Syria, the Gulf, and Reconstruction – What Possible Future?

Joseph Daher
Joseph Daher completed a Doctorate in Development Studies at SOAS, University of London, and teaches at Lausanne University, Switzerland. He is the author of Hezbollah: Political Economy of the Party of God (Pluto Press, 2016) and founder of the blog Syria Freedom Forever.

After nearly nine years of war in Syria, the massive destruction makes reconstruction one of the most widely debated issues in academic and policy-making circles in Europe and the United States.While Syria will not be able to bear the costs itself, its allies, Iran and Russia, are constrained by their sluggish economies. As the sources of foreign financing to fund reconstruction remain uncertain, the potential investments by Gulf monarchies in particular have been subject of much speculation.

This article argues that Gulf investments would have consequences on the political economy of Syria by deepening some if its characteristics, such as its reliance on projects in short-term profit-seeking sectors, mostly in trade, real estate and services. It will analyze firstly the growing regional economic and political significance of Saudi Arabia, the United Arab Emirates (UAE) and Qatar. Thereafter, it examines the evolution of their policies regarding the Syrian conflict and Damascus’ regime. Finally, the article discusses the implications of potential Gulf investments on the Syrian reconstruction process.

Saudi Arabia, UAE and Qatar: Growing Economic and Geopolitical Significance

Gulf Monarchies have increased their influence on the political economy of neighbouring states in the Middle East and North Africa (MENA) region over the past decades. Gulf funds are present in most of the economies of the region through various financial operations such asmergers and acquisitions, minority portfolio investments in other Arab stock markets, the establishment of cross-border subsidiaries, and control over licensing and agency rights.[1]Similarly, many non-oil countries are dependent on countries of the Gulf Cooperation Council (GCC) for worker remittances, aid, investment and tourism revenue (such as Egypt, Jordan, Lebanon and to a lesser extent Syria).

Since the beginning of the regional uprisings in the end of 2010 and 2011, Saudi Arabia, UAE and Qatar increased their political influence in the region via financial assistance and investment flows to various states facing protest movements. For example, the GCC promised $20 billion in early 2011, to be delivered over 10 years for Oman and over 5 years (from 2012 to 2017) for Jordan and Morocco.[2]Moreover, Saudi Arabia, UAE and Qatar have increasingly been intervening politically and militarily (directly or indirectly through proxies) in countries of the region and elsewhere, such as in the Horn of Africa, showing their growing military activities outsides their borders.[3]

In this context, the Gulf monarchies have been able to gain some autonomy allowing more space for independent political decisions and foreign policy choices, notably through its deepening relationships with Washington’s rivals, China[4]and Russia, without jeopardizing its relationship with the US government. This situation has, however, also led to growing intra-conflicts between Gulf monarchies, such as the opposition between Saudi Arabia and UAE against Qatar.

Syria – Evolution of Saudi Arabia’s, UAE’s and Qatar’s positions

Saudi Arabia and Qatar funded during the Syrian uprising various armed opposition groups, while significant divergences of opinion remained. The UAE adopted positions closer to Saudi Arabia, although with some divergences. Despite its initial opposition to the Syrian regime, for example, the UAE never entirely cut diplomatic relations with Damascus and the Syrian embassy continued to operate in Abu Dhabi.

Relations between Doha on one side and Riyadh and Abu Dhabi on the other side continued to worsen through the years because of competing objectives in the uprisings, leading to a first crisis in 2014 and a second in June 2017 in which Saudi Arabia, the UAE, Bahrain, and Egypt cut diplomatic and transport ties with Qatar.

In the case of Syria, Saudi Arabia and Qatar became increasingly isolated in the region in their willingness to overthrow Bashar al-Assad. Doha and Riyadh were also less able to expand or deepen their support to armed opposition forces in Syria. Saudi Arabia was stuck in a quagmire in Yemen, while Doha increasingly aligned on Turkish policy in Syria.

