Syrian tycoon finds himself at the center of the storm

Rami Makhlouf, a prominent businessman and cousin of Assad, defends his regime hit by EU sanctions to 'New York Times.'

By DAVID ROSENBERG / THE MEDIA LINE
May 16, 2011 20:54
Syrian protester against flag

Syrian protester against flag 311 (R). (photo credit: REUTERS/Muhammad Hamed)

Rami Makhlouf – a man with no official position in the government of President Bashar Assad  – has emerged as a central figure in the turmoil besetting Syria as an unofficial spokesman for the regime, a target for protester rage and a symbol of much of what is wrong with the country.

Syria’s most prominent businessman as well as a cousin of President Bashar Assad, Makhlouf positioned himself as a defender of the regime in a New York Times interview on Tuesday, warning that the region risked devolving into chaos if the president is toppled. The same day, the European Union put him on a list of 13 key Syrian figures whose assets have been frozen and their right to travel is restricted.

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 “Nobody can guarantee what will happen after, God forbid, anything happens to this regime,” Makhlouf told the newspaper. “ “What I’m saying is don’t let us suffer, don’t put a lot of pressure on the president, don’t push Syria to do anything it is not happy to do.”

The two developments on Tuesday have pulled Makhlouf out from behind the scenes, where he has preferred to work in his two closely intertwined roles -- as the country’s top tycoon and as a reputed member of its small circle of decision-makers. In fact, he was already singled out by protesters early on in the unrest when the local offices of Syriatel, the mobile phone company he controls, were set afire in the southern city of Dara’a amid chants of “Rami Makhlouf is robbing us.”

While opposition demands have focused on demands for more political freedom and regime change, Makhlouf’s rise to prominence underscores the extent to which Syria’s economic malaise is a factor in the unrest that erupted in mid-March and has cost close to 800 lives. Syria is not only stagnant politically but economically as well, failing to deliver jobs, economic opportunities or prosperity to its 21 million people.

Syria cannot easily reform its bloated public sector, obsolete industries and social safety nets,” said Marcus Marktanner, associate professor of economics at the American University of Beirut. “It can only introduce easy reforms, such as the privatization of telecommunication and other modern services. These sectors, however, are cash cows with very little trickle down effects on the labor market.”

“Since the political regime did not change, it is little surprising that such cash cows end up in the hands of cronies like Rami Makhlouf," Marktanner told The Media Line in an e-mail.

Efforts at privatization and deregulation in places like Tunisia, Jordan and Egypt failed to create a thriving private sector and enough jobs to prevent unemployment from rising. In Syria, the reform process barely got under way even after Bashar Assad took over from his father Hafez in 2000 amid hopes of fundamental change.

To the extent, there was movement toward free market it was people like Rami Makhlouf who enjoyed the benefits. Born in 1969, his father was the brother to Syria’s first lady, Hafez Assad’s wife, whose family is deeply embedded in the country’s power elite. Makhlouf’s brother, Hafez Makhlouf, is head of the Damascus branch of the General Security Directorate.

As Syria began tepid efforts at privatization in the 1990s, Makhlouf, whose father was an important figure in the Syrian’s government corporations apparatus, began acquiring and starting up companies. Critics say he used his family’s influence to win no-bid contracts and licenses. His biggest catch was one of two licenses the government tendered in 2001 to operate cellular-telephone networks.

To help him and his partners to build and begin operating the network, Makhlouf brought on an experienced partner in the form of Egypt’s Orascom Telecom. But once Syriatel was in business, the two sides quickly had a falling out and went to court. Orascom and critics say Syrian courts obliged Makhlouf with favorable rulings that froze Orascom assets and eventually forced it to divest its 25% stake on terms favorable to the Syrian partners.

Syriatel today controls more than half the mobile market and has in at least one case acted as a wing of the Baath party. When the United Nations in 2005 announced it was launching a probe into Syrian complicity in the assassination of Lebanese Prime Minister Rafik Hariri, Syriatel subscribers received text messages asking them to attend rallies showing "love of country and the rejection of external pressures,” according to a New York Times report of the time.

In 2008, the US issued a directive ordering Makhlouf’s assets inside any US jurisdiction frozen and barred Americans from engaging in business or transactions with Makhlouf.

"Rami Makhlouf has used intimidation and his close ties to the Assad regime to obtain improper business advantages at the expense of ordinary Syrians," Stuart Levey, undersecretary for terrorism and financial intelligence, said in a statement at the time. "The Assad regime's cronyism and corruption has a corrosive effect, disadvantaging innocent Syrian businessmen and entrenching a regime that pursues oppressive and destabilizing policies.”

Makhlouf denies he enjoys any special privileges or engages in corrupt activities. His supporters say he has created jobs and brought a modern business dynamic to Syria.

Whatever Makhlouf’s personal contributions might be, Syria’s economy as a whole is in bad shape. The Institute for International Finance (IIF) forecast in a report last week that gross domestic product will contract 3% and rebound by a just 2% in 2010. Like much of the Arab world, Syria suffers from double digit unemployment. The IIF estimated it was 11% in 2009 and for young people the rate is more than double that. While in places like Tunisia and Egypt, economists say reform efforts failed to create jobs and raise standards of living for most, in Syria they were barely given a try.

Economists say Syria faces real obstacles to privatization and liberalization, among them the bureaucracy’s lack of skills and experience in managing a free-market economy. The country’s political isolation has hindered reform as well. Countries in eastern Europe received considerable foreign aid to ease the transition from communism to capitalism, a crutch Syria lacks, they say.

But Lahcen Achy, a scholar at the Carnegie Middle East Center in Beirut, adds that top officials don’t have much interest in reform to begin with.

“It’s not easy for a regime that is against market reform to move to a market economy easily,” Achy told The Media Line. “The other issue is the old guard who wants to keep the socialist economy … They benefit from the situation. Public enterprises employ lots of people. A market economy implies you would have to lay people off from the public sector.”

As a result, the public sector remains the key player in Syria’s economy both in terms of production and employment, accounting for close to a third of employment – a relatively high figure for the region, Achy said.

When the dam finally burst two months ago, protesters chanted slogans calling for more freedom and eventually for regime change. But Marktanner said joblessness, stagnant standards of living, the crony capitalism symbolized by Makhlouf and the absence of economic opportunity factored in as well.

“Economic malaise played an important role,” said Marktanner. “Syria’s social safety nets have eroded while widespread economic opportunities have not emerged. At this point, the government lost its legitimacy.”


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