Impact of Private Sectors in times of conflicts and crisis situations: Yemen and Syria as a case study

In times of conflicts and crisis situations, private sector has a key role in recovering and developing national economy and eventually leading to peace building. Even though the development of the private sector should not be thought of as replacement of the national economy, it is very important to reconsider the role and impact of private sectors in conflict areas.

Indeed, much research has been conducted on the role of private sector in fostering and developing public or national economy. The majority of researchers in the field agree that creating vibrant economic opportunities is essential to addressing fragility and conflict, and that economic recovery is an important aspect that would contribute to state building in countries where economy is rendered fragile as a result of conflicts.

However, while private sector development is deemed to have an important role in the development of local or national economy, there is much controversy on what constitutes ‘best practice’ PSD and what the term private sector entails. The private sector can encompass local formal, informal and illegal actors, Diaspora communities and regional and multinational. Yet, and inasmuch as the focus of this article is on the role of private sector in areas of conflict, we will go beyond this debate and look into how private sector functions in areas stricken by wars and conflicts particularly Yemen and Syria.

The operation of private sector in afflicted areas usually involves much difficulty and several challenges; however, the activity of private sector in such an environment reinforces its resilience, thus making it acquire a momentum for change and reform. Mac Sweeney (2008), notes that the private sector remains resilient to systemic shocks, changing shape and direction. Given this resilience, the private sector is considered by Mac Sweeney (2008), to be a powerful and adaptable vehicle for reconstruction and regeneration (Mac Sweeney, 2008).

In order to function very well and help national economy, some facilities, logistics, and judicial reforms should be available; thus, national economy might have a strong chance to recover and even to thrive at the end of the day. According to Channell (2010) long term reforms must concentrate on building a stable environment essential to the operation of the private sectors. Reforms usually include better investment laws, clear property rights, land registries, business-friendly taxation, anti-corruption institutions and processes, transparency, and access to finance programmes. It is also important to reinforce access to services such as electricity and water, judicial reform (particularly of commercial courts and land disputes), small and medium business promotion, rural development, and regional trade. Channel (2010) continues to argue that reforms in business environment helps to reduce costs and risks that hinder any economic growth that leads to the welfare of society.

Rethinking the role of private sector in Yemen in the context of the ongoing conflict.

The conflict in Yemen has damaged the economy of the country, most economic activities have been suspended and reliance on foreign aids became a feature indication of a dilapidated economy. Most economic sectors whether private or public have been largely crippled. Even before the ongoing conflict in Yemen, the private sector had faced many insurmountable challenges that hindered its development. These challenges as listed in Nasser, A., & Osberg, S. (2018) include “bureaucratic obstructions, weak infrastructure, a largely un¬skilled workforce, a poor investment climate and lack of financing, an economy overly dependent on oil, corruption, a weak state, and a rent-seeking elite class with vested interests in stifling reforms.” Now and after five years of civil war and military intervention of regional countries, the situation aggravated; national economy almost stalled and private sector was inflicted lot of losses.

However, and despite of the dire economic situation, the private sector is still resilient and capable of functioning; it has demonstrated its viability by handling the largest humanitarian aids for a country which has the worst humanitarian crises of modern times. Referring to the 2018 Humanitarian Needs Overview from the United Nations Office for the Coordination of Humanitarian Affairs, ( Sofian 2019) confirmed that “approximately 22.2 million people, roughly 75% of the population, are in need of some manner of humanitarian or protection assistance”. According to 2018 survey conducted by World Bank 35 of business in the country closed down and over 73% of the closed down business attributed the failure of their business operations to the ongoing conflict, lack of security and many finical constraints the conflict has also taken a heavy toll on local businesses. The preliminary findings of a recent survey conducted by the World Bank in October 2018 show that around 35% of businesses in the country have closed, and over 51% of the firms that survived closure have experienced a decline in size and a scaling down of their operations. Additional reasons for shrinkage in the size of business were represented in an increase of input costs, the loss of demand and customer base.

Notwithstanding, all the aforementioned challenges and hurdles that faced the Yemini private sector in a country, torn by internal conflict and foreign intervention, it continued to provide jobs, channel humanitarian aids to afflicted people, sustain income to support livelihood, and keep up with a level of imports that support livelihood and prevent famine from striking the whole country. Another point of strength the private sector in Yemen has acquired during the crisis situation, is the high level of professionalism and reorganization. There has also been some substantial development in the financial system because of the reforms effected to handle the dealings of some microfinance projects that that target individuals and some local institutions. Yemen, according to IMF magazine, “ was the first among the ACTs to tap IMF resources through a loan in 2012. The global lender also provides financial assistance to Jordan, Morocco, and Tunisia” Making use of the loan, the government launched an economic program in which there was a shift from governmental subsides to infra structure projects that would benefit the operations of the private sectors in case of winning tenders and the supply of logistics to other projects.

Impact of Syrian Private Sector on Syrian Economy in conflict situations.

