions on Islamophobia and Islamophobes. Such are the times American academia is living in, superbly illustrated in chapters “Teaching and Activism in the Teeth of Power,” and “Living in a State of Fear.”

It was the post-Cold war era, global financialization and 9/11 that brought Islamophobia truly into the collective consciousness. Sheehi writes, “Ideological Islamophobia arises from the global era. Not only does it arise from the US desire to control global oil resources but also from its cultural Islamophobia and the willingness of the American public to stereotype, target, and violate the rights and humanity of Muslims and Arabs. American culture has evolved from a settler culture to become an imperial culture. Arabs and Muslims are perceived as the latest cultural holdouts that are resistant to its global hegemony, which the US purveys as offering modernity, democracy and capitalist prosperity.”4

This is a crucial point and one that many liberals and Leftists frequently overlook. This is not to suggest – and Sheehi doesn’t – that the Left make strategic alliances with, or vocally support, Islamist political groups because they are also resisting globalization and US imperialism. That would be akin to saying that you have to be pro Hamas, Fatah or Hizbullah to support the Palestinian cause and oppose Israel.

As Sheehi observed: “Critics will say that the arguments of this book exonerate those who are involved in truly terrorist action against civilians, whether they live in North America, Europe or the Middle East. They prefer to cast such aspersions rather than understand the historical and political motivations behind desperate and violent acts such as the bombings of 9/11, the public transportation bombings in London and Madrid, or the car bombing of an apartment complex in Riyadh in 2003, which killed not US soldiers but largely expatriate Arab and Asian families and workers.”7

That many liberals and leftists fall for Islamophobic ideology is reflective of how many people bought into Samuel Huntington’s racist notion of the “Clash of Civilizations.” Rooted in this Islamophobia is blatant ignorance, a lack of understanding of history and an unwillingness to understand political Islam.

“A critical misunderstanding of political Islam often comes from the inability to differentiate between political Islam’s many strains that materialized as a component of modernity rather than strictly as a reactive gesture to it…The problem comes from the fact that the American commentators have no understanding of the force and meaning of modernity as it impacts the developing, colonized world. A critical understanding of political Islam as a complicated and multifaceted social, historical, economic and political phenomenon would not apologize for political violence but instead, serve to clarify its origins, logic and inspirations,” writes Sheehi.8

Islamophobia reinvents itself

“Al Qaeda and Osama Bin Laden became a vessel, a psychological manifestation that is part of the Islamophobic world paradigm for the US to justify its policies. The whole point of Islamophobia is that the image of Bin Laden is a manifestation of Islamophobic stereotypes that were reproduced and grafted onto every Muslim as US foreign policy needs that,” said Sheehi.

Bin Laden’s assassination in May in this sense is irrelevant to keeping the stereotypes and Islamophobia alive. But the overwhelming jubilance of the American population’s reaction to his demise, and the name of the operation itself – Geronimo – speaks volumes about how deep Islamophobia has penetrated America, how it was symbolized in the burning hatred of one man, as well as the establishment’s ongoing disregard of America’s indigenous culture and people.

The ability of the ideology of Islamophobia to adapt is similar to capitalism’s ability to re-invent itself despite systemic setbacks and how factors change on the ground. This is not surprising as the two are inter-related, Islamophobia used to justify imperialist and capitalist ventures.

The uprisings in the Arab world this year are a case in point, as the revolts discredit the vitriol of Bernard Lewis and Fareed Zakaria when they say things like there is no civil society in the Arab world (both writers come in for substantial criticism in the book).

“The “Arab Spring” discredits the Lewis style stereotypes of the “Arab Street,” of a complacent, dormant, passive mass led by emotion and reliant on the rentier state system. It shows that this is completely false. Yet you hear the other side, of ‘Oh my God, there’s a bunch of Arabs in the streets, what shall we do?’ There is this fear of instability as the dictators were always convenient for providing security. There is a fear of brown people empowering themselves,” said Sheehi.

