Shamgen [or Levant] Banking Agreement to be Signed

Turkey, Syria, Lebanon and Jordan are set to sign a regional banking cooperation agreement aimed at supporting and facilitating trade and investments between the countries.

The agreement comes in the wake of the signing of free-trade and visa-exemption agreements recently signed by the four countries, and comes amid a regional drive for further economic integration spearheaded by the Turkish government.

In comments made at the March 2011 "Enhancing Shamgen Banking: Turkey, Syria, Lebanon and Jordan" conference in Istanbul, Turkey's Central Bank Governon, Durmus Yilmaz, remarked "Although this conference is a step toward improving relations between the banking sectors of Turkey, Syria, Lebanon and Jordan in the short term, it is expected to contribute to the formation of a single market with the inclusion of other countries in the region in an area circumscribed by the Persian Gulf, Red Sea and the Mediterranean."

The Turkish daily, Today's Zaman has more on recent developments along that front:

Foreign ministers [from the four participating countries] decided on June 10 of last year to set up a high-level cooperation council to boost existing legal mechanisms ... to improve trade cooperation between them. The council plans to develop a long-term strategic partnership and to create a zone of free movement of goods and persons among them. ...

The countries’ aspirations to establish the planned single market in the Middle East are interpreted as the sign of the rise of an EU-like regional economic integration. Even the name of the conference proved how appropriate those interpretations are. The word “Shamgen” is a combination of “Sham,” the way the name of the Syrian capital of Damascus is pronounced in Turkish as well as in Arabic and with the meaningless “gen” to make it sound like the Schengen area, which comprises the territories of the 25 European states that act like a single state when it comes to international travel without internal border controls and visa requirements.
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Also speaking at the conference, Turkish Regulation and Supervision Agency (BDDK) President Tevfik Bilgin said relations between the countries in terms of banking investments are insufficient at the moment. “Investments made by Syrian, Lebanese and Jordanian bankers in Turkey and investments by Turkish banks in these three countries are very small,” he said. ...

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Religion and Economics

Via the New York Times Op-Ed Section

Lebanese Banks Comply with Iran Sanctions

From Bloomberg:

Lebanese banks will have to comply with stricter sanctions by the United Nations, the U.S. and the European Union on Iran, Central Bank Governor Riad Salameh said.

"It is up to the Lebanese banks to act in accordance with their interests and be sure, if they have to make an operation, that it's an operation that can't be contested internationally," Salameh said in an interview late yesterday at his office in Beirut. The latest UN resolution "is very clear and we will respect it and make sure it is respected."

...

Stuart Levey, the U.S. Treasury undersecretary for terrorism and financial intelligence, visited Lebanon last month and met with Salameh as well as Finance Minister Raya Haffar el- Hassan for talks on sanctions against Iran. Salameh declined to provide details of the meeting.

Blom Bank SAL, Bank Audi SAL-Audi Saradar Group and Byblos Bank SAL, which are all among Lebanon’s top ten banks by assets, don’t allow transfers to Iran. There are 52 commercial banks operating in the country.

International Law

Lebanese banks are "also aware of the fact there is a list of people and institutions that the United States or the European Union have designated as parties not to deal with," Salameh said. "It's their responsibility therefore to act in a way that is in accordance with international law."

He said Lebanese banks have advised the central bank that they will abide by the sanctions and that "historically there was very a small level of an operation for Iran, or Iranian companies or merchants through Lebanese banks."

Bank Saderat, one of Iran’s largest lenders, which has six branches in Lebanon, will also have to comply with UN sanctions in accordance with Lebanese banking regulations, Salameh said.

The bank, which has been operating in Lebanon since 1963, has been under U.S. sanctions since 2006. In July, Germany’s financial regulator froze the assets of Bank Saderat’s Frankfurt and Hamburg units after the EU added the lender to a list of Iranian companies subject to "restrictive measures."

...

European Debt Web

(via Flowing Data)

Has Kuwait Liberalised its Economy?

The FT reports on a set of new laws (including a privatization law) aimed at encouraging a vibrant private sector and slightly more diversified economy:

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... In February, the Kuwaiti parliament approved a $104bn four-year development plan, and in May a more contentious privatisation law – first mooted 18 years ago.

...

The privatisation law, which will come into effect after six months, opens the door for transferring public-sector assets to local and foreign private ownership, and the establishment of new, private-sector companies in which the government has a minority stake.

