Syria Effect

When the spark of revolt first ignited with the fruit vendor in Tunisia, investors already understood the impact the conflict would have on their investments. They started transferring their money to more secure locations, often to banks in neighboring countries. Lebanon banks acquired a total of almost $11 billion dollars from Syrian banks, according to a report from the UN Economic and Social Commission for Western Africa. When the conflict reached Syria, and refugees flowed into Lebanon, they added another billion dollars to Lebanon’s economy through consumer spending. Thus, in the initial stages, the Arab Springs had a generally positive impact on the Lebanese economy.

The large increase of Lebanon’s population has added pressure to their economy. Refugees, realizing that they cannot return to Syria quite yet, are now competing with Lebanese citizens for jobs. Before the refugees tried to enter the work force, Lebanon was already having issues with job creation. The Ministry of Economy in Lebanon explains how “The Lebanese economy already has a problem meeting local demand for jobs. Out of the 25,000 we need to create each year, we are only creating 3,000.” With such a low demand for workers, but an increased amount of available labor, many Lebanese citizens complain about wage cuts. Because of the increased competition for jobs, The World Bank describes how Syrian refugees have offered to work for half the wage that Lebanese citizens traditionally received for unskilled labor, overall dropping wage rates in Lebanon.

There is also competition for public goods and services, with the government taking the brunt of the costs. Because the Syrian refugees haven’t been absorbed into the Lebanese job market, they require government assistance. Unfortunately, with this increase of an unemployed population, the government has to somehow fund services for them with a dwindling budget. The Associated Press cited a World Bank report that estimates for the years 2012-2013, “$1.5 billion in government revenues will be lost while simultaneously, government spending will have to increase by $1.1 billion because of the surge in demand for public services,” which entails a “total negative impact on the Lebanese budget to $2.6 billion.” Because of the increase in demand for these public services, it has caused a decrease in overall accessibility and quality of the services, as the services were not acclimatized to the sudden surge in population or use.

Geographically, Lebanon is largely bordered by Syria on the East, Israel in the south and the Mediterranean Sea for its west. As a result, Lebanon’s gateways to land routes for trade to the Middle East are mainly through Syria and Israel. The Syrian conflict has disrupted these land routes, which has impacted their flow of goods and ability to transport their goods for trade. The Wall Street Journal explains “In the years that followed, Syria remained a main land route for some of Lebanon’s biggest economic drivers– commerce, tourism, and foreign remittances.” The effects on Lebanon’s trade deficit have been large, “according to estimates from data covering 2008 to 2013, Lebanon has a trade deficit of between 30 percent to 40 percent of GDP” (ESCWA). 

Due to this close proximity, the economies of Syria and Lebanon have been intertwined. Before Syria decided to diversify and liberalize their economy, Lebanon was portrayed as “a lung of the Syrian economy” and Syria was a major market for Lebanese products, as described by the Wall Street Journal quoting Abdallah al-Dardari, ESCWA’s chief economist and Syria’s former deputy prime minister for economic affairs. Their GDPs have indicated this relationship, where in the past two years, Syria has lost between 35% and 40% of its GDP in the past two years, while there was a 6% decline in GDP growth in Lebanon over the same period (ESCWA).

Countries can easily prepare for natural disasters or economic impacts from direct involvement from war. It is not as easy, however, to predict the economic impact of war in a neighboring country, especially one, which has both fiscal and social, ties to the affected country. The most that Lebanon can do now is hope for increased international aid in order to support their newly enlarged population. A Reuters article describes how recently, Lebanon was able to sell “$1.1 billion of long-dated bonds [in April].” This demonstrates the investors are still willing to invest in the country and have hope for its economic resurgence. Hopefully, there could still be positive implications of the rise in population. There would be increased demand for goods and services, such as housing or food and an increased workforce to help meet the demands. This could lead to an increase in prices, but the Reuters article quotes Alix-Garcia, “an assistant professor at the University of Wisconsin,” whom “says that could be offset by free food aid supplied to the refugees.” While there are currently short-term economic pressures for Lebanon, for the long run, they have new potentials for the direction of their economy. Most modern day economies are no longer traditionally bound to a specified output or method of production. With these changing circumstances, the largely trade-based Lebanese economy can adapt and use this new producer and consumer force to promote their economy in an area of conflict.