As the likelihood of Bashar al-Assad being overthrown decreased, Riyad and Abu Dhabi progressively softened its official opposition to the Syrian regime, while rather seeking to counter the influence of Iran, and of Turkey, a close ally of Qatar in Syria. The UAE is the country who went the furthest in its rapprochement with Damascus. In December 2019, the UAE diplomat in Syria, Abdul-Hakim Naimi, said he hoped “security and stability prevail throughout the Syrian Arab Republic under the wise leadership of President Bashar Al-Assad”, while adding that “Syria-UAE relations are solid, distinct and strong”.[5]

Saudi Arabia on its side has not officially reinstated official relations with Syria. Diminution of hostilities between the two actors are nevertheless present. In December 2019, the President of the Syrian Journalists Union participated in Riyadh in the General Secretariat meetings of the Arab Journalists Union, while few days before the newspaper Al-Watan, owned by Rami Makhlouf, was announcing the re-opening of the Saudi Arabia’s embassy “soon”[6]. In January, this same newspaper published an article saying that Syria’s permanent representative to the United Nations in New York, Bashar Jaafari, participated in a special ceremony held in honor of Saudi Minister of State Fahd bin Abdullah Al-Mubarak, in preparation for the Saudi presidency of the upcoming G20 meeting.[7]Political rapprochement between Syria and Saudi Arabia would particularly advance the relegitimization of the Syrian regime in the regional scene.

On the other side, relations with Qatar remains tense, Bashar Al-Assad denounced in several interviews in 2019 Qatar’s role in the war in Syria by funding people and groups to protest and oppose the Syrian regime, while no mentions were made of other Gulf Monarchies.[8]At the same time, the rather cordial relations between Qatar and Iran could facilitate a rapprochement in the future.

Implications of potential Gulf investments in Syria

Before 2011, Saudi Arabia, Qatar and the UAE were one of Syria’s largest Arab investors, mostly in real estate and tourism complexes and the financial sectorwith a total investment value (including projects not yet started or achieved) of respectively around 2,5 billion, 6 billion, and 20 billion USD by 2011. Perhaps unsurprisingly, the UAE has shown interest in new luxury real estate opportunities in Syria, especially the well-known Marota City project in Damascus.[9]The investments in the construction and real estate sectors correspond and reflect the nature of a speculative and commercial economic system that dominates the region, which is characterised by short term profit seeking.[10]Investments in luxury tourist and residential developments, for example, mostly from Gulf real estate companies, attracted around USD 20 billion in investments from the beginning of the 2000s to mid-2007, while it was estimated that USD 24 billion would have been the cost of upgrading all the country’s informal housing to a decent level.[11]

Although a potential reconstruction process looks like a distant prospect in the current period as a result of the lack of funds of the Syrian government and US sanctions, the Syrian government has begun promoting a model of economic development. Launched in February 2016, the “new economic strategy” of the National Partnershipbuilds on principles of Public Private Partnership (PPP) and privatisation of public goods. The National Partnership deepened the economic orientation of the Social Market Economic model developed during the mid-2000s, by which point the authorities were already placing significant emphasis on private capital accumulation and economic liberalization.[12]As Adam Hanieh argues, states tend to seize crises as moments of opportunity “to restructure and push forward change in ways that were previously foreclosed and significantly extend the reach of the market in a range of economic sectors that have hitherto been largely state dominated.”[13]

This deepening of economic liberalization is nowhere more apparent than in Syria’s reconstruction plans. In July 2015, the government approved a law allowing city councils and other local administrative units to form their own private sector holding companies. These companies come to manage public assets and services, thereby creating the space for regime cronies to generate rents from public assets by investing in these real estate schemes. For example, in fall 2016, a holding company named Damascus Cham Private Joint Stock Company was established with a capital of SYP 60 billion, to be completely owned by Damascus Governorate.[14]In 2018, Homs Governorate announced the establishment of a similar holding company, and authorities in Aleppo and the Damascus Countryside also followed suit this year. Until January 2020 none of these holding companies—except Damascus Cham—have actually started operations.

