The eco­nomic con­se­quences of the con­flict in Syria, By Ella Wind and Omar S. Dahi

AR­TI­CLE IN BRIEF: The Syr­ian econ­omy did well in sev­eral macroe­co­nomic in­dices in the past decade, but suf­fered from grow­ing cor­rup­tion, so­cial ex­clu­sion and the rise of a cor­rupt oli­garchy. A lack of po­lit­i­cal lib­er­al­iza­tion and ac­count­abil­ity con­trib­ute

Turkish Review - - CONTENTS -

The war in Syria con­sti­tutes a dramatic rup­ture in both the po­lit­i­cal and so­ci­etal dy­nam­ics that pre­ceded it. How­ever the long­est last­ing and most pro­found im­pact may be on the econ­omy of the coun­try. The hu­man­i­tar­ian cri­sis in­side Syria and the refugee cri­sis in the neigh­bor­ing coun­tries are both now global catas­tro­phes. The pace of the cri­sis so over­whelmed ex­pec­ta­tions that both the Syria Hu­man­i­tar­ian As­sis­tance Re­sponse (SHARP) and Re­gional Re­sponse Plans of 2013 -- deal­ing with hu­man­i­tar­ian as­sis­tance in­side and out­side Syria, re­spec­tively -- had to be re­vised sev­eral times mid-year. Do­mes­ti­cally, the eco­nomic changes brought about since the start of the Syr­ian up­ris­ing in March 2011 fall un­der two main cat­e­gories. First, the war has re­sulted in the se­vere de­te­ri­o­ra­tion of the econ­omy as a re­sult of de­struc­tion of lives, phys­i­cal in­fra­struc­ture, cap­i­tal flight and the im­po­si­tion of sanc­tions. Se­condly, Syria has seen the rise of a war econ­omy and war­lordism around the com­pe­ti­tion for nat­u­ral do­mes­tic re­sources, for­eign fund­ing, and smug­gled goods by war­ring mili­tias and civil­ians in­side the coun­try.

GOVERN­MENT RE­SPONSE TO UP­RIS­ING

When the protests in Syria first broke out, the pre­vi­ous eco­nomic team and govern­ment of Naji al-Otari was re­lieved of its duty and re­placed by a new govern­ment that rep­re­sented more ca­reer Ba’athists who were pro­po­nents of the pub­lic sec­tor. The govern­ment an­nounced it would in­crease salaries and sub­si­dies as well as res­tore sup­port for man­u­fac­tur­ing and agri­cul­ture. How­ever, these poli­cies of­fered too lit­tle, too late. Rather than un­der­tak­ing large-scale in­vest­ment that would ben­e­fit Syr­i­ans across the board, the regime sought to tar­get its pre­sumed bases of loy­alty among civil ser­vants, work­ers in state-owned en­ter­prises and the govern­ment bu­reau­cracy at large. That half-mea­sure, cou­pled with the regime’s un­will­ing­ness or in­abil­ity to dis­ci­pline the main ob­jects of pop­u­lar loathing, such as the pres­i­dent’s cousin Rami Makhlouf, in­di­cated that the regime had gone im­me­di­ately into sur­vival mode rather than se­ri­ously ad­dress­ing the un­der­ly­ing griev­ances of the up­ris­ing. Frus­tra­tion mounted as the govern­ment stum­bled back and forth be­tween dif­fer­ent pol­icy di­rec­tions, such as in 2011, when they im­posed a ban on

all but a se­lect few im­ports, 1 a pol­icy that was quickly re­voked just one week later. 2 Fur­ther­more, the se­cu­rity crack­down, re­sult­ing in de­clin­ing tourist and trade rev­enues, and even­tu­ally, the crip­pling oil em­bargo im­posed by the EU, made these prom­ises un­sus­tain­able.

