Closed shops in the southern protest hub of Daraa, Syria earlier this year.
Credit: Louai Beshara

In the first of a two-part series, GlobalPost examines the steep decline of the Syrian economy since the pro-democracy uprising and the subsequent crackdown began. In Part 2, we will examine the regime’s response what has become a major threat to its power, and the escalation of international sanctions against it.

ALEPPO, Syria and BEIRUT, Lebanon — Mufid’s small manufacturing business once employed 50 workers, who stitched together women’s clothes in a poor neighborhood on the edge of Aleppo, Syria’s commercial capital and its largest city.

Mufid would buy the raw textile from the local company he had dealt with for the last 10 years and rather than pay cash on delivery he would, like most other small businesses in Aleppo, receive the goods through a system called “khamisat.”

From the Arabic word for Thursday, khamisat meant Mufid could receive his cloth for manufacture at the beginning of the week and only have to pay for them on the last day of the week, which in Syria is on a Thursday.

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Before Thursday’s payment, Mufid would collect money from retailers for that week’s sales, meaning he never needed to maintain a cash reserve, a vital breathing space for an enterprise with low margins and little to no capital.

“In Syria we don’t deal much with cash. Khamisat is the way we keep the business chain working,” Mufid said in a recent interview with GlobalPost in Aleppo.

A decade of doing business, however, quickly changed when the uprising that has gripped Syria began in earnest from mid-March.

Since the popular protests calling for freedom and an end to dictatorship began to sweep across Syria, and though much less affected than other major cities, businessmen in Aleppo like Mufid were told the old system of khamisat was no longer valid.

Afraid that the Syrian Pound would lose its value as domestic consumption withered in the face of President Bashar al-Assad’s deadly crackdown on protestors and the international outrage against it, Aleppo’s importers lost all confidence in their market.

The trust that allowed khamisat to function evaporated. Cash became king.

“They said there was no way to get even a meter of textile without cash. I asked them, ‘Don’t you trust me?’ and they said it was the new policy for everyone. But I couldn’t afford to pay cash to get raw materials and then wait weeks to get the money back from the retailers,” Mufid said.

“I used up all my savings through May and June and then told my workers, with tears in my eyes, ‘You have no work from the beginning of July. If there is good news I will phone you.’”

There hasn’t been the need to call.

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Mufid, a Sunni Muslim like the majority of Aleppans and Syrians, said he knew of dozens of other small business owners in Aleppo who were also forced to lay off staff and close down.

He said he was furious that the regime, led for the past half century by members of the minority Allawite sect, took his taxes but appeared unable to secure him the economic stability needed to earn a living for his family, the pact that had long kept Aleppo’s business community loyal to the Assad ruling family.

“The regime tries to satisfy us with nice words and promises for the future. But we cannot wait more months while President Assad and his team find a solution. Government employees still get their salaries every month, but we have lost our capital and our market,” Mufid said. “I can say all of Aleppo’s businessmen, traders and exporters are very angry.”

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Mufid’s story is just one small example of the increasingly fragile Syrian economy, which is struggling with market reforms after decades of Soviet-era central planning, and which is now in serious decline because of the chaos and violence that has led to the country's isolation from the international community over the last six months.

Seemingly immune to the most ardent calls from even once close allies like Turkey to reign in his murderous security forces, now believed responsible for killing more than 5,000 civilians since the uprising began, President Assad warned in a June speech that “the most dangerous thing” facing Syria was “the weakness or collapse” of the economy.

It was a rare piece of plain speaking from a president whose persistent denial and mishandling of the popular uprising against him has left even many supporters bewildered.

The startling statistics show that not only are the poor, rural classes — who moved to Syria’s cities to work and for decades formed the base of support for the ruling socialist Baath Party — being hard hit by the economic decline, but that Syria’s moneyed classes, old and new, have also seen wealth evaporate on an unprecedented scale.

Having grown by around 3.5 percent in 2010, the International Monetary Fund (IMF) had predicted further growth in the Syrian economy of 5.5 percent this year but lowered that to 3 percent in April before revising the figure down again on Sept. 20 to a contraction of 2 percent.

A leading Syrian economist, however, predicts things could be much, much worse; perhaps 10 times so.

“GDP will contract 10 to 20 percent this year. Only the fact that oil and agriculture, which make up 40 percent of GDP, and are not yet affected by the uprising, will help GDP not decline further,” Jihad Yazigi, editor of Syria Report, the country’s leading English-language economic newsletter, told GlobalPost.

Investment in projects in Syria in the first half of 2011 was down 43 percent, according to official figures, indicating the government had suspended its entire investment budget, which constituted 43 percent of the state’s $16.7 billion budget for 2011.

In a country where rates of extreme poverty, particularly in rural areas where two thirds of Syria’s population live, may actually have risen over the five year period from 2005 due mainly to the negligent handling of a chronic drought, and where unemployment remains stubbornly high — estimated by independent economists at between 15 to 25 percent — the investment budget was central the state’s plan to create jobs and wealth.

