Rami Makhlouf: Is He Being Sacrificed? Is the Syrian Economy the Achilles Heel of the Assad Regime? WINEP Pushes for Sanctions on Syrian Oil
Posted by Joshua on Thursday, June 16th, 2011
This article explains that the President’s cousin and owner of Syria Tel will donate his profits from Syria’s mobile phone provider to charity. He does not say he has plans to give up control of the company.
Powerful Syrian Leaves Business, in Major Concession
By THE NEW YORK TIMES, Published: June 16, 2011
One of Syria’s most powerful men announced Thursday that he was stepping down from his roles at several major businesses, including the mobile phone monolith Syriatel, a development that is a major concession to antigovernment protesters.
The businessman, Rami Makhlouf, is closely entwined with the Syrian government. His cousin is President Bashar al-Assad, his brother is Mr. Assad’s intelligence chief. Widely reviled as corrupt, Mr. Makhlouf became a focus of antigovernment protests.
“…But a news conference in Damascus on Thursday, Mr. Makhlouf said he was halting his business activities and directing profits from his 40 percent stake in Syriatel to charity.”
Ehsani gives a back-of-the-envelope estimate of Syriatel’s worth:
Syriatel has 67 million shares outstanding. The current share price is syp 915. This values the company at $1.3 Billion. From the shares outstanding, it looks like shareholders own 38%. This leaves Rami with 42%. We don’t know who owns the 38% fully. The profit per share for 201 was syp 126.41 per share. This means that the company’s profit for 2010 was $180 million. If the entire 40% of profits were taken out of the company, it will amount to $72 million a year سنخصص جزءاً من الأراضي التي نملكها لمشاريع سكنية تقدم للمواطنين بسعر التكلفة This was the other part of the statement. I am not sure whether the citizen will be getting the land at cost or will be getting what it gets to build it at cost. Either way, he does indeed own a substantial amount of land. The “percentage” of that total in either case is?
Correction by EIU: [Added next day]
Ehsani — I think your back of the envelope should give Makhlouf 62%, if private shareholders have 38%.
We were afforded a glimpse into the ownership structure of Syriatel in 2002-03 during the dispute with Orascom Telecom. Briefly, Makhlouf claimed in early 2002 that OT had breached contract, and a Damascus court in April that year ordered in favour of Makhlouf and his investment vehicle Drex Technologies, registered in the British Virgin Islands. OT hit back securing a freeze on the worldwide assets of Drex; it got a further injunction freezing Drex’s Arab Bank account in Austria. The two sides eventually settled in July 2003, with OT coming out with compensation from Drex. Meanwhile the Drex shareholdings were transferred to Ramak, a Makhlouf family holding. Orascom’s view was that Makhlouf brought them in to do the heavy lifting at the start of the operation, with capital and know-how, and then cooked up a dispute to clear the way for a takeover. Orascom managed to get out without losing too much, as I think they were aware of the risks of dealing with Makhlouf. I recall a telephone call with Rami at the time in which he claimed that “the problem with Naguib is that he doesn’t pay…”
Back to the present, both Syriatel and MTN perform important functions as one of the biggest sources of budget revenue to the state other than oil, as they are contracted to hand over 50% of turnover to the government.
Ehsani Replies to EIU:
My 38% number came from the syriatel website where Rami is quoted as saying that shareholders in the company could have made their best investment as their holdings have reached SYP 23.3 Billion. Given that the entire market capitalization of the company is SYP 61.3 billion (67 million shares times 915 pounds per share), I figured that the shareholders own 38% (23.3/61.3). This does leave 62%. Rami claimed that he will give up 40% of the profits which is his share in the company. I am not sure who owns the other 22%. It is important to note that we don’t even know who those 38% “shareholders” are in the first place.
For what it’s worth Syriatel does have a little section on its site for shareholders, apparently defined as those who subscribed to the IPO of 7m shares (10%) in 2004. Of course the IPO was not covered by any regulated capital market oversight, and Syriatel has not listed on the DSE.
Syriatel has not listed on the DSE because it still operates as a BOT (build, operate and transfer). It still does not have an official license. The idea was to wait for the third company to be approved and offered a license before Syriatel does too. Many of the companies that wanted to bid in the auction pulled out when they were unhappy with the terms. Etisalat of the U.A.E is still interested if the government modifies these terms. When and if this happens, the BOT of Syriatel can then also be transferred into an official licenced company that can list on the DSE.
There was much anticipation and confusion about Makhlouf’s announcement:
Al-Arabiya channel announced Thursday afternoon that Rami was giving away all his lands and money.
ANB reported that Rami gave a press conference denying any of this.
During the board meeting that SyriaTel held last Thursday, Rami Makhlouf was reported to sound very upbeat. He said, “I would never sell my shares as rumored.”