The 2012 reshuf­fling of the govern­ment saw many top govern­ment posts given to Ba’athist loy­al­ists and other fig­ures more sup­port­ive of statist eco­nomic poli­cies (like Deputy Prime Min­is­ter for Eco­nomic Af­fairs Qadri Jamil), al­though some of the top key posts re­mained the same. Over­all, the regime has come to re­scind on its pre­vi­ous ten­ta­tive shifts to­wards some neo-lib­eral fig­ures who were not nec­es­sar­ily ac­tive mem­bers of the Ba’athist party, re­treat­ing back into the statist poli­cies in place from be­fore Pres­i­dent Bashar al-As­sad came to power. 3

As un­rest grew and the sit­u­a­tion be­came more un­man­age­able, the govern­ment’s eco­nomic poli­cies re­treated fur­ther into sur­vival mode, ne­glect­ing longterm in­vest­ment in lieu of di­rect­ing fund­ing to­wards the for­ti­fi­ca­tion of the mil­i­tary. A June 2012 meet­ing of Pres­i­dent As­sad with the govern­ment of Wael al-Halqi defini­tively marked the be­gin­ning of a tran­si­tional pe­riod in which the govern­ment be­came fully com­mit­ted to the pur­suit of a war econ­omy to the ne­glect of other govern­ment func­tions. In his speech to the new govern­ment, As­sad de­clared: “We live, as I said in my speech to the par­lia­ment, in a true sit­u­a­tion of war­fare in all its as­pects […] and when we are in a state of war, all our poli­cies […] and all sec­tors must be ori­ented in or­der to win this war.”

Govern­ment spend­ing up to the first quar­ter of 2013 saw a de­cline in pub­lic in­vest­ment of 75 per­cent, while more than $4.85 bil­lion was re-bud­geted to­wards mil­i­tary ex­pen­di­tures. Fur­ther­more, pub­lic spend­ing on health, bud­geted at $7.5 bil­lion in 2010, was re­duced to $5.2 bil­lion in 2011, and by 2012 dwin­dled to $4.4 bil­lion, even as the need for pub­lic health ex­pen­di­tures be­came more ur­gent. 4 Nev­er­the­less, Syria’s $27 bil­lion 2012 bud­get was the big­gest in its his­tory, mo­ti­vated by a de­sire to fund state jobs and main­tain sub­si­dies on es­sen­tials. 5 De­spite this, through­out 2012 in many ar­eas around the coun­try civil­ians or or­ga­nized op­po­si­tion groups be­gan to un­der­take govern­ment func­tions in some ar­eas, as trash piled up in the streets un­col­lected and govern­ment schools, hos­pi­tals, and other pub­lic ser­vice in­sti­tu­tions were shut down. 6

How­ever, in the face of the coun­try’s near-to­tal eco­nomic ruin, the govern­ment has main­tained a rather im­pres­sive de­gree of re­silience, which can be at­trib­uted to the fi­nan­cial sup­port it con­tin­ues to re­ceive from its two big­gest al­lies, Rus­sian and Iran as well as the re-ori­en­ta­tion of govern­ment ex­pen­di­tures to­ward ba­sic goods pro­vi­sion and a cut in in­vest­ment and im­port de­mand on for­eign ex­change. In 2012, Syria be­gan to re­lease ban­knotes printed in Rus­sia into cir­cu­la­tion to re­place old cur­rency, but also to en­sure its abil­ity to con­tinue pay­ing govern­ment salaries and other ex­penses. 7 Ac­cord­ing to Deputy Prime Min­is­ter Jamil, in an in­ter­view with the Fi­nan­cial Times in June 2013, $500 mil­lion in monthly aid was be­ing sent to Syria from Iran, Rus­sia and China in the form of oil and credit. 8 Just one month later, Syria and Iran signed a deal for a $3.6 bil­lion credit fa­cil­ity that would al­low the Syr­ian govern­ment to im­port oil prod­ucts, this on top of a pre­vi­ous $1 bil­lion credit line to Iran which al­lowed Syria to en­gage in some limited trade. 9 These deals open the way to­ward in­creas­ing Ira­nian in­vest­ments in projects around the coun­try, and as­sum­ing As­sad stays in power, guar­an­tees Iran and Rus­sia top pri­or­ity in re­con­struc­tion projects. 10

