Download - Forging New Strategies in Protracted Refugee Crises: Syrian

Forging New Strategies in Protracted Refugee Crises:

Syrian Refugees and the Host State Economy

“Knowledge from the region, action for the region”

Regional Case Study

Forging New Strategies in Protracted Crises: Syrian Refugees and the Host State Economy Regional Case Study

1www.wanainstitute.org

ExecutivesummaryThe year 2014 saw the number of asylum-seekers, refugees and internally displaced persons exceed 50 millionglobally—morethanatanypointsincetheendoftheSecondWorldWar.Theinternationalrefugeeregime(thenormsandinstitutionsthathaveevolvedtocoordinateinternationalresponsestorefugeecrises)isstrugglingtodealwiththescaleandcomplexityofthisdisplacement.Hoststatesinrefugeeaffectedregionsareobligedbyinternationallawnottoforciblyreturnrefugeestoareaswheretheyfacethethreatofpersecution,yettheamountofinternationalaidavailabletosupportrefugeesandhostcommunitiesisnormallywoefullyinadequate.ThiscentralproblemisreflectedstarklyinthecurrentsituationofmanySyrianswhohavefoundrefugeinSyria’s immediateneighbouringcountries.Therehavebeenchronic shortfalls in fundingsince thebeginningof theSyrian refugeecrisis,butas thesituationbecomesmoreprotracted the gaps in funding have become wider. This has placed increased pressure on refugees and hostcommunities,whooften feel that theyarebeingneglectedby the international community and left todealwith thesituationalone.Itisinthiscontextthatrefugeescancometobeperceivedasaneconomicburdenorevenathreattosecurityinthehoststate.

The threeorthodoxdurable solutions for addressingmassdisplacement (local integration, third country resettlementand repatriation) are failing to meet the challenges posed by global displacement. It is clear that new ways ofconceptualisingrefugeemanagementneedtobedevisedthatrespondtotheprioritiesofhoststates,theinternationalcommunity and refugees.Host states needmore and better options to encourage them to keep their borders open.Phrasedanotherway,ifrefugeesareunabletoreturnhome,andtheinternationalcommunityisunwillingtohosttheminlargenumbersorfinancethecostofhosting(atleastoverthelong-term),thenstatesmustbeofferedsolutionsthatworkfororare,atminimum,notcontrarytotheirnationalinterests.Thisimploresatransitiontoapproachesthatlookmorecloselyathoststateneedsandprioritiesinthefirstinstanceandthatcreatespacetocraftinnovativesolutions.

This paper proposes that refugees could be better conceptualised as embodying new opportunities, rather thanhardships,forhoststates.Indoingso,itposesthefollowingquestion:howmighthoststatesraisepoliciestomitigatethe negative impacts associatedwith refugee hosting, whilst simultaneously supporting their long-term security andeconomicpolicy goals?Thepaperbeginswitha comprehensiveoverviewof the currenteconomic trajectoriesof thecountriesneighbouringSyria,identifyingsomeofthemainstrengthsandweaknessesandtheoutlookforthefuture.Itthenconsiderstheimpacts,positiveandnegative,thattheSyrianrefugeesituationhashadonthesecountriesandwhatfurther impacts could ariseover the longer term. Finally, it explores someof theways inwhichhost state economicinterestsmightbereconciledwiththeimperativeofrefugeeprotectioninwaysthatcouldleadtomutualbenefitsforrefugeesandhostcommunities.

One clearoption is to view refugeesas a structural economicopportunity: toharness their skills andexpertiseasanassetforprivatesectorgrowth,withaviewtobothcreatingaself-sufficientpopulationandeffectingmacroeconomicpolicygoals.Chapter6detailssomebasicexamplesofhowthismightmaterialise:encouraginglarge-scaleinvestmentinmanufacturingandagricultureandcreatingemploymentopportunitiesforbothSyrianrefugeeandhostcountryworkersatpre-establishedratios.Thismodelhasthepotentialtoreducehostingcostsbyincreasingrefugees’self-sufficiencyinthe context of severe shortfalls in international humanitarian assistance.Moreover, itwould constitute an importantsteptowardshoststates’longer-termeconomicresiliencebypromotingstrategicinvestmentinunderdevelopedareasoftheeconomyandbyfacilitatingincreasedtaxrevenues.



IntroductionThecivilconflictinSyriaposesthemostcomplexandimmediatehumanitarianchallengetotheWestAsia-NorthAfrica(WANA) region. It is estimated that over half of the Syrian population has nowbeen forcibly displaced,with severalmillionhavingfledacrosstheborders intoneighbouringstates.Morethan2millionSyriansarecurrentlyregisteredinTurkey, and Lebanon has become the highest ranking country globally in terms of numbers of refugees per capita,closelyfollowedbyJordan.Thereareover249,000SyrianrefugeesintheKurdistanRegionofIraq,representingjustoneofmyriaddisplacementchallengesaffecting thisarea,andover134,000 inEgypt.1The scaleofdisplacementand theincreasingly protracted nature of the Syrian crisis are having a dramatic impact on the ability of host states andinternationalactorsaliketorespondeffectively.Theorthodoxapproachunderwhichrefugeecrisesaremanagedaroundtheglobefollowsapredictablesequence:hoststates,overwhelminglyintheso-called‘globalsouth’,provideaprotectionspacewhilethecostsofrefugeehostingareborneby the international community.There isa serious flawwith thismodel,namely:whereas theexistenceof theperemptorynormofnon-refoulementobligeshoststatesnottoreturnarefugeetoterritorywheretheyfearagenuinethreatofpersecution,thereisnoequivalentonusofresponsibilityontheinternationalcommunityintheprocessesofburden-sharing.Whena crisis becomesprotracted, host states andhumanitarian agencies routinely face thedifficultsituationofhavingtocontinuetosupportadisplacedpopulationbut inacontextofdiminishingdonorcontributions.Thisimbalancebetweenprotectionandburden-sharingiscompoundedbythefactthat,inmosthoststatesintheglobalsouth,therearerestrictionsonrefugees’abilitytoentertheworkforce,exceptinveryspecificcases.Theresultisthatrefugees very often are caught in themiddle of the competing interests of host states and the various internationaldonors.Refugees predominantly rely on savings and assistance from humanitarian agencies. As these resources wain, morerefugeesmayseekworkintheinformalsector,wheretheyareexposedtoexploitation,unsafeworkingconditionsandotherrisks.Growthoftheinformalsectorhasnegativeimplicationsontheeconomicdevelopmentofthehoststate,byunderminingthetaxbase,distortingspendingandcompromisingtheruleoflaw.Thissituationfeedstheperceptionofrefugees as inherently burdensome. The three orthodox durable solutions for addressing mass displacement (localintegration,thirdcountryresettlementandrepatriation)arefailingtomeetthechallengesposedbyglobaldisplacementandhencealternativesolutionsneedtoevolve.Inrecognisingthesefactors,theWANAInstitutehassoughttore-frametheproblemandproposenewapproaches to refugeemanagement. For instance,howmight thepresenceof a largerefugeepopulationcometobereconceivedasagenuineopportunityforthehoststate?Whatscopeisthereforgreaterinclusion of refugees in the economic development of host states inways thatwould also yield tangible benefits torefugees themselves? Might it even be possible to harness refugees’ skills and expertise on a larger scale to effecttransformationalchangevis-à-visthehoststate’smacroeconomicdevelopmentgoals?

1UNHCRetal,3RPRegionalProgressReport(2015)<http://reliefweb.int/report/syrian-arab-republic/3rp-regional-progress-report-june-2015>at24November2015.



1:Turkey’seconomy:anoverviewTurkeyisanupper-middleincomeeconomythatiswell-regardedasoneofthefastestgrowingeconomiesintheworld.Despite large domestic energy consumption and a lack of abundant natural resources such as oil and gas, theGrossDomestic Product (GDP) in Turkey stood at USD799.54 billion in 2014, positioning it as the sixth largest economy inEuropeandeighteenthintheworld.23WithaGDPpercapitaofUSD8871.91in2014(anall-timehigh),Turkeyisgloballyidentifiedasanewlyindustrialisedeconomyoranemergingmarketeconomy.4

Turkey’seconomyisperhapsmostnotableforundergoingaprofoundtransformationthatcommencedinthe1970sandgave rise to the solid growth trajectory upon which its current successes are built. Much can be attributed to anambitiousqualitativeleapthatwasmadeinthecountry’smanufacturingsector.Intheyearsbetween1990and2014,Turkey’spercapitaincomenearlytripled,whilethetotaleconomyexpanded110percent.5 Theaveragegrowthrateinthelastdecadewasaround5percent,thefastestamongtheOrganizationforEconomicCooperationandDevelopment(OECD) economies, which grew at an average of 1.7 percent.6 Fundamental reforms carried out after 2001 allowedTurkey’s financial sector to remain relatively strong during the global economic crisis. As the rest of Europe wasgrappling,theTurkisheconomyexpandedby9.2percentin2010,and8.5percentin2011.7Moreover,Turkeywastheonlymember state of theOECD that did not provide public sector support to the banking sector in thewakeof theglobal financialcrisis.8Awell-articulatedandwell-implementeddevelopmentplancontinuestocontributetoTurkey’scommendableregionalandglobaleconomicposition.Insum,andinthewakeofcross-bordereconomicslowdownsandrefugeecrises,Turkeyservesasausefulmodeltolearnfrom,butalsoonethatcanbeimprovedandbuiltupon.

Likeanyotheremergingeconomy,Turkey’simpressiveeconomicconditionsarecoupledwithchallenges.Theseriesofeventsthatoccurredin2012,bothinternallyandexternally,revealedthattheTurkisheconomicsuccessstoryisnotasresilientasoncepresumed.9Afterbeingamongtheworld’sfastestgrowingeconomiesin2011,thecountryplungedintoweakergrowthandhigherspending,andgrowthfelltojustunderthreepercentin2014.10Thiscanbeattributedtoacombinationofdomesticfactorslikecorruptionscandalsandmismanagementcoupledwithexternalevents,suchastheEurozone crisis andmassive refugee influx. In order to decipher which of these factors contribute themost to thefragility of Turkish economic performance, it is first important to understand what drives the Turkish economy, thecomponentsofitsbalancesheet,thechallengesitneedstoovercome,andthedirectionitneedstobetakinginordertosustainthesuccessfulpoliciesthathavecontributedtotheTurkisheconomic‘miracle’.

MainIncomings

Industrialandmanufacturingactivity2Turkey:latestkillerfactsabouttheeconomy(2014)UKForeignandCommonwealthOffice<https://www.gov.uk/government/publications/turkey-latest-killer-facts-about-the-economy/turkey-latest-killer-facts-about-the-economy>at5November2015.3TurkeyGDP(2015)TradingEconomics<http://www.tradingeconomics.com/turkey/gdp>at10November2015.4TurkeyGDPpercapita(2015)TradingEconomics<http://www.tradingeconomics.com/turkey/gdp-per-e5Note1:TurkeyOverview(2015)TheWorldBank.<http://www.worldbank.org/en/country/turkey/overview>at3November2015.6UKForeignandCommonwealthOffice,aboven2.7RHutt,4thingstoknowaboutTurkey’sEconomy(2015)WorldEconomicForum<https://agenda.weforum.org/2015/11/4-things-to-know-turkey-economy/>at10November2015.8WorldBank,aboven5.9‘Turkeypostssharpfallingrowthratefor2012’,HurriyetDailyNews,(Istanbul)1April2013.10RHutt,aboven7.



Turkey’sstatusasa‘newlyindustrialisedeconomy’isderivedfromthestrongandcompetitivemanufacturingsectorithas built for itself. While the sector made considerable progress in the 1960s and 70s, it remained mostly inward-orientedwithfewexports.11Ironically, industrialelitesatthetimewereopposedtoeconomicintegrationwithEuropeforfearthattheywouldnotbeabletocompetewithEuropeanproducts.12However,theeconomiccrisisthecountryendured in theendof the1970’s instigatedmorecompetitiveand liberaleconomicpolicies, includingthoseaimedatdrivingexports.13Totalexportsincreasedfromlessthan3billiondollarsin1980to20billiondollarsin1990,andmorethan100billiondollarsin2007,whereasexportsasapercentageofGDProsefromlessthan3percentin1980tomorethan25percent in 2007. Critically, almost all of this increasewasdue to the rise in exports ofmanufactured goods;manufacturedgoodsasapercentageoftotalexportsrosefromabout35percent in1979tomorethan95percent in2007.14 Today, the manufacturing industry is one of the main drivers of the Turkish economy, accounting for 24.2percentof totalGDP.15 Improvements inmanufacturingqualityandcompetitivenessmean that thesegoodscompetewithAmerican,EuropeanandJapaneseproducts.

Turkey’sexport volumestoodatUSD157.6billion in2014,more thanquadrupling since2002.16Basicmetalshad thehighest share in total manufacturing exports with 20 percent, followed by textiles and apparel at 18 percent.17 Thetextile and clothing industrywas the first industrial sector thatdeveloped in Turkey. Theestablishmentof a customsunionwiththeEuropeanUnionin1995,allowedittogrowtomakeitthelargestmanufacturingsubsectorinTurkeyinterms of production and employment, Europe’s largest textilemanufacturer, and the fourth largest producer in theworld.18Many of theworld’smajor textile brands such as Esprit, H&M, Hugo Boss, S. Oliver, Adidas, Nike and Zarasource their clothing from Turkey. Turkey’s textile industry employs an estimated 2.5 million people and providesindirectjobsfor6.5millionothers.Thesub-industryalonecontributesaround10percentoftheGDP.19

Turkey is theworld’s sixteenth largestmanufacturerof commercial vehiclesandbuses.20 In2012,1.1millionvehicleswereproduced,66percentofwhichwereexported.21Today,17companiesincludingFiat,Honda,Hyundai,RenaultandToyota,Mercedes-BenzandM.A.Narebased inTurkey. It alsoprovidesautoparts forbrands suchasGM,Mercedes,BMW,Opel,Toyota,FiatandFord.22TurkeyisalsoEurope’slargesthomeappliancesandTVmanufacturer;VestelandBekomakinguphalfofallTVsetsmanufacturedinEurope.23

An export that deserves particular attention within Turkey’s manufacturing sector is its homegrown arms industry.WhiletraditionallyledbytheUnitedStates,Turkey(alongwithChinaandtheCzechRepublic)nowsitatthetopofthelistoftheworld'stopsmallarmsexporters.24Turkey-basedDefenseandAerospaceIndustryExporters'Association(SSI)announced that Turkey’s defense exports reached USD1.4 billion in 2013, a 10 percent increase from the previous

11SPamuk,‘Globalization,industralizationandchangingpoliticsinTurkey’NewPerspectivesonTurkey(2008)267.12CKarayalcin,‘RomeswithoutEmpires:UrbanConcentration,PoliticalCompetitionandEconomicGrowth’,(2011)34.13SPamuk,aboven11,p26814Ibid.15TheManufacturingIndustryinTurkey(2014)InvestmentSupportandPromotionAgencyofTurkey<http://www.invest.gov.tr/en-US/infocenter/publications/Documents/MANUFACTURING.INDUSTRY.pdf>at10November2015.16Ibid.17EconomicComplexityofTurkey(2013)TheObservatoryofEconomicComplexity<http://atlas.media.mit.edu/en/profile/country/tur/>at10November2015.18EuromoneyInstitutionInvestorCompany,TurkeyTextileandClothingSectorReport,(2013)<https://www.securities.com/emis/sites/default/files/EMIS%20Insight%20-at%20Turkey%20Textile%20and%20Clothing%20Sector%20Report.pdf>at12November2015.19LBosscher,MappingTurkey’sApparelandTextileIndustry’(2013)DutchCulture<http://www.culturalexchange-tr.nl/mapping-turkey/fashion/sub-disciplines/apparel-textile-industry>at12November.20UKForeignandCommonwealthOffice,aboven2.21Ibid.22Ibid.23Ibid.24‘TurkeyandChinaamongmajorsmallarmsexporters:UN’,HurriyetDailyNews,(Istanbul)17June2014<http://www.hurriyetdailynews.com/turkey-and-china-among-major-small-arms-exporters-un.aspx?pageID=238&nID=67890&NewsCatID=359>at12November2015.



year.25Accordingtothesamesource, in2012,60percentofpartsinTurkishdefenseequipmentwerelocallysourced,comparedto25percentin2003.Turkeynowimportsonly10percentofitsequipmentfromforeignsuppliers.26

Agriculturalactivity

WhilehistoricallyTurkey's largestemployerandamajor contributor to the country'sGDP, theagricultural sectorhasdecreasedconsistentlyoverthepastfewdecades.AgricultureasapercentageofGDPwasalmost50percentin1950,decreasingto25percentin1980,15.3percentin1990,11percentin2005,andfinallyto8percentin2014.27Thishascauseda (natural) fall intheeconomicstandardsof farmersandcontributedtoemigrationfromrural tourbanareas.Today,agricultureemploysaroundaquarteroftheworkforce,asopposedto50percentin1999.28

Despite its decline relative to overall economic activity, agricultural production remains among the country’s mostimportant and productive sectors. The sector produces USD150 billion in domestic agricultural product and USD40billioninagriculturalexports.29Turkeyisoneofthefewself-sufficientcountriesintheworldintermsoffood.Itsfertilesoil, climateandabundant rainfallpermitalmostanykindofcrop tobegrown.30 It isoneof the top10producersoffruit,wheat,andcottonintheworld,31mainlyexportingtotheEUandtheUnitedStates.32Moreimpressively,itranksamongthetopfiveproducersofvegetables,tea,andrawwool,thelatterservingasakeydriverofthedomestictextileindustry.33 The comparative advantage Turkey enjoys in many agricultural products supports a positivetradebalanceandprovidesapositiveboosttothecountry’soverallbudget.

Tourismandrelatedservices

ThegrowthinTurkey’stourismindustryhasexceededtheglobalaverageinrecentyears,withitsdirectcontributiontoGDP reaching USD34 billion in 201434 and, when taking into account indirect benefits, USD96 billion.35 The directcontributionofthesectortoGDPthusexpandedby256percentbetween1990and2014.36

Basedonitsdirect,indirect,andinducedGDPimpact,travelandtourismgenerated12percentofTurkey’sGDPin2014,higherthantheglobalaverageof9.8percent.Thisisnearlytwicethesizeofbanking’sGDPimpactat6.4percent.37

According to the country’sMinistry of Culture and Tourism, Turkey receivesmore than 30million tourists annually,markinganalmost200percentjumpsince2002alone.38Itisworthnotingisthatregionalandglobalinstabilitywilllikely

25GTurnball,TurkeyformidabledefenceIndustry:risingstarorNato’sunrulyally?(2014)ArmyTechnologyhttp://www.army-technology.com/features/featureturkeys-formidable-defence-industry-rising-star-or-natos-unruly-ally-4207115/at10November2015.26Ibid. 27Agriculturevalue-added(%ofGDP)(2015)WorldBank.<http://data.worldbank.org/indicator/NV.AGR.TOTL.ZS>at10November2015.28SGeurinandYStivachtis,OntheRoadtoEUMembership:TheEconomicTransformationofTurkey(2011),204.29Ibid.30Ibid.31Ibid.32InvestinTurkey:AgricultureandFood(2014)TheRepublicofTurkeyPrimeMinistryInvestmentSupportandPromotionAgency<http://www.invest.gov.tr/en-US/sectors/Pages/Agriculture.aspx>at10November2015.33SGeurinandYStivachtisaboveno29,205.Thepresenceofrawmaterialandindustrialproductioninthesamedomesticmarketisrareandservesasamodelofcomparativeadvantageandself-sufficiency.34InvestinTurkey:WellnessandTourism(2014)TheRepublicofTurkeyPrimeMinistryInvestmentSupportandPromotionAgency<http://www.invest.gov.tr/en-US/sectors/Pages/WellnessAndTourism.aspx>at12November2015.35WorldTravelandTourismCouncil,TravelandTourismTurkey2015EconomicImpact(2015)1.36‘Travel,tourismsectorsgenerate12percentofTurkey’sGDP:report’,HurriyetDailyNews,(Istanbul)28May2015<http://www.hurriyetdailynews.com/travel-tourism-sectors-generate-12-pct-of-turkeys-gdp-report.aspx?pageID=238&nID=83118&NewsCatID=349>at12November2015.37WorldTravelandTourismCouncil,aboven35,3.38TheRepublicofTurkeyPrimeMinistryInvestmentSupportandPromotionAgency,aboven36..



leave theirmarkonTurkey’s above-than-averageperformance; it is estimated that this year, the tourism sectormayclosewithaUSD10-11billionlossduetoadeclineinRussiantourists.39

Constructionandrealestate

Construction has been amodest, but reliable contributor to Turkey’s economy and amotor of economic growth inrecentyears.Thesectorgrewby4.7percentinthefirstsixmonthsof2014butitshowedaslightslowdowninthesameperiodof2015.40

Turkish contractors are especially active the Middle East, Central Asia and Sub-Sahara Africa, and are estimated toemploy more than 2 million people.41 In addition, Turkey has the second largest number of active constructioncompanies intheworldafterChina.42 Since1970,Turkishcontractorsareestimatedtohavecompletedaround6,500projectsin93countrieswithatotalofUSD205billionprojectvalue.43TheconstructionsectorinTurkeygrewatarateof8.5percentbetween2009and2014,butmayexperiencea2.5percentcontractioninthethirdquarterof2015duetoa“politicaluncertainties,aneconomicslowdown,andrisingsecurityconcerns”.44

Turkey’srealestatesectorisanotherattractivemarketforinvestors,accountingforaround4.6percentofGDPin2014,a2.6percent increasefromthepreviousyear.45 AccordingtotheKnightFrankGlobalHousePrice Index,whichallowsinvestorsanddeveloperstomonitorandcomparetheperformanceofmainstreamresidentialmarketsacrosstheworld,Turkey ranked second only to Hong in the first quarter of 2015.46 Since 2008, residential, office and commercialpropertieshaveconsistentlybeenthemaindriversof theTurkishrealestatemarket.47Particularlynoteworthy is thatrealestateandconstructionclaim the lion’s shareofTurkey’s ForeignDirect Investment (FDI) inflow;of theUSD12.5billionFDIinflowin2014,thesectorgarneredUSD4.3billion.48

ForeignDirectInvestments

Turkeyhasmadeconsiderableadvancesinattractingforeigncapitalinthepastdecade.Overthepastfiveyearsalone,FDIgrewfromUSD1billiontoanaverageofUSD13billion.49In2014,FDIwasUSD12.1billion,accountingfor1.6percentof GDP, making Turkey the 22nd most popular spot for investors in the world.50 A conspicuous sign of investorconfidence is the number of largemulti-national corporations headquartered or regionally headquartered in Turkey;including Benetton, Bosch, BP, Citibank, Coca-Cola, General Electric, GlaxoSmithKline, Hewlett-Packard, Hyundai,Imperial Tobacco, Intel, LG, Mercedes-Benz, Microsoft, Pepsi, Procter Gamble, Samsung, Siemens and Unilever.51 IntermsofthesectorialdivisionofFDIinflows,around55percentofinflowsweredirectedtotheindustrialsectorand45

39‘Turkey’stourismsectormayclosethisyearwith10billionlossinincome’,HurriyetDailyNews,(Antalya)12October2015<http://www.hurriyetdailynews.com/turkeys-tourism-sector-may-close-this-year-with-10-bln-loss-in-income.aspx?pageID=238&nID=89746&NewsCatID=349>at12November2015.40‘ContractioninTurkey’sconstructionsectorinthirdquarter:association’HurriyetDailyNews,(Istanbul)16October2015<http://www.hurriyetdailynews.com/contraction-in-turkeys-construction-sector-in-third-quarter-association-.aspx?pageID=238&nid=89969>at15November2016.41NKaymaz,EconomicOutlookandConstructionSectorinTurkey(2015)InvestmentSupportandPromotionAgencyofTurkey<http://www.slideshare.net/necmettinkaymaz/economic-outlook-and-construction-sector-in-turkey>at10November2015.42Ibid.43UKForeignandCommonwealthOffice,aboven2.44Ibid.45InvestinTurkey:RealEstate.(2014)TheRepublicofTurkeyPrimeMinistryInvestmentSupportandPromotionAgency<http://www.invest.gov.tr/en-US/sectors/Pages/RealEstate.aspx>at10November2015.46Ibid.47Deloitte.TurkishRealEstateMarket(2014)<http://www2.deloitte.com/content/dam/Deloitte/tr/Documents/Real%20Estate/EN_RealEstate2014_11072014.pdf>10.48TheRepublicofTurkeyPrimeMinistryInvestmentSupportandPromotionAgency,aboven49.49UKForeignandCommonwealthOffice,aboven2.50ForeignDirectInvestment,netinflows(%ofGDP)(2015)<http://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS>at10November2015.51UKForeignandCommonwealthOffice,aboven2.



percenttoservices.52Foodproducts,beveragesandtobaccoledthemanufacturingindustry,receivingUSD1.9billion,or49percentintotalFDItothemanufacturingindustry,followedbychemicalsandpharmaceuticalsat12percent.Withinthe services sector, finance followed by construction received the most investment at 31 percent and 30 percentrespectively.53

This said,Turkeystill falls short frommeeting itsFDIambitions. It ranks55outof the189countriessurveyed for theWorldBank’s2015EaseofDoingBusiness report,dropping fourslots from lastyear,andcapturingonly1percentofglobalFDIs.54In2013,TurkeyvocaliseditsaimstoattractUSD110billioninFDIsoverthenextfiveyears.55

Mineralsandnaturalresources(rents)

Unlikemanyeconomies intheregion,Turkeyhasanegligibleamountofrent-drivensourcesof income(mineralrentsare the difference between the value of production for a stock of minerals at world prices and their total costs ofproduction).ThepercentageofGDPcontributedbymineral rents inTurkeymeasuredonly0.29 in2013.56TurkeyhasthelargestprospectivelandareainEurope,andhostsdiversemineraldeposits.57Thisenablesittoself-supplymostofits raw materials, one of the few countries in the world to be able to do so.58 Things may, however, be changing.AccordingtotheIstanbulMineralsandMetalsExporters'Association,Turkey'sminingsectorexportsjumpedtoUSD3.3billionoverthefirsteightmonthsof2013,up26.5percentfromthesameperiodin2012.59

Mainoutgoingsandexpenditures

Energyimports

Turkey’s dependency on foreign sources of energy has beendescribed as the ‘Achilles heel’ of its budget.Unable tomeet its energy demand domestically, the country must import oil, natural, coal and electricity for domesticconsumption and industrial purposes. Its lack of abundant domestic reserves combinedwith its fast-growing energymarket(thefastestintheworld),hasresultedinamassiveyearlyenergybill.Intheyearsbetween2009and2013alone,TurkeypaidUSD239billionforitenergyimports,spendinganaverageofUSD50billiondollarsayear.60In2014,around26percentofTurkey’senergydemandwasmetbydomesticresources,whiletheremaining74percentwasimported.61Thishaspartiallybeenrelievedbytherecentfallinoilprices;estimatedspendingfor2016wasreviseddowntoUSD39.2billionfromUSD60.1billion.62This ‘saving’willnot,however,makeupforthestrikingcurrentaccountdeficitthathasbeenaccumulatingoverthepastyears. Irrespectiveofwhereglobaloilpricesstand,energyimportswillcontinuetoasignificantdriveroftheeconomicsuperpower’scurrentaccountdeficit.

52YasedInternationalInvestorsAssociation,ForeignDirectInvestmentsEvaluationReport(2013)4,1.53Ibid.54‘Turkeyranks55outof189countriesineaseofdoingbusinessreport’,HurriyetDailyNews,(Istanbul)30October2015http://www.hurriyetdailynews.com/turkey-ranks-55-out-of-189-countries-in-ease-doing-business-report-.aspx?pageID=238&nID=73641&NewsCatID=34511November2015.55TurkeyaimshighinFDI:ISPATpresident(2013)http://www.invest.gov.tr/en-US/infocenter/news/Pages/050913-turkey-aims-high-in-fdi-ispat-president.aspx56TurkeyMineralRents(PercentofGDP)(2015)TradingEconomics<http://www.tradingeconomics.com/turkey/mineral-rents-percent-of-gdp-wb-data.html>12November2015.57MininginTurkey(2015)TurkishMinerals<http://www.turkishminerals.org/Page/3/MiningInTurkey>at10November2015,3.58Ibid.59Ibid.60‘Turkey’simportcost50billionperyearonaverage’,DailySabah(Ankara)2October2015<http://www.dailysabah.com/energy/2014/10/02/turkeys-energy-import-costs-50-billion-per-year-on-average>at10November2015.61Energyimports,net(%ofenergyuse)(2013)WorldBank,<http://data.worldbank.org/indicator/EG.IMP.CONS.ZS>62‘Turkeysimportstodecreasewithlowerenergybill’,DailySabah(Istanbul)18October2015<http://www.dailysabah.com/energy/2015/10/19/turkeys-imports-to-decrease-with-lower-energy-bill/>.



