The embattled regime of President Bashar Al-Assad has thus far survived Syria’s civil war; however, this has come with massive human loss, significant destruction of infrastructure, and the deterioration of the Syrian economy. In the post-war period, Damascus will need to attract substantial capital in order to rebuild the country, but an array of obstacles—some brought on by the conflict and some endemic to the regime—undermine Syria’s reconstruction.

While Russia and Iran have propped the regime up militarily, their engagement with Syria’s broader reconstruction is likely to be limited. Thus far, Russia and Iran have mainly prioritized acquiring stakes in natural resources, ports, and other strategic infrastructure. They have focused on projects that can more reliably generate profits, advance their interests, and expand their influence vis-à-vis Damascus, rather than those that meet Syria’s expansive post-war needs.

For the latter, Damascus will continue to look to neighbors in the region and beyond, but this will prove difficult. Even prior to 2011, the regime struggled to create conditions that would attract and maintain foreign investment, and the conflict has only worsened these conditions. Syrians have taken significant capital outside of the country since the early stages of the war, and an array of foreign investments in Syria have been suspended or canceled due to the conflict.

The most recent and ongoing economic crisis—along with newly expanded economic sanctions—only further dissuades potential investors. The Caesar Syria Civilian Protection Act, which was passed by the U.S. Congress as a part of the National Defense Authorization Act of 2020 and took effect in June, imposes sanctions on foreign actors conducting transactions with the Syrian government and its allies, thereby raising the costs of economic engagement in the country. In statements since the Caesar Act’s enactment, U.S. officials have indicated that targeting will become more vigorous and expansive in the coming months.

The return of Syrian, regional, and international investors is also inhibited by a series of long-standing and acute security, fiscal, and infrastructural obstacles that degrade the Syrian economy. The regime has undertaken some efforts to address these challenges, but these efforts remain inadequate. Damascus remains unwilling or unable to rein in security actors that prey on commercial activity, curtail an array of economic elites empowered by the conflict, and build trust among both foreign investors and expatriated Syrians that they would be protected from asset seizures and other abuses.

Without addressing these issues and concerns, Damascus is unlikely to persuade many investors to engage in a country with ongoing armed conflict and deteriorating macroeconomic conditions—let alone one with Syria’s history of predation and corruption.

Outreach to the Region and Beyond

Given its limited domestic resources, the regime has taken steps to attract capital from abroad, holding meetings throughout the region to encourage new investments and reinvigorate stalled projects. From late 2018 through early 2019, Mohammad Hamsho, head of the Federation of Syrian Chambers of Commerce, led delegations of Syrian businesspeople to Jordan and the United Arab Emirates (UAE) for meetings with officials and investors. Groups from Lebanon, Oman, Greece, and India have also traveled to Damascus to discuss potential participation in reconstruction. This outreach has not been entirely fruitless. Cautious rapprochement between the UAE and Damascus appears to have continued despite U.S. objections, with the Emirates’ Mohammed Bin Zayed publicizing a call with Al-Assad and promising COVID-19 support for Syria in late March 2020.

In May 2020, Greece’s foreign minister appointed a special envoy to Syria whose mandate includes “coordination of action in view of the ongoing efforts to rebuild Syria”. Additionally, a number of private Indian companies have explored reviving projects that had stalled due to the conflict—among them Apollo International, which reportedly partnered with Hama governorate to develop an iron and steel smelting plant that was completed in 2017. However, most of these efforts have not manifested in tangible output.

Regime officials have also attempted to secure the return of Syrian businesspeople who moved their capital out of the country during the conflict. In February 2017, Finance Minister Mamoun Hamdan traveled to Egypt to meet with a group of Syrian industrialists, many of whom had been active in Aleppo’s textile industry and had relocated capital to Cairo since 2011. The following year, then-Syrian Prime Minister Imad Khamis met again with Syrian manufacturers in Egypt to discuss their concerns about reinvesting. In these meetings and in other settings, businesspeople have cited obstacles including ongoing security issues, widespread infrastructure damage, and challenges to importing and exporting goods. Failing to adequately address these concerns, the regime has seen little success thus far in attracting serious investment.

The Security Approach

Reestablishing territorial control over the country has been a central component of the Syrian regime’s efforts to expand economic activity and improve its investment climate. Among the most important gains have been those needed to secure Aleppo and Damascus, Syria’s industrial and mercantile centers, respectively. To this end, government forces finished recapturing eastern Aleppo city in December 2016, the Eastern Ghouta suburb of Damascus in April 2018, and the Yarmouk Camp in southern Damascus in May 2018.

