Sanctions on Syria: The Slow Crush of Attrition

A man closes the doors to his store at the Buqayaa smugglers market on Lebanon's border with Syria

Eleven years of gradual economic reform have sputtered to a halt in Syria over the past six months amid nationwide revolts against the regime of President Bashar al-Assad. Gone are the halcyon years of a booming tourism industry, the headway made by the region’s youngest stock exchange and the foreign direct investment that had spiked since 2005 to reach $2.9 billion in 2010. Meanwhile, the expatriate Syrians lured back from corporate jobs in the Gulf and the West to join the fledgling financial sector have, by and large, packed their bags and left as the crackdown on demonstrators escalates. Between 2,600 and 5,400 have been killed, according to varying estimates, as Executive went to print.

The short-lived economic renaissance of sorts steered by Assad and Abdullah Dardari, a London School of Economics graduate and now former deputy prime minister, took a further blow when the United States and the European Union slapped multiple sanctions on prominent members of the Syrian regime and close economic partners in May, and imposed further rounds of sanctions in August and September that included the oil sector.

Tightening the screws

The EU has been selective in what individuals and entities it has targeted for sanctions.

On May 9 and May 23, members of the regime were designated, including President Assad and his maternal cousin, billionaire businessman Rami Makhlouf, whose portfolio includes Cham Holding and mobile operator Syriatel, and who the EU stated was targeted because he “bankrolls the regime allowing violence.” On September 2, the EU listed prominent businessmen and businesses for providing “economic support to the regime”, such as the presidents of the Damascus and Aleppo chambers of industry — respectively, Tarif Akhras, head of the Akhras Group, and Issam Anbouba, president of Issa Anbouba Establishment for agro-industry — as well as Cham Holding and certain subsidiaries, and the state-run Real Estate Bank.

On September 23, a further 15 regime members were added (bringing the total to 43 members of the regime and associated businessmen), as well as five Syrian intelligence and military directorates. A further six entities were added to the ‘banned’ list, including Addounia TV and Syriatel, as its licensing contract “pays 50 percent of its profits to the government.”

The EU moves allow for the freezing of the European assets of the individuals targeted and prohibits their travel to Europe. The latest sanctions also prohibited the selling, buying and export, directly or indirectly, of new Syrian banknotes and coinage printed or minted in the EU, to the Central Bank of Syria, as large amounts of Syrian currency had, until then, been produced in Austria. The September sanctions also prohibited financial loans, credit or joint ventures with listed persons or entities.

The US sanctions, issued May 27 and September 1, focused on military-linked businesses, Syrian hydrocarbon companies and Cham Holding, and prevent American companies from doing business with the figures in question. Sanctions were also renewed against the state-run Commercial Bank of Syria (initially blacklisted by the US in 2004 for financing terrorism), and Syrian-issued MasterCard and Visa cards have been frozen. The US and EU-blacklisted companies and individuals contacted by Executive refused to comment.

Hardly foolproof

“Sanctions are not a silver bullet,” said Andrew Tabler, a Next Generation Fellow at the Washington Institute for Near Eastern Policy (WINEP) and author of recently published “In The Lion’s Den: An Eyewitness Account of Washington’s Battle with Syria.”

“They are more like ways you can find to ratchet up the pressure in very specific ways to try and bring about some breaks in the regime, for instance, in getting elites to move away from [it],” he said.

The economic sanctions are an obvious psychological blow to the regime and its cadres, but do not have the same impact as those on the oil sector, which accounts for an estimated 20 to 30 percent of the country’s gross domestic product.

That said, while the latest sanctions have not directly targeted international trade outside of oil, wariness on the part of international shippers to trade with Syria and a sharp drop in domestic demand has seen cargo shipments at the port of Lattakia plummet, dropping 13 percent since the beginning of the unrest in March on the year before and 36 percent year-on-year in June alone, according to statistics published by the port’s operating authority. Reuters last month quoted shipping sources as saying volumes at the ports of both Lattakia and Tartous have shrunk as much as 40 percent in the first eight months of 2011, relative to last year.

Trade with strategic partner Turkey has also plunged, with Syrian exports to Turkey in June dropping 59.3 percent, to $48 million, from the same period last year, while Turkish exports to Syria declined by 18.1 percent to $113 million, according to Turkish government figures.

Trade with the US, however, has been negligible for years, with 2010 bilateral trade estimated at $928 million, or 2.4 percent of all trade, following the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003 that banned all exports except food and medicine, prohibited American businesses from operating or investing in Syria, blocked transactions on Syrian property and tightened the aviation sanctions first imposed in 1984. However, Syria was able to successfully bypass these earlier sanctions by re-exporting American goods through Jordan, Lebanon and the United Arab Emirates. Where the US has hurt Syria is by limiting the leverage of Syrian banks internationally, and it could deliver a huge blow should it succeed in its efforts to put pressure on Turkey to also impose sanctions.

A bigger blow to Syria is the impact on trade with the EU; the economic bloc is the country’s largest trade partner and aid donor, accounting for 22.5 percent of Syria’s foreign trade in 2010.

