Change comes to Syria - slowly

Abdul Hassrieh, a Damascus-based partner at Ernst & Young

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DAMASCUS, Syria (Fortune) -- "Is it really true that you have falafel in America," an educated, English-speaking Syrian asks me at the Four Seasons Hotel in Damascus. And if so, he wondered, "what do you call it there?"

Welcome to the world of Syrian/American misconceptions and misinformation, which of course flows both ways. When I told family and friends that I was traveling to Syria, their first reaction was fear. After all, Syria is a rogue state teeming with terrorists and secret police, and I would quickly be accosted by one or the other -- or even both. While there certainly must be bad guys amongst the 18 million people living in Syria, I didn't come across any on my visit, though I did meet all manner of thoughtful and friendly people, some of whom were critical of both President Bashar al-Assad and the ruling Baath Party, as well as radical Islam.

"American?" a Syrian asks me. "Welcome," he says smiling. "Obama." Well of course it's not quite that simple. There are decades of serious bad blood between the countries. Syria has long acted as the perpetrator in the region -- ready, willing, and able to stick it to America and its allies. The State Department website outlines the official U.S. position: "Syria has been on the U.S. list of state sponsors of terrorism since the list's inception in 1979. Because of its continuing support and safe haven for terrorist organizations, Syria is subject to legislatively mandated penalties, including export sanctions and ineligibility to receive most forms of U.S. aid or to purchase U.S. military equipment."

In early 2005, the U.S. withdrew its ambassador to Syria after the assassination of former Lebanese Prime Minister Rafiq Hariri. But the Obama administration has recently signaled it will send an ambassador back soon, and the rumor is that Obama will visit Syria this fall.

There are other signs that this stalemate of mistrust may not last forever. Damascus is said to be the oldest continuously inhabited city in the world, and so maybe it makes sense that change comes slowly here. To be sure, on the outskirts, Damascus already has what must be one of the planet's most complete car shopping districts, with vehicles from Detroit, Europe, Persia, and China.

But walk the streets of downtown and it feels like you are in a 1950s Soviet-style city, until you hit the old city and the Al-Hamidiyah Souk, and then you slip even further back in time -- as in centuries. There is an almost complete paucity of Western products amongst the hundreds of stalls, and you wonder if the scene is fairly close to what delighted T.E. Lawrence some 100 years ago. While change here may ultimately be sad for nostalgia-driven tourists, it could be a blessing for the average Syrian.

"Syria is an economy in transition," says Abdul Hassrieh, a Damascus-based partner at Ernst & Young. "There is growth here as the socialist economy is released into a market-based economy, even given the global slowdown." Just don't call it privatization, Hassrieh says, because often it isn't. It is more a matter of reform. And again, it is slow.

One key step has been separating ownership from management. In the case of a large but profitless paper mill in eastern Syria in Deir ez-Zur near the Euphrates, management was turned over to a Syrian ex-pat paper magnate, Nabil Kuzbari, whose Austrian company Vimpex has turned the operation around. But the Syrian government still owns the plant.

In other sectors progress has been less glacial. Nine years ago, there were no private universities in Syria. Today there are 14. In 2000, there were six government owned banks and one insurance company (read: monopoly); today, there are seven new privately owned banks and 11 private insurers. The younger Assad, who took over in 2001 after his father President Hafez al-Assad died in 2000 (he had ruled the country since 1970), deserves credit here. Still, make no mistake about it: "The president is a modernist, but he is not a democrat," says the head of a leading Syrian think tank.

Getting real economic data is tricky. The economy is still primarily agricultural, but how much exactly? No one is sure. The target for GDP growth was 7%, and sources say it actually exceeded that over the past five years, but it might be less. In 2000, the private sector accounted for 40% to 45% of GDP. Today it's more like 65% to 75%. But oil production is said to have fallen from 600,000 barrels a day to 350,000, which is either a reflection of dwindling supply or poor management. Or both. And there's unemployment. Is it 8%, the official figure? Or 12%, or maybe even 18% as some suggest?

Our brand of capitalist precision doesn't quite seem to compute in Syria. For instance, if you drive the 220 kilometers east into the vast desert to Palmyra, a sprawling and spectacular ancient ruined city (beside an endless number of military camps), you will see Bedouin tents, lonely crossroads with some young dudes selling beads, and at Palmyra itself, a guy offering you a ride on his camel. Are these folks employed? They are certainly trying to eke out an existence.

It's a pity more Americans don't get to see Damascus and Palmyra. It's also a pity that many Syrians look at me wide-eyed like I'm from another world, or that they have such limited opportunities still. If market reform, political responsibility, and engagement with the rest of the world are truly coming to Syria, all that could change. Slowly.