The bill expressly excludes the production of oil and gas, oil refineries, and health and education services, but just the fact that the law was passed – after a heated, eight-hour session in the national assembly – is a clear sign of progress, argues Sheikh Ahmad al Fahad al Sabah, the deputy prime minister for economic affairs.

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The law stipulates that public shareholding companies must be established to run entities slated for privatisation and that at least 40 per cent of the shares must be sold to Kuwaitis in an initial public offering.

A maximum of 20 per cent of the shares will be held by government institutions and 5 per cent by a company’s Kuwaiti employees, leaving at least 35 per cent to be sold at auction to private or foreign investors. The law also includes a series of restrictions on firing or cutting the pay of Kuwaiti employees.

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Each individual state privatisation will also still have to pass through parliament, where opposition is likely to be fierce.

Nevertheless, few disagree that Kuwait needs to overhaul its government-dominated, bureaucratic, oil-centric economy. The great majority of Kuwaitis work in the government, and the country’s development has lagged behind other Gulf states.

There are some signs that the bill is an instigator of real change. Soon after passing the privatisation law, the national assembly approved by 37 to three votes a bill to set up new, privately held power and water desalination plants for the first time.

The long-delayed privatisation of Kuwait Airways is also gaining some traction. “It’s essentially completely a state entity where some entire families have worked there for several generations, so it’s going to be a touchy deal,” says Mr Pfeiffer, whose firm is bidding for the work on the proposed privatisation.

Moreover, the number of Kuwaitis eschewing the safety of government jobs has risen steadily in recent years. Last year, 20 per cent of all Kuwaitis worked in the private sector, up from 18 per cent in 2008 and 16 per cent in 2007, according to economists at National Bank of Kuwait.

This is partially because of a law passed in 2000 that provides Kuwaitis working in the private sector with public sector benefits, including a monthly stipend, NBK notes.

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Severe Drought + Famine Warning in Eastern Syria

Image Source: USDA Commodity Intelligence Report

The National reports on what appear to be serious conditions in eastern Syrian:

Already struggling to recover from one of the country’s worst droughts on record, Syria’s agricultural sector has been dealt another blow, with up to one-third of its wheat crop damaged by a virulent disease.

Yellow Rust infections have been “significant” in Syria’s breadbasket eastern region, according to farmers and officials. With harvests now being collected, they warned that production of soft wheat could be cut by half compared with last year.

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“It has come at a difficult time,” he said. “There have also been cuts in subsidies on fuel and fertilizer. Many farmers have gone out of business.”

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In Syria, wheat is broadly classified as either hard or soft, the former used for production of pasta while soft wheat is used for bread. ...

With the Syrian economy heavily dependent on agriculture, the government has set up a committee to evaluate the problem and to troubleshoot the situation. ...

Virulent new forms of Yellow Rust have hit wheat crops across the globe, with devastating effects in some African countries, where up to 90 per cent of harvests have been wiped out. ...

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It represents another setback for farmers in Syria’s Jazeera region and comes at a time when emergency aid donated by the international community is still being sent out to drought-ravaged areas.

The United Nations this week began distributing food packages to 200,000 people in Raqqa, Hasika and Deir Ezzor in an effort to prevent serious malnutrition.

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The [UN's World Food Program] WFP has identified 300,000 people as being in need of a two-month supply of emergency food aid, but it has only received funding sufficient for only 190,000.

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One farm worker in Raqqa, who asked not to be named, complained that he and his family were in a dire situation and literally had nothing to left to eat.

“We’re starving out here; we’re poor, there’s no money, no food and we’ve had no help,” he said.

Water shortages in 2008 and 2009 hit the region hard. Studies have shown that 70 per cent of livestock was wiped out by the drought because it was impossible to grow animal fodder. Wheat production in 2008 dropped to 1.3 million tonnes from 2.4m tonnes the previous year.

The crisis has forced hundreds of thousands of people off the land, with many living as refugees around Damascus, Aleppo and Dera in southern Syria. Many have fled the country entirely, looking for work in neighboring Lebanon.

... Last month, Kuwait agreed to fund a project to improve irrigation in some of the worst-hit regions, while the Syrian authorities are pushing through long-term reforms to improve agricultural efficiency.

Damascus has firmly put the blame for the drought on global warming, but some Syrian agricultural experts have said poor government management of water resources and inappropriate farming are the real underlying reasons.