Beyond controlling and securing these cities, connecting them to one another and to the outside world—mainly by means of the M5 and the M4 highways—has been, and will be, of critical importance to creating conditions for economic recovery. While alternate routes exist, and trade has been conducted across conflict lines, the security conditions along these routes significantly raise the cost of commercial activity.

In order to connect Damascus and Aleppo more directly, the regime has prioritized capturing territory along the M5 highway including Homs city in May 2014, the Rastan area just north of Homs in May 2018, and a pocket of territory encompassing portions of southern Idlib and northern Hama governorates that had been held by the opposition group Jaish Al-Izza in August 2019.

The regime’s most recent significant military campaign in northwestern Syria, which began in December 2019 and lasted through March 2020, led to the recapture of the last portion of the M5 highway between Aleppo and Damascus still in opposition hands. The campaign resulted in unprecedented confrontations with Turkey that resulted in hundreds of casualties and significant material losses for the Syrian Arab Army and pro-government militias; but, in the end, the regime did take control of the M5.

The regime has also prioritized facilitating transit between its major economic hubs and the broader region. Early in the conflict, the regime secured and has since maintained access to formal and informal border crossings with Lebanon with significant support from Hezbollah, thereby preserving a vital commercial link for Damascus. It has also focused on securing its access to Jordan, and the corridors linking major cities to the ports at Latakia and Tartous. After re-entering southern Syria in July 2018, Damascus was again linked to Jordan, and it was able to re-open the Nassib border crossing for limited trade in October 2018. Prior to the war, the Nassib crossing between Syria and Jordan facilitated the flow of goods between Europe, Turkey, Lebanon, and Syria north of the border, and Jordan, Egypt, and the Gulf to the south. At that time, around five thousand trucks crossed the border monthly, representing an estimated $1.5 billion per year in trade.

Beyond securing access to the M5 highway, restoring international connections to Aleppo has entailed capturing territory northwest of the city in February 2020, which allowed the Syrian government to re-open Aleppo International Airport. Going forward, the regime will also need to recapture the opposition-held portion of the M4 highway in order to connect Aleppo more directly to the ports of Latakia and Tartous.

Lingering Security Challenges and Obstacles Ahead

The efforts that lie ahead for the regime on the M4 highway stand to be more challenging than previous military campaigns. Here, ground operations face far more mountainous terrain, and, protected by the geography, hardened opposition groups in Jisr Al-Shughour will likely be more difficult for the regime to confront and dislodge.

The regime could potentially rely more heavily on aerial campaigns to avoid losses on the ground along the M4, but Turkey’s now built-up troop presence and its additional outposts and heavy artillery along the highway deter such action. As demonstrated in the February 2020 fighting, Turkey is willing to eliminate advancing regime troops and equipment and cause significant damage if its own forces are targeted.

Even if the regime does bring these areas under government control, security challenges for economic actors would remain. Even in territory that it ostensibly holds, the Syrian government has limited control over the predatory activity of its intelligence apparatus, pro-government militias, and reconciled factions.

In southern Syria, most reconciled former opposition factions aligned themselves with Military Intelligence, Air Force Intelligence, the 4th Division, other regime entities, or Russia. The regime’s sprawling security apparatus has hardly been able to contain existing local competitions, nor its own competitions, such that normal economic activity can resume. The Nassib border itself is a contested site, with the 4th Division ejecting a reconciled faction affiliated with Military Intelligence from the main checkpoint at its gate in late March 2020.

Though southern Syria is among the more unruly areas ostensibly under regime control, it is by no means the only area where the regime struggles to keep security actors in line. Across the country, government forces and pro-regime militias prey upon commercial activity by way of fixed and mobile checkpoints along important routes—especially between the Latakia and Tartous ports, Damascus, and Aleppo.

Taking advantage of these circumstances, the practice of tarfeeq, or “accompaniment,” has emerged, wherein businesspeople are pressured to pay connected security actors or private security companies to escort commercial shipments and prevent extraction at the myriad checkpoints that trucks expect to pass en route to their destinations. This “service” has been a continued source of consternation for businesspeople both inside and outside the country and was one of the issues specifically raised during Hamdan’s 2017 outreach meeting with Syrian industrialists in Cairo.

The Economic Approach

Parallel to its military efforts, Syria’s recent economic policy has attempted to meet its immediate budgetary needs while improving conditions for government-led economic recovery and reconstruction. This has entailed setting policies aimed at attracting foreign currency deposits in Syrian banks, raising capital to finance imports, funding government expenses, and stabilizing the Syrian pound (SYP). It has done this largely through import and banking regulations and new financial instruments.

