Assad turns to Iran to help 'stabilise' battered economy

The Syrian economy remains in tatters, weighed down by divisions, illegal trade networks and the emergence of new actors.

 

But with a return to some "stability" in regime-held and regime-conquered areas, GDP decline has slowed. Syria's GDP contracted last year by just 4 percent year-on-year, compared with a 36.5 percent year-on-year decline in 2013, according to Syrian economist Jihad Yazigi.

 

The consolidation of territories held by President Assad's troops - in the western parts of the country where about two-thirds of the remaining Syrian population resides (millions having fled the brutal onslaught of soldiers and militias loyal to Damascus) -  has contributed to the stabilisation of certain economic sectors.

 

"This is particularly the case in the manufacturing and construction sectors. The number of licensed manufacturing projects in the first nine months of 2016, for example, was already higher than the annual average in the previous four years," explains Syrian economist Jihad Yazigi.

 

This relative stability may even encourage entrepreneurs to start reinvesting, despite the ongoing war. Yazigi believes that the conquering of Aleppo and the end of major operations there, having killed unknown hundreds and driven out many more, may allow some return of manufacturing production to the city. The relative "normality" may also encourage desperate refugees and Assad-favouring expatriates on good terms with the regime to return.

In the manufacturing sector, hundreds, if not thousands of businesses have closed down and gone bankrupt

Ghobril nonetheless underlines that the overall economic situation remains in dire straits. Quoting the World Bank, he explains: "The positive growth of plant productions due to better climate conditions in 2015 has not eased the constraints on farmers in terms of transporting and marketing their goods. These constraints include insecurity and the absence of safety with the continuation of armed conflict."

 

In the manufacturing sector, hundreds, if not thousands of businesses have closed down and gone bankrupt. In addition, Yazigi explains business figures and skilled workers have fled to other countries and will not be coming back.

 

"The industrial sector is also dominated by uncertainty and poor competitiveness, with sudden price fluctuations of the Syrian pound against foreign currencies, poor infrastructure that was largely affected by the armed conflict," according to a World Bank report quoted by Ghobril.

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Various economic sectors have also witnessed several significant shifts with the emergence of "war traders" enjoying protection from military or paramilitary armed groups with which they are affiliated. The general lack of any form of rule of law prevailing in Syria has also resulted in an increase of smuggling and theft. "Furthermore, a notable share of basic goods distributed by international organisations are being sold in internal markets with high profit margins," reported the World Bank.

 

The manufacturing sector has devolved into a fragmented landscape comprised of small workshops or stand-alone industrial establishments protected by various armed groups.

  

Yazigi says the level of foreign exchange reserves is very low and is likely to weigh on the value of the Syrian pound on the foreign exchange market. "While the Central Bank has managed to stabilise its currency since mid-2016, any further pressure on the currency could lead to a loss of confidence as well as higher import and production costs," he says.

 

Another economic trend is crystallised by growing Iranian hegemony. Last February, Reuters reported that Iran's government and groups close to the elite Revolutionary Guards had signed major economic contracts with Syria.

Tehran is also encouraging its residents to buy and build property in Damascus

In addition to five memoranda of understanding signed during that period, a mobile phone service operator license was also granted to Iran, alongside phosphate mining contracts. In addition, Syria was to give Iran 5,000 hectares of land for farming, and 1,000 hectares for setting up oil and gas terminals.

 

According to Reuters, Iranian firms are also involved in a series of electricity generation projects worth $660 million in Syria. Iran intends to export electricity to Syria - creating the biggest power network in the Islamic world by hooking up Iran's national grid with those of Iraq and Lebanon.

 

Tehran is also encouraging its residents to buy and build property in Damascus, according to a Voice of America report. VOA added that Damascus construction projects are often run by Afghan nationals from Iran. Business figures close to Hizballah told The New Arab on condition of anonymity that they had been granted construction and infrastructure projects.

 

These new dynamics will undoubtedly shape Syria's economic future. Syria's economy has not only fragmented and decentralised due to the existence of multiple centers of power, but it will certainly change further as it aligns with Iran's economic model.