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Syrian Economy: Post-War Recovery Plan

Syria economy

It is unlikely that the Syrian civil war will be ending anytime soon. However, in recent weeks, there has been a surge in diplomatic efforts to end the conflict, with major international and regional players working together, to find common ground and start a political process. Furthermore, towards the end of September 2015, the Russian military launched airstrikes in Syria against rebel groups and also stepped up support to the Syrian government. These airstrikes are in support of the Assad government, which does appear to be the most stable and capable group, directly involved in the conflict.

Syria economy

The Syrian economy has inevitably been hit hard by the war. The economic policies that will be implemented once the war has ended will affect and shape the Syrian economy, and the country itself, deep into the future.

*Some of these policies may be used on an individual basis, while others are only effective if they are implemented in conjunction with other policies. 

Immediate Post-War Syrian Economy

Once the war has concluded, it should be expected that the economy will experience a period of high economic growth, as the country undergoes reconstruction and businesses resume trading. This is a fairly standard trend, and is not an actual indicator of successful economic policy. The Syrian economy will be in need clear direction and will need to be diversified to ensure its success in the long term.

At the Syrian pound’s peak value over the past decade, 1 pound sterling was equivalent to around 65 Syrian pounds. As of the 19/01/2016, 1 pound sterling is worth around 312 Syrian pounds. The Syrian pound has never been a particularly strong currency, and while it will strengthen after the war, its purchasing power will still be relatively low. Therefore, it would be of great benefit to the Syrian economy and consumers if the majority of goods and services were produced domestically.

Large Government Investment Required

Post-war, the Syrian economy will be in need of revival. Investment by the Syrian government and its national banks will be required to kickstart the economy, and to help the government achieve its economic objectives (economic growth, improve living standards and full employment.) The government can create millions of jobs by forming large, state owned firms that will be required in order to rebuild the country and to provide core public services. As these firms will be state owned, they will not operate for profit, but only to provide a service and to employ Syrians. Having said that, goods and services that these firms produce can be exported to generate revenue and increase the Syrian government’s budget for public spending.

The majority of industries that form the Syrian economy should be nationalized, especially core and essential services. This will allow the government to have direct control over essential parts of the economy and ensure that the consumer is being treated fairly. It will also allow the government to control and regulate the price that consumers are charged for certain goods, and keep these prices relatively stable, even when the government is printing large amounts of the national currency. The government can ensure that prices don’t rise when they are printing money, as the government can fix prices.

The government should also invest heavily in renewable energy and in the production of ethanol and other biofuels. Investing in renewable energy will require a lot of capital. However, this will turn electricity into a free good. This is invaluable, especially in the long term, as future generations will reap the rewards of this investment, particularly as natural scarce resources which are used in the production of electricity become ever more limited, thus increasing their value and the cost of purchasing or generating electricity. As electricity would become a free good, the cost of living would decrease, and living standards should increase, as consumers have more money to spend on purchasing other products or services.

Increasing the biofuel production capabilities of Syria is a equally sensible long term investment, and it is also an essential policy, as importing crude oil will not be a practical or cost efficient option (the reasons why will be made clear later on.) It should be noted at this point that Syria does not have huge crude oil reserves, and is likely to become a net importer of crude oil in the future. This investment will allow Syria to be self sufficient, and lower the quantity and the value of imports required. Both of these are key components of this economic plan. Furthermore, this will allow Syria to use its crude oil reserves in the production of plastics, which can be used in the secondary sector.

The ethanol sector itself can be a very large contributor to the Syrian economy, both in terms of GDP and in terms of employment. Brazil is the second largest producer of ethanol internationally, and in 2012, the sugar cane sector made up almost 2% of Brazil’s GDP and the sector employed more than 1 million workers in Brazil, as of 2011.

The Syrian government can also provide employment to millions of Syrians in sectors such as agriculture, construction, renewable energy etc. Syria will also need to drastically increase its manufacturing capabilities, as being self sufficient will cut down on imports, and it will also grant access to potentially lucrative export opportunities. Other core areas such as the police force should also employ a large number of workers.

