14 April 4:00pm – 5:30pm

At the Civil Society Forum at the Spring Meetings, the Arab Network for Development & the World Bank MENA Team organised a panel discussion on the socio-economic impacts of the Syrian crisis, the outgoing flow of migration and the World Bank’s model on how to tackle these issues following its new report. Highlights of the discussion are reflected here.

Speakers:

Björn Rother, Advisor Middle East & Central Asia Department, International Monetary Fund

Samir Aita, President of the Cercle des Economistes Arabes

Rabie Nasser, Researcher at the Syrian Center for Policy Research

Ahmad Awad, Director of the Phenix Center, Jordan

Shanta Devarajan, MENA chief Economist of the World Bank

Michel Samaha, Affiliated Researcher at the Arab NGO Network for Development (moderator)

Shanta Devarajan:

The World Bank published two papers on Syria and its refugees in January 2016. While there is a lot of discussion about refugees in Europe, that is actually only a tiny fraction of Syrian refugees. Most are in Jordan, Lebanon and Turkey.

In our report, we looked specifically at refugees in Turkey. They are overwhelmingly young, with 1/3rd of the Syrian child refugees in Turkey born during the conflict. Of the refugees in Turkey, 1/3rd had lost a family member to the conflict, and a quarter million to half a million Syrians have died. Over 50 per cent of refugees asked said they had a family member that needed psychological support, which reveals perhaps the most devastating effect on the long term.

We also decided to take a look at what’s going on in Syria. As you all probably know better than I do, the conflict in Syria has been devastating. We estimate 70 to 80 billion of capital stock has been destroyed. Total costs of reconstruction have been estimated at 200 billion USD. There are also particularly acute losses, like health facilities that have been specifically targeted. Estimates suggest only 1/3rd of hospitals in Syria are still functional. 42 per cent of the people inside Syria lack healthcare now. Childhood diseases that were defeated are now reappearing, measles, polio, child malnutrition, which can lead to life-long cognitive impairments.

When the conflict is over we know there will be a massive surge of support from the international community to reconstruct and reconcile, but we should start that process now and prevent further deterioration. That means having something ready to move on day one of the end of the conflict.

Its important to understand this is not just going to be about rebuilding roads and homes, but also rebuilding trust. If we start rebuilding now we may be able to start build that trust as well.

Björn Rother:

It is certainly important to start preparing for end of the conflict, but its also important to understand what living under conflict in daily life really means for policy and reconstruction. First, how have conflict reconstructions developed in history. If you look at the long term perspective in the Middle-East and North Africa (MENA) region, conflict has been a very common feature of life. Conflict has been an ongoing feature in the lives of people living in the MENA region, driven by deep cleavages in society that are difficult to overcome. The MENA region really stands out in this, not just having more frequent conflict but also more intense conflict, which has increased in the last 15 years. A third feature is that when conflicts last for a very long time, like we have seen in Somalia, Iraq and Afghanistan, it really affects the economic recovery differently.

We see four big drivers that make conflict very costly economically. 1. Physical destruction, this includes loss of human capital. 2. Displacement 3. Loss of confidence in institutions and markets 4. Loss of political cohesion.

What does this mean for policy makers? Three concepts are important: 1. Prioritise spending on safety and basic needs. This is easier said than done because revenue will have shrunk enormously so even meeting basic needs will become difficult. For example, do you choose to maintain salaries of public sector workers or food subsidies to people? 2. Stabilisation. With conflict comes loss of trust, so an open exchange rate system is crucial. 3. Protect your institutions that are important for economic policy making, such as a reasonably functioning central bank, treasury and fiscal office.

Towards the reconstruction agenda, rebuilding is one big priority which requires an enormous resource mobilisation, for which the international community will be called on. There is also the question of what to do with refugees in the countries they are in now? Should they have access to labour markets if they cannot go back? Finally, more broadly and important in terms of conflict prevention, is the advance of an inclusive growth agenda to create conditions from an economic point of view that lives are improved and better living standards are achieved under peaceful conditions.

In terms of tools to be used by the international community, there are four big levers to use to help Syria. 1. Trade access to enable easy trade between your country and Syria. 2. Financing needs are huge, so that means making financing available and offering highly concessional loans. 3. Providing policy advice 4. Offering capacity building assistance across a broad range of issues.

Samir Aita:

First, it is astonishing the World Bank had not produced any real analysis on Syria until January 2016, when it suddenly brought out two reports together.

In terms of the ‘migration problem’ in Europe, Syrians actually only make up 1/3rd of those in Europe. The rest are coming from the Balkans, Afghanistan, Iraq, Eritrea and other countries. The terrorist attacks most recently committed in Europe were also not committed by refugees, but by people who had lived in Europe for generations.

The analysis of the World Bank is not only late but also insufficient. Its report says Jordan is overwhelmed by humanitarian aid and that it is far from reaching equilibrium able to be managed in Jordan. Actually, the situation in Jordan and Lebanon has stabilised since 2014. Also most waves of the immigration out of Syria took place regionally, meaning people crossed over the border nearest to them. That means in Turkey the burden is very much carried by the southeast, but the World Bank’s report does not even cover Turkey. There are also criticisms to be made about how the Bank measures the poverty of the refugees, and how they were even counted in the first place, perhaps even leaving the most vulnerable groups out of the official analysis.