One mechanism by which the Syrian government has attempted to attract funds has been through treasury bonds and certificates of deposit (CDs).

The Syrian Central Bank issued CDs for the first time in February 2019 to six state-owned and eleven private banks with a maturity date of one year and an interest rate of 4.5 percent, raising 130.8 billion SYP. In February 2020, the Central Bank repaid these CDs and issued a second round with terms more favorable to participating banks. These second-round CDs had a shorter maturity date of six months, and an interest rate set by auction (ranging from 3 to 8.35 percent, and averaging at 6.5 percent), raising 92 billion SYP from eleven participating banks.

The Syrian government offered bonds carrying an interest rate of 6.7 percent and a fairly short two-year maturity date to public and private banks in February 2020. Seven banks participated, buying bonds worth a total of 148.5 billion SYP. A second offering is planned for August 2020.

On June 18, a day after the Caesar Act took effect, the Central Bank issued a third round—also with a six-month maturity date and an average annual interest rate of 6.5 percent. With eight banks participating, the Central Bank raised only 74 billion SYP.

In addition to raising funds, the Syrian government is also attempting to respond to pressures on foreign reserves. As the value of the Syrian pound declined throughout late 2019 and early 2020, the Central Bank took several measures to cope, including further restricting the set of imports that could be financed at the official exchange rate (then 435 SYP per dollar) to a list of priority goods, such as basic foodstuffs and medicines. Then in March, the Central Bank devalued the exchange rate to 700 SYP for most importers, though affiliates of the state-owned Syrian Trading Establishment and General Foreign Trade Organization retained access to a preferred rate of 438 SYP. In this period, the market rate for most transactions was between 1,200 and 1,300 SYP and was continuing to rise.

Then, in early June, Syria’s currency entered a rapid freefall forcing the Central Bank to take new measures. From around 1,700 to 1,900 SYP per dollar in May 2020, the market exchange rate reached 2,000 SYP on June 3 and crossed 3,000 SYP on June 8. In June, the Central Bank issued warnings against using informal channels to receive remittances, noting that violators could be prosecuted under terrorist financing laws; following this, the Syria Telecommunications Regulatory Authority shut down six money transfer companies. The Central Bank also issued a cap of 5 million SYP on the amount of money that could be transported across governorates, encouraging Syrians to instead conduct transfers through banks. On June 17, the Central Bank, blaming the Caesar Act and the Lebanese financial crisis for increasing the demand for foreign exchange, significantly devalued the official exchange rate from 704 to 1,256 SYP per dollar and unified this rate across imports and remittances. The pound recovered some of its losses, but as of late July, the market exchange rate remained at around 2,245 SYP per dollar—still significantly elevated.

Political and Economic Infrastructure

Alongside its efforts to attract funds and stabilize the pound, the regime has attempted to create a framework for broader development by way of national-level reconstruction strategies, legal measures to repossess and redevelop large tracts of land, and mechanisms to initiate investment projects with private-sector entities.

To organize broader efforts, the government launched a National Development Program and tasked the State Planning Commission with producing a ten-year plan for reconstruction in February 2017. Other high-level initiatives have included the adoption of a National Housing Strategy in February 2019, under which the Ministry of Public Works and Housing would oversee the construction of a hundred thousand affordable housing units across the country. Later that year, Syria’s cabinet discussed plans to relaunch the defunct Reconstruction Committee with a new mandate to fund repairs to state-owned properties and infrastructure for basic services including water, electricity, and health.

The regime has laid the legal groundwork for state-led reconstruction with the passage of a series of laws enabling it to take possession of and repurpose land and property across the country. Among these, Law 10 of April 2018—an expansion of Decree 66 in 2012 and amended by Law 42 in November 2018—enables the state to designate new development zones, vacate informal settlements and other properties, and repurpose these lands for new construction.

The government has also introduced measures that allow it to draw on private capital to rehabilitate infrastructure and fund reconstruction projects. A law passed in July 2015 enabled local governments to set up holding companies to manage public assets and services, and in January 2016, the passing of a public-private partnership law gave private sector entities the ability to manage and develop public projects. The Damascus governorate was the first to invoke the 2015 law, setting up Damascus Cham Holding in late 2016. Since then, the governorates of Homs, Aleppo, and the Damascus countryside have also established holding companies of their own.

