La terre, un enjeu du conflit syrien

Bien que le sujet soit relativement peu couvert par la presse et les analystes, la lutte autour de la terre et de sa possession constitue, de manière plus ou moins explicite, un des nombreux enjeux du conflit actuel en Syrie.
En mars 2011, quelques jours après le début du soulèvement populaire dans la ville de Daraa, située au centre du plateau agricole du Hauran, les autorités syriennes envoyèrent une délégation de responsables du parti Baas pour s’enquérir des doléances de la population.
Parmi la dizaine de revendications, qui incluaient la libération des prisonniers politiques et la destitution du responsable local des services de sécurité, figurait la fin des restrictions sur la vente et l’achat de terres.
Avant de revenir sur cette requête, il faut rappeler que les relations conflictuelles autour de la terre ne datent pas d’aujourd’hui en Syrie.

La redistribution des terres agricoles

En 1958, la fondation de la République arabe unie entre l’Égypte et la Syrie écarte l’ancienne bourgeoisie commerciale et foncière syrienne qui avait hérité du pouvoir politique et économique à la fin de l’Empire ottoman et du mandat français.
Cet éloignement des anciennes élites se fait à travers la nationalisation de leurs actifs économiques et la mise en place d’une réforme agraire qui fixe des plafonds à la propriété de la terre. Alors que beaucoup de ces grands propriétaires et bourgeois prennent le chemin de l’exil, en particulier vers Beyrouth, les agriculteurs syriens bénéficient de la redistribution de la terre. Des mesures de compensation sont mises en place par les autorités, mais elles sont loin de satisfaire la bourgeoisie syrienne qui se sent lésée par la dépossession qu’elle a subie. Les centres urbains d’Alep et de Hama, dont la fortune est en grande partie basée sur les actifs fonciers et sur la production agricole qui en découle, sont particulièrement touchés.
La terre est redistribuée aux agriculteurs sur la base suivante : sur les terres irriguées, qui ne représentaient à l’époque qu’une petite partie de l’ensemble des terres agricoles, la surface maximale est fixée à 80 hectares par famille ; pour les terres non irriguées, le plafond est fixé à 300 hectares.
Les années qui suivirent furent tumultueuses avec un coup d’État en 1961 qui mit fin à la République unie et qui vit le retour en force relatif de l’ancienne bourgeoisie. Deux ans après cependant, le parti Baas, dont la base est en grande partie constituée de paysans, prend le pouvoir pour ne plus le quitter. Ses réformes incluent le renforcement de la politique de redistribution des terres avec une application plus stricte des plafonds et la mise en place quelques années plus tard de fermes collectives.
Cette politique de redistribution agraire est contestée jusqu’à aujourd’hui par certains des anciens propriétaires fonciers dont beaucoup ne vivent plus en Syrie, mais continuent à réclamer leurs terres ou une compensation plus juste.
Bien qu’elle fût contestée, la redistribution des terres a formé l’une des bases de la politique agraire de la Syrie, en plus des mesures de subventions et des investissements en infrastructure, tels les barrages et les canaux d’irrigation. Cette politique permit au pays d’engendrer de nombreux succès dont une autosuffisance alimentaire relative et une croissance de la production. La Syrie figure ainsi, par exemple, au quatrième rang mondial pour la production de pistaches et au cinquième rang pour celle de l’huile d’olive, en plus d’importantes récoltes de blé, de coton et d’agrumes.
La gestion du foncier en Syrie est cependant loin de se limiter à la politique agricole.

Un outil de contrôle politique

La nationalisation des terres permet en effet aux autorités syriennes de faire du foncier un outil pour mieux gérer leurs relations avec les différentes communautés locales.
Ceci est particulièrement vrai dans le nord-est syrien où dès le début des années soixante le gouvernement met en place une politique dite de la “ceinture arabe”. L’objectif est de diminuer la proportion de Kurdes habitant le nord-est du pays, qui en plus de sa richesse agricole voit la découverte à cette époque de nouvelles ressources pétrolières. En installant des tribus arabes dans la région, les autorités espèrent étouffer toute velléité d’indépendance de la part des populations kurdes.
Le contrôle de la terre joue évidemment un rôle fondamental dans cette politique, car elle permet aux autorités de la distribuer de manière arbitraire et d’affaiblir les notables locaux en leur retirant ce qui représente leur principale source de richesse et de pouvoir.