Then there is how the World Bank presented the reasons for the crisis in its analysis. It basically put the whole conflict on drought. It said that the people who were refugees were already displaced in Syria before the conflict because of the drought. That is not true, it was actually failed economic policy that led to the biggest wave of rural-to-urban migration, before the drought ever came to Syria. In 2003 alone, the work force in agriculture had been halved with everyone moving to the cities, which was well before the drought.

Informal employment is also not taken into account in the World Bank’s analysis at all. In places like Syria official number on employment and the minimum wage become very meaningless because of the high levels of informal employment. In fact, the period before the conflict was actually marked by real economic development with high growth rates, according to the IMF. This was just marked by crony capitalism and very high levels of inequality. Those failed economic policies not taken into account by the World Bank or IMF are therefore what actually led to the conflict, not a drought.

In terms of the impact of refugees on hosting communities, the report also claims many refugees were actually already working in neighbouring countries. The report estimates that over 300,000 Syrians were working in Lebanon before the crisis. If that were true, just them bringing over their families would be 1.5 million refugees in Lebanon, more than the official number there are now in Lebanon. This analysis of the Bank is therefore also not right.

It is also important to have said that foreign aid given to Lebanon and Jordan did have a positive effect on growth, something many countries like to sweep under the rug. It provided a 1.3 per cent GDP boost to Lebanon and 0.7 per cent GDP boost to Jordan.

Shaping a developmental post-conflict model:

We have to try to ask basic questions. Where are refugees going to return to? They often came from informal areas or slums now destroyed by the war. Should they go back to slums? Or new houses? Everyone wants to get back ‘home’, but homes as the Syrian people knew them simply don’t exist anymore. This needs a big think.

Second, what can Syrians returning to Syria do for work? Especially if the skilled workers remain abroad?

Whatever the political solutions to these problems are, state institutions are very weak, while reconstruction has to take place with an incredibly fractured map of Syria.

The proposed framework:

1. Cope now with development of hosting regions

2. Create incentives for the return of the refugees

3. Lift general financial sanctions on Syrian now

4. Think development regionally

5. Create a decent employment environment

6. Create positive expectations for post-conflict development

7. Think local, act global

Shanta Devarajan:

The reason why the report looked just at Jordan and Lebanon is just a matter of how the World Bank is organised, Turkey belongs to a different World Bank region. We also have been doing reports on the Syrian crisis for the last three years. We also did a calculation in my office on the impact of the breakdown in trade between the countries as a result of the civil war, which we estimate to be 35 billion dollars. We can only work as fast as data becomes available, though. The report talked about here was only able to get done because UNHCR finally allowed us to use their data.

I don’t think the World Bank implied the reason for the crisis was the drought. Even the drought just having something to do with it is considered controversial. Some of these refugees were internally displaced before, some of that was due to the drought. But we all understand and know the conflict runs much deeper than the drought.

I actually think that the special enterprise zone is an example of the kind of thing we can do for Jordan, with a huge unemployment problem, with preferential trade treatment of EU. This might actually attract multinational firms to invest in Jordan. The nature of globalisation has shifted in the last 20 years. While you can now run your factory on the internet, firms are actually now moving closer to their factories. No longer are people putting factories in China. The U.S. has factories in Mexico, Japan in China, and the EU in Eastern Europe. If the EU invests in Eastern Europe they can invest in Jordan too. It is an opportunity for Jordan to become part of that international supply chain.

Question and Answer

Participant: We have to be careful with special industrial zones. We have had them in Jordan before and they did not work at all, especially the status of workers there has been controversial. There have been terrible reports of human trafficking etc. and all the owners of these businesses are still complaining their prices are still higher than those of China.

SD: While that is all true, we have now learned a lot from the special industrialised zones we ran. This has been a huge lesson for the Bank. We think this can work for Jordan now because before, they did not have preferential treatment with the EU. Now that is on the table, which can make a big difference in practice, so profits can be made. In terms of labour standards, there is a lot of corporate social responsibility and social standards that are crawling over this issue.

Participant, ITUC: Why do you need export processing zones where labour rights are absent. This discussion does not just take place in the MENA region, this is also an issue in Germany. Especially the IMF often asks for lowering the minimum wage for refugees. We do not think this is the right way to go. The IMF is not talking about integrating people in labour market.

BR: Why the special economic zones? The IMF is not associated with specific proposals like this. But in Jordan you have to look at the context of the local labour market. In Jordan you start with massive degrees of unemployment and informal labour. Then you are not even talking refugee problem but the local economy not generating enough jobs to employ their people. The refugee crisis is just an added problem to that. Just to keep unemployment constant you need massive take up, that is not the situation in Germany.

BR: In terms of integrating refugees in the local labour market, the IMF feels this is much more possible in Europe. The IMFs paper on refugee flows in Europe and how to integrate them in labour markets covers that. The core message of the paper is that there are benefits to integration, and in order to create this beneficial effect integration has to be done well. Conditions which are required for successful integration include training, education, loan subsidies, etc. There is a fundamental economic principle: in order to create sustained employment it has to be profitable. If the wedge between the two is too high, there is a problem. This is the difference between Germany and Jordan. Another alternative is wage subsidies. That’s another discussion. That could help but that is a question of fiscal space, which again a place like Jordan has very little of compared to Germany.