Do they damn uncle Sam?

Or does the boycott hurt Arab interests more than it does America’s?

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By  Massoud Derhally Published  June 3, 2002

|~||~||~|Majd and Arif Tabbah of Oxygen, an upmarket restaurant in Syria, declared Roberto Powers, the US Consul in Syria, persona non grata. A building housing three American fast food chains in Lebanon is bombed. Several supermarket owners in the Gulf cleared their shelves of American products. A prominent Muslim cleric in Lebanon urged Arabs to withdraw their money from American banks and to conduct business in Euros rather than US dollars.

Arabs are choosing not to buy American products, be it the Jordanian smoker who switched from Marlboros to Gauloises or the Saudi citizen who decided to buy a Japanese car rather than a GMC. Thousands of emails have made the rounds calling for a boycott of Starbucks because of statements made by Howard Schultz the company’s former CEO and current global strategist, about the situation in Palestine. The stories go on.

Since the Israeli offensive of March 29, the grassroots campaign to boycott American products has gathered momentum across a wide demographic and economic spectrum. But is the current boycott hitting its intended target? Aren’t Arab businesses and businessmen taking the brunt of what many say is a pointless campaign? Is it possible that protestors and activists who are handing out flyers are in fact undermining their own economies?

Protesting against what many see as America’s overwhelming support for Israel, the boycott campaign has grown through a variety of communication networks including: mosques, the media, the internet, and text messaging through mobile phones.

The message is getting through. Evidence suggests that American products, and those local businesses that act as distributors or agents, are suffering. It is especially felt in Egypt, Saudi Arabia and the United Arab Emirates. So far those feeling the most pressure are American fast food franchises: McDonald’s, Kentucky Fried Chicken (KFC), Hardee’s, Pizza Hut and Baskin Robbins among others. McDonald’s, which has over 200 branches in the Middle East, has come under tremendous pressure to deny allegations, made through SMS messages, that it was contributing money to Israel.

Such accusations have prompted local McDonald’s franchise owners across the region to publish advertisements that their staff is 100 percent local, that they were not contributing to Israel and in some cases were buying all the necessary ingredients locally. “The rumours about McDonald’s and donations to Israel are ridiculous and without foundation,” said Rafic Fakih, managing director of McDonald’s UAE, in a statement. “McDonald’s in the UAE is 100% locally owned, financed and managed,” added Fakih. While Fakih declined to provide figures on sales of 25 stores in the UAE, he told Arabian Business “there is an impact like everyone else, it’s not substantial and this impact is coming from a lot of factors.” In Jordan, McDonalds donated 10 percent of all sales in the first half of April to the Hashemite Relief Fund, a Jordanian government charity that gives aid to Palestinians, reported Reuters.
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In Egypt, where an estimated 80,000 Egyptians now work in Western fast-food restaurants, the story is the same. McDonalds, which employs 3,000 Egyptian workers and an additional 10,000 in the company’s supply plants, rushed to refute claims that it was supplying aid to Israel and stated that it was in fact providing aid for children with cancer in Egypt. By doing so the company was able to then maintain that boycotting essentially hurts the children it is trying to help. A rumour even surfaced that McDonald’s in Egypt had changed its name to “Man’s Food”, a claim that was put to rest by a company spokesman who told Arabian Business, “It has always been Manfood’s McDonalds Egypt, and we have never changed the name.”
In Oman, managers at KFC and McDonalds branches reported a decline of 45 to 65 percent in sales since January 2002, according to Reuters. “People have stopped coming like they did last year, mainly to show sympathy with the Palestinians,” said a McDonald’s manager who declined to be identified. In 2000, McDonald’s in Saudi Arabia promised to donate five Saudi Riyals from each meal it sold during the month of Ramadan to Palestinian hospitals after boycott calls put a dent into its sales.

“The past month has been like a flash of lightening, with sharp declines in growth. Since the events got really bad in Palestine things have spiralled out of control,” says a senior executive at the 38-year old Kuwaiti based food conglomerate Americana, which has exclusive rights to operate KFC, Pizza Hut, Hardee’s, T.G.I. Friday’s and Baskin Robbins outlets across the Middle East.

Americana’s sales are down by 45% in Jordan, 40% in Egypt and 20% across the Gulf States, the executive told Arabian Business. The Kuwaiti company, which has a turnover of US $600 million and annual profits of US $50 million, operates 560 fast food outlets all the way from Morocco to Dubai. But it is currently keeping a low profile. The company has stopped advertising and intends to hold off until things quiet down or a solution is found to the current conflict.

