Interview: Prospects for investment in Syria’s reconstruction

Interview: Prospects for investment in Syria’s reconstruction

With ISIS seemingly on the retreat, is it time for investors to start considering opportunities in facilitating Syria’s reconstruction? GRI’s Chris Solomon asked Syria expert Rasmus Jacobsen – co-founder and head of analysis for Atlas Assistance, a Beirut-based risk management company – for his views on the risk outlook.

Chris Solomon: What changes have you seen play out on the ground in Syria in 2017 in terms of humanitarian relief or reconstruction? Is there anything important that Western media coverage hasn’t touched upon?

Rasmus Jacobsen: The reconstruction is indeed already underway and Western media generally appear to be largely ignorant about the substantial groundwork being done by governments, companies and individuals seeking a future role in Syria’s reconstruction, probably because the West is simply missing out.

The governments of Russia, Iran and China have already secured huge contracts in the hydrocarbons, minerals, telecommunications, construction and electricity sectors among others. Similarly, companies and individuals from the BRICS group as well as countries like Lebanon, Iraq, Armenia, Belarus and Serbia are registering local branches of existing enterprises, incorporating local Syrian companies and concluding bilateral partnerships with Syrian actors. Foreign nationals are incorporating businesses in Syria almost every day.

In parallel, the Syrian government has recently passed loads of legislation to enable an effective but state-controlled reconstruction, including changing regulations for business capital requirements, working permits, imports, construction
permits, and cross-border cash transfers.

The accelerated pace of reconstruction since 2017 has unquestionably been a result of military developments over the past 15 months – especially Assad’s victory in Aleppo city, the effective collapse of the Islamic State ‘caliphate’, and the recent rebel losses in Hama and Idlib after a halt to US military and financial support – leaving it increasingly clear that the Syrian government will stay in power. These military developments will further attract potential investors and accelerate the reconstruction – with or without Western involvement.

However, it is worth noting that it is very unlikely that non-western investors alone will be able to cover even half of the estimated 200-300 billion USD needed for the reconstruction of Syria. Without western involvement, it could take decades
before Syria is rebuild to its pre-2011 levels. The US and Europe see this as leverage to force Assad to make concessions in a political settlement. These ambitions nevertheless appear highly futile, as the Syrian government has shown little willingness in compromising its hold on power, especially towards states having supported the opposition and rebel groups.

CS: How is Lebanon preparing to aid post-war reconstruction? A while back, there were several stories about the city of Tripoli positioning itself as a hub for reconstruction. Would you say this is still true?

RJ: Yes, very much so. The reconstruction of Syria is estimated to create an annual demand of 30 million tonnes of port cargo capacity, with the seaports in Tartous and Latakia only able to manage around 15 million tonnes.

The Lebanese authorities want to fill part of this gap from Tripoli port in northern Lebanon. They are proceeding with plans to build a ’Special Economic Zone’ next to Tripoli port, which was fitted with advanced Chinese cranes and loading systems last year as part of a wider expansion of port capacity.

Prime Minister Hariri has repeatedly pledged to breathe new life into Tripoli’s stagnating economy by ensuring the city takes a key role in the reconstruction of Syria. However, his troubled relations with Syrian President Bashar al-Assad could pose significant obstacles down the line unless Hezbollah and/or President Michel Aoun step in to mediate.

Additionally, Hariri will also struggle to overcome Lebanon’s internal problems, mainly the deep divisions and inefficiencies of a highly corrupt political system based on patronage networks – especially in the infrastructural sector – which is particularly pronounced in Tripoli and explains much of the city’s socio-economic morass.

CS: What is the current economic and social situation in Damascus? Are Syrians returning?

RJ: Naturally, the socio-economic situation in Damascus has been massively affected by the war, including steep drops in real salaries, employment rates, public service provisions and accessibility to some basic goods, especially imported ones. However, the general absence of heavy clashes in the city centre throughout most of the conflict, the presence
of wealthy political and economic elites, as well as the continually open border with Lebanon at Masnaa has left Damascus in a far better socio-economic situation than most other parts of the country.

