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

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تركيا تصدر منتجاتها الى سورية وتستورد رأسمالها

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بينت الإحصاءات الرسمية في تركيا أن الصادرات التركية الى سورية في العام الماضي قد عادت الى مستوى ما قبل اندلاع الثورة. ‏وبحسب مكتب الإحصاء التركي، ارتفعت الصادرات التركية الى سورية من 1.02 مليار دولار عام 2013 إلى مستوى 1.80 مليار دولار عام ‏‏2014. وهذا الأداء هو الأفضل بالنسبة للصادرات التركية إلى سورية منذ انطلاق الثورة السورية، حيث وصلت هذه الصادرات إلى ‏مستوى عام 2010 (1.84 ملياردولار)، الذي كان، في حد ذاته، عاماً قياسيّاً، انطلاقا من مستوى متدنٍ تحقق عام 2012 بمبلغ 497 مليون دولار. ‏

كان يفترض أن يؤدي تراجع قيمة الليرة السورية الى انخفاض المستوردات السورية من تركيا لأن هبوط قيمة العملة المحلية يؤدي ‏الى ارتفاع أسعار المستوردات، ولكن على ما يبدو كان لحاجة السوق السورية من البضائع التركية تأثير أقوى بكثير من عامل ‏انخفاض العملة.‏

وفي واقع الأمر فإن غالبية البضائع المصدرة من تركيا الى السوق السورية، هي عبارة عن منتجات تعود لرجال أعمال سوريين سبق ‏أن غادروا إلى تركيا. وفي تصريح لوكالة أنباء الأناضول، قال رئيس غرفة تجارة وصناعة مدينة مرسين ‏التركية الواقعة على مقربة من الحدود السورية، شرف الدين آسوت، أن الصادرات من المدينة الى سورية ارتفعت، خلال العام الماضي، بنسبة 331% ‏بفضل المستثمرين السوريين في المدينة والذين “يعرفون السوق السورية بشكل أفضل”. ‏

في الوقت نفسه، وعلى الرغم من بقائها متواضعة، فقد ارتفعت قيمة الصادرات السورية إلى تركيا من 84 مليون دولار في عام 2013 إلى 115 مليون دولار في العام الماضي.

في عام 2007، وقعت سورية وتركيا اتفاقية التجارة الحرة، مما زاد التجارة بين البلدين بدرجة كبيرة، والتي كانت لصالح تركيا بشكل واسع.
عادة، يعزى إغلاق العديد من المعامل الصغيرة في سورية، خلال السنوات القليلة قبل الثورة، الى ارتفاع الواردات من تركيا ومن غيرها من الدول كالصين.

وقد استمر عدد الشركات التي يقيمها السوريون في تركيا بالازدياد خلال العام الماضي، وبينت معلومات اتحاد الغرف ‏وتبادل البضائع التركي، أن حوالي ربع الشركات التي أقامها المستثمرون الأجانب في تركيا ‏العام الماضي، تعود الى مستثمرين سوريين، إذ بيَن ‏‎الاتحاد‎‏ أن عدد الشركات التي أنشئت من كانون الثاني/يناير وحتى ‏تشرين الثاني/نوفمبر من عام 2014، والتي يمتلك مستثمرون أجانب أسهماً فيها، قد بلغ قرابة ‏‎4,249‎‏ شركة، منها ‏‎1,122‎‏ شركة يمتلك فيها ‏المستثمرون السوريون أسهماً، أي 26% من إجمالي الشركات.
واحتل السوريون، في عام 2013، المرتبة الأولى من حيث ‏عدد المستثمرين الأجانب بـ 489 شركة من إجمالي 3875 شركة يمتلك المستثمرون السوريون أسهماً فيها، أي ما نسبته 12.6%. ومن ‏الجدير بالذكر، أن غالبية الشركات السورية تعمل في قطاع المنسوجات، المنتجات الغذائية، التصنيع، السياحة وتجارة المفرق.‏

‏هذه الأرقام تعبِّر عن تنامي خطط طويلة الأجل ‏للمستثمرين السوريين للبقاء في بلدان إقامتهم الجديدة. ففي حين كان أوائل السوريين الفارين الى الخارج يأملون بأن تكون فترة خروجهم ‏قصيرة الأمد، فإن الكثيرين منهم أدرك، الآن، أن الصراع في بلدهم قد يمتد إلى فترة أطول.

للأسف الشديد، الكثير من هؤلاء المستثمرين، لن يعود حتى بعد انتهاء الحرب، يمكن توقع الضرر الاقتصادي الناتج عن هذه الهجرة.

نشر المقال في جريدة العربي الجديد

The Syrian Government is Endangering Local Industry

While the Syrian government claims that it wants to encourage local industrialists, its recent decision to change the country’s customs system is endangering one of the country’s most important manufacturing sectors, the garments industry.

Starting at the beginning of next year, the country’s customs system will have only five different tax rates on imported products, instead of 13 currently: 1%, 5%, 10%, 20% and 30%.

