Bad governance is proving to be an economic liability as protests sweep Syriahttps://en.majalla.com/node/298676/business-economy/bad-governance-proving-be-economic-liability-protests-sweep-syria
Bad governance is proving to be an economic liability as protests sweep Syria
Recent protests over an end to fuel subsidies, plunging currency and soaring inflation reveal the depth of anger at the government
Suwayda24 via AP
People stage a protest as they wave the Druze flags in the southern city of Sweida, Syria on August 27, 2023. Anti-government protests have rocked south Syria for the past week.
Bad governance is proving to be an economic liability as protests sweep Syria
Southwest Syria has been swept by protests and strikes as the economic crisis in the country has started to feel permanent, bringing people out onto the streets to call for change.
Large-scale demonstrations and strikes have swept the Sweida governate since 16 August, blocking main roads between towns and villages in the countryside and disrupting access to Damascus, the capital.
Other cities and regions under the control of the al-Assad regime – including Dara'a and Damascus Countryside governorates – have also witnessed protests, although on a much smaller scale and for a limited period of time.
Popular frustration and anger among large sectors of the population against the government’s policies have also been expressed on social media.
While these protests and criticisms are rooted both in political and economic denunciations of the Syrian regime and its policies, the latest wave of resistance followed the end of subsidies on gasoline and the partial lifting of those on heating oil. Even as the changes came alongside an increase of 100% in salaries, the moves were met with anger.
Southwest Syria has been swept by protests and strikes as the economic crisis in the country has started to feel permanent, bringing people out onto the streets to call for change.
The price of a litre of gasoline surged from 3,000 to 8,000 Syrian pounds. Heating oil went up to 2,000 pounds from 700. And such hikes in fuel prices have ripple effects across the economy, eroding the benefits of the rise in salaries.
Syria's currency crisis and economic malaise
The country's government has been unable to stop the economy's slide and the impact on the currency. The pressure on the pound has intensified since mid-July, with record lows being recorded. At its height, a single dollar was worth 15,000 pounds earlier this month, before slightly decreasing to 13,800 pounds at the end of August.
The overall depreciation of the pound has been ongoing throughout 2023, but escalated in the summer, with the dollar exchange rate at 9,000 pounds in late May and at 13,000 by the end of July.
There was panic in local markets during the pound's slide. It sparked price rises on all types of essential products, from food to oil as the currency's buying power increasingly diminished. The currency collapse came after years of structural economic problems and war, as well as a lack of faith in the government's policies.
This picture shows stacks of Syrian lira banknotes at the Commercial Bank of Syria in Damascus, on November 10, 2022.
It has been worsened by sanctions and regional and global economic crises, such as Lebanon's financial crisis next door and the knock-on effects of Russia's invasion of Ukraine.
The pound had already been vulnerable to other factors that helped wipe out its one-time reputation for stability. Since the 2011 uprising, Damascus' revenues have diminished considerably, not least of the oil industry and tourism, which were previously major sources of foreign currency.
The currency collapse came after years of structural economic problems and war, as well as a lack of faith in the government's policies.
Foreign direct investment into the country stopped, having reached over $8bn between 2005 and 2011. Then, the massive destruction of the country's manufacturing and agriculture sectors shattered its production capacity and the volume of exports. This meant that Syria began to import more to meet demand, resulting in a negative trade balance.
The combined effect has led to a rush to buy foreign currency, especially on the black market, creating a self-sustaining cycle that sped up the pound's decline and increased inflation.
Austerity arrives
In response, the government introduced austerity measures, adding to people's growing misery.
Austerity meant the end of popular subsidies – including on bread and oil – with the country's spending on such schemes slashed from $5.3bn in 2011 to $1.6bn in 2023.
Hundreds of protesters rallied in Syria's government-held southern Sweida province on August 29, demanding a better life and chanting anti-government slogans in a wave of increasingly political demonstrations, activists said.
The main government objectives in cutting subsidies are fiscal and monetary: increase state revenues to stabilise the pound, cut state spending to preserve, and accumulate foreign currency reserves.
However, the government planned to cut subsidies well before the 2011 protests, especially on oil and fuel.
It was part of a package of liberalisation and privatisation set up in the 2000s by the government with assistance from the International Monetary Fund and the World Bank, alongside a a hiring freeze in the public sector and a reduction of the state's role in domestic investment.
Crony capitalism
The Syrian government's new economic strategy, called the National Partnership, was announced in 2016 and replaced the previous social market economy set up in 2005. It is designed to deepen economic liberalisation and private capital accumulation.
