Summary:
- The outbreak of the Syrian civil war halted the process of trade integration between Egypt, Iraq, Jordan, Lebanon, Turkey, and Syria.
- Syria’s neighboring countries have been impacted by the conflict due to the decline in trade;
- The massive influx of Syrian refugees is widening economic and social disparities within host countries and raising many questions about their integration. Jordan and Lebanon are particularly affected.
The Syrian conflict, which broke out in 2011 and remains unresolved, is having an impact on the entire Middle East region. Syria is the hardest-hit country, but Iraq, Lebanon, Jordan, Turkey, and Egypt are also seeing their economies impacted by the Syrian civil war. The aim of this article is to shed light on the various channels through which the Syrian conflict is influencing the region’s economies.
Closed since 2015, the border between Jordan and Syria reopened on Monday, October 15, 2018. This reopening was made possible by the resumption of control of the border by the troops of Syrian President Bashar al-Assad during the summer of 2018. Jordanian businesses were eagerly awaiting the reopening of this valuable crossing point for trade with neighboring countries in the region. Although the reopening will involve costly checks on goods in transit, it should help to revive trade, which has been severely damaged by the Syrian conflict. The closure of the border and the subsequent decline in trade flows are channels through which the Syrian conflict has impacted neighboring economies. Indeed, the Syrian civil war, which broke out in 2011 and whose outcome is still undetermined, has had numerous repercussions on the region.
I/ The Syrian conflict and its economic impact on Syria
Since the peaceful revolution of 2011 under the slogan » freedom, justice, and dignity, » Syria has been plunged into a civil war whose outcome still seems uncertain. Several factors related to the conflict have caused a mass exodus of Syrians, resulting in one of the most significant movements of refugees and internally displaced persons since World War II. Of a total of 5,640,421 Syrian refugees officially registered in October 2018, 63% are in Turkey, 17% in Lebanon, and 12% in Jordan. These three countries have the largest Syrian populations on their soil.
In Syria, the infrastructure essential to the functioning of the economy has been severely affected. According to a recent World Bank report, nearly half of all hospitals and schools have been destroyed or damaged, and nearly a third of all buildings have been ravaged. The reconstruction of the economic fabric is becoming increasingly difficult as the civil war continues. The youth unemployment rate reached 78% in 2015. Beyond Syria’s human capital, which will be severely affected for decades to come, the World Bank report estimates the cumulative costs of the conflict from 2011 to 2016 at USD 226 billion, four times Syria’s GDP in 2010.
II/ The decline in intraregional trade flows
The first way in which the Syrian conflict has impacted neighboring economies is through the sudden halt in the process of trade integration. Before the outbreak of civil war in 2011, six countries—Egypt, Iraq, Jordan, Lebanon, Syria, and Turkey—had begun a process of trade liberalization. An agreement was reached in 2010. The following two tables show Syria’s share of trade with Lebanon, Jordan, Turkey, and Egypt (data for Iraq is not available). Syria was primarily a trading partner of Lebanon and Jordan.
A 2014 study by Elena Ianchovichina and Maros Ivanic of the World Bank quantifies the impact of the halt in intraregional trade. The authors measure the impact of the decline in trade flows on the GDP of various economic sectors. The main sectors affected are primarily service activities.
Impact of economic disintegration following the Syrian conflict on the production of certain services
Sources: Report by Elena Ianchovichina and Maros Ivanic of the World Bank, 2014. BSI Economics
Syria and Iraq are the countries hardest hit by economic disintegration. In addition to the indirect losses linked to economic disintegration, there are direct losses linked to the fighting on their soil, as ISIS has sought to expand its territory in Syria and Iraq. Turkey, meanwhile, is the economy least affected by this phenomenon due to its large domestic market, greater export diversification, and greater integration into global trade than other countries. The recent reopening of the Syrian-Jordanian border is only a tentative first step toward future economic reintegration.
III/ The influx of refugees
The massive displacement of refugees to neighboring countries is the second vector through which the Syrian conflict is spreading. The influx of refugees may initially boost consumption and investment and increase the available labor force in host countries. However, the duration of the conflict and the relentless increase in the number of displaced persons are making the integration of refugees increasingly problematic. Unemployment has risen in host countries, mainly among young people, although it is difficult to link this increase strictly to the arrival of refugees. Pressure is mounting on host countries in terms of housing, access to water and food resources, public services (particularly health and education), etc.