But as a trade partner, Syria ranks low down on the major import and export list for the EU, accounting for just 0.2 percent of imports and 0.3 percent of exports in 2010, and ranked 50th of the EU’s trade partners, according to International Monetary Fund (IMF) statistics. Nonetheless, the sanctions have had an effect.

“While EU trade sanctions are limited to the oil sector, non-oil trade with Europe has been affected as European companies have been limiting their trade with Syria, and the Syrian government itself is encouraging Syrians not to trade with Europe,” said Nabil Sukkar, a former World Bank economist and head of the Syrian Consulting Bureau for Development and Investment in Damascus.

No investment ban

The EU sanctions have not included an investment ban on European companies doing business in Syria, although this could be the next step. “I think an investment ban is coming. But what impact will it have? The largest investment [by the EU] is in the petroleum sector,” WINEP’s Tabler said.

Italy, whose bilateral trade with Syria was worth $2.69 billion in 2010 and which is Syria’s fourth largest import partner, has managed to delay the enforcement of EU oil sanctions until November. The European Investment Bank has stopped all loans to Syria and EU aid programs totaling $185 million have been slashed by 62 percent. The aid had gone towards funding infrastructure projects and providing expertise to the private sector.

But Sukkar believes such a move by the EU is disingenuous. “The cut in EU aid to Syria, intended originally to support economic liberalization, will strengthen the tendency of the new government to bring back controls. So sanctions will be counterproductive, they will hurt citizens’ livelihoods and will help the reversal of Syria’s liberalization policies,” he said.

For the sanctions to work beyond the oil sector, other revenue streams need to be targeted, said Tabler, hitting more prominent businesses in Damascus and Aleppo, particularly those with ties to Western firms such as the Joud Group, which manufactures and distributes Pepsi under license, and the Attar Group, which handles distribution for multinational pharmaceutical companies and electronic and software companies Sony, IBM and Lexmark, as well as being the country sales agent for Alitalia.

Other businessmen that could be targeted — listed in a report by the US Congressional Research Service but so far not sanctioned by Washington — are Majd Suleiman, head of media conglomerate United Group and son of Bahjat Suleiman, a former General Security Director officer, as well as Firas Tlass, the son of former Defense Minister Mustafa Tlass and head of the MAS Economic Group. Reducing the profit margins of major companies paying taxes to the regime would dent the Syrian treasury.

While Sukkar is against the sanctions, he suggested that such specific targeting would make a mark.

“The impact on specific companies and individuals… will deter others from establishing business relations with establishment figures,” he said. “But the imposed sanctions will not topple the regime and will not cripple the economy. Instead it will create economic and social damage, affecting both government finances and citizens’ livelihoods.”

“We will forget that Europe is on the map”

The Syrian government has, unsurprisingly, played down the impact of the sanctions. At a press conference in Damascus in June, Foreign Minister Walid al-Mu’allem responded to the first round of EU sanctions by saying: “We will forget that Europe is on the map, and we will turn to the east, to the south and all directions that extend a hand to Syria.”

The Syrians have lived up to their word to look elsewhere for alternative trade partners. Over the summer, Syrian officials went on a mission to get trade agreements with Ukraine, Kazakhstan, Belarus and Russia. Grain, for instance, has been purchased from Ukraine; a necessary import as Syria no longer produces enough food for its domestic consumption and agriculture output has not been as high as expected this year due to the ongoing drought in much of the country.

Russia has criticized the EU sanctions, and as of August continued to supply arms to Syria. In early September, Prime Minister Dmitry Medvedev said Russia was “a great friend of Syria” and “a country with which we have numerous economic and political contacts.”

Closer to home, the Arab League at the end of August called for an “end to the spilling of blood and for Syria to follow the way of reason before it is too late,” but has not gone as far as calling for an economic boycott or annulling Syria’s membership in the Greater Arab Free Trade Area. Damascus rejected the league’s statement, as did Beirut, signaling that bilateral trade with Lebanon will continue. Such support from Beirut, Moscow and its allies, albeit limited, does dampen the effectiveness of the US and EU sanctions.

“Syria will be able to mitigate the impact of sanctions through deepening economic ties with Iraq, Iran, Russia and other Asian countries. Also Lebanon will always accommodate Syrian business needs for financial transfers,” said Sukkar.

According to shipping sources in Beirut, trade with Syria has not been affected and is very much ‘business as usual’. Lebanese banks hold accounts for Syrian officials, including Rami Makhlouf, according to a banking source, although banks agreed, unofficially at a Union of Arab Banks meeting, not to carry out international transactions on behalf of Syrians, or provide alternative names or addresses. Meanwhile, Finance Minister Mohammed al-Safadi said following meetings in Washington and with the IMF in late September that it was not in the interest of Lebanon to be the financial hub of Syria, and that Lebanese banks have taken measures to align with the international sanctions. If upheld, this could also affect foreign remittances on behalf of Syrians.

If ties with Iraq cool, as Baghdad has recently hinted at, and Turkey joins in on the sanctions — Ankara has already intercepted arms shipments — the Assad regime will find itself increasingly isolated. “Syria would be surrounded. And it is not like Jordan has a lot of love for Syria,” said Tabler. Indeed, if Jordan closed its borders, this would have a major effect on Syrian trade with the Hashemite kingdom and Saudi Arabia, Syria’s third largest trade partner. The loss of Iraq as an export destination would be equally devastating, accounting for 30.3 percent of total exports, or $4.6 billion, in 2010.