In 2013, it was re­ported that over 2 mil­lion govern­ment work­ers across the coun­try are still re­ceiv­ing salaries. Some of these em­ploy­ees are even lo­cated in rebel-held ar­eas in Aleppo, Deir Ez­zor and else­where. 11 Salaries are ar­ranged to be sent in cash by trucks, through meet­ings or­ga­nized by com­mu­ni­cat­ing with rebel groups via fax and mes­sen­ger. Mu­dar Barakat, a govern­ment em­ployee, ex­plained in an in­ter­view with The New York Times that govern­ment em­ploy­ees “come with the ter­ror­ists” to pick up their salaries.

For now, the govern­ment ap­pears to have pinned its hopes on us­ing these lines of credit to weather the storm, by tak­ing a more ac­tive role in buy­ing daily goods, tight­en­ing price con­trols, main­tain­ing state em­ployee wages and seal­ing off Syria’s econ­omy from all but its most re­li­able al­lies. 12

FREEFALL IN THE ECON­OMY

By the end of the se­cond year of the con­flict, Syria’s econ­omy had al­ready suf­fered dev­as­tat­ing losses. GDP losses at the end of 2012 stood at 664 bil­lion Syr­ian pounds (SYP) -- around $24.1 bil­lion, or nearly half of Syria’s to­tal GDP in 2010.13 Since then the rate of eco­nomic de­te­ri­o­ra­tion has in fact been grow­ing at an alarm­ing pace. A re­port from the Syr­ian Cen­ter for Pol­icy Re­search (SCPR) and the United Na­tions Re­lief and Works Agency es­ti­mated that by the end of 2012, Syria’s hu­man de­vel­op­ment in­di­ca­tors had fallen back 20 years since the be­gin­ning of the cri­sis. The same re­port went on to say that by the first quar­ter of 2013, Syria had fallen back 35 years on the Hu­man De­vel­op­ment In­dex, mean­ing the rate of de­struc­tion in just three months was al­most com­pa­ra­ble to that of the two pre­vi­ous years since the be­gin­ning of the up­ris­ing. Fi­nally, more than half the pop­u­la­tion of Syria is now con­sid­ered to live in poverty, as 6.7 mil­lion Syr­ian cit­i­zens fell be­low the poverty line as a re­sult of the cri­sis, and 3.6 mil­lion fell be­low the line of ex­treme poverty. 14

Losses have been great­est in the sec­tors of trans­porta­tion and com­mu­ni­ca­tions, man­u­fac­tur­ing, min­ing, and in­ter­nal trade (both whole­sale and re­tail). The tourism sec­tor, pre­vi­ously com­pris­ing around 12 per­cent of the GDP, has un­sur­pris­ingly seen a com­plete col­lapse. 15 The higher losses in these sec­tors are in­dica­tive of the process of de-in­dus­tri­al­iza­tion and large-scale cap­i­tal di­vest­ment from the coun­try. De­clines in pro­duc­tion have been rel­a­tively lower in con­struc­tion (due to an il­le­gal hous­ing boom), govern­ment ser­vices and agri­cul­tural out­put. 16 Nev­er­the­less, agri­cul­tural out­put has greatly de­clined, com­pound­ing the ill ef­fects of the se­ri­ous drought that has af­flicted Syria since 2003.17 Wheat yields, long a ma­jor source of food se­cu­rity, have shrunk over the last sev­eral years by 30-50 per­cent, and the live­stock and poul­try sec­tors have suf­fered badly, ac­cord­ing to a June 2012 UN Food and Agri­cul­ture Or­ga­ni­za­tion (FAO) re­port, fu­el­ing a rise in the prices of meat, milk, chicken and eggs by as much as 300 per­cent in some ar­eas. The FAO con­cluded then that the “house­hold-level food se­cu­rity of about 30 per­cent of the ru­ral pop­u­la­tion,” was un­der se­vere threat. 18 It is clear that Syria will be pay­ing the so­cio-eco­nomic costs of its civil war long af­ter the any cease-fire may be achieved.

