The recovery of the Syrian economy : Opportunities and Obstacles

The recovery of the Syrian economy : Opportunities and Obstacles

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Amer Al-Omran

Preface:
Today… After more than eight years on the crisis in Syria, and the decline of the severity of the conflict, observers and experts began talking about the rebuilding phase, the recovery of the economy, and the transition to the reconstruction stage, after the country witnessed the biggest crisis in its modern history, which may mean the rotation of the wheel of reconstruction and building the local economy, therefore this study will focus on the recovery phase that the Syrian economy has entered.

The reality of the Syrian economy today:
Before the start of the war in Syria in 2011, the Syrian economy was considered the only Arab economy that was self-sufficient in most of its needs, as the Syrian industries exceeded the size of industries in most of the countries of the region, and the Syrian exports were reaching all the countries of the region and the world, but these features are no longer the same as it was after the war that started in March 2011, which resulted in the emigration and closure of a large part of factories, especially in the areas that witnessed military confrontations between the forces of the regime and its allies on the one hand, and the groups opposing it on the other.

The effects of the Syrian crisis have been devastating on the economy. The eight years of the war changed the features of the Syrian economy, turning it to a completely destroyed and exhausted economy, most of the economic sectors and economic production collapsed, investors and capital fled from the country, and the GDP fell from $ 61.1 billion in the year 2010 to $ 17.1 billion in 2017. (1)

The country has experienced countless successive crises, and the suffocating fuel crisis that lasted from mid-October 2018 to May this year is one of the most severe, as it increased the suffering of citizens and merchants, and the cost of shipping goods increased to 50%, and the Syrian Lira lost more than 15% of its value due to the interruption in the supply of Iranian oil to Syria as a result of the US sanctions imposed on Tehran in October 2018. (2)

Inflation:
During the Syrian crisis, inflation rates, especially the prices of foodstuffs, increased to more than 100%. This reality was accompanied by the Syrian government’s resort to withdrawing from cash reserves, to retract Syria’s foreign currency reserves that were collected during the short period of oil availability in the nineties, and the budget deficit increased from 3% of GDP in 2010 to 33% today, the Human Development Index has also declined to record levels, and the impact of international sanctions that started since the beginning of the war has also affected various sectors of the Syrian economy.

Poverty and unemployment:
Reports issued by the World Bank Group reveal that the unemployment rate has risen to 78%, and there are about nine million Syrians unemployed, while prices in general during the war years have increased about 14 times, and the Syrian economy has lost 226 billion dollars of GDP (GDP ) , which is four times the gross domestic product in 2010, in addition to the destruction of 7% of housing, buildings and public facilities entirely and 20% in part), and the agricultural sector losses amounted to about 16 billion, and experts estimate that the reconstruction process may take between -10- 15 years . (3)

International estimates of the damage:
The United Nations estimates indicate that Syria needs $ 250 billion for reconstruction, while the Syrian government has estimated the amount at $ 400 billion, and the World Bank estimates indicate that six out of every ten Syrians live in extreme poverty, and the Syrian family of 6 people , needs a monthly income of approximately 300 thousand Syrian pounds, which is equivalent to today 400 dollars, to provide the most important supplies and living needs.

The possibility of the recovery of Syrian economy:
The end of the military conflict in Syria is an explicit announcement of the start of the next stage, which is construction and economic recovery, and an attempt to repair the distortions caused to the economy by the war that undermined the country’s economic ability and threw its weight on the shoulders of the Syrian citizen.

Talking about the reconstruction and recovery of the Syrian economy will not be as simple as some might expect. The repercussions of the extensive destruction that Syria witnessed since March of 2011 brought the economy back to its starting point, and the costs of repairing this destruction are high. In early 2019, estimations of the cost of reconstruction ranged between 250 and 400 billion dollars, which makes the 2019 budget of about 9 billion dollars, looks very little, and the amount allocated for reconstruction reached about 115 million dollars. (4).