The policies of the Syrian government will likely continue to tighten the control of crony capitalists over public assets at the expense of the state and public interests. Moreover, the Syrian regime has designed reconstruction by introducing a whole new set of laws and decrees in order to expropriate individuals’ property and extract rents from reconstruction. The main objective in this policy is to reward the loyalty of its network of crony capitalists and foreign allies and to punish former rebel communities.[15]

The governments’ policies are not designed to remedy the country’s economic and societal challenges. Instead, the regime has sought to gain politically and economically from reconstruction, while solidifying its perceived security. In this context, the participation of Gulf monarchies in a possible reconstruction process through massive investments in master urban luxury plans would likely increase and deepen the dynamics of selective reconstruction and hindering the return of the displaced. Gulf rulers will unlikely put any conditionalities to their investments and rather seek economic and political profits. Similarly, Gulf investments will contribute to deepening the speculative commercial economic model found throughout the region, characterised by investment in short-term profit-seeking—mostly in trade, real estate and service sectors—to the detriment of the productive economy. The war reinforced these dynamics by allowing the emergence of new business actors, often with links with the security services, involved in various sectors of the war economy and increasingly seeking rapid returns on investments. The economic and business interests of these new actors often contrast with the possibility of re-boosting the productive sectors. This process had already started at the beginning of the 2000s with the liberalisation of the Syrian market, but traders have significantly increased their domination of the Syrian economy in these past few years, notably at great expense of manufacturers.[16]

Obstacles to Reinvestment in Syria

A set of obstacles exist for a reconstruction process in Syria. Estimates of the cost of rebuilding the country ranged from $250 billion to $400 billion,[17]figures that dwarf the entire government’s 2018 budget of 3.9 trillion Syrian pounds, or around $8.9 billion,[18]while the total assets of the private commercial banks operating in Syria were estimated to be around 2 trillion Syrian pounds ($4.4 billion) in mid-2018, one-third of their estimated assets six years earlier.[19]

At the same time, the funding of reconstruction by foreign capital remains unclear and insufficient, particularly as Russia and Iran currently encounter economic recessions while simultaneously maintaining high levels of financial and material support for the Syrian regime. Meanwhile, the participation of foreign actors in the reconstruction of Syria is linked to other international considerations and political developments—notably regarding the tensions between Iran and Western and regional states.

This is why the return of Gulf investments in Syria would represent a significant step towards the relegitimization of the Syrian regime on the regional scene and could bring the funds needed for the reconstruction process. However, despite official visits and potential investment opportunities between the UAE and Syria, no concrete steps have been taken as of now.

Alongside the high level of insecurity, corruption as well as a lack of a legal framework for potential investments, two other key factors are likely to deter Gulf investments in Syria: US sanctions and economic difficulties or major reforms plans in the UAE and Saudi Arabia.

The long reach of US sanctions is unquestionably a major concern for the UAE and other Gulf monarchies seeking to exert their influence in Syria. More generally, US pressure has impeded further political rapprochement between certain Arab regimes (notably Saudi Arabia) and Syria. In September 2018, for example, two UAE-based companies, International Pipeline Construction FZE74 and Sonex Investments Ltd,fell under US sanctions for supplying weapons and fuel to the Syrian regime.In July 2019, the UAE Minister of Culture cancelled funding of up to 25 million USD earmarked for the restoration of some parts of the old souks in Aleppo citybecause the project included several government schools and properties owned by the Ministry of Religious Endowments, which could have been targeted by US sanctions.[20]

The “Caesar Syria Civilian Protection Act” bill adopted in December 2019 will reinforce these dynamics by punishing any government or any private entity that contributes in reconstruction efforts in the country. The US could sanction any international company or individual that invests in the energy, aviation, construction, or engineering sectors in Syria, as well as anyone who lends funds to the regime.[21]

The Gulf monarchies mentioned can hardly endanger relations with its major patron. Between 60,000 and 70,000 U.S. troops are in the Middle East, including 13,000 in Qatar, 3,000 in Saudi Arabia, and 5,000 in the UAE.[22]Most of these states have defense cooperation agreements with the USA, while they are all important purchasers of US military equipment, including sophisticated missile defenses.[23]Economically, they also share important relations with billions of exchanges and investments between these countries.None of these actors want to lose the US market as it represents a major source of income for these countries and their companies. Therefore, the prospects for Gulf investments in Syria will remain uncertain as long as the US administration applies pressure to keep it that way.