And when it comes to other portrayals of the Arab uprisings – depending on who the official enemy is, Bahrain no, Libya, Syria etc. yes – it is easy to play into stereotypes, such as the ludicrous story about Muammar Gaddafi ordering a container load of Viagra so his soldiers could rape women. The story was picked up worldwide as a sensationalist example of Gaddafi’s despotism and even cited by the International Criminal Court to indict the Libyan leader despite there being no credible evidence. Indeed, a senior crisis response officer for Amnesty International that spent three months in Libya said last month there was no evidence at all of soldiers using Viagra — indeed, when have soldiers ever needed sexual stimulants to commit rape? “The Viagra story played into the racial stereotype of over-sexualized brown men,” said Sheehi.9

Essentially, Sheehi is saying that liberals, leftists etc are not willing to challenge some of their conscious or unconscious racist feelings of not just the US being undermined on the world stage, but that the white man will no longer rule the planet. That President Barrack Obama is not white is not relevant in this regard, argues Sheehi, as he is just a new face, a more acceptable front man of American imperialism than Bush Jr. was (Sheehi’s analysis of Obama’s speech to the Muslim world in Cairo in June, 2009, and the Nobel Peace Prize acceptance speech are especially biting).

“It has never been about whether, say, the Egyptians are capable of ruling themselves or not, it is about if the Egyptians can be managed under the same economic and political system as before,” said Sheehi. “The US would throw the Bahraini royal family under a bus quicker than you could sneeze if the monarchy lost their relevance to the US. If all the Sunnis and Shias suddenly get along there would be no need for the US Fifth Fleet [to be in Bahrain]. That is the point and how the US stays relevant in the Middle East.”

Just as America has actively worked with the Saudis and the region’s monarchies to perpetuate discord between the Sunni and Shia on a macro Islamic level – what some on the Hill off-handedly call the “Sushi war” – Islamophobia creates a further wedge between the left on how to effectively tackle issues like the erosion of civil liberties, women’s rights, classism, and imperialist wars.

The US’s cultural, economic and military hegemony also enables the ideology of Islamophobia to be adopted on a wider level, as witnessed in the rest of the West, India and anywhere Islamophobia can be used as a political tool, and must be challenged as much as in the US.

This was glaring apparent as news broke on July 22 of the attacks in Norway. The immediate suspect in European and American media was Al Qaeda, with journalists scrambling to make a tangible link to “Islamic terrorism” and garner quotes from pundits as to why this was likely. Islamophobes had a field day. As we know it turned out to be a right-wing Norwegian apparently operating solo, but it took time for the discourse to switch away from the bogeymen of our time, particularly in the US.10

The late Edward Said taught us about Orientalism in literature and the need to de-colonize our minds. Sheehi in his work challenges us to intellectually confront Islamophobia and wake up to its prevalence in the mainstream as well as in “alternative” movements.

  1. Stephen Sheehi is Associate Professor of Arabic and Arab Culture and Director of the Arabic Program at the University of South Carolina. []
  2. Islamophobia: The Ideological Campaign Against Muslims, Stephen Sheehi, Clarity Press, Atlanta (2011), p 225. []
  3. P. 222. []
  4. P. 166. [] []
  5. Indicative of this is that in Iraq, while US troop levels have dropped since 2008, private military contractors actually increased by 39 percent, or 3,500 personnel, by the end of 2010 to reach approximately 13,000 personnel, or 18 percent of all contractors, according to a recent report by the Congressional Research Service. []
  6. P. 140. []
  7. P. 170. []
  8. P. 23. []
  9. What’s really at stake in Libya,” Pepe Escobar, June 30, 2011. []
  10. See “Blaming Muslims – Yet Again,” D Parvaz, June 23, 2001. []

The peninsula of protectionism

GCC and international firms face challenges investing in Qatar
By Paul Cochrane in Doha for Executive magazine on July 20, 2011

For international firms, reaching the gleaming towers of Doha is a trial  beset with regulatory hurdles

Qatar’s “open market” is “committed to free trade” and “warmly welcomes foreign investors” to help diversify the economy, according to the Ministry of Business and Trade’s Investment Promotion Department’s latest report, “Rise With Qatar”. In other words, very much standard fare for investment promotion boards around the world.