BY THE FIRST QUAR­TER OF 2013, SYRIA HAD FALLEN BACK 35 YEARS ON THE HU­MAN DE­VEL­OP­MENT IN­DEX

One ob­vi­ous cause of the degra­da­tion of the econ­omy is the phys­i­cal dam­age to in­fra­struc­ture that has brought pro­duc­tion in many places to a com­plete halt. En­tire blocks of res­i­den­tial and com­mer­cial ar­eas have col­lapsed un­der bomb­ing, and shelling has gut­ted mar­kets and streets. In June 2013, Lo­cal Ad­min­is­tra­tion Min­is­ter Omar al-Ibrahim de­clared that phys­i­cal dam­age to pub­lic in­fra­struc­ture amounted to $15 bil­lion worth of dam­age, and some con­tested this fig­ure as an un­der­es­ti­mate. 19

The full ex­tent of pri­vate dam­age is un­know­able, but as an ex­am­ple, some es­ti­mate that up to 75 per­cent of the pro­duc­tion fa­cil­i­ties in Aleppo, Syria’s com­mer­cial cap­i­tal, were no longer in op­er­a­tion in Au­gust 2013.20 Some fac­to­ries were bombed, while oth­ers burned down or were taken over as rebel mil­i­tary cen­ters. Many oth­ers were cut off from ac­cess due to the pre­car­i­ous se­cu­rity sit­u­a­tion in sur­round­ing neigh­bor­hoods.

In­deed, the mere fact of di­vid­ing the coun­try into govern­ment-con­trolled and rebel-con­trolled ar­eas (not to men­tion com­pe­ti­tion over ter­ri­to­ries within fac­tions of the op­po­si­tion) has been hugely dele­te­ri­ous to the econ­omy, as the uni­fied na­tional econ­omy is frag­mented into small, in­co­her­ent lo­cal economies in­ca­pable of pro­vid­ing the range of goods and ser­vices needed for those liv­ing in these ar­eas.

Ac­com­pa­ny­ing this de­cline has been a con­comi­tant process of cap­i­tal flight. 21 Syr­ian ex­pa­tri­ates were es­ti­mated to hold over $60 bil­lion in as­sets that for the most part were not repa­tri­ated into the Syr­ian econ­omy. Syria had al­ready suf­fered from se­vere “brain drain” as many of the most ed­u­cated and skilled cit­i­zenry were more at­tracted to mi­grate for op­por­tu­ni­ties to work and study else­where. 22

With the be­gin­ning of the con­flict, the de­clin­ing value of the SYP com­pelled many Syr­i­ans to with­draw their money and con­vert to dol­lars or other less-in­fla­tion­ary cur­rency. The cen­tral bank at­tempted to al­le­vi­ate the pres­sures on the SYP, but dwin­dling for­eign cur­rency re­serves min­i­mized any ef­forts in this area, and the value of the SYP has con­tin­ued to de­cline grad­u­ally over the course of the past three years, los­ing about 70 per­cent in a span of two years ac­cord­ing to of­fi­cial sources, with in­fla­tion at about 120 per­cent. 23 By 2013, data re­ported by Syria’s pri­vate banks painted a grim pic­ture of the bank­ing sys­tem and the ex­tent of cap­i­tal flight. Ac­cord­ing to data from six of Syria’s 14 pri­vate banks, profit losses amounted to be­tween 40 to 95 per­cent, in con­trast to what had been reg­u­lar in­creases in both over­all de­posits and to­tal prof­its in ev­ery year prior. But in the past six months, the govern­ment has man­aged to turn the tide of this trend through two