Efficacy of Economic Measures

The regime’s efforts to raise capital have not been sufficient to meet the country’s day-to-day needs, let alone generate sufficient funds for broad government-led reconstruction. As Syria’s economy continues to deteriorate, and as the regime is forced to respond to new shocks and pressures—including impacts of the Lebanese financial crisis, the COVID-19 pandemic, and the Caesar Act sanctions—these short-term efforts become even more challenging to maintain.

Moreover, the government’s national-level and broader reconstruction plans lack credibility. With limited resources, the regime is more likely to continue prioritizing the rehabilitation of strategic areas and infrastructure that are critical to its own security and to the economic ambitions of a narrow elite than it is to invest in projects that would serve broader segments of the population.

The application of Decree 66 in concert with other measures in the controversial Marota City project provides an example. Here, the regime used its legal mechanisms to demolish informal housing in the Damascus suburb of Basateen Al-Razi, an area perceived as sympathetic to the opposition. The land reverted to the governorate, to be managed by Damascus Cham Holding, which initiated joint ventures with private companies to begin the development of luxury commercial and residential properties on the site. With projects like Marota City, the regime appears to be using its legal frameworks to transfer assets to loyal elites rather than for more accessible reconstruction projects that attract broader engagement.

Meanwhile, Syrian manufacturers inside and outside the country have continued to express concerns over losses incurred during the conflict. At the Third Industrial Conference held in Aleppo in November 2018, industrialists called for exemptions from taxes on facilities that had stopped production due to the conflict, favorable conditions for settling debts to public banks, and a reduction in tariffs on importing raw materials and production equipment.

But despite seeking to re-invigorate domestic commercial activity, the Syrian regime has not meaningfully responded to these issues. Most recommendations that emerged from the 2018 conference were not implemented, and the fourth conference, which was due to take place in October 2019, was indefinitely postponed. Instead of working toward a more hospitable business environment, the regime has thus far used local businesses as another channel to siphon revenues. The imposition of new fees on administrative processes, strict enforcement of outstanding fines, high dues for cross-border transit, and opportunistic extortion puts pressure on already-struggling businesses and deters additional investment.

No Credible Guarantees

Even if the regime addresses acute economic challenges and pursues broader approaches to national reconstruction, it still faces deeper obstacles which undermine potential regional investors’ trust and deter their participation.

For one, international sanctions likely deter investors who seek to preserve their access to Western financial systems or who hold assets in sanctioning countries. The Caesar Act, which the United States enacted in June 2020, further restricts the kinds of commercial activities that individuals can pursue in Syria. Among other measures, it threatens to expand sanctions on foreign actors who engage in transactions with figures in the Syrian government, their affiliates and allies, or other sanctioned entities, and specifically targets commercial activity related to oil and construction. Caesar’s provisions are not entirely new; Executive Order 13608 of 2012, for instance, permits certain measures against non-U.S. persons that facilitate sanctions evasion. However, the Caesar Act expands and deepens the set of sanctionable activities and their consequences. Targeting of non-Syrian (or non-Lebanese) companies has thus far been fairly rare; however, the inclusion of Canadian and Austrian companies among the first set of entities sanctioned under Caesar indicates that the United States is likely to pursue the regime’s international networks more aggressively.

With sanctioned figures deeply operating within the Syrian economy, it may be difficult for investors to avoid associations and transactions that make themselves vulnerable to sanctions as well. Sanctioned figures will likely attempt to operate through affiliates and proxies to profit from reconstruction activities, and these linkages may be opaque to foreign investors. With Caesar in effect, if foreign investors engage in a reconstruction project with an individual that is affiliated to one of the myriad sanctioned elites that dominate Syria’s economy, they may face sanctions themselves—losing access to businesses, funds, and travel to the United States and to any U.S. partners.

Those who would consider engaging in Syria despite the risk of sanctions must also contend with the regime’s own inconsistent application of laws and unpredictable seizures. Pressed for funds during the conflict, the state has used dated agrarian reform laws to confiscate property and has frozen the assets of those who had outstanding debts to banks and were not compliant with regime demands.

Moreover, new and old regime-aligned economic elites have, over the course of the conflict, positioned themselves to exert significant influence over reconstruction and extract from any new revenue streams.