Despite the rhetoric, while Qatar’s major spending spree on infrastructure and hydrocarbon projects are certainly generating much interest and opportunities, away from such sectors the options for private investors are rather restricted.

“Opportunities are limited to high level projects like roads and railways, and while local players can’t do it all there is a need to create space for private companies to develop,” said Narayanan Ramachandran, head of advisory for Bahrain and Qatar at consultancy firm KPMG. “The challenge is that the percentage of private activity needs to increase. Government and quasi-government sectors dominate so the private sector needs to grow.”

The Qatar Exchange (QE) is still off-limits to foreigners — Gulf Cooperation Council citizens are entitled to 25 percent of shares in a firm — while setting up a business has a $55,000 [AED 202,015] price tag, 100 percent foreign ownership is restricted to specific sectors, other ventures require 51 percent ownership by a Qatari national, and bankruptcy laws are vague. Even purchasing property, confined to 18 areas for foreigners, does not grant much security, with only a few ownership deeds having been issued and the residency permit that comes with a property “just an open-ended tourist visa,” as one analyst put it.

“Qatar seems first world but in reality [it is] not that open. From the outside, Qatar looks like a good and free market, but to buy anything you have to go to this or that guy with the experience and the connections. There are many monopolies to contend with,” added the analyst.

Hopes that foreign investors would have greater access to the market were dashed in early May when the Advisory Council opposed a government proposal to allow non-Qataris to invest in exclusive dealerships selling foreign goods and services. “Any move to permit non-Qatari capital in exclusive dealerships would gravely endanger Qatari businessmen,” the Advisory Council said in Qatari daily The Peninsula.

Like its financial  regulation, Qatar’s capital is still a work  in progress

The move was criticized anonymously in the press as ensuring the existence of monopolies and curtailing competition, with the ruling pushed forward by several prominent local businessmen that are members of the council.

Sectors where foreign investors can have 100 percent ownership are restricted to “priority sectors,” namely business consulting technical services; IT; cultural, sports and leisure services; distribution services; agriculture; manufacturing; health; tourism; development; exploitation of natural resources; energy and mining.

“The government increased this year the number of sectors that can be invested in — over 49 percent — for foreigners. The authorities know the restrictions are not helpful for encouraging investment, but they need to bring the local constituency along with them over time,” said Andrew Wingfield, a partner at international law firm Simmons and Simmons in Doha.

Despite the seemingly broad swathe of investment opportunities now on offer in Qatar, barriers to new foreign businesses are still considerable.

Limited liability companies (LLCs) that want to set up in the country are required to have a paid-up capital of QR200,000 [$54,913 or AED201,695].

“That is expensive, even before you open the business’s door, but the rationale is that it stops the fly-by-nights and [ensures] the businesses that come here will be serious,” said Wingfield. “But for LLCs to borrow from local banks, the Qatar Central Bank (QCB) will not allow lending unless shareholders give a guarantee. Such a requirement is not mandatory in many other jurisdictions but it is in Qatar. It could be said to be a very prudent move to protect the banks, but it is another hurdle to investment.”

The message being put out is that companies have to be willing to pay to get in on the action. While this flies in the face of the country’s propounded open market, it reflects a protectionist approach, which is not necessarily a bad thing if well regulated and transparent. Indeed, it is a policy widely used by developing countries to build up their economies, as South Korea has done and is still doing, albeit primarily to protect the industrial and manufacturing sectors.

“There is a degree of protectionism on one side, but there is the intent by the government to open up sectors to be competitive that were not,” said Anil Khurana, director of Operational Strategy and Private Equity at management consultants PRTM. “For instance, on the automotive side, the prime minister said in the future there will be no exclusive dealerships and there will be competition.”

Yet while the economy is set to open up more, currently GCC companies are not being given preferential treatment, despite the supposed tenets of the Gulf common market that allow for the free movement of GCC companies and citizens. “There is a new law to allow GCC companies to set up branches in Qatar, but we’ve not seen the law yet. That should help business as at the moment they need a subsidiary,” said Wingfield.