Importedgoods

Likeanyotherglobalisedeconomy,Turkey’stradebalance includes imported itemstosupport itswideconsumerandmanufacturingbase.AsatSeptember2015,Turkey’sexportswerevaluedatUSD154.5billionfortheyear,afterreachingan all-time high of USD232.5 billion in 2013.63 In 2014 alone, Turkey bought USD242.3 billion worth of importedproducts,a30.6percentincreasefrom2010,64mainlycomprisedof:

1. Oil:USD54.9million(22.7percentoftotalimports)2. Machines,engines,pumps:USD28.1billion(11.6percent)3. Electronicequipment:USD18billion(7.4percent)4. Ironandsteel:USD17.6billion(7.3percent)5. Vehicles:USD15.7percent(6.5percent)65

It is worth noting that the top items imported by Turkey are brought in to support its manufacturing industry (oil,machinery, iron and steel). As the Turkish economy developed beyond the traditional labour-intensive industries oftextiles, manufacturing required more raw materials and sophisticated machinery and equipment, most of whichcontinues to be imported.66 A survey of 145 leading manufacturing companies found that in key sectors, such aselectronicsandmetals, importsaccounted formore than80percentof rawmaterialandequipmentexpenditures. Inpetrochemicals,importsaccountfor87percentoftotalinputs,whileintheautomotivesector,theyaccountforalmost60percent.67Consumergoodsarealsosignificant;theyincludegems,preciousmetals,sugar,cereals,vegetablefatsandfoodwaste.68

Militaryanddefencespending

TheTurkishArmedForcesmakeupthesecondlargestarmyinNATO,aftertheUnitedStates,explainingthecountry’slargeandserious investment in itsmilitarycapabilities.Turkey isestimated todevotearound2percentof itsGDP tomilitaryexpenditure,69andtospendaroundUSD18billionayearondefence,withjustoverhalfofitsequipmentmadedomestically.70

MainchallengesfacedbytheTurkishEconomy

Unemployment

Likemany of itsWANA counterparts, Turkey’s population and labour force are experiencing a ‘youth bulge’. Today,Turkeyhas theyoungestpopulation in theEU.Theagecompositionhas shifted significantly in the lastdecade.Asof

63TurkeyEconomics(2015)TradingEconomics<http://www.tradingeconomics.com/turkey/imports>at9November2015.64TopTurkeyImports(2014)<http://www.worldsrichestcountries.com/top_turkey_imports.html9>at9November2015.65Ibid.66DEdgerly,‘Turkey’scurrentaccountdeficitiseconomy’sAchillesheel’,ForeignTimes27November2013<http://www.ft.com/intl/cms/s/0/f3389efe-4d40-11e3-9f40-00144feabdc0.html#axzz3r82NY05b>at10November2015.67OZOrhanandENergiz,‘Turkey’scurrentaccountdeficitproblemanditseffectsonEuropeanAccession’IstanbulGelismUniversity(2015),8.68Ibid.69MilitaryExpenditure(%ofGDP)(2015)TheWorldBank<http://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS>at15November2016.70JHoggandCSezer,‘ErdoganaimstoturnTurkeyintomajordefenseindustrypower’Reuters(Ankara)27May2015<http://www.reuters.com/article/2015/05/27/us-turkey-election-defence-idUSKBN0OC0FT20150527>at10November2015.



2014, up to 17 percent of the population belonged to 18-24 age group;71whereas in Spain and Italy,who have thehighestyouthpopulationrateinEurope,therateisonly10percent.72

Likeyoungpeoplealmostanywhereelseintheworld,employmenthasproventobeasoughtafter,yetscarce,‘luxury’.Despite Turkey’s exceptional levels of economic performance, overall economic activity falls short in providingemploymentforall thosesearchingfor it.Witha labourparticipationrateof51.1percent(71.2percentformen,and31.4percentforwomen),theunemploymentrateinTurkeystoodat9.6percentinApril2015.73IncomparisonwithitsOECD counterparts, Turkey has the second lowest labor participation rate and, despite an increase by 7 percentagepointsbetween2007and2013,thelowestlaborparticipationratebywomen.74TheTurkisheconomyneedstogrowatleast 5 percent each year in order create enough employment for its young population;75 in 2014 growth was 2.9percentandcurrentforecastsestimatethatitwillgrownomorethan3percentbytheendof2015.76

Povertyandinequality

DespitebeinganOECDandG-20economythathassucceededatsustainingpositiveGDPgrowth,Turkeyhasnotbeenabletokeepitsentirepopulationoutofpoverty.In2014,16.3percentoftheTurkishpopulationlivedbelowthepovertyline,77 anddisposable household income is about 45percent of theOECDaverage.78One in every five Turks is poor,comparedwithjustaboveoneintenacrosstheOECD;similarly,oneoutofthreeTurksreportthattheycannotaffordsufficientfood,comparedwithanOECDaverageoflessthanoneoutofseven.79

WhatmakesTurkey’spovertyfiguresmoredisturbingisthattheyexistrelativetowidespreadwealth,meaningthatthispovertyisnotjustabsolutebutalsorelative.80Theincomeoftherichest20percentofTurkswas7.7timesmorethanthe income of the poorest 20 percent81 A similar report by theOECD reveals that, as at 2014, Turkey had the thirdhighest levelof income inequality and the thirdhighest levelof relativepoverty in theOECD.82A significant shareofinequalityinTurkeyisexplainedbydifferencesinendowments,geographyandopportunitiesfacedinthelabormarket,afactthatfutureeconomicpoliciesmustgrapplewith.83

Currentaccountdeficitandforeigndebt

ItscurrentaccountdeficitisTurkey’smostdiscussedeconomicshortcoming,mainlyduetoenergyimports.84TurkeyhasbeenhailedformeetingtheMaastrichtCriteriononpublicdebtsince2004; in2012 itsdebt-to-GDPratiostoodat36

71‘TurkeyhasEU’syoungestpopulation:Turkstat’,DailySabah(Ankara)15July2014<http://www.dailysabah.com/nation/2014/07/15/turkey-has-eus-youngest-population-tuik>.72Ibid.73‘Turkey’sunemploymentinsingledigitafter9months’,HurriyatDailyNews(Istanbul)15July2015<http://www.hurriyetdailynews.com/turkeys-unemployment-in-single-digits-after-9-months.aspx?pageID=238&nID=85463&NewsCatID=347>at10November2015.74OrganizationforEconomicCooperationandDevelopment(OECD),SocietyaGlance2014Highlights:TurkeyOECDSocialIndicators(2014)<http://www.oecd.org/turkey/OECD-SocietyAtaGlance20142014-Highlights-Turkey.pdf>at10November.75TurkeyEconomicOutlook(2015)FocusEconomics<http://www.focus-economics.com/countries/turkey>at10November2015.76Ibid.77’16percentofTurkey’spopulationunderpovertyline’Today’sZaman(Istanbul)8July2014<http://www.todayszaman.com/anasayfa_16-percent-of-turkeys-population-under-poverty-line_352414.html/>.78OECD,aboven78.79Ibid.80Relativepovertyreferstothesegmentofacountry'spopulationthatearnslessthanhalfofthatcountry'smedianincome.81‘IncomeOfTurkey'sRichest7.7TimesThatOfPoorest’AlBawabaNews22September2014.82‘1in5liveinpovertyinTurkey’AlBawabaNews27March2014.83Turkey:EconomicReforms,LivingStandardsandSocialWelfareStudy(2000)WorldBank<http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTPOVERTY/EXTPA/0,,contentMDK:20205436~menuPK:435735~pagePK:148956~piPK:216618~theSitePK:430367,00.html>at10November205.84ForeignTimes,aboven66.



percentin2012,whichiswellbelowtheMaastrichtCriterionof60percent.85However,therearestructuralweaknessesin Turkey’s management of its current account deficit. Although the current account balance as a percent of GDPreduced from9.7percent to6.1percent in2012 compared to2011, it increased toalmost8percent in2013.86As afunction of this widening deficit, Turkey's foreign debt increased to USD49.9 billion in 2013, the highest single-yearincrease in the history of the Turkish Republic. Aside from energy imports, another vulnerable aspect of the Turkisheconomyisitsdependencyonexternalfinancingduetothetradedeficitandhistoricallylowlevelofdomesticsavings.87Nevertheless, Turkey continues to meet the Maastricht Criterion (33 percent debt-to-GDP ratio) which is thequalificationnecessarytojointheEUfromaneconomicstandpoint.88

Thewayforward

Aseriesofcorruptionscandals,apowerstrugglebetweenparliamentandtheCentralBank, inflation,adevaluing liraandconsequentstockmarketplungeshavecalledintoquestionTurkey’seconomicresilienceinpasttwoyears.ButwhatstandsinthewayofTurkey’sambitionsismostlyamatterofanumberofpolicyshifts,ratherthanacompleteeconomicoverhaul away from rentierism and towards productive economic activity as is the case in otherWANA economies.These stories of financial vulnerability do, however, point out the need for reforms that prioritise long-termdevelopment over short-term political goals. Besides this, most of Turkey’s economic shortcomings, be theyunemployment,poverty,or inequalitycanbeattributedtowhatmostotherWANAeconomiesarefacing—a levelofeconomic activity that does not generate sufficient employment. As the chairman of the Turkish Industrialists andBusinessmen’s Association (TUSAID) recently stated, “We can't fight income inequality with only macroeconomicpolicies.Turkeyshouldincreaseitsproductioncapacity.”89

AccordingtoarecentreportputforthbyDeloitte,the‘structuralproblem’theTurkisheconomyiscurrentlyfacingisasfollows:iftheTurkisheconomyistocontinuetogrowattherateof5percentorhigher,whichistheminimumgrowthratetocreateenoughemploymentopportunities for itsyoungpopulation, thiswill inevitably leadtoahighercurrentaccountdeficit.Turkey’simmediateattentionshouldthusbedevotedtostructuralreformsthatensuresustainableGDPgrowthandhence reduce thedeficit.90 While Turkey’s economicoutlook remains favorable compared to the restofEuropeorindeedtheregion,thecountry’smedium-termchallengeistoincreaseproductivityandcompetitivenesswhilesimultaneously reducing its reliance on foreign savings to make growth less volatile and more sustainable. Luckily,Turkeyhasmultipleavenuestodothis.

Bymostcriteria,Turkeyhasestablished itselfasaglobal industrialcenter.However, thesector is increasinglycomingunder thespotlight for losing itscompetitiveness.Themainchallenge for the textileandclothing industry is that it islosingitscheaplabourcostadvantage.Theaveragehourlywagemorethandoubledbetween1980and1996,91andisfourorfivetimesmorethaninChina,India,ThailandandIndonesia.92TheindustryalsousesmoreexpensiveenergyandfinancingthanEuropeandtheAmericas.Whileshort-termsolutions,likethedevaluingtheTurkishLiracanhelpboostcompetitivenessandreduceexternaldeficits,italsocausesinflationarypressuresandincreasesfinancingcosts.Theonlyway forward for achieving long-term sustainability is increasing overall productivity and adopting more innovativetechnologies.Despitepossessingthelargeadvantageofhavingmanyofitsownrawmaterialslikeinthesectortextileandapparel,Turkeycanalsoincreasemanufacturingcompetitivenessthroughtheequipmentitutilizes.

85UKForeignandCommonwealthOffice,aboven2.86Deloitte,aboven47.87ForeignTimes,aboven66.88Turkeygovernmentdebt-to-GDPratio(2015)TradingEconomics<http://www.tradingeconomics.com/turkey/government-debt-to-gdp>at11November2015.89‘Turkeythirdinincomeinequality,saysTUSIAD’,Today’sZaman(Istanbul)27June2014.90Deloitte,aboven47.91Ibid.92Dutchculture,aboven19.



Turkey is an export-driven economy, with around 75 percent of its manufactured goods intended for exportation.93Meeting its own export benchmarks and sustaining momentum will require it to step away from labour-intensivemanufacturing and adopting more competitive technology.94 Turkey’s 2023 goals include reaching certain exportbenchmarks, including: machinery (USD100 billion), chemicals (USD50 billion), textiles (USD20 billion), automotiveindustry (USD75 billion), and electronics (USD45 billion).95 According to the World Bank’s Country EconomicMemorandum for Turkey, achieving these goals will require that Turkey targets productivity,96 including throughgreater FDI, innovation, improving workforce skill sets and improving links between research and businessapplications.97

Turkeyholdsanundeniablecomparativeadvantage inagriculturebyvirtueof its land,climate,workforceandlevelofindustrialisation.Thesector’ssteadydeclineisthecommontrendinnewlyindustrialisedeconomies.Althoughlawsofeconomic development call for specialisation, Turkey’s multiple comparative advantages call for simultaneous andcompatible investments inbothmanufacturingandagriculture.Atatimewherefoodsecurity isa luxuryenjoyedbyafew,thecountry’sUSD5.6billionworthofagriculturaltradesurplusesisaformidableadvantage.98Besidesthenaturalmigration of agriculturalworkers from rural to urban areas, Turkey’s agricultural potential is being held back by lowtechnology utilisation, scarcity of capital intensive investments and scale problems (ie. unconsolidated land)independentfromincreasesindemandandprice.99Farmershavebeenslowtoadoptmoderntechniquesandmuchofthe potential land and water resources are inefficiently managed.100 Addressing these issues of innovation andproductivityareimperativegiventhatagricultureisalsodirectlytiedtoTurkey’stextileandapparelmanufacturingsub-sector.Fromapolicystand-point,TurkeyhasenjoyedaCustomsUnionwiththeEUsince1995,butagricultureremainsoutsidetheUniontoday;furtherstepstoensurethatTurkishagriculturalstandardsmeetEUcriteriaandtoensurewidermarketaccessneedtobetaken.

Policyshiftsandincentivestoincreasethecompetitivenessoftheagriculturalandmanufacturingsectorsneedtobesetin place by the government. There is also huge potential for private sector involvement, particularly in real estate,energyandinvestments.OneofthemostimportantsubsectorswhichisexpectedtoshapeTurkey’srealestatemarketinthefuture isurbanrenewal. It isestimatedthataround6.7millionunitsnationwidewillbedemolishedandrebuiltoverthenext20years,requiringUSD15billioneachyearandatotalofUSD400billionintotal.101Inaddition,thePublic-Private-Partnership (PPP)model isbeingwidelyusedacrossTurkey for infrastructureandenergyprojects.Thismodelholdsgreatpotential,especiallyineconomieswithlargecurrentaccountdeficits,andhighlightsthesignificantroletheprivatesectorcanplayinaidingindevelopment.

Turkey underwent a qualitative leap which translated into consecutive years of double-digit growth. Like in otheremergingeconomies,thisboomcyclecanonlybesustainedforafinitenumberofyears.Movingforward,growthwillnotcomeaseasilyandeconomicpolicyneedstobemoreactiveandinordertosustainmomentum.Turkey’seconomictransformationisatestamenttohowsincereandwide-rangingeconomicreformscanimproveacountry’sstandardofliving,butalsohow,evenwiththehighestgrowthrates,someare leftbehindtograpplewithpovertyand inequality.This does not reflect a failure in the adopted economicmodel, but emphasises that the onlyway forward is higherproductivityandinvestmentinvalue-addedeconomicactivity.

93IncreasingTurkey’sExportCompetitiveness(2014)TheWorldBank<http://www.worldbank.org/en/results/2014/08/27/engine-of-growth-for-turkey>at10November2016.94RepublicofTurkeyPrimeMinistryInvestmentSupportandPromotionAgency,aboven15.95Ibid.96TheWorldBank,aboven93.97Ibid.98TheRepublicofTurkeyPrimeMinistryInvestmentSupportandPromotionAgency,aboven33.99AgricultureSectorinTurkey(2014)EGCAgriCapital<http://www.egcyo.com/en/corporate/agriculture-sector-in-turkey>at10November2015.100NationsEncyclopedia,aboven26.101ErnestandYoung,Turkey’sAttractivenessSurvey(2013),8<http://www.ey.com/Publication/vwLUAssets/Turkey_attractiveness_survey_2013/$FILE/turkey_attractiveness_2013.pdf>at20November2015.



2:Lebanon’sEconomy:anoverviewTheWorld Bank’s 2014 Lebanon EconomicMonitor report describes the Lebanese economy as ‘sluggish in a highlyvolatileenvironment’.Thisprovidesanaptdescriptionofthecountry’scurrentstateofeconomicandpoliticalaffairs.Categorically, the Lebanese economy is an upper-middle-income economy, with a GDP per capita of USD7315.19 in2014,andatotalGDDworthUSD45.73billion.102Theseaboveaveragegrowthrateswerebuttressedbyprecedingyearsof exceptional growth and a favorable macro-economic environment. After the Israel-Hezbollah war in 2006, theLebaneseeconomyrecordedexceptionallyhighgrowthratesforfourconsecutiveyears,anaveragegrowth9.2percent,after a 2.5 percent average between 1998-2006.103 Since 2011, however, growth has declined, ranging between 1-2percentwitha2015projectionof1percent.104Externalevents including theglobal financial crisis, amassive refugeeinflux105tothecountryandinternalpoliticalconstraintsaretheobviouscausativefactors,buttherearealsostructuralweaknessesinLebanon’ssocioeconomicarrangementsthatleaveitvulnerabletointernalandexternalshocks.

TheLebaneseeconomybelongstothecohortofWANAstatesidentifiedas‘resource-poor,labor-abundanteconomies’.This group is characterised as being import-dependent for meeting their energy needs and, despite a large nativeworkforce,economicactivityfallsshortofprovidingsufficientemployment,especiallyforyouth.Thishasledtosevere‘brain drain’ and unsustainable dependence on external finance. Although not themost conspicuous in the region,Lebanonarguablydisplayssymptomsofrentierism.Between1993-2010,theWorldBankestimatedthattheLebaneseeconomy’sdependenceonexternalfinances106totalledUSD147billion.Anothersymptomofrentierismisthatverylittleproduction takes place domestically; the economy is mostly service-oriented, this sector accounting for almost 60percentofGDP.107

Both in thepast andpresent, Lebanon’s economic shortcomingshavebeenpolitical at their core. The LebaneseCivilWar,whichlastedfrom1975-1990,cametosymbolisethecountry’sindustrial‘de-development’andforegoneeconomicpotential.108Thispoliticalparalysiswasexemplifiedinthecountry’songoingpresidentialvacuumsinceMay2014,whichhasdampenedinvestorandconsumerconfidence.109Conflictspillovers,aworseningsecurityenvironment,andaseriesof bomb explosions and targeted assassinations have further depressed the country’s economic activity.110 A morepersistentimpedimenttogrowthhasbeenthepost-wartraditionof“politicallysterileadministrativereforms”.111Sincethe end of the war in 1990, this has translated into crippling delays of the country’s most-economically pressinglegislation,includingratifyingthePublic-PrivatePartnershiplawandtheoilandgasextractionandbiddingprocess.112

102Note1:CountrieswhoseGDPpercapitafellbetweenUS$4036toUS$12745in2014wereclassifiedasupper-middleincomein2014.103InternationalMonetaryFund(Beirutoffice),Lebanon:RealGDPGrowthAnalysis1997-2010(2011),2.104Lebanon’sannualGDPgrowth(2015)‘TradingEconomics’<http://www.tradingeconomics.com/lebanon/gdp-growth-annual>atNovember15,2015.105Asof2015,Lebanonhasthehighestrefugeepercapitarateintheworld.Thereareanestimated1.15millionrefugeesinLebanonaltogether,equatingto232per1,000inhabitants.Source:http://www.forbes.com/sites/niallmccarthy/2015/06/18/the-countries-with-the-most-refugees-per-1000-inhabitants-infographic/106Combinationofaid,remittances,andforeigndepositsinLebanesebanks.107TheEconomy(2015)‘TheEmbassyofLebanoninWashingtonD.C.’<http://www.lebanonembassyus.org/the-economy.html>at15November2015.108By1981,theLebaneseIndustrialistsAssociationreporteda25-percentdeclineinindustrialcapacity,andmorethan70percentofallindustrialcapacitywasbelievedtohavebeenidleforatleast500daysduringtheprevious6years.Source:http://www.ghazi.de/industry.html109TheWorldBank,LebanonEconomicMonitor:ASluggishEconomyinaHighlyVolatileEnvironment(2014),16.110Ibid.111RLeendersin,SpoilsofTruce:CorruptionandState-BuildinginPostwarLebanon(2012)236.112TheWorldBank,aboven109,16.



IncomingsServices,banking,andtourism

Services, whose major subsectors are finance and tourism, contribute 70 percent to Lebanon’s overall economicactivity.113 Services also dominate Lebanon’s modest list of exports; services are 20-25 percent larger than goodsexports.114Bankingisthelargestsub-sector;fromthe1950supuntilthestartofthecivilwarin1975,Beirutwaswell-regardedas the region's epicenterof financial services. Thiswas further enabledby theoil boom that started in the1960s, Lebanon-based banks being the main recipients of the region's petrodollars.115 Currently, the main financialservicesoffered inLebanonarecommercialbanking, investment,and insurance;116 totaldepositsmadeincommercialbanksjumpedfromUSD6.5billionattheendof1992toUSD33.9billionattheendof1999.117

Thesizeofthebankingsectorisequivalenttomorethan3.5timesitsoveralleconomy,earningittheepithetofbeingthe‘SwitzerlandoftheMiddleEast’.118Oneoffshootisthatthemajorityofthecountry’seconomicactivityisinstigatedbytheprivatesectorandreliesonoffshoresourcesofcapital.Thesector’shigh liquidityhasmadeitamajorpillarofeconomic stability,119 and imbued Lebanese bankswith a degree of immunity to sudden instability and a capacity toabsorbshocks.

Lebanesebanksplaythekeyeconomicroleofbeingbothattractersandprovidersofcapital,andtoboththepublicandprivatesectors.120Consequently,thebankingsystemisconsideredakeyentrypointforthecapital inflowsneededfordevelopment.Butthesectorisdisplayingaslowdown,withthedepositgrowthratefallingfrom9percentin2013to6.1percentbytheend2014.121Thisisimportanttomonitorgiventhatthesectorneedsatleast6percentgrowthperyearinordertocoverpublicandprivatesectorneeds.122

Another significant sub-branch of Lebanon’s service-driven economy is tourism. According to the World Travel andTourismCouncil(WTTC)2015report,Lebanonranked32ndintheworldintermsofitscontributiontoGDP,whichstoodat21.1percentintheend2014(oraroundUSD9.84billion),significantlyexceedingtheworld’s9.8percentaverage.123Thesecontributionsareforecasttoriseby2.4percentin2015andby5.7percentperannumtoreachUSD17.5billion(25.2percentofGDP)by2025.124Suchprojectionsneed tobecloselymonitoredagainst securitydeteriorations sinceAugust2013.125Becauseofthis,totalemploymentintourismdroppedby20.9percenttoreach225,000employeesin2013.126

Aidandremittances113TheEmbassyofLebanon,Aboven107.114TheWorldBank,LebanonEconomicMonitor:theEconomyofNewDriversandOldDrags(2015),26.115TheEmbassyofLebanon,aboven107.116Ibid.117Ibid.118Note1:Ibid.Note2:The‘SwitzerlandoftheMiddleEast’epithetwasderivedfromthecountry’sbankingsecrecylaws.119Ibid.120LebaneseBankingSectorMainCharacteristics(2012),‘AssociationofBanksinLebanon’<http://www.abl.org.lb/subPage.aspx?pageid=360>at1December2015.121GWazni,‘ToughroadaheadforLebanesebanks’,Al-Monitor(Beirut),3June2015.122Ibid.123BankMed,Lebanon’sWeeklyReport(2015),3http://www.bankmed.com.lb/LinkClick.aspx?fileticket=Q9RAVNQR2PY%3D&portalid=0accessed24November2015.124Ibid.125TheWorldBank,aboven114,8.126BankMed,aboven123,4.



ThesizeofLebanon’sbankingsectoranditscapital inflows(whichexceedthecountry’sGDPbymorethanthree-fold)areaclear indicationof thecountry’sstaggeringrelianceonexternal finances.ThesolvencyofLebanon’scommercialbanks is heavilybuttressedby remittances,whichact as a ‘safetynet’ for theoverall economy inperiodsof turmoil.Total domestic income also far exceeds GDP rates, reaching 135 percent of GDP in 2010 (an all-time high). 127 Thisdiscrepancy between GDP and income is the direct result of private transfers received from the Lebanese diaspora.Lebanonisoneofthelargestremittance-receivingcountriesworldwide;theyexceed20percentofLebanon’snominalGDPaswellasfinancialinflowsfromproductiveeconomicactivitylikeexportsofgoodsandservicesandforeigndirectinvestments.128According toWorldBank figures, remittancescontributed17.7percentofGDPby theendof2014;129increasing from USD7.86 billion in 2013 to 8.9 billion in 2014. TheWorld Bank recentlyattributed the increase inremittances,inpart,tothosesenttoSyrianrefugeesinLebanonbyrelativesabroad.130

The political and consequent economic vulnerability of Lebanon has made it increasingly reliant on foreign aid forreconstruction. The 1975-90 civil war seriously damaged Lebanon's physical and economic infrastructure, cuttingnationaloutputbyhalf.131Rebuildingwas initially financedbydebtaccruedby thegovernment fromdomesticbanks,butwhen the burden proved too large to be shouldered by the government alone, a series of Paris Conferences tocollect aid ensued. By the Paris II conference held in November 2002, a total of USD4.3 billion in financial aid waspledged — including by Malaysia, Oman, United Arab Emirates, Kuwait, Saudi Arabia Qatar and France — and anadditional USD4 billionwas extended in interest-free credit.132 The 2007 Paris III conference following the 2006warraised pledges for relief, reconstruction, and recovery from international and Arab donors amounting tomore thanUSD2billion(notenoughtocoverthewar’sestimatedUSD15billioncost).133134

Lebanon’s status as the countrywith thehighest refugeeper capita rate in theworld has also left it in dire needofhumanitarianaid;ajointUNDP-UNHCRreportsrevealsthataidextendedtoLebanonalonehadreachedaroundUSD2.2billion.135ThisreiterateshowpoliticalstrifehasleftLebanonunabletoindependentlycatertoitseconomicneeds.Thecountryhasthusbecomeseverelyreliant,ifnotdependent,onforeigncashflows—betheyaid,remittances,orforeigninvestments.

Construction and real estate

Lebanon’srealestatesectorhas longbeenconsideredamagnetforforeigncapitalflows.Priortothecivilwar,Beirutexperiencedanuninterruptedboominthepropertysectortriggeredbythecity’srapidly increasingpopulation.136Butthetrendof locally-generateddemandshifteddramatically inthepost-warera, thecountrywitnessingasteeprise inrealestateprices,mostlyfuelledbyLebaneseexpatriateandGulfdemand.137 In1995,constructionactivityaccounted

127IMF,aboven103,2.128AAwdeh,RemittancestoLebanon:EconomicImpactandtheRoleofBanksESCWA,(2014),1.129PersonalRemittances,Received(%ofGDP)(2015)‘WorldBankIndicators’<http://data.worldbank.org/indicator/BX.TRF.PWKR.DT.GD.ZS>at10November2015.130Note1:HCuevas-Mohr,Lebanon:RemittancesInflowsandOutflows(2015)‘InternationalMoneyTransferConferences’<http://imtconferences.com/lebanon-remittance-inflows-outflows/>at1December2015.Note2:TheLebaneseeconomy’sstrikingdependencyonremittanceshighlightsalsohighlightstheseverityofthecountry’s‘braindrain’.131AboutLebanon(2012)‘UnitedNationsDevelopmentProgram’<http://www.lb.undp.org/content/lebanon/en/home/countryinfo.html>at5November2016.132KGebara,ReconstructionSurvey:thePoliticalEconomyofCorruptioninPost-WarLebanon,LebaneseTransparencyAssociation(2007)14. 133HAl-Harithy,LessonsinPost-WarReconstruction:CaseStudiesfromLebanonintheAftermathofthe2006War(2010)2.134Ibid.135UNHCRandUNDP,ImpactofHumanitarianAidontheLebaneseEconomy,(2015)5.136EmbassyofLebanon,aboven107.137Ibid.



for 9.2 percent ofGDP, an increase fromapproximately 4.5 percent in 1972.138 In fact, between2005 and2010, thesurgeindemandforresidentialpropertiesinLebanonwassohighthatpricesinsomeareasincreasedbyuptoLBP500wherebyGDPgrewonly52percentduringthesameperiod.139Inparallel,thetotalnumberofconstructionpermitsrosebyanaverageof16.4percentannuallyfrom2005-2010.140Whilethistriggeredspeculationofahousingbubble,itwashardtodenythatLebanon’srealestatesectorwasbecominganexampleofsuccessfulpost-conflictconstruction.141

Supportedbyexceptionalgrowthbetween2007-2010,Lebanon’sstrongrealestatesectorbecameatangiblereflectionofthecountry’sfavourableinvestmentclimate.142GivenitssignificantcontributionstooverallGDP(14percentin2013),real estate almost became a proxy for the country’s overall economic, political, and security conditions.143 Domesticpoliticalandsecuritydevelopmentssince2011slowedthepaceofpropertymarketgrowth,wideningfurtherin2012asthedomesticpoliticalstalemateandtheregionalturmoildidnotcometoanend.Thiswasreflectedbya10.2percentdropinthevolumeofrealestatesalesduringthatyear.144Salestoforeignersslumpedby6.4percentin2014,reachingasix-yearlow.NotingthatGCCcitizensconstituteasubstantialstakeofthedemandforluxuryapartmentsinLebanon,their interest has dwindled following repeated warnings from their governments to avoid Lebanon due to the highdegreeofpoliticaluncertainty.145

Althoughtherelationshipbetweenconstructionandcementisseeminglysymbiotic,Lebanon’scementindustryhasattimes displayed an even more positive growth trajectory than real estate. Cement was Lebanon’s biggest singleindustrialexportin1980,makingup16percentofthetotal.146Inthe1990s,theindustrywasfuelledbydomesticrealestate demand and post-conflict reconstruction. The industry underwent a restructuring phase,when about USD600millionwas channelled into investment to upgrade technology and raise capacity.147 Even in 2011,whenmost othersectorsbegandisplaying a slowdown, the cement industryproved tobe resilient.148Weaknesshasbegun to show in2014;according to theCentralBankofLebanon, thenumberofcementdeliveriesdroppedby5.3percent in2014 toreach5.52milliontons(Mt).149

Agriculture

Lebanon is known for a fertile and diverse topography that hosts a small, but critical, agricultural sector. In 1995,agriculturecontributedapproximately12percenttoGDP,asopposedto9.9percentin1972.150Importantly,thesectorstill significantly supports rural livelihoods.151 Today, agriculture only contributes around 6 percent of the Lebaneseeconomybutisestimatedtoemployaround25percentofthecountry’spopulation.152Thissaid,thereisastrongandpalpable link between agriculture and poverty in Lebanon; agriculture has the highest rate of poverty with over 20

138Ibid.139Ibid.140LebanonPriceHistory(2015)‘GlobalPropertyGuide’<http://www.globalpropertyguide.com/Middle-East/Lebanon/Price-History>at19November2015.141Ibid.142Bankmed,SpecialReport:AnalysisofLebanon’sRealEstateSector(2015)1.143Latestavailablefigures.144MChami,RealEstateActivityin2014:SluggishPerformanceamidIntensifyingChallenges,BlominvestBank(2015)1.145BlominvestBank,belown148,3.146Lebanon’sindustrialsectorwillbeexploredinfurtherdetailinasubsequentsection.147BlominvestBank,TheLebaneseCementIndustry:StrongGroundandPromisingProspects(2012)1.148Ibid.149BlomivestBank,2014:aCriticalYearfortheCementIndustry(2015)2.150TheembassyofLebanon,aboven107.151TheWorldBank,aboven109,31.152Ibid.



percentofheadsofhouseholdsengaged in this sector considered ‘verypoor’.153 Investing in this sector’spotential isthusapotentialpathwayforpovertyalleviation.

