Syria looking to the east to save spiraling economy

Published March 28th, 2013 - 11:03 GMT
Once 15 Syrian pounds a bag of bread, now sold at some 100 Syrian pounds
Once 15 Syrian pounds a bag of bread, now sold at some 100 Syrian pounds

Syria has “many friends” among BRICS countries and its economic problems are “temporary” a senior Baath Party official has told The Daily Star.

Deputy Economy and Trade Minister Hayan Suleiman told The Daily Star in an interview at his offices in the Syrian capital that “excellent relations” with Iran and other BRICS countries (Brazil, Russia, India, China and South Africa) meant Syria could overcome current problems resulting from a “war on Syria led by the United States and Gulf countries.”

“Yes, we are shifting to the East for our goods, food and production needs,” Suleiman said, as he welcomed a Russian delegation to his office for undisclosed talks.

“The Syrian economy has managed to be self-sufficient despite all the problems imposed on us.”

Suleiman said he could not put an exact number on the cost of the current crisis, nor would he disclose the drop in GDP since the crisis began two years ago. He also declined to comment on new sources of revenue from deals enacted with Russia, Iran and other BRICS countries.

Syria, facing a 2-year-old uprising that has since morphed in to a foreign-backed civil war, is trying to cope with a raft of economic hardships that have led some to believe the economy is on the brink of collapse.

In an interview with Reuters on March 6, former Deputy Prime Minister for Economic Affairs and architect of Syria’s economic liberalization reform plan Abdullah Dardari, who now heads the U.N.’s ESCWA Economic Development and Globalization Division, warned economic devastation could fragment Syria if the crisis continues for another two years.

Unveiling a U.N.-backed postconflict reconstruction plan for the country, Dardari, who worked closely with President Bashar Assad until shortly before the crisis erupted in February 2011, predicted the Syrian government would soon by unable to pay salaries and estimated some $80 billion would be needed to address the rebuilding costs wrought by violence in the country.

Dardari was quoted as saying GDP had shrunk by 35-40 percent in the last two years and that unemployment had soared to 33 percent, up from 8.3 percent in 2010.

Those estimates were rejected by Qadri Jamil, the current deputy prime minister for economic affairs, who said Dardari was ill-qualified to talk from outside the country without providing other figures.

Speaking to Syria’s pro-government Al-Watan newspaper, Jamil said Dardari’s statement regarding the government’s ability was “untrue” with “no tangible basis,” adding that the government was exploring new relations with the East.

“The West, which surrounded and besieged us, is betting on the idea [that the government will face economic collapse], which is strange ... because the West has been surprised by the continuation of Syria’s economic wheel,” Jamil added. “The wheel here in Syria has slowed ... but it has not stopped completely.”

“We have friends ... who are supporting us ... and we can rearrange our lines of production and our priorities ... to adapt to the situation we are living in now,” he said. “We are shifting to the East, not as an affront to the West but because it is in the national interest.”

Jamil did not respond to multiple requests for interviews with The Daily Star.

Facing two years of conflict, Syria is under massive fiscal pressure. Public revenue is plunging as trade levels, oil production and foreign investment dry up. International sanctions are biting and the Syrian pound has depreciated sharply.

Moreover, wartime expenditure has been hiked as the government tries to maintain its support base. The 2013 budget revealed a massive 13-percent hike in public sector wages, and an extension of subsidies on gas and food, accounting for a massive 40 percent of government spending.

Tax incentives have been offered to stem a drop in taxation revenue, especially in rebel-held areas.

An undisclosed but widely acknowledged rise in the defense budget is also adding to spending.

According to a report from the Damascus-based Syrian Center for Policy Research released in January, the total loss to the Syrian economy due to the crisis by the end of 2012 was $48.4 billion, or 81.7 percent of GDP.

The report detailed massive losses to net investment equal to $12.4 billion. It said oil-sector production as a result of sanctions and the withdrawal of foreign companies had been reduced by 47 percent.

Suleiman admitted the crisis had affected the economy negatively.

