Posted by Joshua on Saturday, May 28th, 2011
The EU lays off hundreds of Syrians as it suspends all aid programs for Syria. In a sweeping decision to punish the government for its violent crackdown on the protest movement, the EU will cease all all aid and shut down energy programs and development. Royal Dutch Shell is being pressured to quite the country as well. The construction of a 724-mw combined cycle electric plant near Deir al-Zor will come to an end. Who will be hurt more: the regime or the people? Perhaps European politicians calculate that it doesn’t matter because in the end there will be plenty of pain to go around. The object seems to be to bring Syrian economy to a standstill in the hope of bringing down the government.
In the meantime, Tunisia and Egypt are being promised 40 billion dollars. G-8: Nations, Banks to Give $40B for Arab Spring. A clear carrot and stick is being established to encourage regime-change in Syria.
As the crisis in Syria continues, many observers are beginning to say that if the protesters cannot overthrow the regime, the economy will. With political uncertainty at a suffocating level, the Syrian pound has fallen against the U.S. dollar. As a result, Syrians are feverishly hauling their money out of banks — about 8% of all banks deposits have been withdrawn — and shifting it into more stable foreign currencies. GDP was predicted to grow at a steady 6% this year. Now, predictions are closer to a negative 3% contraction. “I think the crackdown on protesters will succeed in the next two months,” a senior western diplomat in Syria says. “But in six months time, the economy will have taken such a battering that [President Bashar al-]Assad will have lost the support of the majority of Syrians.”
The economy had been key to Assad’s popular standing before the uprising. Portraying himself as a political and economic reformer, Syria’s President spent the last five years moving away from the socialist, centrally planned economy that has failed Syrians. With a team of economic liberalizers, Assad began to open up the economy to the private sector, encourage free trade and reduce subsidies. Tourism started to boom and foreign investment began flooding in. Suddenly, middle-class Syrians were able to afford new cars and houses. Consumerism developed as cheap foreign products, like Chinese TVs and heaters, entered the market. The espresso-drinking urban business class grew.
Now, however, the pillars of the new Syria are collapsing. Today, people are not buying cars. Actually, nobody is spending at all in Syria. People are working fewer hours and there are widespread layoffs — some companies have stopped paying salaries. In three months, Syria’s economy has gone from growth to slump even as the government is desperately trying to pay off its disobedient citizens with subsidies — money it does not have.
Tourism, which possibly accounted for up to 18% of the entire economy, was the first to go. A year ago, sandal-clad and camera-wielding hordes of European tourists would shuffle through the cobble-stoned souk of Old Damascus, who patronized the businesses of cocky young Syrians, many of whom speak five languages to cater to the flow of foreigners. Now the tourist touts sit on small plastic stools and drink sweet tea in their shops full of dusty carpets and silver trinkets. “The Old City is still safe, but it’s empty,” one shopkeeper said as he tried to sell a box of old coins from Syria’s eastern deserts, a once-popular souvenir here.
Most travel insurance companies have blacklisted the country; and Middle East tour groups are now avoiding Syria altogether, even choosing to fly from Turkey to Jordan, rather than busing through the country as they used to do. The shopkeepers of Damascus say many tourist companies have closed and the boutique hotels of the capital and Aleppo, the country’s largest city, are empty. “We will have to close soon,” one said.
The next economic support to go will be foreign investment. With dwindling oil reserves, the Syrian government has been betting on foreign investment to pay for more than half of all government spending over the coming years. Would-be investors are now waiting to see if the situation stabilizes or, increasingly, are simply taking their money elsewhere. A Qatar-based company recently scrapped plans for a $900 million project to build power plants here. “The prospects do not look good at all,” a leading Damascus economist said on condition of anonymity. “There is a deep sense that the crisis is ongoing and business is at a standstill.”