La gestion du foncier durant la décennie Bachar

L’arrivée au pouvoir de Bachar el-Assad en juillet 2000 voit la mise en place d’une “nouvelle” équipe qui consacre le basculement graduel, qui avait débuté dès le milieu des années 1980, vers une politique économique plus libérale.
Très tôt après son accession au pouvoir, soit en décembre 2000, le président syrien promulgue une loi qui met un terme aux fermes d’État, dont les performances avaient été très décevantes, et redistribue les terres concernées aux paysans. Bien que la surface totale de ces terres soit limitée, moins de 150 000 hectares sur un total de 6 millions d’hectares de terres cultivables à travers le pays, la dislocation des fermes d’État est symbolique à plusieurs titres.
Elle marque la fin de l’ambition agricole du parti Baas, qui, bien qu’il continue à soutenir ses paysans, réduit de plus en plus la voilure en ce qui concerne les subventions et autres formes d’aide. Elle est symptomatique de la croissance de la population urbaine ; celle-ci dépasse officiellement les 50 %, mais est en réalité bien plus élevée et elle pousse à une baisse des prix des produits agricoles qu’elle consomme. Elle symbolise aussi la prise de pouvoir des fils de la génération de Hafez el-Assad, qui sont nés et ont grandi dans les villes et qui ont gardé très peu de la sensibilité paysanne de leurs pères.
La redistribution des terres des fermes d’État, qui sont en grande partie situées dans la région de l’Euphrate, crée de nombreux mécontentements dans la population locale, car elle est jugée inéquitable et partiale et qu’elle est perçue comme bénéficiant surtout aux personnalités, clans et tribus affiliés et proches du régime. Les quelques mouvements de contestation dans ces régions du Nord-Est ont peu d’écho, alors que tous les yeux sont rivés sur l’éphémère printemps de Damas.

Un enjeu aussi urbain

Avec l’augmentation de la population urbaine, la propriété du foncier devient aussi un enjeu majeur dans toutes les villes syriennes. Cet enjeu prend de l’importance avec la hausse spectaculaire des prix du foncier que vit la Syrie, comme le reste du Moyen-Orient, durant la décennie 2000.
La ruée vers les villes qui avait débuté dès les années 1970 entraîne une croissance de l’habitat informel autour de tous les grands centres urbains. Selon les statistiques officielles syriennes, en 2004 près de 40 % des Syriens vivaient dans des zones informelles et pour la grande majorité sans aucun titre de propriété.

2008, année fatidique

Le décret 49 de l’année 2008, qui restreint l’achat et la vente de terrains sur les zones frontalières, crispe de nombreuses communautés. Alors que des restrictions existaient déjà, elles sont renforcées à travers une hausse de la largeur des terres concernées, qui augmente de 10 à 25 kilomètres de la frontière.
Les populations kurdes, qui vivent le long de la frontière nord du pays, voient la mesure comme une menace les visant directement. La loi fait suite à des émeutes qui avaient éclaté dans les zones kurdes en 2004 et est donc perçue comme une punition supplémentaire.
Les Kurdes ne sont cependant pas les seuls Syriens à être touchés par la mesure. La province agricole de Daraa, qui est située le long de la frontière sud avec la Jordanie – et où la requête d’une levée de ces restrictions a donc été formulée –, est elle aussi particulièrement touchée. En n’interdisant pas entièrement la vente des terrains mais en la subordonnant à l’approbation des autorités, le décret est perçu comme une mesure totalement arbitraire qui vise à favoriser les personnalités proches du régime.

