Dispatch

Inside Syria's Economic Implosion

Under the weight of sanctions and eight months of protests, the Syrian economy is starting to buckle. But that doesn't mean business leaders will abandon the regime.

DAMASCUS, Syria – A Quran sits atop a 4-foot Sony speaker in Wissam's modern Damascus office. It is 9 a.m., and Wissam, a stout 30-something businessman, seems flustered. He arrived a little late for this interview, wiping beads of sweat off his forehead before sitting down next to a cabinet, where books authored by Bill Gates and Warren Buffett peek out. Wissam's company owns the import rights for Sony products in Syria, but he's unlikely to sell many speakers or flat-screen televisions in the near future.

"Business activity has recovered slightly, but it is still down about 40 percent" since March, when the protests began, he said. "I think companies can survive another six or maybe even 12 months, but beyond that it will be impossible."

Wissam, like others in his position, is trapped. He recognizes the regime's actions have damaged the country's businesses, but feels powerless to do anything about it. "They feel they are under siege, and they won't be moved," he said, referring to the authorities.

Syrian business leaders, with much to lose and deeply fearful of the regime's security apparatus, are unlikely to join the country's ongoing revolt anytime soon. Even the businessmen interviewed for this article blanched upon seeing their remarks about the dismal state of the Syrian economy in print, quickly requesting anonymity to express themselves freely. The government's rose-tinted pronouncements about the condition of Syrian finances aside, there is no doubt that the country's economy is in dire straits.

The official line is that Syria's economy is fine. In an August interview, Central Bank Governor Adib Mayaleh said that foreign reserves remain strong at about $18 billion -- the same figure he was quoting earlier in the summer. President Bashar al-Assad has been somewhat more honest, arguing in June that "the most dangerous thing we face in the next stage is the weakness or collapse of the Syrian economy."

But the facts on the ground are irrefutable. The International Monetary Fund projected in September that Syria's economy will shrink by about 2 percent this year. Tourism, worth about 12 percent of GDP, has ceased completely. Employees in the huge and overburdened state sector have been asked by the authorities to "donate" 500 Syrian pounds (about $10) from their monthly salaries to help boost state funds. Deposits in Syria's private banks declined as much as 18 percent in third quarter of this year, according to figures released by the Damascus Securities Exchange, despite high interest rates meant to shore up bank coffers.

Yehia is the vice president and executive director of a major aluminum manufacturer and is from a family business that owns several car dealerships. "Before the crisis we sold between 12 and 15 cars per day," he said. "Today we sell two or three."

But though Yehia is openly critical of the regime, he denies that Syria's merchant class is primed to move against Assad. When asked whether he would financially support the Syrian National Council, the umbrella group that claims to represent the protest movement, Yehia said he would. "But it is just way too dangerous; there are spies inside the opposition."

The United States and the European Union have responded to the escalating violence by slapping new sanctions on Syria, effectively isolating the country from the world financial system. Funds held in international banks cannot be accessed through Syrian banks, meaning that foreigners in Syria hoping to get cash through local ATMs will be left disappointed. Sanctions have also driven credit card companies out of Syria, denying businessmen access to an important means of making transactions. Popular Turkish clothing items that once swelled the Syrian market can no longer be found. One businessman who imports generators from Turkey complained he can no longer get letters of credit from overseas banks. "No one wants to do business with us anymore," he said.

Wissam, the vice president of a leading Damascus-based conglomerate that has interests in Syria's pharmaceutical, imports, banking, hotel, media and foreign exchange sectors, notes that these sanctions have already kept numerous companies out of the country. "BlackBerry couldn't enter the Syrian economy because, as a Canadian company, it didn't want to go against America's lead in sanctioning Syria," he said.

As he points out, the West's economic moves will undoubtedly affect all Syrians, rather than just a narrow few. "The sanctions are supposed to affect certain individuals, but we know this will not be the case," he said.

But while sanctions have no doubt harmed Syria's economic outlook, other wounds have been self-inflicted. In September, the Syrian government imposed a ban on imports that carried a tariff of over 5 percent, resulting in hoarding and a dramatic rise in the price of household staples. The arbitrary nature of the products that fell under the ban only further incensed the business community. Swordfish were at first exempt but later banned; fish with teeth from Australia and Antarctica, however, were allowed. Saddles and bicycle seats, too, were exempt under the ban. Car imports were banned. Perishable food products on the way to or at the border had to be thrown out. Syrian businessmen and the wider population scratched their heads in wonder.

Realizing its error, the government reversed the ban less than two weeks after it was imposed. In an attempt to boost government revenues, a 10 percent increase in Syria's car import tax was introduced in October following its cancellation.

Mohammad, the vice chairman and managing director of a group of companies involved in retail, agriculture exports, and marketing, blasted the import ban as "completely dimwitted; it made no sense at all. It was made without any notice, any plan, any research," he said.

