The wall of boycotts and sanctions gradually being erected around Syria could lead to a double-digit drop in economic output this year and remove a critical source of support for the beleaguered regime of President Basher Assad, economists and political analysts say.
Bloody day prompts US, Turkey to slam Assad
Syrian athletes may yet attend Arab Games
The Arab League decision over the weekend to suspend Damascus and its threat to impose economic sanctions not only strikes at the country’s foreign trade, which in recent years has exceeded more than 40% of gross domestic product, but at foreign investment and tourism, both of which are highly reliant on the Arab world.
If sanctions are imposed, they will buttress an economic blockade that includes long-standing US bans on doing business with Syria and a growing array of European Union sanctions. On Monday, the EU added 18 people to its list of Syrians subject to economic sanctions.
The combined effect could bring the Syrian economy to its knees, undercutting support that the Assad regime has enjoyed until now from Syria’s powerful business community, analysts said.
“Their interests have been threatened by the boycotts and sanctions and the downturn of the economy,” Ibrahim Saif, an economist at the Carnegie Endowment for International Peace’s Beirut office, told The Media Line. “So far they have stayed on the fence, but I wouldn’t be surprised if they change their view, at least by distancing themselves from the regime in preparation for what could come in the future.”
The business elite encompasses Assad’s fellow Alawites, a minority
sector who have enjoyed favored treatment during four decades of Assad
family rule, but more importantly Syria’s Sunni majority. It is Sunnis
who have been at the forefront of the eight-month-old rebellion.
The government imposed a ban on all imports carrying a tariff rate of 5%
or more on September 22 in an effort to save foreign currency, even
though it had claimed to have reserves of $18 billion. Twelve days
later, facing a huge outcry from businesspeople and consumers, it
reversed the decision.
Jihad Yazigi, the editor of The Syria Report newsletter, said the
flip-flop created a crisis of confidence among Syrians in the regime’s
ability to handle economy. Media reports, a drop in the black market
rate of the Syrian dinar as well as anecdotal evidence suggest that many
Syrians are smuggling their money out of the country.
In August, the government imposed a $2,000 a year limit on foreign currency purchases.
But figures published by the Damascus Securities Exchange shows that
Syria’s main private banks saw customer withdrawals grow by hundreds of
millions of dollars in the third quarter. Economists say that is a sign
that wealthy Syrians with foreign bank accounts are moving their money
Not everyone who watches developments in Syria is convinced the business
elite are ready to turn on Assad. Marcus Marktanner, who studies Arab
economies at Kennesaw State University in the US, said Syria’s rich and
powerful are too closely intertwined with the regime to dare turn on it.
“Liberalization [in the economy] that has occurred so far has mostly
benefited those who are close to the regime. None of these cronies will
turn against Assad. They would lose everything if the regime changed,”
Marktanner told The Media Line by e-mail. “The biggest threat to Assad
is the army. Better than sanctions against the regime would be economic
rewards for defectors in the army.”
Nevertheless, the unrest has by all accounts taken a heavy domestic toll
on the economy by bringing economic life in many urban areas to a near
halt. The International Monetary Fund said last month that Syria’s $60
billion economy might contract by 2% this year, but optimistically
projected a rebound in 2012.
Now, London-based Capital Economics said in a report released on Monday
that Syria’s GDP could shrink by 10% over the next 10 months under the
weight of international boycott as exports plunge by 50%. It said
tourism, which accounts for about 12% of the economy, will fall
substantially while foreign direct investment, which has risen 12-fold
over the last decade thanks in large part to capital from the Gulf.
Although not regarded as an open, trade-oriented economy, Syria has in
fact become more reliant on imports, exports and foreign investment. The
18-country Greater Arab Free Trade Area agreement went into force in
2005 and Syria signed a free-trade area agreement with Turkey in 2007.
Tariff duties on imports from countries around the globe were also
lowered, including for consumer items such as cars and garments.
“The difficult economic situation alone will not topple the Assad regime
but it will constitute a very important component of the
regime-toppling process,” Samir Seifan, a Dubai-based Syrian economist,
said in a comment in the British Telegraph
newspaper on Tuesday. “The regime has ceased to be a source of benefits
for the groups that are loyal to it. Instead, it is becoming a source
of economic crises, unrest and trouble.”
One ray of hope for Damascus is the piecemeal nature of the sanctions.
Russia and China have blocked efforts to impose them via the United
Nations. Neighboring Turkey, an important trade partner for Syria before
the revolution broke out, hosts the main Syrian opposition, offers
refuge to defecting Syrian soldiers and bars arms sales, but talk
earlier this month about placing general sanctions on Syria has not led
to a decision.
The EU has slapped asset freezes on some Syrian companies and entities,
and imposed an embargo on Syrian crude oil exports. Royal Dutch Shell
and Total have reportedly slashed oil production in Syria because US and
EU sanctions have warded off normal buyers of Syrian crude, causing
storage tanks to fill and forcing cuts in output.
Even in the Arab League, the decision to isolate Syria was not adopted
unanimously, with Lebanon and Iraq voting against measures. That could
be critical because Iraq took about 30% of Syrian exports last year and
Lebanon another 11.7%, making them bigger trade partners than EU members
Germany and Italy or Saudi Arabia.
“So long as Iraq keeps its border with Syria open, that will provide a
lifeline for Syria’s economy,” said Carnegie’s Saif. “Also Lebanon is
quite open. The size of trade with Lebanon is small but financial
services are important for Syria.”
Syrian Economy and Trade Minister Mohammad Nidal Al-Shaar told the Egyptian newspaper Al-Alam Al-Youm
on Tuesday that the Syrian economy is holding up well, with only
European oil investments badly hit. He said Syria was looking to boost
trade with countries that have not imposed sanctions.
"We have a lot of options ... including Mercosur [the Latin American
trade bloc] countries, Russia, Belarus, Kazakhstan, Africa and some
countries from Southeast Asia,” he said.