Opinion: No Reconstruction for Syria

Assad’s allies Russia and Iran will not foot the money needed to bankroll the upcoming rebuilding phase, Jihad Yazigi writes

Opinion: No Reconstruction for Syria

Across the Middle East, investors and politicians are banking on the reconstruction of Syria to generate new business opportunities and kickstart their economies, which have been seriously battered since the popular uprisings of 2011.

The cost of the reconstruction, which is estimated at anywhere between $100 billion and $300 billion, confirms the very high stakes that Syria’s reconstruction represents for the whole region.

In practice, however, there is little chance that any reconstruction process will happen unless a comprehensive political deal is reached, which is itself very unlikely.

No funds

The countries and institutions that have the money and which traditionally fund such large-scale financial efforts, namely the Gulf countries, the European Union, the United States and, through it, the World Bank, have, indeed, lost the Syrian war. Saudi Arabia is not going to put money in a country that is controlled by Iran. As to the EU and U.S., they want a political deal before proceeding to transfer funds to Syria. While some think that the fear of refugees will eventually push the EU to pay the bill, rebuilding ties with the Syrian regime would carry serious political costs, which only increased after the chemical attack in Khan Sheikhoun.

Meanwhile, the countries that have won the war, Russia and Iran, do not have the financial means to pay for reconstruction. Since 2011, both countries have put significant effort and money into the war – Russia has actually made profit out of killing Syrians, through the various export deals won by its arms industry – but they have provided very little in terms of direct economic aid, except for oil supplies by Tehran.

Some expect China to fill the gap, but all signs coming from Beijing point to the unwillingness of the Chinese authorities to get much involved in a country that is in the midst of various regional and international tensions and rivalries. Also, both Iran and Saudi Arabia are important suppliers of crude to China, which will be reluctant to antagonize either of them. In addition, wherever China has invested in emerging countries, such as in Africa, it has demanded in exchange access to these countries’ natural resources. Syria has few of these and they have anyway already been taken by Russia and Iran.

Some Syrian government officials, realizing the obstacles they are facing, have argued that they would rely on public-private partnerships through private investors and local banks. However, not only have most of Syria’s prominent investors left the country but local banks are in no shape to provide funding. At the end of June 2017, the combined assets of Syria’s 14 private sector banks stood at $3.5 billion, which is less than a 10th of the assets of a single large bank in Lebanon or Jordan, such as Bank Audi and Arab Bank.

No strategy

The problem is not only one of finance though, it is also the lack of any broad and comprehensive reconstruction strategy.

The only policy followed by the government appears to be prioritizing the interests of Russia and Iran, on the one hand, and regime cronies on the other.

Moscow and Tehran want, indeed, a payback for the political and military support they have provided to the regime over the past years. Russia has already acquired, for instance, the rights to develop Syria’s phosphate mines and oil and gas fields, and much of the revenues from these resources that could have been used to fund reconstruction will actually go to Russian companies. In a recent bilateral meeting between Syrian and Russian officials, the only major infrastructure project under discussion was not investment in much-needed housing infrastructure or water networks, but the construction of a rail track linking the phosphate mines to the port of Tartous in order to facilitate and reduce the costs of exporting phosphate to the benefit of the Russian company exploiting the mines.

Meanwhile, Iran is preparing to provide a loan of $1 billion to the Syrian government – a very small amount in view of the needs – under the condition that the money will be used exclusively to buy Iranian products. Tehran’s money is therefore as much a help to Iranian companies than to Syria’s economy.

On the other hand, the government is directing the limited money it has to fund projects that will benefit business figures linked to it. The main symbol of this is the Basatin al-Razi real estate project located in the Mazzeh district of Damascus, from which thousands of Syrian families have been expelled and dispossessed.

Many Syrians call the Basatin al-Razi project “the Syrian Solidere” because of its planned high-rise buildings and tramway lines, and the fact that it is dedicated to the very small segment of the population that can afford to buy expensive housing.

However, even though the overwhelming demand now is for popular housing to replace the hundreds of thousands of houses that were destroyed during the war and the very limited lending capacities of local banks, the government instructed one of the state-owned banks to use its cash to fund the infrastructure works for the project.