Mohammad believes the decision to introduce the ban was made by Mayaleh, the central bank governor, whom he holds responsible for the massive depletion of the state's foreign reserves. "For months Syrians were able to take out up to $10,000 per month, and this destroyed the state's dollar reserves. It was a stupid decision -- of course everyone who had money would convert to dollars," he said.

Although the Assad regime's relationship with the business elite in Damascus and Aleppo has long been a pillar of its strength, Mohammad said that the merchant class was too cowed to register its discontent with the import ban. "The Damascus Chamber of Commerce should have resigned," he said. "They were afraid to go further up to the president and ask about why this decision had been made without the business community."

He thinks the import ban was revoked so quickly because the regime realized other countries would simply stop imports of Syrian goods in retaliation, not because the business community used its muscle to pressure the regime.

The same dynamic appears to hold true in Aleppo, Syria's most populous city, which has largely avoided the mass protests that have seized other parts of the country. "I visited Aleppo recently, and the businessmen there are totally pro-regime -- every single one I met," said Abdullah, a managing director of a glass and steel manufacturing company. "The business communities in other cities and around the country think the Aleppo businessmen have betrayed them, and this could cause problems in the future."

On the street, Syrians have had to tighten their belts. The price of cigarettes, for example, has gone up between 40 and 50 percent. Mazout -- the diesel oil used to fuel the country's transportation system and which will be needed to heat 22 million Syrians this winter -- is reportedly running at more than double the official price.

As sanctions take their toll, the regime has also been forced to increase its spending just to keep the economy afloat. The government has increased its budget for 2012 by 15 percent to $26.5 billion, according to al-Watan, a pro-regime daily.

With oil revenues set to plummet, however, where will the money come from? Oil exploiter Gulfsands Petroleum has been asked by the state to decrease production due to a lack of storage. Syria attempted but failed to barter crude oil for fuel during a tender offered in September. This month, the European Union will cease importing Syrian crude oil following a decision made in September. Prior to the ban, Syria exported about half its crude production, with the EU by far its largest market.

Foreign currency is growing increasingly scarce in Syria as both businessmen and the general public seek to get their hands on safe euros and dollars. Abdullah, the glass and steel manufacturer, admitted that he tried to buy $100,000 from the black market several weeks ago, but couldn't. "It simply isn't there," he said.

He explained that imports taxed over 1 percent have to be paid in foreign currency to the Central Bank and that businessmen turn to the black market for those funds to finance that expense. "We pay 53 Syrian pounds on the dollar [on the black market], but this is increasing," he said. The official rate stands at about 49 Syrian pounds to $1.

Many businessmen told me that though their fortunes were down, their companies are surviving and they have managed to avoid mass layoffs. Wissam said that his company has avoided firing anyone out of "patriotic duty."

The reluctance of some employers to lay off workers may play a role in tempering the protests. Few are positive about the future, however. "I won't go and protest; I've got a degree, and I could leave the country," said Mohammad. "But my employees probably would, should they lose their jobs."

With thousands out of work since the unrest took hold last March, many restaurants in Damascus, particularly those that cater to low- and middle-income Syrians, are empty. Around the capital, clothes shops are continuing summer sales well into fall. Taxi drivers complain of empty streets. Fear of the future is palpable.

It is clearly fear of the country's security apparatus that concentrates the minds of many businessmen. "There is too much fear for any business leader to turn against the government," Yehia said. "The security can get to whoever they want -- it doesn't matter how big the businesspeople are. There are no boundaries. It [turning against the regime] is just not going to ever happen."

ANWAR AMRO/AFP/Getty Images

Dispatch

Zuma's Revenge

Is South Africa's embattled president finally getting tough on corruption? Or just going after his enemies?

JOHANNESBURG – When South African President Jacob Zuma fired two cabinet ministers and suspended his police chief in late October, questions swirled as to whether he had finally sent an effective, well-intentioned message to the notoriously corrupt officials of Africa's largest economy -- or whether he was merely using the guise of reform to shore up waning popular support as he prepares for reelection.

Additionally, the firing on Thursday, Nov. 10, of Zuma's popular main detractor and fellow African National Congress (ANC) party member Julius Malema, leader of the 350,000-strong ANC Youth League, points to the president's desire to keep his party unified as it prepares for national elections in December 2012. It will be the first time Zuma -- who ousted predecessor Thabo Mbeki in an internal party coup in 2007 -- has actually run for president.

The decisive action against both corruption and Malema -- a 30-year-old rabble-rouser other ANC leaders have labeled an embarrassment -- prove Zuma isn't taking any chances. The question is whether the president waited too long to act and whether his actions sent a loud enough message -- and whether the moves are too little, too late. His grip on power could already be slipping. A September poll from the South African marketing group TNS showed that 45 percent of adults in metropolitan areas approved of the job Zuma was doing, compared with 48 percent just six months before.

