Middle East economy slumps in face of Syrian refugees

The civil crisis in Syria has cast a pall over the region. The influx of 760,000 Syrian refugees could be equated to an economic earthquake in Lebanon.

Syrian refugees that have set up camp in Jordan, an excess of 525,000, have stopped King Abdullah’s economy in its tracks.

Iran has been battered by sanctions and the rich oil exporting states of the Gulf are suffering from sub-optimal production levels.

Israel, that is included in the IMF’s tables, is the only country that appears to be in good health. The IMF is predicting growth of 3.8 per cent this year, moderating to 3.3 per cent next year; modest inflation of just 1.6 per cent in 2012 rising to 2.1 per cent in 2014 and unemployment at 6.8 per cent of the workforce.

That compares to a jobless rate of 13.2 per cent in Saudi Arabia and 13 per cent in Egypt.

The biggest challenge facing the Middle East and North Africa region is the need to create jobs. In the richer oil-producing countries many of the jobs in the private sector are being filled by expatriates. The IMF’s top economist of the region Masood Ahmed says that the main dialogue between the IMF and policymakers is “about building jobs for nationals in the private sector”.

But Syria remains to overwhelming political and economic problem in the region. A path to the destruction of chemical weapon dumps has been plotted. But the spill-over effects to neighbours has been enormous.

Britain’s Secretary of State for International Development says that the refugee problem in Lebanon is the equivalent of “15 million people arriving in Britain”. The UK’s response to the crisis has been to set aside £500 million from the foreign aid budget towards the children of Syrian refugees. UK Jewish charity WJR has raised £130,000 for the Syrians in Jordan refugee camps.

The impact of civil war in Syria has been pronounced in the region.

Last year the area had an economic renaissance with output spurting 5.6 per cent. This year it has slumped to 2.8 per cent.

Governments have sought to combat the hardship by piling on the subsidies for basic staples and stepping up wages and pensions in the public sector. But all that has done is raise the standing budgetary problem.

The World Bank strategy for dealing with this is to try and bring the disadvantaged groups, including women and ethnic minorities, into the workforce.

But that requires a move away from the state sector by encouraging entrepreneurship and innovation.

In Egypt, for example, the Bank is backing 4,000 small enterprises and is funnelling credit to women to develop businesses.

In the Palestinian territories, where the Quartet powers are seeking to put together a $3 billion economic development plan to support the peace process, the World Bank has been increasing its subvention, providing $56.4 million in special financing in 2013.

The effort to strengthen the economy of the Palestinian territories is unlikely to be helped by the decision of the European Union to suspend financial assistance for projects that straddle the “green line” border between Israel and the Palestinian territories.

Many of Israel’s science research institutions, that have facilities in the territories or are engaged in technology projects in the West Bank, could be affected. What is clear is that such politically driven policy will do nothing to contribute to the economic of a region struggling to find better and more durable economic models.