Syria Truce and its Political and Economic Implications
November 12, 2014
Kevin Liang – Group Member exploring the political risk of Syria
The Syrian government has shown lukewarm interest in a UN proposal to suspend fighting in Aleppo, a city that is one of the major battlegrounds of the ongoing Syrian Civil War. The proposal was followed by Assad’s public call for a ceasefire, with the Syrian President saying the suggestion was worth studying. The UN-based initiative would oversee the distribution of humanitarian aid as it establishes new grounds for peace talks. While not formally considered a peace plan, the proposal uses Aleppo as a starting ground for the reduction of fighting, and moves both parties in the direction of establishing a formal peace strategy. So far, the rebels have not responded to the proposal.
Aleppo was once the country’s industrial powerhouse, full of cultural and historical significance. Presently, its residents are impoverished amidst brutal fighting, starving and often forced to travel miles to collect food aid. A peace agreement and the delivery of new humanitarian aid to the region could be a critical first step in establishing a truce between the Syrian Government forces and the Rebels. Yet, with Aleppo remaining a major Rebel stronghold, it is a powerful representation of just how quickly destabilization has occurred in the Levant. With the entry of ISIL from the east, the Syrian region has become a warring free-for-all between Government forces, Islamic State militants and the Rebels. An armistice in the city would be the first step to both saving civilian lives and consolidating the fight against ISIL, a major priority for Syria’s Arab neighbors as well as Western nations. With U.S. Coalition forces mounting airstrikes against ISIL in Iraq, it is expected that the Islamic State will intensify its Western push into Syria and Aleppo. A cease to the Syrian Civil War conflict could give rise to a focused defensive strategy against the Islamic State.
Critically, a ceasefire brings about many political questions. The likelihood is that Rebel and Government strongholds will become fragmented territories, but it is uncertain how neighbouring Arab countries will react. While countries such as Saudi Arabia, Lebanon and Jordan are looking to focus the conflict towards ISIL and join alliances with a stable Syrian regime, it is unclear how they will respond to a formal declaration of peace and which factions they will choose to align. Regardless, peace along the western front will result in greater stability in surrounding Middle Eastern countries; in Jordan, an armistice would stop the inflow of refugees and reduce wartime pressures that were beginning to collapse a country already hindered by a faltering economy, growing displeasure at the current regime and a weak institutional infrastructure. A key uncertainty lies with the actions of al-Qaeda-affiliated Jabhat al-Nasra (JAN) in Syria, which could enter into an alliance with ISIL in order to fight a common U.S. enemy.
The economic implications of a Syrian truce, in conjunction with the stemming of the ISIL threat, could potentially begin a long and arduous road to economic recovery. According to a recent report by the United Nations Relief and Works Agency, it will take approximately thirty years for the Syrian economy to recover from the cost of war. These costs include the 150,000 lives claimed by the conflict and the lost productivity and GDP associated with rapid capital flight, de-industrialization and the destruction of businesses in the country. This is corroborated by foreign direct investment (FDI) metrics, which have shown an alarming decline from $1.99B in 2010 to $1.6B in 2011 and a mere $9.9MM in 2012. With no FDI projects occurring in 2013 and the beginning of 2014, it is likely that FDI levels will never recover to pre-war highs.
It is important to note that even if a Syrian rebuild occurs, it may take years—or even decades—in order to restore investor confidence in the war-torn region. With no access to financial capital, it is possible that Syria could rely on its Arab counterparts for financing, or turn towards emergency funding. Nevertheless, truce talks are an important first step in beginning the economic recovery. According to the Economic Intelligence Unit’s forecasts, real GDP is expected to grow at a modest 1.6% through 2014, bouncing back from a -20.6% contraction in 2013 and a -19.5% contraction in 2012. This correction is contingent on the Syrian Government’s ability to maintain stability moving forward. Permitting that the Syrian Government remains intact, the indicators suggest that the country will likely have to borrow funds internationally in order to fund the rebuild.
In 2013, at the height of the conflict, the Syrian Agriculture, Industry and Services portions of GDP contracted by -15.0%, -20.6% and -21.0% respectively. Unemployment (in 2013) increased from 25.0% to 35.0%, and is expected to hover around that figure through 2019. The conflict has crippled Syria’s international trade; in 2013, exports were a mere $1.939B, dropping from 2010 levels of $12.273B. Imports have declined more gradually and consequently the country’s current account balance has sharply decreased. Debt is expected to increase from $9.9B in 2014 to $14.92B in 2019, while international reserves shrink from 2010 levels of $19.5B to an expected $1.46B in 2019.
Without international relief, it is unlikely that Syria’s economy will recover; government revenue has dropped from $23.5B in 2010 to $4.3B in 2014, but government spending is increasingly relied upon in order to rebuild an economy that is unable to self-correct due to the destruction of war. To worsen matters, an economic recovery is paramount to maintaining stability in the region. Without economic prosperity, unrest will grow amongst civilians and factional fighting may arise, increasing the likelihood of the government collapsing. If the poverty rate rises, refugee numbers could skyrocket, subsequently putting pressure on the infrastructure and economic wellbeing of neighbouring countries such as Jordan and Lebanon.
