SUPPORTING SYRIA'S EMERGING PRIVATE SECTOR

C O N F I D E N T I A L DAMASCUS 000559 SIPDIS STATE FOR NEA/ELA, NEA/PPD, IIP/NEA-SCA, EEB/TFS NSC FOR ABRAMS COMMERCE FOR BIS/CHRISTINO TREASURY FOR GRANT/HAJJAR E.O. 12958: DECL: 08/07/2018 TAGS: ECON EFIN ETRD ETTC KCOR PGOV SY SUBJECT: SUPPORTING SYRIA'S EMERGING PRIVATE SECTOR REF: A. DAMASCUS 199 ¶B. DAMASCUS 307 ¶C. DAMASCUS 234 ¶D. DAMASCUS 70 ¶E. DAMASCUS 438 ¶F. DAMASCUS 226 Classified By: Pol/Econ Chief Tim Pounds, for reasons 1.4(b,d) -------------- Summary -------------- ¶1. (C) After 45 years of Baathist socialism, private enterprise is gaining momentum in Syria. Over the past 18 months, the SARG has enacted six major economic reforms that were long advocated by international consultants but bitterly resisted by Baath Party apparatchiks. Encouraged by the reforms, educated Syrian expatriates are returning with much-needed expertise to hold management positions in a growing number of service-based companies. Young Syrians have more opportunities than ever before to study business and top graduates are gravitating towards private sector jobs for their lucrative salaries and increasing prestige. While the Alawi-dominated security services collude with illegitimate businessmen such as Rami Makhlouf to cloak their corruption as part of the new economic "reforms," legitimate business media outlets, NGOs and enterprises have high profile support from President Asad. These continuing trends strengthen Posts' contention (ref A) that the emerging Syrian private sector represents an influential bloc that we can support when it serves our interests (see para 11). End summary. -------------- Private Sector Gaining Momentum -------------- ¶2. (C) Despite continuing economic challenges wrought by 45 years of Baathism, inflation, diminishing oil reserves and declining agricultural production, private business is gaining momentum in Syria. In 2008, the private sector is estimated to employ over 65 percent of the Syrian labor force, compared with about 60 percent when President Asad assumed power in 2000. Public sector careers, once considered prestigious for their relatively high salaries, security and rare perquisites -- such as a private car -- are increasingly viewed by Syrians as low-paying backwaters populated by the uneducated, unmotivated and incompetent. Even though the SARG has incrementally increased public salaries by 100 percent over the past eight years (ref B), private sector salaries have outpaced the public sector over the same period -- making private sector employees better able to withstand the last two years of rampant inflation in Syria (ref C). -------------- Dardari Winning Internal Struggle...So Far -------------- ¶3. (C) The private sector's growing importance in Syria has been buoyed by six economic reforms the SARG has passed over the last 18 months (septel). Although bureaucratic implementation of the reforms remains somewhat inconsistent, Deputy Prime Minister (DPM) for Economic Affairs Abdallah Dardari's successive victories in championing the new legislation and cutting fuel subsidies by half (ref B) indicates that, so far, he is winning the internal political struggle with entrenched Baathist interests over the shape of Syria's economic future. For their part, the Baathists fear that Syria's transition to a "social market economy" represents the beginning of the end for a status quo system of patronage and corruption that has sustained their dominant socio-economic position. They also worry that economic openings, however small, will eventually lead to irreversible political freedoms that could eventually threaten the regime. Baathist unhappiness with Dardari's agenda is publicly expressed in the government-owned daily Tishreen, which has accused Dardari of corruption and of being the stooge of Western institutions such as the World Bank, IMF, and UNDP (where he is a former country director). Naysayers argue that the reforms are still long on talk and short on action, and that any economic reforms are suspect until they are matched by equivalent judicial reforms. -------------- Changing Face of Syria's Work Force -------------- ¶4. (C) Whereas private sector middle management positions in Syria were previously often held by Lebanese and other expats, the Syrian workforce is rapidly adapting to fill a growing number of white collar jobs. Encouraged by Asad's apparent support for the reform agenda, many young, educated Syrian expatriates are returning from Saudi Arabia, Qatar and Dubai -- and in some cases from Europe, Canada and the U.S. -- to assume management positions in Syrian start-ups. Fluent in English, accustomed to Western business practices and hungry for better relations with the U.S., the returning Syrians are excited by the opportunity to enter on the "ground floor" of a developing economy. Anticipating an even greater opening of the Syrian market, a veritable cottage industry has emerged of Western-educated Syrian business consultants competing to help foreign multinationals navigate the labyrinthine SARG bureaucracy. ¶5. (C) In addition to the returning expats, more middle-class Syrians are also joining the ranks of private sector management. Since 2000, four private business colleges have been established in Syria and eight private universities have begun to offer business majors. Syrian and foreign companies are actively recruiting from this pool of local graduates, with top firms such as Deloitte and Touche offering CPA certification training as a hiring incentive. While the medical profession is perhaps still the most highly-regarded private sector career, middle class Syrian parents from non-merchant families have in recent years begun to encourage their children to study business. -------------- Economic-Themed Outlets for Public Expression -------------- ¶6. (C) In a police state with heavy-handed internal security services, economic-themed media outlets and NGOs are among the few politically acceptable fora for freedom of expression of public assembly. Since its introduction five years ago, the weekly magazine al-Iqtissadiyah (The Economist) has been joined by al-Mal (Money) and a few less prestigious competitors. Published by dual French-Syrian citizen Jihad Yazigi, the subscription-based internet newsletter The Syria Report is widely recognized as one of the most accurate sources for economic information in Syria. ¶7. (C) Although NGOs in Syria are generally perceived