In 2009, the Syrian government had a budget of 600 billion Syrian pounds which was raised via taxation (around 80%) and crude oil sales (around 20%.) As of 2009, 600 billion Syrian pounds was equal to around  £8 billion or $13 billion. This national budget of just 600 billion Syrian pounds was sufficient for the Syrian government to run the country, provide public services and invest in the country. By contrast, in 2009 the total revenue raised by the UK government was almost £500 billion. Despite this large budget, the UK had to borrow a large amount of money and their total expenditure was around £670 billion, around 90 times larger than the Syrian expenditure for the same year and for the same period of time. In 2007, GDP per capita in the UK was around $48,000. For the same year, the Syrian GDP per capita was around $2,000. Therefore, the UK’s GDP per was around 24 times higher than Syria, but the Syrian government spent 90 times less than the UK government.

The above point emphasizes the much lower cost of living in Syria. Even though the average salary in Syria is quite low relative to the UK’s and so is the GDP per capita, it is not proportional, so Syrians are better off overall.

Securing Funds For Investment

Even after the hyperinflation caused by the conflict in Syria, the relative cost of living in Syria is still slightly lower, or on par with its neighbor Lebanon. The cost of living in Syria was among the lowest in the region and in the world (pre-war.) Therefore, loans or donations to Syria, from other countries in different currencies such as the Chinese Yuan will enable the Syrian government to extensively prop up the economy and enter new sectors, even with a relatively small amount of the other currency.

Even though the relative cost of manufacturing, living or building in Syria is low, a substantial amount of capital will still be required. These funds can be obtained through loans or donations from allied countries such as China, Russia and Iran, or through the printing of the Syrian currency on a large scale. While this would certainly lower the value of the Syrian currency, and reduce its purchasing power in international trade, it is not a major drawback and can in fact be of great benefit to the Syrian economy (as explained later.) Therefore it is likely that most of the required funds to rebuild Syria and implement these new economic policies will come as a result of printing the Syrian pound. The government should print as much of the currency as they need in order to pay the employees of the large state owned companies and for further investment.

However, immediately after the war, Syria will need to import a fairly large amount of goods in order to rebuild the country and to even set up the facilities that will allow it to become self sufficient. Therefore, they may have to rely on donations or borrowing initially, then they can print money and reduce the purchasing power of the Syrian pound to keep the system going and for further investment and expansion.

As they government will be directly involved in nearly all areas and aspects of commerce in Syria and the economy as a whole, they can ensure that the price of products and services do not rise as more currency is printed (as they control the prices.)

Alternatives To National Currency In Foreign Trade

As we have already established, one of the major components of this plan is the large scale printing of the Syrian pound. While this will limit and lower the purchasing power of the currency, it would have no or little effect on the cost of goods sold in Syria. This is of course only true for goods that are made in Syria and have not been imported. The Syrian government can either sell these goods and services themselves, or set a limit for what private firms can charge for a specific product or service. The great benefit of having large, state owned firms is that it allows them to take advantage of large economies of scale, lowering the cost of production per unit. Furthermore, they can also carry out large R & D programs in certain areas.

Another key part of this plan involves the expansion of the Syrian secondary/manufacturing sector, and using alternative raw materials that can be sourced or produced domestically e.g. domestically made biofuels instead of imported crude oil. However, it is inevitable that Syria will still need to import certain goods e.g. raw materials that have no feasible alternatives, or high tech equipment that Syria cannot currently produce. But because the value of the Syrian currency will be so low, it is impractical to use the Syrian pound in international trade. Therefore, the use of the Syrian pound in the purchase and importing of goods should be avoided whenever possible.

Instead, Syria could trade goods that it domestically produces in exchange for the desired good. This policy is dependent on Syria being able to competently produce goods that are highly demanded and are of suitable quality. Syria could also use other currencies that it has obtained in order to purchase goods from abroad.

The government should aim to achieve an exchange rate of around 1 GBP to 800 – 1,300 Syrian pounds.  If necessary, the government can print more of the national currency. This may be needed for investment or to pay public sector workers.

Achieve A Trade Surplus (Export More Than Is Imported)

The main purpose of this is to increase the circular flow of income in Syria and increase the Syrian government’s budget. Exporting a large quantity of goods will also provide jobs for Syrians and support Syrian businesses. Furthermore, other countries could purchase these goods by using their own currency as payment. This will give the Syrian government access to a range of stronger and more stable currencies which can be used to purchase goods in international trade.

