The Syrian infrastructure suffered a huge damage as a result of more than 10 years of war, and there were many estimations of the total loss in all sectors. According to ESCWA report, the total damage to physical capital by the end of 2018 was estimated at $117.7 billion USD[1] , while the governorates’ share of the total damage remaining equals about $81 billion[2].
Conflict-induced damage accumulated in seven of the most capital-intensive sectors, namely, housing, mining, security, transport, manufacturing, electricity and health. The hardest hit was housing, at 17.5% of the total, followed by the mining sector, at 16%. The security sector (military and police) was estimated to account for 15.3% of total physical damage, which is reasonable as it contains the main military assets. The transport sector reached 12.6% of the total, while the manufacturing, electricity and health sectors accounted for 9.9%[3]. Moreover, it is evident that 27% of housing stock was damaged. Water and sanitation were greatly affected, with an average facility destruction of 40%. The public power supply dropped by 62.5% between 2010 and 2015[4], not to mention education, where the report said that 40% of school infrastructure is crippled[5].
Nonetheless, the estimations given by official authorities are not better. The ministry of electricity stated that the lost estimation in its sector is 4.8 billion USD, and the minister of economy said that the damages in energy sector alone are 195 billion USD. Moreover, the minister of transport said that the loss in transportation infrastructure are distributed as follows: 1.9 billion USD in roads, 1 billion in rail transportation, and 1 billion in air transportation. Despite the different estimations between international agencies and the government, it is clear that the numbers do not bode well.
Increasing investment in infrastructure leads necessarily to achieve sustainable development, and after the dust of war has settled down, Syrian decision makers are in front of a big challenge to rebuild infrastructure as an urgent step to pave the way towards economic recovery.
So, what are the options to fund such mission under the current devastating financial circumstances? In this article, we will discuss several options which are presented on the table: the traditional methods of funding and its limitations, and what could be alternative applicable options for the funding of such a process.
First: The traditional methods of funding, and the limitation within:
- Increase fiscal resources (fees and taxes):
Tax and fees collection usually forms an important traditional source of funding, and it can be useful in some cases even to finance big projects. But is it the case in Syria?
Under the big lack of financial sources and hard economic embargo, the government have resorted to impose new taxes and fees in order to increase revenues: starting with taxation on real estate sales, increasing tariff on mobile phones, increasing scientific professions’ income tax, and other. Moreover, the ministry of finance stated in its annual report that it is preparing the law of sales and evasion tax, and other legislations, which makes its tendency – unfortunately – clear. According to the annual report, the financial results obtained by those legislations are extensive, as the minister of finance have stated.
However, the notable transformation towards the ‘state of tax collection’ seems a bad decision, even if the government was compelled to take such path. New taxation under the current destroyed economic status has already badly affected badly the possible growth and movement of markets and increased the fears. Nonetheless, the size of collected fees after new taxations was not even enough to cover required expenditures, much less funding new projects, and the large deficit in the budget confirms such status. All the attempts to oversell the claimed substantial revenues that the government collected from taxes are unhelpful, unless we want to maintain the devastated status quo without any improvement. Moreover, the governments’ adopting of tax collection as a way to finance any building projects – even if it happened under other conditions – will cause retroactive effects on the funding process itself, since it will repel potential investors from all projects, especially big, expensive, and risky projects of infrastructure rebuilding.
- Domestic borrowing (treasury bonds):
Domestic borrowing through official issuances of long-term treasury bonds could be a possible option for funding, but Syrian Central Bank issued in the last two years short-term bonds as a domestic borrowing. In spite of the technical and legal readiness of Damascus Securities Exchange to manage the circulation of bonds on its platform, there were not any issuance of bonds in DSE market and platform, but an announcement from the central bank and ministry of finance of short-term bonds for public buyers with value of 300 billion SYP in 2020 and 2021. And the ministry of finance announced lately bonds with a term of five years and value of 200 billion, and it will be followed by another two issuances with the same value for each until the end of 2022.
The risks which comes with long-term bonds, such as inflation associated with currency depreciation, prevents using it as an efficient way for funding, and makes it difficult for the government to depend on it. In addition to that, according to the minister of finance, the reason that made the government issue the mentioned bonds is to cover up the deficit in the budget not as the official issuance say that it is for investment funding. All such risks and obstacles stand in front of benefiting such method, as it is a traditional way for funding in untraditional circumstances.
