Business

Syria's economy cut in half by conflict

A building that has been bombed in Syria in April 2015. Image copyright Getty Images

Syria's economic output has shrunk by as much as 60% since the conflict began in 2011, according to estimates in a new report released by British think-tank Chatham House.

Syria's mining and construction workers have been hit hardest - with exports dropping from $12bn to around $2bn.

The Syrian pound has also lost 80% of value since the conflict began.

But economist and report author David Butter warned that with few reliable statistics, data remained foggy.

He said the greatest cost of four years of deadly conflict was the quarter of a million people who have lost their lives.

There has been an estimated 23% population decrease, with four million registered refugees in neighbouring countries.

'War economy'

Mr Butter told the BBC that President Assad's team used data to "maintain the fiction" they are governing all of Syria, even though there have been opposition gains in half of the country.

Despite that, he painted a fascinating, if limited, picture of a part state-run economy and part "war" economy in breakaway parts of the country reliant on international funding.

He used data where possible from the Syrian Central Bank, remaining corporate financial institutions and the UN in his report, "Syria's Economy: Picking Up The Pieces".

Of those people that remain in the country, at least 6.5 million people are estimated to be displaced within Syria's borders.

Measuring overall economic output is difficult in a war damaged country, but Mr Butter said studies showed a drop of between 50% to 65%, which he said was "a reasonable assumption".

Image copyright Getty Images
Image caption Syria's oil production has been hit hard by an EU export ban

Residents have suffered greatly. The average price of goods and services in the country increased by 51% between January 2012 and March 2015, according to the government.

The report concurs with the widely held view that government oil production has been decimated by an EU export ban, sanctions and oil fields lost to opposition groups.

Official figures show a drop in the state's oil output from around 387,000 barrels a day in 2011 to just 10,000 barrels a day in 2014.

As a result, the government said it is currently spending around 20% more of national earnings than it receives in income, plugging the gap by borrowing from central and state-owned banks.

To address the shortfall, it has cut fuel and food subsidies.

Surprisingly, the banking sector itself is still functioning.

Recently, all private banks were told that three-quarters of all board meetings must be held within the country. One Syrian businessman, who asked not to be named, said "the government wants to give a sense there is nothing wrong in Syria".

Warlord merchants

However, he said that 60% of bank loans end up as non-performing loans. He said that warlords have now swapped financial positions with industrialists, traders and merchants as the highest-earning members of society.

He described this as "dangerous for the economy as a warlord will never look at capitalising on investments".

The businessman, who sources machinery for multinational companies, said demand for his work stands at a tenth of what it once was.

He said power cuts now last much longer than the three-hour blackouts experienced before the conflict began. Syria, he said, had been producing 10,000 megawatts of electricity, but now it was closer to 3,000 megawatts.

Image copyright Getty Images
Image caption The Syrian pound has lost 80% of its value since the start of the conflict

Mr Butter's report also recorded that Syria's natural gas-fuelled power sector had been badly hit. Despite new projects activated just before the conflict, the report said there has been a 70% drop in capacity since 2011. Production, it said, was down by at least a third.

'ISIS gains'

The report warned that "ISIS gains on the ground threaten to exacerbate the situation," especially if they take a key production area to the west of the recently-captured city of Palmyra.

At present, Mr Butter said the Syrian government only physically controls around half of the country. But he added that it still had "a wider presence, across most of the country" as the Syrian pound remained widely used and most government services operate on a national basis.

Mr Butter said he hoped his research would trigger a dialogue to find out what could be salvaged from Syria's economy, were the political situation to eventually change and international institutions called in to rebuild a post-conflict state.

Right now, he said the "institutional integrity" of much of the government is in question and, at the very least, it is "frayed at the edges".

It is, perhaps, no surprise it is frayed.

Aside from Iranian support for the government, there is the presence of the Islamic State in Raqqa, the Kurds to the North and North-East and an alliance of Islamist forces and the Free Syrian Army in parts of the North and South.

Businessmen report back that it feels like chaos throughout Syria, with so much illegal activity.

Yet at the same time, to their astonishment electricity and water companies function and government employees receive salaries, even in heavily-contested parts of the country.

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