Une boîte de pandore

Les conflits autour de la terre en Syrie touchent donc de nombreux pans de la société syrienne. Les minorités ethniques, comme les Kurdes, les tribus du Nord-Est, les populations paysannes et rurales, l’ancienne bourgeoisie foncière, les populations urbaines qui vivent dans l’informalité. Il existe en fin de compte peu de Syriens qui ne sont pas mécontents et qui ne sentent pas lésés par la façon avec laquelle la propriété foncière a été gérée par les autorités du pays ces dernières décennies.
En abordant ce sujet et en débattant des solutions appropriées et des compromis à faire, c’est une véritable boîte de pandore qui s’ouvre, mais dont les Syriens ne pourront cependant pas faire l’économie s’ils veulent reconstruire leur pays.

Remarque: Cet article a été publié en décembre 2013 dans Le Commerce du Levant

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Rebuilding the future

Syria’s political landscape has dramatically changed in the last fifteen months and so has its business environment.

A few weeks before the uprisings began in March 2011, the Syrian government had announced its five-year economic plan running from 2011 to 2015, which was supposed to serve as a guide and a broad strategic framework for economic policy in the coming years.

The plan confirmed the continued liberalization of the economy, the gradual cancellation of all forms of subsidies on energy products and a return to focusing on manufacturing and other “productive” sectors.

For many in Syria’s business community, which had already benefited from a step-by-step transformation of the economy into a market-led system since the early 2000s, the prospects looked promising. Syrian expatriates returned home to benefit from the new employment and investment opportunities. Regional investors were banking on the opening of a new frontier market, while locally-based investors saw their decades of patience bearing fruit at last.

Few could have imagined what the following months would entail. When a few children were detained in Daraa, their families went out to demonstrate to request their freedom and everything changed forever in Syria.

In the following months, the economy would contract significantly and security would deteriorate, causing many businesses to close and lay off staff, expatriates to return to their place of exile, investors and tourists to flee.

The question now is on how, when and with what means Syria is to be rebuilt. For many, it’s probably already too late. The shaky reconstruction of neighboring countries — such as Iraq or Lebanon — has convinced them that it will take far too long for Syria to return to normalcy or for potential investments to start generating returns to justify the risk of staying. They have left the country — or are planning to do so during the summer — and will probably not return anytime soon, leaving that possibility to their children. Investors in this category generally have most of their capital safe in bank accounts abroad and have limited fixed investment in Syria proper, while executives in top management positions will easily find opportunities in the Gulf and possibly further afield, in the United States or Canada.

For others, leaving is simply too costly and/or complicated. Investors that have put at stake much of their capital or savings in a project, bankers that have deployed across the country at the cost of millions of dollars, expatriates that have cut off almost all links with their previous host country, or people simply too attached emotionally to Syria, will try to stick it out as long as physically possible. Others will relocate to nearby places, such as Lebanon or Dubai, from where they will be able to continue to manage their investments, or temporarily find a new job in the hope that the conflict will end soon.

It is this category of investors and highly qualified individuals that Syria will need to rely on when reconstruction begins. The size of their involvement and experience in the country, as well as their commitment to it, will be an invaluable asset when the time for rebuilding arrives.

Much, however, remains to be clarified before this takes place. Not only must the political crisis gripping the country end, the economic policies of the future must also take into account the calls for change that are coming from large segments of the population. In other words, investors must understand the underlying causes of the current uprising if they want to contribute positively to the new Syria. Syrians taking to the street are, in the words of a Syrian intellectual, from “the working world.” These are the people who have suffered in the last two decades from the rising income disparity, decreasing state investment in infrastructure and social services, and unregulated liberalization that has shed thousands of jobs.

While those with financial capital and wherewithal need to continue to lobby for their interests as investors and champion the cause of good governance and of a sound legal and business environment, they must also take into account the fact that the state must continue to have a role in the economy — albeit redefined — and that solidarity between the haves and the have-nots needs to prevail. This will be a requirement for Syria to change for good and for the stability they cherish to hold, whenever it may return.

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

No End in Sight to Syria’s Economic Woes

The Syrian economy did not collapse in 2011, as many, including the Syrian president himself, had predicted, but it has suffered tremendously from the flight of investors, the reluctance of households to spend, a dismal economic policy and international sanctions.

