* Economy hit by unrest across big range of sectors
* Currency, foreign reserves under pressure
* Access to trade financing becomes more difficult
* Investment projects progress more slowly
* May affect political stance of business community
By Suleiman Al-Khalidi
AMMAN, Oct 12 In a restaurant in the once
bustling Hamidiyah souk of the old city of Damascus, waiters
prepare to serve a handful of customers in an ornate room with
many empty tables. A singer now performs there weekly, instead
of every day.
"The number of customers has almost halved," says Ahmad, a
manager at the famous Abu al Izz restaurant, as he reminisces
over days when he would turn away diners who could find no place
to sit at the establishment's 250 tables.
Across cities, towns and rural parts of Syria, six months
of pro-democracy protests aimed at overthrowing President Bashar
al-Assad, and their violent suppression, have claimed hundreds
of lives and put severe stress on the country's $60 billion
Business sentiment has soured alongside a strong security
presence in the capital and major cities, while in the restive
provinces of Hama and Idlib, army checkpoints have transformed
some residential areas into conflict zones.
In the five years before the uprising, when the authorities
reformed a Soviet-style command economy to allow greater private
sector involvement, boutique hotels sprang up in the old city of
Damascus to cater to tens of thousands of tourists from Europe
and weekend visitors from neighbouring countries. Many of these
hotels say they are now welcoming few if any guests.
"There is no occupancy at all and I don't know if I am going
to close or continue," said the owner of a 12-room boutique
hotel in an area where several establishments that housed
European and American tourists have shut.
"I wish we could see foreigners, but the only people in the
old city are Iranians. These are now the only visitors, along
with weekend shoppers from Lebanon who are supporting the
markets," the owner, who requested anonymity because of the
sensitivity of the issue, said by telephone.
The economy has also been hit by international sanctions
designed to pressure Assad, including a ban on Syrian oil sales
to the European Union. The country has been earning some $2.5
billion a year from oil exports but must now look for customers
further afield, who may pay less than Europe.
Last month Syrian Finance Minister Mohammad al-Jleilati
played down the impact of the sanctions on government revenues,
predicting the economy would grow 1 percent this year. Syria is
cushioned by foreign reserves that were estimated at around
$16-18 billion before the crisis -- a sizeable amount for an
economy of its size -- and low government indebtness, estimated
at just $6 billion by private economists.
But businessmen and analysts say the economy is shrinking;
the International Monetary Fund last month forecast a 2 percent
contraction for Syria in 2011, in contrast to 3 percent growth
which it predicted earlier this year. Some private economists
think the recession could be worse.
"The impact of the unrest is very negative and in many
sectors it's hard to quantify, but there is a recession almost
across the board, from tourism to real estate to investment,"
said Nabil Sukkar, a former economist with the World Bank who
runs an economic think tank in Damascus.
Last month authorities imposed a ban on most imports in an
effort to save foreign currency reserves, but this was revoked
days later after soaring domestic prices provoked outrage in the
business community, which has close ties to the government.
"The ban was short-sighted. It would have led to
unemployment and encouraged smuggling. Even now prices have not
gone down sufficiently as yet," said Sukkar, who predicted the
economy would suffer stagflation -- stagnant growth and high
inflation -- in coming months.
The authorities subsequently announced the central bank
would reduce its role in financing imports. Minister of Economy
and Trade Mohammad Nidal al-Shaar said the government had made a
"mistake by financing everything in the past and is now leaving
businessmen to seek other financing outlets".
Now, monetary authorities will only help importers of basic
commodities and essential foodstuffs with tariffs of under 1
percent, Shaar said.
"Let's say if we were financing 100 million before, now we
are only financing 25 or 27 million so as to prevent the
depletion of Syria's currency reserves, which is our wealth,
while continuing to finance the essentials and food requirements
"Frankly, I am against financing the imports of the private
sector by the central bank. This is not its job," Shaar added.
This has caused private businessmen to worry about access to
trade financing. In more normal conditions, private banks could
be expected to step in and play a bigger role, but this may be
difficult as the political uncertainty causes hoarding of
A run on the currency, the Syrian pound, was only averted
after the central bank raised interest rates. Bankers estimate
Syria's reserves have dropped by at least $2 billion this year
as the central bank has pumped in foreign currency in an attempt
to halt the pound's fall in the black market.
Despite its efforts, pressure has been mounting on the
pound, which has been changing hands in the black market at more
than 52 to the dollar. In recent weeks authorities have allowed
the official exchange rate to rise just above 49 pounds from a
previously fixed rate of 47.4.
"There is a shortage of dollars in the market and it's gone
up almost 10 percent in the last few weeks. No banks or the
state are selling dollars and you have to go to the black
market, where rates are going up," said Ghaith al-Mufti, a local
There is one bright spot for Syria's economy this year: the
end of a drought that has ravaged crops over the last few years.
Wheat production looks set to pick up to about 4 million tonnes
in 2011 from 3.4 million last year.
But this is unlikely to offset the damage to the economy's
medium-term prospects as the political uncertainty deters
Big investment projects to which Gulf investors have pledged
billions of dollars -- real estate developments and shopping
complexes -- have not been formally suspended. But at least some
of them appear to have been put on hold as local residents
report little or no construction activity at the sites.
In the fertile southern province of Houran, the unrest has
disrupted an important cash cow for state coffers in the form of
taxes that range from construction permits to electricity and
water bills, residents say.
So far many members of Syria's powerful business elite have
tacitly backed the regime. Merchants in Damascus and Aleppo, and
landowners in Homs and Hama, need to cooperate with officials of
Assad's dominant Alawite minority to conduct their businesses.
But as the economic slump continues, it raises the
possibility that businessmen will become more ambivalent or even
critical of the government.
"They no longer want Assad. They have lost respect for the
regime and they are saying, who are these people? They no longer
fear them as before," one prominent Damascus-based trader said
on condition of anonymity.
A textiles shop next to the Medhat Basha souk in Damascus
prominently displays a poster that reads: "We are with you,
Bashar al Assad, the merchants of Damascus."
The shopkeeper's neighbour whispers on the phone that
government security forces have in recent weeks been paying more
and more frequent visits to the area, reminding store owners to
hang posters and asking for a share of the shops' dwindling