If protests against President Assad continue, Syrians will have to “tighten their
belts”, according to Syrian Central bank Governor Adib Mayaleh

Sound as a pound?

Syria’s Finance Minister, Mohammad Jleilati, was trying to put on a brave face when he said on the sidelines of a meeting of Arab finance ministers in Abu Dhabi in early September that the economy will grow by 1 percent this year. A recent IMF report estimates Syria’s economy will contract by 2 percent, while the Institute of International Finance estimated the economy will contract at least 4 percent this year and the fiscal deficit will widen to more than 6 percent of GDP.

But Tabler and other sources Executive spoke with suggest the Syrian economy could shrink as much as 20 percent; tourism revenue (worth more than $8 billion last year) has almost completely vanished, the cities of Homs, Hama, Deir ez Zor and Daraa have been at a virtual economic standstill for months, banks are reporting steep declines in assets and trade is falling off. Syria has seen roughly $2 billion in capital flight this year, and the Central Bank of Syria (CBS) has had to spend at least $2 billion defending the Syria pound (SYP), according to CBS Governor Adib Mayaleh, though the official exchange rate has still slipped slightly, from SYP46 to the dollar in March to SYP48.41 in September.

CBS foreign reserves are officially at $18 billion, although sources peg that number nearer $15 billion, and Mayaleh said Syria has a $5 billion fund created several years ago for the specific purpose of supporting the currency during crises, although he did not make clear whether it was included in the total reserves. Syria also has an estimated 25.8 tons of gold reserves, according to the World Gold Council data, worth roughly $1.4 billion at average world gold prices at the end of last month.

The currency reserves will allow Syria to cover import needs for over 20 months, according to the finance ministry, but that also depends on countries staying friendly with Damascus and remaining willing to trade. Furthermore, international currency rates could cause Syria more fiscal woes than it is already facing, having lost access to the dollar on the global markets.

“Restrictions on money transfers in dollars, initiated from outside as well as by the CBS, have disrupted trade,” said Sukkar. “There will be further disruptions in trade if the EU imposes restrictions on transfers in euros. Then Syria will have to go to other convertible currencies, such as the [British] pound and the Japanese yen, both of which have been as volatile as the dollar and the euro over the past year.”

How well the central bank handles these challenges will be key to the continued funding of the Syrian regime amid increased economic isolation and the possibility of further sanctions.

A faltering economy and diving business prospects would undoubtedly erode support for the regime among middle class Syrians and the business elite — groups which, to this point, have largely backed the Assad government. But in the war of attrition that sanctions amount to, whether they have the desired effect of shaking the regime’s iron grip on power, or whether they harm everyday Syrians more than anyone else, are still open questions.

“[It] all depends on agricultural production, oil prices and how much overall economic demand has dropped,” said Tabler. “The real challenge is for the sanctions to hit the regime more than anyone else.”

MAJOR TRADE PARTNERS 2010
Imports	Value	Percent overall trade
European Union	$4.85 bn	18.7
Saudi Arabia	$2.94	11.3
China	$2.8 bn	10.7
Turkey	$2.1 bn	8.1
UAE	$1.38 bn	5.5
Russia	$1.214 bn	4.7
Iran	$1.06 bn	4.1
South Korea	$1.02 bn	3.9
Lebanon	$989 mn	3.8
Egypt	$973 mn	3.7
Export	Value	Percent overall trade
Iraq	$4.6 bn	30.3
European Union	$4.43 bn	29
Lebanon	$1.5 bn	10.1
Saudi Arabia	$769 mn	5
Turkey	$632 mn	4.1
Kuwait	$504 mn	3.3
UAE	$435 mn	2.9
USA	$419 mn	2.8
Jordan	$351 mn	2.3
Libya	$328.4 mn	2.2
Top 10 Trade Partners (export and import)
European Union	$9.32 bn	22.5
Iraq	$5.49 bn	13.3
Saudi Arabia	$3.7 bn	9
China	$2.74 bn	6.9
Turkey	$2.7 bn	6.6
Lebanon	$2.52 bn	6.1
UAE	$1.88 bn	4.6
Egypt	$1.25 bn	3.1
Russia	$1.24 bn	3
South Korea	$1.11 bn	2.7
Overall Total	$41.36 bn	100
Source: IMF, EU

Deference versus diversity in the Gulf

Commentary - Executive magazine

Gulf Cooperation Council (GCC) countries have long struggled with implementing nationalization employment policies (NEPs) to bring more GCC citizens into the workplace, offset reliance on expatriate labor and diversify their oil-dependent economies. The track record has been mixed — fairly good at getting citizens into the government sector but pretty hopeless at the private sector level.

In the United Arab Emirates and Saudi Arabia, nationals account for around 80 percent of the public sector workforce, in Kuwait around 90 percent and in Qatar 94 percent, although some of these statistics are questionable. In 2009 for instance, Sheikh Mohammed bin-Rashid, vice president of the UAE, admitted that Emiratization levels “did not exceed 54 percent in ministries and 25 percent in federal authorities.”