When the protests began in mid-March in Daraa, a city at the center of a neglected agricultural plateau, and then spread to the suburbs of Damascus and to other areas that have experienced economic and social difficulties during the last three decades, the government thought it had understood the motives of the revolt and that it had a ready solution.

THE GOVERNMENT’S DISMAL ECONOMIC MANAGEMENT

Within days of the protests the government announced an increase in salaries and in state subsidies on heating oil as well as the removal of several key figures associated with the liberal economic policy of the past few years. The extent of these “concessions” was substantial: the salaries of civil servants were increased by 20 to 30 percent – in a country where about a quarter of the working force is employed by the state – and the price of heating oil was decreased by 25 percent, although, only a few weeks earlier, the government had deemed its policy of subsiding energy products “unsustainable.”

These announcements had very little impact on the dynamics of the protests, which continued unabated. Protesters in fact reacted angrily; while they had taken to the streets to demand an end to the impunity and corruption of state officials, the government was effectively trying to bribe them! On March 25, a day after the president’s political and media advisor Bouthaina Shaaban announced these decisions, protesters in Daraa chanted: “Oh Bouthaina Shaaban, the people are not hungry (in Arabic the word for hungry – jou’an – rhymes with Shaaban), the people want freedom.”

During the next few months a string of other measures was adopted to appease the regime’s various constituencies. Farmers benefitted from an increase in the procurement prices of those agricultural products they sell to the government, a rescheduling of their debt repayments and the establishment of a fund to help them cope with drought affected areas. University students were given loans and new faculties were opened in remote areas. A fund was established to finance the development of informal housing areas in Damascus and Aleppo, and import tariffs and a consumption tax on key food items were reduced. An increase in the price of fuel oil used by manufacturers was also postponed.

While these measures helped reduce the daily hardship of large segments of the population, the disadvantage was that they increased the fiscal deficit and contradicted the long-term economic policies of previous years. As the year drew to a close, the government seemed to realize that it had gone too far and decided to reduce all overhead public expenses, except salaries, by 25 percent. However, any further measures like, for example, a complete reversal, would now be tantamount to political suicide.

By deciding to rapidly and extensively increase its financial expenditures, the government also demonstrated that its economic decisions were based on a political agenda and the result of panicked reaction, instead of a rational analysis of the economic situation.

After decades during which the Syrian economy was centrally planned, the government adopted in 2005 a “social market” development model in which the state was asked to focus its efforts on social services and infrastructure, while the private sector was to be given more leeway to operate. The debate over the role and size of the state in the economy seemed to have been finally settled, and the government appeared to have a clear road map in spite of its many shortcomings and justified criticism levelled against it.

But now things are much less clear and the government’s unfortunate economic measures created a deep distrust towards it within the business community, which realized very early on that the authorities had no clear plan to fix the dire economic situation.

Thus it is not surprising that from the very beginning of the protests, investors, already afraid of the consequences of the unrest, withdrew from the market. At the end of June for instance, the Syrian Investment Agency reported a 43 percent annual decline in the number of projects it had licensed. The other few indicators available showed a similar trend, although the overall decline can be attributed more to the general economic downturn and lack of confidence in the economy than to government policies. For example, the assets of Syria’s private banks fell by 15 percent on average in the first nine months of 2011, traffic at the country’s two maritime ports fell by some 10 percent during the same period, while traders and retailers reported double digit declines in their turnovers.

INTERNATIONAL SANCTIONS

Although sanctions adopted by a part of the international community (most importantly the Arab League, Turkey, the EU, and the USA, as well as Canada, Switzerland, Japan, and Australia) only added to Syria’s woes, their overall impact on the economy and on the government’s margin of manoeuvre remained limited by the end of 2011.

The import ban imposed on the oil sector by the European Union is probably the most significant of these measures. Syria’s oil sector is a major contributor to the national Gross Domestic Product, to fiscal revenues and to foreign currency earnings. Thus, the closure of a market that represents 90 percent of all crude export is of serious concern to the Syrian authorities. The additional ban imposed on the transport, financing and insurance of oil exports also makes finding new markets extremely difficult.