Therefore, it is impossible for the Syrian government to bear this massive reconstruction.
At the beginning of this year, the British “The Economist” magazine expected that the economic growth rate in Syria would reach 9.9%, in an indicator that is the highest in the world, and the magazine said that the case of Syria stresses the fact that large numbers “may reflect the lowest starting point.” (5)

Here it is worth noting that this high rate, which appears at first glance, that the Syrian economy will grow miraculously, but is a natural result because talking about the growth of the Syrian economy is growth from zero, and therefore the rate of growth mentioned is an indication that this economy is rising from zero.

Consequently, the recovery of the Syrian economy needs concerted factors and great efforts, which we will divide in this study into internal and external factors:

First: internal factors:
Despite the damage suffered by the economic sectors in Syria from the war, it may be one of the building blocks for the desired economic growth, and a report by the Syrian Central Statistical Office shows the classification of economic sectors and their contribution to the local product, where the agricultural sector exports by 37%, followed by the industrial sector, Mining by 16.4%, and trade came in third place by 13.3%. (6).

Although the manufacturing sector is relatively small in terms of its weight in the Syrian GDP, it can be an essential component of the economy’s stability, and along with agriculture it is considered an essential part of the productive economy.

In the tourism sector, the World Bank expected that the contribution of tourism to “domestic product” in 2019 would reach 55%, as last October saw the establishment of the Tourism Investment Forum 2019 with the aim of attracting tourists to Syria. (7)

In its endeavor to advance the economic reality, the Syrian government has consistently held economic and investment conferences in Damascus, or participated with its allies, which has been a catalyst for the desired economic recovery.

Last year, the Syrian government made sure to enact a number of laws in order to encourage investment and reconstruction in industrial sites, and thousands of industrial and craft facilities were restored in a number of governorates, while government institutions restored services such as electricity, water, roads, and all necessary services for industrial cities. 8)

The Syrian government has worked to involve the governorates under its control in development processes, by holding conferences such as the Third Industrial Conference in Aleppo, which came under the title “Our Industry is Our Power,” in November 2018, and concluded with a series of recommendations from the industrialists that were formally approved by the Council of Ministers in January. 2019, and were the main pillars of re-establishing the manufacturing sector as an important actor in the national economy. (9)

The aforementioned official figures have sent a message that the situation in Syria is moving in the way of growth and stability, and the Syrian economy is recovering and opens its doors to investors from all countries of the world.

Second: External factors:
The external factors to support the Syrian economy are allied and supportive countries that support directly the Syrian regime, namely Russia and Iran, as well as foreign investment, and neighboring countries.

– Russia:
The Federal Republic of Russia is considered to be one of the largest and most important supporters of the Syrian regime, and the size of the military and logistical support that Russia has provided to Syria over the past years is not hidden. As for trade relations, official Syrian data showed that the volume of trade exchange between Russia and Syria reached in 2010 about one billion US dollars, but after the outbreak of the protests, it rose to about two billion dollars, and in April this year, Russian Deputy Prime Minister Yuri Borisov announced that Syria will lease Tartous Port on the Mediterranean coast to Russia for 49 years, as well as the annual organization of the Syrian-Russian Business Forum. (10)

In addition to a large number of joint agreements and treaties between Moscow and Damascus, as a number of commercial agreements were signed, especially in the field of exploration and extraction of hydrocarbons, in addition to signing the road map for cooperation in the field of industry between the Russian Ministry of Industry and Trade and the Syrian Ministry of Industry.

Iran:
The Iranian Republic comes second in terms of relations with Syria, as it takes over the vital sectors in Syria, in a race that is not hidden from Russia and other countries seeking to rebuild Syria.

In the economic field, during the past two years and present, it signed a number of agreements for a package of Iranian investments in Syria, to build and repair war-damaged areas, and to supply Iranian oil in Syria. (11)

Tehran has always been keen, and at any opportunity, to search for economic benefits in Syria, as it has been keen on the participation of dozens of Iranian companies to participate in any project or conference in this direction, the most prominent of which was a conference that came under the name of ” build it ” in the capital Damascus in 2017, at the time, Iranian participation was considered “the largest among nations.” 12

These companies were distributed in the fields of construction and building materials, in addition to the oil sector, electric power, transportation, and others.

