May 17 (Bloomberg) -- Joseph Bahri is determined to keep his pharmaceuticals factory in Damascus open, even though he’s running out of key ingredients and can’t afford to import more.
“We’re doing our best not to close down,” Bahri said in an interview in his office off a busy street of the Syrian capital. The factory owner says he’s already dropped several product lines since the uprising against President Bashar al-Assad began last year. Lamenting the plunge in the Syrian pound that’s driven up the cost of imports, he says he’ll stop making heart-disease drugs once a stock of raw materials imported before the devaluation runs out.
Fourteen months of violence have pushed Syria into a slump, with trade and tourism drying up and unemployment surging, without sparking an economic crisis so acute as to pose an immediate threat to Assad. Even as he’s continued to send security forces to crush protests after agreeing to a United Nations-backed cease-fire, his government has increased subsidies and put more Syrians on the state payroll, while businesses seek alternative markets in allied nations such as Iraq and Iran.
“The economy is going to continue to decline,” said Ayesha Sabavala, a Syria economist with the Economist Intelligence Unit in London, in a phone interview. “But whether the economy will decline to the extent that it will actually cause the regime to change tactics -- that is probably not likely. Not in the near term, anyway.”
More than 9,000 people have been killed by Assad’s security forces since March last year, when protests began as part of the wave of uprisings in the Middle East, according to a UN estimate in late March. The opposition, backed by the U.S. and most European and Arab nations, is calling on Assad to step down and pave the way for a transitional government, and increasingly taking up arms to fight his rule.
The president yesterday told Russian state television that sanctions are hurting the Syrian people not its government, and that this month’s elections showed the ruling Baath party remained popular. Splits have surfaced within the opposition. Burhan Ghalioun, head of the Syrian National Council, told Al Arabiya television today that he wants to quit as head of the umbrella group. The Local Coordination Committees, a network of activists, criticized the council and threatened to suspend its membership, the Associated Press reported.
Waiting for Gas
The pound has lost about one-third of its value, pushing prices higher and slashing the purchasing power of Syrians on fixed incomes. International embargoes have disrupted trade, bank lending has slumped and businesses have closed.
The $65 billion economy shrank 3.4 percent in 2011 and will contract another 5.9 percent this year while the budget deficit widens to 18 percent of output, the EIU forecast in March. Central bank Governor Adib Mayaleh, interviewed at his office in Damascus on May 10, said inflation was 15 percent in January, while declining to give data for growth or other indicators.
Sanctions plus devaluation have left imports scarce or too expensive for many Syrians. At gas stations, long lines of men wait to fill blue or gray cylinders with cooking gas. Oil Minister Sufian Alao told state television on May 12 that local gas meets 60 percent of needs, and said he is working to avert shortages by finding new sources for the rest.
At the other end of the market, a woman in a Damascus boutique asks to see the new collection and is told none has been ordered. Most of the customers who might be able to afford the clothes have left town, the saleswoman says. Another shopper at a food store says she can’t afford Betty Crocker cake mixes or Nutella chocolate spread after prices doubled.
Syrians are hoarding cash “because they don’t know what tomorrow will bring,” Sonia Khandji, a board member of the Damascus Chamber of Commerce, said in an interview. “We’re in a period of stagflation.”
More than 6,000 small factories and businesses closed last year, said Khandji, who runs a company that makes hair-care products. Some banks shut down in cities such as Homs that were the scene of the bloodiest clashes, she said.
Tourism has ground to a halt after a boom between 2005 and 2010, when arrivals rose 14 percent a year and revenue exceeded $7 billion, contributing 12 percent of gross domestic product and employing 13 percent of the workforce, according to Tourism Ministry figures.
In the capital’s covered Hamidiyyeh bazaar, there are few customers at shops offering embroidered tablecloths, boxes studded with mother-of-pearl, Persian carpets and clothes made from Syrian cotton. Some salesmen play backgammon, others were gathered outside their shops for coffee and a chat. A jeweler said he has received some business from Syrians selling gold rings, pendants and earrings to help pay for food.
Nabil Sukkar, a former World Bank economist and managing director of the Syrian Consulting Bureau in Damascus, which advises the government, businesses and international organizations, said private-sector job losses exceeded 100,000 last year, pushing unemployment above 20 percent. The government has reversed course from the liberalization it was pursuing before the revolt, and now employs more people. It also increased energy subsidies last year while maintaining payments for sugar, rice and pita bread.
Still, Sukkar said, the economy can survive the difficulties for at least another year. Agriculture, almost one-fifth of GDP, “is in very good shape because of two consecutive rainy seasons” and can make up for shortfalls elsewhere. Plus, Syria started the crisis with high foreign exchange reserves and low external debt of about $7 billion that leaves it room to borrow, he said.
‘Can’t Beat Us’
Sukkar cited the international embargo as Syria’s main economic challenge. “Unless the sanctions are removed, Syria is not going to go back to normal,” he said.
Businesses and consumers are adapting to life under the sanctions. Some traders buy banned goods from neighboring Lebanon or other Arab countries. Others are looking for new markets for their products, especially in friendly nations. Iraq and Iran are buying more Syrian exports, Sukkar said. More than 300 Syrian companies participated in a trade fair in Iran last month after the two countries signed a free trade agreement, the official Syrian Arab News Agency reported.
Syrian smartphone users have found ways around limitations on downloading applications. Some get hold of them abroad, where their online IDs work. Others have downloaded virtual private network connections or other proxies. Many just deposit their devices at local stores, which will install apps for fees ranging from 300 pounds ($4.73) each to 1,500 pounds for a multiple install.
“They can’t beat us,” said a female shopper in a pink baseball cap as she picked up her freshly updated phone from a computer store.
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