Industrialproduction

ThemodestanddecliningcontributionsofLebanon’s industrialsectortooverallGDP isreflectiveofthefactthatthatindustrialpolicyhasneverbeenattheforefrontofeconomicdecision-making.154Lebaneseindustrydidexpandrapidlyinthe late 1960s and early 1970s, displaying a strong and promising beginning. By 1974, industry accounted for anestimated20percentofGDP,upfrom13percentin1968;moreoverindustrialproductsamountedto75percentoftotalexports155and130,000jobs.156Thisgrowthwascharacterisedbyaproliferationofsmallindustriesfuelledbyeasycredit,astronglocalcurrency,abundantandcheapsuppliesofskilledandunskilledlabor,subsidisedelectricpower,domestictradeprotectionsandexpandingmarketsabroad,particularlyintheGulfArabcountries.157

Despite some reboundafter the endof the civilwar, successwas relatively short-lived. In 1997, Lebanon’s industrialproductionwashigherthantheWANAaverage,butby2009thishadfallenconsiderably.158Todaytheindustrialsectorin Lebanon plays only a marginal role, employing 12 percent of Lebanon’s working population compared to the 39percentemployedinservicesand27percentemployedintrade.159Withinthisbroadertrend,itisimportanttohighlightthatLebanon’sindustrialsectorunderwentaqualitativeshiftintheyearsbetween2000-2008,whereindustrialexports“increased and became more sophisticated”.160 Export sophistication increased 36 percent, expanding to includejewellery,machinery/electricalproducts,paperproducts,chemicals,andplastics/rubbers.161Giventhat thesectorhasconsistentlyplayedasecondaryroleinLebanon’snationaleconomyandpolicy-makingdomains,this‘success’shouldbeattributedtotheincreaseinexternaldemandshocks,asopposedtoimprovedproductivityorsoundpolicy.162

OutgoingsandmajordriversofspendingEnergy

Seemingly lacking in all hydrocarbons, Lebanon serves as a prototype of theworld’smost energy-import-dependenteconomies. Meeting its domestic energy needs has been a long-lasting and crippling concern, leaving the countryvulnerabletovolatileprices.Lebanoncurrentlyimports97percentoftheenergyituses,costingaround15percentofannualGDP.163Butthisdoesnotsparethecountryfromelectricityblackouts.Unreliabilityinpowersupplyhasforced92percentofhouseholdstolinkuptoprivategenerators,theprovisionofwhichhasbecomeaprosperousbusinesswith

153TheWorldBank,Lebanonagriculturesectornote:aligningpublicexpenditureswithcomparativeadvantage(2010),1.154SAtallahandISrour,Lebanon'sIndustrialPolicyMustFocusonDevelopingHighlySophisticatedExports,TheLebaneseCenterforPolicyStudies(2014)1.155Lebanon’sEconomy:Industry(1997)http://www.ghazi.de/industry.htmlat1December2015.156Ibid.157JRolland,Lebanon:CurrentIssuesandBackground(2003)117.158TheWorldBank,aboven109,38.159Ibid.160SAtallahandISrouraboven155,1.161Ibid,5.162Ibid,8.163Note1:EnergyImports(%ofenergyuse)(2015)‘TheWordBankIndicators’<http://data.worldbank.org/indicator/EG.IMP.CONS.ZS>at10December2015.Note2:BankmedMarketandEconomicResearchDivision,OilandGasinLebanon(2014)5.



revenues estimated at USD1.7 billion or 3.7 percent of GDP in 2014.164 On the other hand, businesses are severelyimpactedbyelectricityshortages:91percentoffirmsownorshareapowergenerator.165

Inresponse,Lebanon’senergysectorhasbeenundergoingashift,particularlyenabledbythegovernmentsanctioningoffshoreoilandgasexplorationsin2010.Massiveoilandgasdepositswererecentlydiscovered,166potentiallytippingtheenergybalanceinthecountry’sfavorandprovidinghopethatitsfinancialtroubleswillberectifiedonceitbecomesa net exporter. Lebanon’s offshore hydrocarbon potentialwas furtheredwith the passing a newpetroleumpolicy in2010and the launchingofanoffshore licensing round inFebruary2013.167Despitesuchpotential, transforming itselffrom an energy-dependent to an energy-exporting economy has proved a tedious process paved with risks andchallenges.Thecountry’senergypotentialhasalsofallenvictimtopoliticalimpasse,formorethantwoyearscompanieshavebeenunabletosubmittheirbidsandcompetefortheexplorationofspecificareasbecausethegovernmenthasfailedtoratifytwopiecesofcruciallegislation.168

Importedgoodsandmilitaryspending

Besides energy imports, which account for the lion’s share of Lebanon’s import bill, various other imported goodscontribute to a negative trade balance. In 2013, Lebanon imported around USD22.1 billion of goods;169mainly cars,electricalequipment,metalsand foodandbeverages, through Italy,China, Franceand theUnitedStates.A final,butsignificant,partofLebanon’s importsandspendingaredefense-related; latestdatashowsthatLebanonspentaroundUSD1.6billiononmilitarycapabilitiesin2012(4.1percentofGDP).170

MainchallengesandcharacteristicsoftheLebaneseeconomyIndebtednessand‘electric’deficiencies

Followingthecivilwar,Lebanonrebuiltmuchofitswar-tornphysicalandfinancialinfrastructurebyborrowing,mostlyfromdomesticbanks,ultimatelyburdeningthegovernmentwith largedebts.Thisneedtoborrow inorderto financepost-war reconstructionanddeliverpublicgoodshascarried through topresent times.By theendof2014,debthadrisenconsecutivelytoreach145.7percentofGDP(USD66.6billion),comparedto143.1percentofGDPatend-2013,and133.5percentofGDPatend-2012.171Thisunsustainabledebtlevelcanbeattributedtothecostoffinancingsignificantlyexceeding theGDPgrowth rate. The stockofoutstandingdebt remainsmostly internal; at theendof the2014,75.5percent of gross public debt was held by commercial banks and the central bank, Banque du Liban (BdL).172 FiscaltransferstoLebanon’spublicly-ownedElectricitéduLiban(EDL)areacoreissue.AccruinginterestondebtandtransferstoEdLamountedto40percentofLebanon’sgrosspublicdebt,andtransfers(madepossiblethroughborrowing)nowaccountforoverhalfofthefiscaldeficit.173AlookatLebanon’sdebt-to-GDPprovidesinsightintotheseverityofEDL’snegative impact.According to aWorldBank report, resolving the country’s electricity problemswouldhave kept the

164TheWorldBank,aboven109,30.165Ibid.166Thegovernmenthasnotannouncedthesizeofthediscoveredreserves,butweredescribedas‘considerable’.167Bankmed,aboven142,6.168CTorbey,‘PoliticalimpassestopsLebanonexploitingoilresources’,BBCNews(Beirut)24February2014.169LebanonImports(2015)‘TradingEconomics’,<http://www.tradingeconomics.com/lebanon/imports>15November2015.170Note1:LebaneseMilitaryBudget(2012)‘MilitaryBudget’<http://militarybudget.org/lebanon/>at5December2015.Note2:Morerecentfigureswerenotdisclosed.171TheWorldBankaboven109,31.172Ibid.173Ibid.



debt-to-GDPratioatanacceptablelevel,comparabletomiddleandhigh-incomeeconomieslikeJordan(87.75percent),Hungary(79.23percent)andCroatia(59.78percent).174Ultimately,theincreasingdebt-to-GDPratioandrecurringfiscaldeficitshavecompromised investorconfidence inLebanon.175Thusbesides theirdirect financialcost, theopportunitycostsofunsustainabledebthasmeantthatinvestmentinpublicworksandinfrastructurehavebeenforegone.176

Unemploymentandconsequentbraindrain

Lebanon’s inability to generate sufficient jobs has acute socio-demographic implications. Lebanon’s main economicdrivers(realestate,constructionandtourism)aresectorsthatareeithernotlaborintensive,orattractlowerskilledandcheaperforeign labor.Growthobservedthusdoesnottranslate intoemploymentforeducatedLebanesenationals.177During the2005–2009period, Lebanoncreatedonly3,800 jobsperyear (one forevery sixnewentrants to the labormarket),while some22,000newLebaneseentrantsareexpectedeachyearuntil 2019 (excludingSyrian refugees).178Suchstructurallabormarketweaknessistransformingthelabourmarket’sfabric;educatedLebaneseseekemploymentin countrieswith a demand for high skilled labor, creating a large diaspora;meanwhile, non-Lebanese dominate theunskilledlabormarket,pricingoutnationals.179Afurtherconsequenceis‘braindrain’.Between2011–2013thenumberof Lebanese leaving the country reached 174,704 people with an annual average of 58,234; youth aged 20-44constituted82.6percentsofthesemigrants.Ahouseholds’ livelihoodsurvey in2007foundthat46.3percentofthesemigrantswereuniversitygraduates.180

Highdegreeofmonopolisation

DespiteLebanon’sdesignationasa ‘freeeconomy’,monopolistic structurespervadetheeconomy.A report issuedbytheLebaneseMinistryofEconomyandTradein2014revealsthataround40percentofmarketsareeithermonopolisedorsemi-monopolised.181Thisisespeciallythecaseinthebankingsector,wheredespitethehighnumberofbanks,thetopthreebankshold80percentofthecountry’sdepositsandloans.182Lebanon’smanufacturingsectorhasalsofallenvictim to monopolisation as a result of weak policy and an unfavorable legal and regulatory environment.183Monopolisation is a clear sign of sub-optimal economic performance because itmeans that firms are shielded fromcompetitionandhavelittleincentivetoinnovateinasustainablemanner,deprivingtheeconomyoffurthergrowthandjobcreation.

Thewayforward

Growth in Lebanon isprojected toaccelerate towards fourpercent in2016.184Thisaccelerationconspicuouslyhingesuponasignificantimprovementinthecountry’ssecurityandpoliticalsituation,aswellashowitchoosestohandletheramificationsoftheSyriancrisis.IftheLebaneseeconomicexperiencehasrevealedanything,itisthateconomicgrowthisverymuchcontingentuponpoliticalresilience.Thefluctuationsinthebusinesscyclehavebeenafunctionofdomestic

174MChami,AnyhopeforLebanesetoEnjoy24HoursofElectricityEveryAgain?,BlominvestBank(2015)3.175TheWorldBank,aboven109,17.176FAbou-Mosleh,‘WorldBankdelegationpushingforneweconomicstrategyforLebanon’,Al-AkhbarEnglish(Lebanon),20January2015.177TheWorldBank,aboven109,12.178TheWorldBankaboven109,8.179TheWorldBank,aboven109,9.180FurtherdataonthecontinuousLebaneseyouthandbraindrain(2014)‘WorldEconomicEmpowermentPortal’<http://www.weeportal-lb.org/news/further-data-continuous-lebanese-youth-and-brain-drain>at5December2015.181FAbou-Mosleh,aboven177.182JAbboud,‘EconomicandSocialEffectsofLebaneseMonopoliesandCartels’,EconomicUpdates(Lebanon)22February2014.183SAtallahandISrour,aboven155,2.184TheWorldBank,aboven114,16.



andregional(in)stability.Lebanonthusneedstomoveoutofsectorsthataresensitivetopoliticalshockslikerealestate,servicesandtourism,andtowardsmoreresilientsectorslikeagriculture,manufacturing,infrastructureconstructionandenergy.Besidestheirresilience,thegrowthofthesesectorsisneededtoprovidesustainableandlong-termemploymentforitseducatedyouth.

Lebanon’s comparative advantage in agricultural and its potential role in poverty alleviation is difficult to overlook.According toa recentWorldBankreport, themajorchallenge is thatagriculturalproductionandexpenditurearenotaligned with comparative advantages within this sector.185 Lebanon is relatively more competitive in fruits andvegetablesthanincerealsandlivestock,186andneedstodirectexpendituretoreflectthis.Moreover,itneedstoensurethatpublicexpenditure in the sector isalignedwith the sub-sectors that reduce itsexposure tomarketvolatilityandexacerbate its water scarcity and food insecurity. Meaningful investment in the sector is also a means of reducingagriculturalworkers’highlevelsofpoverty.

The industrial sector needs to be prioritised and placed at the forefront of the country’s economic developmentagenda.187 Despite experiencing intermittent booms, Lebanon’s industrial sector has a “long history of missedopportunities fordevelopment”.188On closerexamination, thesehavebeenmorea result ofpositiveexternal shocksthan sound industrial policies.189 The sector has long operated under an environment of stringent regulatory andstructural bottlenecks, monopolisation, overvalued currency and electricity blackouts. Lebanon’s modest ‘industrialpolicy’consistsofsubsidisedindustrialfinancingschemesandafewtradeagreementswiththeEUandArabcountries.190Passingadequateandinclusivelegislationtohelpmanufacturersexportmoreandattractnewcomerstotheindustryisofparamount importance.Theprivatesector,especiallysmallandmediumenterprises(SMEs),arethebackboneofthe Lebanese industrial sector, yet their needs are not catered to in domestic policy-making and they are largelyexcludedfromtheeconomicdevelopmentprocess.191Aregulatoryframeworkthatfacilitatesalarger,morediversified,andmoresophisticatedexport-baseisrequired

Finally, Lebanon needs to avoid obvious hindrances to growth. While political instability and security threats are adifficult legacy from which to retreat, what is even more detrimental to attracting value-added investments is thegovernment’s inability to move forward with needed legislation and structural reforms. As stated by ReinoudLeendersin,“Lebanonhasnotsuffered fromanyshortageofplans tooverhaulstate’s institutionsdrastically;yetveryfew survived the process of political decision-making”.192 Decades later, a politically sterile environment remains thereality. Be itmanagement reforms to the publically-owned electricity center, licenses for extracting Lebanon’s newlydiscoveredoilandgasreserves,orlawstoencouragePPP’s,reformshavefallenvictimtopoliticalimpasse.TheonlywayforwardisforLebanontoovercometheseself-imposed,artificialbarrierstogrowthanddevelopment.

185TheWorldBank,aboven114,16.186Ibid.187SAtallahandISrour,above155,2.188Ibid.189Ibid.190Ibid.191Ibid.192RLeenders,aboven111,236.



3:Jordan’sEconomy:anoverviewJordan is anupper-middle incomeeconomywithapopulationof6.5millionandaper-capitaGDPofUSD5,214asof2013.193 Jordan’seconomy isamongthesmallest intheMiddleEast,meaningthat ithastorelyon limitedsourcesofincome.Inadequatesuppliesofwater,oil,andothernaturalresourcesmeanthatthecountryhastraditionallyreliedonforeign aid, public debt, remittances and ––more recently –– foreign direct investment to support its finances andgenerateproductiveeconomicactivity.Thisrelianceonwhatisknownas‘externalrents’,has ledsomeeconomiststoargue that Jordan’s economy is more rent-oriented than growth-oriented. Resource scarcity, and consequentdependenceonimports,alsomeansthattheeconomyishighlyshapedbyexogenousevents.In response, under the patronage of HRH King Hussein, the government commenced vigorous liberalisation reformsaimedatoverhaulingtheeconomyintheearly1990s,manyofwhichcontinuetoday.Sucheffortsstartedwithaseriesof structural adjustments to open up strategic sectors to private investors and move away from Jordan’s rentieristlegacy.LikemanyofitsArabcounterparts,thegovernmentwastraditionallyacentralsourceofemployment,welfare,andsubsidiesonbasicconsumergoods.However,theoilrecessionandmassivebudgetdeficitthatensuedinthelate1980sprovidedtheimpetustosignificantlycutbacksocialspendingandsubsidiesonconsumergoods,andstate-ownedenterpriseswereopeneduptoprivateownership.Jordan’seconomicreformscreatedpreviouslyunattainablebusinessopportunitiesinthecountry,whichmarkedaseriousintenttoleapawayfromtherentiermodelandintoaproductive,moreeconomicallyviablefuture.SuchmoveshaveplacedJordanattheforefrontofmanyregionalindicatorsincludinghuman capital, market-friendly policies, and innovation. These strengths are an important aspect of Jordan’sdevelopment-friendly ethos that reflects a push towards a knowledge-based economy. However, a combination offactors including repeated cycles of economic slowdown, high poverty rates, and a bloated public sector have leftJordan’seconomicliberalisationprojectincomplete.Economicrealitiessuchasachronicdependencyonforeignaidandremittances, vulnerability to external shocks, a large informal economyand staggeringpublic debt havenecessitatedstateinterference,complicatingeffortstowithdrawfromitsroleasamaindriverofeconomicoutcomes.

Today,Jordan’sprincipaleconomicchallengeisleveragingadequateeconomicactivitytocoverspendinginthecontextofthecountry’sweaknaturalresources,smallsizeandproximitytoneighboursinconflict.ThedifficultyisthatJordan’sprimary sources of economic activity are either economically problematic (rents), in decline (tourism) or inadequate(taxation),whereasthereislittlemobilityinspendingpatternsbecausetheyaredrivenbyfactors(naturalendowmentsandneighbourhood)largelyoutsideofitscontrol.Thesedynamicsareexploredingreaterdetailbelow.

Insufficientdriversofeconomicactivity

1.1 Remittances and Aid: Foreign aid and remittances, especially from Gulf States, are among the most significantcontributors to Jordan’s economy. Remittances averaged JOD465.64million from 2000-2014 and rose to JOD578.80million by the fourth quarter of 2014,194 accounting for 15-20 percent ofGDP (figure 1).195 Jordan is also one of theworld's top aid recipients on a per capita basis.196 In 2014, Jordan received JOD1.2 billion worth of foreign aid,accountingfor9-10percentofGDP.197Jordan’straditionalandmostsignificantaiddonors(both intheformofgrantsandsoftloans)aretheUnitedStates,GulfStates,EuropeanUnion,IMFandtheWorldBank.Bothhistoricallyandtoday,Jordan’s relationshipwithmembersof theGulfCooperationCouncil (GCC)has resulted inextensiveaid flows.198 This193DepartmentofStatistics,JordaninFigures,(2013)3.194Jordan’sCentralBank,StatisticalDatabase(2014)<http://statisticaldb.cbj.gov.jo/index?action=level7&lang=en>at22April2015.195KMohaddesandMRaissi,OilPrices,ExternalIncome,andGrowth:LessonsfromJordan,IMFWorkingPaper,2011.196RCallawayandEMathews,StrategicUSForeignAssistance:TheBattleBetweenHumanRightsandNationalSecurity(2008)145.197OObeidat,‘JordanReceivesJD1.2billionforeignaidin11months’,TheJordanTimes,(Amman)8December2014.198Forexample,duringtheyearsbetween1967-1986,GCCaidflowscametorepresent82.5percentofthetotalaidreceivedbyJordan;FKhatib,‘ForeignaidandeconomicdevelopmentinJordan:anempiricalinvestigation,’inRWilson(ed),PoliticsandtheEconomyinJordan(1991)65.



relationship becamemore prominent in the aftermath of the Arab Spring. In 2012, when Jordan was at a point offinancial‘distress’duetothefuelcrisisandthesuddenandmassiveinfluxofSyrianrefugees,theGCCintervenedwithaUSD5 billion aid package. The aim of this grant, as well as the aid provided to Jordan in general, has been to spureconomicactivity,ease fiscalpressures,and finance infrastructureanddevelopmentprojects. It is critical tohighlightthat remittances and aid operate in the sameway as ‘rents’; they cause local currency appreciations,making otherexports uncompetitive (as themoney earned is worth less in terms of local currency).199 This retards the growth oflabourintensiveexportsthatotherwisehavethepotentialtogrowrapidlyandfurthertechnologicalprogress.200

Figure1:Jordan’sExternalIncomeandRemittancesinrelationtoGDP201

1.2 Tourism: Tourism, along with remittances are the highest contributors to Jordan’s economy. Accounting for 13percentofGDPin2013,tourismisinstrumentaltoattractinginvestmentsandgeneratinghardcurrencyrevenues.202In2014, tourism directly employed 42,000 Jordanians and a further 130,000 indirectly.203 While recreational tourismsuffered significant decline in the wake of the Arab Spring with the number of inbound tourists falling by almost aquarter inoneyear,medical tourismhasbecome increasinglysignificant.204ThissectorgeneratesoverUSD1billion inrevenues annually and thenumberof foreignpatients seeking treatment in theKingdom stands at over 240,000peryear.In2010,Jordanrankedfirstintheregionandfifthgloballyasamedicaltourismdestination.205

1.3ForeignDirectInvestment:ThenegativeimpactofrentsissomewhatoffsetbyincreasingFDIs,whichrepresented5.3percentofGDPattheendof2013.Besidessupportingthebalancesheet,theyfacilitatetechnologyandskillstransfer,createemploymentopportunities and financedevelopmentprojects. Jordan's top investors areKuwait, SaudiArabia,non-residentJordanians,Syria,France,theUnitedKingdomandtheUnitedStates.1.4 Taxation: Tax system deficiency is among the major challenges facing the Jordanian economy. Internationalbenchmarks suggest that collected tax revenues should account for at least 8 percent of GDP; Jordan’s have never

199PCollier,TheBottomBillion:WhythePoorestCountriesareFailingandWhatCanBeDoneAboutIt(2007),39-40.200Ibid121,162.201KMohaddesandMRaissi,aboven196,6.202JordanistargetingUS$3.5billionworthoftourismrevenuesin2015;TheJordanTimes,‘KingdomEyeingJD3.5billioninTourismRevenuesthisYear’,TheJordanTimes(Amman),5May2015.203JordanInboundTourOperatorsAssociation,VisitJordan;LandofTreasures(2011)JITOA<http://www.jitoa.org/application/uploads/assets/file_1296722012_1538.pdf>at1May2015.204TheArabSpringwaslinkedtoa17percentdeclineintouristnumbersin2011,andfurtherdropof7percentin2012;WorldBank,ModerateEconomicActivitywithSignificantDownsideRisk,JordanEconomicMonitor(2013)7.205KMelkawi,‘JordanRemainsMedicalTourismHubDespiteRegionalUnrest’,TheJordanTimes(Amman)18March2012.



exceeded4percent.206Thisdeficiencystemsfromweaktaxcollectionandenforcementmechanisms.Itisestimatedthataround JOD1billionworthofgovernment revenue is foregonedueto taxevasion.207Evasionhasprompted Jordantoimpose higher consumer taxes including a 16 percent general sales tax on a wide range of items including basiccommoditiesandservices,a‘specialstatetax’of50percentonmobileandtelecommunicationsservicesand23percentand46percenton90-Octangasolineand95-Octangasolinerespectively.208Hightaxrateslowersalesandelevateprices,leadingtohigherlivingcosts.Moreover,becausesuchtaxesaremildlyregressive,vulnerablegroupslivinginpersistentortransientpovertyareparticularlyaffected.

Over-relianceonvolatileimports

Jordan’sfinancialresourcesarestrained,notonlybecauseithaslimitedsourcesofincome,butbecauseofalargelistofimporteditemsthatappearonitsbalancesheet.Thecountry’sweaknaturalresourcesbase(principallyalackofoilandwater) necessitates high spending on energy and food imports, and chronic regional instabilitymakes Jordan a highmilitaryspender.209In2011, Jordan’sprimaryenergyconsumptionstoodat7.46 tonnesofoilequivalent (toe),7million toeofwhich (97percent)wasimported.210Similarly,Jordanimportsaround87percentofitsfoodrequirements;in2012,theKingdom’sfoodimportbillstoodatJOD2.2billion.211Energyconsumptionandfoodimportsthusaccountfor20percentand17.5percentofGDPrespectively.212Such heavy reliance on food and energy imports has several negative economic impacts. Principally, volatility incommoditiespricesdistortspublicinvestment,213inhibitsproperfiscalplanningandrenderstheeconomyvulnerabletoexternal shocks. It alsodrivespricesupwards. In some cases, these costs arepassedon to consumers—onaverageJordanians spend 41 percent of their income on food. In other cases, the government absorbs the cost throughsubsidisation. At around 8 percent of GDP, subsidies have been identified as a principal cause of Jordan’s high andpersistentbudgetdeficit.214Subsidiesalsodriveoverconsumptionandarebroadlyineffective:Subsidybenefits‘leak’torich households whereby the wealthy benefit more from subsidies than the poor.215 Jordan has now halted all fuelsubsidies,electricitysubsidiesaresettobeeliminatedby2017andtheonlysignificantfoodcommoditysupportedbytheStatetodayisflourforbread.216Intermsofnon-foodproducts,Jordanprovidessubsidiesonlyforwaterandcookinggascylinders.

206AAwad,‘Jordan’sEconomyin2015:ChallengesandOpportunities’,PhenixCenterforEconomicandInformaticsStudies(2015).207Ibid. 208Ibid.209Militaryspendingaccountsforapproximately4.65percentofGDP,significantlyhigherthantheglobalaverageof2percent;TheWorldFactbook,CountryComparison:MilitaryExpenditures<https://www.cia.gov/library/publications/the-world-factbook/rankorder/2034rank.html>at5May2015.210OxfordBusinessGroup,Intothelimelight:ReducingEnergyDependencebyTappingintoOilShaleReserves(2013)<http://www.oxfordbusinessgroup.com/overview/limelight-reducing-energy-dependence-tapping-oil-shale-reserves>at10May2015.211TheJordanTimes,‘JordanImports87percentofitsFood’,TheJordanTimes,(Amman)8July2013.212MinistryofEnergyandMineralResources,NationalStrategicPlanforDealingwithNEPCO’sLosses(2013)<http://www.memr.gov.jo>at5May2015.213PCollier,aboven200,40.214InternationalMonetaryFund,CostlyMideastSubsidiesNeedBetterTargeting(2012)IMFSurveyOnline<http://www.imf.org/external/pubs/ft/survey/so/2012/car051412b.htm>at19August2015.215CSdralevichetal,SubsidyReformintheMiddleEastandNorthAfrica:RecentProgressandChallengesAhead,ReportoftheInternationalMonetaryFund(2014)14.216MinistryofEnergyandMineralResources,aboven20;TheJordanTimes,‘Costofbreadestimatedat290million’,TheJordanTimes,(Amman)7March2013.



Macroeconomicimplications3.1Budgetdeficit:Jordan’sinabilitytogeneratesufficientvalue-addedeconomicactivitytocoveritslocalspendingandimports has resulted a ‘twin deficit’ composed of a long-running budget deficit and consequent public debt— thecountry’s most frequently cited and politicised economic indicator. Having widened over the last seven years, thebudget deficit is projected to stand at JOD688million for 2015.217 An accumulating public debt is dangerous to theeconomybecauseitmeansthatthestateoftenhastodirectitsfinancialresourcestowardsclosingthedeficit,usuallyathighinterestrates,creatingadragongrowth.218

3.2Volatilegrowth:TheGDPannualgrowthrate,reportedbytheCentralBank,averaged4.86percentbetween1994-2014.219 As shown in Figure 2, Jordan consistently outperforms other (non-oil producing) WANA economies.220 TheproblemisthatJordan’sgrowth isvolatileandvulnerabletoexternalshocks.Table1andFigure2highlightthedip ineconomicperformancearoundthetimeof theArabSpringandSyriarefugeecrisis,andthefall inrealgrowthfromahigh of 10.58 percent in the first quarter of 2007 to 5 percent in the first quarter of 2008, eventually reaching a 3percent low in 2009, coinciding with the global financial crisis. This elaborates a core structural weakness in theJordanian economy: economic events are largely driven by external capital flows and events as opposed to internaleconomicactivity.

