Frustrating Assadʹs plans for a new state

Although regime apologists are fond of asserting that the war in Syria is over, wary investors, an ongoing U.S. trade embargo, the pariah status of its ally Iran, not to mention galloping inflation, mean it could be years before the devasted country sees any real reconstruction. Analysis by Ghiath Bilal

By Ghiath Bilal

Over the last year, the Syrian regime has managed to regain control over most of the territories that rebelled against it, particularly in the southern region and the Damascus hinterland (Ghouta). There is now a general feeling that the battle has been resolved in favour of the regime and that the next logical step would be to start the reconstruction process and normalise the Assad regimeʹs relations with both east and west.

In turn, this has prompted many countries wishing to participate in the reconstruction to activate their back channels, stepping up communications with the regime. For its part, the Syrian government, sensing imminent victory, has launched several reconstruction projects aimed at rebuilding some of the neighbourhoods in Damascus and Ghouta that witnessed a high degree of destruction during the war.

These efforts are also motivated by the realisation that in order to convert any military victory into sustainable political success – both domestically and internationally – the Assad regime must achieve three goals. Firstly, it needs to normalise relations with both its neighbours and the West; secondly, it needs to begin reconstruction, restoring services and control to the devastated areas; and thirdly, it needs to kick-start the Syrian economy.

The cost of reconstruction

Cost estimates relating to the reconstruction of Syria vary according to their calculation methodology. At the end of 2016, the World Bank estimated the cost would be $ 450 billion were the war in Syria to have stopped in 2017. The WB also predicted that these costs would increase to $780 billion were the war to continue until 2021.

Children at play in Zabdin, Ghouta, Syria (photo: Getty Images/AFP/L. Beshara)
"The profitability of any investment in Syria today remains highly questionable, given the lack of security for goods and people, untrustworthy legislative and judicial systems and a highly volatile currency. Such an environment is guaranteed to knock the cost-benefit analysis of any investment sideways in favour of the costs, thus scaring away investors," writes Bilal

In 2018, the Syrian government put the cost of reconstruction at about $400 billion. In both instances, the cost outstrips Syriaʹs 2010 GDP by more than a whopping six times. When it comes to financing the reconstruction process, two main funding channels exist: externally sourced finance, acquired through aid and loans for the rebuilding of Syriaʹs economic infrastructure; and structurally sourced finance, acquired by attracting investments and aiming to achieve high growth rates.

As regards potential aid, it is well-known that Afghanistan is the country to have received the highest level of reconstruction assistance in the world to date, amounting to about 8 billion dollars annually. Assuming that Syria would be able to obtain the same level of aid (which is highly unlikely), that the funds would be used efficiently and that the countryʹs endemic corruption could be eliminated (also unlikely in the case of the current regime), then the Syrian state would need more than fifty years to cover the cost of reconstruction.

Morever, as far as attracting foreign investments is concerned, the regime, its allies and cronies, are all still subject to draconian economic sanctions by both the USA and the European Union; an aspect that is simply likely to deter major and minor investors alike. Not to mention the fact that the profitability of any investment in Syria today remains highly questionable, given the lack of security for goods and people, untrustworthy legislative and judicial systems and a highly volatile currency. Such an environment is guaranteed to knock the cost-benefit analysis of any investment sideways in favour of the costs, thus scaring away investors. Furthermore, Syria is currently under the guardianship of several countries, six of which maintain military forces and bases on its territory. The conflicting nature of these countriesʹ interests in Syria increases the volatility of both the economic and security situations, making any investment in the country today a high-risk gamble.

Finally, as far as the Syrian market is concerned, 60% of its pre-war, i.e. pre 2010, activities have ceased – in terms of labour and consumption –and a large proportion of its skilled middle class has fled the country. What remains in the way of market will hardly be able to provide either the necessary skilled labour or the requisite consumer purchasing power, especially given the astronomical 700% inflation rate compared to 2010.

Despite the aforementioned prognoses, the Assad regime recently attempted to launch the Marota City project, which aimed to rebuild two destroyed Damascus neighbourhoods (namely, the old Mezzeh and parts of the old Kafarsusa areas). The targeted areas are located near one of the most expensive suburbs of Damascus, namely the new Mezzeh and thus the project should have constituted an excellent investment opportunity; at least, in comparison with most of the other devastated neighbourhoods in Syria, which are located in poorer areas.

