Economics and the Syrian Uprising

(THIS ARTICLE WAS ORIGINALLY COMMISSIONED BY A MAGAZINE IN 2012, BUT THEY FELT IT WAS OVERLY CRITICAL OF NEO-LIBERAL CAPITALISM AND DID NOT BELIEVE IT WAS A FACTOR IN THE UPRISING - IRONIC, GIVEN THE OPENING PARAGRAPH)

Economics was a major factor behind the Arab uprisings, in Syria as much as in North Africa, but the role of economics has been downplayed by governments and the media alike. What is more, plans are underway to replicate the same economic policies in post-conflict Syria that helped trigger the uprising in the first place, writes Paul Cochrane in Beirut.

In the years immediately after the US-led invasion of Iraq in 2003, there were often discussions in Syria and Lebanon about whether there would one day be regime change in Damascus. Would the regime eventually be overthrown – internally or via external intervention – and Syria become a democracy? An often typical, if somewhat cynical statement was that Syrians did not want either. Syria was stuck like the meat in a sandwich, with on one side a devastating conflict in Iraq that had forced over 1.4 million Iraqis to seek refuge in Syria, and on the other side laissez faire Lebanon, a democracy in name but essentially a dysfunctional one due to a political-confessional system that maintains a fragile status quo but results in minimal development and a weak state.

The choice of a painful, bloody transition from autocracy that could lead to civil war and then perhaps be followed by a “demo-crazy” Lebanese style government was not overly attractive for Syrians compared to stability and security, and where minorities – which account for around 26% of the country's population of 23 million - were protected under a nominally secular regime.

So, the argument went that while Syrians wanted change, such as greater civil liberties, less corruption, and the reigning in of the omnipresent mukhabarat (the secret police), the trade off was questionable. In short it was that pithy statement of “better the devil you know, than the devil you don't.” Economics however barely figured into discussions.

Fast forward to the beginning of 2011, and the same conversations were being had: would the Syrians be the next citizens of an Arab autocratic state to rise up following the Tunisians, Libyans and Egyptians? In one such debate, a French embassy employee and a French NGO worker, both working in Damascus, argued that the conditions were different from North Africa, poverty was not as biting, and there was little room for a mass uprising to take place. A year later, the same French embassy employee – since evacuated from Syria – admitted how wrong she was, having been sucked into a “Damascene bubble” of the good life and not exposed to the rude reality of life in the towns and smaller cities outside of the capital and the second largest city, Aleppo.

Indeed, under the economic reforms initiated in 2001 following the death of President Bashar Al Assad's father, Hafez, the middle and upper middle classes in Damascus and Aleppo were doing better from a materialistic perspective, able to buy goods and services previously unavailable during the period of a state-run economy, and greater economic opportunities seemingly abounded. Tourism was also doing well, with the number of visitors surging from 2 million in 2002, to 8.5 million in 2010, and revenues reaching $8 billion. 

European tourists by Souk Hamidiyeh, Damascus in 2008

Decades of rising unemployment

The reforms, spearheaded by Assad and the Western-educated deputy prime minister Abdallah Dardari, gradually liberalized the economy, in part pushed by foreign banks – the bulk Lebanese – entering the market from 2004 onwards, and in 2009 the opening of the Middle East's newest stock market, the Damascus Securities Exchange (DSE).

Real estate projects, shopping malls and boutique hotels also sprung up, whether financed by expatriate Syrians returning home with an eye for an investment, to Levantine and Gulf investors (US investment was largely curtailed due to the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003, while bilateral trade in 2010 was estimated at $928 million or 2.4% of all trade).

However, the economic reforms enabled the elite to further line their pockets – like Rami Makhlouf's Cham Holding, whose board members and investors read like a Who's Who of prominent Syrians – while creating massive income disparities amid high inflation, leaving ordinary Syrians with an average monthly salary of $234 but an average monthly household expenditure of $638, according to figures from the Syrian Central Bureau of Statistics in 2010.

The shift from a centrally planned economy to a more open market model still had too much of the cronyism and endemic corruption that had plagued Syria for decades. Indeed, there was massive capital flight between 2000-2009, with Global Financial Integrity estimating Syria lost $23.6 billion from corruption, trade mispricing, bribery and other illicit activity.