The ministry of oil announced in December that the country’s oil output had declined from 387,000 barrels a day (b/d) of crude oil before the sanctions to 270,000 barrels. This decline by a third corresponds to most of the country’s oil exports, which were estimated at some 150,000 b/d before the sanctions, which means that the country’s oil exports are now down to around 30,000 b/d with no clear prospect of returning to previous levels anytime soon.

The lack of revenues from oil exports poses a serious threat to foreign currency earnings, which have already been very affected by the absence of tourists and the withdrawal of foreign investors.

In contrast to the oil sector, which the government controls entirely, the severe restrictions on US dollar transactions imposed by the United States government have had an impact on broad segments of society. The Syrian government, businessmen and individuals alike have been affected. The fact that the Euro can still be used enables many transactions to continue to take place, but there is no doubt that financial relations with the outside world have been seriously disrupted.

The impact of the asset freeze on a long list of Syrian entities and individuals – on whom travel bans were also imposed – is more difficult to assess. While initially many had doubts over their efficacy as most of the listed individuals are believed to have foreign accounts held under the names of middlemen, the combined impact of these measures by most Western countries and the Arab League has created a sense of encroachment. It is not entirely a coincidence that the Arab League plan to send monitors to the country was accepted by the government after the imposition of sanctions by Arab countries and that the lifting of these sanctions was initially among the main demands of the government for it to accept the monitors.

However, the idea of imposing sanctions has been a controversial one for many Syrian analysts, including members of the opposition. While proponents of the sanctions have encouraged the export ban on crude oil “because oil export revenues directly enter the pockets of the government” as they say, one can argue that many expenses also “come out directly from the pockets of the government!” Civil servants salaries, subsidies, health care centers and schools catering to the overwhelming part of the population are covered by the government. If it were to make cuts in public sector expenses, would it prioritize the security services or social services?

If a quick end to the crisis engulfing the country was clearer, the impact of these sanctions would be limited; if not, the consequences could be dire for the people.

The plight of the Iraqi people is still in the minds of many Syrians. Hundreds of thousands of Iraqis fled to Syria in the last decade not only because of the violence in Iraq, but also because twelve years of international sanctions destroyed the Iraqi economy, physical infrastructure and social fabric.

PROSPECTS FOR 2012

While violence and general unrest affected large parts of the country since the beginning of the protests, people began to feel the pain of the economic downturn on a large scale only towards the end of the year.

There are now daily power cuts across Syria, with up to 3 hours a day in central districts of Damascus and much longer ones in the rest of the country. Cooking gas is extremely difficult to find, while heating oil is being sold on the black market at twice the government-set price. These difficulties are caused by many factors, including lower government revenues, the disruption of supply lines following attacks on pipelines, corruption, smuggling, and international sanctions.

How these difficulties will affect the political scene and the popular revolt gripping the country is difficult to assess. Although the growing number of unemployed people may be tempted to take to the streets and join protesters, the reactions of the population remain largely shaped by the evolving political events rather than by the daily economic difficulties.

The attitude of investors is also being closely watched. The lack of large protests in the central parts of Aleppo and Damascus, the country’s two largest cities and economic powerhouses, has been widely attributed to the continued support of the business community for the authorities.

However, the picture is much more nuanced and in reality many members of the business community deserted the authorities very early on. In July, for instance, the Deir-ez-Zor Chamber of Commerce and Industry, in Syria’s eastern region, issued a formal statement harshly condemning the conduct of the security services in the city. Across much of the country, where the strongest protests have taken place, businessmen have generally followed calls for strikes and other forms of civil disobedience and many are also believed to be actively financing the uprising.

Two indicators to watch in the coming weeks and months will be the movements of the foreign value of the Syrian pound and the rate of inflation. Contrary to the expectations of many, the government had managed until the end of last year to maintain a grip over them. Retail prices for most basic commodities remained largely under control, while the Central Bank of Syria had managed to limit the loss in value of the Syrian national currency. In black market transactions the Syrian pound was trading at the end of the year at a value depreciated by 25 percent from its pre-March level compared to the US dollar – the decline was not insignificant but nowhere close to a crisis.

