Enab Baladi – Jana al-Issa

The interim government in Damascus’s move towards privatizing and selling state institutions threatens finding solutions for many economic and living crises faced by the country and its citizens, amidst a lack of clarifications on how to ensure that the public sector will avoid complete losses.

The government’s direction towards privatization of the public sector, as stated by several ministers, will be an inevitable fate for the sector, considering it a loss-making sector. However, this approach and its timing raise concerns regarding the impact of this step on citizens, particularly as some experts believe that the timing is fundamentally inappropriate for such a move.

107 companies up for privatization

The move towards privatizing the public sector became clear for the first time when the Minister of Foreign Affairs in the interim government, Asaad al-Shibani, stated that the new Syrian administration plans to privatize government ports and factories, aiming to attract foreign investments and enhance foreign trade.

According to the Syrian Foreign Minister, the new Syrian government is seeking partnerships between the public and private sectors to encourage investment in airports, railroads, and roads, considering that the current challenges will be finding buyers for institutions that have been in a state of “deterioration” for years in a “broken and isolated” country concerning foreign investment.

A few days ago, Economy Minister Basel Abdul Hanan stated that the government is striving to shift towards a “competitive free market economy” by privatizing 107 government industrial companies, most of which are loss-making, without specifically naming them, while keeping strategic assets in the energy and transportation sectors under state control.

Finance Minister Mohammad Abazid also stated that some state-owned companies were merely fronts for wasting public funds, adding that the government intends to close those that do not provide real economic value.

Maha kattaa, a major crisis response specialist at the International Labour Organization (ILO), noted that the Syrian economy is not in a position to provide sufficient jobs in the private sector, considering that restructuring the public sector is “logical,” but questioned whether this should be a priority for the transitional government.

Researcher Aron Lund at the Century International Center, specializing in Middle Eastern affairs, criticized the government’s approach, stating that “the government talks about a transitional process but makes decisions as if it were a legitimate established government.”

Privatization is the process of transferring ownership or management of assets and services owned by the state (such as state companies or ports) to the private sector, aiming to improve efficiency, attract investment, and reduce the financial burden on the state.

Privatization includes selling state assets to private investors or entering partnerships between the public and private sectors.

A double-edged tool

Dr. Mohammed al-Ghareeb, a professor at the College of Economics at the University of Aleppo, stated to Enab Baladi that there is no doubt that the Syrian economy is severely strained, with gross domestic product declining to about $23 billion in 2022, according to the latest statistics from the World Bank, down from approximately $67 billion in 2011.

In addition to the depreciation of the Syrian pound and the decline in various economic indicators, the destruction of infrastructure in Syria by a significant percentage has left the Assad regime with worn-out public sector institutions riddled with corruption and bureaucracy, making them loss-making and inefficient. This has burdened the Syrian government with the legacy left by the ousted regime.

Dr. al-Ghareeb added in an interview with Enab Baladi that with the transitional government’s move towards a “free market economy,” relying on privatization is one of the useful economic tools that can revive the Syrian economy, but with conditions.

Dr. al-Ghareeb conditioned that this privatization should be studied carefully and meticulously, considering international experiences in the field of privatization, particularly in countries similar to Syria in terms of population, area, and economic data. Otherwise, the harms of privatization may outweigh its benefits, opening the door to corruption and external interventions, while taking into account that the transitional government does not have the authority to make strategic decisions such as privatization.

Al-Ghareeb believes that two types of privatization can be relied upon simultaneously, where complete privatization of industrial public sector institutions can be adopted. Globally, the private sector has proven its success in managing industrial institutions better than the public sector, especially since industrial public sector institutions in Syria are worn-out and require substantial funding to reactivate and turn into productive institutions; thus, selling the assets of these institutions completely may be viable.

On the other hand, management contract privatization can be relied upon in some public service institutions, meaning that the ownership of these institutions remains with the Syrian state, but their management is done by companies with considerable expertise capable of enhancing the operational efficiency of these institutions and providing high-quality services that fulfill citizens’ satisfaction, such as electricity, telecommunications, transportation, and road services.

In my opinion, not all public service sectors should be subjected to privatization; for instance, government educational institutions should remain under the government’s management to ensure that the right to education is available for all members of the community, reduce education costs for citizens, and guarantee education’s contribution to economic, social, and human development according to government plans.

