Syria Today | Syrian Industry: Mission Impossible?

Facing an unprecedented economic crisis, Syria's industrial sector is banking on boosting its self-sufficiency to overcome Arab, US and EU sanctions.

By Rasha Faek
Photo Adel Samara

Syrian industry was struggling before the unrest started, but months of protests have weakened it even further. The national economy contracted by 2 percent in 2011 as sanctions were tightened against Damascus, a marked decrease from the 3 percent annual growth rate predicted by the International Monetary Fund (IMF) in April of 2011, the AFP reported. Private investment projects have stopped, capital has fled abroad, and oil sanctions imposed by the EU and the US have eliminated monthly revenue estimated at USD 400m. Moreover, industrial production has shrunk, exports have been cut in half, prices are steadily rising, and, according to the General Organisation for Social Insurance, unemployment has increased to around 25 percent.

"What we need today is to make ourselves more self-sufficient by distributing our resources and components of production more efficiently, [and] by better management of our trade and factories," Minister of Economy Mohammed Nidal al-Cha'ar told the AFP on November 24. Meanwhile, many Syrian manufacturers are calling on the government to take steps to save the battered industrial sector and allow it to survive the crisis.

Mounting pressures
"The extent of the damage is difficult to measure; the government says they do not have indicators. But they do not play down the gravity of the situation," textile industrialist Samer Othman told Syria Today.

Textiles are one of Syria's major exports, but the industry has been hit hard by the current political crisis. Aleppo, the unofficial capital of the Arab textile industry, has suffered especially. "More than half the textile plants in Aleppo shut their doors and left countless former workers unemployed, "Othman said. "Most of our work is linked to European markets, whose representatives refused to sign or even renew contracts with any Syrian industrialists. Others made supplying basic materials for manufacturing subject to impossible conditions," Othman complained, adding that finding alternative markets will take time.

Even before the crisis, the textile industry was shaken several times in the past few years, which has significantly impacted its output and profits. In 2008, high tariffs and an increase in fuel prices increased production costs. Then, in 2009, four years after concluding an Arab free trade agreement (FTA), many more such agreements were signed with neighbouring countries like Turkey to push ahead with economic liberalisation.

Eighty percent of the final value of Syrian textiles comes from their requisite raw materials, including synthetic yarn, fabric and accessories, 18 percent of which are imported.

According to Othman, the EU sanctions drove owners of foreign clothing businesses to import goods exclusively from China. "The Syrian textile sector is on the verge of collapse. It urgently needs practical solutions to survive," Othman concluded sadly.

Engineering and chemical industries are also suffering, because, according to the owner of a paint factory who requested anonymity, consumers are hoarding cash and have ceased buying all but the most essential items. "Our production capacity has decreased between 50 to 60 percent and trade is down 50 percent from last year," a factory owner told Syria Today. He said that many factories have stopped production completely in "hot" or restive areas, while many others suffer from workers' absences due to security incidents.

As sanctions forbid transactions in dollars, businesses have had to resort suddenly to the euro, he explained, which has entailed additional losses caused by the exchange process.

"There is no crisis management in Syria; it is the worst government in the history of the country," he declared angrily.

The food industry seems to be the one least affected by crisis, in part because consumption rose when many Syrians started stockpiling food in large quantities. Nevertheless, price hikes and discrepancies between the supply and demand for certain consumer goods have become fairly common in Syria. The import ban, though intended to limit the damage of EU sanctions on Syria, increased the prices of some commodities by up to 30 percent.

"Damage to the industrial sector is uneven. The sanctions affected the whole business cycle; however, the government's improvisational decisions played a more negative role," a supermarket owner in the Shalaan area of Damascus told Syria Today.

Emergency aid
Last September, President Bashar al-Assad issued a decree allowing manufacturers to reschedule their outstanding loans, state-run news agency SANA reported. The decision is supposed to benefit approximately 5,000 manufacturers over the next five years and provide the opportunity to revive businesses and reopen closed factories.

"It's a good step. However, we still need more facilitation of credit, especially for small and medium-sized projects," Vice President of Damascus Chamber of Industry Basel Hamwi told Syria Today. "The decline in production capacity is our key problem," he added, pointing out the importance of increasing production in order to decrease costs, find new mechanisms for financing imports and new markets for Syrian products, and most of all, to address fluctuations in the value of the Syrian Pound in a logical way.

On December 6, the Ministry of Economy and Trade announced the formation of a national committee to promote and market Syrian products, and to protect national industry. On December 21, the committee agreed to support five national industries, including textiles, particularly garments, as well as food and agriculture, furniture, home appliances, and electrical and aggregate industries.

"The team's task is a rescue mission in the sense that it should find quick and effective solutions to overcome the impact of sanctions," Director of Planning in the Syrian Ministry of Industry Rim Hilli told Syria Today. She affirmed that national products could easily meet the basic needs of the local market, and pointed out that the private sector now has a golden opportunity to develop and increase production.

"There are some limited sanctions on a few Syrian businessmen. But there are no sanctions which would affect private sector business," Hilli said, referring to 86 individuals and 30 entities that have been sanctioned by the EU since the beginning of the crisis.

However, Hilli argued, "the biggest victim of sanctions is the public sector." The Arab League sanctions include cutting off transactions with Syria's Central Bank, and the EU also blocked trading in Syrian government bonds. Therefore, she urged, "as a public sector, we need to reconsider our priorities in line with the new circumstances we are witnessing."

During "the economic war on Syria", as Foreign Minister Walid al-Mu'allem characterised it, Syrian industry stands to gain as well as lose, and has thus acquired a critical new mission. "As industrialists, we are making a mistake by not thinking of ways to develop our factories around these current limitations," Hamwi said.