Mortgaging Syria’s future

Kobane_0Four years after the beginning of the Syrian uprising, now largely turned into a civil war and a proxy regional conflict, the state of Syria’s economy and society is dire.

A recent report, produced by the Syrian Centre for Policy Research, a Damascus-based organisation, with support from UNDP, puts numbers on this disaster.

In the past four years, the Syrian economy is estimated to have lost more than $200bn, or the equivalent of four times its gross domestic product the year before the uprising; unemployment is estimated to be above 57 percent, from 11 percent in 2010; four out of five Syrians now live in poverty; and, in the space of only four years, life expectancy has fallen from 75 to 55 years.

Some business sectors have been almost totally decimated, such as tourism and oil production, while manufacturing, which has suffered from tremendous destruction, theft and looting, is only worth a fifth of its value prior to the uprising.

This destruction is accompanied by profound changes affecting Syrian society including a massive migration of both financial and human capital, dramatic demographic shifts, a fragmentation of communities and social ties, a rise in criminality and a deep sense of loss of dignity.

In addition to the consequences of the conflict that are already felt, others have serious implications for the long term and are already mortgaging future recovery efforts.

The Syrian government, now largely unable to fund itself, is accumulating an increasingly significant debt in order to import oil products and grain, to pay the salaries of its civil servants and, mostly, to fund its war effort. Someday, this debt, both domestic and foreign, including from countries such as Iran, will have to be paid back by the Syrian people, on top of the massive financial effort that will be required for a reconstruction drive.

Physical assets that have been destroyed, including productive capacity such as factories, machinery, power plants, irrigation canals, tourist sites and residential buildings, will require a very long time to be restored given the decline in the financial capacity of the government and capital flight.

Many of the most prominent Syrian businessmen have now relocated across the region and in some cases they have started to play an important role in their host countries. In Turkey for instance, more than 25 percent of companies opened last year by foreign investors were by Syrian businessmen. Having invested money, built a workforce and opened new markets, many will find it difficult to return when the war ends.

Even more worrying is the disappearance of the Syrian middle class. Business managers, academics, doctors, engineers and professionals of all other specialities have found refuge in Europe or in the Gulf. Having established themselves in these new countries and in need of clear long-term prospects, they will be the most difficult to entice back. With their departure, Syria has lost a significant amount of accumulated human capital, which will need decades to recover.

One other burden for Syrian society will be to undo the many new activities and networks that have sprung up with the retreat of the rule of law and the decline of the central state. Massive interests have been built up around the war economy amongst the warlords, and the networks and the institutions it has created. This too will be difficult to reverse.

Finally, geographic and political fragmentation is becoming increasingly entrenched, breaking down traditional economic and trade networks. Many of what were temporary and shifting front lines have now become quasi-borders between different parts of the country. The division of the city of Aleppo since the summer of 2012, between a western part controlled by the government and an eastern part controlled by the opposition, is one of the best examples of this.

Another is the north of Syria, which is one of the most fragmented parts of the country, with the government, the Kurds, the Islamic State, the Nusra Front and various brigades affiliated to the Free Syria Army sharing territorial control. As almost all production has stopped in that region, it has largely turned to Turkey, rather than to other parts of Syria under government control, for the supply of essential goods. As a result, Turkish exports to Syria last year were close to their record level of $1.8bn reached in 2010.

This shift, together with the rising foreign debt, highlights the growing dependency of the Syrian economy towards external actors.

Given the magnitude of the Syrian catastrophe, it seems difficult to see any light at the end of the tunnel or to offer any policy advice other than asking for an immediate end to the fighting, a prospect that seems as far away as it has ever been since the uprising began.

To an important extent, the Syrian uprising was a revolt of the most fragile, disenfranchised and poor segments of its society. Four years after their cry for change, these parts of the Syrian population are also those that have paid the heaviest price of the war and have only become poorer, and more fragile and distressed. On today’s anniversary, there is very little to celebrate and, unfortunately, very little to hope for.

This article was originally published in Middle East Eye on March 15, 2015

Solving the Syrian riddle

This article is a transcript of a phone interview given to  on the challenges posed by the Syrian uprising on reconstruction efforts and future economic policies.


The only Arab country where protests started from rural areas might find itself facing an internationally funded reconstruction which will award money to urban centres, thus abandoning the very roots of the current crisis. The only solution is to build economic awareness. Starting from now.

One just has to look at the geography of how events evolved in Syria, the locations where demonstrations started, the places where people took to the streets, to realize that, at heart, this revolt started from rural areas, whether it was from the countryside or the suburban peripheries outside Damascus and Aleppo.

This beckons us to question ourselves over the economic roots of the current upraising. After all, the business classes of inner Damascus and Aleppo were initially in support – or, when not in support, at least tacitly affirmative – of keeping the status quo. Joining the opposition was simply not in their interests.

This is because of the economic unease which was there prior to the uprisings, and how the decade of reforms had undermined the old basis of Ba’athist support, the rural working class, in choosing to benefit an urbanized business class and encourage increasing concentration of wealth among a reduced number of people. One good example, for an instance, is how the share of agriculture in Syria’s gross domestic product fell from 25% in 2003 to 16% in 2010: a fall of 9% in just seven years which is in fact a huge figure.