The Syrian and Iranian sides also signed memoranda of understanding to enhance banking relations, establish a joint bank, and implement banking agreements signed between the two countries. (13)

This Iranian presence in various sectors of the Syrian economy has clearly contributed to supporting the economy and its cohesion, and it is estimated that Iranian companies will have a major role in the reconstruction and revitalization of the Syrian economy.

Foreign investment:
Foreign direct investment is one of the most important factors affecting the reconstruction and recovery of the Syrian economy, and many countries have indicated their willingness to enter the Syrian market, but there is a lot of fear about the conditions and reports that come out of Syria, so the Syrian government must work to attract Strategic investment projects with sustainable development and preparing the necessary ground for foreign capital entry through building commercial partnerships.

According to many observers, China, which has the second largest economy in the world, is considered one of the most important candidates for investment in Syria, as the requirements of the massive reconstruction of Syria are commensurate with China’s large economic capacity and experience in this field. (14)

As for the Chinese companies interested in investing in the Syrian market, for example but not limited to, the Chinese company, “Sinoma Suzhou Construction” sponsored the business forum for the cement sector in Syria, which was held in October 2019 and a large number of areas that it intends to invest in. (15)

The European Union countries also expressed their willingness to participate in the reconstruction efforts, but they stipulated the political transition of power and finding a sustainable political solution to the crisis.

Syria’s neighboring countries:
The Syria’s neighboring countries plays a pivotal role in supporting the Syrian economy and its stability, as the closure of the crossings with the neighboring countries after the crisis had the greatest impact on the Syrian products, as this closure led to the isolation of Syria from its geographical and regional surroundings.

Here we mention, but not limited to, the common border between Syria and Jordan, as well as the border between Syria and Iraq.

The closure of the “Jaber-Nassib” crossing between Jordan and Syria in 2015 cut the passage for transporting hundreds of trucks daily, which were transporting goods between Turkey and the Gulf and between Lebanon and the Gulf in a trade worth several billion dollars annually, and the Syrian-Jordanian trade exchange is estimated at 500 million dollars (16) In addition to that fact , this region will be the most important in the process of the reconstruction of Syria for the passage of requirements for this reconstruction.

However, this crossing was reopened on October 15, 2018 to become an outlet for the Syrian economy on Jordan and the rest of the countries in the region and to provide commercial, industrial and service activities.

The general manager of the Jordanian-Syrian Joint Free Zone Company, Khaled Al-Rahahleh, also expected that the region will be re-established again and enable investors to enter it early next year 2020.

On the eastern border with Iraq, the Albu kamal crossing was opened in the city of Deir Al-Zour, after eight years of its closure to travelers and commercial exchange between the two countries, which both Damascus and Baghdad considered a significant development on the level of trade exchange, and to be a crossing for Syrian goods to the Iraqi market, especially that 65 % of the consumption of the Iraqi city of Anbar was dependent on Syrian goods. (17)

The obstacles to economic recovery in Syria:
Despite the efforts being made to support the Syrian economy internally and externally, there are major obstacles standing in the way of economic recovery for Syria, which we can mention as follows:
• Lack of agreement on a comprehensive political solution to the Syrian crisis.
Lack of a safe environment for companies and investors alike to initiate investment and reconstruction operations (18)
• Exacerbating the refugee crisis and the flight of minds and skilled workforce .
Obstructing the investment of national resources due to international sanctions, where it is not possible to start the reconstruction in Syria in light of the sanctions imposed on its economic institutions.
• Financial and administrative corruption that dominates all joints of the state.
. Lack of tax justice and widespread tax evasion in the Syrian economy. (19)

Recommendations to support the recovery of the Syrian economy:

The Syrian economy needs a clear future economic vision for the advancement and gradual return to the desired economic situation. Here we mention the most important recommendations required for the recovery and support of the economy:

– Rehabilitation of infrastructures, and preparing them well to receive future investments.
– Supporting the private sector and activating its role in various economic sectors, especially industry and agriculture, as they are the most important of these sectors.
– Diagnosing its economic policies and developing perceptions and visions to develop the reality and prospects of vital economic sectors.
– The optimal use of available resources and controlling government spending.
– Create an effective investment climate and provide equal opportunities for all.
– Fight corruption, activate supervision and protect consumers.
– Reforming the banking system and the laws governing the workflow to match the next stage and the needs of investors.
– Supporting the national industries and the local product, as well as returning the suspended factories to supply the local market and establishing industrial cities to support the sector in general.
-Creating and developing qualification jobs for individuals and groups to be partners in building and construction operations.
– Opening border crossings and rapprochement with neighboring countries to serve the national economy and commercial movement.

