Nationwide protests, now entering their fourth month, are edging Syria closer to economic meltdown. The government in Damascus has for the most part offered rosy official assessments and downplayed current events as a temporary blip in an otherwise grand upswing — the truth is likely far more grave.
Compiling a credible, comprehensive economic analysis of Syria is implausible even in the best of times, let alone during a mass uprising. However Executive, through interviews with sources inside the Syrian regime and the tracking of significant indicators, has compiled a report that portends the cracking of the economy at its foundations.
The beginning of capital flight
The first negative signs appeared even before the protests had turned into a full scale uprising; private banks’ first quarter reports issued at the end of March showed that the five-year streak of average annual asset growth of 33 percent had come to an end, registering instead a 4.3 percent decrease quarter-on-quarter. According to first person accounts from sources close to the unfolding events, in April the decrease in bank deposits was so great that the government set a limit on cash withdrawals, with those over 1 million Syrian pounds [$21,074] requiring special approval from the bank manager.
Despite this, early last month Finance Minister Mohammad Jleilati announced that Syrian bank deposits had actually increased 30 percent — many familiar with the subject viewed this statement with skepticism as an attempt to ease the angst of regime supporters. Jleilati, though, did confirm that the country is suffering an economic recession due to the “current circumstances” in a statement elaborating on why the treasury bonds auction scheduled for this month was postponed indefinitely.
The Damascus Stock Exchange (DSE) has also lost some 28 percent of its DSE Weighted Index (DWX) over the second quarter alone, even though in May the stocks index rose following an amendment to the trading law (introduced mid-May) that would allow listed companies to buy their own stocks. Commenting on this, Jleilati said: “Investors should hold on to their stocks even if they reach their book value,” as the drop in their value is due to “rumors spread by other investors to decrease the value of stocks to buy them later for book value.”
Jleilati was appointed finance minister after the recent cabinet reshuffle, replacing Muhammad al-Hussein, who in early June was prevented from boarding a plane leaving Damascus International Airport. The former finance minister had spearheaded the campaign in the first quarter to quell public discontent through public spending increases [as reported by Executive in April].
The measures reversed the previous policy of gradually lifting subsidies and instead increased heating-oil allowances for public sector employees by 72 percent, equivalent to $33 a month, in a move that would, he said, “cost the government an extra $326 million annually,” while cutting the price of diesel by 25 percent, from 20 SYP [$0.42] to 15 SYP [$0.31] per liter. Another appeasement effort in the first quarter was the implementation of a social security fund of $250 million to help the neediest families in Syria; however, allegations of corruption have been rife and there has been little official mention of the program, or the allocated money, since.
Adding to increased government expenditures is the cost of suppressing the uprising itself. According to a source in the regime, armored trucks regularly leave the central bank loaded with cash to finance the regime’s makeshift militias, made up of shabiha and hired thugs, Baath party members and public sector employees. Although Jleilati claims that Syria’s foreign currency reserves at the central bank still exceed their pre-crisis level — $18 billion — the government appears to be hoarding foreign cash, having disallowed banks and exchange bureaus from handing out United States dollars and other major foreign currencies.
Also casting doubt on the foreign currency reserve claims of the finance minister is the fact that Syria’s international trade has plummeted. Europe, which accounts for a third of Syria’s exports, has been withdrawing its support by boycotting Syrian companies; recently, experts from Austrian and German companies left the filters and coolers in the Adra Cement factory half installed and returned home, citing new protocols of boycotting Syrian companies, while the European Commission froze all its programs and support. Further, Turkey, which accounts for a quarter of Syrian exports, has been retracting its support and business; many companies dealing in textile, clothing and manufacturing are losing their Turkish customers and investors and are shutting down.
One recent example is the General Wool and Carpets Manufacturing Company in Aleppo, one of the giants of the sector that was formed with the merger of the Hama Wools Co. and Damascus and Aleppo Carpets. As Executive went to print the company had shut its gates, unable to pay its workers’ wages.
Another engine of the Syrian economy and significant source of foreign currency, the tourism and hospitality industry, has also come to a grinding halt. “I fear that we will have to fire [staff], as we’ve already sustained heavy losses due to the unrest,” said an investor in the hospitality sector who requested anonymity. “If the people can’t go out at the weekends because of the protests and intimidating security personnel and check points spread everywhere, how are we supposed to make money?”
According to the Syrian Ministry of Tourism, the tourism and travel sector accounted for $8 billion in revenue last year, or 12 percent of Syria’s gross domestic product, employing 792,000 people (some 11 percent of the workforce). This year, what was expected to be a boon season with 8.5 million tourists is being devastated by cancelations, affecting all tourism-related businesses in the country, from tour operators and hotels to airline offices and car rentals. Occupancy rates at hotels in Damascus at the end of June did not exceed 30 percent capacity, while Aleppo hotels were nearly empty. Many countries have issued travel warnings to Syria, inhibiting the chance of a short-term recovery in the industry.
The ‘fall guy’?
The ejection last month of Rami Makhlouf from the regime’s inner circle is a sign that the turmoil in the streets is riling the elite. As the cousin of President Bashar al-Assad, Makhlouf was launched from relative poverty and obscurity to extreme wealth and national infamy, beginning his ascendency as Assad begun his preparations to assume the presidency in the late nineties.
Makhlouf, a billionaire, was at one point reputed to control 60 percent of the Syrian economy through a massive web of investments in telecommunications, construction, tourism and other sectors. On June 16 — shortly after the US had placed his holding company, Souria Holding, under sanction and he had sold out his most lucrative venture, Syria Duty Free, to a Kuwaiti consortium — Makhlouf announced he was resigning from business, selling his interests in Syrian mobile and internet provider Syriatel, and donating the profits of his investment to charity; he then left the country with his family.
While Makhlouf, widely reviled as the epitome of corruption within the Syrian regime, may have been sacrificed in an attempt to appease popular sentiment, his ilk remain of paramount importance to the Assad family’s rule. The president’s sway in the street has eroded with the growing waves of protest around the country, but he has largely maintained his support among the wealthy businessmen and merchant classes in Damascus, and the industrialists of Aleppo — a crucial pillar of his power base.
However, as the economy languishes, businesses close and fortunes evaporate, so too will this support.