Region Last October, Syria's business community awoke to the startling news of the collapse of one of the country's largest textiles manufacturers.
Syria confronts Turkish trade dilemma
Last October, Syria's business community awoke to the startling news of the collapse of one of the country's largest textiles manufacturers. Prominent family members of the privately owned Kouefati Group had fled overnight, leaving a trail of bad debts in their wake. The downfall of the business empire, based in Aleppo, made lies of Syrian claims to immunity from the global economic downturn. It also revealed the dangers associated with the country opening up its economy, in particular the Syria-Turkey free trade agreement that came into force in 2007. The dismantling of trade barriers and customs duties has encouraged greater competition from Turkish textile makers, who are better resourced and more efficient than the Syrians, in the past five years. The Kouefati Group's troubles were symptomatic of Syrian companies' struggle to keep up with the Joneses. "You've had UAE and Saudi products coming into Syria free of duties in the wake of the Arab free trade agreement, and now there's a third wave of imports from Turkey," a Syrian businessman says. "You're seeing Turkish jeans, shampoo and even beer on the local market, and these are proving formidable competitors to Syrian products." Syrian manufacturers have not yet come to terms with the ramifications of increased competition from within the region. "Syrian companies weren't prepared to invest in the best technology from Europe," the businessman says. "They'd prefer to spend US$400,000 (Dh1.4 million) on Asian machinery rather than $1.5m on the best European machinery. "They simply won't be able to compete with Turkish manufacturers going for highest-end technology." The up side for Syria to the economic relationship was a splurge of Turkish investment, much of it in the northern city of Aleppo. Trade between the two countries increased 50 per cent in the year after the free trade agreement, to $1.2 billion in 2007 from $797m in 2006. Last year, trade volumes were reported to have risen to $2bn. Turkey is now the largest single foreign investor in Syria, with the stock of Turkish foreign direct investment doubling to $146m in 2007 from 2006. "Syria is Turkey's door to the Middle East. Turkey is a gate to Europe for Syria," said Abdullah Gul, the Turkish president, after a Syrian-Turkish business forum on May 16. Ankara is also backing a series of cross-border co-operation deals. The latest, a memorandum of understanding signed on August 20, will see the two countries' gas networks connected. Turkey will supply Syria with 500 million to 1 billion cubic metres of gas a year for five years from 2011. Energy is a key focus of co-operation. Last year, the two governments announced plans to create a joint oil company to explore in their countries and elsewhere. The two countries are also looking to co-operate on water issues, a strong source of friction in the past. Ankara's diversion of water from the Euphrates River, flowing from Turkey through Syria to Iraq, has choked water flows downstream. The increasing ties between Recep Erdogan, the Turkish premier, and the Syrian president Bashar al Assad means Ankara now has a receptive ear to Syrian concerns on the issue. At the end of June, Turkey increased the Euphrates flow to help overcome a shortage. Turkey and Syria will also build a joint dam on the Orontes River, which originates in Syria. The 110 million cubic metre capacity "friendship dam" will see Syrian water irrigate Turkish farm areas in a reversal of their traditional -relationship. "Syria has an eye on the EU as an export market for its agriculture products, particularly in agriculture. If water is an impediment, it is unlikely to meet this ambition," says John Sfakianakis, an economist based in Riyadh. This is not a relationship of equals. Turkish clout still threatens to suffocate the Syrian private sector, which is slowly emerging from four decades of centralised planning. The benefits of Turkish investment, however, will outweigh Syrian qualms about unfair competition. "The emphasis now is that things are going well," says a western diplomat in Damascus. "There's more Turkish investment coming in. There are commercial strains, but they are not particularly visible." email@example.com