Conclusion:
In conclusion .. It can be said that the Syrian economy has started the stage of economic recovery, and entered the stage of reconstruction and building , but what can be confirmed is that the road to reconstruction in Syria is long and slow at the same time, yet the Syrian government must push the economy towards growth, but the most important thing is maintaining high levels of growth in order for the economy to recover properly, to return to pre-war levels, and to take necessary measures and actions to address its problems to be an attractive factor by reviewing economic and procedural laws and regulations related to investment, so that the Syrian economy is a factor of attraction and destination for investors and for those interested in participating in the rebuilding process.

Margins:
(1) – The paradox of the Syrian reconstruction, Carnegie Middle East Center 2019, seen on 28-11-2019: at the following link:
https://carnegie-mec.org/2019/09/16/en-pub-79843 –
(2) – Ramadan and fears of a catastrophic rise in prices – Asharq Al-Awsat newspaper, seen on 28-11-2019, at the following link: https://cutt.us/07psz.
(3) – War losses: the economic and social consequences of the conflict in Syria, The World Bank Group, seen on 11-30-2019: at the following short link: https://cutt.us/eQMnH
(4) – The Manufacturing Sector in Syria: The Current Model of Economic Recovery, The Middle East Pathways Program, seen on 11-30-2019, at the following short link: https://cutt.us/19QR6.
(5) – The fastest growers and biggest shrinkers of 2019- economist- was seen on 29-11-2019, at the following link: https://www.economist.com/graphic-detail/2019/01/02/the-fastest -growers-and-biggest-shrinkers-of-2019
(6) – Did the “Syrian Economy” Really hold ?, And Why? Zaman Al-Wasl website, seen on 30-11-2019: at the following link: https://www.zamanalwsl.net/news/article/100468/
(7) – The Syrian Economy: To “Lebanonization ,” Sir !, Al-Akhbar Newspaper, viewed on 1-12-2019 https://al-akhbar.com/Sham/261375
(8) – The reality of governance and reconstruction in the areas of the Syrian regime during the month of October 2018, Omran Center for Strategic Studies, seen on 11-30-2019, at the following link: https://cutt.us/2Z78n.
(9) – The Manufacturing Sector in Syria: The Current Model of Economic Recovery, previous reference
(10) – Russian official after meeting Assad: Russia may rent Tartous Port for 49 years, Russia Today website, seen on 11-30-2019, at the following link: https://arabic.rt.com/russia/1014584-
(11) – Why does Iran establish its pegs in Syria ?, Al-Quds Al-Arabi newspaper, viewed on 1-12-2019, at the following link:
https://cutt.us/2103j.
(12) Iran-Syria plan for reconstruction projects in Syria, Enab Baladi website, seen on 1-12-2019 at the following link: https://www.enabbaladi.net/archives/345427.
(13) – The same source.
(14) – Will China rebuild Syria? , Al-Quds Al-Arabi newspaper, viewed on 1-12-2019, at the following link: https://cutt.us/B01mt
(15) – The reality of governance and reconstruction in the areas of the Syrian regime during the month of October 2019, previous source.
(16) – Jordan and Syria announce the opening of their borders on Monday- Reuters News Agency, viewing date 2-12-2019, at the following link: https://ara.reuters.com/article/topNews/idARAKCN1MO0LKK
(17) The reopening of the Al-Qaim-Albukamal crossing between Iraq and Syria – Al-Sharq Al-Awsat newspaper, seen on 2-12-2019, explaining the following link: https://cutt.us/uVDem.
(18) – Manaf, Quman. Tax Administration Policies in Syria: Their Realities and Challenges, Arab Center for Research and Policy Studies, July 2018.
(19) The same source.

Translated by : mudhaffar al-kusairi

Rawabet Center for Research and Strategic Studies