“The Collapse of Kouefati Industries – Aleppo in Shock,” by Ehsani

Are Syria’s Textile Manufacturers Headed for Failure?
The Collapse of Kouefati Industries.
By Ehsani, Syria Comment, October 17, 2008

Last Sunday, Syria’s second largest city was rocked by the collapse of one its larger businesses and the flight of a prominent industrialist and all his family members. The Kouefati group http://www.kouefati.com/about.html with a 25-year history of manufacturing Jeans, cosmetics and fashion accessories seems to have gone bankrupt under a heavy load of debt and other liabilities.

Aleppo’s business and especially Christian community is abuzz with the sensational news that has come out thus far. Here is what I have heard from sources in the know:

Camille Kouefati and his married children disappeared from sight in the early hours of Sunday.

Face Book image of Camille Karem Kouefati, now taken down
Face Book image of Camille Karem Kouefati, now taken down

After returning from dinner on Saturday night, they parked their cars and while the lights were still on simply vanished from sight. When no one showed up for work in the morning, many attempts were made to contact family members. It was soon obvious that they had all fled. When the news made its way to Aleppo’s business community, armed creditors tried to force entry into the factory. The Governor of Aleppo was called and police enforcements were immediately ordered. By the next morning, the extent of the financial ruin slowly came to light. One of the local new private banks is owed SYP 400 million. The Government owned Mortgage and Industrial Bank is also owed SYP 120 million. Many recently written checks by the company have bounced. Although it is impossible to know for sure, the company’s liabilities at the time of its collapse are reportedly close to SYP 1 billion. 

Regrettably, it is hard to believe that the Kouefati Group is an isolated case. Syria’s textile and manufacturing base is under attack from many sources.

While local manufacturing enjoyed protection from overseas competition for decades, cracks in that protective shield have been opening up for the past few years, making Syria’s businesses vulnerable.  Arab countries have agreed to eliminate import duties. This has meant that Syrian manufacturers have had to compete against their Saudi and Gulf based counterparts. This is not a competition that Syrian businesses can win. The recent political rapprochement with Turkey may have helped the country geopolitically. However, the rise in Turkish exports to Syria have made life very difficult for the local manufacturers who have now been asked to compete against much more efficient and powerful business groups to their north. Trade policy has exacerbated the problem.  Chinese products have flooded the market. Many come through Dubai, where local labels are added that claim the products are “made in UAE.” They arrive in Syria duty-free. Local corruption is also at fault. It is no secret that Syrian importers often present false receipts low-balling the true prices of imported products to customs officials. Recently a law was passed to slow this trend, but there is little chance that it will be more successful than most other anti-corruption measures. This practice not only deprives the Government of import duties but it also ensures that local manufacturers face stiff and unfair competition from imported products which face little if any import duties.  

In sum, the bankruptcy of the Kouefati Group is not surprising. Under heavy debt burden, facing high Syrian interest rates, an uncompetitive exchange rate (high value of SYP), competition from Gulf and Turkish manufacturers, Syrian manufacturers are sailing into a perfect storm. After decades of protection and “himaye wataniye”, local industry has been asked to compete and survive in a brutally efficient and competative global economy. Sadly, I don’t think that many Syrian industrialists are ready for the battle ahead. The Kouefati family, may not be the only business group that folds up its tents in the dead of night, leaves the lights on in their parlors for cover, and slips silently across Syria’s border in a hurried attempt to escape collapse.

….

DAMASCUS, Syria: A fire in a commercial building in northern Syria killed 10 people and injured 15 others Friday, said the country’s official news agency.

The fire broke out in a five-story building in the city of Aleppo, some 355 kilometers (220 miles) north of Damascus, said SANA. An initial investigation showed the fire was likely caused by an electrical short-circuit, said the report.

Comments (12)


1. offended said:

This is so sad. It’s even more so ’cause no one cares to hold up to their responsibility. the first thing they think about is to cut and run. Textile is the furthest thing i could think of that can be threatened in the spectrum of Aleppine industry. At least the names of six giant manufacturers come to my mind now that I am now thinking how would they weather this storm, and how their army of employees would manage once they are all laid off.

it’s sad indeed.

anyone care for a bailout?

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October 18th, 2008, 1:15 am

 

2. norman said:

Syrian manufacturing problem is that they look only on their local market and have little experience in marketing and expanding their customer base into other Arab and non Arab countries. i have relatives who are in textile and their only concern is their local market and i mean sometime city , that is not enough for growth.

