Economic Research Forum (ERF)

Post-conflict economic reconstruction in the Arab world

46
What have been the economic costs of conflict in Iraq, Libya, Syria and Yemen? And what are the prospects for post-conflict reconstruction in these countries and repatriation of some of the millions of refugees who have fled to safety? This column highlights the extent of the damage caused by war and outlines three scenarios for what comes next.

In a nutshell

In comparison with Iraq, Libya and Yemen, the Syrian economy is in a much worse situation in terms of physical destruction – along with vanished human capital and destroyed institutions.

Programmes for repatriation of refugees from the Arab conflicts should focus on systematic and large-scale economic reconstruction plans, which should naturally embed institutional upgrading.

Post-conflict trauma experienced by refugees and superior economic opportunities offered in host countries may make refugees – especially the high-skilled ones – less willing to return.

Following the Arab uprisings, many countries in the Middle East and North Africa experienced conflict, which resulted in extensive destruction along several dimensions. Millions of people have been forced to leave their homes. Physical, financial and human capital resources have fled to safety.

The 2019 Euromed report (FEMISE-ERF, 2019) includes discussion of the economic cost of conflict, as well as post-conflict reconstruction scenarios in the four main afflicted countries: Iraq, Libya, Syria and Yemen. The intensity of violence has declined significantly and political problems have changed nature in these countries recently.

But conflict is not over yet and a massive return of physical and human capital is still a remote possibility in the short term. Nevertheless, policy-makers should start discussing alternative scenarios for repatriation and economic reconstruction in conflict-afflicted countries with the ultimate purpose of streamlining transition and normalisation.

In recent work (Ceylan and Tumen, 2018, 2019), we generate satellite-based night-light data series using GIS (Geographic Information System) methods to measure the economic cost of conflict in the afflicted countries. This approach has two major advantages:

  • First, night-light intensity is a good alternative measure of income growth at national level and thus, it can be a complementary source of information in calculating national income.
  • Second, economic and policy analyses of local economic activity are hindered by the lack of reliable data at the regional level. The night-light data are available at a far greater degree of geographical fineness than is attainable by standard income and product accounts (Henderson et al, 2012). Therefore, the GIS methods provide a robust basis for measurement and analysis of economic activity at the regional level.

 

Figure 1: Satellite-based estimates for the economic cost of conflict in Iraq, Libya, Syria and Yemen. Source: Ceylan and Tumen (2018, 2019).

Figure 1 provides a visual characterisation of the aggregate-level estimates for the afflicted countries. The data period is 1994-2018, with some breaks in 2014 and 2018 for some regions.

It should be noted that the timing and duration of conflict differ across those four countries – so country-specific stories differ based on the nature of the conflict that each country has experienced. But the findings consistently suggest that there is a significant negative association between conflict and macroeconomic performance.

Another observation is that in comparison with Iraq, Libya and Yemen, the Syrian economy is in a much worse situation in terms of physical destruction – along with vanished human capital and destroyed institutions. Repatriation programmes should focus on systematic and large-scale economic reconstruction plans, which should naturally embed institutional upgrading.

In addition to direct estimates, a more theory-consistent approach is also needed to incorporate realistic counterfactual exercises and analyse post-conflict scenarios. Devadas et al (2019) offer such an approach. Specifically, they use the long-term growth model of Devadas and Pennings (2019) to perform after-war simulations based on three counterfactual exercises featuring different settlement scenarios for Syria.

The first is a moderate (baseline) scenario incorporating the ‘Sochi plan’. Second, an optimistic scenario is constructed based on long-term political settlement. And, finally, a pessimistic scenario is formed featuring fragmented political power.

These three scenarios also accompany three different levels of reconstruction assistance and repatriation volumes. The optimistic scenario features a large amount of reconstruction assistance and repatriation, while both are lower in the pessimistic scenario. The no-conflict scenario assumes trivial reconstruction assistance and repatriation volumes.

The findings suggest that high post-conflict economic performance is possible in Syria if long-term political stability is achieved; market-friendly mechanisms are redesigned to target efficient allocation of resources throughout the economy; appropriately designed reconstruction and repatriation programmes are implemented; and those programmes are supported by sustainable financing facilities.

Repatriation policies and efforts should also account for the main findings of the Euromed report. The evidence suggests that refugees are less likely to leave their host countries than economic migrants; they have stronger incentives to invest in their own and children’s human capital in the host country; and they have a lower propensity to accumulate savings and send their money back home as remittances – so their potential contribution in terms of reconstruction after conflict may also be limited.

These behavioural patterns should be considered in designing repatriation programmes, as post-conflict trauma experienced by refugees and superior economic opportunities offered in host countries may make refugees – especially the high-skilled ones – less willing to return.

On the other hand, experience suggests that most of the repatriation efforts have been less successful than expected due to various problems including:

  • lack of understanding of the cultural, religious and historical context;
  • lack of coordination between governments and NGOs;
  • lack of anticipation of the recurrence of conflict in the post-repatriation period;
  • failing to address the issues of past property and land ownership;
  • and lack of appropriately designed micro-credit assistance, housing support and employment subsidy programmes, which research shows to be extremely useful.