The apparent goal of the project was to launch a reconstruction model that relied on Iranian companies and dispensed with Western funding. However, the project faced several obstacles that ended the experiment before it began. When opening the pre-construction bid for the apartments in the planned luxurious residential towers (a way to raise funds for the project), no units were sold.

On the one hand, foreign investors shied away because of the aforementioned reasons; and on the other, the former residents of these neighbourhoods – most likely purchasers of the new units given the highly sentimental value of an eventual home to return to – could not afford the prices of the new apartments.

A newly promulgated piece of legislation, Law No. 10, made it possible for the state to appropriate land where these neighbourhoods once stood, while offering very little in the way of compensation.

Other Syrian refugees or expatriates who could actually afford these residential units were either not interested in buying property outside their areas of origin, or were simply not prepared to invest in the Syrian economy under these circumstances.The final blow to the Marota project came when all the persons and companies involved in it were hit with a new wave of EU sanctions in January of this year, precisely because of the dubious practices in land appropriation.The Marota project was actually one of several re-organisation schemes that the regime has devised over the past few years for the Damascus area. The Assad regime is attempting to impose demographic change in Greater Damascus by preventing the old communities that used to live in the devastated areas from ever returning to their old neighbourhoods, in retaliation for "their rebelliousness".

Land appropriation has been made easy under the pre-text of land re-zoning and the implementation of new urban plans. However, having excluded potential domestic investors, the actual implementation of these schemes has become completely dependent on the availability of international funding.

Yet international investors now have an additional reason not to invest in Syria: they have no desire to be involved in illegal activities that aim to defraud refugees of their property and thus prevent them from returning to their original and – if the planners have their way – no longer existent homes.

Today, any investment in the state-run Syrian reconstruction effort is akin to partaking in a crime; never mind the fact that it also enables the restoration of a brutal regime by helping to revitalise its corrupt and oppressive institutions, so weakened and depleted over the last eight years. The debacle of Syriaʹs reconstruction shares many similarities with that of Iraq. In the absence of political agreement, any reconstruction sponsored by the state that masquerades as a social contract is doomed to failure.

Such a model creates huge opportunities for the growth of corruption, the weakening of local communities and a deepening of the divisions between them. It also compounds feelings of resentment among the groups that have not been able to benefit from the reconstruction projects, thus preventing the achievement of a solid social peace and sustainable economic stability.

The alternative model may be to launch reconstruction operations that deal directly at a local level, financing local projects while training and employing local labour. Central government could oversee a national reconstruction plan; however the implementation must be the responsibility of local government.

Destruction in Aleppo (photo: Imago/Xinhua/A. Safarjalani)
Funding-dependent urban plans a non-starter: overseas investors have no desire to be involved in illegal activities that aim to defraud refugees of their property and thus prevent them from returning to their original and – if the planners have their way – no longer existent homes

Normalising relations with the Syrian regime

Both Russia and Iran are now pushing for reconstruction in Syria, with an eye to reducing the financial burden of their military and political intervention, while increasing their ability to convert their military successes into sustainable economic achievements and profitable political hegemony. Neither Iran nor Russia has the financial capacity, however, to launch a reconstruction.

Iran certainly does not have the capacity to launch real reconstruction projects aimed at rebuilding entire devastated towns and neighbourhoods, especially after the tightening of U.S. sanctions against its oil exports. It is worth mentioning here that Iran, as part of its political adventures in the region, is preparing to build a southern suburb in Damascus where it will house the members of its multinational militias – always assuming, that is, that they are granted Syrian citizenship.

Russia is currently working actively together with a few Arab countries willing to participate in the reconstruction in Syria for the purpose of re-normalising relations with Assad. In co-operating with Damascus, some of these countries see an opportunity to create a counter-revolutionary front, build further capabilities to control their own populations and gather winning political cards for in the regional tug-of-war by participating in any political effort to resolve the conflict in Syria.These efforts reached their zenith with the re-opening of the UAEʹs embassy in Damascus, the visit by the now-deposed Sudanese president, Omar al-Bashir, to Damascus and the attempt to bring Assad back into the Arab League as a first step on the road to his international rehabilitation.

