The Economic Effects of Syria's Turmoil Are Clearly Visible

Tourism is a key branch of Syria's economy and when hotels lay off workers and restaurants send waiters on vacation, the middle class is likely to join in the protests eventually.

A photo of Dr. Zvi Bar'el.
Zvi Bar'el
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A photo of Dr. Zvi Bar'el.
Zvi Bar'el

Not much new is happening in Damascus these days. The June issue of "Time Out" offers a modest selection of events - a concert by the Tunisian singer Lutfi Bushnaq, a piano recital by the Lebanese musician Rami Khalife, three lectures on classical music and a screening of the film "Waiting for Godot."

If you travel up north, to the city of Aleppo, you can hear a concert by the art association's musicians or simply wait until the demonstrations break out in that city - something that is expected to mark a turning point in the civil uprising. Meanwhile, Aleppo, a commercial city, is more or less quiet and resting on its laurels. The middle and upper classes still believe that the regime will be able to put down the protests and bring back the calm that is so vital for business.

Street vendors in old Damascus, in an area normally teeming with tourists.Credit: AP

But both in Aleppo and Damascus, the economic effects of the past few weeks' events are clearly visible. Journalists who recently visited Damascus report that the souvenir shops are deserted and no one is visiting the hotels or tourist sites. Tourism is a key branch of the Syrian economy - at $8 billion around 12 percent of gross domestic product - and when the hotels lay off workers and the restaurants send waiters on vacation, the middle class is likely to join in the protests eventually.

It's true that in his speech this week, President Bashar Assad spoke of the need to rehabilitate the economy, reduce the heavy bureaucracy and give everyone equal employment opportunities - a polite way of referring to the industry of mediators who "arrange" jobs. He also spoke of the need to cancel the required approval of Syrian intelligence for some 120 kinds of economic activities and to significantly lower fuel prices.

Sluggish growth

But none of this can create new jobs. The International Monetary Fund says Syria's economy will not grow more than 3 percent this year, compared with 3.2 percent last year. Meanwhile, the Syrian currency has lost around 17 percent of its value since the protests began three months ago.

But when Qatar announces that it is freezing the construction of two projects for producing electricity in Syria, and when other foreign investors are no longer setting foot in the country, the dream of economic rehabilitation seems to be receding. Syria was planning to reap some $50 billion from foreign investments in the next five years and privatize companies. But Syrian investors are well aware who stands to win the largest slice of the privatized firms, so they're not particularly interested in taking part in the tenders.

The symbol of economic corruption in Syria is Rami Makhlouf - Assad's cousin, who controls some 60 percent of the country's economy. Last week he announced he would forgo some of his profits in cellular telephone company Syriatel, most of which he owns, and donate them to charity. But no one was impressed. Makhlouf owns dozens of other companies in Syria as well as in the Emirates, Yemen and Eastern Europe. He controls the import of vehicles into Syria, including the BMWs the army buys for its retired top commanders.

"Makhlouf must go," Turkish Prime Minister Recep Tayyip Erdogan told Hassan Turkmani, the special envoy Assad sent to Erdogan to explain the events in Syria. Erdogan is quite familiar with the Syrian economy. Many Turkish companies do business there and Turkish banks have become the preferred destination for deposits by the ruling clique.

System of franchises

According to reports from Turkey, Maher Assad, the president's brother and commander of the presidential guards who is also involved in business up to his neck, complained that Turkish banks transferred some of these deposits to European banks. In this way, they endangered the family's investments if this money were frozen in a sanctions campaign.

But neither Makhlouf - who is known as "Mr. Five Percent" because of his commission for mediating government projects - nor Maher Assad plan to leave the billions they have amassed to the Syrian people.

The Syrian system of franchises that has enriched the people near Assad has hasn't typically bothered European countries that do business with Syria. When you know whom to turn to and how much to pay, you can get along well. But when pressure on Damascus mounts and the sanctions toughen - in particular, when it's not clear whether those who signed the agreements and business deals will remain in office - foreign businesspeople freeze their operations.

In the meantime, Syria can continue to rely on Iran, which has investments in Syria worth $ 1.5 billion that include a car assembly plant, a project with Venezuela for refining oil and investments in industrial agriculture. The question is whether Tehran will agree to lend or grant Syria the enormous sums it will need when wage hikes for the civil service alone will cost some $1 billion, 9 percent of the national budget. Will Arab or other businesspeople agree to rely on the economic guarantees that Iran will give Syria, and above all, does Iran have the funds to transfer to Syria when it too faces sanctions?

These question marks are increasing among the rich in the suburbs of Damascus and Aleppo, and reports from Syria talk about savings being sent abroad as concerns mount about the economy. It's possible that soon the better heeled too will conclude that Assad's regime can't remain in control, so they will demand that he be replaced. If that happens, the army will be the last line of defense, and it too is likely to break up.



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