AnalysisHomeMunther Khaddam

The pre-2011 shadow economy in Syria

Funding investment depends primarily on the government’s local and private resources, and secondly on external resources. Regardless of the source of the investment funding, the Syrian economy is facing a dangerous and chronic problem of the shadow economy, which includes all illegal economic activities. The shadow economy includes various illicit economic activities like smuggling, tax evasion, financial waste, and many other activities.

During a panel entitled “Discussing the Investment Climate in Syria,” which was presented to a forum named “Anticipating the Development Path in Syria until 2025” administered by Jamal Barout and funded by the UN Development Fund with the presence of about 70 academic figures and government officials, the numbers showed the amount of waste and looting of the national economy.

According to official sources, waste in the Syrian economy has caused the loss of about 40% of the total output in 2002, which was estimated at $21.9 billion at the time; one dollar was about 45 Syrian Pounds (SYP). This means in order to control only the economic waste, it was possible to secure financial resources enough to shorten the targeted period of the country’s tenth five-year plan nearly by half.

The private sector, whose economic activities constitute about 60% of total economic activity in the country, contributes only by 15% of the country’s total income tax. The costs of tax evasion are no less than 50 billion SYP per year, and they include different and varied tax brackets – for example, the lack of documentation of foreign agencies, which import about 185 billion SYP annually. If we take into account the commission of up to 4%, with a simple calculation, it is clear that the country’s treasury losses of this type alone add up to more than 6 billion SYP.

Adding to this, the traders manipulate import invoices, as they are reduced by 20 to 30% of their real prices, while the real selling prices are increased by 10 to 30 %, or about 30 to 60 % of the prices on the invoices. This causes the country’s treasury to lose large amounts of money.

International bank reports indicate that the shadow economy in Syria causes the loss of 20 to 40% of the non-added domestic output to be lost through smuggling routes, bribes, commissions in order to obtain gains, tenders, or private sale of the country’s institutions.

Syria loses about two billion Syrian pounds annually just due to the low wages that Syrian workers in Lebanon receive. This loss resulted in a trade imbalance between the two countries. While Syrian exports to Lebanon doubled during 2000 and 2003, Lebanon’s exports to Syria increased by 11 times.

It is no secret how large a benefit Lebanon reaped from the money of Syrian migrants working in Lebanon due to the weakness and underdeveloped bank credit in Syria. The shadow economy in Syria is very active, and if it were subjected to the rule of law, would contribute $11 billion to the country’s treasury – an amount that exceeds the total amounts dedicated for the investment annually – to double the domestic output in 2020 as a goal of the goals of the tenth five-year plan.     

Illicit self-enrichment is a well-known case in all countries under normal circumstances at different degrees, where weak souls deal with it through bribes and commissions to facilitate jobs or to bypass the law, circumvent it, or disrupt it.

This case was widespread in Syria before the uprising against the regime in March 2011 due to the corrupt nature of the regime, and was one of the main reasons for the uprising.

The approach that depends on running the country through corruption has resulted in the activation of the looting instincts of the country’s apparatus, society, and economy, where looting and bribes have become among the main economic means in administration and social control.

This policy has led to the formation of a security coalition of the bureaucratic bourgeoisie, comprador, leeches, and the security apparatus to form political power that maintains the status quo.

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