National Partnership: Syria’s New Economic Order
Syrians saw in the New Year with hopes that 2016 might just be the year the conflict in their country starts to draw to an end. As 2015 neared its conclusion, it appeared that international players might finally be reaching a compromise to end their horrific war in Syria that has set the country back decades. In Damascus, the government of Prime Minister Wael Halqi was also making its own plans to prepare the ground for reconstruction for when the appropriate time comes. It culminated in a declaration early this year that Syria would be embarking on a new economic order. In this respect, Prime Minister Halqi announced to the country that Syria was formally ending the social market economic model that it had signed up to back in 2005 and instead was opting for one the government termed ‘National Partnership’.
Historically, Syria had a free market economy when independence was achieved in 1946 but socialism began creeping in shortly thereafter. The original force for socialism in Syria was President Gamal Abdel-Nasser who served as leader of the United Arab Republic comprising both Syria and Egypt from 1958 to 1961. However, socialism was entrenched as state policy by the Baath Party when it came to power in 1963 after a two-year gap when a market economy was restored. President Hafez Al-Assad continued with socialist policies when he came to power in the early 1970s but gave the commercial classes some room to operate in the economy.
President Bashar Al-Assad pushed through market reforms in Syria when he took office in 2000 and his government formally accepted the social market economic model five years later as a compromise between socialism and capitalism. The government’s rationale was for Syria to move away from a socialist command economy towards a more market-based approach. The policy shift was fuelled by declining oil reserves and challenges to public finances, which meant that investments from the private sector would be welcome. However, the social market economy stalled in 2011 with the onset of conflict and instead, a war economy has developed since then.
The adoption of the National Partnership is in no doubt related to the passage of the Public-Private Partnership (PPP) Law earlier this year, which is the basis for this new economic order. The National Partnership alludes to partnerships between the public and private sectors. The social market economy on the other hand was more about promoting the private sector alongside the public sector but not necessarily in partnership with it. Therefore, PPPs are set to take center stage in line with the government’s new economic policy objective.
PPPs can be defined as long-term contractual arrangements entered into by governmental entities and private sector parties with the aim of delivering services to the general public. When delivering public services under these business models, the private partner bears most of the risk and management responsibility associated with running the public facility in return for a profit. The private partner may even take possession over the public asset and transfer it back to the state after a specific length of time such as 25 years. PPPs differ from outright privatization where the private sector takes ownership and control of the public facility or service while the authority of the state is limited to oversight and regulation rather than actively being a partner in the undertaking. PPPs are to an extent a middle ground between nationalization, where the state is wholly responsible for delivering public services, and privatization.
There are a number of reasons why the National Partnership may have been adopted as an economic strategy. A leading cause may be that the state’s coffers are under stress as a result of the ongoing war in the country. The conflict has taken its toll on Syria and substantially increased the burden of financial costs to repair what has been destroyed. It is therefore questionable whether the state will have enough money to finance all the considerable projects that will need to be implemented during the reconstruction phase, which will include renovating numerous facilities that existed prior to the war. A repeat of the successes of the 1970s when the state led a massive infrastructure investment program due to high oil prices is difficult to imagine in the foreseeable future. Moreover, the government was already never keen on borrowing money before the war and its national debt was negligible. Presumably, it will not be looking to radically change this policy to cover the additional expenses associated with reconstruction and therefore, it will seek partnerships with the private sector instead to rehabilitate the country’s infrastructure.
Despite financial pressures, the government does not want to privatize the economy. The concept of privatization does not fit in well with the principles of the ruling Baath Party. When the PPP Law was brought to the floor of the People’s Assembly for deliberations, it was met with skepticism by some MPs who feared that it would benefit private and foreign businesses at the expense of the public sector. One of the main reservations about the Law is that it may lead to eventual privatization, which as mentioned is a sensitive issue in a country that has based its economic policies on socialist principles for more than half a century. The Minister of Industry has argued that the PPP Law in no way represents an attempt to pursue privatization and that the wellbeing of public sector companies is a red line that will not be crossed. He also announced that projects will soon be pursued on the basis of PPPs with the private sector in accordance with the new Law. To this effect, the Ministry of Industry is already offering the private sector investment opportunities in 27 of its companies.
Nationalization of privately owned assets to pay for reconstruction is also not a preference for the government as it would alienate one of its key support bases that emerged predominantly during the 2000s. One must also not underestimate the financial effects of capital flight during the last five years, which could also limit any potential benefits resulting from nationalization. Whereas the social market economy represented a middle ground between socialism and capitalism, the National Partnership is technically a compromise between nationalization and privatization.
Restoring the social market economic model as it once was is no longer seen as a viable move for the government since the unrest that began in 2011 took place under its watch. Regardless of whether it was a factor contributing to the problems in the country, there does seem to be a consensus among economic policymakers that a new approach is necessary after five years of conflict.
It is even arguable that the National Partnership can be characterized as a continuation of the social market economy. After all, the PPP Law was expected to be passed in early 2011 but was postponed after the crisis in the country erupted. It was marketed at the time as a leap forward for the social market economy and therefore constituted a part of it. Hence, in some ways, the National Partnership is not necessarily a new strategy but rather it is much more pressing nowadays and eclipses other economic issues to the extent that it can define a policy objective on its own. There does nevertheless remain a notable difference in the passage of the PPP Law in 2016 as opposed to before the conflict. Given the wartime conditions, the Law today does not generate the sort of hype that once motivated investors and consultants to travel to Syria in search of new opportunities, such as in 2009 and 2010.
Before the war, a range of major infrastructure projects that were in the pipeline were expected to be implemented in accordance with PPP models. They included power plant projects, two planned highways running north to south and west to east across the country, the Damascus metro network, airports and much more. In fact, special legislation was enacted to procure the power plant project in Al-Nasserieh north of Damascus on a PPP basis. In addition, the Electricity Law sanctions a greater role for the private sector in the financing and development of power-related infrastructure projects. Furthermore, the government permitted the Ministry of Transport in the summer of 2010 to enter into contracts with the private sector for the establishment and operation of new airports. It also gave its approval for private sector companies to develop and modernize existing airports in Syria. Earlier in 2005, a law was pushed through permitting the separation of ownership and management of publicly-owned commercial entities, which resulted in Syria’s two main ports at Lattakia and Tartous being operated by private international firms.
Before unrest gripped Syria, the state was not in a rush to partner up with the private sector and build infrastructure projects. However, this position appears likely to change in the foreseeable future following the severe destruction that has been visited upon the country. The authorities at least had the luxury of some time to improve the infrastructure more than five years ago but it is doubtful whether these conditions exist today. Back then, the government was exploring the possibilities of partnerships with the private sector but today, it seems to view them as imperative to rebuild the country.
The results of the National Partnership remain to be seen and depend on a variety of factors. The first priority is ending the war in Syria since the benefits of whatever may be built today will only be offset by destruction elsewhere in the country. Syria and its people have paid a heavy price during the past five years. A once self-sufficient economy has been shattered under the inconceivable pressures of conflict and the government has been forced to make decisions in a crisis management mode. In other words, the war economy that began taking shape since 2011 has left Syrians with nothing but uncertainty for the last five years. Yet, Prime Minister Halqi’s announcement that a new economic order would be pursued may give some semblance of direction however challenging the current circumstances are today and regardless of whether or not it will have any immediate desired effects.