"He would have looked a hell of a lot better if he'd taken this action a hell of a lot earlier," says David Lewis, head of Corruption Watch, a new agency founded by the South African labor organization Cosatu. "I can think of few democracies in the world where they wouldn't have been gone ages ago. Zuma's had a lot of time to test the water."

The two October dismissals are the second time this year that Zuma has rejuggled his cabinet, attempting to appease critics who say he is too soft on corruption. Two prominent public aides, Cooperative Governance Minister Sicelo Shiceka (in charge of monitoring local governments) and Gwen Mahlangu-Nkabinde, the minister of public works, were let go, accused by Zuma of malpractice while in office.

The president's efforts to show a newfound dedication to eradicating corruption have so far been met with skepticism. Many in South Africa's political class believe Zuma has long benefited financially from corruption.

"Part of it surely was political posturing," says Thomas Cargill, co-chair of the Africa program at the London think tank Chatham House, and the need to massage the discontent that has been rapidly becoming more vocal ahead of the elections. "There's real anger over the culture of corruption that's built up the last couple of years. Zuma really felt like he needed to respond, and respond in a public way."

Members of the general public were not the only ones needing appeasement, however. Within his own party, Zuma has been fighting tooth and nail against an angry opposition. His conflict with the Youth League, which controls a sizable voting bloc, might be leading the president to look "more closely to union support, taking into account both public pressure and the new political divisions," says Lewis. Despite Malema's ousting, thousands of Youth Leaguers will continue to support him, remaining a challenge for Zuma, and Malema told South African television that "the gloves are off."

If so, Zuma may be in for a rough 2012. Last year, South African newspaper Mail & Guardian quoted Democratic Alliance leader Helen Zille as saying Zuma could not act against corruption as he himself was caught in a "corruption gridlock."

"Senior ANC members have so much dirt on each other, that they dare not take action against corruption," she wrote on her blog. "If one goes down, he will take the rest down with them.... Most people think Zuma needed to avoid jail so he could become president. Actually, the opposite is true. Zuma needed to become president so that he could avoid jail."

Despite Malema's reputation as a radical, on one thing the public and the Youth League share a similar view: their grievances with the Zuma administration, which extend beyond corruption to issues of gross incompetence and even economic stagnation. South Africa, once hailed as a success story after it climbed out of apartheid to become Africa's economic powerhouse and a leader in attracting foreign investment, now suffers from an abysmal youth unemployment rate. Last year, the OECD put it at nearly 50 percent, compared with 20 percent in similar emerging markets.

In the last two weeks, marchers have ventured through Sandton, an upscale suburb of Johannesburg, protesting joblessness and unnerving locals. Last week, a group in the country's northwest gathered to protest funds they said had been destined for workers but were misallocated by officials.

Inefficiency is a hallmark of Zuma's time in office.

On Nov. 4, Defense Secretary Mpumi Mpofu and the head of the South African Air Force both resigned after Deputy President Kgalema Motlanthe's plane experienced mechanical problems that forced him to miss an official state visit to Finland. The jet repeatedly experienced difficulties while in flight, including engine trouble.

"It's this kind of thing," Cargill says, "that is related maybe not to corruption, but to incompetence. They couldn't keep the plane in the air even with one of the most important people in the country on it. And it contributes to a wider feeling that serious reform is needed."

Whether Zuma will crack down further remains to be seen, but his dismissals of the two cabinet members were arguably the most publicized and debated attack on corruption in the country in years. "To say it's unprecedented is too strong," Lewis says, "but it's not routine. We don't have a history of corruption reform. We don't have a history of presidents firing ministers or them falling on their swords English-style."

A less charitable explanation is that Zuma is simply sidelining his adversaries. "One of the fired ministers was not a politically powerful person, from what I understand on the internal dynamics of the party," notes Lewis.

Questions also remain about Zuma's agreeing to the establishment of an inquiry committee into a multibillion-rand arms deal in which he himself has been implicated. With the two-year probe will come some fairly major investigations into the anti-corruption arms of the country's law enforcement agencies, implying that the committee could ultimately be the biggest sign that Zuma is taking a harder stance on corruption.

The effects of his efforts won't be evident for months. "There remains," Cargill says, "a lot of cynicism over the degree to which Zuma or the ANC hierarchy is really serious about clamping down on corruption, and this cynicism is founded in that this has been going on for years with very little being done about it."

In the meantime, keeping the country placated and stable might not be such a bad idea. On the morning of the Sandton demonstration, a South African businessman cruising toward the airport turned to those of us seated behind him.

"It's a good day," he said, "to be getting out of Jo'burg."

Daniel Berehulak/Getty Images