ECONOMIC DIMENSION OF THE CONFLICT IN SYRIA Lecturer : Dr. François Lenfant 2 Introduction 1. Economic Dimension of the conflict 2. Cost of conflict (impact of conflict on the economy) 4. Role of natural resources ? (oil / water / drought / change) 5. Role of non state actors (as business and NGOs in conflict) – Business for peace? Syria’s economy before the conflict 1. Type of economic development: agrarian for the most part, based on services with a (slight) reliance on oil (represented 25% of the government revenues before 2011 (33rd producer in the world) 2. Main issues were broad based inequalities (horizontal) / access to resources / role of the state, poor policies (before the war, close to 2 million farmers were affected by poor agro policy decision) – loss of livelihoods – yields of barley and wheat dropped (more than 60%), livestock pop plummeted – food insecurity (between 2006 – 2009) 3. Agriculture – poor water management was an indirect cause of the many conflicts (Gleick) Syria’s conflict Since 2012, essentially three wars have taken place concurrently in Syria a) one between the Syrian government and opposition groups, b) one among the opposition groups, and c)one between the selfproclaimed “Islamic State” (“IS”) and the government, opposition groups, and an international coalition led by the US. In this context, as in ALL conflicts, businesses face challenges (poor infrastructure, shortage of electricity, lack of physical security and corruption) Business IN conflict, Business AND conflict, Business FOR peace, three interrelated, yet different bodies of knowledge. Common denominator is that EVERY CONFLICT HAS AN ECONOMIC DIMENSION 5 Samer Abdoud : Economic dynamics / Roots of the conflict The economic context is crucial for understanding the war’s persistence, and the shape of an eventual peace and reconstruction Role of economic actors, such as the business community in general and the elite in particular, play in the perpetuation of war. 6 Samer Abdoud : Economic dynamics / Roots of the conflict Rise of a new conflict elite whose wealth is directly linked to the continuation of violence. These actors do not directly perpetrate violence, they are beneficiaries of the strife. They profit from conflict – interest in perpetuation of violence All links to the elite – close to the Baath party – allegiance to get economic deals Previously 4 categories of ‘business’ community : 1) old bourgeoisie (not linked to Baath, remnants of Ottoman empire) 2) SMEs (lower classes, fewer links met government) 3) rentier class (benefited from the oil boom); 4) state bourgeoisie (modern, benefited from Baath/state contracts) 7 Samer Abdoud : Economic dynamics / Roots of the conflict • Role of the state was crucial in the economy and in the conflict: State had a firm grip in the economy – in the 2000’s the fourth group (state bourgeoisie) got most of the attention • Emergence of religion merchant complex! Wealthy merchants • Bad policies – led to unemployment, decrease in welfare, however economic GROWTH (GDP) was high • Yet not well distributed • State controlled economy – Business HAD to strengthen its ties with the (elite in the) state – Rise of wealthy few while most SMEs (small businesses fell in poverty – in the periphery of power and of economic growth) 8 Samer Abdoud : Economic dynamics / Roots of the conflict THREE MAJOR FACTORS PLAYED A CRUCIAL ROLE: Economic contraction, international sanctions, and capital flight These three events transformed business and the broader society They gave rise to different business elites’ agency (such as the rise of a conflict elite) during the war They provide insight into who the main actors implicated in violence are, who potential agents of peaceful change are, and how Syrian businesspeople can advocate for and pursue reconstruction projects in the post-conflict stage. Interesting point made by Abdoud: business are ‘involved’ in peace and conflict matters (as peace builder or peace maker, or as conflict ‘fuelers’). 9 Samer Abdoud : Economic dynamics / Impact of the conflict Economic contraction: poor policy before the conflict, during the conflict severe GDP contraction happened (60% decline). This led to: • collapse of productive sector • people’s livelihoods are undermined • hyperinflation, • armed groups involved in the supply chain, • economy becomes violent (War Economy phenomenon) HDI plunges from 113 to 173 (from 201-2015) Armed groups control of the trade route means businesses ‘do business’ with armed groups (maintain/fuel conflict instead of contributing to peace) 10. Samer Abdoud : Economic dynamics / Impact of the conflict • International sanctions: as instrument, they are meant to hurt the elite within the regime, but often they lead to widespread poverty and hurt (even more) common people • Armed embargo – oil sanctions did not produce expected results (pressure on the regime – induce defections) • ‘good’ business people fled, new ones showed allegiance to Assad (and got deals without being competent; not based on merit but on allegiance) – 4th group got more power (economic opportunities to those ‘opportunists’) • Capital flight- kills investments! 11. Samer Abdoud : Economic dynamics / Impact of the conflict • Rise of conflict elite (vs integrated elite = close to regime; expatriate elite = don’t necessarily chose side; dependent elite = mixed background and conflict elite = new elite profiting from the conflict) • Conflict Elites operate in regime areas; mutual benefit and interdependency with the regime. They have taken up leadership positions in various chambers (such as the Damascus Chambers of Commerce and the Damascus Chamber of Industry) and other bodies. Unlike other elites (such as dependent elites who are primarily involved in production and trade, the conflict elites function as intermediaries and facilitators to ensure that goods can be brought to regime areas. 