SYRIA’S IMPLOSION: POLITICAL AND ECONOMIC IMPACTS

In the News | 29-06-2016

The following text is a paper written by Jihad Yazigi, our editor-in-chief, as a contribution to a conference organized in March in Florence on the transformations taking place in the Middle East region.

You will find at the bottom of the page a link to the full e-book released on that occasion.

SYRIA’S IMPLOSION: POLITICAL AND ECONOMIC IMPACTS

Introduction

Since the end of 2013, Syria’s front lines have broadly stabilized and the country is now divided into four main parts: one under the control of the regime, another of the Islamic State (IS), a third of the Kurds, and the fourth of various opposition groups.

There is now a wide array of competing local autonomous administrations, school curriculums and currencies. Syria’s economic map has also been modified with a transfer of private and public investments from the country’s main economic backbone along the Damascus-Aleppo line towards the coastal area.

This paper will try to explain Syria’s ongoing implosion and analyse the impact these changes are having on the country and on the terms under which the conflict will be resolved.

Background

Prior to the uprising, from a socio-economic perspective Syria could be divided into two parts. The western part of the country, which comprises the Damascus-Aleppo axis, including all the main cities in addition to the coast, was the more developed. The east and south of the country, consisting of the provinces of Daraa, Quneitra and Suweida (south), and of Deir-ez-Zor, Hassakeh and Raqqa (east), were much less developed in terms of their socio-economic indicators.

Exceptions obviously existed. The province of Idlib, west of Aleppo, was among the country’s poorest. Mostly rural, this province was actually detached from Aleppo in 1958 in order to weaken Syria’s northern metropolis. Similarly, the countryside around Aleppo had poor levels of economic and social development. The urban/rural divide in Aleppo is, indeed, one of the most stubborn lines of fracture in the country.

Meanwhile, the eastern provinces are rich in natural resources. Oil is extracted from fields around Raqqa and Deir-ez-Zor as well as in the extreme northeast on the border with Iraq. In addition, wheat, barley and cotton, the country’s three strategic crops are grown there. The country’s water resources are also mainly located there. The resource-rich part of the country was therefore only reaping limited benefits from its underground resources, a pattern seen in many other developing countries.

Syria was also governed by a relatively strong central state. The state institutions were active and spread across the country; the government continued to supply services (schooling, education, etc.), to invest in infrastructure, and also to intervene in the pricing of goods sold to consumers (bread, heating oil, etc.) and to producers (farming inputs, electricity, concessionary loans). In underdeveloped areas, the government remained an important employer, partly as a consequence of weak private investment.

The decade of Bashar al-Assad, in particular after 2005, saw, however, a reduction in the role of the state. Public investment was on the decline and subsidies for most goods and services were reduced. Government economic policies were also geared towards the services sector and to the benefit of urban centres at the expense of the suburbs, the countryside and generally the more remote parts of the country.

In a departure from past policies of the Baath Governments, the responsibility for the development of these areas was transferred to the private sector. Hence, companies investing in remote areas of the country were given tax breaks and other incentives as well as more flexible regulations. In the absence of a strong political will, however, investment and development in these areas lagged. It is not that the government did not realize the existing divide and the need to address it, but it did so too late. At the beginning of March 2011, only weeks after the outbreak of the Tunisian and Egyptian uprisings and just days before that of the Syrian revolt, Bashar Al-Assad rushed to the north-eastern province of Hassakeh to announce the launch of the Tigris River diversion project, after more than three decades of delays – the project had an investment cost of USD 3 billion and was expected to irrigate large tracts of land, develop agricultural production and create jobs for thousands of people.

The Conflict Destroys the Status Quo and Divides the Country Into Four Broad Areas

Fast forward to 2016. The war has had a devastating impact on the economy and life of Syrians. The numbers are telling. According to a recent report published by the Syrian Centre for Policy Research (SCPR), by the end of 2015 the war had cost some USD 255 billion, GDP is less than half its 2010 value, unemployment is above 50 percent and poverty is over 85 percent.

Four distinct areas

An important and lasting impact of the war, however, is the fragmentation of the country into at least four distinct areas:

• One controlled by the regime, which corresponds to a very large extent to the western and wealthier part of Syria mentioned above: the coastal area and the main Damascus-Aleppo axis except for some rural and suburban regions and around half the city of Aleppo, which are mostly under the control of the opposition, and to a lesser extent, the Nusra Front.