Table1:Jordan’srealGDPgrowthrates(2005-2015)221

Period/Year Realgrowthrate(inpercent)2005-2007 8.24(periodaverage)2008-2010 4.96(periodaverage)2011 2.62012 2.72013 2.82014 32015 3.4(projected)2016 3.6(projected)

Figure2:Jordan’seconomicgrowthinrelationtoMENA222

217‘Cabinetendorsesdraft2015budgetwithJOD688mdeficit’,TheJordanTimes,(Amman)1November2014218Furtherborrowinghasbeenacommonmechanismusedto‘close’thedeficitleadingtoapublicdebtthatstoodataroundUS$32.6billon(90.6percent)attheendof2014comparedtoUS$29.1billion(86.7percent)attheendof2013,surpassingthelegal60percentmark.ThishasmeantthatJordan’sbroaderpublicsectorhascontinuedtoregisterdeficits.InstanceswhenthedeficithasrelativelyeasedhavebeenattributabletoareducedenergybillorasurgeingrantsfrommembersoftheGulfCooperationCouncil(GCC);Obeidat,aboven6,3.219TradingEconomics(2015)<http://www.tradingeconomics.com/jordan/gdp-growth-annual>at17April2015.220WorldBank,JordanEconomicMonitor:SteadyandModerateGrowthContinues,(2014)1.221FigureswerecompiledfromKAl-Wazani,TheSocio-EconomicImplicationsofSyrianRefugeesinJordan,(2014),19aswellasannouncementsmadebyJordan’scentralbankandtheWorldBank.

222WorldBankGlobalEconomicProspects,June2014.



3.3.Unemployment:TheJordanianeconomydoesnotgeneratesufficientinternalproductivecapacitytokeepallthoseable andwilling towork employed. By the end of 2014, unemployment stood at around 11.4 percent, reaching 9.2percentamongmenand22percentamongwomen.223Jordanalsoexperiencesalowlabourforceparticipationrateat32.4percent in2013 (50percent formalesand14percent for females) resulting ina large intellectualcapital loss.224Thishasbeenattributedtoamismatchbetweeneducationand labourmarketneedsandculturalstigmasurroundingcertainvocationalandmale-dominatedprofessions.Highunemploymenthasresultedintotwodistincttrends.First,thestatehasshoulderedtheburdenbyactingasamajorjobprovider,furtherdrainingitslimitedfinancingandinflatingthepublic sector; over 60 percent of Jordan’s formal employment is in the public sector.225 Second, widespreadunemploymenthascreatedafertileenvironmentforthegrowthof informalemployment,withthe informaleconomyrepresenting44percentoftotaleconomicactivityin2010.226The country’sunemployedaremostly youthandwomen; in2010,unemploymentaffectedover22percentof youngmenand45percentofyoungwomen.227YouthunemploymentisparticularlypronouncedinthesouthernpartsoftheKingdom:Tafileh,Karak,MaanandAqaba.228Theproblemalsoappearstodisproportionatelyaffecttheeducated;overhalf of unemployed Jordanians in their early 20s have completed at least secondary education. High post-secondaryeducation rates have translated into a shortage in vocational and technical training participation, where enrolmentstandsataround8-10percent,leavingashortageinlow-skilledlabour.

Jordan’seconomy:thewayforward

Jordan’seconomicshortcomingsarewelldocumented.Itssmallsize,weaknaturalresourcebaseandneighbourhoodallcomplicate steady economic growth and full employment, which today are driving increases in poverty229 and223‘UnemploymentRateDropsto11.4%inThirdQuarter’,TheJordanTimes,(Amman)1November2014;Notehoweverthatthesefiguresmightbeartificiallyhighaspushedupbyinformaleconomyandthosewhochoosetobeunemployed224NMryyan,Demographics,LaborForceParticipationandUnemploymentinJordan,EconomicResearchForum(2012),4.225OKarasapan,‘Jordan’sSyrianRefugees’,Brookings(2015)<http://www.brookings.edu/blogs/future-development/posts/2015/02/25-syrian-refugees-jordan-karasapan>at7April2015.226UnitedNationsDevelopmentProgram,ThePanoramicStudyoftheInformalEconomyinJordan(2012),4.227AAbuqudairi,‘YouthUnemploymentRemainsaMajorChallengeforJordan’,TheJordanTimes(Amman)22April2015.228Ibid.229AccordingtoarecentWorldBankstudy,18.6percentofJordan’spopulationlivebelowthepovertylineatleastonequarteroftheyear,experiencingwhatisknownas‘transientpoverty’while6.3percentliveinpermanentpoverty:NMryyan,Demographics,LaborForceParticipationandUnemploymentinJordan,EconomicResearchForum(2012),4.Basedonan“actualfoodpattern”calculation,Jordan’spovertylineissetatJOD468percapitaperyear,orJOD39permonth.Anactualfoodpatterncalculationisbasedonanamountofspendingonerequirestoachieveacertainlevelofcaloriesintake:UnitedNationsEconomicandSocialCouncilforWesternAsia(ESCWA),MeasurementandAnalysisofPovertyinJordan(2014),8.Transientpoverty,asopposedtopersistentorchronicpoverty,istemporaryinthesensethatthoseaffectedareimpoverishedforatleastonequarteroftheyear,despitebeingofficiallyconsideredasnon-poorbecausetheirannualpercapitaconsumptionexceedstheannual



inequality.230Themoredifficulttaskliesinviewingtheeconomythroughapositivelensthatcanidentifywhereavenuesforgrowthlieandthemeanstopursueit.

Jordan’spotentialmightbebestlikenedtoSingapore—alsoasmallstatewithnonaturalresources,butonethathasmadetheleaptobecomeahighlyprosperous,technology-driveninnovationleader.Jordan’sfirststephasbeensteadyand high levels of investment in education.231 Structural reforms buttressed the development of a high-quality,comprehensive,andaccessibleeducationsectorandthecountryisnowidentifiedashaving“oneofthemostadvancedandsophisticatededucationalsystems intheMiddleEast.”232Today, Jordan’shumancapitalendowmentconsistsofayoungandeducatedworkforce,wheremorethan70percentofthepopulationundertheageof30233and89.9percentofwomenaged15andaboveareeducated.234

This modern human resource base, coupled with investor-friendly policies, in addition to relative stability and afunctioning government and administration, seem to have provided Jordan with the beginnings of an economiccompetitiveedge.The2011Global Innovation Index (GII) rankedJordan41stworldwide(outof125countries)and4thamongtheregionalcountriescoveredbytheindex.Itsplaceinthechartisparticularlynoteworthybecauseit ismorethan25positionsaheadof itsclosestcompetitor in theregionand incomegroup,Tunisia,whichcame66th.AlthoughJordanrankedonlyeighthintheregiononinnovationinputs, itwasthird intermsofoutput.Jordan’sstrengthscomefrom its creative output base,with a strong dynamism at the level of residents’ trademark registrations (where it isplaced first in the region) and a relatively high level of exports of creative goods.235 Information andCommunicationTechnology(ICT)-basedindustriessuchasbusinessprocessoutsourcingandcallcentresarealsoareasinwhichJordanhasacomparativeadvantageduetothewidespreaduseofEnglishandhistoryoflinkswithforeigninvestors.236ThechallengehasbeentomatchJordan’syoungandeducatedworkforcetotheneedsoftheeconomy.Atpresentthereareinsufficientjobsatthelevelthateducatedworkersaspiretohold;itiswellestablishedthatmorethan100,000jobsneed tobe createdannually to accommodatenewcomers to themarket.237Moreover, despite Jordan’s researchanddevelopment infrastructureandscientific researchproductionbeingrelativelyhigh, thecompetenciesavailable in theJordanianeconomydonotlinkcloselyenoughtotheneedsofthelabourmarket.Insomecasescompaniesstillneedtoreachtotheinternationalmarkettofindmanagerswiththerequiredskillsetsandexperience.Anotherramificationoftheskill-jobincongruityhasbeenanetoutflowoftalent.AWorldBanksurveyfoundthat13,000youngJordaniansstudyingabroad(mostly intheUnitedKingdomortheUnitedStates)donotplantorepatriateafter

povertylineonaverage,asopposedtothoseexperiencingpersistentpoverty:Obeidat,Omar.‘ThirdofJordan’spopulationlivesbelowpovertylineatsomepointofoneyear’,TheJordanTimes(Amman),2July2014.230Asat2013,Jordan’sGinicoefficient(whichmeasuresandassessesincomedistribution)stoodat36percent.(UnitedNationsReliefandWorksAgency,JordanataGlance(2015)<http://www.unrwa.org/where-we-work/jordan>at7May2015.)TheGinicoefficientisthemostcommonlyusedmeasureofincomeinequality,measuresandassessesincomedistributioninapopulation.Thecloserthecoefficientisto1(or100percent),themorepronouncedeconomicinequality.AcrosstheglobetheGiniCoefficientiscommonlyfoundintherangeof0.3to0.5forpercapitaexpenditures.Ithasbeensuggested,however,thattheGinicoefficientmayunderstateincomeinequalityinJordanduetoafailuretofullycapturethewealthiesthouseholdsinsurveys:UNDPaboven2,40.Besidesitsgravesocialconsequences,economicinequalityisalsoproblematicbecauseitisproventohaveanegativeeffectoneconomicgrowth:OrganizationforEconomicandSocialDevelopment,‘Inequalityhurtseconomicgrowth,findsOECDresearch’(PressRelease,12September2014)<http://www.oecd.org/newsroom/inequality-hurts-economic-growth.htm>at8May2015.231Ibid.232DRoyandWIreland,‘EducationalPolicyandHumanResourceDevelopmentinJordan’MiddleEasternStudies,28(1)(1992)178.233InternationalLabourOrganization,Jordan’scountryprofile,<http://www.ilo.org/beirut/countries/jordan/lang--en/index.htm>at15March,2015.234RHusseini‘Amost90%ofwomenover15educated’,TheJordanTimes,(Amman)4March,2015.235INSEAD,TheGlobalInnovationIndex2011:AcceleratingGrowthandDevelopment(2011)55.236WorldBank,aboven28,27.237KMelkawi,‘YoungJordanianslookAbroadforBetterJobs,HigherPay,’TheJordanTimes(Amman)12August,2013.



completingtheirstudies.238Inthesamesurvey,only5percentofJordanianacademicsabroadintendedtoreturngiventhelowavailabilityofgoodjobopportunitiesandpoorsalarycompetitivenessonthepartofJordanianuniversities.239Thiscombinationofanoutflowof thecountry’seducated,poor labor forceparticipationandthe inflowof low-skilledlabour,constituteaserioussetbackforadvancingaknowledge-basedandtechnology-driveneconomy. Inshort, thereare toomanyeducatedpeople,and insufficient jobs toemploy them.At thesametime, theabsenceofa labor forcewillingtoundertakelowandsemi-skilledjobshasledtoarelianceonimportedforeignlabor.AccordingtotheMinistryof Labour, by the end of 2014, there were nearly 325,000migrant workers with labour permits240 or 19 percent ofJordan’s1.7milliontotalworkforce.241

Jordan’sdilemmahasbeendescribedbysomeeconomistsasamanifestationofthe‘middle-incometrap’.ThistermwascoinedbyMichaelSpencetodescribeeconomies—usuallylatecomerstodevelopment—that“growtomiddle-incomelevels [then] slow down, and […] even stop growing.”242 Like Jordan, they are unable to compete with low-incomecountries in termsofproviding low-wage labour forproducing labour-intensiveproducts,buthavenotdevelopedthecapabilitiestocompetewithadvancedeconomiesintermsofexportingtechnologicalknow-howandknowledge-basedgoodsandservices.

Thewayforwardforsucheconomies,Jordanincluded,istakingthe“highroadtoeconomicdevelopment[that]involvesa process of structural change where production shifts increasingly towards activities with greater value added andknowledge-intensity”.243Jordanmustmoveawayfromservices(whichcurrentlyaccountforover70percentofGDPandmorethan75percentofjobs)244andtowardsactivitiesthatgeneratevalue-addedeconomicactivity.Atthesametimeitneedstonavigateapositiveshiftintheeconomiclandscapebyattractinglarge-scalecapitalinvestments.Jordanneedstoidentifythesectorsandprojectsinwhichthisdevelopmentalpotentialliesanddirectfactorsofproductiontowardit.One sector that holds long-term developmental potential, and currently suffers from underinvestment, ismanufacturing. Establishing and operating a productive, sustainable industrial base has been long hailed for creatingjobs, transferring developmental know-how, expanding a state’s export base, and offering an invitation into thecompetitiveglobaleconomy.As discussed above, Jordan already enjoys many of the comparative advantages needed to attract foreign capitalinvestment, including inmanufacturing. The country has also taken deliberate steps to open up this sector. Jordan’sInvestment Promotion Law (IPL), passed in 1995, was specifically designed to attract investors to 13 ‘vital’ sectors,including agriculture, education, pharmaceuticals, and tourism. Incentives are provided to reduce the asset costsincurredbyinvestors,whilealsosupportingsectorgrowththroughcrossindustrylinksandclustering.245TheKingdom’snational investment promotion agency, the Jordan Investment Board (JIB), offers a ‘one-stop-shop’ that enablesinvestorstocarryoutalllicensingandregistrationservicesunderoneroofandinanexpeditedmanner.Acriticalpartof Jordan’s investmentpromotion frameworkhasbeen theallocationofpublic land tocreateQualifiedIndustrial Zones,DevelopmentAreas, Free Zones, and theAqaba Special Economic Zone.Again, the aim is to attractforeigninvestment,increaseemployment,advancehigh-valueeconomieslikemanufacturing,andfacilitatethetransferoftechnologyandskills.Afurtheraimistomoreequitablydistributeeconomicactivity;around80percentofJordan’s

238AAwad,aboven207,23.239Ibid24.240GlobalDetentionProject,JordanDetentionProfile(2015)<http://www.globaldetentionproject.org/countries/middle-east/jordan/introduction.htmlction.html>at23August2015.241WorldBank,LaborForce(2014)<http://data.worldbank.org/indicator/SL.TLF.TOTL.IN>at23August2015.242SMichael,TheNextConvergence:TheFutureofEconomicGrowthinaMultispeedWorld(2012),100.243UnitedNationsEconomicandSocialCouncilforWesternAsia(ESCWA),MeasurementandAnalysisofPovertyinJordan(2014),25.244UnitedNationsDevelopmentProgram.JordanPovertyReductionStrategy,FinalReport(2013),31.245‘InvestmentPromotionLaw’,JordanInvestmentBoard(2013)<http://www.jib.jo/AboutJIB/InvestmentPromotionLaw/tabid/207/language/en-US/Default.aspx>atMarch102015.



economic activity is concentrated in Amman despite it housing only 40 percent of population, creating skewedopportunities and living standards.246 Special laws and regulations are applied in these zones, including exemptions(alleviating customsand taxes) and incentives relating to capital ownership and facilities (see further Table2).247 ThelawsalsoofferequaltreatmenttobothJordanianandnon-Jordanianinvestors,thusallowingforeigninvestorstoownanyprojectinfullorpart,ortoengageinanyeconomicactivityintheKingdom,withtheexceptionofsometradeandcontractingserviceswhichrequireaJordanianpartner.

Table2:ExemptionsprovidedbyJordan’sDevelopmentAreasLaw.

Despite these serious attempts to open up Jordan as amanufacturing hub, the gains anticipated have not come tofruition.While the Aqaba Special Economic Zone has enjoyed fast and steady growth, the other industrial parks—particularly in the north of the country—operatewell below capacity. There are several explanations for thisweakforeigncapitalinvestment,includingtheconflictsinneighbouringSyriaandIraq,Jordan’ssmallcoastalaccess,andlackof access to freshwater. Another reason is the absence of a large, willing and low-cost labor force.248 As explainedabove, Jordan’s education investments have resulted in aworkforce that is not inclined to engage in low and semi-skilled labor.Evenif itwas,Jordanianlabourcostsmaybetoohightomakemanufacturingsufficientlycompetitivetoattractinvestment.

Atthispoint, it is importanttohighlighttheenormityofthechallengefaced.Todevelopamanufacturinghub,Jordanmustbeable tocompetewithAsianeconomies,whichenjoystability,plentifulnatural resources, coastalaccessand,most importantly,avery large,appropriately skilledand low-costworkforce.On topof this, in theglobalisedmarket,manufacturing clusters geographically (aprocess called spatial economiesof scale inmanufacturing, or economiesofagglomeration).Oncebusinesses areestablished, there is a rangeof economic incentives forotherbusinesses locateproximately.Thisprocessleadstolargemanufacturing‘clusters’,suchasthePearlRiverDeltainGuangdongprovince,China.

… ifother firmsare producingmanufactures in thesame location, that tends to lower thecost foryour firm.Forexample,withlotsoffirmsdoingthesamething,therewillbeapoolofworkerswiththeskillsthatyourfirmneeds.

246BAl-Zu’bi,‘InvestmentMappingandSMEsattraction’JordanInvestmentBoard(2013),4.247‘FreeZones’,JordanInvestmentBoard2015at<http://www.jib.jo/BusinessandInvestment/WheretoInvest/FreeZones/tabid/270/language/en-US/Default.aspx?SkinSrc=%5BL%5DSkins/jiben/printableSkin&ContainerSrc=%5BG%5DContainers/_default/No%20Container>at20April2015.248Thenorthernindustrialparkshavealsosufferedasaresultoftheremotenessofsitelocations,highcostsofproduction(suchasexpensiveelectricitybills)andredtapeconcerningthelegalaspectsofinvestment.



Andtherewillbeplentyoffirmsproducingtheservicesandinputsthatyouneedtofunctionefficiently.Trymovingtosomeplacewheretherearenootherfirms,andthesecostsaregoingtobemuchhighereveniftherawlabourismuchcheaper.249

The flipside is that establishing a new manufacturing cluster is very difficult. The cost on investors to enter a newgeographicspaceareextremelyhigh;thesecostsrelatetorisk,establishingnewmarketaccess,workforceandaccesstobusiness chain support. Jordan needs to offer investors something more or something different. However, if suchmarketscanbetappedinto,thepossibilitiesareenormous:

in order to break into global markets for manufactures, it is necessary to get over a threshold of cost-competitiveness.Ifonlyacountrycangetoverthethreshold,itenjoysvirtuallyinfinitepossibilitiesofexpansion:ifthefirstfirmisprofitable,soareitsimitators.Thisexpansioncreatesjobs,especiallyforyouth.250

Jordanthusfindsitselfatacross-road.Itsaspirationtobecomeatech-ledinnovationhubislogicalgivenitsassetbase.But its heavy investment in education, coupledwith other factors beyond its control, has blocked another potentialopportunitytobreakfreeofthemiddleincometrap.Thereisalsosomedegreeofpoliciesoperatingatcross-purposesthatfurthercomplicatestheriseofamanufacturingsector.Reducingunemploymentisatthetopofthegovernment’spolicy agenda. This is understandable – high unemployment drives reduced living standards, civic discontent andimposesahugecostintermsofnationalproductivitypotential.OneoftheaimsoftheNationalEmploymentStrategy251istoreduceunemploymentbyreplacingmigrantworkerswithJordaniansinkeysectors.Thisdoesnotbodewellforthemanufacturingsectorasitcutsoffthemainlabourstreamcurrentlysuitabletofeedthismarket.ThetransformationinnormsandvaluesneededforJordanianstobereceptivetosuchemployment,andthedevelopmentofapoolofworkerswithvocationalexpertise,willtaketimeandbecomplicated.Eventhen,itisunlikelythatJordanianswouldacceptthewagelevelsneededtomakemanufacturingsufficientlycompetitivetobreakintotheinternationalmarket;livingcostsare simply toohigh.Thisdilemmawillbe revisited in later chapters,wherea setofpolicy recommendations forhowJordanmightsolvethesemulti-facetedchallengeswillbepresented.

249PCollier,TheBottomBillion:WhythePoorestCountriesareFailingandWhatCanBeDoneAboutIt(2007),82.250Ibid,83.251TheMoPandtheMinistryofAgriculture(MoA)jointlylaunchedin2011theNationalEmploymentStrategy(NES)withtheaimofsettingpracticalstrategiesforthedevelopmentofJordanianhumanresourcestoeventuallycreatejobsfornationals.



4:KurdishRegionofIraqEconomy:anoverviewTheautonomousKurdistanRegionofIraq(KRI)hasalwaysstoodoutasanexceptionalcaseinIraqproper,bothonthepolitical and economic levels. Despite decades of sanctions, wars and embargoes, the Kurdistan regionmanaged toaccomplishexceptionaleconomicperformancerelativetobothIraqandtheWANAregionasawhole.Aftertheliftingofthe ‘double sanctions’252 and the end of Saddam Hussain’s rule in 2003, Kurdistan’s growth flourished, its maincompetitiveedgebeingpeaceandstabilitywhichiteffectivelymarketedtofacilitatesignificantforeigninvestment.Atthattime,theimmediatetasksfacedbytheKurdishgovernmentwereextensiveinfrastructurerehabilitation,adoptingafunctionalpoliticalandeconomicmodel,andintegratinglargenumbersofinternallydisplacedpersons.

Inmany ways, Kurdish economic performancemanaged to exceed expectations. Its economy came to be known as‘macro-stable liberal’ after experiencing a post-2003 boomperhaps comparable to that Turkey. Its economic growthrates were in excess of 10 percent in the years between 2004-2012, stabilising at around 8 percent from 2012onwards.253Moreover,withatotalGDPofaroundUSD23.6billion(asof2013),Kurdistan’sGDPpercapitaofUSD765outshoneIraq’sofUSD4,485,inrelativeterms.By2014,approximately55percentofallinvestmentsinIraqweretakingplaceintheKurdistanregion.254

However,much like itsWANAcounterparts,at theheartofKurdistan’sperformance liesastrikingdependencyonoiland gas as a major source of income, and a crippling vulnerability to exogenous shocks, instability spillovers anddisagreements over sharing oil rentswith the central government in Baghdad. Starting in 2015, the region has beenexperiencing a widespread recession in conjunction with the rise of Daesh, falling oil prices, and an influx of Syrianrefugees and internally displaced persons. The economy has contracted five percent, with poverty rates more thandoublingfrom3.5to8.1percentagepointsinoneyear.255Anothermajordeficiencytheregionfacesisthatmorethan1millionpeopleofatotalpopulationofmorethan7millionliveonprecariousgovernmentsalarieswhichhaverecentlygoneunpaidformonths, leavingthecountryvulnerabletoapolitical, inadditiontoaneconomic,crisis.256 Inaddition,the implementation of investment projects has been put on hold, and many contractors have gone unpaid. Theconstruction sector has been particularly affected, with small companies reporting bankruptcy, placing downwardpressureongrowth.257

Economicandpolitical spectatorsare ready toconclude thatcountry’s tourism, investmentandneo-liberalambitionshave been wiped away by instability, falling oil prices and acrimonious relations with the central government thatbecameparticularlymagnified in the context of dwindling oil profits. BeyondDaesh,258 themore realistic verdict on

252TheKurdistanregionwaslongsubjectedtotheoverallsanctionsimposedonoverallIraqbytheinternationalcommunityafterthe1990GulfWar,inadditiontosanctionimposedonitspecificallybytheregime.253‘DeterminedtoGrow:Economy’(2013)InvestinGroup<http://investingroup.org/review/236/determined-to-grow-economy-kurdistan/>at20December2015.254Ibid.255TheWorldBank,’TheKurdistanRegionofIraqNeedsanEstimatedUS$1.4billionthisYeartoStabilizetheEconomy’(PressRelease,12February2015)<http://www.worldbank.org/en/news/press-256MBozarslan,‘IraqiKurdistan’sbrewingcrisis,’Al-Monitor(Istanbul)20October2015.257TheWorldBank,aboven256.258ThethreattheregionasawholeisfacingfromDaeshisinmanywaysan‘outlier’thatisbeyondthescopeofthispaperandmustbetreatedseparatelyfromKurdistan’slivelihoodprogramingandeconomiccopingmechanismsvis-à-visrefugeesandIDP’s.



Kurdistan’seconomicperformanceisthatitseconomicsuccessisbeingfundamentallytested.Sofar,whetherKurdistanhastrulymanagedtobuilditselfaresilienteconomyinanoasisofinstabilityisquestionable.

MainIncomingsOilandgas

OilandgasrentsarethecornerstoneoftheKurdisheconomy,withmanyspeculatingthatthefutureoftheeconomywillcontinuetodependontheindustry’sprospects.Althoughitundoubtedlyconstitutesthelion’sshareoftheregion’sGDP (estimatedat80percent), it isdifficult toobtainspecificpercentagespreciselybecauseof theopaquenatureofKurdistan’sindependentoilsalesthatbypassBaghdadandlieattheheartoftheirpoliticalimpasse.Intheoryandunderthe constitution, the Kurdish Regional Government (KRG) is required to share its own oil production, before beingsubsequently reimbursed with 17 percent of the total nationwide budget, set so far (and as of 2015) at USD105billion.259ThisroughlycorrespondstoUSD12billionayear,or80percentoftheKRG’stotalrevenues.260Overthepastyear,thissumhasbeenrepeatedlyheldbytheCentralGovernmentmainlybecauseofapoliticalgridlock.Theamountthat was transferred between February 2014 and February 2015 was a dismal USD1.1 billion.261 The precariousrelationshipbetweenthetwosideshasbeenreportedbyKurdistanasamainmotivationforseekingitsownoilincomestream, instigating it to bypass Baghdad and independently strike deals with major oil companies and neighboringstates.ThosedealsweresignedonthebackdropofanindependentOilLawpassedin2007,enablingittosignabout50contractstoexploreanddevelopitsenergyreserves.262

Kurdistanholds approximately a thirdof Iraq’s totaloil reserves,or about45billionbarrels.263 Its currentproductionreportedly standsata thirdof Iraq’s total,butover thepastyear inparticularly,directexportdealsweremadewithglobaloilcompanieslikeExxon,ChevronandGazprom,aswellasbuildingseparateexportpipelinesthatgodirectlytoTurkey.264Itisestimatedthatin2014alone,KurdistanconductedaroundUSD1.5billionworthofindependentoilsalesto foreignmarkets.265 Kurdistan rarely reveals exact figures, but, in an unprecedentedmove, the Kurdistan RegionalGovernmentannouncedthatithasexportednearly18millionbarrelsofoilinMay2015alone,amountingtomorethanhalfamillionbarrelsofoiladay.266Today,KurdistanisexportingeveryseventhbarrelIraqexports,reachingasmanyastencountries.267Kurdistan’s relentlessdrive forenergy independencesignifies thecrucial role thatunabatedoil rentsplayintheburgeoningeconomy.

Investments(foreignandlocal)

Theyear2003markedanewdawnfor IraqiKurdistanas itenteredaneweconomicandpoliticalphase.Muchoftheboomandprogressitenjoyedinthedecadethatfollowedcanbeattributedtoitsabilitytoattractforeigninvestment.Thecountry’sInvestmentLawof2006remainsoneofthesolidlegalframeworksforattractingforeigncapital,providing

259EButler,‘IraqiKurdistan'sbattlewithBaghdadoveroilrevenues’,BBCNews(Erbil)10April2015.260Ibid.261Note1:Kulaksiz,Sibel,Iraq-AssessingtheeconomicandsocialimpactoftheSyrianconflictandISISWorldBankGroup(2015),5.Note2:Thetwosideseventuallystruckadeal,albeitafragileone.262IraqEconomyProfile2014(2014)IndexMundi<http://www.indexmundi.com/iraq/economy_profile.html>at11December2015.263Worldfolio:Kurdistan’seconomicgrowthdrivenbymorethanoil(2015)EmbassyofKurdistanintheUnitedStates<http://www.krg.us/worldfolio-kurdistans-economic-growth-driven-by-more-than-oil/>at12December2015.264Ibid.265WorldBankGroup,aboven262,53.266‘RecordoilexportsforKurdishadministrationinIraq’,AlBawabaNews,7June2015.267Ibid.



a range of incentives to foreign investments in terms of full ownership and profit repatriation and streamlining thelicensingprocessnecessarytoexpediteinvestmentsininfrastructure.268TheLawhasbeencreditedas“oneofthemostimportant factors in the rapid economic growth achieved over the last decade”.269 Since its passing, a total of 594licenseswereissuedwithatotalcapitalworthUSD30.5billion.TheInvestmentLawisregardedasintegraltopromotingthegrowthoftheregion’sprivatesector,thecooperationoflocalfirmswithinternationalcompaniesandcatchingtheattentionofforeignoperators.