Any first-time visitor to central Damascus might be surprised with the city’s general conditions, including well-paved roads, waste collection, public transportation, open restaurants and busy commercial areas. In several of these aspects as well as in terms of electricity and Wi-Fi, central Damascus is on or even above levels seen in several parts of Lebanon and Jordan.

These – surprising to some – good conditions come despite the large influx of IDPs from other areas, since the limited fighting in Damascus means the city has actually been a destination more than a source of IDPs and refugees, and testify to the government’s keenness on maintaining a sense of normalcy in the capital.

CS: Is the ongoing heavy fighting in Eastern Ghouta impacting this at all?

RJ: From 2015 until late 2017 the situation in East Ghouta had limited implications on central Damascus, apart from sporadic rocket strikes that occasionally escalated into outright barrages lasting hours or days. These regularly killed and injured Damascene civilians and brought normal life to a halt, especially in the eastern neighbourhoods close to the frontline like Jaramana, Dwela, the Old City, Abbasiyeen and Dahiat al-Assad. But such disruptions were generally short-lived.

However, the fighting in East Ghouta has intensified dramatically since November 2017 and especially since mid-February. While the destruction and civilian suffering has been concentrated in the rebel enclave, a recent surge in rebel rocket fire and mortar shelling into central Damascus has left more than 100 civilians killed and nearly 600 injured over the past 3 months. This has naturally had greater disruptive effect on the city’s commercial life than was the case from 2015 to late 2017.

Pro-government forces appear to have made a strategic decision to finally bring the restive rebel enclave under control. Sadly, a negotiated solution appears as distant as ever in spite of the mounting civilian casualties, as current government offers for a reconciliation/surrender deal are unacceptable to local rebels. Despite the declaration of a 30-day ceasefire in late February, the recent surge in violence in East Ghouta and the rocket fire and mortar shelling into central Damascus suggest the situation will be very difficult to contain.

CS: What in your view are the main risks to Western post-conflict investment in Syria?

RJ: Besides the obvious physical security threats to assets and staff, companies operating in Syria will also need to carefully manage their relations with the authorities. Damascus wants to ensure that the reconstruction will also benefit its supporters, including Syrian businessmen assisting in bypassing international sanctions and/or having funded pro-government militias like George Haswani, Ayman Jaber or Assad’s cousin Rami Makhlouf. In this respect, developments in Syria to some extent resemble post-civil war Lebanon’s crony capitalism when Rafik Hariri favoured his political allies and backers as he consolidated his power base during the country’s reconstruction period in the 1990’s.

Additionally, the Western role in Syria’s reconstruction will also hinge on the still unclear long-term Syria strategy of the Trump administration. There are signs that the White House’s plans to undermine President Assad and Iran in the medium-to-long-term will include pressuring US allies in Europe and the Middle East into some kind of economic blockade on Syria, including preventing steps facilitating the reconstruction. Considering the sheer size of Syria’s reconstruction needs, Western companies and US allies in the Middle East could try to dodge such measures, but few will properly try if the sanctions regime is expanded further.

Foreign investors will in other words be eyeing increasingly promising business opportunities in Syria’s already initiated reconstruction phase, but will also have to navigate a complex operating environment, which will likely not be an easy task.

Rasmus Jacobsen is Co-founder and Head of Analysis for Atlas Assistance, a Beirut-based risk management company that provides analytical reports, security consulting and training to organisations across the Middle East. He has expertise in tracking and interpreting trends not covered by mainstream analysts, and is dedicated to help international actors translate risk intelligence into sound operational practices.

About Author

Chris Solomon

Chris Solomon is a Middle East Analyst and works for a U.S. defense consultancy in the Washington DC Metro Area. He has presented at the University of Maryland’s School of Public Policy, on the U.S. strategy to combat ISIL. Chris’ writing has also appeared on NATO's Atlantic Treaty Association, Raddington Report, Small Wars Journal, and Syria Comment. He holds an MA in International Affairs from the University of Pittsburgh’s Graduate School of Public and International Affairs (GSPIA). You can follow Chris on Twitter @Solomon_Chris