Syria’s Economy in the Grip of the Black Market

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Syrian women walk past items on display at a shop in Damascus on Valentine's day on February 14, 2015. AFP/Louai Beshara

By: Ziad Ghosn

Published Monday, February 16, 2015

Black market dealers in Syria have taken control of the foreign exchange market, leading exchange rates to hit record levels. The past few days have also shown that the dealers are “deeply involved” in the oil derivatives market, which has witnessed a severe crisis since early winter.

Damascus — Due to the changes on the map of power and influence, the official Syrian economy has seen a significant decline in activity and potential. This deterioration has been to the advantage of other economies, some of which are new and resulted from the developments of the crisis on the ground, and some are old and were revived by the economic conditions across the country's regions.

The informal economy today far exceeds the national economy. This directly affects the lives of the Syrian people and the structure of the national economy. The situation is expected to continue for years, especially in light of the current “institutionalized” management of the activities of these economies, which control large and important resources, both in state-controlled areas and territories outside the government’s control.

In addition to the formal government economy present in state-controlled areas, a new economic paradigm is emerging and taking shape in the border areas controlled by various armed groups. The informal economy, also known as the “shadow” economy, has expanded significantly to the point where it has exceeded the formal economy. Also, the war economy — a key component linked to the three aforementioned economies — seeks to revive and expand the black market so it would become the “dominant” market.

“Rationing” is key

Today, the black market directly affects the lives of the Syrian people, as it has a negative impact on two main arenas. First, the foreign exchange market and the major drop in the exchange rate of the Syrian pound against the US dollar, leading to an unprecedented rise in the price of commodities and the expansion of the circle of poverty. Second, the distribution of state-supported oil derivatives, and exploiting the needs of citizens to generate high revenues. It is noteworthy that black market activity is not limited to these two fields.

Black market allied with the traditional corruption forces

Black market activities resumed at the beginning of the crisis, and increased gradually when formal economic institutions began to be affected by foreign sanctions, thus impacting their role of securing sufficient quantities of goods and products to meet the demands of the local market. In addition, a social segment became involved in the war, allied with the traditional corrupt forces inside and outside state institutions, and engaged in trading of goods, resources, and human beings across the country, though to varying degrees.

Dr. Akram Hourani, a professor at the Faculty of Economics at the University of Damascus, provides three reasons for the increase in black market activity during the crisis: “not meeting the [local market] demand for non-commercial purposes (to preserve the value of savings); not meeting the demand for commercial purposes in order to meet the needs of importers (outside the list of goods allowed to be funded through authorized banks); and the repeated declarations by the authorities in charge of monetary policy (intervention, threats, and intimidation…).”

These reasons are similar to the factors that put the distribution of oil derivatives on the black market, taking into account the particularities of each case. Speaking to Al-Akhbar, Dr. Ziad Ayoub Arbash, an energy expert and professor at Damascus University, says that the years of the crisis have seen “a significant decrease in the consumption of oil derivatives, as a result of the decrease in the income level, the closure of thousands of industrial plants, and the security situation. Still, demand remained higher than supply,” which was influenced by two main issues: “securing foreign currencies, and the impact of international sanctions and the risks involved in terms of transport, insurance, etc.”

Due to the failure of the government to bridge the gap between the demand for foreign currencies and oil derivatives on the one hand, and the available quantities of these commodities on the other, the black market expanded horizontally and vertically. In addition to the segment which has become known as the “crisis dealers” or “black market princes,” many ordinary citizens — for various reasons — gradually joined the “illicit trade” structure, forming what can be called “minor corruption rings.” For example, it became common to see people exhibiting relief aid on the pavements of popular markets to sell them at competitive prices, or others buying $200 (or $1,000 previously) from authorized exchange shops to sell them to currency traders.

Record levels of wealth

There are no estimates or statistical data on the size of the black market and its proportion to the official market. However, economists agree that it constitutes a large and dangerous proportion of the market. Speaking to Al-Akhbar, Dr. Hourani said:

“After monitoring the demand for [foreign] currencies in the market, the demand for currencies for non-commercial purposes is estimated to be between $3-10 million a day. As for [the demand for foreign currencies] for commercial purposes, it has surpassed the permitted official threshold to about $25 million a day.”

As for oil derivatives, the lack of transparency in relation to the quantities offered daily in the markets, and the quantities sold to citizens through regular channels, makes it difficult to determine or estimate the quantities being funneled to black market stores. However, given the increasing “black” [market] stock prices and the difficulty to obtain derivatives through regular channels and at official prices, it is fair to say that huge amounts are being traded in this market, allowing a social segment to make huge profits in record time, while causing serious economic repercussions, which Dr. Hourani sums up in the following points: high foreign exchange rates, high prices, low income levels, the decline of reserves, and the loss of credibility by the economic management.

This article is an edited translation from the Arabic Edition.

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