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Chances of Economic Recovery “Slim” Despite Military Gains, Foreign Support

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A Syrian child selling vegetables during the ceasefire in Aleppo, March 31, 2016. Photo Beha el Halebi / Anadolu.

Addressing the People’s Assembly on 7 February 2016, Muhammad Jihad al-Laham, Speaker of the Syrian Parliament, called for maximizing the benefit of what he called the Syrian army’s military victories against rebels and extremist groups “in many areas across the country” so as to speed up reconstruction efforts in Syria.

In the same session, Prime Minister Wail al-Halqi said the government in 2016 will focus “on improving economic, agricultural, and services indicators” and on “investing in all resources to prepare for the reconstruction process.” Al-Halqi affirmed the government’s continuing efforts to provide the basic needs of its citizens and support micro, small, and medium-sized enterprises, stressing that the government will also emphasize the creation of new investment channels to push economic growth in parallel with administrative reform.

These statements by al-Halqi and al-Laham aim to give the impression that Syria may be able, in the near future, to overcome some of the daunting economic challenges that have faced the country since the outbreak of violent confrontations in 2011.

Economic indicators not promising

However, the Syrian government’s optimistic narrative contradicts sharply with several negative indicators suggesting that the economy is worsening, and that it will not recover from the current crisis easily and any time soon.

Syrian economic figures show huge losses in 2015, when Syria’s GDP amounted to approximately $30 billion, with the economic output declining by about 60 per cent compared with 2010, according to a Chatham House study. Up-to-date economic estimates show that Syria has lost more than $200 billion since 2011. “The sectors most affected are tourism and industry, with the latter shrinking by 80%,” Syrian economist Jihad Yaziji told al-Monitor. A World Bank report predicted that the Syrian economy will fall another 16 per cent in 2016.

Recently, the exchange rate of the Syrian pound reached 437 per US dollar, the value of the pound reaching the lowest point in the history of Syria, on account of “the glacial pace of production, large-scale damage sustained by infrastructure across the country, and the sharp decline in imports and exports,” according to Syrian economist Khursheed Alika, speaking to Turkey’s Anadolu news agency on 13 February 2016. Alika noted that this drop in the Syrian pound came despite the Syrian army’s alleged military achievements in the fight against the armed opposition in areas such as Aleppo and the coastal areas in the west, “because the war has worn out both the regime and the opposition and led to the displacement of millions of Syrians.”

Syria’s GDP and the size of its exports are influenced by new dynamics in the parts of the country that are controlled by various players—rebels, the Kurdish Democratic Union Party (PYD), the Islamic State (IS), and the Syrian regime.

The war has robbed the country of its territorial integrity and economic unity, as the Syrian territory has been divided into smaller entities controlled by the various warring parties. Oil, phosphates, and agricultural products, for example, are concentrated in the largely rebel-controlled territories in the east and northeast. Oil fields are located in the areas of Dayr az-Zawr and Hasakah, while phosphate mines are located east of Palmyra. These areas are controlled by the Kurds or IS, thus depriving the regime of another source of “millions of dollars” in revenue.

The Syrian government lost control of all of its major oil fields when, in 2013, IS captured parts of Dayr az-Zawr and Raqqa provinces in the north, although the government managed to keep some gas fields under its control to continue supplying its power plants. Still, the shortage of fuel has caused power outages in most of the country, cloaking 83 per cent of formerly illuminated areas in darkness, according to the latest reports dated April 2015.

Financial analysts claim that the Syrian regime was buying approximately 20,000 barrels of oil per day from IS and that the regime was negotiating with IS to maintain its supply of gas from eastern gas fields in a bid to keep some of the regime-controlled factories operational.

IS is also said to have seized control of about three-quarters of Syria’s production of cotton. As a result, the regime’s production has dropped from about 600,000 tonnes per year before the war to just 70,000 tonnes in 2015.

In other words, the Syrian war is destroying the country’s economic unity as well as its social cohesion, and these economic transformations will undoubtedly weigh on the reconstruction of the country and pose new financial and economic hurdles in the future.

Russia’s military campaign started in September 2015, while a major boost to the exhausted Syrian government, worsened an already serious humanitarian crisis, forcing more Syrians to flee the country and leaving the economy ever more reliant on foreign aid. There is little hope that the ceasefire agreement brokered by the United States and Russia in late February 2016 will lead to a viable settlement between the regime and the opposition.

Syrian economy weak but resilient

Despite the economic decline in recent years, the Syrian economy has avoided total collapse. The government maintained limited agricultural and industrial production, thanks to its control over coastal cities—Damascus, Latakia, and Tartous—accounting for almost one-third of Syrian territory, and this has helped the regime continue trade with the outside world or at least with its main allies, Russia and Iran.

Russian and Iranian economic assistance that continues to flow to the Syrian regime is key to securing the country’s growing needs for oil and grain. The regime receives nearly US $6 billion annually from Iran, said UN Special Envoy to Syria Staffan de Mistura, and in November 2015 the regime received 100,000 tonnes of wheat, donated by Russia. The food and monetary donations received by Syrians in need of humanitarian assistance has somewhat alleviated the regime’s financial burden, although official statistics for 2016 by the United Nations Office for the Coordination of Humanitarian Affairs (UNOCHA) indicate that the Syrians harmed by the conflict have received only about $218 millions, amounting to only four per cent of total aid needed.

This continuing foreign support for the Syrian regime is insufficient to allow the Syrian economy to heal, as fighting between the regime and armed opposition groups impedes international efforts at reconstruction and weakens productive capacity, economic assets, and the country’s ability to attract investment.

The Syrian economy remains subject to a continuous drain caused by the rising cost of war and extensive damage sustained by infrastructure and human capital. “The war in Syria has robbed it of four decades of social and economic progress,” said a UN official on 26 February, 2016, addressing the Valdai discussion forum in Moscow, where more than one hundred officials from several countries gathered to discuss Middle Eastern crises.

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