These lessons should be accounted for in designing repatriation programmes for the refugees in the future.

Finally, the refugees are now in the process of integrating into the socio-economic life in their host countries. Developed countries have been implementing financial and technical support programmes to facilitate the integration process.

For example, Turkey has been implementing large-scale EU-funded programmes to integrate Syrian children into the Turkish public education system. The overall enrolment rate is above 60% and the enrolment rate is expected to increase further in the near future.

Host countries are now discussing how to provide official work permits and even to provide selective citizenship to Syrian refugees. As the resolution of conflict is delayed, those integration efforts will proceed further and the refugees may become less likely to participate in voluntary repatriation plans. International cooperation is needed to end the conflict in afflicted countries and rapidly to implement well-designed repatriation programmes to expedite economic reconstruction.

Further reading

Ceylan, ES, and S Tumen (2018) ‘Measuring economic destruction in Syria from outer space’, The Forum: ERF Policy Portal, 19 June.

Ceylan, ES, and S Tumen (2019) ‘Estimating the cost of conflict in the MENA region with satellite data: Evidence from Iraq, Libya, Syria, and Yemen’, unpublished manuscript, TED University.

Devadas, S, IA Elbadawi and NV Loayza (2019) ‘Growth after war in Syria’, World Bank Policy Research Working Paper No. 8967.

Devadas, S, and SM Pennings (2019) ‘Assessing the effect of public capital on growth: An extension of the World Bank Long-Term Growth Model’, Journal of Infrastructure, Policy, and Development 3: 22-55.

FEMISE-ERF (2019) ‘Repatriation of Refugees from Arab Conflicts: Conditions, Costs and Scenarios for Reconstruction’, Euromed report.

Henderson JV, A Storeygard and DN Weil (2012) ‘Measuring economic growth from outer space’, American Economic Review 102: 994-1028.

Most read

Arab countries are caught in an inequality trap

Conventional wisdom, based mainly on surveyed household income distribution statistics, suggests that inequality is generally low in Arab countries. At the same time, little attention has been devoted to social inequalities, whether in terms of outcomes or opportunities. This column introduces a forthcoming report, which offers a different narrative: based on the largest research project on the subject to date and covering 12 Arab countries, the authors argue that the region is caught in an inequality trap.

Recession without impact: why Lebanese elites delay reform

The survival of Lebanon’s political elites is highly dependent on the wellbeing of the economy. Why then do they delay necessary reform to avoid crisis? This column examines the role of politically connected firms in delaying much-needed economic stabilisation policies.

Fair competition is needed to empower women economically in the Arab world

The participation rates of women in the labour market in Arab countries are the lowest in the world. This column argues that remedying the under-representation of women in the labour force is a social and economic imperative for the region. There are three dimensions for action to realise the potential of Arab women: amending laws and regulations; instilling fair competition in markets; and promoting the digital economy.

Competition laws: a key role for economic growth in MENA

Competition policy lacks the attention it deserves in the countries of the Middle East and North Africa (MENA), a region characterised by monopolies and lack of market contestability. As this column explains, there are many questions about the extent of anti-competitive barriers facing new market entrants in the region. What’s more, MENA’s weak overall performance on competition is likely to be hindering economic growth and the path towards structural transformation.

The Egyptian economy is still not creating good jobs

Growth in Egypt has recovered substantially since the downturn following the global financial crisis and the political instability following the 2011 revolution – but what has happened to jobs? This column reports the results on employment conditions from just released data in the 2018 wave of the Egypt Labor Market Panel Survey.

How Egyptian households cope with shocks: new evidence

Managing risks and reducing vulnerability to economic, social, environmental and health shocks enhances the wellbeing of households and encourages investment in human capital. This column explores the nature of shocks experienced by Egyptian households as well as the coping mechanisms that they use. It also examines the relationship between such risks and job formality and health status.

The future of Egypt’s population: opportunities and challenges

Egypt’s potential labour supply depends on the growth and changing composition of its working-age population. This column reports the latest data on labour supply and fertility rates, concluding that the country has a window of opportunity with reduced demographic pressures to try to address longstanding structural challenges for the labour market.

Egypt’s labour market: facts and prospects

An ERF policy conference on the Egyptian labour market in late October 2019 focused on gender and economic vulnerability. This column summarises the key takeaways from the event.

An appeal for Sudan’s future

Sudan today is on a knife-edge: it can evolve toward peace and democracy – or spiral into instability and violence. As this Project Syndicate column argues, vital and timely international assistance can make the difference between success and failure for the new government.

Domestic demand and competition: a new development paradigm for MENA

A lack of competition in domestic and regional markets is holding back development in the Middle East and North Africa. This column argues that the region and the international community must ensure that barriers to market entry and exit are eliminated, and that independent regulatory bodies at the national and regional levels help to promote domestic demand as the main engine for sustainable and inclusive growth.