Change in the proportion of Syrian refugees relative to the local population
Sources: Calculated from data from the UNHCR and the World Bank. BSI Economics
The proportion of Syrian refugees is weighing heavily on host countries, particularly Jordan and Lebanon, where they represented 6.75% and 16.40% of the population respectively in 2017. The presence and management of Syrian refugees are weighing on public finances, particularly through access to basic social services (health, education, public services). In Lebanon, the massive influx of Syrian refugees has exacerbated the difficulties of an economy already battered by successive political crises. The third most indebted economy in the world, with public debt reaching more than 150% of its GDP in 2018 according to the IMF, Lebanon hopes to benefit from the promises of international aid, amounting to USD 11 billion over four years, made in April 2018 by international donors (World Bank, European Investment Bank, Islamic Development Bank, etc.) and its main trading partners. However, these international loans remain conditional on the implementation of structural reforms to combat corruption, improve public services (particularly in terms of electricity supply and waste management), and combat tax evasion. Jordan’s public finances have also been severely affected by the massive influx of Syrian refugees. Jordan has stepped up its appeals to the international community and recently obtained $2.5 billion in aid from Saudi Arabia, the United Arab Emirates, and Kuwait. However, this aid is likely to be insufficient for an economy whose public debt reached 95.9% of GDP in 2018, according to the IMF. The Lebanese and Jordanians are facing rising unemployment, which has reached almost 20% in both countries. The anger of the local populations is thus adding to the difficulties faced by the public authorities.
Both countries are already home to many Palestinian refugees, as well as Iraqi and Yemeni refugees in the case of Jordan. Refugees of different nationalities find themselves competing with the least skilled workers in their host countries in often informal economies. Syrian refugees have a precarious legal status, as the countries of the Middle East are not signatories to the 1951 Geneva Convention on Refugees. The tightening of measures by the Jordanian and Lebanese authorities makes it difficult to settle in the country. Host countries are reluctant to open new camps for fear that the new arrivals will settle there permanently. Exiles are trying to create an economic fabric, as illustrated by the Zataari camp in northern Jordan. According to the United Nations High Commissioner for Refugees (UNHCR), approximately 460,000 refugees passed through this camp between 2012 and 2017. Eighty thousand refugees live in the camp, and nearly 3,000 businesses have reportedly been opened. The main shopping street, dubbed « Champs Elysées » by residents, illustrates this desire to rebuild a life in exile. However, some refugees are trying their luck in the city and prefer to settle in urban areas rather than in camps. The Syrian conflict has also caused an exodus of Iraqis and Palestinians, who were themselves refugees on Syrian soil before the outbreak of the civil war. Many Iraqis have returned to Iraq, while many Palestinians find themselves stateless.
Like Jordan and Lebanon, Syria’s neighboring states are making it increasingly difficult for refugees to integrate. Humanitarian aid and the management of population inflows represent immense challenges for the surrounding economies. The European Union’s policy is therefore crucial for the states in the region, which are in urgent need of support.
IV/ The burden of regional instability
As mentioned above, the Syrian conflict is exacerbating instability in the region, which is worrying international visitors. Since 2011, fewer Western tourists, as well as tourists from the Gulf, have been choosing Jordan, Lebanon, Egypt, and Turkey as holiday destinations. This phenomenon particularly affects Lebanon, Jordan, and Egypt, where tourism accounts for a significant portion of these countries’ economic revenue. However, the Syrian crisis is only one factor contributing to instability, particularly in Lebanon and Egypt, where internal political crises (a series of crises in Lebanon and the overthrow of Mohamed Morsi in Egypt) are other factors affecting tourist appeal. However, the situation appears to be improving in Jordan, where the number of visitors grew by 15% in 2017, according to Tourism Minister Lina Mazhar Annab, reaching nearly 4.2 million tourists.
The climate of instability in the region is also weighing on investment in the countries of the region. Particularly affected in the early years of the conflict (from 2011 to 2015), economic growth seems to have picked up again in the last two years, with the exception of Iraq, where economic difficulties are mainly due to the internal situation.