IDAF, who watched Makhlouf Speak on Syrian TV, wrote me:
“I am now watching the press conference on Syrian News channel. It is true. He did announce giving up his shares in the article and other “give aways.”
Rami just said: Anthony Shadid misquoted me gravely. We didn’t have an interview. It was a chat over lunch and he took my words out of context. Now watching the press conference on Syrian News channel.
“Syriatel shares I’m giving away to benefit 30,000 citizens. Other project give aways will benefit 10s of thousand more.” He also said that a specific portion of the Syriatel shares will go to Syrian martyrs. He didn’t specify if all martyrs or just the pro regime ones…. “I didn’t have to do this. And no one asked me to do it.”
“The value of the give aways are in the billions [of Syrian pounds.]” RM
He’s not bad. soft spoken. Down to earth. I’m sure many will feel sorry for him.
I asked a number of friends if they believed that the regime was “offering up one of their own” with the statement by Rami Makhlouf. This is how they responded:
If they “confiscated” his holdings in real estate, Syriatel, Gulfsands, Duty Free and the different banks, like Byblos, maybe. But giving away profits does not strike me as “offering up one of their own.”
I think Rami Makhlouf is being offered up. He is the Rifaat of the regime in the 80s. It would have been more than enough a couple of months ago when people didn’t want to “bring the regime down” but wanted Rami’s head in Daraa. Let’s see the response tomorrow. Loyalists are angry that the opposition is stealing one of syria’s independence heroes (sheikh Saleh Alali) and using him in sectarian light as a name for tomorrow’s Friday. I think the tide is changing towards the regime’s liking. Now that Erdogan is free from elections, he’s more open to work with Bashar too as it seems.
This said, Rami is framing this as an initiative from himself personally. He insisted that “no one asked me to do this and I don’t have to do this”. He said that he had major satisfaction from financial success but he is feeling even more satisfaction personally from doing this. He also said that he will never allow himself to be “a burden on Syria”.
They are NOT offering one of their own as if this is some kind of a cult. There is a new reality on the ground.
I believe this is the new Syria. The regime is shaken up pretty badly. They are not that stupid. The status quo is unsustainable even if they win on the ground. The hardliners have lost and the reformers are winning. Established business-as-usual processes are being refitted.
Plans to divest Rami were always there, and there was never the right time to do so. Enter today. Even Rami got the message – loud and clear.
Next? I really believe his name will be eventually removed from the sanction list. Did he abuse power? Sure. Was he a ruthless killer? No. Did he employ thousands of Syrians? Sure.
Most people are fixated on Ramo as the root cause of evil. Wrong answer. He is a symptom of a chronic power abuse.
And speaking of chronic conditions, this is where Syria is today. It just overcame the acute stage of the disease called the Middle East.
The problems of Syria are not just Rami. People think that he stole all their wealth and their incomes. Suppose Rami stole $10 BILLION. If he returned ALL that back tomorrow, each person in Syria will be entitled to $434. A family of 5 will make $2170. I guess that is a substantial sum for some people. But, remember that this is a one shot check. What then? The real issue in Syria is the lack of economic growth. Only real growth will lift living standards year in and year out. People think that if Rami goes, their fortunes will suddenly look up. Wrong.
I do not agree with Joshua’s assertion that Syria’s future will boil down to economics.
My cousin in Switzerland said his business (micro robotic) went down to zero for 9 months in 2008, and Lebanon always loses one or two tourist seasons hear and there but survives…
I believe Syria will bounce back stronger if proper reforms are implemented. We have a house in Yaafour that we are building and we are going ahead uninterrupted… so are many building projects in Yaafour.. illegal building is booming as well (can not find construction workers..)
Yes. My friend works in a major UAE construction business with major project in Syria. They are pushing forward with their business and it is harder to find construction workers with all the illegal business taking place.
Syria economy: Vulnerable?
June 16 (Economist Intelligence Unit) —
Is the economy the Achilles heel of the Assad regime? On balance, probably not, as long as oil exports continue to flow.
The regime of the Syrian president, Bashar al-Assad, has confronted the protest movement with brute force, mixed with relentless propaganda and promises to enact political reforms. The strategy has paid off to the extent that the opposition has failed to take control of any of the towns where protests have occurred, and the major cities of
Damascus and Aleppo have not been seriously affected. However, the costs have been considerable, both in human terms, with more than 1,500 people killed, and on the economic front. How well placed is Mr Assad to deal with the economic consequences of his crackdown?
