Rebuilding Syria’s economy: Can stability return after war?
A lightning-hitting offensive against Syrian President Bashar al-Assad on December 8 gave rise to a crisis-hit economy.
One month later, they are working to restart it, facing the damage 14 years of war left , and crippling sanctions that have decimated economic activity.
The Syrian pound’s value has been devalued, and inflation has risen to triple digits. Unnamed official told the Reuters news agency last month that the Central Bank of Syria only had $200 million in foreign exchange reserves. At the end of 2010, it had $17bn.
The challenges
Having assumed control of Syria’s caretaker government,  , Hayat Tahrir al-Sham (HTS) – itself still sanctioned as a “terrorist organisation” by the United States and others – faces a long list of challenges.
Peace and security are top priorities as well as funding, including the essentials (according to the World Food Programme, 13.1 million Syrians do not have enough food).
The al-Assad regime’s transition is expected to end the corrupt system that presided over Assad supporters with privileged access to government contracts and controlled important sectors.
The government even participated in the production of Captagon, a potent illegal amphetamine that is frequently used in the Gulf states, to raise money.
HTS says it wants to introduce a free-market system and has appointed a new Central Bank governor, Maysaa Sabrine, the first woman to take the role, as the institution’s governor.
Though details about modernisation efforts remain vague, Mohammed Abazeed, the caretaker finance minister, told Reuters the ministries would be restructured to improve efficiency and accountability. Along with outside investment, he said this would lead to a 400 percent public sector salary increase by February.
He added that the tax system would soon undergo a change. “By the end of this year, we expect]to have] a well-designed tax system that takes the interests of all taxpayers into account”, Abazeed said.
One of Syria’s busiest trading routes has been reopened by the transition government in an effort to lessen concerns about supply shortages. Additionally, they instructed the state-owned Syrian Petroleum Company to resume supplies and instructed shops and government ministries to remain open.
War and sanctions
Syria has one of the highest literacy rates in the region, which is high at 94 percent, and has a strategic position in the Mediterranean Sea.
“Before 2011, Syria’s economy was relatively well-diversified. It wasn’t performing brilliantly, but it was growing”, said Benjamin Feve, a researcher with the Triangle think tank in Lebanon. “It benefited from wheat, phosphate and fuel exports, a small manufacturing base, rising real estate prices and tourism receipts. But everything was destroyed by the war.
At least half a million people died as a result of a 2011 uprising against Bashar al-Assad, which was met with severe government violence. Millions more have been displaced as physical infrastructure, including roads and farmland, was razed.
Economic indicators nosedived: Syria’s gross domestic product (GDP) shrank by 54 percent between 2010 and 2021 – 90 percent of Syrians are now thought to live in poverty. The war’s fighting-ravaged neighborhoods have largely not been rebuilt, a sign of the destruction that the past 14 years have brought.
Meanwhile, al-Assad’s use of torture chambers and chemical weapons against his own people turned Syria into a pariah state. Damascus was denied access to the capital markets, Western aid, and commodity revenues by the US and the European Union in 2011 through crippling sanctions.
“There’s little doubt that sanctions hollowed out state institutions and reduced Syria’s economic resilience”, said Feve.
Omar Dahi, a Syrian economics professor at Hampshire College in Massachusetts, said the impact of economic sanctions has been overlooked. “In addition to war-related costs, sanctions drained business activity and shrunk the government’s tax base”, said Dahi.
From 2011 to 2021, he estimated that Syria’s tax revenue to GDP ratio fell from 11 to 5 percent, or just $4.5bn, in 2021. That is one of the world’s lowest tax shares, claims Dahi.
For years, Russia and Iran propped up the al-Assad regime, helping it bypass Western sanctions. By expanding their credit lines, Moscow and Tehran made it possible for Syria to import fuel and food.
In exchange, al-Assad gave up some of Syria’s key resources, like phosphate deposits. Additionally, he acquired an unrequited sum of money from his foreign supporters. Dahi, however, does not expect that anytime soon.
Resuscitating the economy
With economic recovery in focus, Dahi said it would be “sensible” for HTS to focus on “domestic activities like food and housing… reviving indigenous drivers of growth, particularly agriculture, would provide some security. The government could then try to promote “basic industries like textiles.”
Still, considering the small size of Syria’s economy, Dahi warned that “long-term growth and development won’t be possible without access to foreign capital and technology”.
Ahmed al-Shara, commander-in-chief of Syria’s new administration, says he hopes US President-elect Donald Trump will lift sanctions. In a sign that the US is willing to engage with Syria’s new leadership, Washington removed a $10m bounty for al-Shara on December 20.
As long as the new government offers political stability and reduces ties with Russia and Iran, US officials have also started discussions with Qatar and the United Arab Emirates about easing financial restrictions on Damascus.
Al-Sharaa has also stated that the first elections in Syria will take up to four years, which could mean a longer period of power transfer.
Before the war, Syria exported natural resources, particularly oil, to capitalize on its strategic position, which spanned Asia and Europe.
According to Syria’s Ministry of Petroleum and Mineral Resources, losses in the oil sector amounted to $91.5bn between 2011 and 2021.
Years of civil conflict left the country’s energy infrastructure “well below operating capacity”, and corresponding losses to public finances were “significant”, according to Robert Perkins, an energy analyst at S&, P Global.
In the northeast, he also made it clear that the US-backed Syrian Democratic Forces (SDF) are primarily in charge of Syria’s oil and gas fields.
The transfer of these resources back to Damascus will be crucial to funding reconstruction efforts, which are thought to be between $250 billion and $400 billion, given the sector’s potential size.
A significant role might be played by Turkiye.
With risk-averse investors unlikely to rush back into Syria, Ankara has indicated it will fill the gap – , Turkish businesses have operated in opposition-controlled territory for years, particularly in construction.
Turkish Energy Minister Alparslan Bayraktar stated last week that his country wanted to conduct studies into how Syria’s natural gas and oil resources could be used for development and reconstruction ahead of a trip to Damascus.
Turkey’s long-standing opposition to the presence of the SDF along its border is represented by Turkish forces, which it believes is closely linked to the Kurdistan Workers Party (PKK), a group that has waged a decades-long civil war against the Turkish state and is viewed by Ankara and Washington as a “terrorist” group.
Therefore, Turkiye’s efforts are likely to result in Syria’s new government reclaiming its oil reserves from the SDF. “Clearly, Syria’s energy sector would benefit from large-scale investment in export pipelines and port facilities”, Perkins said of Turkiye’s funding proposals.
He wonders, though, whether Türkiye investment alone will spur near-term growth.
Source: Aljazeera
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