as a political threat to the regime, two relatively new NGOs have high-profile buy-in from First Lady 'Asma Asad (Akhras). The Syrian Young Entrepreneurs Association (SYEA),founded in 2002, consists of over 300 members under age 45 who further its purpose of providing entrepreneurial support and practical knowledge to Syria's young business community. In 2006, both the President and First Lady attended a bi-annual SYEA job fair in Aleppo. While many business organizations, such as the highly-politicized Chambers of Commerce, have avoided interaction with the U.S. Embassy in recent years, SYEA members have consistently participated in Embassy rep events and maintained relationships with Emboffs. Founded in 2003 under the direct patronage of the First Lady, MAWRED (Modernizing and Activating Women's Role in Economic Development) is an NGO that offers a 3-12 month business incubator to help promising female entrepreneurs develop business plans and launch businesses that will independently contribute to the Syrian economy. Despite links with international NGOs, MAWRED has overcome pressure from the security services and the Ministry of Social Affairs and Labor and is expanding its operations. -------------- Alawis Eyeing the Pie -------------- ¶8. (C) Unlike the Sunni, Christian and Armenian communities, the Alawi are not known for their entrepreneurial acumen. With the exception of figures such as oil magnate Nizar al-Assad, Alawis are largely not represented among the top business families in Syria. Thus, the Alawi-dominated SARG security apparatus, which always had a parasitic relationship with the business families, is trying to reap financial benefits from each economic opening that legitimate business could exploit. The poster child for this strategy is Bashar's cousin and Specially Designated National Rami Makhlouf (ref D). As but one example reported in ref E, Makhlouf plans to benefit from SyrianAir's sanctions-related difficulties by launching at least two private airlines that will subsume SyrianAir's most profitable routes. Recently, we learned that Makhlouf's Cham Holding Company received a no-bid, multi-million dollar contract to build the first private power generation plants in Syria -- which will then sell electricity back to the SARG. Attempting to play both sides of the reform issue, Bashar wants to be seen publicly as supporting economic reform, but has so far not yet chosen to confront the Alawi nepotism. -------------- Supporting Projects that Further Our Objectives -------------- ¶9. (C) The aforementioned trends have strengthened our views (first expressed in ref A) that we should support a segment of Syrian society that is both increasing in domestic influence and inclined to favor better relations with the United States. Although the Syrian business class would prefer to develop relationships with the United States and Western Europe, Syria's political isolation has driven many of them to seek opportunities partnering with Turkish, Iranian, Indian, Russian and Chinese companies. At the same time, the private sector's growing prestige in Syrian society is, perhaps counterintuitively, matched by an increasing outward religiosity among the Syrian middle and upper classes. ¶10. (C) The installation of Lebanese President Sleiman and subsequent thawing in the Franco-Syrian relationship has increased international interest in foreign investment opportunities in Syria. We believe that if short-term internal change is to come to Syria, it will be driven primarily by Syria's Western-oriented business community. Any U.S. action that benefits legitimate businessmen at the expense of known corrupt figures increases our credibility with these vocal proponents of internal reform. ¶11. (C) Given the legal constraints that U.S. economic sanctions place on cultivating U.S.-Syrian business relationships, Post proposes alternative ways to engage those private sector entities that further our objectives of increased transparency, rule of law, and economic competition among legitimate businesses. Towards that end, we offer the following suggestions for increasing our public support for the Syrian private sector: -- PD Speaker Series: Based on the successful March visit of dynamic American entrepreneur Chuck Mills (ref F),we believe the Syrian private sector is eager to engage with more American business professionals. In June, U.S. Federal Judge Rosemary Barkett delivered a hard-nosed presentation on the rule of law and development of a judicial system at the British Syrian Society's first International Law Conference in Damascus. Of Syrian ancestry, Barkett and her message were very well-received by an audience that included SARG Justice Ministry officials as well as MFA Legal Advisor Riad Daoudi, in addition to progressive private sector attorneys and business people. We suggest bringing additional private American citizen speakers to engage Syrians on the importance of transparency and the rule of law in developing a more prosperous and globally integrated economy. -- Regional AmCham Exchange: In addition to promoting private American people-to-people contact with the Syrian business community, we also propose funding the travel of members of the American Chambers of Commerce (AmCham) in Egypt and other Arab states to Syria. Some of our Syrian contacts, particularly those who are U.S. university graduates, have expressed interest in forming a Syrian AmCham if and when the bilateral political relationship will allow. We believe that Arab business people with AmCham experience could be our best advocates for the economic benefits of a better political relationship with the United States. -- Damascus Stock Exchange (DSE): Although DSE has the strong support of President Asad, it is a private sector enterprise being established under the primary supervision of three progressive Syrian businessmen on the DSE Board of Directors. DSE plans to open in 2009 with an initial listing of 48 top companies, including ten of the relatively new private banks and insurance companies. DSE executives argue that the regulatory requirements for publicly trading securities will usher in a new era of transparency and legitimacy for the Syrian private sector. We recommend exploring avenues to support DSE and the legitimate businessmen who are interested in it. If successful, DSE could help level the commercial playing field and deal another blow to the corrupt Baathist system. CHASE