Unrest dims Syira's business luminance

Once lured by its high potential as an investment destination, Egyptian companies investing in Syria are feeling the pinch of the unrest there

For the last five years, the Syrian market attracted a lot of Egyptian companies. A market slowly adopting policies pushing it towards being an open economy offered a good opportunity for enterprises pursuing growth potentials. The Syrian economy offered opportunities to companies from all sectors starting with investment banks like EFG-Hermes and Pioneers, real estate developers like SODIC and up to those working in touristic development like Amer group which is planning to set up Porto Tartous, a Syrian version of the local Porto Marina and Porto Sokhna.
"Since 2005 when Syria adopted its economic reform programme, the fledging economy, with a population of 20 million, witnessed a flux of Egyptian investments, betting on the potentials that a state-run economy offers when it becomes less regulated and more receptive to foreign investments," said Ahmed A-Wakeel, head of the Egyptian- Syrian Business Council.
Al -Wakeel added that being on the border with another huge market, Iraq, companies were tempted to go there betting on both the Iraqi and Syrian consumers. While he said it is hard to know the exact size of investments local companies have injected in the Syrian market, he believes it is not less than $1.5-2 billion.
In general, and for the last 5-7 years, Syria has been encouraging private industry and foreign investment in its state-dominated economy to provide long-term financing for development and economic reforms amid dwindling oil revenue. Syria's Deputy Prime Minister for Economic Affairs, Abdallah Dardari, said on 24 September that the government wanted to attract as much as $55 billion in foreign direct investment over the next five years, according to Bloomberg. Foreign direct investments in Syria reached $2.5 billion in 2010, exceeding the most optimistic expectations.
The tourism sector attracted a lot of investments and it generated $8.3 billion in revenue last year as the number of visitors increased by 40 per cent, benefiting from cultural and archaeological attractions. Some 287 new touristic projects, including 57 hotels and 230 restaurants, worth a total of $401 million, opened last year.
Esmat El-Nahhas from SODIC pointed out that there have been major breakthroughs in the field of economic and financial liberalisation in Syria which made it an investment magnet regionally and internationally, and enabled it to withstand the global financial crisis. Also, there is a high demand on various real estate units when compared to other countries in the region, which encouraged companies like SODIC to tap the market.
While the two-year-old Damascus capital market is still a small one with biweekly trading sessions, the market attracted three heavyweight investment banks, EFG-Hermes, Pioneers and HC securities. "The financial liberalisation, privatisations and entrance of new banks made it a virgin opportunity for financial institutions," said Hatem Alaa, analyst at HC securities.
However, the social unrest in the Middle Eastern country overshadowed the foreign investments there. Syria is the latest country in the region to be hit by a wave of pro-democracy protests that ousted regimes in Egypt and Tunisia and sparked an armed conflict in Libya.
Emirates Telecommunications Corporation, the Middle East's biggest phone company by market value, said last month it decided not to proceed with a bid in Syria's auction for a third mobile telecommunications licence. Turkcell Iletisim Hizmetleri, Turkey's largest mobile-phone company also withdrew.
"I do not know of any Egyptian company that is considering withdrawing from there, but I heard a lot of them freezing their expansion plans or currently putting them on hold," said Al-Wakeel.
Egyptian property developer Amer Group began selling units at its porto Tartous project in Syria early, Febuary, and had been scheduled for launch in mid-November. "For sure sales will be affected by the events," said Al-Wakeel.
Porto Tartous is a touristic development project that has more than 3,700 serviced apartments, a shopping mall, 100,000 square metres of office space and a yacht marina. It will also have a sports stadium and private beaches.
As for Al-Sewedy cables, whose Syrian plant accounts for 10 per cent of its overall annual production, the sales in Syria during the first quarter of 2011 were 30 per cent down, according to Allen Sandeep, analyst covering Al-Sewedy at Beltone Financial. "With the unrest in Syria breaking up in the first half of March, it was only the second half of the month that weighed down on the first quarter results and this means that the current quarter's will be even worse," Sandeep said.
This added more to the woes of Al-Sewedy which has investments in 10 countries including Egypt, Yemen, Libya and Syria, all hit by pro-democracy movements. The company last week decided to postpone a $65 million cable manufacturing plant it planned to build in Libya due to the spreading violence in the country.
Another company that has heavy investments in Syria is the 6 October for Development and Investment Company (SODIC). With 19 per cent of the company's land bank in Syria, any turbulence there would overshadow the company's investments. The company, through its subsidiary Palmyra SODIC, has $150 million worth of direct investments in the Syrian real estate market, with plans to invest more in the future. It was also planning to launch a new residential project with commercial components in the suburbs of Damascus on a land plot of 500,000 square metres.
"Our work on current activities is continued as planned. We have only delayed the launching of new projects until further notice, but our on-ground activities are still on schedule," said SODIC's El-Nahhas.
The bulk of SODIC's land bank is located at Damascus, Aleppo and Latakia, relatively away from the southern cities where the demonstrations started and spread.
Citadel Capital, the largest private equity group in the region, has eyed Syria through its subsidiary ASEC Cement which according to HC's Hatem Alaa, who covers the company, has a 51 per cent interest in the Abu Shamat Cement plant that will add to ASEC 1.6 million tonnes of cement daily when it starts operations in 2013.
While no one from Citadel Capital was available to comment for all of last week, Alaa ruled out that the unrest there would affect the construction activity in the greenfield. It is also too early to know if the unrest there would affect the launch of the plant which is scheduled in two years' time.
Citadel Capital plans to establish a subsidiary in Syria for its microfinancing company Tanmia. .