By2014,Kurdistanhadearnedthelabelofbeingthe‘DubaiofIraq’duetoitsabilitytoattractrecordlevelsofforeigndirect investment. As of 2014, approximately 55 percent of all investment in Iraq was taking place in the Kurdistanregion.AccordingtoreportsbytheKRI’sMinistryofTradeandIndustry,duringthefirstquarterof2013,moreprojectswere underway in Kurdistan thanwere completed in all of 2012. Additionally, official figures indicate that there arecurrently 15,000 local companies and 2,300 foreign companies from78 countries registered in the Kurdish region.270TopFDIflowsoriginatefromtheUnitedArabEmiratesandTurkey.Ontheoilandgasfront,40companiesinterestedintheoilandgassectorofKurdistanhavecommittedUSD10billionofworthofcapitalfortheregion’senergysector.271

Kurdish dreams of being amagnet for foreign investment are coming under serious threat due to the escalation ofmilitaryoperationsandDaesh’s takeoverof theareas tothesouthandwestof theregion.Therapiddeteriorationofsecurity conditions hit investment confidence in the region hard, which translated into dropping shares and staffevacuations by foreign companies.272 TheWorld Bank commented in itsmost recent report on Kurdistan’s economicconditions that “the combination of the ISIS crisis and the budget freeze has hada chilling effect on all investment,whichhasdeclinedbytwo-thirdssofarin2014”.273Particularlystrikingisthedeclineintheshareofforeigninvestmentbetween2013-2014frommorethan40percentto5percentasaconsequenceoftheuncertainpoliticalandeconomicclimate. For example, Erbil Steel, which produced 18,000 tons of steel bars everymonth, evacuated its 600 foreignworkers in June and closed its facility.Another example is the cement sector,which stopped supplying the southernmarketforseveralmonths.OneinvestorputonholditsplanstobringStarbuckstoErbil.Thisisinstarkcontrasttotheyear2013,whichwitnessedadoublingtotalvalueofaboutUSD12.4billion,ofwhichmorethan40percentwasforeignorjointventures—nationalinvestmentislessthanone-halfandforeigninvestmentlessthanone-tenthofthelevelsintheprecedingyear.274However,multipleKurdishofficials continue toemphasise that the rightsandassetsof foreigninvestorswillcontinuetobeprotectedbytheInvestmentLawandPashmergaforces.275

Tourism

Tourism can be seen as a newcomer to the Kurdish economy, one that began booming after a relatively stableenvironmentwas securedandmonumental investments in thehospitality sectorweremade. Investmenthas floodedintothetourismsectorsince2006andatotalnumberof40licensedprojectshavebeendedicatedtothesector,mainlytohandlegreaterdemand fornewhotelsandother services for foreignandnational vacationers.276ThecityofErbil,whichisoneofthemostancientcitiesintheworld,wasattheforefrontoftheongoinggentrificationofthenorthern268KurdistanRegionInvestmentLaw(2006)KurdistanRegionalCabinet<http://cabinet.gov.krd/p/p.aspx?l=12&s=020000&r=315&p=293>at10December2015.269Ibid.270‘DeterminedtoGrow:Economy’(2013)InvestinGroup<http://investingroup.org/review/236/determined-to-grow-economy-kurdistan/>at20December2015.271Ibid.272NAl-Hassoun,‘ISadvancethreatensforeigninvestmentinKurdistan’,Al-Monitor(Erbil)27August2014.273WorldBankGroup,aboven262,41.274Ibid.275Al-Monitor,aboven257.276Tourism(2014)KurdistanBoardofInvestment<http://www.kurdistaninvestment.org/tourism.html>at20December2015.



Iraqtourismmarket.277Beforetheoutbreakofthecurrentcrisis,tourismwasattheforefrontofKRIinvestment,andaseriouscandidatefordrivingdiversificationawayfromoilandgasdependency.By2013,hoteloccupancyratesstoodat75percentandaround3milliontouristsvisitedKRI in thatyearalone;278 tourismcontributing19.3percent tooveralleconomyactivity,makingitalargercontributorthanagriculture.279

While 2014was dubbed tourism's takeoff year (the regionwas named the2014Arab Capital of Tourism),280 Daesh’sJuneattackshadanimmediateimpact.EventhoughtheregionwassparedmostoftheviolencethathittherestofIraq,theinflowsoftouristsweresubstitutedbyaninflowofrefugees.281Touristinflows,whichhadincreasedby33percentin2013tonearly3million,declinedtofewerthan800,000inthefirstsixmonthsof2014.282

Agriculture

Attimesofrelativestability,theKurdistanregionwasknowntobe“thebreadbasketofIraq”foritsfertileterrainandharvestingavarietyofgrainsandvegetables,positivelycontributingtoIraq’soverallsecurity.However,liketherestoftheeconomy,theagriculturalsectoroftheKRIsawlimitedgrowthinthepasttwodecades.283Theprolongedviolencealsotookitstollonthedemographicsoftheregion,wherealargeproportionoftheruralpopulationwasdisplacedtourban areas. With limited physical infrastructure and a reduced population, farming in these areas declinedsignificantly.284 TheOil-for-FoodProgram, through its supply of artificially priced foreign foodstuffs, coupledwith theinternalsanctionsimposedbyBaghdadduringtheSaddamera—wereharmfultotheregion’sagriculturalsector.285In2003,approximately35percentofthepopulationreliedonagricultureastheirsourceoflivelihood.However,by2012,thatpercentagehaddroppedto9percent.Today,agriculturecontributes10percentofKRI’stotalGDP,with9percentof the population continuing to rely on farming as their principal livelihood.286 Decades of conflict impacted manyagriculturalareas,withformerlyfertileareasnowinaccessibleorunproductive,exacerbatingpoorgovernmentpolicies,sanctions and more than 20 years of isolation.287 This said, the sector’s contribution to the national economy issignificant,comingaftertheoilsectorandtourism.288Moreover,ifinstabilityisovercome,qualitystandardsareraisedandknowledgetransfersarefacilitated,ithasthepotentialtoaidinpovertyreductionandeconomicstability,anditameansofdiversification.

Industry

Whilethe industrialandmanufacturingsector isreportedtocontributearound9.4percentofKurdistan’sGDP,289 it isconsideredsmallandunderdeveloped.290Theregionhaslongfaced“internalandexternalhurdles”thathaveimpededindustrial capacity development.291 Besides war and instability, weaknesses stem from common factors including

277Ibid.278TheWorldBankGroup,aboven262,42.279EmbassyofKurdistanintheUnitedStates,aboven264.280‘TenReasonsIrbilistheplacetobe’AlBawabaNews30January2014.281AlBawabaNews,above280.282TheWorldBankGroup,aboven262,22.283RestoringtheBreadBasket:Agriculture(2013)InvestinGroup<http://investingroup.org/review/240/restoring-the-bread-basket-agriculture-kurdistan/>284Ibid.285Ibid.286RAbdulla,‘Morethan90percentofKurdistan’sfoodisimported’,Rudaw(Kurdistan)27November2015.287Ibid.288USAID,KurdistanRegionEconomicDevelopmentAssessment(2008)93.289InvestmentFactsheetKurdistanRegion:Iraq(2013)KurdistanRegionalGovernment<http://www.iraq-jccme.jp/pdf/arc/04_krg_Investment_factsheet_en.pdf>290USAID,aboven288,93.291Ibid.



industrialpolicy,shortagesinrelevanttechnologies,andmanagerialandtechnical impediments.292AlongwiththerestofIraq,large-scalemanufacturingisvirtuallynon-existent.293

Petroleum refinement is themost developedmodern industry in Kurdistan, followedbymining.294 Lighter industries,such as constructionmaterials, sugar and textiles, havemore relevance to the local economy.295 Beyond these lightindustries, Kurdistan has a long way to go in order to satisfy its needs for modern industrial commodities andmanufacturedgoodslocally,largelyexplainingtheregion’slargeimportbill.

MainOutgoingsFoodandotherimports

By2013,KRI’stotal importsstoodatanestimatedUSD20.8billion.296Thisfigureconstitutesaboutone-thirdofoverallIraqi imports,aparticularlyhighfiguresgiventhattheregionhasonlyaboutone-tenthof Iraq’soverallGDPandone-seventh of its total population.297 Themajority of goods and services in the Kurdistan Region (and Iraq proper) areimportedandtaxationisonlyabout7percentofgovernmentincome.298Mostgoodsareconsumedwithintheregion,andrarelyeverre-exportedasvalue-addedproducts.299Kurdistan’simportdependencyisparticularlypronouncedinthefoodsector;morethe90percentoffoodconsumedisimported,accordingtotheMinistryofAgriculture.300

Publicservices(andsalaries)

Kurdistandisplays symptoms common to almost all its oil-dependentWANA counterparts; hydrocarbon reliance as aprimarysourceofincomeanddriverofeconomicactivityhascrippledtheprivatesectorandothermeaningfulsectorssuchasagricultureandindustry.AlthoughtherehasbeenasurgeinthenumberofprivatecompaniesoperatingintheKRIoverthe lastdecades,publicsectoremploymentremainsthemainsourceof jobs(accountingforabouthalfofallemployment;thesectoremploys1.3millionpeopleinaregionofaround5million).Privatesectoremploymentpayishigheronaverageandproductivity levels arealsohigher.However, thenumbersofemployeesare fewer than thoseemployedbythestateandgovernmentpolicyhasnotencouragedprivatesectorexpansion.301Whiletheunemploymentratehasreducedconsiderablyinthelast20years,productivityhasnotincreased.30251.4percentofemploymentintheKRIcanbecharacterisedasbeingintheformalsector;thevastmajorityofworkingwomenareintheformalsector,andalmostallinthepublicsector.303TheconsequencesoftheKRI’sbloatedpublicsectoronitsbalancesheetaregrave;it

292Ibid,98.293Ibid,6.294InvestinGroup,above284.295TheWorldBankGroup,aboven262,29.296Ibid.297Worldbankreport,aboven262,44.298SZuwal,‘BloatedpublicsectorinIraqiKurdistanneedstobereinedin’,EKurdOnline23February2011.299TradeandIndustry(2014)KurdistanBoardofInvestment<http://www.kurdistaninvestment.org/trade_industry.html>at20December2016.300RAbdulla,aboven287.301SZuwal,aboven299.302Ibid.303RandCorporation,CapacityBuildingattheKurdistanRegionStatisticsOfficeThroughDataCollection(2014).



needsroughlyUSD1billionpermonthtobreakeven,ofwhichUSD700million ispoured intopublicsectorsalaries.304ThisisthemainmotivatorbehindKurdistan’songoingquestforrampingupseparateoilsalesandseekingeconomic,aswellasoverallpolitical,independence.

OtherMainCharacteristicsoftheKurdisheconomyPovertyandunemployment

Today,andparticularlyinthenewlyemergingcontextofrefugeeflowsandmilitaryoperationsagainstDaesh,Iraqhasbeengrapplingwithunprecedentedpoverty.ArecentjointstudyconductedbytheWorldBank,theKurdishMinistryofPlanning and the local Office of Statistics released in August 2015, reports that poverty levels in the KRI have risendramaticallyfrom3.5percentatthestartof2013to12percentin2013.305Unemploymentrateshavealsorisensteadilysince 2013, from6.3 percent to 12 percent in 2015.306 Although this compares favorably307 to the rest of theWANAregion,lowlaborparticipationrateshavebeenarecurrentissue.Asat2013,only38percentofadultsaged15andolderparticipatedintheKRI’slabourforce,withfemaleparticipationbeingstrikinglylowatabout6percentparticipation.308Youthunemployment(ages15–24)is17.6percent,significantlyhigherthanfortheentirelaborforce.However,aswithunemploymentoverall,KRI’syouthunemploymentisamongthelowestintheregion.But,atthesametime,thefemaleyouthunemploymentrateisveryhigh,at48.9percent,comparedto12.8percentforyoungmen.309

Sensitivetoexternalshocksandvulnerability

The fundamentalweakness that liesat theheartof theKRI’seconomicchallenges isa lackof resilienceandcripplingvulnerabilitytoeventsbeyonditscontrol.Whenthemainsourceofeconomicactivityisoil,andtheothersectorsatthecenter of Kurdish policymaking are investment and tourism310, it is unsurprising that any sign of instability has adevastatingeffectoneconomicperformance.AlthoughitiseasytoblamethespreadofDaeshondecliningtourism,thereality is that the ‘Daesh effect’ occurred in conjunction with an ongoing KRG budget crisis, faltering oil prices andunsustainably high public sector employment. These latter effects perhaps could have been avoided through soundpolicy-making.TheWorldBankreportsthatinlessthanayearKurdistan’sMinistryofNaturalresourcesborrowedaboutUSD1.5billionfromthedomesticprivatesector,andanotherUSD1.5billionfrominternationalcompaniesandsuppliersbysellingfutureoiloutput.TheMinistrythereforemanagedtoinjectaroundUSD5billion,correspondingto41percentof thebudgetaryresourcesthatwerenottransferredfromthecentralgovernment,preventingatotalcollapseof theeconomy.311Hadthissupportnotmaterialised,economicgrowthwouldhavebeennegative.AlthoughKRG’sdebtstockisstilllow,becausetheyareaccumulatingdeficitsatsuchahighrate,a12percentGDPjumpindebtinlessthanayearis a source of concern.312 Kurdistan’s embedded dependency on foreign capital and the central government for itsbudget makes it hard to decipher whether its astounding economic progress is a result of genuine improvements304IColes,‘KurdsprotestinnorthIraqasdiscontentgrowswithgovernment’,Reuters7October2015.305NAli,‘Refugees,warpushpovertyinKurdistantounprecedentedlevels’Rudaw(Dohuk)<http://rudaw.net/english/kurdistan/250920152>at25September2015.306Ibid.307ItisimportanttokeepinmindthatKurdistan’srelativelylowunemploymentratespasthavebeenbuttressedbyaninflatedpublicsector.308RandCorporation,aboven304.309Ibid.310Thesetwosectorsrelyonforeigncapitalandvisitors,henceespeciallysensitivetoexternalshocks.311Ibid.312TheWorldBankGroupaboven262,22.



undertakenbythegovernmentinthepastdecade,ormerelyafunctionofarelativelyfavorablesecurityenvironment(comparedtotherestofIraq)andlargecashtransfersfromthecentralgovernment.ItisthereforeofcriticalimportancetoKurdistantoinvestinsectorsthatpromoteresilienceanddonotleaveitseconomicfatedependentuponlocalandregionalevents.

ThewayforwardTherecenteventsthatledtotheongoingbudget(andfinancial)crisisinKurdistanhavebeenundoubtedlyexacerbatedby local and regional turmoil.However, themain challenge faced is that, at the first sign of domestic instability, theregion’seconomycouldnotcope.313Kurdistan isequippedwithaplethoraof factorsofproduction, includingenergy,capitalandlabourthatgiveitacompetitiveadvantageoverneighbouringeconomies.However,itsinabilitytoinsulateitselffrominstabilityhasmanifestedinaneglectofsectorswhereitcanmaximiseitsfactorsofproductionandinsteadorientitselftowardssectorsthatrelyontheforeignflowsofcapital,people-centeredFDI’sandtourism.Bydoingso,theKRI hasput all its ‘eggs in abasket’ that is only reliable in anenvironment that is freeof fromany threats (whetherperceivedoractual)ofinstability.IntheWANAregion,whereinstabilityhasbecomethenorm,themostgovernmentscandoisadoptpoliciesthathelptheireconomiesbecomemoreresilienttoconflict,ratherthanbetontheabsenceofconflictandinstability.

Investingindiversificationandexpandingtheprivatesector

TheKRIneedstoinvestheavilyinitslabormarketandabandonitsoil-centricapproachtodevelopment.Theregionhasto build its policies based on recognition that oil resources alone cannot guarantee economic growth, and that itscurrentbudgetcannolongersupportthesalariesandexpendituresassociatedwithalargepublicsector.Oilrentshavegone far in enabling Kurdistan to enjoy a higher standard living, but their ability to shield the labour market fromunemploymenthasrunitscourse.Kurdistanmustnowinvestinprovidingaframeworkfortheprivatesectortothriveand incentivise its labour force to shift towards it. An economic plan that takes advantage of the region’s resourceendowments,besidesoil,iswherethepotentialforfutureresiliencelies.

Agriculturalpotential

Givenitsvastandfertileterrain,coupledwith“10,000years’[experience]inthefieldofagriculture”,Kurdistan’smostironiceconomicshortcomingisthatmostofitsfoodproductsareimportedfromTurkeyandIran.314Kurdistanhasallthenecessaryingredientsintermsoffertilesoil,undergroundwaterwells,climateandalargeanddiverselabourforce,tobecomefoodselfsufficient.AKRG’sMinistryofPlanning(MOP)andUNDPjointreportnotedthattheregionboastsacombined 1.5million hectares of irrigated lands, a diversified population of livestock, and strong environmental andnaturalconditionsthathaveallowedforthedevelopmentofavarietyofagriculturalproducts.315Itsimportdependencyislargelytheresultofahistoryofembargos,warsandchemicalattacksthatchangedKurdistanandtherestofIraqfroma producer to a consumer.Most recently, however, import dependency has been driven by neglect insofar asmostresourceswere allocated towards other industries like oil and tourism. In 2013, Kurdistanwas allocating less than 2

313BAli,‘Kurdistan’seconomyanditsshortfalls’,3December2015.314DBarwari,‘Kurdistan’sEconomy:Itspotentialanditschallenges’,KurdishHerald(2009).315InvestinGroup,aboven284.



percentofitsbudgettowardsagriculture;Kurdishpotatoproductionwasabouthalfofwhatisproducedincomparablecircumstances,andfruitharvestswerenomorethanone-tenth.316

Kurdistan’sneedforfoodproductsisestimatedtobeincreasingexponentiallyduetoaprojectpopulationgrowthandrefugee and IDP inflows.317 It is therefore important for Kurdistan to acknowledge the potential of the sector inadvancingfoodsecurity, livelihoods,andpovertyreduction. It isalso importanttokeep inmindthatthesector isnotonly a means of employing low-skilled labor, but has also to advance a knowledge sector. In the past, the Kurdishfarmerscouldnotcompetewiththeir Iranian,TurkishandSyriancounterpartsduetoaknowledgedeficit in irrigationtactics,pesticideuseandoverallmethodsofharvesting.318Hence, the inflowofSyrianrefugeesmightbeviewedasameansofclosingthisdeficitbyallowingatransferofagriculturalknowledgeandknow-how.Anotherknowledge-relatedissuethatKurdistanneedstoaddressisadoptingmodernandeffectivequalitystandards.Anopenborderandlackofaregulatorystructureprovidingforbasic,uniformlyenforcedqualitystandardshavemadetheregionanidealmarketforproducts (including food) of an often substandard and contaminated nature. Fundamental to the region regaining adomesticorinternationalmarketshareisthusbasicqualityandsafetystandardsforitsagriculturalproducts.319

Industrialandmanufacturingpotential

As discussed previously, the Kurdistan region has worked hard to promote itself as a regional investment magnet.

However, despite its relative successes in attracting foreign and local capital, very little of those investments have

focusedonsophisticatedmanufacturingthatadvancesitsexportcapacityandvalue-addedeconomicactivity.Essential

requirements for industrial capacitydevelopmentare lacking, suchasa coherent tradeand industrialpolicy, relevant

technologies, transparent government policies and a business-oriented legal framework.320 However, Kurdistan is

endowedwithlabor,capital,andenergy,givingitasolidbasisforadvancingeconomicresilience.

316JNeurink,‘AgricultureinKurdistan:ALongWaytoGrow’,Rudaw25June2013.317RAbdalla,aboven304318JNeurink,aboven318.319TheWorldBankGroup,aboven262,15.320KurdistanBoardofInvestment,aboven300.



5:EconomicandSecurityImpactsofHostingSyrianRefugeesAs the previous chapters illustrate, there are significant differences between the economies of the countriesneighbouringSyriawhererefugeeshavesoughtprotection.Similarly,thereareimpactsofhostingSyrianrefugeesthatareverymuchuniquetothehoststates inquestionaccordingtothedifferingeconomicandpoliticalcontexts.Atthesametimetherearesomefamiliar trendsacrossthesecases. Inparticular, inthebeginningof thecrisisneighbouringcountriesgenerallyapproachedthesituationfromtheassumptionthatitwouldbeovermuchsoonerthanhasactuallytranspired. Refugees were thus accommodated under the guise of temporary protection, particularly in the earlymonths and years of the crisis. Lebanon, likeotherneighbouring countries, initially operated ade factoopenborderpolicyforSyrianrefugees;however,sinceJanuary2015,thegovernmenthasimplementedstrictcontrolsontheentryand duration of stay for Syrians.321 Similarly, Turkey initially attempted to manage the refugee situation withoutassistancefromtheinternationalcommunity;322asthecrisisescalated,itbecameclearthattheywouldrequireexternalsupport.AstheSyrianrefugeecrisisbecomesmoreprotracted,itseffectsonneighbouringcountriesposebothrisksandopportunities. This chapter gives an overviewof someof themain economic and security impacts that should to betakenintoaccountwhenformulatingbetterandmoresustainablestrategies.

DirectandIndirectCostsandBenefitsofHostingThecountriesneighbouringSyriacollectivelyhostapproximatelyfourmillionSyrianrefugees.323Thecrisishascosthostgovernmentsandtheinternationalcommunityanunprecedentedamountindirectmonetarypayments,foodandnon-food items, essential services and infrastructure depreciation. But the refugee crisis has raised other importantexternalities, or spillover effects, that are more difficult to quantify. The crisis has had a significant impact on thedemographicmakeupofhoststates,compoundingexistingpressuressuchashighunemployment,weakinstitutionsandnaturalresourcedeficits,aswellasmodifyingsocialnormsandcustoms.Overcrowdingisaseriousprobleminhospitalsandschools,andthepressureonpublicresourcessuchaswater,electricityandwastemanagementmayhavelong-termimplications for socialwelfare. Existential direct costs are relatively simple to articulate and calculate.What ismorecomplexistheindirectcosts;quantifyingtheincreasedpressureonpublicserviceprovisionandinfrastructure,suchasroads,telecommunicationsandsanitation.

As a result, the Syrian presence in host communities has often become synonymous with terms like overcrowding,stolenjobs,andunequalburden-sharing.Suchstatementsarenotnecessarilymisplaced;however,theyalmostcertainlyobscurethefullrealityofcertainbenefitsaswellascosts.Refugeescontributetolocaleconomiesbybringingnewskillsand resources, as well as increasing production capacity and consumption demand. For example, much of thehumanitarian assistance going to refugee camps in Turkey and into Syria itself is purchased from businesses withinTurkey,andtheriseinthenumberoforganisationsinvolvedinmanagingtherefugeesituationhasledtoanincreasein

321AmnestyInternational,PushedtotheEdge:SyrianRefugeesFaceIncreasedRestrictionsinLebanon(2015).322KKirişciandEFerris,NotLikelytoGoHome:SyrianRefugeesandtheChallengestoTurkey—andtheInternationalCommunity,BrookingsTurkeyProjectPolicyPaperNo.7,September(2015).323UNHCR,SyrianRegionalRefugeeResponse,Inter-agencyInformationSharingPortal(2015)<http://data.unhcr.org/syrianrefugees/country.php?id=107>at16November2015.



formalemploymentforTurkishcitizens.324Further,manySyrianbusinesseshaverelocatedtoTurkeyanditisestimatedthatbyearly2015approximatelyUSD10billioninSyriancapitalhadbeentransferredintothecountry,contributingtoemploymentopportunitiesandincreasedoutput.325Theimpactofrefugeesonthelabourmarketisveryoftenamixofcostsandbenefits(asexploredinthenextsection)butinmanycasestheincreasedavailabilityofcheaplabourhasatleastbeenapositivefactorfor localbusinesses.326Similarly,whilehavingmanynegativeaspects,risingrentsresultingfrom increaseddemand forhousingandshelteralsomean increasedrevenues for landowners in thehostcountry. InLebanon,itisestimatedthatSyrianrefugeescontributeanadditionalUSD73.7milliontotheLebaneseeconomyeverymonth,justthroughrentandutilities.327

Arigorousquantificationofthecostsandbenefitsoftherefugeeinfluxforregionaleconomiesisbeyondthescopeofthis research, but a typology of direct and indirect costs and benefits which sets out the broad range of social andeconomicimpactsofhostinglargenumbersofrefugees,appearsinAnnex1.Inthefollowingsections,themostsalienteconomicandsecuritychallengesextendingfromtheSyriacrisisareanalysedasaplatformfromwhichtoconceptualisethekindsofpolicyapproachesthatcouldyieldbeneficialresultsforbothrefugeesandhoststates.

2.2RiskImplicationsoftheStatusQuo2.2.1TheInformalEconomyandInformalEmployment

Turkey

Turkey is a signatory to the 1951 Refugee Convention and 1967 Protocol and has more clearly defined nationallegislation for responding to refugee situations than its Arab neighbours. Its ‘Law on Foreigners and InternationalProtection’ (LFIP) came into force inApril 2014andwas followed inOctoberby the ‘TemporaryProtectionDirective’(TPD). The latter, in principle, guarantees a broad range of rights for Syrian refugees, from access to healthcare, toresidencyandobtainingworkpermits.328Despitethis,inpracticerefugees’accesstoemploymentremainsconstrainedanditisbynomeansanyeasiertoobtainaworkpermitasaSyrianrefugeeinTurkeythanitisinJordan,Lebanonorelsewhere. The TPD, at the time of printing, has yet to be fully implemented and themore protracted the refugeesituationbecomes, the lesssupport there is foraffordingrefugeesgreaterprotection,particularly regardingaccess toformalemploymentopportunities.329

According toUNHCR, as ofNovember 2015 therewere just under 2.2million Syrian refugees living in Turkey.330 Thepopulationisdensestinthesouthern(Gaziantep,Hatay,AdanaandOsmaniye)andsouth-eastern(Sanliurfa,Adiyaman,Kahramanmaras,KilisandMardin)provinces,butothermajorcities,suchasIstanbul,alsohostlargenumbersofSyrians.The concentration of refugees in these provinces combinedwith the general understanding that Turkey’s SoutheastAnatolia region was already disadvantaged in terms of employment and economic growth, might suggest that theoutpouringofrefugeesfromnorthernSyriahasincreasedthescaleofsocio-economichardshipsinthesecommunities.So far,however, there is anabsenceof comprehensiveassessmentof the impactsof the refugee influx tomake this

324XDelCarpioandMWagner,TheImpactofSyrianRefugeesontheTurkishLaborMarket,WorldBankPolicyResearchWorkingPaper7402,August(2015).325KKirişciandEFerris,aboven324.326REACH,FoodSecurityandLivelihoodsAssessmentofLebaneseHostCommunities,AssessmentReport,June(2015).327NorwegianRefugeeCouncil,APrecariousExistence;TheShelterSituationofRefugeesfromSyriainNeighbouringCountries(2014),pp.6.328AmnestyInternational,StrugglingtoSurvive;RefugeesfromSyriainTurkey,November2014.329DAfanasieva,TurkeywillnotgiveSyrianrefugeesrighttowork–labourminister(2015),Reuters<http://uk.reuters.com/article/2015/08/07/uk-turkey-syria-refugees-workers-id>at1November2015.330UNHCR,Inter-agencyInformationSharingPortal<http://data.unhcr.org/syrianrefugees/country.php?id=224>at4November2015.



assertionconclusively.Theevidencebaseis,forthemostpart,limitedtoanecdotalandsample-basedinformation,andthishasobstructedthedevelopmentofmoreeffectivepolicies.331

This paucity of datameans that only a general representation of the impact of refugees on local labourmarkets inTurkey is possible. However, some familiar and predictable themes are discernible, such as changes in the rate ofunemployment related to large increases in the labour supply.332 According to the Central Bank of Turkey and theTurkishDisasterandEmergencyManagementPresidency (AFAD), thepresenceofSyrian refugees in the southof thecountryhashadanegative impacton theemploymentprospectsof localTurkishcitizens.Astudy fromJanuary2015comparedchanges in local labourmarketdynamicsbetweensoutherncitieswithsignificantnumbersof refugeesandcitieselsewhereinthecountrynothostinglargenumbersofrefugees.ItclaimsthatSyrianrefugeeshavereplacedlocalswhowereworkinginformally.333ThisissupportedbyaprevioussurveyfromAFAD,whichfoundthatthree-quartersofSyriansnotresidingincampshadsearchedforajobsincearrivinginTurkey.334Anecdotalevidencecomplementsthesegeneraldatatosuggestthattherefugeeinfluxhasledtosomecrowding-outoflocalTurkishlabourers.335Interestingly,therehasbeenno significant impactonTurkishworkers’wages in theseprovinces, in stark contrastwith JordanandLebanon,asoutlinedbelow.336LebanonPrior to the outbreak of conflict in Syria, Lebanon already suffered from high levels of unemployment and a largeinformaleconomycharacterisedbyalackofcompliancewithlegislationonworkingconditionsandminimumwages.In2010approximately11percentofthelabourforcewasunemployed,withparticularlyhighratesforwomen(18percent)andyoungpeopleaged15-24(34percent).337Historically,theeconomyhasnotbeenabletocreateenoughjobstokeepupwithnewLebaneseentrantstothelabourmarket,letalonelargenumbersofrefugees.338Moreover,wherejobshavebeen created, these have predominantly been low- and semi-skilled, leading to increased levels of unemploymentamongLebanesecitizenswithbettereducationandtechnicaltraining.Inadditiontohighunemployment,informalwage

331ORSAM,EffectsoftheSyrianRefugeesonTurkey,ReportNo.195,January(2015).332InTurkey’ssoutheasternregion,includingthefiveprovincesborderingSyria,unemploymentreachedahighof14.5percentin2013;thenationalunemploymentrate,bycomparison,was9.8percent(seerespectively:SCagaptay,TheImpactofSyria’sRefugeesonSouthernTurkey,PolicyFocus130,ReportoftheWashingtonInstituteforNearEastPolicy(2014),pp.11andTurkishStatisticalInstitute,HouseholdLabourForce,August2013<http://www.turkstat.gov.tr/PreHaberBultenleri.do?id=13628>).Insomecasesthereisreasontobelievethattherefugeeinfluxmayhaveledtoanincreaseinlocalunemploymentrates;forexample,inthecityofMardin,insoutheasternAnatolia,theunemploymentratewas12.3percentin2011buthadincreasedto20.6percentby2013(seeSIdiz,AttacksonSyriansinTurkeyincreasing(2015)AlMonitor<http://www.al-monitor.com/pulse/originals/2015/05/turkey-attack-on-syrians-in-country-on-the-rise.html#ixzz3qzh0wj4x>at16November2015).However,inothercases,provincesinthesouthandsoutheastofthecountryhadconsistentlyhigherratesofunemploymentthanotherregionspre-datingtheSyrianrefugeecrisis,meaningnoclearcausallinkcanbeinferred.Forexample,in2011,theprovincesofGaziantepandKilisalreadymeasuredanunemploymentrateof14.4percent.BycontrasttherateofunemploymentinSanliurfaandDiyarbakirin2011wasmuchlowerat8.4percent(seeUBalaban,TheRegionalPerformanceoftheManufacturingIndustriesinTurkey<https://secondarycities.files.wordpress.com/2014/10/regional-performance-of-manufacturing-industries-secondary-cities2.pdf>).Furthermore,veryoftenSyrianrefugeesarecompetingforjobsintheinformaleconomy;hence,thosenationalswhotheyarecompetingwithforjobsarelesslikelytohavebeenincludedinofficialunemploymentstatisticsinthefirstplace,renderingtheuseofsuchstatisticsinherentlyproblematic.333ECeritogluetal,TheImpactofSyrianRefugeesonNatives’LaborMarketOutcomesinTurkey:EvidencefromaQuasi-ExperimentalDesign,IZADPNo.9348(2015);itshouldbenotedthatthereportprovidesevidenceforthechangesinthelocallabourmarketandthenproceedstoattributethesechangestothepresenceofSyrianrefugees.Itdoesnot,however,provideanyevidencethatprovescausalitybetweenthesechangesandthearrivalofrefugees.GiventhatthestudywasconductedbytheTurkishCentralBank,theevidencecannotbetakenaseitherobjectiveorconclusive.334AFAD,SyrianRefugeesinTurkey,2013,FieldSurveyResults(2013).335KKirişci,SyrianRefugeesandTurkey’sChallenges:GoingBeyondHospitality,Brookings,May(2014).336ECeritogluetal,aboven335.337WorldBank,RepublicofLebanon;GoodJobsNeeded,ReportNo.76008-LB(2012)pp.17.338Itisestimatedthatoverthenexttenyearsanaverageof23,000newjobswillberequiredeveryyeartomeetthedemandfromnewentrantstothelabourmarket(theLebaneseeconomygeneratedonaverage3,400newjobsperyearbetween2004and2007);Ibid.



employmentwasasignificantfeatureofthelabourforcein2010,aswellashighlevelsofinformalself-employmentinlow-skilledoccupations.339

Thesepre-existingchallengeshavebeenexacerbatedbythepresenceofoveramillionSyrianrefugees.TheMinistryofLaboursuggeststhattherehasbeena23percentriseintheunemploymentrateasaresultofSyrianrefugeesarrivinginLebanon,whichroughlyalignswiththeWorldBankfigureof13percentoverallunemploymentfor2013.340Moreandbetterdata isneededtoaccuratelyassess the impactofSyrianrefugeesonunemployment inLebanon,but it isclearthattheincome-generatingactivitiesundertakenbySyriansareleadingtoexpansionintheinformaleconomy.341MostSyrianrefugeesinemploymentareworkingasinformallabourers:92percentofthoseinsomeformofoccupationareworkingwithoutacontractand72percentarehiredonanhourly,daily,weeklyorseasonalbasis.342Figuresfrom2013suggestthattheservice,agriculturalandconstructionsectors,andtoalesserextentwholesaleandretailtrade,arethemainareasofwork(althoughthismayhavebeensubjecttochangeintheinterimperiod).343Thevastmajorityofjobsbeing done by Syrian refugees in Lebanon are therefore unskilled or semi-skilled and, for themost part, are closelycorrelatedwiththetypeofworkthattheyweredoinginSyriapriortotheconflict.