In the private sector, Emiratis account for less than 1 percent of the workforce of the UAE, in Kuwait and Qatar around 5 percent and in Saudi Arabia 13.3 percent, according to government statistics.

While NEPs have been in place for decades, most GCC governments appear to be working hard to ensure such policies do not succeed outside the public sector. The most effective way they have done so is by raising public sector salaries to ridiculous levels. Last year, the UAE gave federal government employees a 70 percent wage increase. In September, Qatar announced it would raise government employees’ wages by 60 percent and give military officers a 120 percent salary, pension and benefits hike. What incentive does this give to young Emiratis and Qataris to become, say, entrepreneurs or scientists when a cushy job for life can be had with the government?

Instead such moves create greater dependency on the state, a useful weapon to defuse political opposition and give the impression of greater distribution of oil wealth among nationals. Yet such ruler-subject dependency is not sustainable. It is creating divisiveness between nationals and expatriates, causing social malaise and stifling the potential of the Gulf people.

Such policies also throw into question the motivation behind spending billions of dollars on educational facilities and programs if citizens’ only incentive to study is to get into the public sector. Take Qatar’s Vision 2030 and the National Development Strategy 2011-2016, which mapped out the development of both a knowledge-based and free economy. One of the lofty aims of the multi-billion dollar, state-endowed Qatar Foundation is to make these plans a reality, but this is dependent on young Qataris entering the private sector and not opting to join the military and civil service instead. (Women, on the other hand, account for 77 percent of Qatar University’s student body, which bodes well for the future.)

So how is diversification going to occur and nationalization targets be met against such seemingly great odds? Is the answer to give passports to foreign professionals and experts, as has happened with 11 players on the Qatar national football team? (When I asked one Qatari if his countrymen were proud of their team after Qatar won the bid to host the 2022 World Cup, he replied: “What team?”)

While the UAE and Qatar are scoring own goals against their private sector NEPs, Saudi Arabia is taking its Saudi-ization policy more seriously, introducing this year the Nitaqat plan to find employment for 1.12 million Saudis by 2014. But through its complex quota categories — 205 of them in all — even the labor ministry has admitted that up to 40 percent of private companies will fail to employ enough Saudis and could “cease to exist.”

There appears to be no easy way of encouraging NEPs in the private sector, either beset by onerous requirements or countered by the government placating subjects through high-paying state jobs. A balance needs to be found. The hard truth, though, is that the GCC countries need to accept that introducing viable NEPs that put the private sector ahead or on par with the public sector as an attractive employment option for nationals will eventually bring about a different relationship between the state and the people. It would mean greater governmental accountability; a step that could be viewed by the rulers as one too far. But the status quo cannot continue forever, as major socio-political problems inevitably crash the party. Leaders of certain other Arab countries have recently learnt this the hard way.

Book review: Road to Fatima Gate

Road to Fatima Gate — The Beirut Spring, the Rise of Hezbollah, and the Iranian War Against Israel by Michael Totten

Book review - Executive magazine

There has been a flurry of books published over the past few years by Westerners, primarily Americans, describing in depth their brief encounters with Lebanon and the Middle East. Their insights are telling not so much for the informative content, but rather how this budding vein of adventure writers perceives the region and its people.

Often misplaced on bookstore shelves under ‘political journalism’, these titles — including Ted Dekker and Carl Medearis’ “Tea with Hezbollah”, Jared Cohen’s “Children of Jihad” and Lee Smith’s “The Strong Horse: Power, Politics, and the Clash of Arab Civilizations” — rightly ought to be stacked closer to the ‘adventure/fantasy’ section; crafted in the language of swaggering bravado, the narratives frame the authors as intrepid explorers in a land of peril, boldly setting out where ‘few Americans dare go’.

And relegated to the bin of banality they would be did they not also wield such a dangerous degree of influence over the shaping of United States foreign policy; speaking at Smith’s 2010 book launch in Washington, DC, were the former ambassador to Lebanon and current assistant secretary of state for Near Eastern affairs, Jeffrey Feltman, and Elliott Abrams, former deputy assistant to the president and deputy national security advisor for global democracy strategy under the Bush administration, with both statesmen heaping praise on the author’s effort.

It is in this light which one must regard Michael Totten’s “Road to Fatima Gate: The Beirut Spring, the Rise of Hezbollah, and the Iranian War Against Israel”, released earlier this year by Encounter, a publisher self-described as being a press for the “serious conservative”. Fitting, then, that the book is written from what could be called a ‘Western extremist’ perspective.

Road to Fatima Gate traverses Lebanon’s politically tumultuous time between 2005 and 2008, from former Prime Minister Rafiq Hariri’s assassination and the Syrian army’s subsequent withdrawal, through the July 2006 war and the civil conflict of May 2008. Totten is in Lebanon only part-time during this period, but does not let his frequent forays abroad pollute the aura of comprehensiveness he lends his accounts. Nor does the author let the selectiveness of his associations temper the license he allows himself to make sweeping generalizations regarding the Lebanese mindset — Totten has minimal meaningful interaction with ‘people on the street’, instead openly preferring the company of expatriates and barfly drinking buddies, with his most authoritative source on the country being Charles Chuman, an American-Lebanese from Chicago who was in Lebanon for around five years, and whom the author describes as knowing “the country better than almost anyone I ever met.”

