Entering subsistence

One of the main questions surrounding the Syrian uprising at the beginning of 2012 was if and when an economic collapse would occur. As the year draws to a close, the question has instead become whether one can still talk of “a” Syrian economy as such.

What remains of the country’s formal economy has seriously deteriorated throughout the year. Business activity significantly contracted and although the government has released no estimates, gross domestic product is believed to have fallen by at least 25 percent in the first nine months of 2012. Disintegrating distribution and supply networks, a government increase in energy prices and a hike in the cost of imported items all combined to gradually increase the inflation rate; the consumer price index was up by 40 percent on an annual basis by August.

The Syrian pound, after having resisted all forms of pressure relatively well in 2011, lost ground. From a rate of 60 to the dollar at the beginning of the year, the exchange rate fell to over 80 pounds by mid-November 2012.

An important development has been the expansion of the violence to Aleppo during the summer, a city that had largely remained outside the popular uprising until then. Aleppo is Syria’s largest city by population, but also the country’s main manufacturing hub as well as a major trading and distribution center for agricultural products. The unrest in the city led, among other things, to the closure of its industrial city with some 600 factories suspending production.

However, while observers continue to monitor most formal indicators — such as inflation and the currency rates — as a means to measure investor sentiments, in practice most of the country’s economy now falls outside these numbers.

The expansion of violence and the varying degrees of state control over large sways of Syria have profoundly transformed its economy to the extent that one can now talk of a war economy, the creation of new business networks and the development of various new forms of trade, including smuggling, looting and kidnapping.

Some areas of the country are still firmly under state control and as such continue to be provided by regular government services — these include the provinces of Latakia, Tartous and Suweida as well as the central parts of Damascus. In these parts of the country the supply of products continues at relatively normal levels, although prices have skyrocketed.

Other areas have little left of the state, such as the rural parts of Aleppo, Idlib, Hama, Homs and Daraa. Meanwhile, the cities of Aleppo and Der-ez-Zour are under constant bombardment and have almost no business activity to speak of, while the northeast of the country is growing increasingly autonomous in the management of its day-to-day affairs. Looting is common in areas where inhabitants have fled; smuggling to and from neighboring countries has exploded as the government’s control over its borders weakened, customs tariffs increased and formal international banking transactions are at a standstill; kidnapping for ransom is widespread.

As the autumn pushed on, the government finally began to express more openly its concerns for the near future. In a well-publicized statement, the deputy prime minister in charge of economic affairs, Qadri Jamil, said in September that in the absence of a political solution to the crisis gripping the country, the economy was heading towards “a stroke” by the end of the year. Jamil was forced to retract his statement a few days later, but the damage was done.

Meanwhile, in early October, the Minister of Agriculture Subhi al-Abdallah encouraged his fellow citizens to “grow whatever they could grow and raise whatever animal or chicken they could raise.” Abdallah’s words echoed a prevailing sentiment in Syria: slowly but surely, the economy was moving towards subsistence mode.

The depth of distress in the economy, reflected in these statements, points to the major challenges ahead for Syria’s future decision makers. Syria may manage to rebuild relatively quickly its physical infrastructure, but it will require a very significant redefinition of economic policy, an overhaul of existing business and trade ties and a formalization of much of its economic activity before the country truly recovers from the devastation it is facing.

Note: This article appeared first in the December 2012 edition of Executive Magazine

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