Other targeted brands, such as Coca Cola, have also reported drops in sales. In Palestine the boycott has had a lesser impact on the National Beverage Company, which runs the Coca Cola factory. “There is an SMS that alleges that Coca Cola is giving 4 days revenue to support Israel,” Zahi Khoury, chairman of the board of directors, told Arabian Business. “This is nonsense and it is just to create some commercial disadvantage. I have denied this claim categorically, in the name of Coca Cola worldwide, as being a publicly listed company, subject to full disclosure. We are a 100 percent Palestinian company,” added Khoury.

According to Khoury, Coca Cola in Palestine affects the livelihood of Palestinians and contributes to the Palestinian economy. “The company benefits 6,000 Palestinians and if you multiply that by five [to take into account their families] then you are talking about 30,000 people. The company also contributes to the treasury and the Palestinian economy some US $15 million,” explains Khoury.
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So, what does the head of Coca Cola in Palestine have to say to those who propagate a boycott of American products and brands? “I think they are hurting themselves. If there were no Coca Cola in Palestine I would invite Coca Cola to come into Palestine so that we can know what institutional business means, transparency means, manpower development and IT technology means,” says Khoury. “I probably have the best employees in Palestine because of Coca Cola, we have the raw materials and we need multinationals that have no political agenda. If we continue this nonsensical policy we are going to go back to the Stone Age. We need to be able to fight our war in a more intelligent way. If we want to progress, the concept of boycott has to be reassessed,” added Khoury.

While fast food chains and soda pops are in the front line, consumer products have also been affected. Ahmed Linjawi, manager of Procter and Gamble’s joint venture in Saudi Arabia told the Wall Street Journal that he expects the boycott will have an impact on his sales and his biggest concern is the company’s image in the Saudi market. Proctor and Gamble products such as Pampers diapers were reported to be down 30-40 percent in a large Saudi supermarket chain. “We no longer have a lot of allies in the media or government or academia. They say it’s hard to help. They are staying quiet,” Linjawi told the Journal.

The boycott has also placed the burden of proof on non-American businesses that may sound American to prove their identity. House of Donuts, a Saudi franchise, held a press conference to announce that it was 100 percent Saudi owned. “We are not an American franchise. We created the House of Donuts line in Jeddah 20 years ago,” Sameer Nasseer, the general manager of Nasseer Group, which runs the chain, told Arab News. In fact the Nasseer Group is offering $300,000 to anyone who can prove that their House of Donuts chain has any connection to the United States.

For those who believe Burger King is American, think again—it’s actually a subsidiary of London-based Diageo plc. But that has not helped local businessmen in the Middle East. Take for instance Faisal Jawad, chairman of the Jawad Business Group, which runs Burger King in Bahrain; his sales are down 50% since the Israeli offensive against the Palestinians. More importantly, none of his ingredients come from the US—everything is bought locally or from neighbouring Arab countries.

So after all is said and done, is boycotting really harming the mother company or America? The answer is no, not really. It has not affected the business of the American company selling military equipment in Saudi Arabia. “American products are all around in Saudi Arabia, and the Saudis like American products. You will find most American businessmen in Saudi will have the same sentiment that I have and that is that we understand the Middle East a lot more than the people back in the US and our leaders in Washington. At the same time we hope that the majority of the population and governments recognise that America is not the enemy and countries that will boycott will suffer more in the long run,” explains the American businessman.
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A senior economist in the Gulf who spoke on condition of anonymity disagrees, “McDonalds is a symbol of America and local businessmen will definitely be affected, but if the public has no other means of protesting and expressing its anger, what does it do?” The economist then added that the automobile sector represents a big market share in Saudi Arabia and other Arab countries to the US. “They [American companies] have spent a great deal to capture that market share, and if Arabs are serious about the boycott and begin not to buy American cars then surely that will hurt them,” says the economist adding that “Saudi Arabia imports some 200,000 cars yearly from the world, 50,000 come just from the US. If a boycott takes shape on American cars without a doubt it will have an effect as the Middle East market as a whole represents a sizeable market. Such a public boycott and the willingness of individuals to boycott as a matter of principle will have an impact.”

But the American businessman that sells US military equipment then went on to point out that going through the US congress currently is a study on whether Saudi Arabia should be on the boycott list of America with the US not sending military or commercial merchandise to the Kingdom. “It’s a two way street. Everyone has a right to freedom of speech but I think in this environment it can become dangerous,” explains the American businessman.

A US Embassy spokesperson in the UAE echoed similar sentiments saying, “while consumers are of course free to choose what products they purchase in the market, we would note that consumer boycotts of American products can have a disproportionate and negative effect on local agents, sponsors, and distributors, and particularly franchise owners.”