The most prominent of these actors had long been Rami Makhlouf, president Al-Assad’s maternal cousin. Makhlouf rose in stature alongside Al-Assad’s own ascension to power in the early 2000s, acquiring an array of companies active in key sectors of Syria’s economy, including real estate development, banking, infrastructure, and telecommunications. Makhlouf used this dominant economic position to pressure both domestic businesspeople and foreign investors, taking cuts of profitable projects and coercing financial contributions for his own projects. Makhlouf supported the regime financially throughout the conflict, and, until recently, seemed poised to influence and benefit from reconstruction. However, disputes have surfaced between Makhlouf and the Al-Assad family. In December 2019 and early 2020, Makhlouf’s assets were frozen several times amid claims that his company Syriatel, the larger of Syria’s two mobile phone operators, owed the state 134 billion SYP in taxes. Despite Makhlouf publicly disputing the legality of the fines and claiming he would pay, the Syrian Ministry of Justice placed the company in judicial custody in June, and many of his employees have reportedly been arrested.

With this dispute ongoing, it is unclear whether Makhlouf will retain the influence that previously enabled him to obtain stakes in incoming investment. While this development could ostensibly benefit foreign investors reluctant to expose themselves to Makhlouf, the broader phenomenon of predation by economic elites remains a key feature of the Syrian investment environment.

Among such elites is Mohammad Hamsho, a businessman with extensive interests in tourism, telecommunications, and industrial sectors. Hamsho’s assets include Syrian Metal Industries, a steel plant outside Damascus, which he has supplied with scrap metal looted by pro-government militias over the course of the war. In 2014, Hamsho became the head of the Federation of Syrian Chambers of Commerce and the Damascus Chamber of Commerce. In this capacity, he has led outreach efforts to investors in Iran, the Gulf, China, and elsewhere. In 2015, Hamsho was appointed by the prime minister to head the newly formed Syrian Council for Metals and Steel, a regulatory group for the industry. More recently, in 2018, he founded Tatweer LLC, a contractor and building materials supplier that stands to profit from reconstruction activity.

Wassim Qattan has also presented Syria’s reconstruction priorities to regional investors in his new capacity as President of the Damascus Countryside Chamber of Commerce. Qattan was sanctioned by the European Union in February 2020 for, among other things, profiting from the imposition of taxes on goods smuggled into Eastern Ghouta while it was under siege. Since 2017, Qattan has won contracts for several major commercial real estate development projects.

Samer Foz, a figure who rose during the conflict by helping the regime evade sanctions and supporting pro-government militias, also has significant influence. Through his Aman Group, Foz established a joint-venture with Damascus Cham Holding to develop properties in the Marota City project and has ownership in an array of other investments. In late 2018 and early 2019, Foz acquired stakes in two of Syria’s largest banks—Syria International Islamic Bank (SIIB) and Syria’s Al-Baraka Bank. Shortly after this acquisition, local media accused SIIB of preferential lending to companies linked to Foz.

Beyond the risk of direct predation, these elites and others may be able to shape reconstruction priorities via their economic influence and access to state institutions. These actors will attempt to direct the state’s limited capital to areas in which they are well-positioned to profit. If the regime caters its reconstruction strategies to these narrow interests, it will likely do so at the expense of broader economic expansion and development.

Conflicting Priorities

The degree to which Damascus can attract greater regional and international investment will be critical to meaningful reconstruction and to a return to some degree of economic normalcy in Syria. The regime’s outreach to this effect has garnered some interest, but its efforts to address new and long-standing obstacles have not been sufficient for that outreach to generate substantial re-engagement. Because many of the major obstacles emerge from conflicting interests and priorities within the Syrian regime itself, it will likely prove unable to address them in the near term. Moreover, new and intensified sanctions further deter investors from participating in Syria’s reconstruction.

As the regime’s survival largely overshadows its need for economic improvement and reconstruction, it is unlikely to take on the reforms necessary to stop security actors from preying upon and cannibalizing economic activity. Damascus likely sees curtailing most of these actors’ sources of revenue as too risky—especially while these same actors are keeping the regime afloat.

Meanwhile, as the economic crisis worsens, Damascus is less able to extend credible guarantees that investors’ assets will be protected from expropriation to fund the state’s short-term needs. Moreover, elites empowered by the conflict will continue their attempts to predate on incoming investment.

Whatever capital does come in will likely be limited to individual projects that can generate returns quickly, that are not likely to be significantly disrupted by security actors, and from which investors can quickly pull up stakes with minimal losses. Such projects are unlikely to cumulatively amount to broad-based reconstruction that will benefit and be accessible to Syrians who have been hardest-hit by the war. Opportunities for regional engagement will be constrained, and Syria’s post-war economy will likely remain piecemeal and skeletal.