That said, there are some 289 Saudi Arabian companies in Qatar and later this year a trade delegation comprising more than 100 businessmen from the kingdom is slated to visit Doha to scope out the possibilities of joint ventures, bag infrastructure contracts related to the World Cup and discuss the establishment of a joint Saudi-Qatari bank. Given Qatar and Saudi Arabia’s recent political rapprochement, this could signal preferential tenders to Saudi companies, said an investment analyst off-the-record.

Regulatory constraints

On top of the high entry requirements for businesses, the QCB in April implemented stricter regulations on Qatari banks’ retail lending to help reduce leverage in the retail segment. Personal loans were capped at QR2 million [$549,000 or AED2 million] for Qataris and QR400,000 [$109,000 or AED 400,357] for expatriates, limited to 72 months and 48 months respectively, and equated monthly installments are not to exceed 75 percent of a Qatari’s monthly income or 50 percent of an expatriate. In the short-term such a move will restrict retail lending and impact on banks margins, but in the long-run it is expected to improve asset quality and prevent the level of defaults that abounded in the wake of the financial crisis.

“The limit on lending to individual customers and the capping of interest rates will clearly have an impact on the banks. These are going to impact the volume of growth the banks can procure, and obviously impact our rate of profitability,” said Commercial Bank Chief Executive Officer Andy Stevens to the Gulf Times following the QCB’s decision.

QCB’s orders came just months after a harder impact on the Qatari banks, when in February the central bank ordered 16 commercial banks to wind down their Islamic banking units by the end of the year. QCB justified the move by citing the difficulty to regulate the two financial sectors, with the conventional banks having to abide by Basel requirements while the Islamic banks are following guidelines issued by the Malaysia-based Islamic Financial Services Board.

While the move will benefit the country’s three dedicated Islamic banks, it is being viewed in a negative light by international lenders in the advent that other regional central banks follow suit. It has also sent mixed signals to the banking sector while raising concerns over QCB’s regulatory abilities as it stated it got “mixed up” in monitoring both banking sectors.

And while the ruling was to be expected, it was done overnight without consulting the banks. “It had been discussed by [QCB] for the past three years, but the timing and speed with which it happened was not expected by the banks,” said Ramachandran. “Whether the directive will be achieved by the end of 2011 is still too early to tell.”

The directive had particular sting for HSBC’s Islamic banking unit, Amanah, which was set up just seven months prior to the announcement and prompted the global bank to seek a “workable solution” with QCB.

A further issue in the financial market is that the central bank has not created a single integrated regulatory body to oversee all banking and financial services in the country, which was intended to bring in the Qatar Financial Center (QFC) under the same regulator as QCB.

QFC was established in 2005 to attract international financial institutions to Doha that were to operate separately from local banks and be independently regulated by the QFC Authority (QFCA), which is based on best practices in international financial centers such as London and New York. The intention to unify the framework was announced in July 2007, but four years on it has yet to be implemented.

“One challenge in the market is the integration of the regulatory framework of the QCB with the QFC, but we are not aware of the time-line,” said Ramachandran. “And while the QFC has certainly attracted service providers, the question now is the strategic thinking of overall regulations and the differences between the local players regulated by the QCB and the banks by QFC.

“I also think the QFC has to do wider business than just Qatar (if it wants to be a regional financial hub), as it is looking first at the local market. Qatar has to consider how to get that regulatory framework right and attract more regional players. So far, QFC’s framework is to bring in established players with a certain pedigree and not for new financial institutions.”

The financial viability of the QFCA has also been questioned, with the body not including their balance sheet in the 2010 review following reports that the QFC relied on state funding and was not breaking even.

With Qatar dragging its feet on the unified regulatory authority, some consider that Doha has missed the boat in terms of attracting more financial service providers, particularly over the past few months when Doha had the chance to poach players away from the established financial center of Manama amid the political unrest in Bahrain, and before that from Dubai in the wake of its debt crisis. As law firm Clyde and Co. noted about the benefits of the establishment of a unified regulator: “Such a move is likely to benefit international financial institutions in doing business within the region. It is also likely to give Qatari institutions a competitive advantage in the medium term as those businesses adapt to a more competitive international regulatory environment.”