x Abu Dhabi, UAEThursday 27 July 2017

Emerging from economic shadows

Feature: A passion for transparency is just the kind of thing the Syrian government is promoting as it tries to flush its vast underground economy to the surface.

Free wheeling: shoppers at the ancient Hamidiyeh market in Damascus, Syria. Money changers are now leading the charge to modernise, even setting up banks.
Free wheeling: shoppers at the ancient Hamidiyeh market in Damascus, Syria. Money changers are now leading the charge to modernise, even setting up banks.

For years, Zhouheir Yassar Sahloul was the most powerful rogue trader in Syria. As the head of the country's largest money changer, he was the linchpin between Syria's struggling, isolated economy and its huge diaspora that remits billions of dollars a year to families back home. In a country that was saddled with strict foreign exchange laws, it was Mr Sahloul's agents who ensured Syrian merchants had enough hard currency to do business with partners overseas.

In 2005, when the Syrian pound was on the verge of collapse because of regional political tensions, the Syrian government turned to Mr Sahloul because the country's central bank lacked the resources to support the currency on its own. All of this was happening underground. Money changers were illegal but tolerated in Syria, particularly when it came to heavyweights such as Yassar Sahloul and Sons. Ordinary citizens would troop to Mr Sahloul's offices with plastic shopping bags swollen with banknotes and the authorities would cast a blind eye.

That is changing, however. In recent years, a reformist government has liberalised the Syrian economy and Yassar Sahloul and Sons is now a licensed foreign exchange trader. In June, it will launch an Islamic bank with a Yemeni partner and a capital base of US$100 million (Dh367m). Mr Sahloul hopes that someday Yassar Sahloul and Sons will be the holding company for a diversified concern that will include shipping and property investment assets, as well as banking and finance. Everything will be registered with the government.

"My vision is for a group of companies with the right combination of advisers and a smart board of directors to guide us through investments like real estate development," he says. "It is important to have outsiders as part of an independent board." Such a passion for transparency is just the kind of thing the Syrian government is promoting as it tries to flush its vast underground economy to the surface. In a country with a long history of commercial expertise, there is no shortage of family-owned mid-sized companies employing several hundred labourers and generating tens of millions of dollars a year in revenue.

But given the country's clannish customs and a deep suspicion of the central government, which in any event lacks the resources to go after tax evaders, much of that economic activity is unreported. So the Syrian government is trying to strike a deal with entrepreneurs such as Mr Sahloul. It has already cut income taxes by up to 33 per cent and is now offering a special tax rate of 2.5 per cent of the value of any assets registered from 2008 to 2010. In an effort to add depth to the Syrian stock exchange, which is due to begin trading in the summer, it will knock that rate down to 1 per cent for assets offered for public trading.

"This issue is very important," says Mohammed Hussein, the finance minister. "Most Syrian companies are family-owned and we're trying to coax them out of the shadow economy." Syrian newspapers these days are full of stories about well-known family-run companies that are agonising over whether it is time to come in from the cold. Mr Sahloul, for one - although not, apparently, with the wholehearted support of his family - embraces the daylight.

Since Yasser Sahloul and Sons was awarded its licence a year ago, the company has dutifully submitted its daily reports of all single transactions valued at more than $10,000, part of a new regulatory framework aimed at combating money laundering. It has declared its asset values and last year it submitted its first annual report to regulators. Together with Tadhanoul Bank of Yemen, Yassar Sahloul and Sons is launching an Islamic bank with a shared equity ratio of 39 per cent and 10 per cent respectively, with the balance to be listed on Damascus's new bourse soon after it opens its doors.

Mr Sahloul is eager to pursue corporate clients in addition to the retail business, such as car loans and mortgage lending, that so far dominates Syria's fledgling financial sector. In the meantime, he is restructuring the company's shipping assets - the first family business established by his father in the 1960s - as well as its portfolio of property investments. "When you compare things to the way they were just a few years ago, there have been some dramatic steps forward," Mr Sahloul says. "But it is virgin territory in the more sophisticated products."

Mr Sahloul has 12 siblings. Five of them have seats on Yassar Sahloul and Son's board and their spouses are deeply involved in the company's affairs. When asked how the rest of the family feels about his reform agenda, he becomes uncharacteristically vague. "It's not easy moving a family-owned company into a corporation," he says. "There will always be members of the family in opposition, but the majority shares my view.

"In this process I have made some mistakes. I have tried to learn from those mistakes but unfortunately there are family members who focus on the mistakes and nothing else. But I am confident we will continue to go down the route I am recommending." In general, according to economists, state-controlled economies in the process of deregulation are lucky to achieve flat growth. Since it launched its reform drive in 2004, Syria, owing to a combination of luck and judicious reforms, has managed an average annual growth rate of 5 per cent and is expecting another 5 per cent increase this year.

But many Syrians are concerned that the rush to modernise - including the expected signing of a landmark trade agreement this year with the EU - might lead to the abandonment of traditions built up over centuries. Mr Sahloul is keenly aware that his own reform campaign might end with the break-up of his father's company as well as a painful family schism. The only thing worse for his clan and his country, he says, are the costs of standing still.

"When you become a corporation, the decision-making process gets spread out among different departments. It shouldn't die upon the death of the owner. I am trying to ensure this company will survive me." sglain@thenational.ae