Totten tells the tale of the 2006 war in Lebanon from Northern Israel and, being abroad when rival political factions faced off in block-to-block combat in May 2008, Totten retells the experience largely through the eyes and ears of Chuman, complete with dialogue and inner thoughts. (Perhaps tellingly, Chuman, Smith and Totten all spoke at the annual Institute for Policy and Strategy conference in Herzilya, Israel, shortly after the 2006 war.)

Totten’s blinkered narrative is most blatant regarding Beirut’s southern suburbs and South Lebanon, despite the crux of the narrative being about Hezbollah — a flaw Road to Fatima Gate shares with Thanassis Cambanis’ “A Privilege to Die: Inside Hezbollah’s Legions and Their Endless War Against Israel”. Totten describes these areas as throttled by totalitarianism, where Hezbollah suppresses self expression through violence, and ignores pesky nuances such as the plurality of political affiliations, family divisions over allegiances, independents running in elections and the large and growing body of the apolitical. To be fair, Totten does let Lebanese voices set some of the record straight, but only in chapters outside those in which he portrays “Hezbollahland”.

In his account, Lebanese police have never set foot in “Hezbollahland”, from which they are “forbidden” — news, no doubt, to the veteran law enforcement officers in Haret Hreik and Bint Jbeil. Similarly, Totten leads his readers to believe that Iran is the sole financer of post-war reconstruction in South Lebanon, completely ignoring the hundreds of millions of dollars pumped into the effort by Qatar, Kuwait and other nations, including the US.

Leveraging his thorough understanding of Lebanon, Totten then graces us with his incisive insight into the region as a whole: “Arab countries have a certain feel. They’re masculine, languid, worn around the edges and slightly shady.”

Road to Fatima Gate does a good job of listing the many important events of the years it covers in Lebanon, but is rigidly selective in the sources it taps and questions it asks, as well as lacking historical insight and glossing over inconvenient things like ‘facts’ that would run counter to the agenda Totten is pushing. But then again, what adventurer would want to dilute his drinking stories with reality?

Nokia's got your number

Telecom giant's amoral alliance with repressive regimes

Commentary for Executive magazine

Nokia’s brand image is of two hands — one a child’s and one adult — reaching towards each other with the slogan: “Connecting People”; a nice image for a mobile phone manufacturer and service provider. But in a dozen countries in the Middle East and North Africa (MENA), the Finnish mobile phone giant’s joint subsidiary with the German company Siemens, Nokia Siemens Network (NSN), has been connecting people in a way that consumers were not expecting: with the mukhabarat, or secret police.

Dozens of pro-democracy activists arrested in Bahrain by mukhabarat following the uprising that began in February were presented with transcripts of text messages and phone calls that they had made. Detainees were puzzled as to how their communications had been intercepted and were being used as evidence against them. They were not aware of the monitoring systems that 12 countries in the MENA, according to a report by Bloomberg published last month, had bought software from NSN and its subsidiary, Trovicor, that enables governments to intercept phone calls, emails and text messages. Such surveillance software also allows the powers that be to create disinformation by changing the contents of written communications and to scan phone networks through voice-recognition and keyword-search software, in addition to remotely activating laptop webcams and microphones on mobile phones, according to Wired magazine.

The Bloomberg exposé of the usage of such technologies in Bahrain is a first during the MENA uprisings of this year. That websites were being monitored was well known, and people in Syria, Libya, Egypt, Yemen and elsewhere have long been wary of what they said on the phone in case of a third, unwanted listener. But the level of interception and its usage by secret police is a concern not only for activists, protesters and the like but also for the very privacy of all people.

Furthermore, it is not an issue confined to Bahrain or the MENA. This follows the phone hacking scandal in Britain in July that reached the highest echelons of the police force, the offices of the prime minister as well as dozens of print publications, and add to this the news of Google’s cozy relations with not only Washington DC but also Beijing. This all comes on top of the revelations over the last decade about the joint American-British global surveillance system Echelon.

Such phone hacking and monitoring is a growing concern reminiscent of George Orwell’s dystopian novel 1984, which depicts a society under the hyper-surveillance of “Big Brother”. The arguments given for such surveillance software in the hands of the state are acceptable when it comes to tracking terrorists, organized criminals and other deemed baddies, but, as always, it is how such technology is used, for what purpose and how you classify a “bad guy”. Inflicting human rights abuses on Bahraini activists for what they wrote and said via their mobile phone is not a shining example of what Trovicor calls in its website: “Making the world a safer place.” Safer for the Bahraini ruling elite perhaps, but not for its citizens.

Telling in the unveiling of Bahrain’s usage of Trovicor’s systems is the fact that it will most likely not cause the same outcry as when NSN was hauled over the coals in 2009 in the United States for providing the same technology to the Iranian government to snoop on protesters in the wake of the disputed presidential elections. What has become very clear this year in the region is that there are halal and haram revolutions, depending on the country’s relations with the US. Bahrain is of course in the latter category.