12. Samer Abdoud : Economic dynamics / Impact of the conflict • Conflict elites crucial in that they can shape the trajectory of the Syrian war. They are not a coherent whole. Two types of conflict elites: • those who owned small or medium-sized enterprises prior to the conflict and chose not to divest of their assets and leave the country, • private- or public-sector managers who established enterprises during the conflict. One of the key factors driving their formation is their relationship with regime officials. Central role in terms of intermediation. 13. Samer Abdoud : Economic dynamics / Impact of the conflict • These Conflict elites’ activities are dependent on the continuation of strife. • They are implicated in all types of activity: smuggling, checkpoint theft, illicit petrochemical trade, weapons trafficking, and human movement. • Conflict elites facilitate transactions to ensure the supply of goods and material from outside so-called regime-held areas 14. Samer Abdoud : Economic dynamics / Impact of the conflict • Business actors exercise distinct forms of agency during the conflict. • For example, conflict elites ensure the possibility of transactions and payments that maintain some flow of goods and materials into regime areas, while businesspeople in the Turkish borderlands secure the flow of goods to rebel groups. • Business elites, while not directly controlling militias or armed groups, are deeply implicated in the violence in Syria. 15. Samer Abdoud : Economic dynamics / Impact of the conflict • The liberal peace model is largely premised on the idea that factions engage in violence in order to capture the state. • Peace agreements focus almost exclusively on the distribution of political power in the form of ministerial appointments, institutional representation quotas. • Missing link: the political economy of the conflict • Business elites are embedded and implicated in wider networks of violence 16. Samer Abdoud : Economic dynamics / Impact of the conflict • Can business elites exercise enough power to bring about political change on their own? • The assumptions was that (through sanctions) in the early stages widespread business defection would lead to economic collapse which would leave to regime collapse proved false. • The regime has adjusted its modes of economic governance to meet the needs of war. • Human – social facet: adaptability is spurred by conflicts 17. Samer Abdoud : Economic dynamics / Impact of the conflict • Old business actors (such as the integrated, expatriate, or dependent elites) may have a greater interest in returning to peace (or social order prior to the conflict) in order to maintain or return to their previous levels of wealth and economic influence. • “New” actors (such as the conflict elites) have developed economic interests in direct relation to conflict and the war economy and may not be interested in a return to peace, lest it threaten their economic opportunities. Peace spoilers or peace makers? Where / how can we give peace dividends? 19 Role of business MAIN POINT OF ABDOUD: The conflict has created a new class of elites who are dependent on the war for their fortunes, and who are implicated in violence even when they do not directly perpetrate it. As a result, business interests have become at least as important as other factors in determining political allegiances. 20 Role of business in peace matters • Role of business in post conflict reconstruction • In conflict prevention • In peace-making / building • Theory (Oetzel, 2007, 2010), Fort (2004), Westermann Baylo (2010) there are three channels through which business can contribute to peace • Core business (jobs, sensitive business practices, balanced personnel policy; pay taxes, create linkages business role) • Social investment (fund humanitarian projects, community relation/engagement projects, fund NGO’s funding / partnering role • Track-two diplomacy (use clout to lobby gvt and/or warring parties to cease hostilities, negotiate – mediating/facilitating role 21 Role of business Activity / level Maximum Lobby, tracktwo diplomacy Do good / Build peace Country Social investment Community Core business Company Do no harm Attitude Conflict resolution Business as usual Compliance Avoidant Minimum Profit from conflict 22 Analytical framework through a Conflict transformation lens Conflict Peace A C T I V I T Y Conflict prevention Conflict mediation Conflict resolution Social investments External evaluation Do no harm policies Promote economic development Enhance rule of law Create a sense of community Employee Design conflict sensitive diversification practices Promoting dialogue among warring parties Track two diplomacy Finance peacekeeping and humanitarian efforts Peace Post - Conflict reconstruction Institution Building Do no harm Community policies Building Promote reconciliation Promote economic development Employee diversification Social investments Enhance rule of law Capacity Building 23. Burns, Economic consequences of conflict Gruesome context of Syria: 4 millions refugees, 6 millions IDPs • Highlights the complex relationships between conflict, displacement, aid, and economics. • Does a critical analysis of the role of humanitarian aid in contribution to the persisting conflict in Syria. • It shows how aid can inadvertently contributes to funding war economies, and also how the humanitarian principle of neutrality may render aid implementation and civilian safety vulnerable to manipulation 24. Burns, Economic consequences of conflict • Besides huge human