The billionaire businessman and maternal cousin of Assad, Rami Makhlouf, whose portfolio includes mobile phone operator Syriatel, was a particular figure of hate for ordinary Syrians, with his heavy-handed tactics of muscling in on business deals to get his cut, and judged to have too much of a controlling stake in the economy.

Not that the reforms were all negative. Syria sorely needed to overhaul its economy given declining oil revenues, a burgeoning population – reaching 3.5 percent growth a year in the early 2000s – and fiscal woes (Moscow had to write off $10 billion of Syria's $13 billion Soviet-era debt in 2005 in able to sell new weapons to Damascus).

“When you look back, don't throw reforms in the dustbin,” said Jihad Yazigi, editor of financial paper The Syria Report. “Average Syrians were entitled to open a bank account, get loans and buy cars. The problem was economic reform was in no way accompanied by a real vision as to where to take the country to.”

On top of a lack of vision, Syria arguably opened up too soon in terms of trade liberalisation, such as joining the Greater Arab Free Trade Agreement (GAFTA), and inking a free trade agreement with Turkey, which did not give adequate time for Syrian industry to get up to speed with competitors.

“The idea was to create jobs and exports, but it didn't work. The borders opened, and the Turks and the Chinese flooded the market; thousands of workshops closed,” said Yazigi. “People on the streets today are farmers, plumbers, semi-skilled workers and those that lost jobs over the past decade in the smaller cities and the suburb cities; not from Damascus or Aleppo, which benefited from the reforms.”

With topsy-turvey geographical economic development, the economy was not growing fast enough to handle a rising population. “Over the last three decades you've had low GDP growth and periods of high GDP growth, but according to most economists Syria needed growth of 8% per annum. Syria never grew more than 7%, some years by 5%, but most years by 2-3%. In other words, there was 30 consecutive years of rising unemployment every year,” said Yazigi.

The opening of the Four Seasons in 2005 was indicative of Syria's opening up to the world, and outside capital.

Downplaying economics

Economics played a key part in the uprisings in Tunisia and Egypt, both having adopted neo-liberal economic models and applied International Monetary Fund (IMF) recommendations. Both countries, like much of the Middle East and North Africa, have burgeoning populations, 50% of the populace under 30 years old, and unemployment rates among the highest in the world. Such dissatisfaction with the status quo had been growing for years, and in many senses the indicators were there for all to see.

In Egypt, there were 3,426 strikes, sit ins and protests by workers between 1998 and 2010. It was a “decade of unprecedented strikes,” said Joel Beinin, Professor of Middle East History at Stanford University, at a lecture on “Arab Workers and the Popular Uprisings of 2011” at the American University of Beirut. A major demand of workers was a minimum wage. “The mobilization of workers from the 1990s onwards is an ongoing story, and demands were primarily economic,” said Beinin.

However, the economic angle of the uprising in Egypt – and Tunisia – was barely covered in the Western media, focusing instead on demands for democracy and freedom, and downplaying the role of workers and economics in the uprisings. For instance, a key move in the struggle against the government of Hosni Mubarak came when tax collectors stopped working. Furthermore, workers' strikes have continued in Egypt even after Mubarak's fall, demonstrating the importance of the need for economic change in the country, with 1,419 collective actions by workers in 2011, with around 1 million participants in each protest.

“If you compare the Polish Solidarity movement (in the 1980s) to the Egyptian uprising, it was championed by the West as it was anti-Communist, but in Egypt it was anti neo-liberal, so it was viewed as a “negative” phenomenon by the West,” said Beinin.

Regarding Syria, Damascus did not have the same economic relations with the West as Egypt and Tunisia had, nor had it IMF loans and stipulations or major worker movements. “The dynamics of the struggle in Syria” are different to that of Egypt, said Beinin. “It is hard to find a class dimension, although political-economics definitely played a part in what led to the uprising.”

The geography of the uprising in Syria is testament to the role economics played, starting in the southern town of Dera'a near the Jordanian border in March 2011, and spreading to other periphery towns and cities, with the last places affected the economic and political centres of Aleppo and Damascus.

“There is a link between the economy and the uprising,” said Yazigi. “Early on in Dera'a, before the people said they wanted the fall of the regime, they burned down Syriatel stores, which is a reflection of their frustration with crony capitalism.”