In other words, the 0% rate – meaning a total exemption from customs tariffs – as well as the highest rates of 80% and 150%, which were applied on garments and passenger cars respectively, are cancelled.

Until now, Syria was one of the countries that applied the highest customs duties on cars in the world. Meanwhile, the 80% duties on garments helped protect this industry, which employs dozens of thousands of people.

Officially, the objective of the government is to reduce corruption and bureaucratic hurdles by simplifying the system. Also, by reducing the level of taxes on imported products, the government hopes that more importers will stop evading taxes because they will have less interest in smuggling and under-reporting.

One additional reason for these reductions is the need to reduce the price of imported products, which have increased following the decline in the value of the Syrian Pound relative to foreign currencies. For example, an imported product that cost $10 was worth 500 Syrian pounds before the uprising. Now it is worth 2,000 pounds, because the Syrian Pound has declined from 50 pounds per dollar to 200 today. This four-time increase in the cost of imported products occurred while salaries have almost not increased in the last three-and-a-half years.

However, manufacturers in the garments sector are very unhappy, because the decline in customs duty will create more competition for them.

In addition, in an interview with Al-Thawra, a local daily, Firas al-Jajeh, the secretary-general of the Damascus Chamber of Industry, said that the customs duty on the intrants used for the production of garments will actually increase. Yarns, which are taxed 1% currently, will be taxed 5%, while fabrics, which are taxed 5% will be taxed 10%. Therefore, at the same time local manufacturers will face more competition and will have higher production costs. According to Jajeh, many manufacturers will now stop production and prefer to become importers of garments.

Given the fact that this sector employs dozens of thousands of people and that the government claims that it wants to encourage local industry, the logic behind the decision to reduce customs duties on garments is difficult to understand.

The debate between the priority to be given to trade or to local manufacturing exists in many parts of the world. However, this type of debate generally takes place as part of a broader debate on long-term economic strategies, not on a short-term basis and in a situation of war.

In Syria, in the last three-and-a-half years, the government has increased oil subsidies and then reduced them; it decided to suspend free trade area agreements with Turkey and Arab countries and implement one with Iran; it says it wants to protect local manufacturing but reduces duties at the risk of endangering jobs.

We already knew the Syrian government had no strategy, and no desire, to solve the country’s severe political crisis; it doesn’t seem to have any economic strategy either.

Note: This article appeared first in December 2014 in The Syrian Observer

Syria to Establish Turkish Boycott Office

The Syrian Ministry of Economy is preparing to establish a Turkish boycott office that will blacklist all the Turkish companies accused of “harming the Syrian economy.”

Listed companies will be banned from doing business in Syria or with Syrian companies.

Syrian officials accuse the Turkish Government of contributing to the looting of hundreds of factories in Aleppo and of enabling the export of Syrian crude oil from opposition-held areas as well as of contributing to the destruction of the Syrian economy by providing support to the opposition.

The head of the Federation of Syrian Chambers of Industry, Fares Shehabi, who is based in Aleppo, has been particularly vocal in his condemnations of the Turkish government. Last year he said that the establishment of a boycott bureau targeting Turkish companies was a request from the Federation.

Mr Shehabi added then that he would like the boycott to include any Turkish company “that supports the Erdogan government or that financed his election campaign.” “Companies that smuggled products into Syria should also be blacklisted,” Mr Shehabi added.

Turkey’s Government has been among the staunchest supporters of the Syrian uprising, providing a logistical base for the opposition fighting the regime, including the Free Syrian Army, serving as a conduit for the supply of arms and equipment, but also acting as a host for hundreds of thousands of refugees and for countless opposition parties and civil society organisations.

In 2013, Turkish exports to Syria actually doubled compared to 2012, from $497 million to $1 billion, probably because of the destruction of the economy in the north of Syria and the need to import products to meet the demand of the population.

For almost two years, the Syrian Government has been threatening to establish a boycott office but in practice, enforcing a boycott is likely to prove complicated.

First of all, Turkish investments in Syria have already almost entirely stopped. Secondly, bilateral trade between the two countries is now taking place almost exclusively along Syria’s northern border, which is entirely outside the control of the Syrian authorities.

The Turkish Boycott Office may be a bit similar to the Israel Boycott Office, an institution affiliated to the Arab League, which bans foreign companies doing business with Israel from entering Arab markets.

However, while the Israel Boycott Office is justified by the occupation of Palestine and by the fact that there aren’t anyway any relations between Syria and the State of Israel, in the case of Turkey the Syrian authorities have always been keen to stress that they are in conflict with the Turkish Government and not Turkey as a country and society.

Some segments of the Turkish population continues to support the regime and the Syrian regime will need to make sure that the boycott does not hurt them.

While the looting of factories has been widespread in the region of Aleppo, in practice looting and other forms of illegal business activities have taken place across Syria. The regime, through its various militias, is accused by the opposition of having looted and destroyed countless factories but also residential homes throughout Syria. However, no boycott office targeting these militias is likely to be established any time soon.

Note: This article appeared first in April 2014 in The Syrian Observer

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