The Economy - Jihad Yazigi Weighs in
Jihad Yazigi weighs in on the economy debate. Jihad is the editor of "The Syria Report," the best Syrian economic digest. He gives some historical perspective to the debate. He writes:
Syria Comment has recently posted a few contradictory essays on the economic situation in Syria. I will try to give my own appraisal of the situation.
In the last few months there has been a strange feeling that things are improving in the economic front among many policy analysts in Syria. There are several reasons for that.
One of these is that the Syrian economy grew by 4.5 percent last year. This is its highest rate over the last decade. At the same time the number of investments that were announced in the last 3 months alone is higher than the country’s annual Gross Domestic Product, which is around US$ 22 billion ! In the real estate sector alone you had three large projects from Gulf investment houses worth a combined US$ 21 billion. UAE’s Emaar is committing US$ 2 billion, the Kuwaiti Aref US 4$ billion and another Emirati group, Bunyan, close to US$ 15 billion for an investment in Mount Hermon. Then you had 2 large cement projects, 2 other sugar refineries, hotel resorts, etc. Syria never witnessed anything close to that maybe in its entire contemporary history. What is obviously striking is the fact that all this is taking place while the country is under very strong international pressure and the Syrian pound lost almost 10 percent of its value late last year, before recovering since.
What you have to do to understand this is to look at what is behind these data. Let’s start with GDP growth.
True, GDP grew by 4.5 percent last year. But, according to the official Central Bureau of Statistics itself, the two factors behind GDP growth in 2005 are (1) the rise in the price of crude oil (crude oil represents 70% of exports and 40% of budget income in Syria) and the excellent rainy season which helped agricultural production grow (agriculture makes up around 25% of GDP). So last year’s growth had not much to do with any significant capital inflow in the country but rather with two factors on which Syrian policy makers have no leverage. All other things remaining equal, GDP will be stagnant this year should the price of oil return more or less to normal and the rainy season be less wet.
As to private investment one has to be very careful. None of the very large real estate investments announced lately is anywhere close to materializing. Either the developers have only purchased the land on which they plan to build their estates or in some cases these announcements were only….announcements! and nothing else. Actually, there has been almost no single major construction site anywhere in or around Damascus in the last 3 or 4 years, except for the Four Seasons hotel. These investments won’t probably see the light of day before the overall political situation of the country stabilizes.
Then you have other projects that are taking place, in particular in the industrial sector. In terms of overall volume these investments are not insignificant and are a partial reflection of the country’s huge potential but also of the regulatory environment that has slightly improved in the last 2 to 3 years. Abdallah Dardari, Vice PM for Economic Affairs, and the strong man in the government, as well as Mohammad Hussein, Minister of Finance, have to take credit for that.
That’s for the good data regularly released by the government. Now if you dig in more and look at the business community and the people at large, I just have to refer to the post of your Aleppine friend, K, who best expresses what is taking place on the ground. The latest rise in the price of fuel (25%) and cement (50%) has raised the heat. The next move that everyone expects the government to take is to raise the price of diesel. Diesel is heavily subsidized and is costing the Government hundreds of millions of dollars every year. But should its price go up, every other item in the country will see its price go up, because of the increased cost of transport, the increased energy costs for industrialists, etc. The purchasing power of people will fall once more as it has been falling for the last two decades.
I would like to insist on that last aspect. While most analysts in Syria mention the rise of Islamism as the most significant change in Syrian society, in my view it is the rise in poverty that I have found most striking. I have been visiting Syria very regularly in the last 15 years and I have seen how at a very rapid pace purchasing power has been falling. The weakening and public avoidance of state institutions (schools, hospitals, etc.) is most worrying because it is a major reason behind the gradual reduction in the role of the state as a major integration tool for society. While, for instance, all my Syrian friends who are my age have studied in public schools none of their children is schooled there, but rather in private schools. Obviously not everyone can afford private schooling. State schools have classes of 50 children on average, the salaries of the teachers are so low that their motivation is also very low. (As they used to say in the USSR, “They pretend to pay us, and we pretend to work..”) Roads and public gardens are dirty, pavements are full of holes, etc. One should actually go to the suburbs of Damascus to see the conditions in which the struggling remains of the Syrian "middle class" live. Unemployment has been growing without interruption in the last 25 years in Syria, except for a 3-year respite in the early nineties.
What is upsetting and frustrating in this situation is that there is no excuse for it. Syria is neither heavily indebted nor is it scarce in resources. Ironically, the overall deterioration in the social conditions of average Syrians started in the early to mid-eighties at a time when the country started to pump high levels of crude oil (1987), when investment and production in the agricultural sector was on the rise (early nineties) and when the liberalization of the economy also started (1986).
Maybe the picture of the Syrian economy I am giving is bleaker that what I intended it to be. One, indeed, should not forget that this is a country of huge potential. Syria has the opportunity to become the most diversified economy in the region with a strong agricultural output, a very cost-competitive industrial sector, an amazing tourism industry, and an ideal geographic location. Unfortunately it has remained an unfulfilled potential and it will probably remain so as long as you don’t get to the core of the problem: the fight against corruption, the introduction of transparency and accountability, and the protection of a real independent judiciary that can provide guarantees for investors - in short, before the rule of law is enforced.
The Syria Report