Basatin al-Razi makes little economic sense but could generate huge profits for a few individuals; this is what the government is prioritizing.

False premises

Fundamentally, the expectations of a reconstruction drive in Syria are built on false premises. The last example of a large reconstruction effort in the region is that of Lebanon. In that case there were the following elements: 1) A political deal backed by the main regional and international players; 2) the prominent role of Rafiq Hariri, a powerful man with strong economic and political networks around the globe; 3) a vision for what reconstruction should be based on, i.e. repositioning Lebanon, and Beirut, as an intermediation center between the Middle East and the West; 4) strong financial support from Saudi Arabia.

In the case of Syria today all these elements are missing. The reconstruction of Syria is unlikely to start anytime soon.

This article was first published in the Syrian Observer on November 29, 2017

Intervention durant la Conférence Ila Souria à Paris

Un colloque de deux jours s’est déroulé à l’Institut du Monde Arabe à Paris en octobre 2013 sur les enjeux de la reconstruction. J’interviens ici pendant 15 minutes sur les aspects économiques.

Vous pouvez visualiser une version longue de cette vidéo (incluant le débat avec l’assistance) sur le lien suivant (26 minutes).

Pour une version courte (sans débat).

Le texte de l’intervention se trouve ici

The Lebanese can benefit from Syria’s chaos

Syria’s ongoing destruction has impacted the Lebanese economy in various ways, but its eventual reconstruction could bring rich opportunities to its smaller neighbor.

The first two years of the Syrian conflict have seen a massive influx of refugees who have added to the large, existing Syrian workforce. According to Lebanese government estimates, more than 1 million Syrians resided in the country at the beginning of 2013 (both refugees and non-refugees) — the equivalent of a staggering 25 percent of the Lebanese population — while estimates from the United Nations High Commissioner for Refugees have documented 486,000 refugees as of May 22, both registered and waiting to be registered.

This flow has had, and will continue to have, a significant impact on the weak Lebanese state and its physical infrastructure. The number of Syrian children that will require schooling in Lebanese state institutions in September 2013 is expected to rise significantly, with some analysts forecasting their enrollment to be on par with the current number of Lebanese pupils. The water and electricity networks will not be spared, particularly during the summer, while traffic congestion is already on the increase.

Negative effects have also been felt by Lebanese businesses. The conflict in Syria has frightened off tourists and dipped confidence in the economy. Demand from Lebanese households has declined and so has investment, according to Banque du Liban, Lebanon’s central bank. The conflict has also significantly increased the cost to insure and transport exports to Lebanon’s traditional trade partners, such as Iraq and the Gulf. Meanwhile, Lebanese investors in Syria, particularly those in the financial services industry, have taken major losses.

This is not, however, the full picture. In the summer of 2012, the expansion of violence to Syria’s two largest cities, Damascus and Aleppo, drove thousands of urban dwellers from the Syrian middle class and business community to Lebanon. This led to a surge in demand for rented housing across the country and to a rise in consumption. The presence of Syrian patrons at restaurants in Beirut’s Hamra district and beyond is ample proof of that. Investment is still lagging, though by the spring of 2013 an increasing number of Syrian investors were reportedly starting to establish offices or set up shop in and around Beirut.

More relevant to the longer term, however, is the effect of the war and of the Syrian economy’s disintegration on the often-complicated relations between Lebanon and Syria

Already, the decline in Syria’s economic output has improved Lebanon’s trade balance with its eastern neighbor. According to Lebanese customs, Lebanese exports stood at $296 million in the first four months of 2013 — more than the total of 2012, which reached $294 million. While this is partly due to transit trade of energy products to the sanctions-hit Syrian government, there is also evidence that this is the consequence of a massive decline in Syria’s output, especially in the farming sector, creating intense demand for essential goods and commodities from abroad. This represents a reversal of a historic trend; Syria’s more competitive agricultural products used to regularly flood Lebanese markets.