Aswitnessedinotherhoststates,Syriansareoftenpreparedtoworklongerhoursandforlowerwagesthancitizensofthe host state. This can lead to a variety of negative socio-economic impacts on both sides, such as exploitation ofrefugees’ labour and falling wages for local communities. In Lebanon, the most salient impacts reported by localLebanese communities aredecreases in overall incomeduring thepast two years,with themain explanatory factorsbeinganincreaseinthecostofmaterialsrequiredforincomegenerationandfewerjobopportunities.344TheformerislesslikelytobedirectlyrelatedtotherefugeesituationinLebanonandmorelikelytobetheresultofwiderpoliticalandeconomicinstabilityintheregion,particularlythefactthatmanyproductioninputstraditionallycamefromSyriaalongsupplyroutesthateitherdonotexistanymoreorhavebeensignificantlyinterrupted.345However,itismorelikelythatthe latterreason isdirectlyrelatedtothedrastic increases inthe laboursupply inLebanon. InBekaa,for instance,56percentofLebanesehouseholdshaveseensignificantdecreasesinincomeoverthepasttwoyears.346TheBekaaValleyisoneof Lebanon’smost importantagricultural regionsanda locationwheremanySyrian refugeeshave settledandfoundworkasinformallabourers.347Inaddition,whiletheamountofjobopportunitieshasbroadlyremainedthesame,thereissomeevidenceofdecreasesinwagesforLebaneseworkers,whichsuggestsdownwardpressureresultingfromrefugees’ acceptanceof lowerpay. Focus groupdiscussions conductedbyREACH in thepast year suggest that these

339WorldBank,aboven326,pp.2.340ACTED,LabourMarketAssessmentinBeirutandMountLebanon,ReportoftheAppraisal,MonitoringandEvaluationUnit,22January2014;WorldBank,MENAQuarterlyEconomicBrief,Issue2,January2014<http://www.worldbank.org/content/dam/Worldbank/document/MNA/QEBissue2January2014FINAL.pdf>at3November2015.341Notonlyisthereapaucityofdataonthechangesinratesofunemploymentsince2013,thereisalsoalackofevidencetosupportdirectcausalityonthepartoftheinfluxofSyrianrefugees.Suchasignificantincreaseinthesupplyoflabourhasundoubtedlyimpactedunemploymentrates,butotherfactors,includingseverecontractionsincross-bordertrade,alsoneedtobeaccountedfor.342ILO,AssessmentoftheImpactofSyrianRefugeesinLebanonandTheirEmploymentProfile(2014),pp.29.343Ibid.344REACH,FoodSecurityandLivelihoodsAssessmentofLebaneseHostCommunities,AssessmentReport(2015),pp.16-18;ILO,aboven344,pp.36.345FAO,PlanofActionforResilientLivelihoods;AddressingtheImpactoftheSyriaCrisis&FoodSecurityResponseandStabilizationofRuralLivelihoods(2014).346REACH,aboven346,pp.18.347TheLebanesegovernment’spolicyofavoidingtheestablishmentofformalrefugeecamps(contrarytotheothermainhostcountriesforSyrianrefugees)hasmeantthatmanyrefugeesarelivingininformalsettlementsinruralareas.Combinedwiththegovernment’sofficialbanonworkpermitsforrefugeesandthehighlevelsofpriorexperienceinnon-industrialagricultureandotherlow-skilledoccupations,SyrianrefugeesarehighlypresentintheagriculturalsectorintheBekaa.



factorsaredrivinga ‘ruralexodus’of Lebanesecitizensasmany look to relocate to thecountry’surbancentres (andwherepossibleabroad)insearchofmoreorbetterwork.348

Jordan

It is almost impossible to provide an accurate quantification of the size of the informal economy in Jordan. In 2010,Jordan’sinformaleconomywasestimatedtoconstitute20-25percentoftotaleconomicactivityinthecountry.349Whatcanbediscernedwithgreatercertainty isthatthe informaleconomyinJordanisgrowing;moreover,there isadirectconnectionbetweenthisgrowthandthecurrentapproachto refugeeworkingrightsat thepolicy level. Jordan isnotpartytothe1951RefugeeConventionandits1998MemorandumofUnderstandingwithUNHCR,whilehighlightingtheneed for refugees to be able to work, does not include provisions for the protection of formal working rights. Theimplication is that“onlyabout10percentofemployedSyrianshaveobtained formalworkpermits,andpracticallyallSyrianrefugeesworkingoutsidecampsdonothaveworkpermitsandareassuchemployed inthe informaleconomyandoutside theboundsof Jordanian labour law.”350 This situation is likely tobe further exacerbated as theonset ofinternational donor fatigue becomes more pronounced and refugees have no alternative but to resort to informalincome-generatingactivities.Syriansworking in Jordanpriortotheonsetof theconflictweremainlyengaged inconstruction,wholesaleandretailtrade, manufacturing, agriculture, forestry and fishing, and transportation and storage. Employment of Jordanianworkers in these sectors in 2011 was low, with approximately 7 percent working in construction and 2 percent inagriculture,forestryandfishing,forexample.MostJordanianswereemployedinpublicadministrationanddefence.Thisis supportedby surveyevidence that showshigher levelsofunemploymentamong Jordanianyouth,whoareable toafford towaituntil theright typeofposition (inpublicadministrationordefence)arises.351Today, thedistributionofemploymentofJordaniannationalsacrossthesameindustriesisalmostexactlythesameasinearly2011.ForSyrianslivingoutsideofcamps,however,employmentintheconstructionsectorhasrisensignificantlyandnowrepresentstheprincipallocationofemploymentforthisdemographic.Employment of Syrian refugees has also increased in other areas, such as accommodation and food services. SuchincreasedeconomicactivityhaspromptedaccusationsthatSyriansarefillingpositionsthatwouldotherwisehavegonetoJordaniannationals.ArecentreportconductedbytheILOandFafosuggeststhattheremaybesometruthtothis:

[T]heshareoftotalSyrianrefugeeworkersintheconstructionindustryhasincreasedquitesubstantially,indicatingthat Jordaniansmight have been crowded out of this industry by Syrians to some extent. Similar signs of out-crowingcanbefoundinthewholesaleandretailtradeindustry[…].352

Ontheotherhand,itisimportanttorecognisethatotherfactors,forexamplereducedcross-bordertradeowingtothedifficultiesaroundformertraderoutesthroughSyria,havealsoimpactedthelabourmarketincomplexways.Causality,therefore,cannotbeattributedtorefugeeswithoutfurtherresearch.

KurdishRegionofIraq(KRI)ThedynamicsofdisplacementinIraqaremorecomplexthaninotherhoststatesneighbouringSyria.Inlargepartthisisbecauseofthecontinuingpresenceoftheso-calledIslamicStateorganisation(hereafterDaesh).SinceDaeshmilitantstookcontroloflargeareasofwesternIraqin2014,thenumberofinternallydisplacedpersons(IDPs)inthecountryhas348REACH,aboven346,pp.17.349UNDP,ThePanoramicStudyoftheInformalEconomyinJordan(2013),<http://www.jo.undp.org/content/dam/jordan/docs/Governance>at18November2014.350SStaveandSHillesund,ImpactofSyrianrefugeesontheJordanianlabourmarket,InternationalLabourOrganisation&FAFO(2015).351Ibid,pp.53.352Ibid,pp.6.



increasedandexacerbatedwhatwasalreadyanextremelychallengingsituation.AlthoughtheSyrianrefugeecrisisandthecrisisofIDPsinIraqcannotbeseparated,thelatterfallsoutsidethescopeofthispaper.ThepurposeofthecurrentanalysisistocompareandcontrasttheimpactsofSyrianrefugeesonhostcountriesneighbouringSyriawithaviewtodevelopingmoresustainablelivelihoodsinterventionsaccordingtotheneedsofthehoststateeconomyalongsidetheneedsofrefugees.

ThevastmajorityofSyrianrefugeesinIraqarecurrentlyresidingintheKRI.AsofSeptember2015therewere239,119Syrian refugees registeredwithUNHCR,with themajoritybeing located inErbilGovernorate, followedbyDuhokandSulaymaniyah.353Iraqisnotasignatoryofthe1951RefugeeConventionandthisiscompoundedbybureaucracyatthegovernoratelevelintheKRI.Eachgovernoratehasaseparateframeworkformanagingthearrivalofrefugees,meaningthat registration and ensuring the issuance of residency permits can be a difficult process (and just as in other hoststatesifrefugeesdonotpossessresidencypermitstheycannotseeklegalemployment).Dohuk,forexample,hastakena more liberal approach, issuing residency permits to refugees in camps and urban settings. By contrast, Erbil andSulaymaniyahwerelimitingresidencypermitstorefugeesincampsinordertoremovetheincentiveforrefugeestoliveinurbanlocations.354Sincemid-2014,UNHCRhasmadegoodprogressinencouragingthethreegovernoratestofollowacommon policy regarding refugees’ residency. Despite this, there are still severe challenges to refugees’ livelihoodsposedbythestateoflocallabourmarketsinthegovernorates.

Oneof themostprominentchallenges is increasedcompetition foraccess toemploymentopportunities. Low-skilledworkandmanual labourconstitutes themajority (69percent)ofworkbeingdonebySyrianrefugees in theKRI,withmuch of this taking place informally.355 Agriculturalwage labour is themost popular occupation,with 38 percent ofhouseholdshavingatleastonefamilymembergeneratingincomethisway.Thisisfollowedbyconstructionandothertypesofmanual labour,where24percentofhouseholdshavea familymember involved in this typeofwork.Of thehouseholdsthatreporteddifficultiesinaccessingemploymentopportunities,increasesincompetitionweremostsalientin those districts with large numbers of IDPs.356 Hence, unlike in other host states neighbouring Syria, refugeehouseholds are just one source of increased competition alongside internally displaced persons and both groupscompete with host community groups for employment. This factor is particularly prominent among low-skilledhouseholds, which are oftenmore likely to suffer from increased competition becausemany refugees and IDPs aresimilarlylow-skilledandpreparedtocompromiseonpay,hoursandworkingconditions.357

2.2.2IncreasedCostofLivingTurkey

Thereisapaucityofup-to-date,reliableinformationwhenitcomestotheimpactofSyrianrefugeesonthecostoflivingindifferentareasofTurkey.OneofthemostprominentcitedsourcesisanAFADfieldstudyconductedin2013;358butinthetwoyearssincethisreportwasfirstpublishedthescaleoftherefugeesituationinTurkeyhasincreasedsignificantlyandhencemorerecentinformationisneeded.However,independentresearchtofillthisinformationgaphasnotbeen

353UNHCR,Inter-AgencyOperationalUpdate–SyrianRefugeesinIraq,September2015<http://www.uniraq.org/index.php?lang=en>at8November2015.354LYoshikawa,SyriansinIraq:Refugeeresponsewithinamajorhumanitarianandpoliticalcrisis,ENN<http://www.ennonline.net/fex/48/syrians>at9November2015.355REACH,Multi-SectorNeedsAssessmentofSyrianRefugeesResidinginHostCommunities;Iraq,AssessmentReport,April(2015).356SevereincreasesincompetitionforemploymentwereregisteredinAmedi,Dahuk,Sumel,ZakhoandShekhan,AkreandBardarash,where,collectively,60%ofallIDPhouseholdsreside;REACHaboven3,pp.16.357WorldBank,TheKurdistanRegionofIraq;AssessingtheEconomicandSocialImpactoftheSyrianConflictandIsis(2015).358SeeAFAD,SyrianRefugeesinTurkey,2013,FieldSurveyResults(2013).



forthcoming,perhapsduetonewrestrictionsonconductingfieldworkonrefugees inthecountrywithoutpermissionfromgovernmentministries.359Itispossibletodrawsomegeneralconclusionsaboutchangesinthecostoflivingsince2011andtheimplicationsforSyrianrefugeesandlocalTurkishcitizens;althoughtheimpacts inthisareaare,atbest,mixed.

As with the other regional host states, the influx of Syrian refugees into Turkey has caused demand for housing toincrease, insomecitiessharply, inashortspaceoftime.This inturnhas ledtoan increase inrentprices.TurkeyhadbeenexperiencingahousingsupplycrisisforsometimebeforetheonsetofthewarinSyriaandsothearrivaloflargenumbers of refugees served to exacerbate existing difficulties.360 For example, as well as a gap in the quantity ofappropriateurbanhousingavailable,thereisalsonooptionofsocialhousinginTurkey.361This leavesbothlocalTurksandSyrian refugees at themercyofprivate landlordswhooften takeadvantageof theopportunity to chargehigherrents.Similarly,datasuggestthattherewasanincreaseinfoodpricesbetween2012-2013asaresultoftheincreasednumberof refugees arriving in the country.362 Increases in foodpriceswere also recorded in a numberof provinces,particularly in thesouth,by theCenter forMiddleEasternStrategicStudies (ORSAM).363Anecdotalevidencesuggeststhat prices for other commodities, such as fuel, have also been increased in parts of the country as a result of thepresenceofSyrianrefugees.364

Increasesinpricessuchasthosedescribedaboveareoftenexplainedbythebasicdynamicsofsupplyanddemand:theincrease in the localpopulationwith thearrivalof refugees createsan increase in the levelof aggregatedemand forgoods and services, thereby leading to an increase in prices. However, amore recent report, conducted by Turkey’sCentralBank,suggeststhattheinfluxofSyrianrefugeesmayactuallyhaveledtoadecreaseinthepriceofarangeofgoodsandservices.BalkanandTumenfindthatdecreases intheConsumerPrice Index(CPI)between2012and2014can be directly linked to the arrival of Syrian refugees. They posit that because refugees arewilling to accept lowerwagesthanlocalcitizens,thiscreatesalabourcostadvantageinthesectorswhererefugeesareemployed,whichinturndrivesdownthecostofgoodsandservicesinthosesectors.TheyrecordanaveragedecreaseintheCPIof2.5percentfor theperiodmeasured.365This complicates theconventionalnarrative that increases inpopulationnaturally lead toincreasesinpricesandfurtherresearchisneededhere.LebanonLebanon’scrisisinaffordablehousingpre-datestheSyrianconflictbutthepresenceofoveramillionrefugeeshasputadditional strain on the country’s housing market.366 The demand for housing has not been met with supply andLebanesegovernmentpolicystrictlyforbidsestablishingformalcampsforSyrianrefugees.Asaresult,manySyriansareresortingtoinformalarrangementssuchastentedsettlementsonprivatelandinruralareasandlivinginunfinishedorsub-standardbuildings.367

359BKayaoglu,TurkeyrestrictsacademicresearchonSyrianrefugees(2015)AlMonitor<http://www.al-monitor.com/pulse/originals/2015/05/turkey-syria-government-restricts-academic-research.html>at1December2015.360InternationalCrisisGroup,TheRisingCostsofTurkey’sSyrianQuagmire,EuropeReportNo.230(2014).361AmnestyInternational,StrugglingtoSurvive;RefugeesfromSyriainTurkey,November2014.362YEmreAkgündüz,MvandenBergandWolterHassink,TheImpactofRefugeeCrisesonHostLaborMarkets:TheCaseoftheSyrianRefugeeCrisisinTurkey,IZADPNo.8841(2015).363SeeORSAM,TheEconomicEffectsOfSyrianRefugeesOnTurkey:ASyntheticModelling,ORSAMReportNo:196(2015),pp.19-20;itshouldbenoted,however,thatORSAM’sbiggestsponsoristheTurkishforeignministryandhenceitsresearchmaynotbeasreliableasthatofindependentresearchers.364InternationalCrisisGroup,aboven362,pp.8.365BBalkanandSTumen,ImmigrationandPrices:Quasi-ExperimentalEvidencefromSyrianRefugeesinTurkey,ReportoftheCentralBankoftheRepublicofTurkey(2015).366UNHCR,Housing,LandandPropertyIssuesinLebanon;ImplicationsoftheSyrianRefugeeCrisis(2015).367NorwegianRefugeeCouncil,APrecariousExistence;TheShelterSituationofRefugeesfromSyriainNeighbouringCountries(2014).



Whereapartmentsandotherrentedaccommodationhavebeenavailableandaffordable,theincreaseddemandhasledtopriceincreasesandinsomecasesevictionsoftenants(refugeesandLebanese)whocannolongeraffordtherent.368TheLebaneseConsumerPriceIndex(CPI) indicatesrelativelystable inflationsincethebeginningoftheSyrianconflict,whichwouldseemtocontradictreportsofincreasedrentsandotherlivingcosts.However,theCPIdoesnotreflectlocaltrendsat thedistrict levelandthe InternationalMonetaryFundacknowledgesthatwhile“[o]verall inflationhasbeenbroadlyinlinewithregionalpeers[…]higherfoodandrentinflationmightparticularlyaffecttherefugeesandLebanesepoor.”369

Jordan

Alongside intensified competition for jobs, increases in living costshasbeen identifiedasoneof themostprominentchangesinthenortherngovernoratesofJordansincetheonsetoftheSyriancrisis.370Bysomemeasures,partsofJordanarenowalmostasexpensiveintermsoflivingcostsasthecityofToronto.371Inparticular,thereisasignificantshortfallin available housing units; the Norwegian Refugee Council estimates that 90,000 new housing units are required toadequatelyaccommodateSyrianrefugeesoutsideofcampsandthat78percentofunmetshelterdemandislocatedinthe Irbid,Mafraq and Amman governorates.372 This shortage has led to competition for affordable housing betweenvulnerable Syrians and Jordanians; the price of rented accommodation has increased by up to 200 percent in areashosting largenumbersof refugees.373According toaREACHsurvey,95percentofSyrianand87percentof Jordanianhouseholdsagreedorstronglyagreedthatrisesinhousingcostshadledtodiscontentintheircommunity.374

KurdishRegionofIraq

Asmentionedearlier,theKRIisnotablyamorecomplexcasethanotherhoststatesneighbouringSyriafortheprincipalreasonsof itsquasi-independencefromtherestof Iraqandtheongoingcrisisof internaldisplacementresulting fromthetakeoveroflargeareasofIraqbytheso-calledIslamicStateorganisation.Thishashadmyriadknock-oneffectsfortheKRI,makingitevenmoredifficulttoestablishanycausallinkbetweenincreasesinthecostoflivingandthepresenceofSyrianrefugees.Forexample, in2014thepriceoffuel intheKRI increasedto900IraqiDinarsper litreforgasolineand950IraqiDinarsperlitrefordiesel,almostdoublewhatithadbeenthepreviousyear.375However,whilethismayhavebeendueinparttoincreaseddemandfrombothSyrianrefugeesandinternallydisplacedIraqis,itmayalsobeduetothecuttingoffofsupplylinesasaresultofcontinuingconflictinIraqandtheresultingcontractionoffiscalreserves.The government of KRIwas obliged to obtain fuel from refineries in the south of Iraq,which inevitably led to priceincreasesbecauseoftheassociatedtransportandelectricitycosts.376

The causes of increased costs for housing are less ambiguous than the factors affecting the price of fuel and othercommoditiesasoutlinedabove.InDohukGovernorate,averagerentpricesinApril2014hadincreasedbyapproximately20 percent since the previous year; in Erbil Governorate the increase was approximately 15 percent.377 However, itremainsimpossibletoanalysetherespectiveimpactsofSyrianrefugeesandinternallydisplacedIraqisonrentpricesinanygreaterdetailwithoutfurtherin-depthresearch.Similarly,theWorldBankmeasuredanincreaseinfoodpricesof368UNHCR,aboven369InternationalMonetaryFund,Lebanon;SelectedIssues,IMFCountryReportNo.14/238(2014),pp.5,emphasisadded.370REACH,aboven357.371DCarrion,SyrianRefugeesinJordan:ConfrontingDifficultTruths,ChathamHouseResearchPaper(2015).372NorwegianRefugeeCouncil,InSearchofaHome:AccesstoAdequateHousinginJordan(2015).373MOPIC,belown419,20.374REACH,aboven357,5.375WorldBank,TheKurdistanRegionofIraq;AssessingtheEconomicandSocialImpactoftheSyrianConflictandIsis(2015).376Ibid,377REACH,Multi-SectorNeedsAssessmentofSyrianRefugeesResidinginHostCommunities,IraqAssessmentReport(2015).



4.6 percent between 2013 and 2014 in Erbil Governorate and slightly lower increases for Dohuk and Sulaymaniyahgovernoratesoverthesameperiod.378Aswiththehousingsituation,thiscanbeexplainedbythedemandsofalargerpopulationbutitisimpossibletodistinguishbetweentherefugeeandIDPpopulationsregardingtheseeffects.

2.2.3SocialCohesionTurkeyIn Turkey, there is some evidence that increased socio-economic hardship related to large numbers of refugees iscausing a strain on inter-community relations in themost acutely affectedprovinces, particularly in the southof thecountry.379Forexample,publicdemonstrationsagainstSyrianrefugeestookplaceinGaziantepinthesummerof2014.Theseweremostnotable forquicklydevolving intoviolenceandattacksagainstSyrians in thecity,which resulted insignificant interventions from police and security services.380 Similar incidents of violence and public demonstrationshave takenplaceelsewhere in thecountry, incitiesas spreadoutasSanliurfa in thesouth, Istanbul in thenorthandIzmir in thewestof thecountry;such incidentsare reported tohave increased in2015.381Aswellascompetition foremploymentdrivingviolenceagainstSyrians,therehavealsobeenattacksonSyrian-ownedbusinesses,fuelledbysomelocals’resentmentthatthebusinessesarenotproperlyregisteredanddonotpaytax.382Ethnic and sectarian differences are also a source of tension in parts of Turkey. In Hatay, for example, the city’spopulationishighlyheterogeneous,composedofTurks,Kurds,Circassians,Armenians,ArabChristians,SunniArabsandAlawiteArabs.ThemajorityofSyrianrefugeesinTurkeyareArabSunniMuslimswhotendtosupporttherulingJusticeandDevelopmentParty’s(AKP)anti-Assadstance.Bycontrast,Turkey’sArabAlawites,whoconstitutethelargestArabminority inthesouthernborderregion,forthemostpartcontinuetosupporttheAssadregimeinSyriaoutoffearofpersecution:“[t]heyconsiderTurkey’ssupportfortheSyrianoppositiontobeasectarianchoiceaimedatempoweringtheSyrianSunnimajority.”383Althoughthishasstoppedshortofexplicitdisplaysofsectarianconflict,thearrivalofsomanySunniSyrianrefugeescoupledwiththeAKP’sshiftingofTurkishpoliticsawayfromsecularismandtowardsaSunniIslamicinfluencehasleftArabAlawitesfeelingmoreisolatedandvulnerable.384

Although Turkish public opinion has been generally welcoming to Syrian refugees, and the above incidents certainlyconstitutetheexceptionratherthanthenorm,there isariskthatnegativeperceptionsmay increaseandgivewaytomore popular discontent over the long term. A 2014 survey that covered 20 provinces of Turkey showed that 64percentof respondents believe that Turkey is ethically obligated to assist Syrian refugees. However, the survey alsorevealed that over 70 percent of respondentsthought that refugeeswere causing serious harm to the economy andmore than 62 percent believed that they were undermining social order and causing a rise in crime.385 The reportwarned that in the contextof suchperceptions there is a riskof xenophobic andanti-Syrian sentiment gainingmoretraction over the long term. Further, the increasing polarisation of domestic politics in Turkey, outlined above and378WorldBank,aboven377,pp.35.379ORSAM,EffectsoftheSyrianRefugeesonTurkey,ReportNo.195,January(2015).380RKuthahyali,SyrianrefugeesunderattackinTurkey,AlMonitor<http://www.al-monitor.com/pulse/originals/2014/08/kutahyali-syrian-refugees-under-attack-turkey-gaziantep.html>at30November2015.381SIdiz,AttacksonSyriansinTurkeyincreasing(2015)AlMonitor<http://www.al-monitor.com/pulse/originals/2015/05/turkey-attack-on-syrians-in-country-on-the-rise.html#ixzz3qzh0wj4x>at16November2015.382Today’sZaman,MaskedmenattackshopsrunbySyrianrefugeesinsouthernTurkey,(2014)<http://www.todayszaman.com/anasayfa_masked-men-attack-shops-run-by-syrian-refugees-in-southern-turkey_353052.html>at30December2015.383SAhmadoun,Turkey’sPolicytowardSyrianRefugees;DomesticRepercussionsandtheNeedforInternationalSupport,StiftungWissenschaftundPolitikComments(2014),pp.3.384Thegovernment’sresponsetotheGeziParkdemonstrationsinMay2013hadaparticularlynegativeeffect,sinceseveraloftheprotestorskilledintheprotestswereAlawites;http://www.al-monitor.com/pulse/originals/2014/02/turkey-alawite-identity-syria-arab-war.html385MErdoğan,TheSyriansinTurkey:SocialAcceptanceandIntegration(2014)HacettepeUniversityMigrationandPoliticsResearchCentre<http://www.hugo.hacettepe.edu.tr/HUGO-RAPOR-TurkiyedekiSuriyeliler.pdf>at9November2015.



reflected clearly inpublicperceptionsof refugees, could compounda spreadof anti-Syrian feeling.386AKP supporterstend to bemore in favour of Syrian refugees, whereas Republican People’s Party supporters tend to take a stricterapproachtorefugees,forexample.Whiletheseperceptionsoftenhavemoretodowithpoliciesandpoliticalaffiliationthanobjectivefeelingstowardsrefugees,thereistheriskthattheycouldfeedintotangibleoppositioninlocalareas.387

Lebanon

In Lebanon, even more than in Turkey, the broader domestic political context must be taken into account whenassessingsocialcohesion.SectariantensionsinthecountryhavebeenpalpablesincetheassassinationofformerPrimeMinisterRafikHariri in2005, and it is through this lens that threats to social cohesionought tobeapproached.Eversince the assassination,whichmany attribute to Hezbollah acting at the behest of the Syrian government, domesticpoliticshavebroadlybeendividedintotwoopposingcamps:theMarch14AllianceandtheMarch8Alliance.TheformerismainlycomposedofLebaneseSunniswhoopposetheSyrianregimeanditsinfluenceinLebanon,whilethelatterismainlyLebaneseShi’awhoareloyaltotheregimeofBasharal-Assad.AnumberofChristianpartiesaredividedbetweenthetwocoalitionsandtheMarch8alliancemaintainssomeDruzerepresentation.ThevastmajorityofregisteredSyrianrefugees in Lebanon are SunniMuslims and this has significantly affected the demographicmakeup of the country,causing alarm in some non-Sunni regions. For instance, this demographic shift has already led to calls for armingrespectiveconfessionalcommunitiesongroundsofself-defence—somethingthatcouldprecipitatefurtherinstabilityinthemedium-andlong-term.388Thatsaid,socio-economicpressuresdirectlyrelatedtotherefugeecrisiscontinuetobeoneofthemaindividingforceson inter-community relationsandoftencoalescewith thepre-existing confessional-political factorsoutlinedabove.389LackofemploymentopportunitiesiscompoundedbyregularpoweroutagesandwatershortagesinLebanon,whichareoftenattributeddirectlytothepresentofrefugeesplacinganaddedburdenonalreadyweakinfrastructureandover-stretched resources.390Occasionally tensionshavegivenway to threats, suchasposterswarning Syrians to leave thearea,andviolentattacksagainst refugees.391 Ina2014survey, representatives from272villagesandneighbourhoodsaround the country cited incidents of tension and/or violence in their communities, including protests, physicalintimidation or violence (armed and unarmed), verbal harassment and youth unrest; a significant amount of theseincidents involved Syrians. A major risk is that inter-community tensions prompted by increased socio-economicpressures will escalate and play into existing confessional and political grievances, thereby exacerbating an alreadychallengingsituation.392

386JTolay,’DeconstructingTurkishPublicAttitudestowardsRefugees:EmpoweringRightsoverPoliticizationandSelf-gratification’inIBalandMDemirtepe(eds),USAKYearbookofPoliticsandInternationalRelations,vol.6(2014).387Forexample,Tolaypointsoutthat“[m]anyun-foundedorill-foundedrumourscirculatedwidelyonTurkishsocialmediaclaimingthattheTurkishgovernmentwasprovidingmorerelieftoSyrianrefugeesthantothedisplacedfromtheVanearthquakeofOctober2011;thatthesubsidiesgiventoSyrianrefugeesweremorethantwicetheminimumwageinTurkey;thatSyrianrefugeeshadcommittedaveryhighlevelofvandalismandassaults;and–themorecommonandpersistentofclaims–thatSyrianrefugeesweregiveneasyaccesstoTurkishcitizenshipandresettledstrategicallyonTurkishterritorysoastoimpactfutureelectionsinfavouroftheAKP”;Tolay,aboven,pp.15.388LKhatib,RepercussionsoftheSyrianRefugeeCrisisforLebanon(2014)CarnegieMiddleEastCenter<http://carnegie-mec.org/publications/?fa=57442>at10November2015.389SearchforCommonGround,DialogueandLocalResponseMechanismstoConflictBetweenHostCommunitiesandSyrianRefugeesinLebanon,ConflictScan(2014);ORSAM,TheSituationofSyrianRefugeesintheNeighbouringCountries:Findings,ConclusionsandRecommendations,ORSAMReportNo.189,April(2014).390CAREInternational,Inter-CommunityRelations:AStudyoftheImpactoftheSyrianRefugeeInfluxontheLebaneseHostCommunityanditsRepercussionsontheSocialCohesionContext<http://www.care.org/sites/default/files/documents/Social%20Cohesion%20Study_CIL.pdf>at10November2015.391KWatkinsandSZyck,Livingonhope,hopingforeducation;ThefailedresponsetotheSyrianrefugeecrisis,OverseasDevelopmentInstituteReport(2014).392Hereitisimportanttonotethatneitherpoliticalnorsectariandifferencesareidentifiedasthemaincausesoftensionandsubsequentconflict;however,accordingtofocusgroups,thesefactorsarethemostlikelytoexacerbateconflictonceithasbrokenout(seeSearchforCommonGround,aboven48,pp.22).