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October 18th, 2008, 1:33 am

 

3. أمنية said:

this is shocking news

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October 18th, 2008, 7:03 am

 

4. Abu Zatar said:

It has been about 2 years i work in one syrian big textile group coming from international experience in other parts of the world.
Well, it does not surprise me. Even though some rare exceptions, i do not think that syrian textile industries are competitive at all: mismanagment, lack of a professionalism, iper centralization, wastes, corruption, nepotism etc. I repeat, i found some rare exception, but these exceptions are too small to compete. It needs a report of at least 100 pages to explain the reasons why i do not belive in syrian textile future, but if i can resume them in one word i can say: “menthality”. The local managment (quite always one person, the owner, who decide everything, even what the employees have to eat, even though he never studied a book of HR, marketing etc. running the company like a small dictator) lack of mind flexibility, vision and honesty. I can assure you that if the big textile companies producing here knew what is happening inside the local licensee who produce for them, well, they will close, probabily all of them, because the first idea of the manager is to cheat. The reason why it does not happen is because in the mind of these big companies, Syria is a small and far country and they do not care a lot to come and controll, they prefer to close their eyes and take theirs royalties.

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October 18th, 2008, 8:36 am

 

5. Abu Zatar said:

It has been about 2 years i work in one syrian big textile group coming from international experience in other parts of the world.
Well, it does not surprise me. Even though some rare exceptions, i do not think that syrian textile industries are competitive at all: mismanagment, lack of a professionalism, iper centralization, wastes, corruption, nepotism etc. I repeat, i found some rare exception, but these exceptions are too small to compete. It needs a report of at least 100 pages to explain the reasons why i do not belive in syrian textile future, but if i can resume them in one word i can say: \”menthality\”. The local managment (quite always one person, the owner, who decide everything, even what the employees have to eat, even though he never studied a book of HR, marketing etc. running the company like a small dictator) lack of mind flexibility, vision and honesty. I can assure you that if the big textile companies producing here knew what is happening inside the local licensee who produce for them, well, they will close, probabily all of them, because the first idea of the manager is to cheat. The reason why it does not happen is because in the mind of these big companies, Syria is a small and far country and they do not care a lot to come and controll, they prefer to close their eyes and take theirs royalties.

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October 18th, 2008, 8:37 am

 

6. bashmann said:

Ehsani, Thanks for the post.

I read this report yesterday on Syria News site;

http://www.syria-news.com/readnews.php?sy_seq=83906

The report indicated other groups also such as Garbou and Dairi.

The comments from Mr. Sharbati are the most concerning of course.

I believe the fifth economic plan of this esteemed government didn’t include the negative effects on local industries into its consideration, or just plainly igonored it. Therefore Mr. Dardari kept it a secret and would not discuss it or publish any details of it ’till he was able to sell it to the big genius sitting in the people palace.

What I would really like you to comment on is Mrs. Buthaina Sha’ban article in Alsharq Alawsat few days ago. Here is the link;

http://www.asharqalawsat.com/leader.asp?section=3&issueno=10912&article=490597&search=بثينة%20شعبان&state=true

Let me know your opinion.

It seems to me that the President’s die-hard Ba’athiest economic advisor seems utterly disconnected when it comes to understanding the effects of globaization on the world market economy.

Looking forward to your comments.

Cheers
Bashmann

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October 18th, 2008, 1:53 pm

 

7. aboali said:

Sounds to me like you’re almost making excuses for them. Thing is, they bankrupted themselves by virtue of their own greed, just like countless other business men before them, Deiri and Jarbou to name a recent few.

Who in their mind can pay interest of up to 30% a year? It’s obvious that anyone taking on such a loan is either very stupid, or has no intention of ever building a viable business but instead taking whatever they can and running when the “boraz” hits the “marwaha”. Naturally the powerful creditors, and government officials all get their slice of the pie, and the unfortunate few who have put their life’s savings will end up getting a royal “khazouk”. Been like that since the Kalas debacle in the 90’s, and will always be like that, “Awja” as we say over here in Syria.

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October 18th, 2008, 11:48 pm

 

8. Apollodorus said:

The problem is not globalization,the problem is that the wrong people are in the wrong place and the lack of political reforms,for this reason ,the new barons in Syria are immune and can not be accountable for anything.
Political reforms are more than ever a necessity in Syria.

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October 19th, 2008, 9:04 am

 

9. Seeking the Truth said:

It seems to me, this is a suspicious case of fraud, and not that of a genuine business stumbled upon hard times. Otherwise, I wonder how the Kouefatis are going to eke out their living in the exile.

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October 19th, 2008, 7:38 pm

 

10. trustquest said:

ABOALI: You have mentioned excellent legitimate points regarding common crooked investment and hoax bankruptcies. They are and will stay the standard business module for years to come. I would even go further to say that there is no genuine legitimate investment from private sector on big scale since the 60s after the killing of the first large scale textile plant “Khomaisa in Harasta” which was expropriated by the government. Khomasia was and still larger than any textile project you see Syria. The owners were expats, (Debess family) brought their money from their successful business in China to be humiliated and stolen by the Syrian government socialist laws which produced the current echelons and regime supporters.
I fully agree there is no such thing as 30% interest, and then the question comes, does the government do oversight to protect industry and investors by putting and enforcing regulations. The other question comes to mind does government keep the market functioning with supervision and regulations or their mokhabarat are worrying only about who is bad mouthing the government and there is no one section for economic oversight.