In order for Syria to become a net exporter, Syria must consolidate on the current partnerships that they have, and Syria should also try to enter new markets and export to different countries. For this to happen, international sanctions need to be lifted to allow Syria to trade freely. This will benefit both the Syrian economy, and the consumers and businesses in the country that is importing these goods from Syria.

  1. Potential exports include:
  2. Crops & Grains
  3. Nuts
  4. Cotton
  5. Phosphates
  6. Ethanol & Biofuels
  7. Electricity
  8. Clothing
  9. Minerals
  10. Livestock
  11. Military Equipment
  12. Wood
  13. Oil Seeds
  14. Cement
  15. Clothing & Textiles
  16. Wine
  17. Foodstuff

It should be noted that goods should only be exported if all the domestic demand for the product or service  has already been satisfied/met.

Improving Military and Security Forces

After around 5 years of conflict, the Syrian army and allied Syrian forces still comprise one of the largest and most capable military forces in the region. However, the national security forces will be need of investment after the war to maintain stability in the country and in order to encourage tourism. Tourism has been a large part of the Syrian economy, and many of the policies set out in this plan are aimed at increasing tourism and making it a large contributor to the Syrian economy.

It is likely that Syria will turn to her regular military and political partners (Russia, China and Iran) for military hardware. However, Syria should also try to formulate its own military production facilities (like Iran did after it became an Islamic Republic.) Not only will this allow Syria to obtain weapons cheaply, it will also provide jobs and contribute to the economy. Syrian made military hardware could also be exported, and in turn, increase the circular flow of income within the national Syrian economy.

Syria’s allies could provide assistance with the development of such technologies. In fact, Syria already had been developing and manufacturing weapons with Iran and other partners before the war. Syria may not be able to develop its own weapons, as a large amount of technical expertise and investment is required, but they could reverse engineer and manufacture weaponry that is already in their Armory e.g. T-72 battle tanks or small arms such as the AK-47 assault rifle or the RPG-7. This would of course be subject to agreement with Russia (in the examples given above.)

So, not only does the expansion and improvement of the military increase national security, it can also be a fundamental sector of the economy that can employ a large number of citizens in several different ways (as soldiers and officers in the army and intelligence agencies, but also in the development and manufacture of weapons, which can be used domestically and also exported for a profit.)

Bolster The Syrian Tourism Sector

Syria already has the required climate to be a major holiday destination. Furthermore, Syria is also home to a few UNESCO World Heritage sites which have previously attracted tourists and historians to the country. The weakening of the Syrian currency will also favor tourists, as they will be able to visit Syria and contribute to the economy, using only a relatively small amount of their domestic currency.

The government should also create areas within the countries specifically built for tourists. Modern hotels, bars and cafes should be built in anticipation of tourists.

The Syrian security forces must also be adequately equipped, trained and funded to ensure national security. We have already witnessed how the 2015 Sousse terrorist attacks in Tunisia caused the number of tourists visiting the country to plummet.

Improve The Education System

The Syrian education system needs to be tweaked to allow Syrians to develop certain skills over a short period of time that will allow them to work efficiently in the state owned firms. These courses need to be vocational and directly linked to the line of work that a student will be involved in upon graduation. These courses need to be relatively short so the demand for workers with the required skills can be met.

The more traditional and academic part of the Syrian education system is also very important, as graduates in certain fields will play a key role in allowing Syria to be self sufficient (engineers and scientists) and they will also provide core services (doctors, lawyers and dentists etc.)

The Assad government successfully embedded foreign languages, such as Russian, French and English into the Syrian education system. English should be taught in more depth, alongside other courses as students progress through the conventional academic ladder. The should also be stand alone English courses. English is a widely spoken language and many businesses use English as their main language, even if they are not based in a country which has English as its primary language. Therefore, Syrians should become proficient in the language as this will encourage foreign firms to locate and operate within Syria. This will contribute to the economy and provide jobs. This will be done under strict supervision from the Syrian government, and both foreign and domestic (private) businesses should only be allowed to operate in certain areas of the economy e.g. the financial sector.

