Syria after Assad: a long road to recovery

Reuters/Mahmoud Hassano

The 13-year Syrian civil war took a horrific toll on human lives and the economy. An estimated 600,000 people were killed and 12 million citizens displaced out of a population of 24 million.

Economists estimate that the Syrian economy has shrunk by 60 to 70 percent since the popular uprising against the Bashar Assad regime erupted in 2011.

With an estimated GDP of $6.2 billion – one third of it reportedly generated by the regime’s production of the illegal Captagon drug – Syria is now an economic basket case.

When Bashar al-Assad succeeded his father as Syrian president in 2000, he liberalised and even granted private banking licenses to attract Lebanese and GCC investors. However, the ‘Damascus Spring’ proved to be a cruel illusion, with Syria’s economy run as a Soviet-style command system controlled by the Assad clan and its allies.

The onset of the civil war in 2011 gutted Syria’s physical infrastructure, private consumption, and investment flows. Economic recovery demands a credible sovereign state with international recognition. This depends on the management of negotiated power-sharing equations between the major rebel militias, who now jostle to fill the power vacuum in Damascus.

Hayʼat Tahrir al-Sham’s (HTS’s) military blitzkrieg delivered a coup de grâce to the Assad regime. However, it is designated as a terrorist organisation by the US and EU, with its leader Abu Mohammad Al Jolani, a former Al Qaeda emir, having a $15 million US bounty on his head.

Assad’s Syria did not have the scale of oil wealth needed to finance its own reconstruction

Ideally, Syria needs a government of technocrats, not warlords and ethnic powerbrokers, before it can hope for the removal of sanctions and significant development aid.

A number of complex geopolitical and economic realities will limit financial flows into Syria.

One is that unlike post-Saddam Iraq, Assad’s Syria did not have the scale of oil wealth needed to finance its own reconstruction. In any case, the Syrian oil fields in Deir ez-Zor are under the control of the Kurdish SDF militia, a target for the Turkish military.

The Syrian oil fields produced 400,000 barrels per day (bpd) before the civil war, but according to the World Bank, their output is now 90,000 bpd.

Second, private capital from Lebanon is no longer available to finance Syrian reconstruction, as the former’s banking crisis triggered a currency collapse and sovereign default in 2019. Many Syrian merchants were wiped out when Lebanese banks failed.

Third, the EU’s preeminent champion of Syrian-Lebanese reconstruction is President Macron of France, who is now impotent in a national assembly dominated by the hard right and the hard left. France is also on its own collision course with the EU due to its excessive public debt and budget deficit.

Fourth, Trump views Syria as a quagmire and even wants to withdraw the 3,000 US troops stationed in the country to combat the remnants of ISIS. Counter-terrorism, not development aid, defines Trump’s agenda in Syria. The US will not lift sanctions and greenlight bailouts if the rebel militias do not forge a pro-Western technocratic coalition government in Damascus.

Finally, Assad cynically created hyperinflation by paying his extensive security empire in severely devalued Syrian pounds. A major reason Syrian troops fled before the rebel advance was that they could barely feed their families on their pitiful salaries as the Syrian pound tanked to 28,000 against the US dollar.

Financial markets are a potential guide to future events at this embryonic stage. Turkish steel, cement and construction stocks surged by double digits in Istanbul the day after the Assad clan fled to Moscow. The Turkish Army Pension Fund’s owned cement conglomerate rose 10 percent.

The markets expect President Erdoğan to use his political influence over HTS to translate into major reconstruction contracts in the five major Syrian cities the militia controls – Idlib, Aleppo, Hama, Homs and now Damascus.

Since Turkish policy is to encourage the return of three million Syrian refugees, Ankara will mobilise its private sector and military-owned companies to initiate reconstruction.

Poverty affects 70 percent of Syria’s 24 million people, a figure that could rise if state institutions collapse post-Assad, mirroring Iraq’s experience after Saddam Hussain’s fall.

The financial impact of the 2023 earthquake crippled the Syrian economy, as did the pandemic and the surge in grain prices after the Russian invasion of Ukraine.

One silver lining in the Syrian economy is the centuries-old trading culture that once made Aleppo and Damascus the business hubs of the Ottoman Levant. The Syrian diaspora in the Gulf, Africa, Turkey, and Europe also includes many wealthy families who are willing to return home once security is reestablished.

Assad’s regime was predatory and totalitarian, literally a narco-state in its final years. Hopefully, the New Syria will be pluralist, pragmatic and capitalist. 

Syria’s economic rebirth will remain hostage to the lethal geopolitics of the Levant and the cold calculus of Great Power realpolitik. That much, at least, is certain.

Matein Khalid is the chief investment officer in the private office of Abdulla Saeed Al Naboodah and the CEO designate of a venture capital firm. He is also an adjunct professor of real estate investing and banking at the American University of Sharjah