The Washington Post recently quoted Anwar Qarqash, the UAE minister of state for foreign affairs, as he explained the reasons for his countryʹs decision to restore diplomatic relations with Damascus in interview: "The Arabs have no influence in Damascus at all. Because we demolished all bridges of communication in 2011, we allowed regional parties such as Turkey and Iran to become decision-makers. This killed the Arab influence inside Syria".

Several European countries, led by Italy, Bulgaria, Austria and Norway, have also increased their back channel activities with the Assad regime in order to find a way out of the EUʹs professed moral high-ground of refusing to deal with a war criminal. The French President Emmanuel Macronʹs statement that "he does not see a legitimate successor to Bashar al-Assad in Syria" was the most explicit and most salient in this context.

However, when some Arab countries sought to return Assad to the Arab League, all efforts at normalisation were countered by a strong U.S. rejection, which amounted to a clear warning against such overtures towards the Damascus regime. As the Washington Post leaked, the Trump administration pressed its Arab allies to renounce all attempts to normalise relations with the Assad regime, warning that any move to participate in Syrian reconstruction would incur retaliatory U.S. sanctions.[embed:render:embedded:node:14411]According to the same newspaper, Washington is seeking to pressure Assad into embarking on political reforms. Despite the absence of a clear strategy by the Trump administration when dealing with the Syrian file, it is clear that the United States is determined to disrupt any solution or a breakthrough in the Syrian issue, unless it is at the helm.

Following the warning issued by the U.S. to its allies in Syria, the Syria Democratic Forces, regarding the sale of crude oil or the transfer of Iranian oil to the Syrian regime via the Euphrates, it is now clear that the U.S. is serious about its economic embargo of Syria. Furthermore, the Public Affairs Office of the U.S. Treasury Department has also issued a statement warning against supplying the Syrian regime with fuel and pointing to the risks associated with facilitating shipments of oil destined for ports owned and operated by that regime. This warning certainly sped up the deal that saw Russia leasing the port of Tartous, a measure aimed at circumventing the aforementioned embargo.

It seems likely that the previously described stalemate relating to the situation in Syria will last for a long time, thus preventing the Assad regime and its allies from converting their military victories into sustainable political and economic gains. This will inevitably affect the cohesion of the Syrian regime in light of the economic crisis (lack of fuel and daily necessities) that Syria is currently experiencing. Concerned that the Assad regime will suddenly collapse under pressure, Russia is anxious to take over and directly manage the remaining state structures and its vital installations.

Where is the Syrian crisis headed?

The regional and international political climate would appear to predicate against any Syrian reconstruction in the near future, particularly since the United States has put curtailing Iranʹs influence in the region top of its list of priorities. Moreover, the political and economic embargo against the Syrian regime will deprive the country of any opportunity of attracting foreign investment, even given those oligarchs that have personal ties to Assad himself.

The ongoing survival of the corrupt Assad regime and the absence of any real horizon for political or economic stability in the foreseeable future means there are few investment opportunities, even for those seeking to invest long-term. In addition, there seems to be no international plan to improve living conditions within Syria or any international consensus that could constitute the basis for an acceptable political solution.

On the contrary, there are many indications of increased levels of violence in the regions of Idlib, western Aleppo, as well as Kurdish-controlled areas along the border with Turkey. Furthermore, the ongoing political stalemate is likely to exacerbate the crisis between different factions within the regime, due to the lack of consumer goods and the drying up of revenue sources made possible by the war, such as relief aid, financial aid for the opposition factions, and the looting of rebel areas once they surrender.

If Iran can reach a new mutual understanding with the Trump administration, the landscape may change completely; but this possibility does not seem possible at the moment. As Russia tightens its control of the remaining Syrian state structures and institutions, it could feel free to dispense with the head of the regime in the foreseeable future. Such a development might well create a new dynamic, potentially opening the door to new international consensus and ending the gridlock in the Syrian crisis.

Ghiath Bilal

© 2019

Ghiath Bilal is a consultant on Middle East affairs, specialising in civil society development and human rights. He collaborates with a number of think tanks and research centres throughout the region and beyond.