There is no central government policy to regulate how municipalities deal with the refugee situation, leading todisparate responses, some stricter than others. In Anout, Daraya andMyriata, curfews have been implemented thatrestrictSyrians’movements.AccordingtoREACH,suchlimitsoninteractionbetweenrefugeesandhostcommunitiesasaresultofimposedcurfewsmayservetounderminesocialcohesion.393Itisclearthatinvestmentinenterprisesthatwillcreate jobs for local Lebanese alongside Syrian refugees are urgently needed. This must be coupled with moreinteraction between refugees and host communities — something that municipalities could address comparativelyquicklybysuchmeasuresasabolishingcurfewsforrefugeesandoutreachprogrammesbetweencommunities.JordanThe potential for increased competition over resources (broadly defined) to undermine refugee-host communityrelations is a risk associated with all large scale, protracted displacement situations.394 The geography of Syriandisplacementmeans that host communities in Jordan’s northern governorates, particularly inMafraq and Irbid, havebeen disproportionately affected by the presence of large numbers of refugees. Many municipalities in thesegovernorates were struggling to provide basic services such as solid waste management and water and sanitationservicespriortotheonsetoftheSyriancrisis.Thearrivalofrefugeeshasexacerbatedthesechallenges:insomecasesthenumberofSyrianrefugeesnowlivinginthemunicipalityisequaltothenumberofJordanianresidents.395Further,the north of Jordan is characterised by a prevalence of ‘high’ and ‘severe’ levels of vulnerability among refugeehouseholds.396This, incombinationwith the fact thatmany localsarealso living invulnerablecircumstances,hasputhost-refugeerelationsunderconsiderablestrain.

Therehavebeennosignificantinstancesofviolenceorsocialunrestbetweenthetwogroups,andthisistestamenttoboth communities’ stoicism and generosity. There is, however, evidence of tensions and on occasion this has led toisolatedincidents;forexample,streetprotestsandtireburningsbyJordaniansinMafraq.397

KurdishRegionofIraq

ThemajorityofSyrianrefugeesintheKRIareSyrianKurds,makinglocalintegrationeasierandsmootherthaninotherhost states.Theabsenceofa languagebarrierbetweenrefugeesand localKurdishcommunitiesand theexistenceofcross-border and family ties that pre-date the current crisis have certainly mitigated some of the difficulties ofdisplacement,comparedwithpartsofsouthernTurkey,forinstance.398SyrianKurdshavefoundemploymentandbeenabletosetupbusinesses intheKRI,andalthoughthere isevidenceof increases inthecostof living,the likelihoodofseriousthreatstosocialcohesiondevelopingislessthaninTurkeyorLebanon.

Ontheotherhand,therearenotablediscrepanciesbetweenthecurrentsituationofSyrianrefugeesintheKRIandthesituationofIDPsintheregion,whichcouldconceivablyresultintensionsemergingbetweensuchgroups.Roughlyhalf

393REACH,InformingTargetedHostCommunityProgramminginLebanon;PreliminaryAnalysisforSectorPlanning(2014),pp.31.394GLoescheretal(eds.),ProtractedRefugeeSituations;Political,HumanRightsandSecurityImplications(2008);JMilner,Refugees,theStateandthePoliticsofAsyluminAfrica(2009).395UNDP,MunicipalNeedsAssessmentReport(2014).396UNHCR,VulnerabilityAssessmentFramework;BaselineSurvey(2015),15.397MercyCorps,AnalysisofHostCommunity-RefugeeTensionsinMafraq,Jordan(October2012). InJordan,therehavebeencasesofmediaoutlets,suchasmorningradiochatshows,promulgatinghatespeechaboutSyrianrefugeesinJordan;AmmanNet,Arabiclanguage-onlywebsite,see:http://ammannet.net/sy/;seealsoASu,TheMightyPen(2014),ColumbiaJournalismReview<http://www.cjr.org/feature/the_mighty_pen.php>at16August2015.Ithasalsobeensuggestedthattheexaggerationofinformationpresentedonsuchforumshasprecipitatedtheoutbreakofsmallscaleviolenceinthepast.398ASoodandLSeferis,SyrianscontributingtoKurdisheconomicgrowth’(2014),ForcedMigrationReview,issue47.



of the total number of Iraqi IDPs are in the KRI,many ofwhomwere displaced during the rise of Daesh in 2014, inaddition to thosewho remaindisplacedas a resultof sectarian violencebetween2006and2008.399 Theoverlappinglayers of displacement present acute challenges not only for the displaced themselves but also for the varioushumanitarian agencies attempting to respond to the situation. At present there continue to be arbitrary distinctionsmade between Syrian refugees and Iraqi IDPs, with more funding and assistance typically available for the formerdespitetheoftenidenticalneedsofthetwogroups.400Forexample,intheDomizrefugeecampinDohuk,amaternityunitthatwasopenedwiththesupportofMédecinsSansFrontièreswasonlyopentoSyrianrefugeesandnottoIraqiIDPsinthesamearea.401Therecontinuestobearangeofrefugee-andIDP-exclusiveservicesrunninginparallelintheregionandthedifferencesinaid(bothrealandperceived)isreportedasafactordrivingtensionsbetweenthegroups.402

2.3ViolentExtremismintheContextoftheSyrianCrisisThereisanemergingbodyofliteraturehighlightingtheriskthatterroristorganisationsmayseektoexploit(particularlyprotracted) refugee situations.403 The riseof violentextremist groups, suchasDaeshand Jabhatal-Nusra, amidst theturmoilinSyriaandWesternIraqisgeneratingfearsofradicalisationinneighbouringstates,bothamongnationalsanddisplacedpopulations.Suchorganisationsoftenhaveaccesstosignificantresourcesthattheycanmobilisetogainthetrust and support of vulnerable communities. In Lebanon, Jabhat al-Nusra provided aid and support to refugees inresponsetoshortfallsininternationalaid,whichresultedinincreasedinteractionbetweenrefugeesandextremists,andan increase in radicalisationamongst the former.404 InAugust2014, therewasabattlebetweentheLebaneseArmedForces (LAF) and Jabhat al-Nusra, also supportedbyDaesh fighters.During thebattle severalhundred refugeesweremobilisedandfoughtagainsttheLAFalongsideJabhatal-Nusra.405

ItisclearthatoneoftheprincipalwaysDaeshhasbeenabletorecruitsoheavilyandquicklyisbecauseitcanaffordtopay generous salaries.406 While there is no inherent link between poverty and radicalisation, it is important toacknowledge that destitution can be a factor in certain contexts.407 Limited socio-economic opportunities, combined

399LRedvers,RefugeeorIDP–doesitreallymatter?(2014)IRINNews<http://www.irinnews.org/report/100835/analysis-refugee-or-idp-does-it-really-matter>at11November2015.400EFerrisandMTeff,TheoverlookedhumanitariancrisisinIraq:Theneedtoaddressdisparities(2015)Brookings<http://www.brookings.edu/blogs/markaz/posts/2015/04/28-iraq-displaced-refugee-humanitarian-islamic-state-violence>at11November2015.401LRedvers,aboven401.402REACH,Multi-ClusterNeedsAssessmentofInternallyDisplacedPersonsOutsideofCamps;KurdistanRegionofIraqAssessmentReport(2015).403PKagwanjaandMJuma,‘Somalirefugees:Protractedexileandshiftingsecurityfrontiers’inGLoescheretal(eds),ProtractedRefugeeSituations;Political,HumanRightsandSecurityImplications(2008),214;DMilton,MSpenceandMFindley,‘RadicalismoftheHopeless:RefugeeFlowsandTransnationalTerrorism’(2013),InternationalInteractions:EmpiricalandTheoreticalResearchinInternationalRelations,39(5),621-645.404MAbouZeidetal,YouthMarginalisationandRadicalisationAmidtheSyrianCrisis(2015),audiorecording<http://carnegie-mec.org/2015/03/19/youth-radicalization-and-security/i58g>at2August2015.405MAbouZeid,ATimeBombinLebanon:TheSyrianRefugeeCrisis(2014),CarnegieEndowmentforInternationalPeace<http://carnegieendowment.org/syriaincrisis/?fa=56857>at5August2015.406In2014,DaeshwasforecastedtobemobilisinguptoUS$6millionperdayfromoilsales,othercriminalenterprise(includingthesaleofartefacts)andprivatedonations.‘Jihadiswithmoneytoburn;insidetheIsisfinancialempire’,Newsweek,14November2014,vol.162(46);theEconomist,WhereIslamicStategetsitsmoney(2015),<http://www.economist.com/blogs/economist-explains/2015/01/economist-explains>at10August2015.407DSterman,‘Don’tDismissPoverty’sRoleinTerrorismYet’,Time,4February2015;DMilton,MSpenceandMFindley,‘RadicalismoftheHopeless:RefugeeFlowsandTransnationalTerrorism’(2013),InternationalInteractions:EmpiricalandTheoreticalResearchinInternationalRelations,39(5),621-645.



with trauma, personal and community grievances and isolationism are established push factors, all of which can bediscernedtovaryingdegreeswithinSyrianrefugeecommunities.408

ConclusionAll four countries demonstrate, to varying degrees, symptoms of a catch-22 situation, wherein governments and/orpublics areopposed toopeningupmoreopportunities for refugees; yet,byomitting toact to this end, refugeesareforced toengage in informalemploymentwithnegative consequences for themselves, local communities,businessesand the state. It is clear that new strategies are required that address not only the strengths and weaknesses ofindividualeconomies,butthatalsodrawupontheeducationalandvocationalstrengthsofrefugees.

408LetterfromthePermanentRepresentativeofJordantotheUnitedNationstotheSecretaryGeneraloftheUnitedNationsSecurityCouncil,27March2015<http://www.refworld.org/docid/552b706c4.html>At1June2015;KShaheen,‘Foodaidcuts‘makingrefugeestargetsforIsisrecruitment’’,TheGuardian,(London)13August2015.



6:ForgingNewStrategiesinProtractedHostSituations

Theyear2014sawthenumberofasylum-seekers,refugeesandinternallydisplacedpersonsexceed50millionglobally—morethanatanypointsincetheendoftheSecondWorldWar.409Theinternationalrefugeeregime(thenormsandinstitutionsthathaveevolvedtocoordinateinternationalresponsestorefugeecrises)isarguablynotequippedtodealwiththescaleandcomplexityofsuchdisplacement.ThisregimewasestablishedinthewakeoftheSecondWorldWaras states grappled to address mass displacement in Europe. Likewise, the UN refugee agency was created with atemporaryandshort-termmandate“toaddressthesituationofaparticulargroupofpeopleataparticularjunctureofhistory.”410WhileUNHCRwill nodoubt continue toexist for the foreseeable future, it is increasingly recognised thatcertainnormsandpracticeswillneedtoevolvetoaddressdisplacementintheworldtoday.

Theframeworkforaddressingrefugeecrisescanlargelybeseenasapartnershipwhereby“[d]onorswritechequestosupporthumanitarianreliefandhostcountriesoffirstasylumareexpectedtoprovidetheterritoryontherefugeesarehosted.”411 Inpractice,however, the lackofbindingrulesonburdensharingtobalancetheperemptorynormofnon-refoulementmeansthatthismodelisinadequate,particularlyinprotractedsituations.412

Inthecaseofasylum,therefugeeregimesetsoutastrongnormativeandlegalframework,underpinnedbytheprincipleofnon-refoulement,wherebystatesmustrefrainfromsendingarefugeebacktoastateinwhichheorshefacesawell-foundedfearofpersecution.Incontrast,inthecaseofburden-sharing,theregimeprovidesaveryweak normative and legal framework, setting out few clear norms, rules, principles, or decision-makingprocedures.413

Thesituationmightbebestunderstoodashoststatesprovidingaglobalpublicgood.414Likeotherpublicgoods,somestates are able to ‘free ride’ on the provision of refugee protection by host countries, but are not be compelled toadequately share the associated burdens. Today, this ismanifesting in a “north-south impasse”415, wherebywealthydevelopedstates (predominantly in theso-called ‘globalnorth’)are inclined to scale-backaidonce theurgencyofanemergencysituationhaswornoff.Hoststates(intheso-called‘globalsouth’)arelefttostruggleonaloneasthecrisisbecomesmoreentrenched.

BroadeningtheProtection-CentricPolicyFramework

Today,morethanhalfofrefugeesgloballyliveinprotractedrefugeesituations.416IntheWANAregion,theAfghan,Iraqiand Palestinian refugee crises in particular remain without durable solutions, posing long-term challenges for host

409UNHCR,Globalforceddisplacementtops50millionforfirsttimeinpost-WorldWarIIera(2014),NewsStories<http://www.unhcr.org/53a155bc6.html>at16August2015.410GLoescher,ABettsandJMilner,UNHCR:ThePoliticsandPracticeofRefugeeProtection(2013),133.411PCollierandABetts,‘RethinkingRefugees:SyrianRefugeesasanOpportunityforDevelopmentandSecurity’,InternationalAffairs,forthcomingautumn2015.412GLoescheretal(eds.)ProtractedRefugeeSituations;Political,HumanRightsandSecurityImplications(2008).413ABetts,ForcedMigrationandGlobalPolitics(2009),87.414ASuhrke,‘Burden-SharingDuringRefugeeEmergencies:TheLogicofCollectiveActionVersusNationalAction’(1998),JournalofRefugeeStudies,11(4),396-415.415ABettsandGLoescher(eds),RefugeesinInternationalRelations(2011),61.416PCollierandABettsaboven413;GLoescheretalaboven414.



states,donors, thewider region,butparticularly for thedisplacedthemselves. It is looking increasingly likely that theSyrianrefugeecrisiswillalsodevelop intoaprotractedrefugeesituationasthefive-yearanniversaryapproaches.Theprevalence of protracted refugee situations is testing the resolve of international donors and host states around theworld, as well as the capacity of humanitarian agencies to respond effectively. Funding shortfalls are increasinglycommon.InJordan,forinstance,thegovernment’sJordanResponsePlan(JRP)hasreceivedapproximately34percentofitsrequiredfunding,417whileUNHCRisalsoexperiencinganotableshortfallwithUSD2,225,023,529,or52percent,ofitstotalappealfortheSyriacrisishavingbeenreceivedin2015.418

It isclearthatnewwaysofconceptualisingrefugeemanagementneedtobedevisedthatrespondtotheprioritiesofhost states, the international community and refugees. Host states in the region need more and better options toencourage them to keep their borders open. Phrased another way, if refugees are unable to return home, and theinternationalcommunityisunwillingtohosttheminlargenumbersorfinancethecostofhosting(atleastoverthelong-term),thenstatesmustbeofferedsolutionsthatworkfororare,atminimum,notcontrarytotheirnationalinterests.This implores a transition towards approaches that look more closely at host state needs and priorities in the firstinstance,andthatcreatespacetocraftresponsivesolutions.

These interests tend to include:maintainingsecurity,offsetting thecostof refugeehostingborneby thegovernmentandothersectors,andensuringthatexistingeconomicchallengesarenotexacerbated.Moreover,ifthestartingpointishost state interest, refugee management must be approached through a lens of temporary protection followed byeventualrepatriation.Forexample,JordanandLebanon’seconomicanddemographicprofilesmeanthatthelong-termintegrationofSyrianrefugeesisnotapolicyoption,saveinexceptionalcircumstances.Fromapracticalstandpoint,thisisalsothemost likelyscenario.Statistically,conflicts inmiddle-incomecountries (likepre-warSyria)donot lastmuchlongerthanadecadeandtheSyrianconflictisnowinitsfifthyear.419Theevidenceindicatesthataminorityofrefugeeslocally integrate,andeven fewerare resettled; thevastmajority return.Between1998-2008, foreveryone resettledrefugee,fourteenrepatriated.Thisisalsoconsistentwiththeaspirationsofthedisplaced;dataindicatesthatrefugeesoverwhelminglypreferencereturningtoSyriawhensecurityconditionsimprove.420Theremightevenbescenariosunderwhicha largerefugeepopulationcancontributetonational interests. It isoftentaken for granted that refugees are, by definition, dependent on the host state and international humanitarian aid,whichinturndrivestheperceptionofthemasaburden.Thedebateoverthephenomenonofdependencyandwhetherrefugeesconstituteaburdenoraboonisnotnew.421Butpoliticaldiscourseinhoststatesistypicallyinclinedtowardsthe burden narrative. As a result, policies that restrict refugees’ freedom of movement and freedom to seekemployment, based on fears for national security and stability, is the norm rather than the exception. In theWANAregioninparticular,thePalestinianexperiencehasledtoconsiderablesocialstigmaandsensitivityconcerningthelabelof ‘refugee’.But this relationshipofdependencybetweenrefugeesand theirhost stateanddonors isnotnecessarilyaccurate or inevitable.While all require protection, and some do need comprehensivematerial and other forms ofsupport, refugee communities also bring with them a diversity of education, wealth, skills and expertise andentrepreneurship,whichisoftenneglectedundertraditionalresponsestorefugeecrises.422Thequestionthusbecomes:how might host states raise policies to mitigate the negative impacts associated with refugee hosting, whilstsimultaneouslysupportingtheirlong-termsecurityandeconomicpolicygoals?Oneclearoptionistoviewrefugeesasa

417MOPIC,JordanResponsePlan2015FundingUpdate(2015).418UNHCR,SyriaRegionalRefugeeResponse;Inter-agencyInformationSharingPortal<http://data.unhcr.org/syrianrefugees/regional.php>at21December2015.419PCollier,‘Ifyoureallywanttohelprefugees,lookbeyondtheMediterranean’,TheSpectator,(London)8August2015.420RAlJazairi,‘TransitionalJusticeinSyria:TheRoleandContributionofSyrianRefugeesandDisplacedPersons’,MiddleEastLawandGovernance,forthcoming2015.421GKibreab,‘TheMythofDependencyamongCampRefugeesinSomalia1979-1989’,JournalofRefugeeStudies,(1993),vol.6(4),pp.321-349;RZetter,‘AreRefugeesaneconomicburdenorbenefit?’(2012),ForcedMigrationReview,Issue41.422Bettsetal,RefugeeEconomies;RethinkingPopularAssumptions,ReportoftheHumanitarianInnovationProject(2014).



structuraleconomicopportunity;toharnesstheirskillsandexpertiseasanassetforprivatesectorgrowth,withaviewtocreatingbothaself-sufficientpopulationandeffectingmacroeconomicpolicygoals.TowardsNewOpportunitiesTurkey

InChapter1,itwasexplainedthatTurkeycanandshouldincreaseitsproductivityinthemanufacturingandagriculturalsectors. In order to do this, it could take amore nuanced approach to the ongoing Syrian refugee situation to bothincreaseitsinvestmentpotentialandmitigatetherisks,asoutlinedinthepreviouschapter,ofanincreasinglyprotractedrefugeesituation.

Turkeyhasambitioustargetstogrowitsmanufacturingsectorconsiderablyby2023;forexample,itaimstoincreaseitsexportsofelectronicdevicesandcomponentstoUSD14.9billionoverthenextsevenyears.423Inordertodothis,itwillneedtoattractsignificantForeignDirectInvestment(FDI).OneofthewaysthatTurkeywillbeabletodothisisthroughthepromotionofpreferablecommercialarrangements, includingOrganisedIndustrialZones(OIZs).Thesezonesoftenattract investorsbecauseof theirassociated infrastructure, facilitiesandconcessions, suchas taxexemptionson landleasing.424Anothercrucialfactorforpotentialinvestorsisthecostoflabour.Ifitweretotakeamoreproactiveapproachto the Syrian refugee situation, Turkey could simultaneously attract greater FDI and help refugees to provide forthemselvesbyallowingthemworkpermitsforspecificprojectswithintheOIZs.Currently,SyrianrefugeesareprohibitedfromworkinglegallyinTurkey,whichatfirstglancemayseemliketheonlyappropriatepolicymeasuregiventhesheernumberthathavearrived.However,anapproachthataffordedaquotaofworkpermitsforrefugeescould,undertherightcircumstances,playaroleinencouragingincreasedinvestmentinTurkey,pushingthecountryclosertoachievingits2023outputtargets.

Alongside manufacturing, Turkey’s has ambitious goals to expand its agricultural industry by 2023. Domestic andregionalfooddemandisforecastedtocontinuegrowingatarateof6percentuptotheyear2017,meaningthatTurkeymustcontinueincreasingitsproductivity.425Oneofthebestwaysofincreasingcropproductionistoexpandcultivationareasandyieldperunitarea.426Todothis it isnecessary tohave larger farmsthatareamenable tobigagribusiness;however, in Turkey agriculture is still characterised by “mostly small family-owned farms.”427 In part this can beexplainedbysuccessivegovernments’emphasisonurbanisationinitiatives,whichhasalsoledtoagapintheavailablelabourforceforincreasedagriculturalproduction.428ButTurkeyisbecomingincreasinglyattractivetoforeigncountriesfor its available arable land, which, combinedwith the pool of affordable labour represented by the Syrian refugeepopulation,couldhelp itmaximise itsoutput intheagriculturalsector.AccordingtotheOxfordBusinessGroup,asof2012approximately4millionhectaresofTurkey’stotalarablelandremainedunused,makingitparticularlyattractivetoGulfcountrieslikeQatar,SaudiArabiaandUAE,whoseownfoodsecurityisincreasinglyunderthreat.429

Lebanon

423InvestmentSupportandPromotionAgencyofTurkey,TheManufacturingIndustryinTurkey,ReportproducedbyDeloitte.424Thereareatotalof263OIZsinTurkey,ofwhich148arecurrentlyoperational;Ibid.425InvestmentSupportandPromotionAgencyofTurkey,FoodandAgricultureinTurkey,http://www.invest.gov.tr/enUS/infocenter/publications/Documents/FOOD.AND.AGRICULTURE.INDUSTRY.pdf426METuğay,‘ThewayofincreasingofagriculturalproductioninTurkey’427OxfordBusinessGrouphttp://www.oxfordbusinessgroup.com/news/turkey%E2%80%99s-agribusiness-attracts-new-investors428Ibid.429OxfordBusinessGroup,TheReport;Turkey2012;unlikemostotherproducts,agriculturalproduceisnotcoveredinthecustomsunionbetweentheEUandTurkeyandtheEUisunlikelytomakeconcessionsonitsCommonAgriculturalPolicy.However,EUandIFIfundingcouldbedirectedtosupportagriculturalexpansionprojectswithaviewtonegotiatingaccesstoformalemploymentforSyrianrefugeesunderspecificquotaswithintheagriculturalsector.TheSoutheastofthecountryisextremelyfertileforexpansionandthisisalsoanareawheremanyrefugeesarelocated.



At thebeginningof thispaper itwasoutlined that there is scope for furtherexpandingLebanon’sagricultural sector.Sincethelate1990s,employmentinthissectorhassloweddown:itsshareofnetjobcreationintheLebaneseeconomydecreasedby2percentbetween2004and2009,beingovershadowedbytrade,servicesandconstruction.430Inits2015-2019strategicplan,theLebaneseMinistryofAgriculturestatesthatitaimstoincreasethecountry’sproductionofmilkanddairyproductsto40percentoftotaldomesticconsumption,andtoconvert25,000hectaresof landintoirrigatedagriculturallandby2019.431Theagriculturesector,however,isoneoftheleastattractiveforinvestorsandjob-seekersalike — particularly educated young people.432 The Ministry of Agriculture and the Ministry of Labour might thusconsider in further detail the advantages associatedwith including refugees in agricultural expansion projects in thecountry.

The huge and sudden increase in the labour supply in Lebanon, brought about by the arrival of Syrian refugees, isalreadydrivingdownwagesforlocalLebanese,particularlyintheagriculturalsector.Accordingly,anyefforttoincreaseagricultural production with a view to expanding livelihoods opportunities for local Lebanese citizens and Syrianrefugeesalikewillalsoneedtosupportthegovernment’sgoalofopeningupmoreexportmarketsandcompensatingforthe loss of former trade routes into and via Syria. As well as feasibility studies for the expansion of agriculturalproductiononavailablearableland,detaileddomesticandinternationalmarketdemandanalysisneedtobecarriedout.Fruitsandvegetablesaswellasthemilkanddairysub-sectorsarelikelytobemostamenabletoincreasedproductionutilising refugeeandruralLebanese labour,but itwillbe imperative toassess themarketabilityof increased levelsofproductionbeforeexpansionprojects canbegin. Producerswould alsoneed tobeprovidedwith support to increaseexportoptions,includingbyopeningupseaandairroutestomarketsoutsideLebanon.

Aswithagriculture,employmenthasmovedawayfromthemanufacturingsectorinLebanon,withitsshareofnetjobcreation falling by 8 percent between 2004 and 2009.433 Notwithstanding periods of occasional boom, themanufacturingsectorhasalwaysbeenatbestamodestcontributortoGDPandinrecentyearsitsoutputhasbeenindecline.434Whilethismightseemlikeadisincentivetofurtherinvestmentinthesector,shareofGDPdoesnottellthewhole story. Importantly, the sophistication of Lebanon’s exports increased by 36 percent between 2000 and 2008and:435“whatacountryproducesmattersmorethanhowmuchvalueitextractsfromitsproducts.”Consequentlythereare areas of the Lebanesemanufacturing industry that arewell-positioned for expansion under the right conditions;examples includeplastics,metals,machinery, rubberproducts, chemicals, glass, electrical itemsandproducts for thetransportsector.436Exports in theseareashavedonewellevenwithvery limitedgovernment intervention tosupportthemoranycomprehensiveindustrialpolicytoaddressmarketfailures.

