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Regional diplomacy fails Syrian economy

6 June 2024

 

Syria’s dire economic position continues to worsen. In a report issued in May, the World Bank predicted the economy will shrink by 1.5% this year, following a 1.2% decline in 2023.

The economy had already contracted by 54% between 2010-21, according to the Washington-based body. Its international trade has also entered freefall, with the value of exports falling from $8.8bn in 2010 to just $0.7bn in 2023, while imports dropped from $17.5bn to $3.2bn over the same period. Syria was once an oil exporter with a large agriculture sector, but it has become reliant on fuel and food imports.

What makes matters worse is that the cost of importing goods is now far higher than it once was, thanks to the collapse in the value of the Syrian pound. In 2011, you needed £Syr47 to buy one US dollar; by 2023, the cost had risen to more than £Syr12,500 for every greenback. Last year alone, the Syrian pound declined by 141% against the dollar, while inflation was running at 93%.

Agriculture fared slightly better in 2023 due to improved weather conditions compared to 2022, but the north of the country suffered a devastating earthquake in February 2023, which killed several thousand people and destroyed thousands of homes.

The authorities have few spare resources to devote to rebuilding areas devastated by natural disasters or the civil war. 

The government has lost control over oil revenues to the Autonomous Administration of North and East Syria (AANES), which holds the oil-rich parts of the country. The security challenges of the past 13 years have also led to a downturn in most other parts of the economy and enfeebled the government’s ability to collect taxes.

The World Bank estimates that, after adjusting for inflation, government revenues are now 85% lower than before the war.

The poor living conditions prompted a fresh wave of protests in Daraa and Al-Sweida in August 2023, which then spread to other government and rebel-controlled areas of the country. Locals have much to complain about.

The International Rescue Committee reckons that nearly three-quarters of Syria’s population, or more than 16.5 million people, require some sort of humanitarian assistance and upwards of 90% of Syrians now live in poverty.

Smuggling economy

One area of activity that has prospered has been the production and export of Captagon. This illegal amphetamine-like drug is smuggled in huge quantities into the Gulf, where it finds a ready market despite concerted efforts by the authorities there to clamp down on it.

The World Bank has estimated Syria’s Captagon trade was worth between $1.9bn and $5.6bn a year from 2020-23; that higher figure is not far below the country’s GDP of $6.2bn in 2023.

Those linked to the Syrian trade are thought to earn between $600m and $1.9bn in revenue a year. To put that in context, the revenue generated from all legal exports from Syria last year was $960m.

The Captagon trade might be enriching some figures close to the regime of President Bashar Al Assad, but it is also undermining the country’s wider economic prospects.

One potential avenue for rebuilding the shattered economy is to attract inward investment and the rich Gulf countries are an obvious potential source for that.

However, despite the diplomatic normalisation with Gulf governments over the past few years, the hoped-for investment flows have not materialised, with unhappiness over the Captagon trade a key factor – even if there have been some signs of a reduction over the past year or two.

Caroline Rose, who runs the Washington-based New Lines Institute’s research project on the Captagon trade, said: “We keep tabs of recorded Captagon seizures … and noted a slight dip in Captagon seizures region-wide between 2022 and 2023, so the reduction in seizures could be related to a stabilisation in the supply and production of Captagon.” However, she added that Syria continued to export the drug “at industrial levels”.

Investment brakes

The drug trade is not the only barrier to attracting foreign capital, though. Inward investment has also been hampered by US sanctions set out under the Caesar Syria Civilian Protection Act of 2019, generally known as the Caesar Act, and the myriad problems within the domestic economy are also a major hurdle for any would-be investor.

“When it comes to business and investment, Syria does not really provide any good environment for that. You have high costs, high risks, absence of rule of law, low purchasing power,” said Haid Haid, a consulting fellow at UK thinktank Chatham House, in April. “Businesses in general will not be tempted to go and open businesses there because the gains are low.”

Some regional aid has been flowing in, though. Arab countries raised their contributions from 2% of the total aid in 2022 to 15% in 2023, with the UAE, Kuwait and Saudi Arabia being the largest donors.

Others have been focusing their efforts on the plight of the millions of Syrian refugees displaced inside the country and beyond its borders in Turkey, Jordan, Iraq and Lebanon. Since the war started, around half of Syria’s 23 million-strong population has been displaced, with more than 5 million fleeing abroad.

Some €7.5bn ($8.1bn) of grants and loans were pledged by international donors to help Syrian refugees at the Brussels VIII Conference on Supporting the Future of Syria and the Region on 27 May.

But until a political resolution to the civil war can be found, Syria’s enormous economic and humanitarian crises are unlikely to be solved. Speaking at the Brussels conference, the European Union’s foreign policy chief Josep Borrell said a “Syrian-owned political solution … is the only credible path for all Syrians to live in peace and stability, and for refugees to return home.”

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