Syria’s frail economy, before and after the revolution

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Before the bloodshed of the civil war in Syria, the country’s economy was diverse. The most important sectors included agriculture (22 percent of the economy), industry and excavation (25 percent), retail (23 percent), and tourism (12 percent), according to 2009 figures quoted by the Syrian Central Bank.

In 2009, the revenue of the Syrian government amounted to 600 billion Syrian lira, with tax revenues making up 80 percent of the government budget. The rest came from oil revenue, which amounted to 150 billion lira in 2010, according to the IMF. Despite a decrease in oil production from 431,000 barrels in 2006 to 382,000 barrels in 2009, the rise in the price of oil made up for the difference.

Syrian oil production decreased to 280,000 barrels with the beginning of the conflict and as a result of the economic sanctions imposed on the Syrian government, according to a statement by the Syrian oil minister in November 2011. Government expenses include 700 billion lira, 451 billion for general expenses including 90 billion for the army and 267 billion for developmental projects, making up around one third of the budget. This means that the budget of the Syrian government had suffered from a deficit estimated at 122 billion lira before the start of the conflict, according to the IMF report from 2009, even though Syria had a commercial surplus during the rule of the late Hafez al-Assad.

The Syrian government mostly funded this deficit mostly the local market and to a much lesser degree from abroad, according to the IMF report from 2009. However, the Syrian stock market is currently running out of monetary resources and bank deposits are dwindling especially with capital taken out of the country. This drove the Syrian government to reduce the Syrian Central Bank reserve to half at the start of the unrest in 2011, BBC News reported last year. This reduction continued until it reached $2 billion by the end of 2012 while the Syrian government’s reserves stood at $18 billion at the beginning of the conflict, according to a report released by the Syrian Center for Policy Research in January 2013.

Other factors contributed to the growing frailty of the Syrian economy like the regime’s intransigence as far as the people’s demands are concerned and which led to the decrease of the state resources and the destruction of a large part of the infrastructure.

According to estimates by the Syrian Center for Policy Research, $48 billion is required for the reconstruction of Syria; the Partnership Conference for Investment in Syria the Future estimated the amount at $60-200 billion by the end of 2012. This means that Syria needs 25 years to reconstruct what has been destroyed during the conflict. The percentage of losses in the year 2011 alone stands at 81.7 percent of the value of the local production of the Syrian economy in 2010, having reached $59 billion according to World Bank estimates. According to the Syrian Center for Policy Research, those losses include a drop in local production by 35 percent in 2011, equivalent to $20 billion, $12.4 billion of which are foreign investment losses and $8.9 billion tourism. The Syrian economy is expected to have lost an additional 18.8 percent in 2012.

Several factors led to the exit of capital and investors outside Syria. All government services ground to a halt as the government started punishing the people by stopping main services like water and electricity. Power outages lasted for at least four hours and could continue for days and weeks, according to the official website of the Syrian Ministry of Electricity. These hit the most luxurious neighborhoods in Damascus and several areas in the countryside, which housed the majority of factories because taxes there are less than those in the cities in accordance with the Syrian investment law.

Although the Syrian government imposed restrictions on taking money outside the country, the total amount of bank deposits continued to decrease as tension escalated and with the dwindling of monetary resources in the country. Those deposits dropped by 38 percent by the end of 2012 and the total amount of deposits reached 320 billion lira by the end of 2012 compared to 442 billion at the start of the conflict, according to a statement by the governor of the Syrian Central Bank and the reports issued by the bank up until March 2011.

Syria is home to 11 private banks, three Islamic banks, and seven foreign banks. The impact of the crisis differed from one bank to another with some losing more than one quarter of their activities while others had to shut down.

The damage inflicted upon Syria's economy is demonstrated in several cases. For example, the number of silk looms at the start of the unrest was 12,000 while they currently do not exceed 1,000 with almost 90 percent of the silk industry in Syria transferring to neighboring countries, according to research. This led to a rise in employment in Syria, which did not exceed 22-30 percent before the conflict, according to a statement by the minister of social affairs and labor in 2011.

Unemployment is expected to reach 60 percent if the tension continues, according to a report issued by the United Nations Economic and Social Commission for Western Asia (ESCWA). Some experts say that the transportation sector has dropped from 190 billion lira in 2010 to 12 billion at the end of 2012, according to a report in the al-Zaman newspaper, while the tourism sector dropped by 95 percent.

The deterioration of the Syrian economy becomes clear on the Damascus Stock Market, which witnessed a 54 percent decline from 1.720 points in early 2011 to 796 points on March 17, 2012. This translates into a 86 billion lira market loss, according to the official website of the bourse. Lack of liquidity and limited trading in the Damascus Stock Market could be among the reasons that the market drop was not bigger.

International sanctions also played a major role in the deterioration of the Syrian economy owing to their remarkable impact on the country’s commercial balance with the drop in exports, especially in oil. This drove the Syrian government to start looking for other markets since Arab and European countries had constituted 90 percent of Syrian exports in 2008, according to the IMF report of 2009. In this Syria was supported by Lebanon, from which imports jumped to 18.8 percent in the first half of 2012, and Iraq, to which exports jumped to 30 percent, according to a report issued by HIS Global Insight on Syrian imports from Lebanon.

The economic crisis through which the Syrian government is going led to a drop in the local currency, the Syrian lira, by almost half. This led to a rise in inflation. For example, the price of a butane cylinder has reached 2,500 liras in some areas as of March 2013, if available at all. One of the factors that contributed to the drop in the local currency is the government’s decision to quadruple the amount of printed notes compared to the end of 2010 and was helped in that by the Russian government.

It is likely that the Syrian government is receiving external funding from allies like Iran and Iraq, and this could be one of the reasons why the regime has not collapsed. Russia also allegedly provides the Syrian regime with weapons. Despite economic sanctions, the Syrian minister of petroleum announced that the government signed in early 2012 a deal with Iraq to export a daily amount to Syrian oil worth $25 million. A similar deal was struck with Iran for a total of $1 billion annually.

The Syrian economy would be faced with many challenges with the fall of the regime, especially in restoring security, unifying the different military factions and embarking on a process of disarmament.

The components of the Syrian economy would also take a different shape than under the Assad regime. The economy would no longer be linked to particular individuals or families and the new government would be faced with the challenge of making up for the economic damages incurred by the regime.

Should the regime fall, a series of Arab and international conferences are expected to be organized to examine the means of restoring security and stability to Syria and to start reconstruction projects in which Western and Arab countries would contribute as well as Syrian businessmen inside and outside the country.

In a post-Assad era, Syria would be in need of a massive urban revival and rebuilding. Construction costs might take up half of the Syrian economy for the first few years. Infrastructure is another challenge since it had already had a lot of drawbacks before the conflict and has reached a deplorable state after. The electricity sector alone is expected to cost 20 billion euros to cover the needs of the Syrian people, according to a statement by the Syrian Minister of Electricity quoted by the al-Eqtesad newspaper. Other sectors like agriculture, industry, and tourism need to be focused on. The unity of Syrian territories remains an essential prerequisite for the reconstruction of the economy so that development can be achieved through making the best use of the country’s resources.

Written by Jamal Mahamid for the Al Arabiya Institute for Studies

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