Lebanoncanandshouldexpanditsmanufacturingsectorincertainareas;inordertodothismoresupportisneededtoincentiviseinvestment.Onewaythecountrycoulddothisistolinkthescopeforincreasedmanufacturingtothecurrentrefugeecrisis.Alongsidegovernmentsubsidiesforstrategicallytargetedareasofindustrialexports,Lebanonrequiresanindependentbody to “address coordination failures that impede investments innewactivities/products”and identifyandassestheviabilityofinvestmentopportunitiesinhighvalueaddedactivities.437Suchanindependentbodycouldbe

430DRobalinoandHSayed,RepublicofLebanonGoodJobsNeeded,WorldBankReportNo.76008-LB(2012),pp.15.431MinistryofAgriculture,MinistryofAgricultureStrategy2015-2019(2014)<http://www.agriculture.gov.lb/Arabic/NewsEvents/Documents/MoA%20Strategy%202015-19%20-%20English-for%20printing.pdf>at1December2015.432HAJaoude,LabourMarketandEmploymentPolicyinLebanon,ReportCommissionedbytheEuropeanTrainingFoundation(2015).433DRobalinoandHSayed,aboven432.434ManufacturingasaproportionofGDPdecreasedfrom12.5percentin1997to7.5percentin2009;SAtallahandISrour,Lebanon’sIndustrialPolicyMustFocusonDevelopingHighlySophisticatedExports,PolicyBriefoftheLebaneseCenterforPolicyStudies(2014),pp.2.435SAtallahandISrour,aboven155,3.436CHidalgocitedinSAtallahandISrour,aboven155,3.437DRobalinoandHSayed,aboven432,46.



taskedwithdrawingupplans for initiatives inwhichrefugeeswouldbeemployedalongsideLebanesecitizensatpre-established ratios.Aspartof abroader ‘deal’, donors could thenbeencouraged toprovide fundprojects thatwouldcontribute to the country’s resilience vis-à-vis the refugee situation, whilst simultaneouslymaking the countrymoreattractivetoinvestors.Forexample,projectstoupgradeLebanon’sinfrastructure,suchasitselectricitygrid,wouldyieldsignificantbenefitsbyreducingblackoutsandbringingdownakeyinputcostinthemanufacturingsector.Thistypeofproject could be complemented by concessions or subsidies to spur investment in areas ofmanufacturing that havebeenproventoshowpromise,ontheunderstandingthatrefugeeswouldconstituteaproportionoftheworkforce.

Jordan

InChapter1, itwasexplainedthatJordan’seconomicstrategyhasbeento invest inastrongeducationsectorgearedtowards becoming a hub for technology-driven innovation. Having become caught in what is known as the ‘middleincometrap’,economistshaveprofferedtheestablishmentoflarge-scalemanufacturing.Significantprogresshasbeenmade; economic and industrial zones have been established throughout the country, complemented by investment-friendlypoliciesandaclearlegislativeandregulatoryframework.Therearestill,however,obstaclestoovercomingtheentry barriers to global trademarkets. Jordanmust compete, for example, with Asia, which enjoys stability,marketaccess(throughitscoastlines),plentifulnaturalresourcesandalarge,low-costlabourforce.Jordancannotdomuchtoimproveitsgeographicmarketaccess(althoughthisisbecominglessimportantintheglobalisedeconomy),thestabilityof its neighbours, or its natural resource base. It needs something more or something different to generate theconditionstoestablishamanufacturingcluster.ButJordandoeshavetwoimportantassets.First,thecountryrepresentsabeaconofstability inaveryunfriendlyneighbourhood.Thestrategic importanceof this,bothtotheregionandtheWest,cannotbeunderstated.TherearegreatincentivesinplaytopromoteJordan’sstability,includinginvestinginitseconomicpotential.Second,Jordan,likeotherhoststates,isprovidingaglobalpublicgoodintermsofrefugeehosting.Nocountrywantstoseerefugeessuffering;donorgovernmentsdonot,however,wanttohaverefugeesontheirsoilinlargenumbers.

Fromahumanitarianperspectiveandintermsofglobalstability,thisstateofaffairsishighlydisconcerting.ButitdoesbodewellforJordanbreakingintoandestablishingamanufacturingcluster.Asdiscussed,aprincipalreasonattributedtotheunder-utilisationofsomeofJordan’sdevelopmentareasisthelackofcomplementaritybetweenthelabourforcerequiredandlocallabourmarketdynamics.TherefugeepopulationconcentratedinthenortherngovernorateofMafraqconstitutes an immediately available, affordable and appropriate skilled set of workers. UNHCR registration dataindicatesatleast21,208SyrianrefugeebuildersandtheILOhasidentifiedthataround25percentofrefugeesresidingoutsideofcampsareworking in theJordanianconstruction industry.438WithintheSyrianrefugeecommunity there isalso a range of transferable skillsets that could be attractive to lightmanufacturing and related industries, includingelectronics,mechanics,mechanisedconstruction,handicraftsandcarpentry.

Would this overcome the issues of neighbourhood, natural resources andmarket access for businesses to invest inJordan?Theanswerispossiblyyes,ifitwasperceivedasasufficientlygoodprofitopportunity.ReturningtotheideaofJordanprovidingaglobalpublicgoodbyhostingrefugees,theremaybeastrongmarketforthesaleof‘safe’products—products that aremanufacturedby refugees, thereforeproviding themwith a livelihoodwhile they are shelteringfromconflict.Effectivemarketingwouldcapitaliseonconsumers’complexfeelingstowardsrefugees—theirdesiretoassist,butatthesametimenotwantingtohostthematthesameratesascountrieslikeJordan.438SStaveandSHillesund,aboven352,pp.53;whiletheemploymentofSyriansinthemanufacturingsectorhasdisplacedJordanians(upto30%ofJordaniansinthesectoraccordingtotheILO)therehasbeenlessdisplacementin,forexample,themanufacturingsectorwheremigrantworkerspredominatelywork.IdentifyingthesectorswhereSyrianinvolvementleadstominimalJordanianlabourdisplacement,likemanufacturing,iscrucialtomitigatingthenegativeimpactsofinformalemployment.



Investing in Jordanmay also be seen as a profit opportunity to companies looking to position themselves prior to areconstructionboominapost-conflictSyria,orforcompaniesforcedtoleaveSyriaandthatwishtoresumeoperations.

• Manufacturingcompaniesthat identifyamarketingopportunity ingoodsproducedusing ‘safe’Syrianrefugeeandhostcommunitylabour.SuchopportunityismostlikelytoresonatewithcompanieswithactiveCorporateSocialResponsibilityprogramming(suchasIKEA,UNIQLO,Benneton,andFrenchBelGroup)andwithmarketsinEuropean countries where public dissatisfaction towards government refugee containment policies is rising(annex2).

• Energy,manufacturingandpharmaceuticalcompaniesforcedtoleaveSyriathatmightviewre-establishinginasimilarbutstableoperatingenvironmentasstrategicallyattractive(annex2).

• Reconstructionindustriesseekingtosecureafootholdinapost-conflictSyria.Thisparticularlyrelatestosemi-refinedandrefinedrawmaterials industry,butmayextendto researchanddevelopment; thescaleofSyria’sreconstructiveneedscoupledwithwaterandenergyscarcitywillcallfornewtechnologies.

KurdishRegionofIraq

Despite enjoying a significant amount of fertile land, the KRI continues to rely on agricultural imports to anunsustainabledegree.Asoutlinedearlier,thiswashistoricallybecauseoftradeembargoesandinternalinstability,butmorerecentlyisduetotheKRG’sgeneralneglectoftheagriculturalsectorcomparedwithotherssuchastourismandoilandgas.However,theMinistryofAgricultureandWaterResources(MOAWR)hasnowsetlong-termgoalsfordomesticfoodsecurity,tobeachievedbybecomingself-sufficientinagriculturalproduce.MOAWRhasalsocommittedtoturningthe KRI into “a major producer and exporter of wheat, vegetables, fruit, meat, dairy, and poultry” to the WANAregion.439TheKRIisthereforepoisedforasignificantexpansionofitscurrentlevelsofagriculturalproduction,butitwillneedtomakeprogressinanumberofdifferentareasbeforethisbecomesareality;inthisprocess,thereisundoubtedlypotentialforrefugeesandIDPstoplayapositiveroleinachievingtheMOAWR’sgoals.

OntheonehandtheKRGmaintainsapolicyofincentivisingsmall-scalefarminginruralareas,butoftenitsimplyisnotin the locals’ economic interests because most of what they would produce could not compete with the prices ofimportedfoodstuffs.Thereareseriousbureaucratic, infrastructuralandhumanresourcehurdlestoovercomeinorderforthispolicytobegintotakeeffect.TheKRGcouldseekassistancefrominternationaldonorstokick-startsmall-scaleproduction by implementing a legal framework that would allow for refugees and IDPs to be involved in cultivatingarable land. In the process, the KRG could gain much-needed support for upgrading/building the necessaryinfrastructure, such as hospitals and schools, in rural areas that would slow down the current trends of rural-urbanmigration, whilst also providing livelihoods opportunities for refugees and IDPs and increasing KRI’s agriculturalproduction.

The KRG also intends to expand its activities in the area of big agribusiness, as well as the small-scale productiondescribed above. However, the KRI currently suffers from “a more than 20-year gap in the knowledge of currentagriculturaltechnologyanddevelopment.”440Thisiscompoundedbythefactthatthereisaseriouslackofcooperationbetween the Ministry of Agriculture and Kurdish universities for research, development and innovation in theagriculturalsector.Inadditiontoacquisitionoftechnologytoscale-upproductionandmakeitmoreefficient,thereisaneed for comprehensive education programmes to update farmers’ skills and knowledge base. In the past, Kurdish

439InvestInGroup,RestoringtheBreadBasket:Agriculture<http://investingroup.org/review/240/restoring-the-bread-basket-agriculture-kurdistan/>at29December2015.440RTIInternational,KurdistanRegion;EconomicDevelopmentAssessment(2008).



farmerscouldnotcompetewiththeirIranian,Turkish,andSyriancounterpartsduetoaknowledgedeficitinirrigation,pesticide use, harvesting and other areas.441 Hence, with appropriate planning, the inflow of Syrian refugees couldrepresentonewayofaddressingthisdeficitthroughthetransferofagriculturalskillsets.

Expanding theagricultural sectorby includingSyrian refugeesand IDPs innewprojectsought tobe thepriority sinceagriculture represents the area with greatest potential for increasing exports from the KRI; however, there are alsootherareaswheremutualgainscouldbemadeforrefugees/IDPsandtheKRI’seconomy.Forexample,thereisalackofsocial housing in the KRI, meaning that refugees and local Kurdish alike can struggle to find affordable housing.Governoratescouldcollaboratewithinternationaldonorsandprivateinvestorstodevelopprojectsfortheconstructionofsocialhousingthatwouldemploybothrefugeesandlocalsaswellasaddressingtheshortageinaffordablehousing.Anotherexampleistobefoundinthemanufacturingsector.Asmentionedinchapter4,theKRI’smanufacturingsectorissmallandunderdevelopedbutshowspotentialforexpansion.It iscriticalthatkeyinfrastructure,suchaswaterandelectricity,beimprovedatpotentialsitesfornewmanufacturingprojects.TheKRIcouldfollowtheexampleofJordanandothersby investing ineconomiczoneswherepreferentialtermsofproductionandtradecouldhelpto incentiviseinvestment.TradeintheKRIhasvastlyincreasedsince2003andthelabourcostadvantagesofofferingemploymenttorefugeesandIDPscouldallowfirmstocontributetofurthergrowth.

TheChangingRoleofAidThesortofinvestmentincentivesdescribedintheprevioussectionswouldneedtobecomplementedbysupportfromotherstakeholderswithvestedinterests.DonorgovernmentsneedtoaddressthehumanitarianchallengesposedbytheSyrian refugee crisis and would generally prefer for this to be in the form of something more constructive andsustainable than emergency aid. As part of a renegotiated aid package, they might offer more attractive financialsupportand free tradeormarketaccessagreements forproductsmanufacturedusingSyrian refugee labour, therebyfurther increasingtheappealof investing inthesehoststates.442Europe,which isbattling itsownrefugeecrisis, isanobvious stakeholder in this regard. International financial institutions (IFIs), suchas theWorldBankand InternationalMonetary Fund, could also play a role through loans to offset manufacturing development or subsidise plantestablishmentcosts.

AccessingsuchloansandfinancialdevelopmentassistancehaslongbeenproblematicforstateslikeTurkeyandJordanduetotheirupper-andmiddle-incomestatusesrespectively.However,thereisincreasingrecognitionamongdonorsofthe importance of pursuing links between development support for peace-building and post-conflict peacemaintenance. It is empirically well established that conflicts reoccur with alarming regularity; around 40 percent ofcountriesrelapseintoconflictwithinthefirstdecadeofpost-conflictpeace.443Conflicteconomistshavepositivelylinkeda lower riskofpost-conflict relapse tosustainedeconomic recovery in theyears immediately followingacessationofhostilities.444Effortstofosterapost-conflictSyrianeconomy,includingbysupportingtheestablishmentofindustrialandmanufacturing plants that could easily and quickly decant from neighbouring countries into Syria with a trainedworkforceofrepatriatingrefugees,isthuslikelytobeseenbyIFIsasstrategicinvestment.445

441JNeurink,aboven318.442PCollier,TheBottomBillion:WhythePoorestCountriesareFailingandWhatCanBeDoneAboutIt(2007),58.443PCollier,AHoefflerandMSöderbom,‘Post-ConflictRisks’(2008),JournalofPeaceResearch,vol.45(4),pp.461-478.444Ibid.445Suchsectorsinclude:construction,manufacturing,electricityandtelecommunications.TheseconnectionsareincreasinglybeingunderstoodbyandreflectedinthepoliciesofinstitutionssuchastheWorldBankandInternationalMonetaryFund.



It is important to highlight what this would mean for host states in terms of broader manifestations of regionalinstability. Investing in the economic stability of a post-conflict Syria not only serves the interests of Syrians, it alsoreduces its neighbors’ risk of future conflict. That the presence of a civil war in an adjacent country increases theprobability of conflict outbreak domestically is well known: “conflicts cluster geographically, possibly suggesting adiffusion mechanism or a spatial contagion effect”.446 This ‘neighborhood’ impact may even be more acute in Arabstates, because of their shared history, the multiplicity and intensity of transmission channels, and the regionaldimensionofcontemporaryevents.447 Inconstructiveterms, thispositivecorrelationbetweencontinuing instability inSyria and host state conflict vulnerability means that all states in the region have a vested interest in supportingeconomicstabilityinSyria.Whiletheeconomicsofthesituationmayappearsimple,therearestillimportantquestionsthatneedtobeanswered,mainlyofapoliticalnature.First,howcansuchastrategybereconciledwiththeimperativeofcreatingjobsforcitizensof the host state? In fact, by encouraging increased investment and regulating labour participation by way of pre-established ratios of refugees to host state citizens, these projectswould create jobs for both Syrians and nationals,particularlyworkers inhostcommunities.Moreover, itmustalsoberecognisedthatmanySyrianrefugeesarealreadyoperatingintheinformal labourmarket.Providingameanstotransferfromtheinformaltotheformal labourmarketresponds to the externalities stemming from a large informal economy, increases worker safety by curtailingopportunities for exploitation, and creates revenues for the government by way of work permits and income tax.Humanitarianagenciesmightalsofinditmoreconstructiveandeconomictooffsetthecostofworkpermitsforrefugeesratherthanprovidefoodandnon-fooditems.Livelihoodsopportunitiesalsoprovidedignityandautonomy,eliminatingsomeofthecriticismsassociatedwithfoodvouchersanddirectassistance.

A second question is whether such opportunities would increase the likelihood of Syrians remaining in-countryindefinitely, or encouragemore to seek refuge. As stated at the beginning of this chapter, any policy decision thatsupports the sheltering of refugees needs to be consistent with the host state’s national interests, including theimperativeofprotectionbeingseenastemporary.Acriticalelementofthemodelproposed isthat investmentwouldcome from so-called “footloose industry” (denoting industry where the costs of production remain unchangedregardlessoflocation).Followingacessationinhostilities,suchcompanieswouldhavetheopportunitytoexpandtheiroperations to Syria, taking advantage of a new market and utilising an existing, trained repatriating workerpopulation.448Existingplants,however,wouldremaininthehoststate(s)neighbouringSyria,havingestablisheditselfasasafeandprofitablebusinessenvironment.Aparallellogicmightalsobeseentobeinplay;ifthepriorityistoseetheeventualreturnofrefugeestoSyria,aprincipalwaytocontributetothisisbyensuringthatrefugeeshavetheskillsandexpertiseinkeyindustriestosupportreconstruction,namelyinbuilding,manufacturing,electricityandICT.

A final question iswhether bestowing on refugees greater rights and autonomy creates a security risk. The tensionsbetween refugees, host communities and the population more broadly, have been elaborated earlier in this paper.Wouldthe issuanceofworkingrights inthecontextofexistingunemploymenttipthisfragilebalance?It isdifficulttoanswerthisquestiondefinitively.However,itisclearthatanymoveinsupportofrefugeeworkingrightswouldneedto446Recentresearchsuggeststhattheselinkagesmaybebroaderthanoriginallythought.The‘neighborhoodeffect’theorysuggeststhatconflicteventsinonecountryhaveindirectbutstrongimpactsonstatesthatare,notonlygeographicallylinked,butculturally,ideologicallyoreconomicallyconnected.Source:YChaitaniandFCantu,Beyondgovernanceandconflict:measuringtheimpactoftheneighborhoodeffectintheArabregion,EconomicandSocialCouncilforWesternAsia(October2014),<http://www.escwa.un.org/divisions/ecri_editor/Download.asp?table_name=ecri_documents&field_name=id&FileID=272>at3June2015.447Ibid;ExamplesincludetheArab-IsraeliandIraqconflicts;thehighincidenceofconflict-drivendisplacement;policiesofultra-securitization;disproportionateincidencesofterrorismandillegalarmstrafficking,andinternationalandregionalpowerpoliticsthattranslatesintopolarizationandproxywars.41%ofallArabcountrieshaveexperiencedatleastoneinternalconflictinthepastfiveyears(2009-2013).Thishadledtoapopulationdisplacementofunprecedenteddimensions,withanequivalentof2.1%ofthepopulationregisteredasrefugeesandanother2.9%asdisplacedinsidetheircountryoforigin.Inaddition,theregionsuffersoneoftheworstratesofterroristactivitiesintheworld.448PCollierandABetts,aboven413.



beaccompaniedbyanextensivepublicsensitizationcampaign,clearlyoutliningtheopportunitiesthatwouldaccruetothenationaleconomy.It isalso importanttoreferencetheemerging literatureexaminingpotential linkagesbetweenrefugeesandextremistgroups.SomeofthisderivesfromeventsinLebanon,andsomefromtheoretical(yetlogical)connectionsbetweentheeconomicopportunitiesprovidedbyextremist groups vis-à-vis the financial strain andhopelessness felt by a refugeepopulationthatisunabletoworkandinthecontextofcutbacksinhumanitarianassistance.Becauseofthestrongandnegativeimpactsuchassociationscanhaveontheprotectionspace,anylinkagesmustbemadecautiouslyandbasedonstrong evidence. But there is little doubt that the best protection against instability, and against extremism morebroadly, lies in generating conditions to support opportunity and raise living standards and hope for all. The beststrategytoachievethismightbebycapitalisingontherefugeelabourforcetoattractneededinvestment.



ConclusionThis paper has proposed that the Syrian refugee population and refugees per se could be better conceptualised asembodyingnewopportunities,ratherthanhardships,forhoststates.Itdetailssomebasicexamplesofhowthismightmaterialise: encouraging large-scale investment in manufacturing and agriculture and creating employmentopportunitiesforbothSyrianrefugeeandhostcountryworkersatpre-establishedratios.Thismodelhasthepotentialtoreduce hosting costs by increasing refugees’ self-sufficiency in the context of severe shortfalls in internationalhumanitarianassistance.Moreover, itwouldconstitutean importantstep towardshost states’ longer-termeconomicresiliencebypromotingstrategicinvestmentinunderdevelopedareasoftheeconomyandbyfacilitatingincreasedtaxrevenues.

Theseideasarenotentirelynovel.Forexample,theuseof‘zonaldevelopment’fortheinclusionofrefugeesinstates’economicdevelopmentgoalsinwaysthatalsopromotetheirself-sufficiencyhashistoricalprecedent.449Furthermore,itisimportanttonotethattakingaccountoftheneedsandinterestsofthehoststateisconsistentwiththespiritofthe1951Convention.TheConvention’spreambleacknowledgesthisasfollows:

Consideringthatthegrantofasylummayplaceundulyheavyburdensoncertaincountries,andthatasatisfactorysolution of a problem of which the United Nations has recognized the international scope and nature cannotthereforebeachievedwithoutinternationalco-operation.450

Giventhatthistypeofapproachisnotwithoutprecedent,whyhavehoststatesnotactedfaster?Onekeyissueishowrefugeemanagementisapproachedandconceptualised.Asoutlinedatthebeginningofthischapter,thereiscurrentlyaninadequatebalancingoftheobligationsofhoststatesagainstthatofotherstakeholders.Therighttoseekrefugeandtobeprotectedagainstrefoulementisenshrinedininternationallaw,howeverreciprocalobligationstoeasetheburdenthis creates inhost states arenot. Thisbecomesparticularlyproblematicwhena situationbecomesprotracted.Hoststates are well aware of these inequities, and are increasingly hesitant to adopt liberal approaches without greaterassurancethattheywillnotbelefttofootthebilloverthelong-term.Inresponse,thispaperhasadvocatedaneedtoelaboratenewwaysofapproachingrefugeemanagement.Itsuggeststhat, inthecontextof inadequaterulesonburden-sharing,amoreconstructiveplacetostartmightbetheneedsandinterestsofhoststates,oratleastabetterbalancingofprotectionwithhoststateimperatives.Thisnuanceisimportant.What has been seen inmany refugee situations is that an over-emphasis on protection can quickly descend into anexerciseof boxing ring-typeposturingbetween thehost state andhumanitarian agencies.Where it is perceived thatpriorities arenotbeingmet,both sides fall backon theonly tools theyhave: financial resourcesandappeals for theprotectionofrightsonthepartofdonorsandagencies,andclosingbordersandtighteningrestrictionsonrefugeesonthepartofhosts.

Theideathatrefugeeactorsshouldbroadentheexisting‘protection-centric’frameworktoinclude‘hoststateinterests’isimbuedwithrisk.Refugeeprotection,initstraditionaltop-downformat,isvitalanditisUNHCR’sroletomaintainthisadvocacystandpoint.Butlivelihoodsandautonomyarealsoimportantandthereneedtobeactors—withinUNHCRorin other agencies — investigating, evaluating and proposing these options in a timely manner. This should not beconstrued as ruthless capitalisation on a vulnerable population. It should be understood as a necessary transition to

449Ibid.450UNHCR,ConventionRelatingtotheStatusofRefugees;Preamble<http://www.unhcr.org/4d934f5f9.pdf>at22December2015.



more sustainable models for refugee hosting at a time when the frequency, depth and protracted nature ofdisplacementmeansthattraditionalresponsesarenolongersufficient.

Thequestionshouldbehowtomitigateagainstandaddressassociatedrisks.Forinstance,ifthestartpointmovesmoretowardsstate-interest,willthisfurtherdis-incentivisedonorcommunityassistance?Whatchecksandbalancesneedtobesetinplacetoensurerefugeepopulationsarenotexploited,particularlyinthecontextofgrossinadequaciesintheinternational regulatory framework concerningmigrant workers? And howmight the ethical implications of refugeehostingbecominganobjectofstateinterestbeaddressed?Inshort,strongsafeguardsneedtobesetinplacetoensurethateconomicrationalismdoesnotunderminehumanitarianimperatives.Butwheresuchsolutionsdomakesenseandcanwork,supportfrominternational,humanitarianandgovernmentalactorsshouldbeforthcoming.

In summary, this paper has proposed that if host states are expected to a provide global public goods by offering aprotectionspacefordisplacedcommunities,thenstateinterestshouldbepartoftheconversationfromthebeginning.Whentheimperativeshiftstohowdonorscanhelphoststatescontinuetoprovidetheseglobalpublicgoods,awiderrangeofoptionscanevolve.Themodeloutlinedhereisbynomeanstheonlyalternative.Themain‘takeaway’isthatthe three orthodox durable solutions for addressingmass displacement, local integration, third country resettlementand repatriation, are failing tomeet the challenges posed by global displacement and that newmodalities need toevolve.Afurtheralternativeisabroaderparadigmshifttowardsafourthsolutionof‘holdingpattern’arrangementforrefugees.Scenarioswhererefugeescouldhavemoreautonomytocontinuetheirlivesandlivelihoods,businessescouldcontinue to operate and the labour forcewould retain their skill-set until a return scenario is possible. To conclude,refugees’skillsandexpertiserepresentopportunitiesthathoststates,humanitarianagenciesanddonorsignoretotheirdetriment.Moreover, therearebroader imperativesofsecurityandstability in thepost-conflictcontext thatdemandmore inclusive planning in the management of refugee crises. Such planning will only be successful if bold andinnovativenewsolutionsare triedandtestedtopushthe international refugeeregimeforwardandoutof itsstallingtraditionalframework.



Annex1:TypologyofDirectandIndirectCostsandBenefitsofHostingSyrianRefugees

Directcosts Indirectcosts Directbenefits IndirectbenefitsWaterandsanitation Water provision, subsidy

losses, sanitation servicesandwastecollection.

Reserve depletion,pollution (water and soil),water qualitydeterioration, waterreliabilityandavailability,Less frequent wasteremoval.

Infrastructure, reuse andextension projects thatwouldnot otherwisehavetakenplace,environmental planningstudies/research.

Energy Energy provision, subsidylosses.

Reserve depletion,pollution, changes inenergy quality, reliabilityandavailability

Security Police, gendarme, prisons,courts, military, bordersecurity.

Cost of crime toindividuals involved;community perceptions ofsecurity, stability, andtrust in government;increased radicalisation,intra-community disputes,increased riskof terrorism(externalandinternal).

International supportcoping with threats,Improved relations withallies, improvedintelligence sharing andtraining, new securityassets.

Education Facility, teacher andadministrationcosts

Decreased quality ofeducation, number ofchildrennotineducation

New curricula, teacherstrained, new /improvedschools

Cashassistance Provided by thegovernment, internationalorgansiations, religiouscharitiesandlocalNGOs.

Diversion of charityassistance that may havebenefitedJordanians.

Foodandnon-fooditems Food and non-food item Changes in price of food Greater purchasing power



provision, food subsidylosses.

and services, availabilityand quality of food, foodreservedepletion.

ofSyrians

Infrastructure (includinghousingandshelter)

New infrastructure(housing, roads, energy,water and sanitation,schools and other publicfacilities)

Change in price of rentand real estate,infrastructuredepreciation (roads,energy, water andsanitation, schools andotherpublicfacilities).

Expansion in rentalmarket,housingupgrades,new and improved pubicinfrastructure

Health Health care provision inhospitals, clinics,ambulances, medication,vaccinationprograms.

New/recurrence ofdisease, psycho-socialhealth/mental illness,availability of medicine,waiting time to receivehealthcare,costofhealthcare, availability and costofmedicine.

Medical equipment,new/improved facilities,trained health workers,new mental healthworkers and psycho-socialhealthprograms.

Employment Increased social securitypayments for Jordaniansdisplaced from labourmarket.

Downward pressure onwages, income tax lossesdue to operation ofinformal economy, costsof rise in informaleconomy

New jobs created,vocational trainingprograms, newmarkets/businessesopened.

Tourism Estimatedlosses Internationalworkersavailoftouristicsites

Socialindicators Transactional sex, childmarriage, child labor,undocumented persons,children vulnerable to



statelessness, substanceabuse, domestic violence,divorce, attitudes towardsgovernment on refugeepolicy, attitudes towardsrefugees, increased socialand economic inequality,demographic changes(youth bulge), sense ofdignity, sense of Arabaffinity, sense of hope forthe future, sense ofnationalidentity.

Publicandtradedeficit Foreign and public debt,tradedeficit

Poverty rates, negativeeconomic growth, GDP,inflation

Expanded consumer andtaxbase,GDPandoveralleconomicactivity,Syrian companyinvestment,foreign direct investment,increased consumption ofgoods and services,increasedcapitalinflows.

Expanded services andmanufacturing sector,increased demand forwork (source ofgovernment revenues),increasedentrepreneurship



Annex2:MajorcompaniesforcedtoleaveSyria

OilandEnergy RoyalDutchShell FrenchTotal Eni (Italian OilCompany)

ChinaNationalPetroleumCorporation(CNPC)

SchneiderElectric

Areva(nuclearandrenewableenergy)

INA Group(Croatian oiland gasexplorationenterprise)

Gulfsandspetroleum (oiland gasexploration)

Technology SonyCorporation IRIDEXCorporation(lasers forretinalsurgery)

Italy’s AreaSPA (drag-netsurveillance)

FranceQosmos SA(networkintelligence)

Germany’sUtimacoSafeware AG(cybersecuritysolutions)

Banking andFinance

Global Exchange(biggest currencyexchangecompanyin Syria, closed bySyrianauthorities)

AmericanExpressCompany

FoodandRetail BelGroupe(FrenchCheeseFactory)

KentuckyFried Chicken(KFC)

Benneton

Construction Lafarge Concrete(French, now inJordan)

RoschCompany

Caterpillar VeoliaEnvironmentSA (watersupply andwatermanagement)

AECOMTechnologyCorporation

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