Conversely, Tehran’s usage of Trovicor’s systems and a “No to Nokia” international boycott for its indirect role in human rights abuses resulted in NSN selling Trovicor to Germany’s Perusa Partners Fund in 2009, although management, staff and equipment have remained largely the same. Meanwhile, NSN sales teams have been instrumental in the continued roll out of the service in the MENA.

By connecting and informing protestors and by distributing news and video updates from the streets, technology and social media have been key components in the successes of some of the uprisings throughout the region. Unfortunately, these same mediums are being used as a tool of autocracy. Just as governments should be held accountable for repressing their people, so too should corporations who facilitate such brutality.

Consumer confidence rebounds in the Gulf

The Gulf market’s appetite for personal care products, both traditional and niche, continues to grow. Paul Cochrane reports from Beirut for Soap Perfumery and Cosmetics magazine

The multi-billion dollar beauty market in the Middle East’s Gulf countries is back on an upward trend, thanks to renewed economic growth as this rich region with avid consumers start spending again. Demand for cosmetics and personal care products is being driven by high disposable incomes, new sales channels and a growing lifestyle trend among both men and women in terms of plastic surgery, personal fitness and body care.

Despite the uprisings and political unrest in much of the Middle East and North Africa region (MENA) this year, cosmetics sales have remained remarkably robust, particularly in the oil-rich nations of the six member Gulf Cooperation Council (GCC): Kuwait, Bahrain, Oman, Saudi Arabia, Qatar and the United Arab Emirates (UAE).

“Looking at AC Nielsen’s latest consumer confidence report [from May], regional consumer confidence has rebounded, with the MENA region reporting the highest gain in consumer confidence levels. In the top 10 most optimistic countries, Saudi Arabia ranked number two and the UAE was at number eight,” says Salah al-Sagha, general manager of beauty retail at the UAE-based Chalhoub Group, which sells commercial, luxury and Arab-oriented brands at 91 beauty stores throughout the MENA countries.

All Sagha estimates the region’s beauty sector to be currently worth between US$1.5bn and $2bn a year - equivalent to 6% of the €179bn ($255bn) worldwide market.

Also, market research firm Euromonitor International forecasts that sales in the GCC states in terms of colour cosmetics and fragrance will exceed $1.6bn by the end of 2011, with $500m in cosmetics and USD1.3bn in fragrance sales. By 2014, the region’s personal care product sales sector could increase by 15.1% to reach annual sales of $1.88bn, with sales of $578.5m in cosmetics and $1.3bn in fragrance respectively.

Especially driving growth for retailers and brands are the buoyant economies of Kuwait and Saudi Arabia, which are forecast to have GDP growth in 2011 of 4.7% and 6.1% respectively, according to the National Bank of Kuwait and the Samba Financial Group (formerly the Saudi American Bank Group).

With Saudi Arabia boasting the GCC’s largest economy, with a population of 26 million – 50% of whom are under 25 years old, according to statistics by the Saudi government – the kingdom unsurprisingly accounts for the lion’s share of the regional market, with total sales in 2011 forecast at $1.1bn ($292.3m in cosmetics and $821m in fragrance), according to Euromonitor. Fragrance sales are also expected to rise to $939.2m by the end of 2014.

The upward trend follows a pattern set over the past decade, as GCC economies have experienced year-on-year double-digit growth as mass retailers, international brands and new regional players have begun to infiltrate these markets. There was a small blip in growth in 2010 in the wake of global financial crisis, but the region’s penchant for cosmetics, toiletries and, in particular, fragrance has not been diminished. Indeed in a 2009 study by Euromonitor on the UAE, expenditure on cosmetics and toiletries in the region actually exceeded that of France by 38% and the US by 6%.

“We are seeing a recovery, which should be even more significant towards the end of the year. Although segments are growing at a different pace, sales shares by segment have remained almost similar to 2009,” says al Sagha.

“Our fragrance and cosmetic market - including make-up, skin care and body care - for the total network has grown by 22% between May 2010 and May 2011. The growth was pulled up by fragrances, increasing 26%, which is our largest segment at 60% to 65% of all sales,” he adds. The Chalhoub Group’s make-up sales have increased 19% and skin care by 8%, with the group forecasting total sales growth of 17% this year, compared to 2010.

With the GCC having some of the highest GDP per capita incomes in the world, there is inevitably sustained demand for luxury beauty products and fragrances along with the more everyday toiletries. US-based personal care giant Estée Lauder, for example, forecasts that sales of its premium cosmetics in the GCC will rise 5% by the end of 2011.

The Chalhoub Group noted earlier this year that average sales price point stood at $30 for one purchase of personal care items (possibly a group of items). However, when consumer trends are focused solely on Gulf citizens rather than expatriates and tourists, sales were often much higher, particularly in the youth segment.

In 2010, the Chalhoub Group undertook a regional consumer survey, in conjunction with UK-based market research agency Datamonitor, to study how Arab youth approached the idea of ‘luxury’. Consisting of 1,260 face-to-face interviews of both males and females aged 15 to 29 years old in Saudi Arabia, the UAE, Kuwait and Qatar, the survey concluded that that Gulf youth are “undisputed shopping addicts”.