As part of a national food security policy, wheat in Syria was heavily subsidized for decades despite being water-intensive, encouraging farmers to dig illegal wells that have dried up ground-water supplies. Those subsidies have been stopped but the environmental damage caused by excessive water extraction is likely to take decades to repair, even if rainfall is consistent.

Readers can also refer to the FAO Syria Drought Emergency site for more details.

Inflation in Lebanon: April 2010

Via Reuters:

Lebanon's inflation rate rose to 4.7 percent year-on-year in April largely due to increases in the costs of transportation and utilities, figures from the government statistics department showed.

The consumer price index rose 0.6 percent in April compared to the previous month.

The statistics department figures showed transportation costs rose by 15.3 percent year-on-year in April while water, electricity, gas and other fuels increased by 13.9 percent.

Central bank governor Riad Salameh said last week that inflation is expected to remain between 4-5 percent this year.

He also expected the Lebanese economy to grow by 7-8 percent this year, revised from a previous 5 percent forecast.

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Price growth fell sharply last year, hovering between 1.5 and 4 percent throughout 2009 after peaking at 14 percent in 2008.

Finance Minister Raya Haffar al-Hassan has said Lebanon's economic growth could rise to as much as 8 percent if structural reforms and delayed privatisation plans are implemented.

Privatisation is contentious in the highly-indebted country with government plans to liberalise the telecoms and electricity sectors long opposed by powerful leaders.

Greek Crisis vs Lebanese Stability

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From right to left Greek, National Bank of Greece and European Union flags wave at the headquarters of the National Bank of Greece, the biggest bank in the country, in Athens, Thursday, April 29, 2010. The European Union said Thursday it expects to conclude talks with the IMF and Greek officials on a deal to lift Greece out of its "debt spiral" by the weekend. (AP Photo via Daylife)

The Daily Star points out the possibility for comparisons and/or contagion effects between the crisis in Greece and the stability in Lebanon:

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The crisis in Greece prompted the EU to inject close to $1 trillion into the market to shore up the euro and avoid an economic pitfall.

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Lebanon, which imports most of its goods from Europe, may benefit in a short term if prices of commodities fell.

But there is growing concern that the Greek example would spread to other countries in the long term and Lebanon may not be immune from this crisis.

“Greece’s debt to GDP is 113 percent while in Lebanon it stands at 148 percent. This should be wakeup call for the Lebanese. We can’t count on remittances alone. We need to act to avoid a big crisis in the future,” former finance minister George Corm said.

Lebanon has managed so far to weather most of the financial crises that struck the United States, Europe and the oil-rich Arab states thanks to the massive cash inflow from Lebanese working abroad.

The other factor which helped the Lebanese economy stand on its feet is the fact that the capital market is not too exposed to the volatile stock markets around the world.

In addition, most of the government’s debt is held by Lebanese banks.

“We are fortunate because we don’t owe the outside world a lot, but nevertheless we should not take things for granted,” Corm said.

He added that even the massive liquidity may not be an added bonus to the Lebanese economy. “We should not forget that interest rates in Europe are near zero while the Lebanese government borrows at interest rates between 8 to 9 percent,” Corm said.

...

Turkey-Syria Relations Progressing

The Financial Times reports on Turkey's efforts to push forward on cultural and economic ties with its eastern neighbours, chief amongst them Syria:

Every Friday, tour buses pull up outside the Sanko Park shopping centre in Gaziantep, an industrial city near Turkey’s southern border with Syria.

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They are Syrians coming from Aleppo – just a few hours drive over the border – to snap up electronic goods and shop in fashion chains, from Mango to Marks & Spencer, that are unavailable at home. They now make up about one in 20 of the 850,000 customers each month, spending an average of $120 a head and prompting the mall to open an office that will refund VAT on the spot.

“Syria is Turkey 20 years ago,” says Emin Berk, who runs a new office to encourage small business dealings between Gaziantep and Aleppo. “Gaziantep is the first stop out of Syria: it’s more developed and it has better shopping.”

The cross-border spending sprees are one of the most visible effects of a recent rapprochement between Turkey and Syria, part of Ankara’s drive to strengthen ties with its eastern neighbours, using trade and cultural links to increase its “soft power” in the Middle East.