The reasons for the strength of these two indicators for most of last year are difficult to discern. Low inflation was probably caused by a strong reduction in spending by Syrian households who prefer to hoard their savings, good crops that have kept the price of food items low and the reduction in customs tariffs and consumption tax rates on a wide range of products.

The relative strength of the Syrian pound is more difficult to explain as there is no data from the Central Bank on the extent of its involvement in the currency market or on the size of its foreign assets. Some have argued that Iraq and Iran are funding the Syrian government and pouring billions into the Central Bank’s account but there is little hard evidence so far to back these claims.

In the first month of 2012 things began to change. The pound lost another 15 percent by the end of January, leading to a spike in retail prices.

The coming weeks will probably be decisive with regards to the ability of the economy to sustain increasing pressures, although the total absence of official data – itself an indication that things are not going as well as the government would like us to believe – makes it extremely difficult to provide a clear forecast.

The major factor weighing on the country’s future prospects is the lack of any serious political initiative by the Syrian authorities to solve the economic and political crisis. Until then it will be difficult to foresee an end to economic distress and the chance of a recovery.

Note: This article appeared first in February 2012 in Perspectives, a publication by the Middle East office of the Heinrich Böll Foundation

Getting Syria back to work

The Syrian government’s admission in early December that the actual rate of unemployment in the country was anywhere between 22 percent and 30 percent testifies to the depth of the social crisis the society has gone through in the last three decades. The new estimates, provided by Radwan Habib, the minister of labor and social affairs, are at least twice the previously acknowledged rate of 11 percent. According to Habib, the new findings are the result of a field survey conducted by his administration. The fact that the range is so wide — from 22 to 30 percent— raises questions on the quality of the survey, but there is little doubt that the new figures are a more accurate reflection of the situation in the job market than the previous data based on the number of people registered with job offices. According to most analysts, the Syrian economy needs to be growing by 7 to 8 percent a year for its unemployment level to stabilize. This very high threshold is a consequence of the rise in productivity and in the size of the workforce, which increases on average by 3.5 percent every year. People entering the job market today were born 20 years ago, when the population growth rate stood at above 3 percent. Meanwhile, female participation in business activity is also on the rise and increases the number of people seeking to enter the job market – currently estimated at around 200,000 per year.

Indeed, since the early 1980s Syria’s gross domestic product (GDP) has almost never been sufficient to accommodate its expanding workforce. Put another way, Syria has witnessed almost 30 consecutive years of unemployment growth. The challenge before the government — the current one or any forthcoming one — is therefore huge: How to create the conditions for the economy to grow fast enough to meet the demand for jobs.

One solution to the problem would be to focus not only on the level of growth but on its quality, on how to attract investment in the sectors of activity that are most labor-intensive and potentially generate the most added value, such as agriculture and manufacturing.

This new policy would represent a shift from the priorities of recent years, when Syria’s decision-makers focused on trade liberalization and the development of the services industry. Indeed, finance, tourism, trade and transport, in addition to real estate, have been the main engines of growth in the last few years. Although Syria has much to gain from a strengthening of its services sector, the neglect of farming and industry has cost it dearly in terms of employment, and prevented it from building a strong production base. A lot has already been written on the catastrophic performance of the Syrian agricultural sector, which suffered from several consecutive years of drought starting in 2007 and from poor policy-making decisions, including a steep increase in the price of agricultural inputs when farmers were most in need of help.

The consequence of all this has been to force tens of thousands of farmers from their ancestral lands and to reduce the contribution of the sector from around 25 percent of GDP to 19 percent in less than a decade. Free trade agreements with Turkey and the Arab world, as well as a general reduction in custom tariffs, have also led to an ‘invasion’ of foreign-made products that put countless industrial plants and workshops out of business and consequently thousands of people out of their jobs. The textile sector, one of the most labor-intensive industries, has been particularly hit by the lifting of the ban on garment imports.