chan­nels of ac­tion: co­er­cion from its se­cu­rity ap­pa­ra­tus, and aid from Iran and Rus­sia. The lat­ter two came through with sev­eral deals to boost the Syr­ian cur­rency through an in­flux of dol­lars, as well as a flurry of credit and aid deals; while in June 2013, the govern­ment an­nounced a crack­down on black-mar­ket money traders. For the first time two years, the SYP be­gan to rise against the dol­lar, and black-mar­ket prices were re­ported to match the of­fi­cial rate set by the Syr­ian Cen­tral Bank. 25 While Syria’s al­lies ap­pear to be ab­so­lutely com­mit­ted to pro­vid­ing eco­nomic sup­port, whether the govern­ment will be able to main­tain this pol­icy in the long term will de­pend in large part its abil­ity to main­tain an en­vi­ron­ment of fear for black-mar­ket traders, even as large parts of the coun­try re­main out of govern­ment con­trol.

The longer the course of the war, the more we can an­tic­i­pate that Syr­ian wealth will be put to use else­where and even­tu­ally en­trenched in in­vest­ments there. Sim­i­larly, Syria’s hu­man cap­i­tal -- its cit­i­zenry who are leav­ing the coun­try at a rate of thou­sands of peo­ple per day -- will surely be­come in­creas­ingly tied to their places of re­lo­ca­tion, and less likely to re­turn to Syria fol­low­ing the end of the con­flict.

ECO­NOMIC SANC­TIONS

As the regime pro­ceeded with its bru­tal crack­down, there were calls for eco­nomic sanc­tions from the US and Euro­pean gov­ern­ments, as well as the Arab League and ac­tivists in­side Syria who were hor­ri­fied by the vi­o­lence in­flicted upon the protest move­ment. 26 Though the pre­cise im­pact of sanc­tions is hard to dis­cern, it is clear that they have not achieved their goal of iso­lat­ing the regime, but have cer­tainly played a role in ex­ac­er­bat­ing the eco­nomic cri­sis. Al­though eco­nomic sanc­tions on Syria did not start with the 2011 up­ris­ing, the im­ple­men­ta­tion of EU sanc­tions27 fol­low­ing the harsh mea­sures taken against pro­test­ers struck a hard blow to the Syr­ian econ­omy. Ac­cord­ing to the Euro­pean Com­mis­sion, Brussels has levied 17 sets of “re­stric­tive mea­sures” against Syr­ian na­tion­als, govern­ment en­ti­ties or pri­vate com­pa­nies, in­clud­ing the sus­pen­sion of Syr­ian govern­ment par­tic­i­pa­tion in the Euro-Med re­gional co­op­er­a­tion ini­tia­tives and the Euro­pean In­vest­ment Bank’s loans to Da­m­as­cus. The most oner­ous mea­sures -- by amount of lost rev­enue -- are the im­port bans on crude oil and pe­tro­leum prod­ucts. The EU has also halted in­vest­ment in the oil in­dus­try and con­struc­tion of elec­tri­cal power plants in Syria, and stopped sup­ply­ing the Syr­ian Cen­tral Bank with ban­knotes and coins, which had pre­vi­ously been minted in Aus­tria. Since the im­po­si­tion of sanc­tions, Syr­ian en­ter­prises and re­gional part­ners have signed vir­tu­ally no new ex­port con­tracts. The only pro­duc­tion and ex­port that has oc­curred has been in ful­fill­ment of ex­ist­ing ex­port con­tracts ex­empt from the sanc­tions.

One im­pact of the sanc­tions has been an ac­cel­er­a­tion of the de­ple­tion of Syria’s for­eign ex­change re­serves. The govern­ment has drawn heav­ily upon these stores of cash as oil rev­enue dried up. Ac­cord­ing to a re­port by the SCPR, the sanc­tions caused 28 per­cent (or roughly $6.8 bil­lion) of the losses to GDP in 2011 and 2012.28 The re­port also con­cluded that the sanc­tions had the worst im­pact on the lower so­cial classes, given the rise in prices of food sta­ples such as bread and the higher cost of heat­ing oil. The cost of sanc­tions on the regime it­self in Syria has been mit­i­gated some­what by the govern­ment’s abil­ity to main­tain strong eco­nomic re­la­tions with other coun­tries who have not im­posed sanc­tions, as well as by an ex­ten­sive de­gree of self-suf­fi­ciency in food pro­duc­tion (a strategy launched un­der Bashar al-As­sad’s fa­ther and pre­de­ces­sor, Hafez al-As­sad).