True, liberalization opened up a banking system, allowing everybody to have a bank account and withdraw money, and reducing pressure on a private sector which, until 2000, had to pay something like 90% of its income in taxes. In fact, when we talk about Assad’s liberalization we need to be careful with terminology, and call things by their proper name. When you talk about privatization you probably look at a western paradigm where state assets are sold off to private sectors. This is not what took place in Syria under Bashar’s reforms. What happened was rather a gradual reduction in the participation of the state in the economy, leaving behind important sectors such as industry and agriculture.

Subsidies on oil products, for example, were suddenly cut, leaving small farmers to face all costs alone, while already under the stress of the drought that’s been hitting Syria these last years. Aid that was cut from agriculture was simply not reinvested anywhere else. Economic decision-makers would be obsessed about those figures everybody in the international community looks at, such as GDP growth and balance of payments. But it was pointless for the government to pipe up and boast about a 5% growth in GDP, without first saying that for Syria, in order to create jobs, the economy had to grow by at least 8%.

And then you had the opening of the border to foreign trade, which was equally disastrous; the Syrian market was literally flooded by cheap Chinese and Turkish imports, which might have favoured business dealers but in fact forced hundreds of thousands of small workshops and factories to shut down and their occupants to face unemployment.

The Syrian opposition

This happened in a country where the state had supported agriculture and represented the farmer’s interests for 40 years, and where bread and electricity were still subsidized by the Government. Today, it is all reflected in the current outline of the Syrian opposition, where the first ones to revolt are the farmers and the inhabitants of the poverty belts outside major cities.

Traditionally, this is not a class represented by the Muslim Brotherhood. The brotherhood is generally known to cater for the former landowners reaching into the city, the engineers and doctors, in a word, the brotherhood is traditionally an urban phenomenon. It is then inevitable to pose the question of whose interests are going to be represented by future economic policies in a post-conflict Syria.

And while the class dimension is only one of the different factors that need to be taken into consideration when looking at events which unfolded against a dictatorship, and which see also political activists and freedom demands being advanced, the economic roots of this revolt need to be taken into consideration starting from now by opposition groups, which are still partly unaware of this problematic.

Because all this is clearly reflected within the current Syrian uprising and its social components, and proves how politically decisive it will be to have a clear economic plan in mind once – in six month, a year, two years – this conflict is over and probably Qatari or Saudi money could prove to be more powerful than any political economy discussion, if there is no plan ready.

Solutions that take time

It is difficult to be optimistic at a time when Syria is ravaged by such death and destruction. But I tend to see as a positive factor the fact that solutions are taking time. Journalists tend not to realize that there is a real factor on the ground, and that this factor is the dynamic one. It is people.

Ba’ath has been ruling for 40 years. Islamist ideas have been around for at least thirty. The really new thing is that people are speaking out. It is first of all a popular uprising, unlike the case of Iraq and Lebanon. And because of this, the conflict in Syria is a dynamic one, an evolving phenomenon, where after two years civil society does still take to the streets whenever the voice of weapons falls silent, and where no largescale massacres of Alawite villages have taken place.

For example, I see it as a positive thing that Jabhat el Nusraa is imposing Shari’a courts now, in time for people to test them and possibly discard the option in the future.

This applies to the economy as well; there is time to plan and discuss viable solutions to the roots of this crisis. Of course, what will be crucial from a political perspective will be the organization of free and transparent elections to gain legitimacy. But once again, in order to win back that wider middle class fleeing the country which is now buying houses in neighbouring Beirut and Amman, in order to encourage the return of those thousands of male graduates who escaped military service, in order to achieve social peace, in order to address the discontent of the rural class which started all this – the crucial role will be played by the economy.

Some things that won’t work

The risk is that a post-conflict scenario will see international aid heading towards the main urban areas, replicating the regime’s neglect of a larger rural reality – which was the first one to take to the streets.

If there are chances of reconstruction funding to come, I do not expect an influx of western money coming into Syria, because the USA and the EU are clearly facing other problems at the moment. Should the present conflict end with a clear defeat of the Assad regime, it is in fact more likely that Gulf countries will be more interested in having a political grip over Syria. And in my opinion, this is how capital and investments will come in.

But these are countries looking for new markets while, at the same time, traditionally investing in real estate, finance and hospitality. Despite real estate reconstruction being an urgent problem, given the level of destruction and death Syria has faced, the future leadership will need to keep in mind a priority on working to create long-term employment by investing in agriculture and factories, which is in fact unlikely to happen if you depend on Gulf money.

To this, one must add a political problem: Gulf countries, especially Qatar but also Saudi Arabia, rely heavily on state money. The scenario, in this case, is State-to-State aid. But Syria, unlike Gulf countries, cannot become a rent economy; nor we can afford the geo-political dependence that such an exclusively State-to-State plan would entail.

It is clear that diversification of the sources of reconstruction funding, and therefore a carefully thought economic policy, will be key to the future of post-conflict Syria. The new leadership will have to look for various different alternatives other than just Qatari and Saudi money, taking into account the different political economies they imply.

And in this case it is probably Turkey that will have a crucial role to play in creating long-term added value – in a word, durable jobs in productive sectors. Turkey is not a rent economy, and what we will probably have is private Turkish enterprises investing in Syria because costs are competitive.

Our understanding of the Syrian economy must take all this into consideration starting from now. Because when Syria will finally emerge from this conflict, when the choice will be between bad and very bad, it will be too late to consider. We must be aware of Syrian contradictions, and prepare ourselves to adapt our policies to what will be realistic on the ground.