The business climate, which can be measured using the Doing Business indicator, has improved slightly over the past two years. However, the various countries in the region still have a long way to go to improve the business climate. Created by the World Bank, the Doing Business index ranks 190 countries according to the ease of doing business. The closer the ranking is to first place, the more favorable the business climate is for investors. Ten indicators are studied (examples: obtaining bank credit, starting a business, insolvency legislation, etc.). The following graph shows that, with the exception of Turkey, which ranks43rd, Iraq, Lebanon, Jordan, and Egypt all rank below100th. Structural reforms are needed to attract investors.
Doing Business ranking in 2019 (Ranking from 1 to 190)
Sources: World Bank data. BSI Economics
Conclusion
The Syrian conflict, which has been going on for seven years, has caused suffering for the entire population, half of whom have been forced to leave their country. Despite recent victories by the Syrian regime, Syria’s future remains very uncertain. The proliferation of actors and their demands makes an end to the conflict unlikely at this time.
Syria’s neighboring countries have also been affected by the conflict. Egypt, Iraq, Jordan, Lebanon, and Turkey have seen their trade decline, which has worsened their trade balances. The massive influx of Syrian refugees has left them with the task of managing thousands of men and women in need of shelter, placing a strain on public finances and increasing the burden of public debt. Finally, the ongoing instability in the region is weighing heavily on the economic prospects of Middle Eastern countries, causing concern among tourists and foreign investors.
Sources:
« The Toll of War: The Economic and Social Consequences of the Conflict inSyria, » World Bank Report, July 2017. http://www.worldbank.org/en/news/press-release/2017/07/18/the-visible-impacts-of-the-syrian-war-may-only-be-the-tip-of-the-iceberg
Elena Ianchovichina and Maros Ivanic, World Bank Working Paper, December 2014. http://documents.worldbank.org/curated/en/129431468044383360/Economic-effects-of-the-Syrian-war-and-the-spread-of-the-Islamic-state-on-the-Levant
« Jordan: agreement on reopening main border crossing with Syria,« Andrei Borodulin, RFI, October 14, 2018. http://www.rfi.fr/moyen-orient/20181014-jordanie-reouverture-principal-point-passage-syrie
« Syrian conflict: what is the economic impact on the region? », Antonio Torrenzano, Le Monde Blog, February 13, 2015. http://e-south.blog.lemonde.fr/2015/02/13/conflit-syrien-quel-est-limpact-economique-sur-la-region/
« Jordan and Syrian refugees,« Kamel Doraï, La Vie des idées, June 7, 2016. ISSN: 2105-3030. http://www.laviedesidees.fr/La-Jordanie-et-les-refugies-syriens.html
« The Syrian Conflict for Dummies,« https://www.leconflitsyrienpourlesnuls.org/
» Lebanon: An Economy on Hold, » Mounia Daoudi, RFI, May 3, 2018. http://www.rfi.fr/emission/20180503-liban-une-economie-sursis
» Lebanon receives substantial international aid, » Yves Bourdillon, Les Echos, April 6, 2018. https://www.lesechos.fr/06/04/2018/lesechos.fr/0301526886374_le-liban-obtient-une-aide-internationale-substantielle.htm
“In the midst of crisis, Jordan receives $2.5 billion from Gulf countries,” France 24, June 11, 2018. https://www.france24.com/fr/20180611-jordanie-arabie-saoudite-koweit-emirats-arabes-unis-aide-milliards-crise-chomage
» Countries hosting millions of Syrian refugees, » Le Point, https://www.lepoint.fr/monde/ces-pays-qui-accueillent-des-millions-de-refugies-syriens-21-09-2015-1966724_24.php
» Lebanese tourism, another victim of the war in Syria, » Laure Stephan, August 5, 2013. https://www.lemonde.fr/international/article/2013/08/05/le-tourisme-libanais-une-autre-victime-de-la-guerre-en-syrie_3457461_3210.html
» Tourism: Jordan wants to get back on track by erasing ‘stereotypes’, » Le Point, https://www.lepoint.fr/economie/tourisme-la-jordanie-veut-se-remettre-en-marche-en-effacant-les-stereotypes-29-04-2018-2214461_28.php
Acronym:
UNHCR / HCR: United Nations High Commissioner for Refugees / High Commissioner for Refugees.
