After more than eight years of war in Syria, the massive destruction left behind and the strengthening of US sanctions against Damascus, Syria’s reconstruction can often seem like a distant prospect. However, the Syrian government has already begun promoting a model of economic development, built off principles of Public Private Partnership (PPP) and privatisation of public goods, as the basis for the country’s reconstruction and economic renewal.
The “war economy” model, put forward by various analysts to understand the current state in Syria, is often presented as something new, supposedly representing a rupture and departure from the economic dynamics that existed in Syria before 2011—rather than an exacerbation of those prior economic dynamics, albeit often with new networks and personalities.
In fact, the conflict actually deepened the Syrian government’s pre-war neoliberal policies while reinforcing the authoritarian and patrimonial aspects of the regime.
PPPs, promoted worldwide
In the MENA region, the process of privatization of public goods began with the deepening of neoliberal policies in the early 1990s—mainly in the industrial, real estate and financial sectors. In recent years, the promotion of PPPs as a new tool for privatization and the management of public goods by private entities has been encouraged by international monetary institutions around the world, particularly in the last decade. The situation is no different in the MENA region. Note how, for example, the European Bank for Reconstruction and Development (EBRD) started its activities in the MENA region after the beginning of the popular uprisings in 2011. One of the EBRD’s main objectives is the promotion of infrastructure PPPs [i].
PPP models are aimed in particular at private management of public infrastructure (especially in telecommunications, electricity and health). And international financial institutions have, moreover, very often insisted on the necessity of privatizing public infrastructure as a condition for the provision of loans. The most recent Conference for Economic Development and Reform through Enterprises (CEDRE) agreements concluded in Paris in April 2018 mentioned, for example, the need for Lebanon to establish PPPs in exchange for $11 billion in donations and loans.
Various countries in the MENA region have meanwhile adopted PPP legislation to double-down on privatizations of public services and state urban infrastructure.
In Saudi Arabia, for example, PPPs have become a fundamental element in the economic and political strategy of Vision 2030 promoted by Prince Mohammad Bin Salman. The 2020 National Transformation Program, which was presented after the 2030 Vision, details the economic policies of the new Saudi leadership team and places private capital at the center of the future Saudi economy. The Saudi government stated its plans to conclude PPPs for many government services, including more traditionally social sectors such as education, housing and health. The Financial Times described the plans as "Saudi Thatcherism."
In Syria, too, authorities developed PPP-style policies over the course of several years. Already before the war in Syria, the government regarded PPPs as a key instrument to accelerate the mobilization of private capital, especially in the energy sector. Investments in electricity infrastructure were, for example, needed to attract private investment and lower the cost of business operations. In a report developed by the World Bank in cooperation with the Syrian Ministry of Electricity in 2010, it was estimated that about $11 billion of investments would be required through 2020 for new generating capacity (7,000 megawatts) and expansion of the country's transmission and distribution networks.
Syria’s so-called new economic strategy: ‘The National Partnership’
The war and the destruction it has left behind only exacerbated these dynamics, as the Syrian government accelerated its neoliberal places following the eruption of the 2011 uprising, and as the conflict was increasingly militarized after 2012.
In July 2015, the government approved a law allowing city councils and other local administrative units to form their own private sector holding companies in order to manage public assets and services, thereby creating the space for regime cronies to generate business off public assets.
Similarly, the country’s PPP Law was passed in January 2016, six years after it was first drafted. The law authorizes the private sector to manage and develop state assets in all sectors of the economy except oil. Economy and Foreign Trade Minister Humam al-Jaza'eri declared that the law created a “legal framework for regulating relations between the public and private sectors and meets the growing economic and social needs in Syria, particularly in the field of reconstruction,” while also providing the private sector with the opportunity to “contribute to economic development as a main and active partner.”
However, the new PPP Law will likely continue to tighten crony-capitalist control over public assets at the expense of state and public interests. This law also has to be understood in the context of deepening neoliberal dynamics, where economic sectors that were previously managed solely by the state are being opened up to the possibility of capital accumulation by private actors.
This law was cited as a reference point for the “new economic strategy” of the National Partnership, launched by the government one month later, in February 2016. The partnership replaced the social market economic model developed during the mid-2000s, by which point the authorities were already placing significant emphasis on private capital accumulation and economic liberalization.
This deepening of neoliberal policies is nowhere more apparent than in Syria’s reconstruction plans. In autumn 2016, a holding company named Damascus Cham Private Joint Stock Company was established with a capital of SYP 60 billion, to be completely owned by Damascus Governorate. This holding was in charge of funding the reconstruction of the Basateen a-Razi area of southwestern Damascus [ii]. In 2018, Homs Governorate announced the establishment of a similar holding company, and authorities in Aleppo and the Damascus Countryside also followed suit this year. Until now, none of these holding companies—except Damascus Cham—have actually started operations.
