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20 Years of Power and $180 Million Divide Syria’s Ruling Family

By on June 1, 2020 0 323 Views

(Bloomberg) — On a hot July afternoon 20 years ago, Rami Makhlouf stood in a tent pitched on a central square in Damascus and extolled the virtues of his cousin, Bashar al-Assad. Days later, a referendum put an official seal on the Syrian presidency Assad inherited from his father. 

Today, Makhlouf is in trouble with the law and seemingly unable to directly reach Assad, the leader who turned the businessman into Syria’s undisputed economic czar. Assad is now allowing authorities to seize his assets following a dispute with the government over $180 million (C$245 million).

Syrians have been shocked and mesmerized by the family feud unfolding publicly in the past few weeks after Makhlouf posted videos on Facebook to air his grievances. The 50-year-old has morphed from one of Assad’s biggest defenders into the enemy within the Alawite sect that’s been at the center of power in the Middle Eastern country since 1970.

All the focus has been on the broken dynamic of two powerful men, yet the real issue lies in where Syria goes next. Makhlouf’s reversal of fortune comes as the regime emerges from a nine-year civil war that has devastated the economy. The feud may be playing out as a soap opera, but it may be more about a desperate quest for money and making an example of Makhlouf in an effort to show change is afoot.

The economy is still hit by western sanctions and on Thursday the European Union extended its measures by a year. The United Nations estimated in 2018 that the war cost Syria $388 billion in economic damage.

To attract investors to start reconstruction, Syria has to adopt a more transparent and less corrupt political and economic structure—at least on the surface, said Ayham Kamel, head of Middle East and North Africa at Eurasia Group, which advises clients on political risk.

“Rami is now a phenomenon of the past. This is an effort to destroy him as a single player,” said Kamel. “The main feature now is a movement to a more fragmented system made out of new business lords that came out of the war and other ones that have always been in Syria.”

Syria has entered an unprecedented phase of economic hardship. The Syrian pound, which traded at almost 50 pounds to the dollar when conflict erupted in March 2011, is spiraling out of control at such a fast rate it’s hard to keep track of it. Since mid-March, the price of basic commodities has increased 40% to 50%, according to the UN’s Food and Agriculture Organization.

Restrictions imposed to fight the coronavirus pandemic have hurt businesses. The collapse of the banking industry in neighboring Lebanon trapped billions of dollars deposited by Syrians.

The pursuit of a wealthy relative may have echoes of Crown Prince Mohammed bin Salman’s purge a few years ago as he cemented his hold on Saudi Arabia. But Assad is treading more of a tightrope: he needs to fix the economy while keeping his inner circle on board in the absence of substantial aid from Iran and Russia, which are battling their own economic demons.

At the heart of the dispute is money the government says Makhlouf owes in outstanding operational fees from Syriatel, the telecommunications company he heads. On Monday, the Damascus Securities Exchange said trading in Syriatel shares will be suspended from Tuesday until further notice. Makhlouf posted a video on Facebook on April 30, followed by two more in May, in which he said he’d paid all his dues to the government, including 12 billion Syrian pounds in taxes last year.

At times, he addressed Assad as “Mr. President,” urging him to send someone to check the documents proving he’s paid. The videos suggested his direct access to his cousin has been cut off.

While Assad, 54, has remained publicly silent on the affair, the government has banned Makhlouf from travel, arrested his top staff and confiscated his assets and those belonging to his wife and children. In 2008, the U.S. Treasury Department imposed sanctions on Makhlouf, calling him a powerful Syrian businessman and regime insider who “improperly benefits from and aids the public corruption of Syrian regime officials.”

In a May 17 video, Makhlouf said the latest measures against him and Syriatel will only lead to the destruction of one of the few lucrative companies that still exists in the country, one that he said employs more than 6,500 people, has more than 11 million subscribers and hands over half its profit in taxes. Makhlouf insisted the money he’s being ordered to pay is not a tax but rather “an amount imposed illegally” by people he didn’t name.

“Assad needs money desperately, to shore up the Syrian pound, to build things, to prove that there’s going to be a peace dividend, but he can’t do it,” said Joshua Landis, director of the Center for Middle East Studies at the University of Oklahoma. “So he needs Rami to pony up.”

A Syrian banker who lives abroad said the regime is coercing businessmen, including newcomers who benefited from the war, to pay up. Those who don’t will now have Makhlouf, once believed as untouchable, as an example, the banker said.

Indeed, Makhlouf’s downfall appears to be designed to herald a new restructuring of the economy, just as his rise did.

On that July 2000 afternoon in the Syrian capital’s Omayyad Square, Makhlouf spoke fondly of Assad. He said his cousin had the calm demeanor of his father, Hafez al-Assad, was neat and humble and always scolded family members when they ordered too much food because he hated waste. Hafez had died the previous month.  

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Bashar, a trained eye doctor, had returned from London in the mid-1990s following the death of his brother in a car crash to be groomed as his father’s replacement. He ran uncontested and went on to win 97% of votes, some smeared with blood to show loyalty. Makhlouf became Syria’s business face, much as his father had been for Hafez, with investments in telecoms, oil and real estate.

According to Ibrahim Hamidi, a Syrian journalist who covered Makhlouf from Syria before moving to London, he controlled about 8% of Syria’s prewar gross domestic product—which stood at $74 billion in 2012—and had influence over the rest.

Makhlouf became more or less the decision maker for the Syrian economy, said Hamidi, now a senior diplomatic editor at the Asharq al-Awsat newspaper.

In his 2000 inaugural speech, Assad promised to improve the lives of Syrians by modernizing antiquated laws, eliminating bureaucracy and revitalizing companies. Makhlouf was tasked with opening up the creaky, socialist economy. The result was a crony capitalist system that looked shiny on the outside, but retained the old patronage system.

“Everybody who was going to make money and gets the right to all the new projects and hotels and land purchases would have to kiss the hand of the president through Rami,” said Landis, a former resident of Damascus.

Soviet-style demonstrations to show loyalty to Hafez al-Assad were dispensed with. A close circle of influential businessmen would hold “parties” in a square near where they lived with sweets, music, flares and modern light machines and banners expressing love for the president. It was all orchestrated by Makhlouf to ensure everyone stayed loyal, according to Landis.

Allegiances are now shifting as the conflict winds down. The feud is unlikely to pose any threat to Assad, but it’s the first serious public rift in the family since Assad’s uncle, Rifaat al-Assad, tried to unseat Hafez in the 1980s.

“If you compare it with Rifaat, at least Rifaat had tanks surrounding Damascus,” said Landis. “What does Rami have? He’s got Facebook. What can he really do?”  

©2020 Bloomberg L.P. – Dona Abu Nasr

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