Conclusion

 

Prospects of further Gulf monarchies’ rapprochement have been stalled as the US has tightened sanctions on Syria and political pressures, as they are unwilling to jeopardize their relations with Washington. At the same time, Gulf economies are facing difficulties of their owns or are focused on major internal economic strategic reforms. These factors have discouraged potential Gulf investments in Syria in the short term. Gulf investments in Syria, especially in reconstruction schemes, have so far gone no further than being announced and are therefore not expected to materialize soon, while Syria’s political and economic isolation remains. These limitations and obstacles make the prospect of Gulf investors returning to Syria soon relatively remote.

In this framework, the Syrian government’s reconstruction planremaining with limited impact because of the lack resources, sanctions and of security concerns, will fortify and strengthen the patrimonial and despotic character of the regime and its networks, while being employed as a means to punish or discipline former rebellious populations. With or without Gulf investments, reconstruction will likely be limited to luxurious real estate urban master plans.

Although reconstruction and economic recovery are absolute necessities for the population in Syria, these patterns should continue to prevent European and Western states to participate in reconstruction efforts. By re-legitimizing the Syrian government and reinforcing inequality, Western participation would leave unaddressed the demands and rights of millions of Syrians within and outside the country.

 

[1]Adam Hanieh,Money, Markets, and Monarchies. The Gulf Cooperation Council and the Political Economy of the Contemporary Middle East, (Cambridge: Cambridge University Press, 2018)

[2]Sally Khalifa Isaac, “Gulf Assistance Funds Post-2011: Allocation, Motivation and Influence”, IED Med Mediterranean, 2015, https://www.iemed.org/observatori/arees-danalisi/arxius-adjunts/anuari/med.2015/IEMed%20Yearbook%202015_Panorama_GulfAssistanceFunds_SallyKhalifaIsaac.pdf

[3]A struggle for control of ports and maritime routes has pitted Turkey and Qatar against Saudi Arabia and the UAE. More generally, over the last decade, Saudi Arabia, the UAE, Qatar and Turkey have considerably increased their physical, economic and political presence in Africa.(International Crisis Group, “Intra-Gulf Competition in Africa’s Horn: Lessening the Impact”, 19 September 2019, https://d2071andvip0wj.cloudfront.net/206-intra-gulf-competition.pdf

[4]Beijing has become the most important purchaser of Middle Eastern oil and gas over the last decade. Turkey, Qatar and the UAE have been pitching themselves as China’s best partners for its Belt and Road Initiative, whose projects stretch from the Indian Ocean and East Africa to the Horn and the Suez Canal

[5]Reuters, “UAE praises Syria’s Assad for ‘wise leadership’, cementing ties”, 3 December 2019, https://www.reuters.com/article/us-syria-emirates-relations-idUSKBN1Y71O0

[6]Al-Modon, “Head of the “Syrian Journalists Union” in Riyadh” (in Arabic), 7 December 2019, https://www.almodon.com/media/2019/12/7/رئيس-اتحاد-الصحافيين-السوريين-في-الرياض?fbclid=IwAR3ja0vulmNWQ4u54msDJyVi_9_pLIgB7MyQIQ2ah7FQP1ygzg0qvBVswsY

[7]Al- Watan, “Sources for “Al-Watan”: Al-Jaafari participated in a ceremony at the invitation of the Saudi delegate to the United Nations … Riyadh reaches out to Damascus” (in Arabic), 21 January 2020, https://www.alwatanonline.com/الوطن-الجعفري-مندوب-السعودية-الأمم-ال/

[8]See Régis Le Sommier, « Bachar el-Assad : “Français ou étrangers, les terroristes seront soumis à la loi syrienne” »,Paris Match, 28 November 2019,  https://www.parismatch.com/Actu/International/Bachar-el-Assad-Un-terroriste-est-un-terroriste-Francais-ou-etrangers-ils-seront-soumis-a-la-loi-syrienne-1661517; Russia Today, «Our problems started with 50 dollars Qatari » (in Arabic) , 10 November 2019, https://www.youtube.com/watch?v=sVdj6eAD6B0&feature=emb_logo

[9]Decree 66 allowed the Damascus governorate to expel the populations of two large areas in Damascus, including Basateen al-Razi in the district of Mazzeh, in order to develop the high-end real estate project named “Marota City” (Marota in the Syriac language means “sovereignty and motherland”). The inhabitants of these are- as were mostly working-class or lower-middle class. Decree 66 was inspired to some extent by a 2007 Damascus Master Plan that had not been implemented because of the beginning of the uprising in 2011. This area was and still is considered an immensely lucrative real estate opportunity: undeveloped farm- land and informal housing, some of it within walking distance of the centre of Damascus.