However, PPP legislation is already being used for the purposes of so-called reconstruction. In Hama, a real estate development project was announced in October 2018 in the neighborhood of Wadi Al-Jouz, which was completely razed by the Syrian army and pro-government forces in 2013. The project came under the PPP law of 2016, while the government used the urban planning law, Law No. 5 for the year 1982, to destroy and rebuild the neighborhood by constructing some 2,400 apartments worth SYP 40 billion ($86 million).
Within the same framework, Prime Minister Imad Khamis announced during a meeting with business representatives participating in the Damascus International Fair in September 2018 that the government would likely open 50 infrastructure projects to private investors in the form of PPPs. And in a parliament session in October that same year, Fares Shehabi, member of parliament and head of the Aleppo Chamber of Industry, called for more PPPs in the public industrial sector in order to expand opportunities for private sector investment. This could pave the way for a new investment market allowing businessmen to invest in profitable industrial public sectors, while the deficit state industries would be gradually abandoned by the state. At the same time, resistance to the proposals still exists within some sectors of the Ministry of Industry and state-controlled General Federation of Trade Unions.
The government has also increasingly spoken of the possibility of economic liberalization in the electricity sector. In other words, "private" actors would be able to enter the sector through PPPs, generating electricity and importing and purchasing oil derivates at international prices. The liberalization of the Syrian energy sector, or the implementation of PPPs, will most probably cause great difficulties for large sections of the agricultural and manufacturing industrial sectors—especially small and medium actors—by increasing significantly their energy bill. This will further reduce the agriculture and industry sectors’ competitiveness, and increase inequality between smaller actors and the largest actors within these two sectors that will be able to afford these higher prices and therefore sustain their economic activities. Smaller and medium-sized actors will be put at significant risk, and may even be threatened to halt their operations in the future.
More recently, the Syrian government has sought to contract private investors under Build-Operate-Transfer (BOT) deals, or through the PPP law, for some state-owned food production companies.
However, most of Syria’s PPP projects are yet to be implemented. They are still, for the most part, just announcements, demonstrating both the limits of the government and its plans for economic redevelopment.
Funding issues and sanctions
There are a number of other challenges to Syria's policy of promoting PPPs, in addition to political instability and destruction following several years of conflict. The most important is the lack of funding and private funds to actually develop this policy. At the national level, bank financing is a priori largely insufficient, especially in the face of reconstruction costs estimated at between $250 and $400 billion.
Moreover, PPP schemes with local investors that have been put forward by the Syrian government have encountered funding problems because they largely depend on funding from national banks. The total assets of the 14 private sector commercial banks operating in the country were SYP 2 trillion at the end of 2018 (or around $4.4 billion according to the exchange at that time). In 2010, the figure had reached $13.8 billion. In terms of assets, some of the six state-owned banks were actually larger than their private sector counterparts, in particular the Commercial Bank of Syria (CBS). However, these banks had large bad debt portfolios.
This prolonged decline and lack of stability of the national currency also affects the level of investment in the country, which is already very low. The incapacity of the Syrian government and the CBS to stabilize the Syrian pound—despite repeated promises to do so—provoke fears among foreign investors concerning the prospect of exchange losses inflicted by currency depreciation.
The PPP policy also benefits foreign actors, including countries allied with the Syrian government—and especially Russia. In the case of Iran, the numerous Memorandum of Understandings signed between the two countries still need to materialize. Some Iranian companies have obtained contracts, mostly connected to the Iranian credit line provided to Damascus—such as the contract granted to MAPNA, a group of Iranian companies involved in the development and execution of thermal and renewable power. MAPNA has been tasked with erecting a power plant in the coastal city of Latakia.
The Russian company Stroytransgaz signed a contract with the Syrian government to manage the Tartous Port for a period of 49 years. The Syrian Minister of Transport explained that Stroytransgaz is expected to invest some $500 million during the contract period, notably to develop and expand the port and allow larger ships to dock.
The Russian company concluded two similar contracts in Syria in 2018: one for the development of the Khneifis phosphate mines in rural Hama; and another for the management of a fertilizer production complex near Homs that is operated by the General Fertilizers Company. As such, these contracts will enable Stroytransgaz to oversee the entire phosphate production, transport and export chain—from mine to port.
The selling-off of key national economic assets to foreign actors nurtured significant criticism from large sectors of Syrian society, including among regime loyalists.
