The Unintended Consequences of U.S. and European Unilateral Measures on Syria’s Economy and Its Small and Medium Enterprises Samir Aita December 2020 The Unintended Consequences of U.S. and European Unilateral Measures on Syria’s Economy and Its Small and Medium Enterprises Samir Aita December 2020 The Carter Center One Copenhill 453 John Lewis Freedom Parkway Atlanta, GA 30307 [email protected] www.cartercenter.org © 2020 by The Carter Center. All rights reserved. Acknowledgements This paper and the research behind it would not have been possible without the exceptional support of colleagues at the Cercle des Economistes Arabes and the availability of data from the MGAL (MENA Geopolitical Analytical Lens, Independent Consultancy), especially in conducting some of the field interviews. The author is grateful to Rabie Nasr and the Syrian Center for Policy Research (SCPR) as well as to NGO REACH for their inflation data. The author is also grateful to individuals interviewed and those who reviewed chapters during the process of elaboration. The results of some interviews are reproduced as is, unaltered, in separate boxes, and do not necessarily represent the views of the author or The Carter Center. All data are those of the author and the Cercle des Economistes Arabes. Circle of Arab Economists logo About the Author Samir Aita is president of the Cercle des Economistes Arabes; former editor in chief and general manager of “Le Monde diplomatique éditions arabes”; lecturer of political economy at the University of Paris Dauphine, Paris II Sorbonne and Saint Joseph, Beirut; and consultant in economy, finance, labor, and urban planning. Born in Damascus (Syria) in 1954; studied at Ecole Polytechnique and Ecole Nationale des Ponts et Chaussées; postgraduate degree from the Ecole des Hautes Etudes en Sciences Sociales, the Institut National des Sciences et Techniques Nucléaires, and HEC Executive Management (CPA-HEC). He is currently senior consultant with UN agencies (UNHabitat, UNDP, ESCWA) and other international organizations, mainly on the Middle East, including Iraq, Syria, and Libya. 2 Contents Executive Summary ....................................................................................................................................... 5 I. Introduction ............................................................................................................................................... 9 II. Background ............................................................................................................................................... 9 A. The Unilateral Measures on Syria .................................................................................................... 9 B. The Literature on Unilateral Measures .......................................................................................... 10 III. The Direct Economic Impact of U.S. Unilateral Measures ..................................................................... 12 A. Syria Foreign Trade ........................................................................................................................ 12 B. U.S. Trade with Syria ...................................................................................................................... 15 C. The Structure of Syrian Imports ..................................................................................................... 16 D. Syria’s Trade with Turkey ............................................................................................................... 17 E. Syrian Exports ................................................................................................................................ 18 F. Foreign Trade Procedures .............................................................................................................. 19 IV. The Indirect Impact of the Unilateral Measures .................................................................................... 19 A. The Unilateral Measures and the Political Economy of the Conflict ............................................. 19 B. The Unilateral Measures Procedures, De-Risking, and Overcompliance ...................................... 24 C. Listing Individuals and Organizations on Unilateral Measures ...................................................... 25 V. The Impact on Agriculture and Food Security ........................................................................................ 26 A. Syria’s Agricultural Production ...................................................................................................... 26 B. Wheat Agricultural Production and Food Security ........................................................................ 28 C. Fertilizers ........................................................................................................................................ 31 D. Barley ............................................................................................................................................. 32 E. Sheep ............................................................................................................................................. 33 F. Cotton ............................................................................................................................................ 35 G. Tomatoes ....................................................................................................................................... 37 H. Cumin ............................................................................................................................................. 38 VI. The Impact on MSMEs ........................................................................................................................... 39 A. The MSMEs in the Syrian Economy ............................................................................................... 39 B. The Private MSMEs in Industry ...................................................................................................... 41 C. Provision of Electricity ................................................................................................................... 43 D. Provision of Water ......................................................................................................................... 46 E. The Pharmaceutical Industry ......................................................................................................... 46 F. The Trade SMEs ............................................................................................................................. 50 3 VII. The Impact on Private Banks, Exchange Rate, and Inflation ............................................................... 52 A. Syrian Private Banks ....................................................................................................................... 53 B. The Hawala and Informal Transfers ............................................................................................... 57 C. Exchange Rate and Dealings .......................................................................................................... 59 D. Prices and Inflation ........................................................................................................................ 61 VIII. The Impact of the Role of Neighboring Countries ............................................................................... 63 A. Turkey ............................................................................................................................................ 63 B. Jordan ............................................................................................................................................. 64 C. Iraq ................................................................................................................................................. 64 D. Lebanon ......................................................................................................................................... 65 IX. The Unilateral Measures and the COVID-19 Crisis ................................................................................ 66 A. Syria and COVID-19 ........................................................................................................................ 66 B. The Unilateral Measures and COVID-19 ........................................................................................ 67 X. The Expected Impact of the Caesar Act .................................................................................................. 68 XI. Conclusions and Policy Recommendations ............................................................................................ 70 XII. Bibliography .......................................................................................................................................... 72 XIII. Glossary of Abbreviations .................................................................................................................... 75 4 Executive Summary This report analyzes the effects of U.S. and European unilateral measures (sanctions) imposed upon the Syrian economy since 2011 ― more specifically, the impact on its agricultural, small and medium private enterprises (SMEs), and private banking sectors. The report does not address the unilateral measures imposed on individuals, but those related to state institutions and networks of the Syrian