One of the central advantages that Mr Assad enjoys is the heavy state bias to the Syrian economy. The government and public-sector enterprises account for the bulk of urban employment, and farmers are heavily dependent on state-run purchasing organisations. This means that millions of Syrians, whether they like it or not, have a considerable stake in the survival of the regime, as can be seen in the periodic displays of mass loyalty, such as the unfurling of a 2.3-km long national flag on June 15th along one of the main thoroughfares in Damascus. The private sector has made some advances under Bashar al-Assad, but remains dominated by business groups with good connections to the regime, the most prominent of which is Rami Makhlouf, a maternal cousin of the president.
All about oil
The uprising has impaired the state’s ability to perform its role as dispenser of patronage, but the regime is far from being financially crippled…..
Matters have moved further in the government’s favour since 2009 as oil production actually increased by 10,000 b/d last year to 385,000 b/d, thanks largely to the development of new fields by Gulfsands Petroleum, a UK-listed firm in which Mr Makhlouf has a minority (indirect) interest. In a further boon to the government, natural gas production also rose significantly, by 37.3% year on year, in 2010 to 7.8bn cu metres.
As long as oil operations continue to be unaffected by the unrest and are not targeted by sanctions, the government has in the oil and gas sector a solid basis for sustainable fiscal and balance of payments operations. The government has made its task more difficult by cutting diesel prices, and thereby reversing much of the earlier subsidy cuts, but it has a reasonable chance of softening the blow through securing supplies of cut-price fuel from Iran, which has a major stake in the survival of the Assad regime.
Foreign exchange squeeze
More troubling for the government is the risk of a run on the local currency as a result of a loss of confidence in the system by private deposit-holders and the drying up of foreign exchange flows from business visitors and tourists. The latter flows have been rising rapidly in recent years, as Syria has attracted Arab visitors during the summer months and as foreign business people have recognised the potential of the country as an investment prospect. The central bank data show inflows of services income under the heading travel as reaching to US$3.76bn in 2009, equivalent 22% of total current-account receipts. These flows are likely to be much reduced in 2011. However, the impact will be mitigated by the likely fall in private-sector imports (which have risen sharply in the past few years, reaching US$11.8bn in 2009). The central bank has hiked interest rates as a means to woo back deposits, and the government claims that this has paid off, and the government also has the cushion of foreign exchange reserves that are sufficient to cover 12 months of imports. A relatively good harvest in prospect this year means that Syria will probably be self-sufficient in wheat.
Economic conditions are certainly going to get much tougher for the Syrian regime, but not to the extent that some opposition activists have claimed.
The Socio-Economic Crisis in Syria
By Paul Rivlin, Dayan Center
…..While high oil prices, substantial foreign exchange reserves, and manageable levels of domestic and external debts have helped maintain a degree of macro-economic stability, this is now breaking down. In April, the International Monetary Fund lowered its estimate of Syria’s 2011 economic growth rate from 5.5 percent to 3 percent. The International Institute of Finance forecasts that GDP could contract by as much as 3 percent in fiscal 2011. Economic growth was decelerating prior to the current conflict: GDP fell from 6 percent in 2009 to 3.2 percent in 2010 and the balance of payments current account deficit tripled to almost $2 billion in 2008. The IMF forecasts a further deterioration in its 2010 report on the Syrian economy but the outlook is now much worse.
The worsening economic situation coupled with the abandonment of liberalization will alienate the middle classes without necessarily generating support among the masses. This may prove to be as big a threat to the regime as the protestors that it has been killing.
US says It is in contact with Syrians seeking change
16 June 2011, Agency France Presse
The United States is stepping up contacts with Syrians inside and outside the country who are seeking political change, the State Department said Thursday.
Recalling that President Barack Obama had called on Syrian President Bashar al-Assad to lead change or “get out of the way,” spokeswoman Victoria Nuland said Assad appeared to have “made this choice in the negative.” She denounced the Assad government’s “revolting” attacks on Syrian citizens and said the United States was working at the United Nations and with its allies to isolate the regime.
Damascus Still Has Gay Girls by Daniel Nassar for NPR [This is a wonderful article. Please read it.]
In Search of Leverage with Syria
By David Schenker and Andrew J. Tabler
June 14, 2011 – WINEP
The misperception that the United States lacks levers against the Asad regime may be fueling Washington’s reluctance to take further action….. To force Asad to step down or cause his regime to fragment, the United States should seek with its allies to increase the economic pressure and international isolation faced by the regime and to support domestic challenges to it. To achieve these effects, Washington has a number of unilateral and multilateral levers available, whether economic or diplomatic…..
the Obama administration should prod the chief buyers of Syrian oil — Germany, Italy, France, and Holland — to stop purchasing the regime’s heavy crude. It should also pressure multinational energy companies operating in Syria — Royal Dutch Shell, Total, Croatia’s INA Nafta, India’s Oil and Natural Gas Corporation (ONGC), Canada’s Tanganyika, SUNCOR, and Petro-Canada, and China’s National Petroleum Corporation (CNPC) and Sinochem — to exit the country….
