Syria begins to piece together a country and economy in ruinshttps://en.majalla.com/node/323596/business-economy/syria-begins-piece-together-country-and-economy-ruins
Syria begins to piece together a country and economy in ruins
War caused its GDP to fall by 86%, leaving 69% of Syrians impoverished. Regime change brings hope for an economy once one of the Middle East’s strongest. This is its story and a look ahead.
MUHAMMAD HAJ KADOUR / AFP
A man looks out to the devastation while clearing rubble and debris from a house at the Yarmouk camp for Palestinian refugees south of Damascus on December 22, 2024.
Syria begins to piece together a country and economy in ruins
Syria’s economy has faced a series of crises ever since the days of colonial rule, but it has also spent time as one of the most successful in the Middle East.
As the country faces a moment of great change—and hope for the future—Al Majalla outlines the story of the nation’s trade and commerce and looks ahead to its prospects after long years of civil war and decline.
The French Mandate was a time more associated with economic crisis. World War II curtailed imports. As the local economy adapted, it relied on locally produced alternatives—a response which helped strengthen industry and agriculture.
Then, after independence, Syria’s economy grew rapidly. National income increased from $488mn in 1953 to $632mn in 1957. This expansion lifted the standard of living in the country, sending it to the top of league tables for the Middle East. National income per head in 1950 was $102, rising to $134 in 1953 and then increasing to $152 in 1957.
Agriculture made the biggest contribution to national income for most of the 1950s, making up around 44%. The trade sector came second with 16%, followed by manufacturing with just over 7%. There were also positive contributions from transport, construction and services, which all flourished during the period.
Syrian industry expanded by 25% between 1953 and 1957 in terms of income generated, driven mainly by textiles, but there was also growth in the production of cement and glass, as well as continued expansion in food production.
More than a decade of brutal war has left 27% of Syrians, about 5.7 million people, living in extreme poverty
World Bank
Then came successive coups. However, throughout this unstable political landscape in Syria's national story, economic growth continued to rise, as did investment in infrastructure.
Socialist approach
A socialist approach was introduced to Syria during its period of unity with Egypt, which formed the United Arab Republic from 1958 until 1961. It brought the concept of state control over the economy and nationalisation, changing the background conditions for the economy. Syrian products lost major markets in Lebanon, Jordan, Iraq, and Saudi Arabia.
The Ba'ath Party rose to power in a military coup in March 1963 and destroyed what had looked like the start of an economic renaissance. It went on to form nine separate governments until Hafez al-Assad seized control of the party and the country in November 1970. Throughout, it made further nationalisations.
After a period of growth after Bashar al-Assad took over from his father as president in 2000, the economy once again faltered before the uprisings against his regime in 2011 led to long years of civil war and, eventually, regime change in December 2024.
Impact of civil war
After the outbreak of civil war, the size of Syria's economy as measured by gross domestic product (GDP) contracted by 54%. According to a World Bank report, the impact of the conflict could be much greater, not least through extremely high inflation rates.
The World Bank predicted that the inflation rate will rise to 99.7% in 2024, meaning that prices will continue to rise dramatically, exacerbating the suffering of Syrians and making it more difficult for them to meet their basic needs.
Children line up to buy bread after Syria's Bashar al-Assad was ousted, in Douma, on the outskirts of Damascus, Syria, December 23, 2024.
As of 2022, poverty affected 69% of the population, and the World Bank revealed in May 2024 that more than a quarter of Syrians live in extreme poverty, while the report predicted that the Syrian economy would continue to shrink this year by 1.5%, compared to 1.2% in 2023.
The news agency Agence France-Presse quoted the World Bank report as saying, "More than a decade of brutal war has led to a significant deterioration in the well-being of Syrian households, with 27% of Syrians, about 5.7 million people, living in extreme poverty".
The disruptions associated with the conflict have severely affected foreign trade. The collapse of domestic industrial and agricultural production has increased Syria's dependence on imports, particularly food.
The report said: "Private consumption, the main driver of growth, will remain weak in 2024, as rising prices continue to erode purchasing power. Private investment is expected to remain weak amid a volatile security situation and significant economic and political uncertainty."
Syria's GDP per head is expected to reach $781.90 at the end of 2024, according to projections from the Trading Economics consultancy and reports from other analysts.
Cleaning of the Hamidiya market near the Umayyad Mosque in Damascus, December 13, 2024.
The economic decline and the plight of the Syrian people worsened after the devastating earthquakes and aftershocks which struck the north of the country in February 2023. It killed over 59,000 people, injured more than 120,000 more, displaced millions from their homes and destroyed infrastructure.
Syria also faced a range of external factors with economic implications, including the 2019 financial crisis in Lebanon and the global COVID-19 pandemic.
When Bashar al-Assad came to power in 2000, he began his rule with promises of economic reform and gradual openness. His stewardship of the economy was key to the conditions the country now faces after his departure, and this is what happened during his regime and the impact of the war it brought.
Under Bashar al-Assad
During the first decade of Assad's rule, GDP grew at an annual rate of between 4% and 5%, driven by limited economic reforms and an increase in global oil prices. According to World Bank data, GDP reached about $60bn in 2010, compared to $18bn in 2000. The oil and agricultural sectors formed the mainstay of the economy, and tourism and services began to recover in the first decade of his rule. In 2011, the Syrian economy peaked at $67.5bn.
Exports amounted to about $12bn in 2010 and included crude oil, agricultural products (such as cotton and wheat), and textiles, with oil accounting for about 30% to 35% of total exports. Syria also imported various products worth about $17bn in 2010.
Exports then fell to less than $1bn a year due to sanctions and the destruction of infrastructure, while basic imports of food and fuel rose, with increasing reliance on humanitarian aid and the demise of most production. GDP fell by more than 86% due to the war, dropping to just $8.9bn in 2021, according to World Bank figures.