“The GCC young consumers admit to big purchases in the perfume and cosmetics category every quarter at an average spend of nearly $400,” says al Sagha. Gulf consumers buy, on average, one to two perfumes a month, from both international and Arabian brands, he says.

“We also discovered that young customers are very receptive to one-on-one types of communication - preferably in Arabic - and that they spend two to three hours daily on the internet; one to two hours on social networks; and one to two hours on blogs. Therefore, we built a whole social media marketing plan to meet these requirements,” says al Sagha.

Sales strategies of retailers have also been changing as a result of changing consumer behaviour, with more sales space in shops now being dedicated to beauty products, along with a higher numbers of sales assistants and advisors. Distribution has also diversified, expanding from dedicated beauty stores to cosmetics products being sold everywhere from nail bars to hair salons to plastic surgeons’ offices.

“Gulf women are still very much into perfumes and make-up, but because of plastic surgery, this has created other trends,” says Dikran Ghazal, general manager of Cosmaline, the cosmetics arm of Lebanon’s Malia Group, which manufactures and distributes its own line of products and international brands throughout the Middle East.

“If you visit a plastic surgeon’s clinic, there isn’t just a table and equipment, but also a line of beauty products. This has become a complementary side to the business. For when you have surgery on the lips, the patient has to use special lipsticks or creams so the lips don't deteriorate. This is something that is changing in the MENA. It is no longer taboo – in fact it has become a necessity to have plastic surgery. And it’s not just a fashion statement. There is a lot of peer pressure that if a woman is not following that trend they do not fit into a group,” says Ghazal.

Beauty trends also extend to men, he adds, with cosmetics manufacturers increasingly focusing on an emerging segment that had been traditionally confined to deodorants, shaving creams and hair gels.

“Hair styling for men and health spas are emerging very fast and in a very luxurious way,” says Ghazal. “It is becoming a common lifestyle [for Gulf men] to have massages, eyebrows done, chest hair lasered or waxed, along with plastic surgery. Like for women, what all this results in is more of a need for ongoing body maintenance. It is no longer just the face but the whole body and this is why we are seeing the emergence of lots of fitness clubs which has brought with it healthy eating, diet watch centres, dieticians and nutritionists. This has put pressure on us in the sector to be more advanced than the trends and build on them.” Shelf space dedicated to products for men has also expanded across the board in recent years as a result, he stresses.

A recent worldwide trend has been for multinationals to market their brand image rather than just advertise a specific product. This is being mirrored in the Gulf with a major focus on brand management and advertising. With this has come a focus on packaging, quality ingredients and emphasising dermatological testing.

“Consumers are a lot more quality and health conscious than before, when they just went for the price. In-store distribution and visibility are now as important as going on TV,” says Ghazal. “Packaging is the main purchase driver, fragrance is number two and the product itself third. Packaging is very important in order to target young adults in areas such as shampoo, for instance, where loyalty levels are very low.”

Counteracting this argument however is the emerging segment of ‘naked products’ in the Gulf – ie products without packaging or preservatives – as ecological and health awareness grows. The UK’s Body Shop, for instance, entered the Gulf market a few years ago, as did handmade, organic cosmetics company Lush, which now has three stores in the UAE, three in Kuwait, two in Saudi Arabia and one in Qatar.

While the youth market is a major segment - and part of long-term brand development - there is, however, differentiation in packaging appeal between different age groups.

“We find that all the colourful products, plentiful bubbles and an abundance of glitter appeals to our younger customers, while the natural ingredients, organic skin care and environmental messages appeal to our older customers,” says a Lush spokesperson in the UAE. Naked products account for 70% of Lush’s product range. Increased health awareness has also led to a growing trend in deodorants, for example, where roll-ons are gaining popularity over sprays, as well as a trend in customers looking for products that are alcohol and aluminium-free.

Based on growing demand for cosmetics in the region, Lush told SPC it plans to open four more stores by 2012, with the aim of having 21 stores in the MENA region by June 2012. “We expect to see strong growth for the next three years in the GCC,” adds a Lush spokesperson.

While sales of anti-ageing, cellulite and spa products are still relatively niche, a growing category is reflected in the hair care segment, which is continually expanding in terms of product offerings.

“The hair care segment is very competitive,” says Ghazal. “If you go into an average bathroom, you will see three to five shampoos, especially for women.” With so many products and brands available, manufacturers are now focusing on hair salons as an outlet for targeting consumers, offering special deals to hairdressers to stock their products.

“There are lots of hair treatments now available, and hair salons do influence consumers. We focus on salons to build brands, and that’s why we have a professional range – masks, gels and shampoos that are not for the retail market. Some regional companies’ marketing strategy is to launch professional hair care products first, and then go for the mass market,” adds Ghazal.

Away from luxury and more towards the niche segments, sales of mass market cosmetics, shampoos and soaps have also expanded beyond the traditional supermarket outlets.

“Supermarkets are key sales points followed by convenience stores but a growing channel is pharmacies, which are moving away from just selling medicines,” says Ghazal. “When you enter pharmacies, they now seem far more like beauty shops than pharmacies, as cosmetics account for maybe 25% of the counter space. The strategy now for manufacturers and distributers is to focus on pharmacies as a sales channel. I think soon we will have pharmacists and doctors prescribing, say, certain shampoos, instead of [them being sold by] just the hairdresser.”