[10]See Gilbert Achcar, Le peuple veut, une exploration radicale du soulèvement arabe, (Paris: Sindbad-Actes Sud ; 2013) and Adam Hanieh, Money, Markets, and Monarchies. The Gulf Cooperation Council and the Political Economy of the Contemporary Middle East, (Cambridge: Cambridge University Press, 2018)

[11]Goulden, Robert (2011). “Housing, Inequality, and Economic Change in Syria,” British Journal of Middle Eastern Studies, Vol. 38, Issue 2, pp. 187–202.

[12]See Joseph Daher, “Public-Private Partnerships as a tool for privatization and reinforcement of clientelist networks”, Syria Untold, 11 November 2019, https://syriauntold.com/2019/11/11/public-private-partnerships-as-a-tool-for-privatization-and-reinforcement-of-clientelist-networks/

[13]Hanieh, Adam (2018) Money, Markets, and Monarchies. The Gulf Cooperation Council and the Political Economy of the Contemporary Middle East, Cambridge: Cambridge University Press, pp. 202-217.

[14]SANA, “With a capital of 60 billion pounds, Damascus Governorate launches Damascus Sham Holding Company..,” (in Arabic), 17 December 2016, https://www.sana.sy/?p=481994

[15]See Joseph Daher, “The Paradox of Syria’s Reconstruction”, Carnegie, 4 September 2019, https://carnegie-mec.org/2019/09/04/paradox-of-syria-s-reconstruction-pub-79773; Joseph Daher, “Beyond Physical Reconstruction: Planning a Stable and Prosperous Post-War Syria”, in REBUILDING SYRIA The Middle East’s Next Power Game?Edited by Eugenio Dacrema and Valeria Talbot(ISPI 2019),

https://reliefweb.int/sites/reliefweb.int/files/resources/ispi_report_rebuilding_syria_2019_0.pdf

[16]See Joseph Daher, ‘The political economic context of Syria’s reconstruction: a prospective in the light of a legacy of unequal development,’ European University Institute, https://bit.ly/2GtYYsq

[17]World Bank, “The Toll of War. The economic and social con- sequences of the conflict in Syria”, 10 July 2017, https://www. worldbank.org/en/country/syria/publication/the-toll-of-war- the-economic-and-social-consequences-of-the-conflict-in-syria

[18]Frieh (al-) M., “Cabinet approves state budget bill for 2019 at SYP 3882 billion,” SANA, 21 October 2018, https://www.sana.sy/en/?p=149355

[19]The Syria Report, “Syrian Banks Unable to Finance Reconstruction,” 21 July 2017,

https://www.syriareport.com/news/finance/syrian-banks-unable-finance-reconstruction

[20]See Joseph Daher, “The Dynamics and Evolution of UAE-Syria Relations: Between Expectations

and Obstacles”, European University Institute, November 2019, https://cadmus.eui.eu/bitstream/handle/1814/64727/MED_2019_14.pdf?sequence=1&isAllowed=y

[21]https://www.congress.gov/bill/116th-congress/house-bill/31/text#toc-idb67a7c8f16534783b2f85289c204eef6

[22]Rashaan Ayesh, “Where U.S. troops and military assets are deployed in the Middle East”, 21 September 2019,

https://www.axios.com/where-us-troops-deployed-middle-east-5e96fdb2-c7ba-4f26-90b4-7bf452f83847.html

[23]Congressional Research Service, “The United Arab Emirates (UAE): Issues for U.S. Policy,” 16 August 2019, 2,

https://bit.ly/2JYR0r9

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