Damascus skyline, 2008

 

A ravaged economy

The uprising quickly became violent, initiated by the Syrian regime's crackdown on what started as peaceful demonstrations and escalated as an armed opposition took form – when external involvement in training and arming rebels began is not clear, and may never be.

Unlike how the US, Britain and France did not initially support the uprisings in Tunisia and Egypt, or believe in the fall of their long time leaders, the West was quick to denounce the Assad regime, and by May the US imposed sanctions, followed by the European Union later in 2011, banning EU importation of Syrian oil and gas, which had accounted for 93% of Syria's exports to the EU (22.5% of overall exports).

As the conflict spread throughout Syria and the sanctions started to take hold, the economy was on a slippery downwards slope. According to the Syrian Center for Policy Research, Syria's real GDP contracted by 18.8% in 2012 following a contraction of 3.7% in 2011, with economic losses estimated at $48.4 billion in both 2011 and 2012, equivalent to 81.7% of its 2010 GDP. The Institute of International Finance (IIF) on the other hand estimated contractions of 20% in 2012, and 6% in 2011, and that the economy will contract by 15% this year, to $27 billion, from $30.9 billion in 2012, $46.7 billion in 2011 and $57.5 billion in 2010.

The economic ramifications of the conflict have also spilled over into Lebanon, with up to 375,000 Syrian refugees in the country, while in Jordan – also hosting refugees – the IIF estimated output losses to the economy from regional unrest at $1 billion in 2011 and $3 billion in 2012, equivalent to 3.4% of GDP in 2011 and 9.5% of GDP in 2012.

It is like history repeating itself, as Iraqis had taken refuge in both countries following the 2003 invasion, and now Iraqis are fleeing back to their war ravaged country while Syrians are taking refuge elsewhere. “What happened to Iraqis 10 year ago is now happening to the Syrians,” said Yazigi.

 The Citadel in Aleppo after a refit to encourage tourism, 2008

The future?

The outlook for the Syrian economy is pretty dire, while the government is hemorrhaging money to retain allegiances, fund the military and bolster public sector employment. How long Damascus will be able to handle the situation without assistance from allies is now a pressing question. The loss of government oil revenues due to the sanctions was estimated at $4 billion in 2012, or 25% of the budget, and the Syrian pound (SYP) has depreciated by 72% since 2010, now trading at SYP 81 to the US dollar, while the black market rate is around SYP 100.

Official foreign currency reserves are also in a precarious position, with the IIF estimating they will decline to $2.1 billion at the end of this year, equivalent to one month of import cover, from $5.6 billion in 2012.

The next big question is what will happen economically after the conflict is over, which may – if a long drawn out civil war is prevented - involve the remnants of the Assad regime, as some are predicting, with a transitional government of sorts in place, to a government made up of the numerous factions currently fighting Damascus. Whatever the outcome, tens of billions of dollars will be needed to get Syria and its economy back on its feet.

The West and Gulf backed National Coalition for Syrian Revolutionary and Opposition Forces announced in November, 2012, that it is seeking $60 billion for reconstruction efforts. However, the opposition does not have a publicly announced economic plan for a post-uprising Syria. “The Syrian opposition doesn't realize how important economics is or how it important a role it played in the uprising,” said Yazigi.

What is being discussed appears to be a return to the same economic policies as before, yet with a weaker state role, such as ending subsidies and pushing privatisation programmes. At the forefront of such discussions is Abdallah Dardari, the man that spearheaded Syria's economic reforms in the 2000s. He is now in Beirut, working at the United Nations Development Programme (UNDP) and advising the opposition. “Dardari is a neo-liberal, and the West wants him to steer economic reconstruction, yet he was responsible for how Syria's economic reforms were carried out,” said Yazigi.

The opposition is aiming for funding from Syrian businessmen, the West and the Gulf states, which have common economic aims. As the UAE's Minister of State for Foreign Affairs Anwar Gargash told the press in Dubai in November: “What we want to do is involve the private sector in what sort of economy emerges in a future Syria.”

Yet while the private sector needs a role in the future Syria, other voices need to be heard too. “If you want to talk about the economy the business community matters, but it is not the whole economy. They are working on cooking up a programme that suits their interests,” said Yazigi.

While the battle lines have been drawn in the current conflict, the next part of the battle will involve economic policy and how it is determined by local, regional and global players keen to exert their influence. 

Photos by Paul Cochrane