Mohammed al-Ghareeb, Professor at the College of Economics at the University of Aleppo

Mohammed al-Ghareeb emphasized that moving towards privatization will contribute to increasing the operational efficiency of public sector institutions and improving the level of services while reducing the burden on the state budget through lower government expenditure. At the same time, privatization will attract both local and foreign investments in Syria, creating significant investment opportunities. For public sector institutions, the government will rid itself of loss-making institutions while improving the performance of service institutions and increasing their growth rates.

Regarding the capital that would like to invest in such investments, noting that a good portion of these institutions is either partially or completely non-operational, Dr. al-Ghareeb stated that privatization in general attracts large companies with substantial capital that can bear high risks. However, these investments depend on providing an attractive investment climate, which requires studying privatization mechanisms to ensure positive returns for the national economy while also creating significant investment opportunities for local and global companies.

Necessary conditions

Privatization is an economic tool that can potentially be effective in improving the performance of the Syrian economy; however, it requires a studied and precise implementation to ensure economic benefits without exacerbating social or economic problems. If this process is not managed with transparency and fairness, it may contribute to increasing poverty and worsening crises, according to economist Dr. Mokhles al-Nazer.

Economic researcher Mokhles al-Nazer noted on Facebook that the privatization process requires a careful study in the Syrian context due to ongoing economic and political challenges.

Regarding potential positive outcomes of this process, al-Nazer explained that they include attracting foreign investment since if privatization is conducted transparently, it may lead to a significant influx of external investments, in addition to improving efficiency, as the private sector may be better able to enhance the operation of ports and government companies. Furthermore, it may reduce financial burdens, as selling loss-making companies or introducing partners can relieve financial pressure on the government.

Concerning challenges and drawbacks that may face this tool, political instability and international sanctions may reduce Syria’s attractiveness to investment. There is also a challenge related to corruption and lack of transparency; if privatization is not managed transparently, it may be exploited for personal gains instead of serving the economy, according to the researcher.

Dr. al-Nazer pointed out that privatization might lead to job losses for many workers if investors decide to cut costs. Additionally, it may result in the sale of assets to a limited number of local or international entities, potentially leading to monopoly or mismanagement of resources.

Conditions for successful privatization in Syria

• Legal Environment Reform: Providing laws that ensure transparency and fair competition.
• Combating Corruption: Ensuring that processes are transparent and serve the public interest.
• Comprehensive Study: Identifying sectors that could benefit from privatization while protecting strategic sectors.
• Labor Protection: Establishing conditions that guarantee the rights of workers and prevent arbitrary layoffs.
• Investment Incentives: Providing facilities for investors while ensuring no manipulation or monopolization.

Mokhles al-Nazer, PhD in Economics

Concerns about asset squandering

Privatizing public sector assets is just one of the many tools that economic planners can use to implement their developmental and service plans. One cannot celebrate or demonize any economic tool without discussing the broader economic plan and the nature of its short-term, medium-term, and long-term objectives, according to economic and political analyst on Middle Eastern affairs, academic Mohammed Saleh al-Ftayeh.

Al-Ftayeh pointed out, via his personal Facebook page, that the economic plan must be sound, and the role and objectives of privatization must be clear and justified appropriately. Caution is necessary, as examples of countries that failed to establish sound economic plans and misused privatization are far more numerous than successful examples. In the specific case of Syria, what must be avoided is squandering public sector assets to cover the government’s ongoing expenditures, as was done by Boris Yeltsin’s government in Russia in 1995.

Privatization is merely one tool among several economic instruments, and any economic plan will face the challenge of determining sources of income and avenues for investment and administrative spending. To achieve a balance between income and expenses, economic planners may resort to internal or external borrowing, whether from financial institutions or by issuing debt bonds.

The governmental economic planner may find that certain public service institutions, particularly in electricity, water, telecommunications, and transportation, need costly upgrades. The government lacks funding sources and is hesitant to borrow due to fears of failing to manage these projects efficiently and ensuring profitability. Thus, the economic planner may opt to privatize these sectors, either by selling them outright or by granting the private sector operating rights in exchange for modernizing them at their own expense and operating them in a manner satisfactory to the users, committing to return these sectors in sound technical condition upon the contract’s conclusion.

Al-Ftayeh added that the economic planner may specifically resort to involving the private sector when there is a need to build a new generation of infrastructure projects. The economic planner may also be compelled to privatize state assets to cover financial gaps in government spending, especially current expenditures, which is the worst type of privatization according to the experiences of various countries. The government’s necessity to privatize to cover ongoing expenses puts it in a very weak position before potential buyers.