The Impact of Strife and Sanctions on Syria's Economy

The two year civil war in Syria is having an impact on its citizens that goes well beyond the physical.  A study by the Syria Needs Analysis Project (SNAP) looks at the economic impact of the crisis and which sectors have been hardest hit.

Syria's economy is largely based on agriculture, oil, trade, industry and tourism.  As fighting spread throughout the country, Syria's economic infrastructure was damaged or destroyed and this has impeded economic growth.  As well, sanctions imposed by the EU, the United States and the Arab League have taken their toll on the nation's imports and exports.

Here is a map that shows the impact on the key sectors of the economy:

Let's look at the problems facing Syria's economy for two key sectors; agriculture and industry:

1.) Agriculture: this sector contributed 22 to 24 percent of Syria's GDP prior to the war with agricultural exports constituting 16 to 22 percent of all exports in 2010with 80 percent of the rural population practising farming.  The five major crops include grains, cotton, vegetables, permanent crops including olives and fruit and fodder crops including barley.  Before the civil war, 65 percent of all cereal crops relied on irrigation.  A prolonged drought between 2006 and 2010 was costly to this sector of Syria's economy, destroying the livelihoods of 800,000 farmers and herders.  Here is how agricultural output has been impacted:

Wheat - output is 40 percent below the 2000 to 2010 average.

Vegetables, fruit and olives - output of vegetables has dropped by 60 percent in Homs and olive output is down 40 percent in Dar'a.

Cattle - production is down 25 percent compared to 2011.

Sheep - production is down 35 percent compared to 2011.

Poultry - production is down between 35 and 100 percent compared to 2011 with the closure of major chicken operations in many areas and the sanctions preventing the import of mother hens.

Farmers face a shortage of fertilizers with prices increasing by 200 to 300 percent between January 2010 and June 2011.  There is also a lack of a farming labour force as a result of the exodus of civilians from areas of conflict.  This has pushed up labour wages from between 30 to 300 percent, depending on the area of the country.  Sanctions have had an impact on the availability of parts for agricultural equipment, agricultural inputs like herbicides and pesticides and diesel fuel.

2.) Industry: Syria's industrial sector includes mining, manufacturing, construction and petroleum and includes the manufacturing of beverages, textiles, petroleum products, tobacco, cement, food goods, phosphate mining, oil seed crushing and automotive manufacturing.  The industrial infrastructure of the country has suffered severe damage and there is a lack of both electricity and input materials.  One city in Aleppo, Sheikh Najjar, has seen its industrial output drop to 20 percent of pre-war capacity.  The Center for Policy Research estimates that the unemployment rate increased to 50 percent in March 2013 which has resulted in many Syrians seeking new sources of income as shown on this bar graph:

Estimates suggest that informal economic activities (i.e. non-taxed employment including hashish sales, arms trading and smuggling) were undertaken by 80 percent of Syria's workforce by the end of 2012.  As well, the number of cases of extreme poverty in the nation are estimated to have increased from 2.2 million in 2010 to 3.7 million in 2012 when modelling based on the nation's dropping GDP is used.

Damage to Syria's infrastructure has been widespread with damage to the nation's electrical, water, oil, education and agriculture infrastructure.  It is estimated that capital losses are now in excess of $42 billion.  Ten percent of houses have been completely damaged and 25 percent have been both partially and completely damaged.

Not unexpectedly, the conflict has had a major impact on Syria's GDP.  In 2010, Syria's GDP was $59 billion with an economic growth rate of between four and five percent; nominal GDP dropped to between $21 and $35 billion by June 2013, a decline of between 41 and 64 percent.  Around 28 percent of the total GDP loss in 2011 and 2012 was due to international economic sanctions with the majority of the loss ($3.9 billion of the $6.8 billion decline) due to sanctions on the oil industry.

Needless to say, all of this dropping economic activity has had a major impact on Syria's government budgets.  Syria's fiscal deficit has risen as follows:

2009 - $122 billion Syrian Pounds

2010 - $216 billion Syrian Pounds

2011 - $745 billion Syrian Pounds

In large part, the problem exists because of Syria's reliance on oil revenues which amounted to 150 billion Syria Pounds in 2010 but fell as a result of sanctions.  Oil production was 4310,000 BOPD in 2006 but is estimate to have dropped to as little as 20,000 BOPD, a drop of 95 percent, as oil fields fell into the hands of rebel forces.  The budget deficit rose from 3.8% in 2010 to 10.1% in 2012.  Total public debt rose from 23% of GDP in 2010 to 40% of GDP in 2012 as shown here:

In order to keep government expenditures at pre-crisis levels, the Syrian government has turned on the money printing presses, increasing the money supply which has resulted in a 50 percent plus devaluation in the Syrian Pound.  This has pushed the cost of most goods and services up by up to 300 percent.

We can clearly see that the war and the use of sanctions has had a significant impact on Syria's key economic sectors, its government debt and deficits and the growth of its GDP.  Unfortunately, as you can see, rather than pushing the Assad regime to its knees, the sanctions have had a massive and very negative impact on the very people of Syria that they were intended to help.  From what we can see, it will be years and require tens of billions of dollars of aid before Syria's economy recovers to its pre-crisis state.