Even if the conflict were to end today, the Syrian economy would need years before it recovers. Replacing destroyed infrastructure and housing alone is expected to cost tens of billions of dollars. The UN’s Economic and Social Commission for Western Asia forecasts, for instance, that when reconstruction begins, demand for cement in Syria will be at some 30 million tons per annum, or three times the level of demand prior to the conflict — a rise in demand that will benefit the Lebanese building materials industry.

After a decade during which Lebanese financial sector capital and know-how benefited from Syria’s economic liberalization, it’s now likely that the country’s smaller industrial and agricultural sectors will find strong new opportunities in post-conflict Syria.

It is still too early to make a comprehensive assessment of the impact of the war on bilateral relations, but there is little doubt that Lebanese investors, across all business sectors, are going to be major beneficiaries of Syria’s reconstruction effort. This will be a strong incentive for solid ties between the two countries, but whether politicians have a grasp of the importance of nurturing these ties is, obviously, a different story.

Note: This article appeared first in the June 2013 edition of Executive Magazine

Rebuilding Syria after revolution

Although now is apparently the time for destruction in Syria, hopefully, the time for reconstruction is not far off.

While it is difficult to estimate the actual cost of the damage inflicted to the country’s physical infrastructure by more than 16 months of a popular uprising — most of the destruction having actually occurred after the summer of 2011 — the Syrian National Council (SNC), which is considered by Western nations as their main interlocutor in the opposition, recently estimated that Syria would need some $12 billion in immediate financial support in the first six months after a potential fall of the regime.

While little of Syria’s large industrial concerns — such as power plants and refineries — have been hit, the urban landscape of many of the country’s cities is littered with flattened buildings, destroyed water, electricity and phone networks and crumbled roads and bridges. The cities of Homs — the country’s third-largest city — and Deir-ez-Zor have been particularly devastated, but so too have been dozens of smaller cities and towns across the country, in additional to the suburbs of Damascus and Aleppo. All-in-all, large parts of Syria will need to be entirely rebuilt.

It’s difficult to estimate what the $12 billion figure encompasses but if it were to cover only the first six months, this amount would exclude the cost of rebuilding most of the hard infrastructure, as this would obviously take much more than six months to carry out — in other words the total budget for rebuilding the country is likely to run much higher. In all cases, the question of how to source the money remains open.

Spokespersons from the SNC have said that they will seek support from “friends.” Knowing the financial turmoil the European Union and the United States are going through, they probably have in mind the deep-pocketed Gulf states, in particular Saudi Arabia and Qatar, which have been very active in supporting the opposition. Another issue to have in mind is the handling of any large disbursement of money. Indeed, contrary, for instance, to Libya or Iraq, which have vast reserves of oil and gas and therefore the means to reimburse almost any amount of debt they incur, Syrians will need to be very careful to efficiently use the money they will receive. Indeed, no one will lend money to Syria for free, and aside from the political cost that will come with such help there is also a financial cost, i.e. a debt burden that will be supported by the population for years if not decades to come.

Will any transitional government in Syria have the means to manage and spend $12 billion in financial support, let alone that it will have to be spent in only six months? From a political perspective, can a non-elected body — because any transitional authority is unlikely to be elected — legitimately spend such a large amount of money, an amount that will burden Syrians for years to come? How about the longer term and the larger amounts of money that will be associated with any reconstruction program that a future Syrian government will be in charge of? Can Syrians avoid the missteps and massive corruption that have come to be associated with the Iraqi reconstruction program?

The current and previous Syrian governments have shown a remarkable inability to handle large projects and to manage efficiently investments that carry significant costs. Indeed, very few of the large infrastructure projects announced by the Syrian authorities in the last two decades have taken off because of numerous bureaucratic and political constraints; and those that have been carried out have faced endless delays, cost overruns and suspicions of corruption.  It would be naïve to think that these obstacles will be bypassed easily. From what the opposition has shown in terms of (lack of) knowhow and capacity, and from what we know from the Iraqi experience, there is serious ground to worry.

Because of its political implications and future costs, any reconstruction program for Syria will have to make clear how it will be funded and repaid and what measures will be taken to limit corruption as much as possible; more importantly, however, it must be sanctioned by legitimate representatives of the people if it is to embody a meaningful new beginning for the country.


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

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