Decline in oil output and agriculture
Oil production reached about 380,000 barrels per day (bpd) in 2000 but gradually declined to about 240,000 bpd in 2010 due to dwindling reserves. Armed factions took control of most of the oil fields during the war, dropping production to less than 25,000 bpd in 2018.
As the government regained control of some fields—with the support of Russia and Iran—production rose slightly to around 40,000 bpd in 2023, according to reports from the International Energy Agency (IEA) and the United Nations.
The World Bank said: "While production was already declining before the conflict due to ageing oil fields, the war has sharply accelerated the pace of decline."
Before the war, agriculture accounted for about 20% to 25% of GDP, and Syria was self-sufficient in wheat and exported cotton. During the war, mass displacement, drought, and lack of resources hit the agricultural sector hard.
Before the war, tourism accounted for about 12% of GDP in 2010, with Syria attracting about 8 million tourists annually with revenues of more than $8bn. Amid conflict, it completely collapsed, with the exception of limited religious visits from Iraq and Iran.
A street vendor arranges independence-era Syria flags on his stand in the Bab Touma neighbourhood in Damascus on December 23, 2024.
Weakening currency, inflation and debt
Before the war, the exchange rate for Syria's currency was relatively stable, at around 46 pounds to the dollar in 2010. The war brought currency collapse, and by December 2024, as the Assad regime fell, the price of a dollar was 22,000 pounds.
And so the prices of goods and services in Syria skyrocketed. Markets in the most basic necessities across the country have been struck with severe shortages. It's estimated that consumer price inflation has risen by 93%, and this situation has been exacerbated by the reduction of government subsidies, according to a report by the World Bank.
Inflation has reached record levels, with prices of basic commodities rising by more than 2,000%. Workers' incomes have fallen dramatically, with the salary of a government employee not exceeding $30 per month.
Mohammad Rabie Qalaaji, a former minister of economy and foreign trade in Syria, said: "The criminalisation of dealing in dollars was one of the mistakes that greatly harmed the economy, as well as the restrictions imposed by al-Assad on the movement of money".
The country's pre-war external debt was estimated at around $8bn by the World Bank and the International Monetary Fund, and during the war, it rose dramatically due to the government's reliance on external funding from Russia and Iran.
The United States and the European Union imposed heavy sanctions, especially the Caesar Act in the US in 2020, which limited Syria's ability to conduct international transactions.
Captagon economy
The World Bank found that Syria's economy is currently dominated by Captagon, the common name for the addictive drug fenethylline, of which the country is a "major producer and exporter".
The total market value of Syrian-origin Captagon is estimated to be between $1.9bn and $5.6bn annually, roughly equivalent to Syria's GDP, which was estimated at $6.2bn last year, the World Bank said in its report.
Fighters affiliated with Syria's Hayat Tahrir al-Sham (HTS) display Captagon pills seized at a checkpoint they control in Daret Ezza, in northern Aleppo, on April 10, 2022.
It added: "Actors based in or associated with Syria make profits from the sale of Captagon of up to $1.8bn per year, almost double the revenue from all legitimate Syrian exports in 2023". Reports estimate the value of the global trade in Captagon to be $57bn, 80% of which is produced in Syria.
The fall of Bashar al-Assad's regime on 8 December 2024 marks the beginning of a new political and economic era in Syria. After 13 years of war and the imposition of US and European sanctions, the economy was left in a state of clinical death, with its GDP effectively shattered. Reviving the economy will likely require significant time and effort, alongside rebuilding destroyed infrastructure and human and social capital.
Riad Abdel-Raouf, a former Syrian finance minister, has been upbeat on the country's prospects. He predicted that the deterioration of the pound's exchange rate wouldn't last long, considering that it was mainly based on the weakness of the previous political outlook.
He also predicted that the economy's growth rates will be good in 2025, stressing that fiscal policy must be set in favour of the Syrian people. He expected the next Syrian government to review all agreements.
The Central Bank of Syria also reassured Syrians about their deposits, saying in a statement: "We assure our fellow citizens dealing with all operating banks that their deposits and funds placed with these banks are safe and haven't and won't be subjected to any harm."
The Central Bank of Syria appealed to all foreign exchange and internal remittance companies to: "Commit to delivering remittances to their beneficiaries in Syrian pounds in accordance with the decisions in force governing this issue."
"The bank is continuing its work and will follow up and supervise the work of banking and non-banking financial institutions operating in accordance with the regulations in force."
Members of Syrian opposition factions guard the Central Bank of Syria in Damascus, December 9, 2024.
Analysts believe it could take a decade for the Syrian economy to overcome the repercussions of the turmoil, provided the political storms subside, and the country receives external support.
There is a range of positive factors which give Syria a chance to prosper: The presence of a large wealthy expatriate community, the willingness of international organisations to intervene, and the fact that 70% of the Syrian population is under the age of 30, reflecting a vibrant and potentially productive society.
Syria's energy sector can contribute to the process of rebuilding the economy, with proven oil reserves estimated at 2.5 billion barrels. Tourism can also play a key role. Syria is one of the richest countries in the world in terms of cultural heritage and historical monuments.
There is also an abundance of natural resources. This includes phosphates, coal mines in Deir Ez-Zor, gold mines in the north, and mountains of marble and granite that are of the highest quality in the world. Syria is also famous for growing cotton and high-quality durum wheat, and it is one of the most prominent countries in the production of olives and olive oil, as well as the cultivation and export of citrus fruits and vegetables.
The coming year will reveal the extent to which Syria is able to start its recovery and rebuild its once-proud economy and the standard of living of its people.
