One month after the UN dubbed the doings of the self-proclaimed Islamic State (IS) as “mass atrocities” and on the eve of 9/11, US President Barack Obama announced air strikes against IS in Syria and in Iraq. Five other Arab countries have signed on to be the US’s allies in counter-terrorism: Bahrain, Qatar, Saudi Arabia, Jordan and the United Arab Emirates. In August, the US Federal Aviation forbids any American airline to fly to Syria. All these developments come to cement the fact that the Syrian crisis is worsening. According to the UNHCR, the number of registered Syrian refugees now exceeds 3 million.
As for the National Coalition, it believes that the Syrian rebels are not getting enough arms from their supporters. The new president of the coalition, Hadi al-Bahra, who is close to Saudi Arabia and which was appointed as Ahmad Jabra’s successor in July promised to find a political solution to the Syrian conflict.
The raging Syrian scene has put a lot of pressure on the government and has made it harder to maintain subsidies of basic commodities. This is why the price of basic foods such as sugar, rice and bread has been lifted in July. The price of sugar and rice were increased from 25 SYP/kg ($0.16) to 50 SYP/kg ($0.32) and the price of bread was lifted by more than 67%. On the unregulated markets, the price of commodities such as sugar and rice can go up to 600 SYP ($3.89).
With the progressive removal of subsidies and with a wrecked industrial sector, living conditions for individuals and operating conditions for companies are becoming increasingly difficult. The industrial sector was hit hard by the war: Investment spending reached SYP 123M ($0.80M) in the first half of 2014 (H1 2014) compared to a planned SYP 1.6B ($0.01B). In fact, the realization of any kind of investment has become problematic after the public debt fund has stopped handing out loans. Thousands of companies went out of service while those who are still operational are having a hard-time surviving. In H1 2014, total sales amounted to SYP 38.4B ($0.25B) compared to a planned SYP 242B ($1.57B) and therefore stocks have increased from SYP 14.5B ($0.09B) at the beginning of the year to SYP 51.3B ($0.33B) in H1 2014. Imports of industrial companies were also lower than expected in H1 2014 standing at SYP 5.8B ($0.04B) compared to an expected SYP 48.6B ($0.32B).
The tough operating conditions have left many areas underserved, especially that the quality and availability of services varies from one region to the other. Saccal Holding, a Lebanese manufacturer of generators and power solutions, has identified a growing demand for generators in Syria due to the damages inflicted by the war on electricity infrastructure and has therefore opened a warehouse in Syria.
The Syrian conflict has generated several operating barriers for companies in the industrial sector. Due to the sanctions imposed on Syria and due to disruptions to trade routes, spare parts are difficult to acquire and obsolete machines cannot be replaced since foreign experts are not available.
The flow of goods in and out of the country has been greatly affected by the conflict. The Syrian government announced in July that it’s planning on getting yet another line of financing from its key ally Iran in order to finance imports. Most of the imports made by the General Foreign Trade Organization are made up of rice, sugar, flour and medicine and have inevitably increased due to their nature as basic commodity goods, from SYP 22B ($0.14B) in 2011 to SYP 30B ($0.19B) in H1 2014. In contrast, the sales of the General Foreign Trade Organization have drastically declined from SYP 23.5B ($0.15B) in 2011 to a mere SYP 5B ($0.03B) in H1 2014. Meanwhile, public sector imports financed by the Commercial Bank of Syria totaled SYP 66B ($0.43B) in the first five months of 2014, in line with the government’s strategy of providing public institutions with basic commodities.
As the conflict intensifies, the provision of basic commodities while keeping subsidies becomes more of a challenge. However according to news agency SANA, it is estimated that social subsidies have been increased by SYP 368.5 billion ($2.31B) to 983.5B SYP ($6.16B) in the 2015 budget. Around SYP 338 billion ($2.12B) will be allocated to subsidize oil derivatives, SYP 413 billion ($2.59) for electric power and SYP 195 billion ($1.22B) for flour, sugar and rice and other allocations.
The weak foreign trade activity puts pressure on the already depleted foreign reserve assets of the Central Bank and renders open-market operations harder to execute. The Syrian pound’s official peg against the dollar stands testimony to that going from 149.25 SYP for the dollar at the end of July to 153.35 SYP at the end of August and to 159.7 SYP at the end of September 2014. The value of the Syrian pound was at its lowest in almost four years in September registering 160 SYP for the dollar.
The Damascus Securities Exchange weighted index reached 1,298.29 points at the end of September, 1% lower than its value at the end of August. 412,000 shares, worth SYP 52M ($0.33M) were traded in September compared to 3,000,000 shares, worth SYP 295M ($1.85M) in the previous month. The only gainer of the month was Bank of Syria and Overseas with a monthly gain of 1.33%. However, Syria International Islamic Bank was the biggest loser with a drop of 4.62%, followed by a decline of 4.13% for ChamBank, 2.68% for Qatar National Bank Syria, 1.94% for Al-Ahlia Transport Company and 1.83% for Al-Ahlia Vegetable Oil Company.