costs (deaths, injuries, displacement) conflict also have massive economic costs: • Direct costs destroyed public infrastructure, destroyed factories and machinery, destroyed housing, autos, lost equipment, death toll, physical and mental injuries, future costs of disability, and future costs of physical and mental health care • Indirect costs: displacement, reduced production, reduced trade, lower current and future physical investment, reduction in education opportunities, brain drain, reduced tourism from abroad, inflation, further unemployment, reduced economic growth, welfare costs, reduction in human capital 25. Burns, Economic consequences of conflict There are different stages and different types of economy: • Post-conflict reconstruction is a time of great economic growth, rebuild infrastructure – fuels the economy (cases of Japan and Germany) • Displacement economy: dependence on NGOs (displaced people lost their livelihood • Displacement economy: Huge Need for aid: billion USD ‘economy’; • Many issues linked to the politization of aid (aid to those who support the regime) • Aid can be the target of bombing, but they can use smuggling routes; aid becomes part of the shadow economy, next to the formal economy (although lines are blurred) 26. Burns, Economic consequences of conflict Private donors ‘funding’ their rebels: privatization of aid actually fuels the war (outside od the diplomatic realm) Aid becomes part of the conflict IS aid recipient!!! • Aid is manipulated can be used as leverage (by IS), or taxed/used for IS (medecine supplies) • Aid trucks pay ‘taxes’ to rebel/terrorists IS Burns’ take is Interesting but is not clear on how to “responsibly allocate aid and resources” Highlights role of Non state actors (business and NGOs) in (inadvertently) fueling / maintaining conflict 27. Gleick, Natural Resources and Conflict • Political economy of conflict; Natural resources make conflicts possible, help sustain conflict, but are not (always) the cause of the conflict. • It’s about bad governance • Resource abundance (resource curse – paradox of plenty) or resource scarcity driving conflict? • Case of Syria, water source of conflict (shortage) ; used as weapon; • It’s more about failing institutions on how to deal with water shortage in a proper, accountable and just manner; • Broader issue of institutions on how to manage resources in a sustainable and accountable manner • But… water is also linked to (failed) agricultural policies, issue of land is coupled with water 28 Resource Curse more broadly • Rentier state (revenues derived from natural resources exploitation) fosters bad governance... • Associated with small arms, criminalization of the economy • Economic resources as a means to pursue a war OR going to war to pursue economic gains • Role of private companies in sustaining conflict (purchasing commodities, providing assets, operating concessions from rebels or illegitimate governments, helping procure arms) 30. Katsos, Differences between MNC and local company peace building activities in Syria (and Irak) Katsos (2018) studies the disconnect between the positive impacts on peace that companies can have and the negative impacts on peace that companies have actually had. Oetzel et al (2009) highlight four ways that business can achieve peace promotion: • promoting economic development, • engaging in track-two diplomacy, • enhancing rule of law through adoption of international codes of conduct and risk assessment, • promoting a sense of community. 31. Katsos, Differences between MNC and local company peace building activities in Syria (and Irak) • MNCs promoted peace when they enhanced the rule of law, invested in local capacity building, and provided funding for initiatives aimed at social cohesion. MNCs were viewed as contributing to violence when they worked with non-state armed groups, made corrupt payments of any kind to government officials, hired local private security firms, and did not have conflict-party aware practices in hiring employees and contractors. • Local firms were viewed as peace promoting when they continued to operate their businesses through paying employees and providing necessary goods and services. Importantly, local businesses perceived that peacepromotion must include cooperation with all parties to the conflict including non-state armed groups. 32. Katsos, Differences between MNC and local company peace building activities in Syria (and Irak) Corruption is the top challenge repeatedly mentioned by most interviewees; it is a hindrance to any type of peacebuilding. Closely linked with corruption were nonmerit-based hiring and procurement decisions, which took the form of sectarianism, cronyism, nepotism. Internal company training programs that focused on diversity, teambuilding, negotiations, and conflict resolution in particular were noted by some MNC country managers as having a large impact on the behavior of their workers. Efforts by MNCs to build social cohesion were also viewed as having impacts on peace, often under the banner of "corporate social responsibility". 33. Katsos, Differences between MNC and local company peace building activities in Syria (and Irak) Local firms: contribution to peace in continuing to employ workers and continuing to supply necessary goods and services. The owner of a food services chain in governmentcontrolled Syria noted that the private sector is “the only hope left” when there is no support from government Local company managers refused to do direct contracts with the government for fear of corruption. Can be seen as an example to the community; promoting peace by refusing to pay bribes and refusing to do business directly with the government at all. 34 Questions?