- Foreign borrowing:
This method is one of the main traditional ways to secure funding. The regular process is to issue long-term sovereign bonds in international markets to fund infrastructure building projects. But it is not realistic option for Syria because of sanctions, political factors, and the lack of trust in Syrian financial institutions. Although such option could provide a perfect funding for big infrastructure projects but it also has its problems – even if it is available at reality level – because of the difficulty to access international markets and debt management while the cost of such processes is usually high. However, the sanctions cut off the way to apply such funding options.
Second: Alternative options:
Our suggestions adopt options based essentially on the existent financial abilities of private sector (which is the case in Syria) whether they are companies or individuals, and the possibility of flexible and clear cooperation with the government to make such suggestions real and applicable. We will discuss four approaches concerning the subject.
- Public Private Partnership (PPP):
According to this method, the government offers the projects that it wants to build on private sector investors, who give the funding, management, and implementation with contracts up to thirty years long, as the government takes a share of the returns that such project makes – which could be in a form of annual proportion of returns or annual fixed payment. We have a perfect example on how such projects could work, and the case is Peru. There has been a successful PPP experience where the partners planned to build infrastructure projects in the transportation sector with funding up to 9.6 billion USD and 1.1 billion in oil sector. The procedures followed by the partners made the experience effective at the level of funding (reducing the costs to the minimum) and made the project delivery fast.
- Borrowing tools used to fund development projects (The Maximizing Finance for Development approach – MFD):
This approach is based on the ability of official service-type enterprises to issue and guarantee financial borrowing tools as long-term bonds from local financial market assigned only to implement specific projects. Such method could be applied only if we rebuild the trust in the official institutions. The governmental service-type enterprises which are part of such option should have a level of independency and self-management. To give a successful example, let’s get back to Peru, there we find that water and sanitation corporation delivered an extension of water and sewage pipeline with a value of 600 million USD in the Peruvian capital Lima using the MFD approach.
- Crowd funding:
This is one of the most efficient funding methods. it is based ultimately on the foundation of digital platform which collects small amounts of money from a large number of investors for infrastructure funding. The platform presents the project with its study of feasibility and the program of implementation until securing the needed funding. In addition to that, the platform should mention the type of funding whether it is in a form of a loan that could be back to investors with interest in a specific term, or as an investment share (a proportion from the project) and the investor can take profits from it. Such option is applicable in Syria. It does not need hard logistic support and all its requirements are available: the access to internet and governmental encouragement for online payment systems, efficient official and private banks with online services and applications, and above all, a lot of investors waiting to move their lazy money.
- Investments funds:
Investment funds are known as investment vehicles made up of a pool of funds that gather the capitals of a group of investors and manage them according to a specific strategy and investment goals which are set by the fund’s manager to achieve investment benefits. Such fund invests in big projects which neither the government, nor local contractors can afford its high costs alone. The Damascus Securities Exchange Law permits in its items to establish such funds, thus the legal framework needed for such methods is already here. Moreover, there is already an investment fund established under the name of ‘national investment fund’ according to the law no 2 for the year of 2012. The establishment was to contribute the investment funding in Syria.
Conclusion:
Funds based on the principle of profit are more effective and trust worthy under the current situation, and decrease the financial burden on the government. Syria represents a big opportunity for infrastructure investment considering the need of reconstruction, and the untraditional status needs untraditional and creative methods. In fact, we cannot wait the total political solution that everyone claiming that it is an unavoidable condition to start up and control the process of rebuilding. We all should use the time being – which floats in vain – at least to think of new – even if it is simple and modest – ways to open small windows of hope in such devastated atmosphere.
[1] ESCWA report: Syria at war: Eight years on/© 2020 United Nations/p.49.
[2] Ibid. p50.
[3] Ibid. p50.
[4] Ibid. p51.
[5] Ibid. p31.
Fouad al-Halabi is an independent analyst and commentator. He contributes with intermittent inputs of various kinds, occasionally commenting on selected topics, mostly related to Syria and its reconstruction as well as Near East´s and global challenges, news and events.
