Syria economy hit by demos but not collapsed: experts

AFP, Wednesday 24 Aug 2011

Protests which have rocked the country since mid-March has slowed economic activity by 40 per cent, with analysts predicting negative growth on the decline of tourism and investment

Syria tourism
A scene from more prosperous times: Syria's plunge in tourism has contributed to its 40 per cent economic decline (Photo: Reuters)

The Syrian economy, hit hard by five months of anti-government protests, could survive unrest and sanctions into next year but experts and officials warn of a sharp deterioration afterwards.

The protests, which have rocked much of the country since mid-March, have dramatically slowed economic activity, with analysts predicting negative economic growth in 2011 as a result of a decline in tourism and investment.

"During the first three months of the revolt, everything stopped because consumers were stunned," said Abdul Ghani Attar, vice-president of Attar Group, a Syrian conglomerate with investments in hotels, finance, pharmaceuticals and office equipment.

"Since June, economic activity has resumed, but is down about 40 percent from a year ago."

The 32-year-old continued: "For the moment, the private sector, which represents 70 per cent of GDP, has survived, but if the situation does not improve next year, the economy will really suffer. There is a risk of layoffs."

Even now, Syria's economic indicators paint a grim picture.

The Washington-based International Institute of Finance predicts the country's economy will contract by three per cent, and tourism, which accounts for 12 per cent of GDP and 11 per cent of employment, is sharply down.

The overall number of investment projects, meanwhile, are down 47.84 per cent in the first half of 2011 compared to the same period of 2010, according to official figures.

To make matters worse, the population are now only buying the bare necessities because of a fear of the unknown, according to Naji Shawi, who heads the Shawi Group.

The turnover of the Shawi Group, which is involved in food, pharmaceuticals, cleaning products and finance, is down between five and 10 per cent compared to last year, he said.

"Until now, the business sector is surviving, but if this crisis continues for more than six months, there will be problems," he said.

Syria's main stock market has plunged 40 per cent since mid-March and consumption is markedly lower, with clothing and electrical stores in Damascus lying bare.

The country imported just 2,000 cars in May, against 20,000 in March, and overall imports have halved compared to last year, according to a European diplomat, who spoke on condition of anonymity.

By contrast, building materials are booming because, with police occupied by widespread protests, unsupervised construction is on the rise. Street vendors are also doing well for similar reasons.

For the moment, the economic decline has not spread to the currency, as the Syrian pound is down just eight per cent against the US dollar since mid-March.

Syrian central bank governor Adib Mayalheh last week took increased steps to limit foreign exchange transactions, and the country still has around US$17 billion in reserves.

"They are probably lower now but in all cases we have no clear data on that," said Jihad Yazigi, editor of the Syria Report economic newsletter.

"Also, at least half of the budget goes to investment expenses, so the government could very well decide to skip most investment expenses (actually it has already partly done so) and use that for current expenses, i.e. salaries, running overhead," he added in an emailed response to questions.

Syria's 2011 budget amounted to $16.7 billion, 43.4 percent of which was dedicated to investment.

According to Shawi, Mayalheh told him that "during the good times, it (the central bank) held $5 billion to manage the fluctuation of the Syrian pound, and until now, it has injected $2 billion to support the currency."

The European diplomat, meanwhile, claimed that Iran had recently provided $6 billion to help Damascus manage the currency, but could provide no proof.

"The situation has deteriorated, but it is not desperate," said Lahcen Achy, a Syria specialist at the Carnegie Middle East Center in Beirut. "The regime can survive this for a long time."

Achy added: "The economy will not bring down the regime and if it did, it would take a very long time. Experience shows that regimes can survive under embargo because they can still smuggle in goods and money via Turkey and Lebanon."

"In any case, if he has to make a choice, the security forces will be the last to experience any cuts."

Shawi concurred, noting that "the West relies on the economic weapon, but one can always adapt. Look at Iraq in the past. Sanctions are good for headlines, but they hurt the people, especially the poor, never the regime."

A potential European oil embargo could have an impact, however, as 95 percent of Syria's oil exports go to Europe, amounting to a third of the country's revenue.

In the absence of a wider UN-backed ban, however, Damascus could still sell its crude to non-European countries. Russia and China have thus far blocked such an embargo.

In any case, according to an economic expert based in Damascus who did not want to be identified, "the 11th five-year plan which called for investment of $100 billion, half of which was to come from the private sector, is now out the window."

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