The role of Syria’s internal resources in the reconstruction process

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The conflict in Syria has destroyed much of the country’s infrastructure and taken out of service most of its industry and oil projects. In addition to that, it has also been a major cause of decline in the agricultural and livestock production.

The World Bank has estimated that reconstruction will cost approximately $200 billion. This is indeed a substantial sum of money if compared to the current GDP of Syria, and it would still be if we looked at the country’s GDP before the outbreak of the war when it was four times higher. Moreover, the conflict has not yet come to an end and there are many areas in the country where precise assessments about the losses incurred cannot be made, which means that those costs could still rise. For all these reasons, before embarking on the reconstruction of Syria, it is necessary to set clear plans, strategies and working mechanisms. More importantly, it is fundamental to know the sources of funding on which to rely in order to cover the costs of the reconstruction, as every source has its pros and cons.

The sources of funding can be either internal or external; we should first individuate the internal ones in order to have a higher degree of freedom when choosing and comparing the others. In fact, before resorting to any external resource, it is important to study the costs and the social and economic repercussions this implies.

The country’s internal resources depend on public revenues, but not all public revenues can be considered internal resources. In fact, only public revenues allocated to investment expenditures constitute an internal resource which can be employed for the reconstruction.

According to forecasts, the final figure of the 2017 public budget will be around 2,660 billion Syrian pounds ($5.16 billion) while the allocated investment funds amount to 678 billion Syrian pounds ($1.32 billion); 168 billion Syrian pounds – or 33 per cent – higher than that of 2016.

With reconstruction expected to cost $200 billion and the funds available for it only amounting to $1.32 billion, it is clear to see a chasm between what’s on offer and what’s needed.

Forty-nine per cent of the revenues of the Syrian government come from the oil and gas sector, the remainder is collected through tax and non-tax revenues.

Data shows that Syria’s oil production is expected to reach 68,000 barrels per day by the end of the year. It will continue to increase, reaching 150,000 in 2018, 221,000 in 2019, 263,000 in 2010, 308,000 in 2021 until it reaches 310,000 in 2022. This would leave it at 80.5 per cent of the country’s output before the war.

With an average output of 250,000 barrels per day over the next five years, revenues will amount to $4.8 billion each year if oil prices remain steady at $63 per barrel.

However, for this to happen, the Syrian government must regain control of all the oil fields. They will have to be properly maintained and used for investments by resorting to experts, technicians and foreign companies in order to obtain the highest possible profits from them so that they can contribute to state revenues. At present, many fields are out of service or not in government hands.

In 2011, Syria produced 10 billion cubic metres of natural gas for local consumption. If the forecasts and the studies that speak about the presence of huge quantities of natural gas off the Syrian coast are correct (and they probably are, if we look at the political events currently unfolding and connect them to the economic changes taking place worldwide), we will see that gas is an influential factor in determining political positions and alliances.

In 2010, an American ship made an exploration trip which showed that one of the world’s biggest gas reserves lie in the Eastern Mediterranean. It is called the Leviathan gas field and it is thought to contain 23 trillion cubic metres of natural gas.

Meanwhile, other studies carried out in 2017 have estimated that the gas reserves of Syria – located in Palmyra, Qara (north of Damascus), the Tartous coast and Baniyas – are the biggest among the six countries that share the Leviathan field. If this gas were to be extracted, Syria would become “the world’s third gas exporter”.

This will play a big role in increasing the value of the internal resources and it might even double the country’s GDP. This would make the need for external capital very limited and would prevent donors and investors from imposing their political, religious and economic agendas.

In Syria, the contribution of tax revenues to the state’s budget has almost always been modest; never exceeding 35 per cent of total revenues at best and they mostly came from public sector income and income taxes, with low profits and high costs.

In fact, the tax evasion rate is high in Syria, and despite the absence of precise information on its extent, it is believed to have amounted to $374 million in 2010. For this reason, it is important to increase the efficiency of the tax collection agency, establish a tax regime that can actually give its contribution to the public revenues and update laws and regulations in a way that will suit the country’s present situation. In fact, despite the legislative revolution that took place in the ten years before the outbreak of the war, Syria’s exceptional conditions made it necessary for the legislator to adjust some laws and issue new ones.

The state should also offer all the necessary support to the owners of all the damaged plants and factories to rehabilitate them as soon as possible. In fact, their reintroduction in the production cycle will increase tax revenues from within the country, either through taxes and duties on imported raw materials or by promoting exports and collecting new duties.

Non-tax revenues are obtained in exchange for public services granted by the state; they include university fees, electricity, water and transit tariffs and the revenues of state owned properties and investments.

File photo of the Temple of Baalshamin, a historic ruin in Syria's Palmyra

File photo of the Temple of Baalshamin, a historic ruin in Syria’s Palmyra

The tourism sector, too, will play an important role. Visa fees could be imposed on tourists, while the citizens of those countries which enjoy a visa-free regime with Syria might just pay an entry fee; $100 or more could be charged to every foreigner entering Syria, according to their nationality. For this purpose, a country-based tier system would be implemented. Taking into account this source of income is very important. In fact, if we consider the number of tourists visiting Syria in 2010, which exceeded five million, it would be possible to earn half a billion dollars, which could even go up to one billion dollars per year once the right security and political climate is achieved.

The revenues of economic activities are the profits achieved by public sector companies, which in Syria have witnessed a clear decline and registered huge losses in recent years, thus becoming a burden on the government rather than a source of income. It is necessary to review and restructure these companies in the coming stage so that they will give their contribution to state revenues. The public industry sector comprises (according to pre-war 2011 statistics) eight huge establishments with more than a hundred industrial plants and companies. Of them, 13 operate in the engineering industry (cables, electronics, aluminium and so on), 13 in the chemical industry (pharmaceutics and tyres), 27 in the textile industry, nine in the cement industry, ten in the sugar industry, 25 in the food industry, 8 in the tobacco industry and several others in various sectors, such as cotton and tractors.

These establishments should be given special attention, and maybe turning them into mixed sector companies could be one of the possible solutions to increase their efficiency.

Furthermore, it is necessary to maximise the benefits of internal resources by using them in the best possible way, rationing their consumption, controlling expenditures and fighting corruption.

In light of this, we can say that the Syrian Government can ensure a minimum of $4 billion in investment expenditures in the first year after the end of the war and reach £15 billion within five years, which would be a yearly average of $10 billion in the first ten years after the end of the war. This means that Syria, by relying on its own resources, could only secure $100 billion in ten years, which accounts for only half of the estimated sum needed for the reconstruction, an operation that will need years.

However, to achieve this, the Syrian people need to unite their efforts and a sustainable political solution must be achieved so that both the government and the people can successfully rebuild the country.

by: ADNAN HAJ OMAR

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