• Another is controlled by the Islamic State in the east of the country, along the Euphrates River, broadly corresponding to the Arab tribal areas historically tied to Iraq, around the oil fields of Deir-ez-Zor and Raqqa.

• A third area in the northeast and in a pocket west of Aleppo is controlled by the Democratic Union Party, the Syrian branch of the PKK. These areas are where Kurds form a majority of the population or at least the most numerous minority. They are not, however, the only areas with a high concentration of Kurds; the cities of Aleppo and Damascus together host hundreds of thousands of them.

• Finally, a fourth area is under the control of various opposition groups, in addition to the Nusra Front. The opposition parts of Syria are themselves fragmented and have no geographic continuity, unlike the previous three areas.

The three latter areas correspond to the underdeveloped southern and eastern parts of Syria.

Regime areas

Although much less destroyed than the rest of the country, and in spite of the appearance of stability, changes affecting the regime-controlled parts of the country are having a profound impact on the broader Syrian economy and society because of the economic, political and cultural weight of these areas.

In this part of the country, where almost two thirds of the Syrians still living in the country reside, a new balance is being established. The Damascus-Aleppo axis, which traditionally constitutes Syria’s spinal column, has been significantly weakened by the physical destruction of its cities – half of Aleppo and Homs, the suburbs of Damascus – by the flight of its investors and its middle class, and by the weakening of the role, and institutions, of the state.

Private and public investment – or rather what has remained of it given that the current investment levels are only a fraction of what they were pre-uprising – is shifting to the coastal area. In 2015, for instance, 32 percent of the large private investments licensed by the Syrian Investment Agency were located in the Tartous and Lattakia provinces, while only 27 percent were located in Damascus and Aleppo. By comparison, in 2010 Damascus and Aleppo attracted a combined 40.5 percent of the projects licensed by the SIA compared with only 4.5 percent for Lattakia and Tartous. Similarly, last year in Tartous the number of small business projects doubled: the number of new individual companies created in that province increased from 867 in 2014 to 1,752. The number of shareholding companies increased from 119 in 2014 to 251 in 2015.

Private capital is attracted by the safety of the coastal area, in particular the Tartous governorate, which has witnessed almost no fighting or protests since the beginning of the uprising. In addition, the flow of people displaced from other regions of the country has brought investors that want to use their capital as well as to benefit from a relative increase in demand in that region. The shift to the coast is therefore partly a consequence of a change in the demographics – Alawites are no longer believed to constitute a majority of the residents in this part of the country.

To a large extent, public sector investment, meanwhile, has moved to the coast as part of the government policy of satisfying its core constituency. In autumn 2015, at a number of events widely covered by the state media, the Prime Minister, Wael al-Halqi, announced the launch of a combined SYP 30 billion worth of public investments in the provinces of Lattakia and Tartous. At the same time, it was announced that the government would allocate a meagre SYP 500 million to the city of Aleppo.

The coastal area also continues to maintain strong links with Damascus and the central Government through the state apparatus. A majority of working-age Alawites are believed to be employed by the state both in its military and civilian wings. The state has always been an important supplier of jobs and revenue for this community and this role has increased with the war and the contraction of the overall economy. This strong dependence of the Alawite community on the state is one important factor that stands against any prospect of autonomy for the coastal area and which raises the stakes for the control of Damascus.

The composition of the business community in these areas is also changing. To a large extent, traditional investors have left the country and have relocated in other parts of the region or the world, and have been replaced by new figures that have built their wealth from war-related activities. Elections at the Chambers of Commerce in Aleppo and Damascus at the end of 2014, for instance, saw a significant change in the membership of these chambers. In Aleppo, 10 of the 12 elected board members are new investors, many of whom were unheard of prior to the uprising. In Damascus, 7 of the 12 are in the same situation.

Outside the regime areas

The regions that are beyond the control of regime forces, some of them for more than three years now, have had to adapt to the situation and create new institutions and forms of governance. The traditional economic production patterns and centres have been destroyed, investors and the business class have left, and the trade and transport networks have been disrupted. This destruction follows decades of relative underdevelopment.