Syria’s private sector is another remarkable example to exhibit in this article. With the eruption of Syrian revolution, and then what followed as “Civil War” that sector was considerably damaged in different shapes. Syria’s private sector, particularly, the commercial and production ones have always been a pipeline of goods to the Arab world. Yet, all has to change following the incidents in 2011 and the years to come. The city of Aleppo was described as the mini china of the Arab world due to its high numbers of factories and production units in various fields. That fact was reversed as the city of Aleppo was destroyed, thereby pushing private sector to seek other alternatives where the capital or business owners sought other safer refuge to continue their production. Many of the factories were moved to Turkey and others to Egypt, Lebanon and Iraq. Suleiman Al-Khalidi, Angus McDowall of Reuters reported that the number of factories, units and workshops shrunk from 65,00 to only 4000 and then 6000. The same case with other parts of private sector in other Syrian cities was the same as challenges were immense to mitigate. Thousands of factories and production units were closed down in the capital and other metropolitan cities.
Security situation and civil war have also contributed to the forcible migration of millions of Syrians this off course this would include high skilled persons from all professions starting from health, education, private businesses to small professions. The damage which hit that sector was also made worse with International Community sanctions on row materials used for different industries. The collapse of the local currency has also paralyzed the sector. All in all, one could argue that the Private sector in Syria collapsed and only a small fraction remained and contributed in dealing with immense challenges across the country.
Ironically what might be seen as curse turns out to be a kind of blessing. Since the beginning of the conflict in 2010, the Syrian economy was badly affected with much deficit in the budget and great losses inflicted by private sector. However, as was the case with the Yameni situation, the private sector in Syria started to accommodate itself to what might be termed as crisis economy . According to Arslanian ( 2016) :
“Businesses relocated from war-torn rural Damascus to the capital and from Aleppo to the coastal region, while new businesses started to emerge in safer Sweida and Hama. And even though a manifold of businesses fled to Turkey, Egypt, Jordan and UAE[, many of them were designed to serve the Syrian market, thus creating complex commercial networks”

Additionally, the inability of the Syrian government to curtail inflation and foreign lending, it started to loosen its grip thus allowing the private sector to get more involved in the economic cycle.
Surprisingly, the same irony applies to the sanctions which have been imposed by the Europeans since 2011. The sanctions that were meant to put pressure on the Syrian government created a kind of shift in business directions. (Abboud 2017) stresses that sanctions have set in motion a series of shifts within the regime and wider business community that are contributing to new patterns of stratification and fictionalization”. The sanctions made the Syrian government cultivate a new ‘a new stratum of business community’. Some business men of the private sector, and who are loyalist to the regime amassed much wealth that empowered them and made them more integrated in a new pattern of economy which is private yet, very loyal and supportive to the regime.

Reconstruction projects started to follow neoliberal mechanism. First, since 2015 the government has reportedly granted licenses to a number of well-connected Syrian investors to collect and sell the scrap metals from cities and towns. Moreover, the private sector was given a leading role in the reconstruction plans. For example, in July 2015 the government passed a law that allowed the establishment of private sector holding companies to manage the public assets and services of city councils and other local administrative units, opening another avenue for regime cronies to generate business from public assets. (Daher, J. 2018))

As space precludes more examples of how the private sector in both Yemen and Syria was empowered and incentivized by the ongoing conflict; it suffices to reiterate that what is seen to be ‘foul’ might turn out to be ‘fair’. In both countries embittered by conflicts, civil wars and pernicious foreign intervention, the private sector succeeded to accommodate itself to a new pattern of economy which is systematically organized by a high degree of professionalism and business wise style which would impact the economy as soon as conflicts and wars come to an end. Given the fact that the private sector in both counties, Yemen and Syria, has survived all difficulties and challenges, and then, emerged as a resilient body which might play a key role in the process of reconstruction and peace building, it is strongly recommended that donors get private sector more involved in relief works and reconstruction projects. Furthermore, governments in both country should not conceive of the private sector as an adversary but rather a supportive partner in rebuilding public economy.

Accordingly, further facilities and more support should be awarded to the private sector in order to help in recovering the public economy in both countries. Equally IMF should support programs and projects that have private sector as a partner; funds and loans are to be allocated to projects that target small businesses and incubators. In this respect, it is very important that IMF organize workshops and conferences in order to further enhance the role and the impact of the private sector in reconstruction and peace building. Finally it is very important that the private sectors in Yemen and Syria should find an independent umbrella or frame of reference which would continually follow up its practices and guide its operations. In this regard, chambers of commerce should have a more vital role in organizing and teaming up the efforts of the private sector in rebuilding public economy.

 

References

-Abboud Samer (2017). The Economics of War and Peace in Syria, https://tcf.org/content/report/economics-war-peace-syria/?session. Retrieved August
28,2019.
-Al-Khalidi &McDowall, https://www.reuters.com/article/us-mideast-crisis-syria-economy-insight/hard-choices-for-syrian-industrialists-in-ruins-of-aleppo-idUSKCN1C71B8. Retrieved August 27th. 2019
– Avis, W. R. (2016). Private sector engagement in fragile and conflict-affected settings. GSDRC paper for Australian DFAT.‏
-Channell, W. (2010).Peacebuilding essentials for economic development practitioners practice note 2: Business environment reforms in conflict-affected contexts (Strengthening the economic dimensions of peace building practice note series). International Alert. http://www.enterprise-development.org/download.ashx?id=1517. Retrieved August 20th., 2019
-Daher, J. (2018)) The political economic context of Syria’s reconstruction: a prospective in light of a legacy of unequal development.
-Mac Sweeney, N. (2008). Private-Sector Development in Post-Conflict Countries. Cambridge: DCED. https://lra.le.ac.uk/bitstream/2381/27928/4/PostConflict_PSD_EN_rev2.pdf
-Nasser, A., & Osberg, S. (2018). PRIVATE SECTOR ENGAGEMENT IN POST-CONFLIC https://devchampions.org/publications/white_papers/Private_Sector_Engagement_in_Post-Conflict_YemenT YEMEN.‏ Retrieved August 21st., 2019
-Peschka, M. (2010). The Role of the Private Sector in Fragile and Conflict-Affected States (World Development Report 2011, Background Paper). Washington DC: World Bank. http://web.worldbank.org/archive/website01306/web/pdf/wdr_background_paper_peschka_0.pdf. Retrieved August 20th., 2019.
-Sofian, S. A. (2019). Yemen Bringing Back Business Project.‏ Retrieved August 24th., 2019