The two countries scrapped visa requirements last autumn to seal their friendship – a striking reversal of the tension of earlier decades, when Turkey was suspected of planting bombs in Damascus in retaliation for Syria’s sheltering of Kurdish separatists. Landmines still pepper the border that tourists now cross freely, but the new allies are even holding joint military exercises.

Nor is Turkey’s aim purely diplomatic. Officials hope their country’s exporters will tap fresh markets, and create jobs in the poorest south-eastern regions of the country – where unemployment and poverty fuel a sense of grievance among ethnic Kurds, and government subsidies have so far had little effect in attracting investment.

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Gaziantep itself is a prospering manufacturing centre, but it has struggled to absorb an influx of Kurdish jobseekers from further east, especially during last year’s recession.

The growing trade with Syria and Iraq, in particular, helped counter the slump in European markets. Turkey’s exports to those two countries rose by 30 per cent last year compared with 2008.

Cement is one of the most profitable products, Mr Berk says, with a 50kg bag selling for $50 in Turkey, but $140 in Syria. Sanko, the biggest local conglomerate, is building a packing plant next to the border to cut transport costs for its cement. Other exports range from carpet yarn to nappies and machinery for processing lentils.

There are still barriers to trade: Mr Berk says high taxes make it difficult for Turkish businesses to sell finished textiles or foodstuffs in Syria.

Furthermore, scrapping visas has brought other benefits. Gaziantep’s private hospitals are drawing health tourists, and its airport is busier as Syrians drive across the frontier to catch cheaper flights to Europe.

...

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Lebanese Economy Continues to Grow

From Maktoob Business:

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"Capital flowing into Lebanon in the first quarter of 2010 was at an extraordinary high level" of 4.3 billion dollars, "rising by a staggering 65.4 percent" on year, said the report by Lebanon's Bank Audi.

Investment was "buoyed by the increased confidence in the Lebanese economy" shown by expatriates, foreigners and tourists, affirming the International Monetary Fund's expectations for this year, it added.

The publication also noted that the Lebanese banking sector was doing particularly well.

"Measured by the consolidated assets of banks operating in Lebanon, total bank activity grew by four percent in the first quarter... to 119.9 billion dollars," said the report.

This represented a "progression about three times higher than that of the similar periods of the previous five years."

The report cited global ratings agency Standard & Poor's as predicting Lebanon's economy would grow 7.3 percent between 2010 and 2013, up from an earlier forecast of 6.5 percent.

S&P "expected that the robust performance of the financial sector and tourism, combined with increased consumer and investor confidence, would continue to support economic activity in the medium term," said the report.

"However the economy would continue to be impacted by high operating costs such as high social security contributions, energy prices and the poor state of the electricity sector.

"Large fiscal and current account imbalances would remain a constraint on economic growth over the next few years," it cited the ratings agency as saying.

In April, another international ratings agency, Moody's, upgraded Lebanon's government bond ratings by one notch to B1 from B2, citing the country's resilient banking system and improved political climate.

Lebanon 2010 Tourism Forecasts

Lebanon's Middle East Airlines airplanes are seen parked on the tarmac of Beirut international airport April 28, 2010. Pilots from Lebanon's Middle East Airlines (MEA) will begin a 24-hour strike from Thursday in an effort to claw back benefits they lost when the flag carrier was restructured in 2001, the Lebanese Pilots Association said. (Reuters via Daylife)

Maktoob business magazine reports:

Travel and tourism in Lebanon will directly contribute $4.4 billion to the country's economy in 2010, representing 13.3% of GDP ...
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The [World Travel & Tourism] Council forecasts tourism will general $12.4 billion or 37.6% of overall economic activity in Lebanon in 2010.

Tourism Minister Fadi Abboud had requested an increase of $5 million to the ministry's budget that would be earmarked to promote Lebanon abroad, the report added.

He expected tourism activity to grow between 10-20% this year.

Citing data by the Lebanese Ministry of Tourism, Al-Markaziya (via Maktoob) reported a 37% year-on-year jump in tourist arrivals for the month of January 2010 (from 77,300 to 106,000):

Tourist arrivals from Arab countries surged 47% to 49,300 from 33,500, according to the ministry's data, the paper reports.

Jordanians topped Arab tourist arrivals and they accounted for 36% of the overall number of Arab tourists visiting Lebanon and the French were the largest European tourist group [representing] 26% of the total number of European tourists, it adds.