Measures include Public-Private Partnerships (PPPs) with laws covering them enacted in January 2016, authorising the private management of state assets across the economy apart from the oil sector. Syria's PPP laws look like crony capitalism at the expense of the national and public interests, while benefitting foreign — in particular Russia and Iran.
These policies have further worsened living conditions for large sectors of the population and widened social, economic, and regional inequalities, replicating the problems that existed before the war broke out in 2011.
Syria's Public-Private Partnerships laws look like crony capitalism at the expense of the national and public interests, while benefitting foreign — in particular Russia and Iran.
Syrian anti-government protesters hold banners calling for an end to a military siege near the southern town of Daraa, the epicentre of protests that have shaken President Bashar al-Assad's once uncontested rule, on April 28, 2011.
To compensate for the rise in oil and fuel prices, the government has bumped salaries of state employees and pensioner stipends. But this only partially offsets the significant decline in the population's purchasing power. Self-employed people do not benefit from any such measures.
The Minimum Expenditure Basket (MEB) – a measure of the cost of living based on World Food Program's (WFP) benchmarks – reached 1,440,841 pounds for a household of five members in July, up 90% year-on-year.
The minimum wage was doubled but only to 185,940 pounds, or just 13% of the cost of living identified in the MEB. In comparison, an average civil servant's wage was worth between $200 and $320, when 47 pounds were equivalent to a single dollar.
In addition to international humanitarian assistance, remittances sent by the Syrian diaspora to their families within the country have increasingly become a crucial safety net for local communities. Without these funds, large sectors of the population would be unable to sustain daily expenses, except through borrowing in one form or another.
Obstacles to recovery
The Syrian economy has been affected by global conditions and sanctions continue to represent an obstacle to attracting foreign investment and collaborations, holding back the reconstruction process.
However, the country's lack of stability is a serious obstacle to securing local and foreign investments. Many Syrian diaspora communities — including businessmen supportive of the regime — have been unwilling to invest in the country because they believe that the necessary political, economic and security conditions are not yet in place.
Meanwhile, foreign investment is scant — mainly coming from Iran and Russia.
Hundreds of protesters rallied in Syria's government-held southern Sweida province on August 29, demanding a better life and chanting anti-government slogans in a wave of increasingly political demonstrations, activists said.
Damascus's inability to improve the country's financial situation and ease the depreciation of the pound stands out. It makes the prospect of returns on investments in the country look remote, another disincentive for capital, from inside or outside Syria.
The national financial capacity is limited, for both the public and private sectors. Properly operational infrastructure is lacking, as is a skilled labour force.
Government spending to rebuild the country's essential services after years of war has been modest. Instead, funds have gone toward the war effort, public sector wages, and subsidies, although these are being consistently scaled back.
Government spending to rebuild the country's essential services after years of war has been modest. Instead, funds have gone toward the war effort, public sector wages, and subsidies, although these are being consistently scaled back.
There has been capital flight from the country. By the end of 2022, the total deposits in private banks in Syria were estimated at $1.97bn. That's down from $13.87bn in 2010 (at contemporaneous exchange rates).
Skilled workers are also leaving, creating a labour shortage.
Hopes for international support
Syria's reintegration into the Arab League and the normalisation of its relations with Saudi Arabia this year have been considered political victories for Damascus — rightly so, after years of isolation.
But this political evolution does not automatically translate into a short or medium-term economic recovery and reconstruction process in the country. Syria's international return has, until now, focused on restoring diplomatic ties between Damascus and regional states, rather than deeper political and economic relations and exchanges.
Nonetheless, potential political progress could help with the speed and scale of any future economic recovery and potential international support for it.
Bleak conditions at home
Syria's economic suffering is rooted in the regime's deadly war against large sectors of its own population. Subsequent neoliberal economic policies have not improved matters at best — and at worst stoked corruption. Austerity measures have created further day-to-day suffering for people across the country, especially with the end of fuel subsidies.
Other government policies have caused overdevelopment in the trade and services sectors and sparked various forms of speculative investment, especially in real estate, accompanied by poor, short-term management of resources, including non-natural resources, again up to and including corruption. The production industry has been weakened further.
There have been no effective measures against the devaluation of the pound. Inflation is stuck at elevated levels, all the time eroding salaries and the purchasing power of the population.
Politically, the survival of the regime looks assured due to the support of foreign allies. But the current form of government – maintaining a form of passive hegemony on large segments of the population – may not be sustainable.
In itself, this looks like another source of instability, as the latest protests demonstrate.