For the population in these areas, the new institutions that have been established to fill the vacuum left by the destruction of the pre-war economy and the absence of the state, often – although not always – come with more legitimacy than the government because:

• many are elected, in particular in opposition areas, albeit election processes often leave much to be desired;

• they are run by people from the region, many of whom have worked and fought to protect their community from the regime;

• they form part of a wider political project that is accepted by the population (Kurds and opposition).

In practice, these institutions are now competing with those of the government, and Syria is in a situation where at least three different institutions call themselves, or pretend to act, as a government, at least four school curricula are being taught to schoolchildren, and three currencies are being used as a medium of exchange.

The Kurds are licensing investment projects and publications, and in the last two years have passed dozens of laws governing life in their areas; IS is raising taxes, licensing investments and operating a police force; the opposition areas have plenty of elected councils that run day-to-day life. The interim government of the opposition has several ministries and has established bodies to distribute wheat and bread, run hospitals and channel aid inside the country.

The value of the expenditures by these newly-created authorities has been steadily increasing. According to the estimates of SCPR, the combined value of ‘public’ expenditure in the opposition, Kurdish and IS areas – i.e. by the institutions that sprang up in these areas – is now equivalent to 13.2 percent of Syria’s 2015 GDP, compared with 31.6 percent for public spending in regime areas. In other words, ‘public’ consumption in areas outside government control is now equivalent to more than a third of total public spending, a number that reflects the entrenchment and growing importance of the various new institutions that have been established across the country to replace the state.

Conclusions and Recommendations: Three Issues to Address Regarding the Country's Implosion

The stability of Syria’s internal borders in the past three years, the entrenchment of the newly-established institutions, and the empowerment of new actors will raise serious challenges when the conflict ends. One of these is decentralisation. Beyond the Kurdish issue, the resolution of which is likely to involve a strong level of autonomy, decentralization provides one of the rare options that will allow all the new forces that have emerged from the conflict to be brought in. Calls for more local power are being heard across Syria, and one of the main problems preventing the unification of the opposition is actually the strong sense of autonomy developed in local communities across the country. The conflict has also seen the expression of long-hidden suspicions and distrust between cities, between cities and their surrounding countryside, and between different regions. Among urban elites, in particular in Damascus, decentralisation is often associated with partition and a loss of sovereignty and will therefore be opposed by many on both sides of the regime/opposition divide.

Another issue, which is partly related to decentralisation, is the fair allocation of resources. We have seen that the most resource-rich parts of the country are also the least developed. It is unlikely that these areas will again accept control by Damascus of their resources. Expenses in the Kurdish areas, for instance, are to a large extent funded with the oil extracted in these regions. In Deir-ez-Zor, prior to the emergence of IS, local tribes and communities had fought for the control of oil fields, which many perceived as being ‘stolen’ by Damascus. Allocating more resources to the regions will face opposition from any future Government, which will be short of revenue, in particular given that any reconstruction drive as significant as that needed by Syria will require a strong and well-funded central state.

The Syrian conflict has also raised the issue of the role of community in a state formally made of equal citizens. Sectarian and ethnic tensions have been exposed by the conflict, including the minorities’ fear of islamism, the Kurds’ fear of Arabism, the Christian Assyrians’ fear of the Kurds and the Sunnis’ profound sense of injustice and repression by the minorities. Beyond fears, the need to express cultural identities that have long been repressed has also been exposed. The question of how to build a state that keeps an equal distance from all of its citizens but at the same time guarantees their political and cultural rights, as individuals and communities, remains unanswered

The European Union would be well advised to encourage Syrian opposition groups, in a first stage, and other parties, such as the Kurds, in a second stage to engage in discussions on decentralization. Resistance to the idea is to an important extent a consequence of a poor understanding of the concept and of the issues at stake.

Engaging the younger generation would be particularly useful given their attitude that is broadly more receptive to the idea.

The EU should in particular draw from the experience of several of its member countries such as Germany and Spain, where decentralization is put in practice.

The EU should also strengthen local institutions through funding and training and by encouraging them to develop cooperation and move from very localised institutions, i.e. at the town level, to more regional ones. Democracy must also be encouraged through the election rather than the appointment of local level representatives.

 

Link to the e-book published on the occasion of the conference

Written by: Jihad Yazigi
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