The resolution of this predicament is obviously not only an economic or social issue for the government but it is also political. Unsurprisingly, many of the protests taking place across the country since March 2011 are occurring in the areas most hit by poverty and neglect, such as  Daraa, located at the center of an agricultural plateau in the south of the country, and the poverty belt around Damascus.

There must be no illusions. A happy end to the current protest movement, including the establishment of a democratic political system, will not mean an end to Syria’s economic woes. Syrians must recognize the tremendous challenges ahead and adopt a new economic development strategy that puts employment at its center.

 

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

Bludgeoning Syria’s economy

The past 12 months have been devastating for Syria’s economy. Gross Domestic Product (GDP) has contracted by several percentage points (possibly by as much as 20 percent), the foreign currency reserves accumulated during the country’s short oil boom have been seriously depleted, the fiscal deficit has at least doubled, the national currency has lost some 15 percent of its value and the confidence the country was starting to gain from international investors has been shaken.

The prospects do not look any better for next year, with western sanctions on the country’s oil and banking sectors gradually starting to impact broader sectors of the economy and the Arab League likely to adopt similar measures.

One of the most frustrating aspects of the last year has been the confusion created by the government over its policies. After decades during which the economy was centrally planned the country adopted in 2005 a “social market” development model, in which the state was expected to limit its intervention to “social services” and to give the private sector more freedom to operate.

The debate over the role and size of the state in the economy seemed to have been finally settled, and until early this year the government had applied this relatively clear road map in spite of its shortcomings and justified criticisms.

Within days of the beginning of protests in the southern city of Daraa in mid-March, however, priorities changed entirely. Subsidies paid on energy products that were deemed “unsustainable” until a few weeks earlier were increased by some 25 percent, civil servants’ salaries rose 30 percent and free trade agreements that had been in place since 2005 were now to be renegotiated.

The moves unsettled analysts and investors and appeared to have been made out of panic rather than on the basis of any rational analysis.

Then, as the year was coming to a close, more confusion came. Minister of Economy Mohammad Nidal al-Shaar, realizing the extent of the damage, said that the decision to raise subsidies and salaries announced in March was “unsustainable” and that the government could not subsidize the economy forever.

The lesson to be drawn from all this is straightforward: You do not solve political problems with economic measures. To protesters chanting “we want freedom,” the government responded by saying “we will pay you better salaries”. The protesters continued to take to the streets because their demands were not met and, as the government was spending above its means, an economic challenge was added to the political problems that remained unanswered.

How dark are the prospects for the Syrian economy?

In the short-term one should not expect miracles. Investment and spending will continue to decline next year, and as foreign currency earnings decrease renewed pressure on the value of the Syrian pound should be expected, with all that entails for inflation and loss of purchasing power.

In the longer term, however, the dramatic political changes that are likely to result from the current unrest carry significant opportunities.

Liberalization alone has not been enough to revitalize the economy and it has in fact highlighted its weaknesses. The country has one of the most diversified economies in the Middle East with four different sectors each generating more than 10 percent of GDP (agriculture, oil and gas, tourism and trade) and three others making up more than 5 percent (manufacturing, finance and real estate). It also benefits from a relatively large market, a well-educated workforce and an extraordinary geographic location.

However, in spite of all these comparative advantages, and years of reforms, Syria attracts less foreign direct investment than its much smaller and resource-poor neighbors, Lebanon and Jordan. And it regularly ranks among the worst performing economies in most global surveys; 14 out of 17 countries in the Middle East in the Doing Business Index of the World Bank and 15 out of 16 countries on the Competitiveness Index of the World Economic Forum.

The underlying reason for this lacklustre performance is a business environment plagued by an overwhelming and corrupted bureaucracy, a judicial system mastered by the well-connected few and a broad sense of unaccountability and lack of responsibility across the state and its institutions.

These are challenges that cannot be solved through economic measures; rather they require deep changes in governance that are unlikely to ever take place under the current political system.

 

Note: This article appeared first in the December 2011 edition of Executive Magazine