“Terrorist attacks targeting infrastructure, electricity production, oil refineries, education facilities and agriculture,” he said, had impacted revenue. But he added that the exact cost was difficult to assess.

Syria’s oil production, once at some 605,000 barrels a day, is now at some 200,000 barrels a day, he said, but pointed out that “Syria has been diversifying away from an oil economy since 2005.”

“We have a diversified economy and we are sure that we will get out of this and rebuild Syria,” Suleiman said.

Tourism, however, which accounted for 11 percent of GDP in 2010, has all but evaporated. Foreign direct investment, once led by former allies and now adversaries from Gulf states and Turkey, have all but ceased.

Syria, once a net grain exporter, announced in January that it would import wheat from France and has moved to reduce tariffs on purchases from abroadon basic commodities to stave off severe shortages and boost domestic stockpiles for internal investment, traders told The Daily Star.

President of the Syrian Federation of the Chamber of Industry said the tariff reduction had gone some way to alleviating shortages, but added that more protection was needed for finished goods. “We have a shortage of raw materials as a result of terrorism that has affected production, so we need to import them,” Shehabi said.

“We support [tariff reduction on raw materials]. It lowers the price of these items and makes it easier for them to enter the market.”

But Shehabi, who is suing the Turkish government for “theft” of Syrian industry goods and factories, said more government protection was needed for finished products, like textiles. “We are with facilitating the import of raw materials, but for finished products that we produce we want better protection.”

Suleiman described Syria’s economy as “a bird that you cannot pin down.”

He pointed out that no institutions had stopped paying wages.

“Look around ... our institutions are still running. Did you see goods in the market?”

True, in the capital, daily life has not ground to a halt.

Driving through Damascus this week, The Daily Star saw evidence of a still relatively robust public service; uniformed workers tended to street gardens, and traffic police were on duty, stopping drivers for seat belt and other minor infringements.

Construction and infrastructure projects, including paving of the streets of the Old City and the ubiquitous “Damascus Rose” multimillion-dollar museum complex are still going ahead, although some residents suggested projects agreed under old contracts were now being rushed to completion in a sign of anxiety over the state’s payment capacity.

While the state projects an image of “business as usual” the signs of strain in the capital are impossible to overlook. Flour is in short supply and residents fight to buy packets of subsidized bread, once 15 Syrian pounds a bag, now sold at some 100 Syrian pounds.

Cars queue, sometimes for kilometers, for nonexistent gasoline.

“I waited here from 2 p.m. yesterday [17 hours] for fuel and when I got here, they told me they had run out,” said Abu Mohammad, a taxi driver in central Baghdad Street.

Subsidized fuel now stands at around 65 Syrian pounds (54 U.S. cents) a liter, up from around 45 Syrian pounds a year ago.

“I have a family to feed and I can barely afford to live. But I have nothing else to do,” Abu Mohammad said.

Unemployment is a common complaint. Dardari put the figure at 33 percent, up from a low of 8.3 percent before the crisis.

Suleiman offered no statistics on employment figures.

“We have definitely been affected but the figures from 2012 are not completed yet,” he said.

But while he admitted that GDP, which had consistently increased in the years between 2005 and 2012, had fallen over 2011-12, he said he anticipated a 3 percent growth on 2011 GDP, without giving details.

The extent to which Russian, Iranian and other BRICS trading partners will bolster Syria’s economy through trade deals also remains unclear.

Iran extended a $1 billion trade credit line to Syria in January and this week, the Syrian economic online magazine, The Syria Report, reported that two new flour mills would be built under contracts facilitated through this new credit.

Syria has also reportedly enhanced agricultural trade ties with Iraq.

And the country is also reportedly seeking aid, in the form of loans from Russia in the vicinity of $2 billion, although Moscow has not commented on the request.

Suleiman was speaking ahead of a key economic meeting Wednesday of BRICS nations in South Africa to which Syrian President Bashar Assad sent a letter appealing for the bloc’s assistance by exerting “every possible effort to lift the suffering of the Syrian people that is caused by the sanctions.”

Suleiman said he was confident help was on the way.

“All our needs will be secured by these countries,” he added.

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