Syrian Transport Minister Ali Hamoud was obliged to provide more details on the Tartous deal with Russia, partly to deflect this strong criticism. He claimed that Syria was not giving up the port, which is Syrian and will remain so, rather that it would be managed by a great country that is a friend to Syria. The minister also justified the deal along the lines of the investments required to expand the port’s capacity to enable 100,000-ton ships to dock, arguing that the Syrian government doesn't have the funds necessary to carry out these works. Therefore, it was necessary to bring in a foreign investor.
At first, the government will receive 25 percent of the revenues generated from the port's activities, a figure that will progressively rise to 35 percent later on. The agreement with the Russian company could increase Tartous port’s revenues to $84 million, instead of the $24 million that the port currently makes. Finally, Hammoud stressed that the rights of workers in the port would be protected, claiming that all workers will remain in place and that they will be offered Russian language courses.
At the same time, there are serious doubts about the implementation of economic projects between Syria and its allies—especially with regards to some reconstruction plans, but also the memoranda of understandings concluded between the allies in recent years. For example, the Syrian government failed to secure the necessary funds for its contribution to electricity sector deals with Iran and Russia. As a result, Iran and Russia pulled out.
The funding of reconstruction by foreign capital remains unclear and insufficient, particularly as Russia and Iran are themselves encountering their own deep economic problems while simultaneously maintaining high levels of financial and material support for the Syrian regime. Meanwhile, the participation of foreign actors in the reconstruction of Syria is linked to other international considerations—notably regarding Iran. US and European Union sanctions against Syria constitute an obstacle that may scare off foreign companies. Threats of falling under US sanctions are also putting off most international and Chinese multinational companies, such as Huawei, which recently announced its withdrawal from Syria and Iran. In November 2018, the US actually increased its pressure on Syria by announcing that it will impose sanctions against any party involved in shipping oil to Syria (including shipping companies, insurers, vessel owners, managers and operators). US pressure has also put the brakes on further rapprochement between some Arab regimes and Syria—and although relations with the United Arab Emirates are moving forward [iii], the momentum to get Syria back in the Arab League has ebbed.
The European Union and the US have repeatedly declared that their support for the reconstruction of Syria and an end to sanctions would depend on a credible political process leading to a real political transition. In January 2019, the EU imposed fresh sanctions on 11 prominent businessmen and five entities for their involvement in luxury real estate development, including the so-called "Marota City" project in Basateen a-Razi, and for acting as middlemen on behalf of the regime in various trade deals.
Syria’s deepening neoliberal policies, most notably through the new economic strategy of National Partnership and the PPP law, have been presented as necessary and “technocratic” measures by successive Syrian governments. However they should rather be considered as a means to transform the general conditions of capital accumulation and empower economic networks linked to the regime. States have often seized upon crises as moments of opportunity to restructure and promote changes in ways not envisaged before, and in order to significantly expand the reach of the market in a wide range of economic sectors that have previously been largely dominated by the state.
The PPP law will most likely strengthen the influence and control of regime-affiliated businessmen over public goods at the expense of the interests of the state and public interests. These economic policies therefore renew the strategies of private capital accumulation that date back to before 2011 while renewing and consolidating the authoritarianism and patrimonialism of the regime.
In this perspective, it is important to consider that the war did not create a rupture with the previous economic model, but in fact deepened the speculative commercial economic model found throughout the region, characterised by investment in short-term profit-seeking—mostly in trade, real estate and service sectors—to the detriment of the productive economy.
The Syrian regime’s socioeconomic and political policies are likely to exacerbate social, economic and regional inequalities throughout the country, only deepening problems that were at the heart of the uprising that first started in March 2011. And sadly, most of the opposition failed—even before 2011—to put forward a viable socioeconomic alternative to the regime’s neoliberal policies (and in fact the Syrian National Council and the Syrian Coalition proposed policies not dissimilar to those of the regime). For the most part, the opposition, too, has failed to tackle the socioeconomic issues at the heart of of the 2011 uprising.
[i] Hanieh, Adam (2018), Money, Markets, and Monarchies: The Gulf Cooperation Council and the Political Economy of the Contemporary Middle East , Cambridge University Press, Cambridge, UK, p.163
[ii] However, some tensions started to emerge between the two entities at the end of May 2019 over the prerogatives of the holding and its requests for more powers. The board of Damascus Cham Holding had actually requested that Damascus Governorate’s council allow one of its subsidiaries to be responsible for the management of all real estate development areas in the province, alongside a five-year mandate to have freer rein in its operations. The demand was met with criticism and opposition by several council members.
[iii] For more information about relations between Syria and the UAE, see: Daher, Joseph (2019), “The dynamics and evolution of UAE-Syria relations: Between expectations and obstacles,” European University Institute, https://cadmus.eui.eu/handle/1814/64727