My disagreement with your comments is about “Awja”. The right conclusion should point to responsible parties in control who are responsible in regulating this mess. Every case of tragedy like this, it exposes the lack for regulations, supervision and accountability of economic team and authorities of upper hands. Investment and change can not happen without free flow of information, those people who lost their money have no resources to know get educated or warned from our intellects who are no allowed to speak freely. While government going around the business in shutting up all, including economist through media manipulation, the citizens left for the wolves of industries and to the hyenas of the government authorities.

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October 19th, 2008, 9:23 pm

 

11. EHSANI2 said:

ABOALI,

You claimed that it seems that I was making excuses for the Kouefati group by blaming their failure on globalization and a host of other external factors. I am not. There is little doubt that this company was highly leveraged. Excessive expansion with debt usually does not last as interest charges spiral out of control. The company has no one to blame but itself here.

Having said this, there is also little doubt that a larger problem hangs over Syria’s industrial sector. In a way, this was inevitable as the protection that local producers enjoyed seems to have dissipated over time. The lack of foreign competition has left Syrian industry mired in a state of inefficiency. Rather than investing in state-of-the-art machinery, investment in lower quality and cheaper equipment were thought to be good enough for the local consumption. The gradual lifting of the subsidies and the steady rate of import penetration has been like Chinese torture for these industries. They are simply incapable of competing with foreign producers who have the upper hand in management, technology, machinery and financing. Himaye Wataniye gave them the false impression that they were more successful than they really were. The old ways of doing business are now giving way to the brutal world of competition. Syrian industry is ill prepared for this tough transition.

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October 19th, 2008, 11:31 pm

 

12. jad said:

Some of you might know this hilarious economic explanation, it’s worth posting….enjoy

21 Economic Models explained with Cows – 2008 update

SOCIALISM
You have 2 cows.
You give one to your neighbour.

COMMUNISM
You have 2 cows.
The State takes both and gives you some milk.

FASCISM
You have 2 cows.
The State takes both and sells you some milk.

NAZISM
You have 2 cows.
The State takes both and shoots you.

BUREAUCRATISM
You have 2 cows.
The State takes both, shoots one, milks the other, and then throws the milk away…

TRADITIONAL CAPITALISM
You have two cows.
You sell one and buy a bull.
Your herd multiplies, and the economy grows.
You sell them and retire on the income.

SURREALISM
You have two giraffes.
The government requires you to take harmonica lessons

AN AMERICAN CORPORATION
You have two cows.
You sell one, and force the other to produce the milk of four cows.
Later, you hire a consultant to analyse why the cow has dropped dead.

ENRON VENTURE CAPITALISM
You have two cows.
You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows.
The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company.
The annual report says the company owns eight cows, with an option on one more.
You sell one cow to buy a new president of the United States, leaving you with nine cows.
No balance sheet provided with the release.
The public then buys your bull.

A FRENCH CORPORATION
You have two cows.
You go on strike, organise a riot, and block the roads, because you want three cows.

A JAPANESE CORPORATION
You have two cows.
You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk.
You then create a clever cow cartoon image called ‘Cowkimon’ and market it worldwide.

A GERMAN CORPORATION
You have two cows.
You re-engineer them so they live for 100 years, eat once a month, and milk themselves.

AN ITALIAN CORPORATION
You have two cows, but you don’t know where they are.
You decide to have lunch.

A RUSSIAN CORPORATION
You have two cows.
You count them and learn you have five cows.
You count them again and learn you have 42 cows.
You count them again and learn you have 2 cows.
You stop counting cows and open another bottle of vodka.

A SWISS CORPORATION
You have 5000 cows. None of them belong to you.
You charge the owners for storing them.

A CHINESE CORPORATION
You have two cows.
You have 300 people milking them.
You claim that you have full employment, and high bovine productivity.
You arrest the newsman who reported the real situation.

AN INDIAN CORPORATION
You have two cows.
You worship them.

A BRITISH CORPORATION
You have two cows.
Both are mad.

AN IRAQI CORPORATION
Everyone thinks you have lots of cows.
You tell them that you have none.
No-one believes you, so they bomb the **** out of you and invade your country.
You still have no cows, but at least now you are part of a Democracy….

AN AUSTRALIAN CORPORATION
You have two cows.
Business seems pretty good.
You close the office and go for a few beers to celebrate.

A NEW ZEALAND CORPORATION
You have two cows.
The one on the left looks very attractive

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October 24th, 2008, 5:16 am

 

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