Worst of all, according to many in the Syrian business community, the government has backtracked on its liberalizing reforms in a last-ditch attempt to mollify the protesters, who complain of unemployment, corruption, low wages and high prices. On Tuesday, the Treasury announced it would further subsidize gas oil by 25%, the latest in a string of government measures, including generous salary increases for public-sector workers and reintroducing subsidies on food and fuel prices. “It is not feasible for the government to adopt a socialist economy again. They simply don’t have the money,” the Damascus economist said. “All economic moves have been short term emergency measures, there has been no strategy.”
Panicked by the protests, President Assad sacked his government in April in a move that one dissident in Damascus described as “a pretense to democracy.” The dismissals included Deputy Prime Minister for Economic Affairs Abdullah al Dardari, the architect of the economic liberalization. Although Dardari’s longer-term policies were not always popular among the poor, the English-speaking minister opened the economy to foreign trade and private banks brought credit into the country.
A European business analyst working in Syria says that while the unrest has hurt the economy, the government backtracking on economic policy could cripple Syria. “There is now an uncertainty over future policy. People want to know if they invest now they can be sure for 20 years,” he says. Assad’s emergency measures mean oil prices and inflation rates are now unpredictable. “When investors don’t have certainty, because you just sacked all the economic reformers, they won’t invest,” he adds. The analyst says that it is possible there could be rolling blackouts in Syria as the government is unable to attract foreign investment for new electricity plants.
Unlike in Egypt, where the educated middle class used their knowledge of the Internet and the media to help oust President Hosni Mubarak, in Syria it is the poverty-stricken masses that have led the protests while the growing business classes have sat tight. Soon, however, many of Syria’s business class — who are generally undecided on the anti-Assad demonstrations — will start to feel the pinch when they can’t afford to send their kids to schools or pay for hospital bills. The Damascus economist says that would be the beginning of the end for Assad. He says: “The business community does business with [Assad] cronies in government. They are willing to take some losses, but at one point they will demand reforms.
Regulatory watch: Syria
Economist Intelligence Unit – Business Middle East
1 June 2011
EU suspends aid. The Council of the EU on May 23rd announced that it has decided to suspend aid programmes for Syria in light of the ongoing repression of peaceful protests. This could potentially inflict serious damage on Syria’s economic prospects, as the EU has been one of the most important sources of finance for development projects for a number of years, even though the two sides have yet to sign an Association Agreement, the standard framework for economic co-operation between the EU and Mediterranean Basin states. The EU stated that it had decided to suspend all preparations in relation to new co-operation programmes and to suspend ongoing programmes under the Euroepan Neighbourhood Initiative and Mésures d’Accompagnement (Meda) instruments. EU members states would be reviewing their own bilateral aid programmes, and the EU Council asked the European Investment Bank (EIB) “to not approve new EIB financing operations in Syria for the time being”.
The statement said that the EU will consider the suspension of further assistance to Syria “in light of developments”. It also stated that signing of the Association Agreement is now not on the agenda. The agreement had been initialled in 2004, but plans to sign it the following year were scrapped owing to a worsening in relations over Syrian actions in Lebanon. As relations improved from mid-2008, the EU sought to revive the Association Agreement, whose principal feature is the lifting of trade barriers. However, the Syrian government objected to the insertion of fresh clauses about human rights, and a plan to sign the agreement in late 2009 was cancelled. There has been little progress since.
The lack of an Association Agreement has not been a bar to EU development assistance. The EU has provided more than €1.1bn in finance to Syria, with most of this being disbursed over the past decade. Energy has been a major beneficiary, with €615m of loans provided by the EIB for the construction of power stations and transmission and distribution systems. It is not clear what impact the EU’s latest action will have on Syria’s largest new power station project, involving the construction of a 724-mw combined cycle plant near Deir al-Zor by a consortium of Italy’s Ansaldo Energia and Metka of Greece. A signing ceremony was held in early February for loans provided by the Saudi Fund for Development and the Kuwait-based Arab Fund for Economic and Social Development, which together are financing about one-third of the estimated US$950m costs. The EIB has also been listed by the government as a major source of finance for the project, but the proposed loan from the bank could come into question as a result of the EU Council’s decision.
