Syria upheaval could be a sign of progress for the region

Reuters

• Syria’s economy down 85%
• Some optimism for Libya
• More Egypt investment expected

The removal of the Assad regime in Syria is a “step in the right direction for the region”, according to a leading economist from Standard Chartered.

Eric Robertsen, managing director of global head of research and chief strategist at Standard Chartered, was discussing the fallout of a series of geopolitical crises during a media round table event in Dubai this week, where panelists also covered the prospects of Egypt and Lebanon.

In Syria, the Central Bank (CBS) estimates that the economy has shrunk by as much as 85 percent since the popular uprising against the Assad regime erupted in 2011 resulting in civil war and crippling global sanctions.

“It has been a failed state for a while, at least in terms of the above board economy and I don’t see any change there,” said Robertsen.

Goods exports shrank from $8.8 billion in 2010 to only $1 billion in 2023, according to the CBS, while oil imports, primarily sourced from Iran, have steadily increased since 2020 and nearly doubled by 2023.

“I do think there’s an argument that says that this is a continuation of the derating of Iran’s influence. Because Syria was obviously critical in terms of a channel between Iran and Hezbollah,” said Robertsen. “So there’s an argument that says this is another step in the right direction for the region.”

The Carnegie Middle East Center has previously put the bill to reconstruct war-torn Syria at between $250 billion and $400 billion. Yet Syrian GDP is estimated at only $6.2 billion.

The international community is waiting on the next move by Islamist militant group Hayat Tahrir al-Sham and allied rebel factions, which have ousted Assad, and any potential lifting of sanctions on the country.

Robertsen said that “a black swan scenario” was that Syria becomes another Libya or Iraq.

Egypt and Lebanon

Carla Slim, Mena economist at Standard Chartered, was more upbeat on the prospects for neighbouring Lebanon, which has suffered the twin effects of the Syrian conflict and strikes from Israel on top of a crippling seven-year financial crisis.

The price of Lebanese Eurobonds is up by as much as 80 percent, hitting their highest level in two years. 

“That’s one indicator that does reflect market optimism on some of the changes that we’re seeing happening on the ground politically,” Slim said.

And although Standard Chartered has joined most financial institutions in downgrading its growth forecast for Lebanon to a 5 percent contraction next year, Slim remained optimistic.

“The markets are taking a contrarian view and saying that actually the rebalancing of power opens up a window of opportunity for more external funding, reconstruction, etc. And that change in and of itself could bode well for the recovery values of the prices of the bonds,” she said.

Slim said that it was likely that there will be more financial commitments to Egypt in 2025, whether from Saudi Arabia or Qatar: “We’re all expecting it.”

Egypt has received huge injections of investment this year, particularly from the UAE – in February Abu Dhabi sovereign wealth fund ADQ acquired the rights to develop Ras El-Hekma in a $35 billion deal signed with the Egyptian government – with further pledges from neighbouring GCC countries.

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In addition in October, Egypt and Saudi Arabia provisionally agreed investment worth a combined $15 billion following a meeting between President Abdel Fattah El Sisi and Crown Prince Mohammed bin Salman.

But the World Bank has trimmed Egypt’s growth forecast for the financial year 2024-25 from 4.2 percent to 3.5 percent following the escalation of hostilities in the region.

The exchange rate has lost about 3 percent of its value since early October 2024 trading at EGP49.55 to the dollar on November 25, according to BMI, an affiliate of Fitch Solutions.

“If rates stay high, if there is flight to safe assets, then Egypt could be vulnerable and that could weigh on the currency,” said Slim.