BRUSSELS HAS LEVIED 17 SETS OF ‘RE­STRIC­TIVE MEA­SURES’ AGAINST SYR­IAN NA­TION­ALS, GOVERN­MENT EN­TI­TIES OR PRI­VATE COM­PA­NIES

EMERG­ING WAR ECON­OMY

As the war in Syria has dragged on, many ar­eas of the coun­try have seen the in­evitable de­vel­op­ment of a “war econ­omy” based on com­pe­ti­tion over smug­gled goods and black mar­kets, con­trol over nat­u­ral en­ergy re­sources in the North­east, and for­eign fund­ing flows, whether in­tended for hu­man­i­tar­ian or mil­i­taris­tic pur­poses.

SMUG­GLING

The roots of the smug­gling econ­omy -- es­pe­cially along the Turk­ish and Le­banese borders -- can be traced back to be­fore 2011 when smug­gling of goods across

por­ous borders was a prac­tice with a long his­tory -- due to price dif­fer­en­tials caused by heav­ily sub­si­dized food­stuffs in Syria, short­ages in Syria caused by govern­ment bans on im­ports of var­i­ous prod­ucts, or taxed prod­ucts such as for­eign cig­a­rettes and beer. These il­le­gal eco­nomic links were for­ti­fied by the rise of armed op­po­si­tion mili­tias and the frag­men­ta­tion of the coun­try into govern­ment- and rebel-con­trolled ar­eas, which ne­ces­si­tated the rise of lo­cal, in­for­mal economies rather than a uni­fied na­tional econ­omy.

How­ever, this is not to say that only op­po­si­tion groups par­tic­i­pate in these in­for­mal economies. Re­ports in­di­cate that the loot­ing of homes and prop­er­ties fol­low­ing govern­ment sieges on rebel-held ar­eas has also en­cour­aged the par­tic­i­pa­tion of se­cu­rity forces them­selves in smug­gling and in­for­mal eco­nomic ac­tiv­i­ties. Fur­ther­more, there is a great deal of il­le­gal trade be­tween rebel and govern­ment-backed groups in terms of looted and smug­gled goods, as well as nat­u­ral re­sources. While the po­lit­i­cal lines may seem to be com­pletely im­pass­able be­tween the two sides, the eco­nomic lines are any­thing but. Be­yond sell­ing these goods on the black mar­kets across the bor­der, dif­fer­ent groups barter with one an­other to ob­tain the ne­ces­si­ties of daily life, along with weaponry and mil­i­tary equip­ment.

If trad­ing looted goods has been a shared point be­tween govern­ment and rebel groups, the is­sue of how to di­vide spoils from loot­ing homes and busi­nesses has of­ten been a point of fierce con­tention be­tween rebel bri­gades, es­pe­cially in shared mil­i­tary op­er­a­tions be­tween com­pet­ing groups. 29

The Turk­ish bor­der in par­tic­u­lar has be­come a fo­cal point of smug­gling in re­cent years, at­tested to by nu­mer­ous jour­nal­is­tic and aca­demic ac­counts. The Orontes River, which runs be­tween Syria and Turkey, is used by both smug­glers and refugees as a point of trans­port and cross­ing. Many of the items smug­gled out of Syria are es­sen­tials -- food, goods and ma­chin­ery looted from homes and fac­to­ries, gas for heat­ing, and wood -- con­tribut­ing to the es­ca­lat­ing prices for these goods within the coun­try, a trend which has been some­what tem­pered by the govern­ment’s re­cent crack­down on food ex­ports. 30 In the other di­rec­tion, weapons to rebel groups are smug­gled in with as­pir­ing fight­ers and sup­port­ers of the rebels, along with hu­man­i­tar­ian aid and med­i­cal sup­plies sent across the bor­der from the nu­mer­ous NGOs now op­er­at­ing in the south of Turkey, de­spite the of­fi­cial re­stric­tions on these groups’ abil­i­ties to work in­side Syria. 31 Sim­i­lar dy­nam­ics are at work across the Le­banese and Iraqi borders. Ac­cord­ing to Ghaith Ab­dul-Ahad, a jour­nal­ist who has been cov­er­ing the black mar­ket econ­omy in the coun­try for the past two years, an AK-47 worth $150-200 in Iraq may be sold for over $1,500 in Syria. 32