Taxation

There should be a standard rate of taxation for workers in domestic private firms, regardless of salary. Public sector workers should not be taxed as this is unnecessary. Instead, their wages should simply be lower as there is no point in paying them slightly more money, then taking it away via taxation.

Private domestic businesses should be free from tax on their profits, while foreign private businesses should pay a low rate of tax on their profits (circa 10%.)

Interest Rates

Interest rates should be very low (less than 1%) to encourage consumers to spend their earnings. Low interest rates will also encourage businesses to take out loans and start-up. It should be noted that while most privately owned businesses in Syria will be small and local, Syria can still benefit from larger firms as long as they are regulated. Firms providing loans and mortgages should only loan money if there is a good chance that the money will be repaid.

Welfare System

All Syrians should be entitled to a pension provided by the Syrian government. The amount paid for pensions and all benefits should be sufficient to live comfortably. The age at which a Syrian can retire and claim their pension should be around 55-60 years old. While this is a relatively young retirement age, it will ensure that younger workers (who are likely to be more productive), are able to get a job. Benefits should also be provided to those who have a disability which prevents them from working. Primary and secondary education should be provided for free (as it was pre-war). A similar system to the UK should be adopted for university fees. Students should be offered government loans and vocational courses should be taught for free.

National Venture Capital Firm

The creation of a state owned venture capital firm would encourage innovation and entrepreneurship across the country. This VC firm would be funded by the government. This firm would invest in businesses at different stages of development (seed or start-up etc) and in a range of high growth sectors such as FinTech. The national VC firm should assume a majority stake in most firms that they invest in, as this will allow the government to generate significant revenue from these firms (either via profits or exits.)

Set Up Business Parks And Industrial Parks

This will encourage foreign firms to locate within Syria. It will also allow domestic companies to work together and resources can be distributed to firms easily. Furthermore, if a firm produces a capital good, other businesses that use this good may be located at the same industrial park. This will therefore reduce or cut out transportation costs, and therefore lower the cost of production per unit. If this is done on a large scale for essential goods, it should lower the cost of living.

The government should however ensure that all governorates in Syria have businesses (both domestic and foreign) located there to provide jobs for the citizens of that specific governorate. However, certain governorates or parts of Syria may be naturally better suited for a specific firm that operates in specific industry.

Clamp Down On Corruption

The government should employ a range of measures to tackle corruption. Corruption in any country will drain and reduce the government budget. Therefore, lowering and eliminating corruption should be a priority as maintaining a sufficient government budget will ensure that the government doesn’t need to borrow and this will also safeguard core services provided by the state. In order to discourage politicians,army officers and ministers from exploiting their power at the cost of the state, there should be strict penalties for those who use allocated funds for personal gain. More than anything, a change of culture is needed.

Improve Infrastructure

The government should invest heavily in improving core infrastructure, as this will allow businesses to operate more easily. The infrastructure will also benefit the country from a non-commercial perspective. The Syrian public transport system has never been particularly efficient, and it will be in need of investment post-war.

The government should invest heavily in agricultural infrastructure, as the agriculture sector will form a large part of the Syrian economy in a post-war context. Before the war, agriculture accounted for around a quarter of the Syrian GDP. Funds should be made readily available for improvements in irrigation and for integral machinery such as combine harvesters. Importing this machinery will be expensive, so the government should allocate resources to ensure that the required machinery can be produced domestically.

The government should also consider growing crops indoors if there is not enough suitable land to grow crops, both for food and for the production of ethanol and other biofuels. If a certain crop cannot be grown naturally in Syria, then the government should try and grow the crop indoors and create the necessary climate/conditions. This should still be relatively low cost, as investment in renewable energy will allow the Syrian government to use free electricity to simulate the required conditions.

If it is not possible for a specific crop to be grown in Syria, then it could be imported, using an asset other than the national currency to pay for it.

Overview

The difficulty of implementing this economic plan should be stressed, as some radical changes to the Syrian economy will be required. Having said that, it is certainly possible for Syria to increase its presence in the secondary sector, with both technical and potentially financial assistance from her partners.

This economic plan does have some limitations. For example, with the weaker Syrian currency, Syrians will have to accept that they cannot travel outside of the country, as it will be very expensive. Overall, this economic plan will drastically improve living standards in Syria, and will increase prosperity in the country. This plan should also ensure consistent economic growth.

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