Elite defections could play a key role in pressuring the regime to either cut a deal with the country’s Sunni majority or leave power. To date, the most effective U.S. sanction levied against Syria has been the Makhlouf designation. Along those lines, Washington should impose costs on other Syrian businesspeople who continue to back the regime.
One way to do so is to lengthen the list of U.S. Treasury Department designations aimed at businesspeople close to the regime, many of whom are the exclusive importers of a wide variety of goods on the Syrian market…..
Washington should urge Syria’s leading trade partner, Turkey, to adopt trade sanctions (excluding food and medicine, as the United States does). It should also press Persian Gulf states — particularly Qatar, Kuwait, and Saudi Arabia — to curtail their business investments in Syria, which have been a lifeline for the cash-strapped Asad regime in recent years. …
Hasten the unraveling of the Syrian military. In conjunction with Turkey and Jordan, the United States should pursue incentives-based information operations in Syria, encouraging military officers to defect or, at minimum, avoid complicity in regime crimes against the people. The more quickly the military unravels, the fewer atrocities that will be perpetrated…
Align with the Syrian people. Statements by senior U.S. officials in support of the Syrian people … The broad international revulsion at Asad’s tactics, combined with the changes sweeping the region, provides new opportunities to act against the Asad regime.
Who will take on Assad? – The Economist – Jun 16th 2011 |
Outsiders cannot intervene militarily in Syria. But its rulers should not be given a free pass….
the best-placed people to make Mr Assad give ground are local—the Turks, the Gulf Co-operation Council with Saudi Arabia and Qatar to the fore, and the usually toothless but perhaps slowly stirring Arab League, which endorsed NATO’s intervention in Libya.
If he were sensible, Mr Assad would, under such neighbours’ pressure, agree to open talks with the gamut of liberals and socialists, secular-minded Syrians and Islamists, including the banned Muslim Brothers and the signatories of the admirable Damascus declaration, which united opposition calls for reform in 2005. As a precondition, all political parties and the media would be set free, and open elections promised within, say, a year. As things stand, Mr Assad will surely reject all such ideas out of hand. But the tide may be turning. If he refuses to budge, the Syrian people will bring him down in the end—on their own, and bloodily.
Still Bubbling: In Syria’s Third-biggest City People Fear for the Future
June 18 (The Economist)
…. You cannot tell how many people in Homs are fully on the protesters’ side. Many are too frightened to give an opinion. Officials of the ruling Baath party organise noisy pro-Assad rallies to match those of the protesters. Some Christians, who make up a large minority in Homs, have joined the demonstrators, while others resent the turmoil they have caused. Most of the city’s Alawites, the minority sect to which Mr Assad belongs, have remained loyal to the regime.
But the protesters seem to be gaining ground. At first a lot of people backed them because they stood against poverty and corruption. But it was the bloody brutality of the official reaction that has driven people into the opposition camp. “I saw a teenage boy shot through the eye,” says a university student who carried the boy to the mosque and prayed over him as he died.
Anti-regime committees have sprung up all over the city, with a medley of people—plumbers, students, doctors, the unemployed—working together. But almost everyone is fearful of what may come next. Some people are buying guns to protect themselves and their families. As they become more desperate, they could yet turn them on the regime.
Fleeing Syrians report rapes, killings
THE TIMES, AFP
17 June 2011
YAYLADAGI, TURKEY: Refugees arriving in Turkey came with new horror stories of advancing Syrian troops raping and mutilating women. Syrians who fled to the Red Crescent tent camp in Yayladagi on the Turkish border said two women in the field hospital there had been raped. One also had her face slashed and the other had her breasts cut off.
They said Syrian forces in the Mamal al-Suker area of the flashpoint city of Jisr al-Shughour had assaulted the women and thrown acid over the men. One refugee said 12 women had been brutalised with a bottle in Mamal al-Suker and four of them had later had their throats slit. “They are raping the women and torturing the families,” said a refugee in the Yayladagi camp who asked to be identified only as “K”.
“Twelve women were raped and one had her breasts slit,” she said. “I came here with my mother. I had nothing to do with what was happening. None of my family went to the protests. They were coming to our houses, raping the women and killing people. The Shabiha (government militia) can do anything.” The refugees said advancing forces loyal to President Bashar al-Assad were pursuing a scorched-earth policy as they pressed towards the border: burning crops, killing livestock and shelling even half-built houses in an apparent attempt to drive the population out. The bodies of two women were dumped on the road outside the border village of Khibret al-Jooz in an apparent attempt to sow fear among the hundreds of refugees who have sought safety there…..
Allegedly threatened by Syria, Saad Hariri prefers to stay in his appartment in Paris. Le Monde, Menacé par Damas, l’ex-premier ministre libanais Saad Hariri serait réfugié à Paris