OIL AND NAT­U­RAL RE­SOURCES

Con­trol over oil­fields in Syria’s north­east and nat­u­ral gas plants through­out the coun­try has been a fo­cal point of fierce fight­ing be­tween regime forces, Kur­dish mili­tias and Is­lamist mili­tias. In Novem­ber 2013, it was re­ported that a group of Syr­ian rebel bri­gades, in­clud­ing the al-Qaeda-linked Jab­hat al-Nusra, had seized Syria’s largest oil­field from govern­ment forces. 33 De­spite fierce com­pe­ti­tion over these valu­able nat­u­ral as­sets, pro­duc­tion of the fields was re­ported to have fallen by more than 95 per­cent by July 2013, and the pipe­lines run­ning out of the coun­try have been shut down. 34 How­ever, in the wake of rebel takeovers of oil­fields, some dis­placed Syr­i­ans have been mov­ing to the oil­fields to work in op­er­a­tions on prim­i­tive re­finer­ies where they boil small quan­ti­ties of diesel in vats over an open fire. One re­port in­di­cated that a group or in­di­vid­ual in con­trol of an oil­field could ex­pect to make around SYP 5 mil­lion per day (roughly $35,000). 35

Nat­u­ral gas, an im­por­tant source of elec­tric­ity in Syria, con­tin­ues to flow to the Syr­ian govern­ment. The regime’s adap­ta­tion to war econ­omy in this re­gard is strik­ing. 36 In a rebel-held gas plant in Jan­dar, south of Homs, gas still flows freely to the govern­ment in ex­change for its con­tin­u­ing pro­vi­sion of salaries for some 400 tech­ni­cal and white-col­lar staff at the plant. Even fuel re­sources held by Jab­hat al-Nusra are re­ported to be resold to the regime at close to cost, and the rest is resold on black mar­kets in the rest of Syria at a sub­stan­tial profit. 37

THE PRO­LIF­ER­A­TION OF OUT­SIDE FUND­ING SOURCES ALL BUT GUAR­AN­TEES THE CON­TIN­U­ING FRAG­MEN­TA­TION OF THE ARMED OP­PO­SI­TION

FOR­EIGN FUND­ING

In the past two years or so, some rebel bri­gades, rather than re­ceiv­ing funds chan­neled through the Free Syr­ian Army (FSA) af­fil­i­ated Supreme Mil­i­tary Coun­cil (SMC), or depend­ing on trade in looted goods, have be­come in­tensely con­cen­trated on ap­peal­ing di­rectly to pri­vate out­side donors. These pri­vate donors, most of the time ei­ther Syr­ian ex­pa­tri­ates or wealthy in­di­vid­u­als and cler­ics in neigh­bor­ing coun­tries, also pre­fer to fund their spe­cific fa­vored bri­gades di­rectly. Funds out­side of the dis­tri­bu­tion chan­nels of the SMC were es­ti­mated to be at least in the tens of mil­lions of dol­lars by the end of 2013.38 All this con­trib­utes to a con­tin­ual form­ing and re-form­ing of fight­ing units and shift­ing al­liances, based on out­side in­ter­ests in par­tic­u­lar bat­tal­ions. 39

