Syria’s business community decides

Syria’s business community decides

Syrian businesses are moving to border countries

Three years of civil war have devastated Syria’s economy, halving annual GDP since the uprising began in March 2011. Total economic losses are valued at more than $85 billion (around 150% of Syria’s pre-civil war GDP) as of March 2013, the most current available estimate. Unsurprisingly, these dire circumstances have shuttered most companies and driven many businessmen and traders to seek livelihoods outside the country, from neighbouring states to the Arab Gulf and even the West.

Some of these individuals have, in leaving, effectively severed their ties to Syria and the regime of Bashar al-Assad. Others have chosen to hedge their bets, staying on - either to demonstrate their support for the regime, or in hope that stabilisation of the security situation will allow them to profit from an eventual economic revival. On balance, however, the political deadlock and worsening security environment will ensure that capital outflow from Syria will be the dominant trend in the years ahead.

The high cost of doing business

It has become clear over the past three years that the Syrian government is unable to bring a decisive victory and regain the large swathes of territory it has lost to rebel fighters. Equally, the fractured resistance movement appears ill-prepared to remove - much less replace - the regime in Damascus.

It is against this backdrop that recent developments serve as a striking illustration of how much the business community’s perceptions have changed since the start of the uprising. At the time, corporate leaders were broadly prepared to accept the regime’s narrative that the ‘crisis’ would soon abate - only a relatively small minority were prepared to risk their fortunes (and their lives) by siding with the rebel movement. Syria today is no longer open for business to such individuals. The al-Assad regime has punished those suspected of being opposition supporters, confiscating their properties or bringing spurious legal charges in newly-established ‘counter-terrorism’ courts.

In contrast, business elites affiliated with the regime’s inner circle - through family, tribal, clan, religious and commercial links - have largely maintained and even expanded their operations in the country. Their sustained support even allows them opportunities to improve their socio-economic status by affording them preferential access to industries and sectors that were abandoned when competitors fled Syria.

Seeking safe haven

Most of those that have left the country have sought refuge in places like Turkey, Lebanon, Jordan, Iraq and even further afield, in Egypt, Qatar, Saudi Arabia and the UAE. Much of the news coverage about these refugees has focused on the negative spillover effects such as the refugee crisis, attending infrastructure and economic costs, competition over scarce natural resources and rising sectarian tensions.

That said, there have also been some minor but positive externalities - low-cost labour and re-orientation of regional trade patterns - that are helping to alleviate some of these pressures. Most important of all are the increasing capital flows to Syria’s immediate neighbours, which have benefited from the considerable cash injections flowing from the establishment of new companies and production plants, as well as joint ventures with local partners.

The case of Turkey provides a vivid illustration of this trend, Syrian businessmen have been among Turkey’s most notable foreign investors in recent years. According to a report published last year by the Union of Chambers and Commodity Exchanges of Turkey, Syrians were the owners and partners of more than 490 newly-established companies in 2013, accounting for more than 12% of the total 3,875 foreign-partnered companies in the same year. Several enterprising industrialists from northern Syria have not only shifted their capital, but also dismantled their manufacturing plants and reinstalled them in Turkish cities like Gaziantep.

Jordan has also been a primary destination for Syrian industrialists and investors. However, unlike some of Syria’s neighbours, the Jordanian government has been proactive in trying to attract more fleeing businessmen by offering incentives like expedited residency procedures. These measures would seem to be working: according to the Companies Control Department in Jordan, the number of Syrian-owned companies doubled to 702 in 2013, compared to just 317 in 2012. The same source estimates that Syrian businessmen have invested more than $78 million to build factories and establish businesses in Jordan over the past three years. While not a huge number in absolute terms, this type of FDI is essential to a relatively small economy like Jordan’s.

Other countries have been less reliably welcoming to Syria’s business community. Under the leadership of ousted President Mohammed Morsi, for example, Egypt had been an outspoken supporter of the Syrian opposition. In practical terms, this support translated into political and economic policies that afforded favourable status to Syrian investors, who responded by shifting their capital and investments into the country. However, since Morsi and the Muslim Brotherhood were deposed in July 2013, Egypt’s military rulers have reversed those programmes to punish members of the Syrian diaspora for their alleged support for the Muslim Brotherhood. As a result, a number of those who moved to Egypt in hopes of finding a warm welcome have decided to relocate again - this time to the Arabian Gulf, Europe or the US.

The network of sanctions busters

Despite the experiences of recent Syrian migrants to Egypt, the reality is that not all of those who left their home country did so as a rejection of the al-Assad regime. On the contrary, the impact of international isolation and sanctions on the Syrian government has given rise to a new class of Syrian expatriate businessman. Such individuals operate outside the country, but very much on behalf of the Syrian government, to circumvent sanctions in securing deals to obtain oil, fuel and food. Illicit activities of this type have proved vital to the survival of the regime - as well as lucrative for the companies and individuals involved in them.

Lebanon has been a natural operations base for regime-linked businessmen, with Beirut serving as a second home for some operating openly as representatives of the Syrian government. Others tend to be more circumspect, employing trusted Lebanese proxies to complete these deals on their behalf - for a substantial fee, of course. In December 2013, for example, Reuters unveiled a network of Lebanese, Iraqi, Egyptian and Iranian individuals and companies involved in oil purchases and shipping on behalf of the Syrian regime. Since the start of the uprising, several Syrian and non-Syrian individuals and companies have been identified as intermediaries for the Syrian regime, and dozens of them have been hit with US and European sanctions.

The worsening trajectory of the Syrian conflict, as evidenced by the prolonged diplomatic and military stalemate, certainly suggests that most of the country’s businesspeople will be outside its borders for the foreseeable future. This accelerating process will certainly hollow out the traditional formal economy, with the expanding war economy giving rise to a new class of economic elites. Conversely, countries like Turkey, Jordan, and the UAE are well placed to become commercial centres for the Syrian diaspora. Considering the substantial economic costs and infrastructure burdens that these countries are going to bear, Syrian investors throughout the region will play a key role in trying to relieve some of that pressure.

Published: 12th March 2014