Boycotts do not help Arab countries that are trying to court foreign investment; they impact local markets in terms of jobs and cause contractions in the economy by affecting local businesses—Americana is a case in point. “The boycott is hindering our development of opening up new restaurants and new markets and entering other emerging markets,” says the senior executive at Americana. “We have a target to open restaurants in the Gulf, Levant and North Africa but everything has been called off and the pace of growth has slowed down; we have not grown since last year. We have not laid off any people yet, but if nothing is solved soon then we are going to have to take drastic steps. No sign of growth is one thing, but when there are signs of shrinkage then we will start laying off people but that is in the medium to long-term future,” added the Americana executive.

There is also an argument among grassroots campaigners that the local American fast-food chains share large portions of their sales revenue in the form of royalties with their mother companies. That is not true says a senior figure at the American Chamber of Commerce in Egypt. “The amount of royalty that is being transferred by franchises to the mother company is minimal when compared to the impact on our economy, in terms of the amount of investment by local businessmen and the number of people employed.”
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While no layoffs have taken place-as of yet-in Egypt’s circle of fast food chains, the American Chamber of Commerce in Egypt says it could very well happen if the current situation continues and if companies decide to close some of their outlets. “The only thing that is helping at the moment is that the owners of the big franchises have smaller companies and are able to cover their losses for the time being,” said a senior figure at the Chamber of Commerce in Egypt.
Mohammed Alshaya, CEO of Alshaya Group, which is the regional Starbucks licensee and owns and operates a total of 150 retail stores throughout the Middle East, agrees: “We pay 4% in royalties but at the same time we pay 40% of our costs to the Arab community.” Alshaya adds, “Starbucks in the Middle East is 100% Arab, our products are from Muslim and African countries, our milk and food is local, and approximately 500 Arab employees have their salaries paid from these activities.” Alshaya points out that none of the products are American and that the arrangement with Starbucks is one of licensee. Even the coffee brewing machines are from Italy. “I am bringing know-how that helps create a business and trains employees from Jordan, Lebanon, Egypt and these people also help their weak economies.” Certain areas where Starbucks operates in the Middle East have been affected but Alshaya does not attribute the nominal decline to recent events.

For the time being, the boycott of anything American is a symbolic gesture of solidarity with the Palestinian people, which does not take a bite out of US firms: overall exports to the Arab world only make up 2.5-3% of the US total. But there are signs that people are also thinking this campaign through. A prominent figure from the business community of Casablanca, told Arabian Business that the L’Economiste newspaper in Morocco “has gone so far to say don’t just boycott American products like Coke and Tide, but ‘boycott the dollar for the Palestinians and opt, whenever possible for the euro.’”
Essentially if the boycott expands and prolongs it could very well scare off potential foreign investors and the technological know-how that helps regional industries compete in an increasingly global market. “Over time, this sort of activity can reduce investor confidence, and therefore foreign direct investment, by creating the impression that local markets are not hospitable to foreign trade and investment,” said a US Embassy spokesperson in the UAE.

In the past month alone, according to the London based Al Hayat, losses incurred by local businesses in the Middle East that run American chains or deal with American brands, were US $200 million. A drop in the ocean when you consider that purchases of American goods by 300 million Arabs form a minuscule portion of American exports, amount to US $20 billion in 2000, just 3 percent of America’s total exports, or 0.003 percent of America’s GDP. So a reassessment may be in need for those that think they are going to hit the bottom line of American companies.

Not everyone agrees with the boycott, or the claim that Arab consumers are unwittingly supporting Israel. “Politically, calling for a boycott will make an enemy of the world’s only superpower,” Fahed Fanek, one of Jordan’s leading economist said in a recent opinion piece to the Lebanese Daily Star, adding “This is in no one’s interests, especially since we have been soliciting American intervention to help end Israel’s aggression and find a just solution to the Palestine question. As the late Egyptian president Anwar Sadat discovered more than 25 years ago, ‘America holds all the cards’ where the Middle East is concerned.’ ”

While one Saudi journalist says, “follow your head not your heart”, a businessman from a prominent Saudi family says, “We have to distinguish if its an American product coming from America, then yes boycott it, but if its produced locally and boycotting it hurts us then I don’t agree. As long as it does not hurt our people then it is fine by me.” Saudi billionaire and entrepreneur Prince Alwaleed bin Talal told the Arab News, boycotting US products is “not feasible,” adding, “As a matter of fact, it is us Arabs who stand more to benefit from maintaining trades ties with the US because the trade balance between the Arabs and the US is in our favour.” By Massoud A. Derhally||**||

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