Fundrais­ing among rebel bri­gades has be­com­ing a highly so­phis­ti­cated, and of­ten times sur­pris­ingly open process. Some fight­ers speak openly with jour­nal­ists about the way in which groups with higher me­dia pro­files -- counted in YouTube hits, Face­book “likes,” and Twit­ter fol­low­ers -- re­ceive the largest share of the do­na­tions. “They taught us, hit, film it: I’ll sup­port you,” says a fighter in an in­ter­view with TIME. 40 In some videos on YouTube, fight­ers thank their spon­sors for their gen­eros­ity, with a few bri­gades go­ing so far as to name them­selves af­ter a Gulf spon­sor: One rebel group in eastern Syria now calls it­self the “Ha­j­jaj al-Ajmi Brigade,” in a trib­ute to the Kuwaiti sheik of the same name. 41 Rebels with a strong so­cial me­dia fol­low­ing spread posts call­ing for do­na­tions, an­nounc­ing drop-off points in neigh­bor­ing coun­tries. Sim­i­larly, prom­i­nent fundrais­ers, es­pe­cially cler­ics with large fol­low­ings fur­ther spread these videos and also pro­duce their own videos show­cas­ing the weaponry they pro­vide to bri­gades in or­der to at­tract smaller fun­ders to join in on their do­na­tions to their bri­gades of choice. The pro­lif­er­a­tion of out­side fund­ing sources and abil­ity of fun­ders to pro­vide sup­port to their pre­ferred bri­gades di­rectly all but guar­an­tees the con­tin­u­ing frag­men­ta­tion of the armed op­po­si­tion, as fight­ers con­tin­u­ally try to court their cur­rent myr­iad donors while keep­ing their eyes open for new and more lu­cra­tive sources of out­side fund­ing.

CON­CLU­SION

The war in Syria has set the coun­try’s econ­omy on a dra­mat­i­cally dif­fer­ent course over the past three years. The econ­omy has given way to a process of rapid dein­dus­tri­al­iza­tion and enor­mous losses in vir­tu­ally ev­ery in­di­ca­tor of so­cio-eco­nomic de­vel­op­ment. The Syr­ian govern­ment has hun­kered down into a bud­get pri­or­i­tiz­ing war ef­forts, slash­ing pub­lic goods and ser­vices but still man­ag­ing to keep sig­nif­i­cant num­bers of em­ploy­ees on the govern­ment pay­roll through fi­nan­cial sup­port from some of its for­eign al­lies. Phys­i­cal de­struc­tion of in­fra­struc­ture, wide­spread cap­i­tal flight and strict in­ter­na­tional sanc­tions have all contributed to bring­ing the na­tional econ­omy into to­tal col­lapse. But on the ru­ins of the failed na­tional econ­omy, a war econ­omy is rapidly emerg­ing. Il­le­gal con­struc­tion is boom­ing. War­lordism, smug­gling and black mar­kets have be­come in many ar­eas the main way to ob­tain goods and ser­vices, so much so that even the govern­ment takes part in the black mar­ket econ­omy. Com­pe­ti­tion over funds from out­side the coun­try among rebel groups is ram­pant, while both the govern­ment and rebel groups fight over nat­u­ral re­sources in­side the coun­try. The eco­nomic dy­nam­ics that have emerged are cer­tain to echo for gen­er­a­tions, and will in­flu­ence the fu­ture out­comes for the coun­try long af­ter the con­flict ends.

AUG. 22, 2013 PHOTO: AP, HAS­SAN AM­MAR

Civil war has had a huge im­pact on Syria’s econ­omy.

OCT. 20, 2012 PHOTO: AP, NAR­CISO CON­TR­ERAS

Syria’s frag­men­ta­tion has also given rise to war­lordism and lo­cal economies based on theft and smug­gling

SEPT. 12, 2013 PHOTO: REUTERS, ÜMİT BEKTAŞ

Many ar­eas of the coun­try have seen the in­evitable de­vel­op­ment of a ‘war econ­omy’ based on com­pe­ti­tion over smug­gled goods and black mar­kets.

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