While multinational leader Procter & Gamble and Beiersdorf’s skin care product giant Nivea have an estimated 70% market share of the MENA region’s cosmetics market, according to Ghazal, regional manufacturers have also grown exponentially over the past few years, and are starting to chip away at the multinationals’ market dominance in cosmetics and fragrance.

In Arabian-style perfumes, for example, Gulf brands such as Ajmal and Arabian Oud currently have the edge over international brands as few global brands cater to this fragrance segment, using strong fragrances, often of oud or musk, and containing no alcohol. This Arabian advantage extends to shampoos and other cosmetics as well, with manufacturers currently developing products with a strong fragrance suited to Arab tastes, according to Ghazal.

But despite this the expansion of regional brands is generally being hindered at major retail outlets due to excessive listing fees. “This keeps small players out, but for regional brands, it eats up their margins to be on a smaller shelf when the multinational brands have more space,” says Ghazal. “It is a major hurdle for regional brands to grow.”

http://www.cosmeticsbusiness.com/technical/article_page/Middle_East__Consumer_confidence_rebounds/64164

Egypt's yarn price hike causes disruption

By Paul Cochrane for just-style.com

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 - http://www.just-style.com/analysis/egypts-yarn-price-hike-causes-disruption_id111605.aspx

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

Paying for the revolution

Commentary for Executive magazine

"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.

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

by Paul Cochrane for Dissidentvoice.org, July 30th, 2011

A Spanish translation is also available - http://www.libreria-mundoarabe.com/Boletines/n%BA103%20Abr.12/IslamofobiaProgresista.htm


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

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.

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.”

A double dip foretold

Commentary for Executive magazine

Lax accountability and regulation edges world toward new precipice

Are we headed for a ‘double dip’? The head of the United States Federal Reserve, Ben Bernanke, said last month that this is unlikely in the US, but a recent CNN poll shows 48 percent of Americans think the country is en route to another Great Depression in the next 12 months. The other options raging through economic debates around the world is whether the US is on track not merely for another dip, but a mega-dip, or indeed if the US economy ever actually pulled out of the first recession.

If a second financial crisis occurs it will be bad news not just for the world's largest economy, but for everyone on the planet. The problem, in short, is regulation, or the lack thereof. It was the lax regulatory oversight of such financial products as derivatives and sub-prime mortgages in the US and elsewhere that triggered the first financial meltdown in 2008.

Major banks were bailed out, consolidation occurred, but few individuals were effectively punished. Perhaps more worrying is the fact that regulators were not empowered to properly leash the insidious corporate culture of casino-style capitalism which, though briefly brought to heel in the throes of the first financial fallout, has now returned to rabid form.

Sure, the Restoring American Financial Stability Act of 2010 was enacted, but financial institutions and the Republican Party are actively trying to weaken the framework. And unfortunately the Financial Crisis Inquiry Commission report was released in January, long after the act was passed, meaning its findings were not taken into account in crafting the legislation. The commission's report makes for sober reading; “We conclude the financial crisis was avoidable… Widespread failures in financial regulation and supervision proved devastating to the stability of the nation's financial markets… Dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis… We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction.”

Where the report was weak was in addressing systemic financial fraud, which was present in much of the sub-prime mortgage loans — a major factor behind the financial crisis. According to William Black, author of “The Best Way to Rob a Bank is to Own One,” a fraudulent loan is where a lender loans to a debtor without knowing how the debtor can repay the loan, hence a form of fraud, or what criminologists call accounting control fraud.

With regulators still lacking authority and having little chance of successfully convicting individuals on charges of financial fraud in the US, the stage is set for “Financial Crisis Part II: The Really Big One”. The irony is that while the US has banged on for years about the need for other countries to implement financing laws — regarding anti-money laundering controls, due diligence and so on — the most pertinent regulations to be enforced are in the US itself, given that a crippled American economy would have a precipitous downside worldwide.

As Black stated earlier this year, “elites can now commit white-collar crimes with near impunity. Yeah, there are exceptions, like the Galleon case [against hedge fund manager Raj Rajaratnam] and [Bernie] Madoff, but that is the teeniest, tiniest percentage of these elite frauds [which have] any risk of being prosecuted. And the result is catastrophic for our nation, and of course not just our nation: we’re seeing these epidemics of control fraud in many other nations.”

One of the more sensible decisions to come out of the US recently was by Treasury Secretary Timothy Geithner, suggesting countries should mutually enact tighter financial regulations and set standards to better control the $601 trillion over-the-counter derivatives market. This would be a sensible move and it would make sense for governments to push for this.

Simultaneously, however, rightwing US lawmakers are trying to cut funding to the Commodity Futures Trading Commission and the Securities and Exchange Commission. This is obscenely irresponsible, raising the specter of the double-dip recession by hobbling effective oversight of multi-trillion dollar markets.

Public outcry in the wake of the financial crisis was relatively muted. But if we are all plunged into hot water again due to a flimsy regulatory safety net, a hell of a lot of people will not only be burned, but also burning with rage — and will know who truly is to blame.