The Baath Party’s coming five-year plan calls for investments of $100 billion, half of which was to come from the private sector, but is now, in the words of one economic expert in Damascus, “out of the window.”

The country’s fledgling stock market, which opened in March 2009 and lists only 21 companies, including many Syrian and Lebanese banks, has plunged from its peak value of $3.068 billion on Dec. 26 last year to a low of around $1.752 billion on Sept. 19.

Some of Syria’s wealthiest businessmen have thus seen about $1.3 billion of their wealth destroyed by the evaporation of confidence in the country's economy triggered by the uprising and crackdown.

“Investors are looking for any signal of a positive change in market sentiment. It’s the herd mentality right now,” said a Syrian businessman who asked to remain anonymous, explaining the small rally on the stock market that took place on Sept. 21, after the announcement of a $40.8 million Syrian Sovereign Fund.

Investors hoped the Fund would pump money into their much depleted exchange, which since mid-August has been open for trading only three days a week.

“The really well established merchants can probably afford to hunker down and weather the storm, but I think a group to watch are the ‘new’ merchant class — those who really benefited from the last five years of economic opening up, those who invested in the stock market for example,” a Western diplomat in Damascus told GlobalPost.

“They must be feeling the pressure much more. … My sense at the moment is that they still support the regime and hope that Assad is still a reformer. But if the regime starts really reversing those economic moves, I wonder where they will come out then.”  

Abdul Ghani Attar, the 32-year-old vice-president of Attar Group, a Syrian conglomerate with investments in hotels, finance and pharmaceuticals, told AFP economic activity had all but ceased in Syria up until June, in the early months of the uprising. It had now resumed, but around 40 percent down from last year.

“Shops are shuttered, some restaurants are only opening at weekends, and it’s now become normal when you ask businessmen how things are going for them to say that only being down 20 percent is good,” said an economic analyst based in Damascus.

Foreign direct investment has also taken a pounding. Qatar was reported to have been threatened with the loss of $6 billion of investments in Syria as the regime lashed out at what it called biased coverage of the uprising by the Qatari-financed Al Jazeera network.

Tourism, which accounts for 12 percent of GDP and 11 percent of employment and is a crucial foreign currency earner for the isolated Assad regime, has been decimated this year.

“Normally at this time of year almost all the rooms are booked by European, American and Australian tourists,” said Abu Elias, a 60-year-old hotel manager in Aleppo’s Christian district.

“I have been waiting all year for the season but today I have 40 rooms and only five are booked: One Russian and four Syrians. I’ve lost two thirds of my income and have been paying my 70 staff half wages. But within a month I will have to close.”

Since Syria does not keep reliable statistics, few observers of Syria’s economy would hazard a guess at the jobs lost since the uprising began.

The only published statistics come from Sham Life, which said that more than 41,000 private-sector employees had lost their jobs nationally between January and mid-May. (Under one of Syria’s still Soviet-era laws, public sector employees cannot be directly laid off, except by a written decree from the prime minister.)

Those figures, however accurate or not, inevitably mask a much larger impact on jobs, said the Western diplomat, as thousands of businesses are believed, like Abu Elias, to be paying their staff wages even though income has dried up.

In a country with strong social bonds of kinship and community, many business owners interviewed said they would only lay off staff as a last resort. “One of my workers has 10 children, so I paid him his full salary even though he worked only half a month. I consider this money as charity,” said Abu Elias.

Sitting amid his empty restaurant opposite Aleppo’s grand Citadel, Ammar, a 35-year-old Kurdish waiter from a village outside of the city, said he feared there would soon be nobody to bail him out when the inevitable occurred.

“I’ve worked here for 10 years and this is the worst for me,” he said. “Four of my colleagues lost their jobs and I heard the owner will sack more. There are no foreign, no Turkish and no Arab tourists. I don’t even see many Syrians from other provinces.”

Ammar said his monthly salary of $143 used to be supplemented two or three times by tips from customers, helping him provide for his wife, four children and elderly father.

Now tips barely cover his transport costs and the soaring price of cigarettes from the one indicator that has yet to have fully impacted the economy but which analysts say is the regime’s ticking time bomb: inflation.

Ammar’s packet of cigarettes now costs him $1.53, up from $1 two months ago. The sugar in his tea has also gone up, almost tripling from $0.51 per kilo to $1.43 in just three months.

For now, at least, this kind of spiraling inflation remains the exception.

But what began overwhelmingly as a political uprising — protest banners adorned with calls for freedom from oppression, not an end to policies of market liberalisation — may soon, say observers, begin to turn on the economic costs of repressing it.

“Now we get less income, but we pay more for life’s costs,” said Ammar. “Usually, the young, rich people come here to smoke water pipes and spend hours playing cards. Now I see few of them because they don’t want to spend money.”

On Thursdays, khamisat, Mufid still goes around to some of his retailers in Aleppo, collecting payments for old orders. But with his factory closed down and workers laid off, he now spends empty days at home.

“I watch the news, and feel angry,” he said.

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A GlobalPost journalist in Syria contributed reporting for this story.

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