The EU is an important trading partner of Syria and a significant source of economic aid. In 2009 the EU accounted for 30% of Syria’s exports (mainly oil bought by Germany, Italy and France) and 23.5% of Syria’s imports. However, Iraq has recently emerged as the largest buyer of Syrian goods, accounting for 26% of total exports in 2009, and Turkey’s share of the Syrian import market has grown rapidly on the back of a free-trade agreement, reaching 7.6% in 2009. There is a risk that the unrest will hamper trade with these two countries.
G-8: Nations, Banks to Give $40B for Arab Spring, 2011-05-27
DEAUVILLE, France (AP) — Rich countries and international lenders are aiming to provide $40 billion in funding for Arab nations trying to establish true democracies, officials said at a Group of Eight summit Friday.
Officials didn’t fully detail the sources of the money, or how it would be used, but the thrust was clearly to underpin democracy in Egypt and Tunisia — where huge public uprisings ousted autocratic regimes this year — and put pressure on repressive rulers in Syria and Libya.
The overall message from President Barack Obama and the other G-8 leaders meeting in this Normandy resort appeared to be warning autocratic regimes in the Arab world that they will be shut out of rich-country aid and investment, while new democracies are encouraged to open their economies….
Tunisia’s government said it was asking the G-8 for $25 billion over the next five years, and Egypt says it will need between $10 to $12 billion for the fiscal year that begins in July to cover its mounting expenses…..
LONDON (Dow Jones)–Royal Dutch Shell PLC (RDSB.LN) is coming under pressure in the Netherlands to withdraw from Syria because of the Syrian government’s violent reprisals against pro-democracy demonstrators. Dutch non-governmental organization IKV …
أنهى الاتحاد الأوربي عقود مئات العاملين معه في مشاريعه في سورية وذلك بعد قرار تعليق جميع برامج التعاون مع سورية على خلفية استمرار “عمليات القمع” على حد ادعاءاتهم “ضد السكان المدنيين”.متناسين أن من يقتل هم المخربين وحملة السلاح المتأمر
وشكل مجموعة من الذين أنهى الاتحاد عقودهم صفحة على الفيس بوك يطالبون فيها بتعويضاتهم المالية وحقوقهم المنصوص عليها في عقود التوظيف، وأكدوا استمرارهم في المطالبة حتى الحصول على حقوقهم.
وتشير إحدى الموظفات في إحدى برامج الاتحاد انه وبدون سابق إنذار اخبرنا مدير البرنامج وهو أوربي الجنسية ان نغادر المكاتب وننهي العمل في يوم الخميس 26/5/2011، وتقول ان المدير ذاته كان يرفض مغادرة سورية لكنه غير رايه بشكل مفاجئ
Murat said:” …better one is to bankrupt the country through on-going economic paralysis. This will hit the elite classes where they will feel it – their pocketbook. Once their financial security is threatened, they will quickly get rid of Bashar”
I disagree with that ’stategy’ and in general on the described dangers of bankruptcy of the Syrian government.
This is the assumption Israel has for Gaza: We squeeze then economically and they will turn against their leaders.
The same assumption they had in 2006 : We harass them until they turn against Hezbollah.
Unfortunately this may work in western democracies, but in the middle east it can be the exact opposite!
None of the Arab leaders who fell were under any sanctions. In the contrary they were pampered by the Western countries, not for their democratic achievements, but because they has submitted to Number One Rule of the western countries: DO NOT THREATEN ISRAEL.
In Syria, this rule has been rejected by the Assad and the country has been burdened by sanctions for decades.
My view is that if more economical hardship is felt in Syria because of new sanctions, the Syrians will spontaneously regroup around their president and put the blame on the opposition and on the western countries.
So in the long run, these sanctions will have the exact opposite effect.
In addition, it will allow countries like Russia, China and Iran to find a open ground for more economical influence and sustained presence.
So the bankruptcy and isolation of Syria may reinforce Bashar Al Assad control of the country.
He still have at least one strong ally: Russia that is now courted by the western countries to save them from the Libya quagmire.
Contrary to the US, Russia does not dump its long term allies when they are in trouble.