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Wednesday, 15 August 2018

Costs of conflicts in the Middle East

In addition to their enormous human costs, the conflicts in the Middle East will have long-term negative effects on the economic prospects of the countries concerned

Hussein Suleiman , Wednesday 28 Feb 2018
Oil port of Brega, Libya
File Photo: Pipelines are seen at the industrial zone at the oil port of Brega, Libya, January 12, 2017 (Reuters)
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Over the past few years, civil and proxy wars in the Middle East have taken a heavy toll on the economies of several countries in the region. Armed conflicts have caused severe damage to the physical infrastructure and output capacity of the war-torn countries, and a generation of children and young adults is now growing up with inadequate levels of education or healthcare due to displacement and the destruction of public services.

These things will have long-term negative effects on human capital and the future economic prospects of the war-ravaged countries.

Many of the major conflicts in the region are still ongoing, for example in Syria, Libya and Yemen, and thus it is difficult to accurately calculate the cost of the wars in the Middle East. This will only be possible when they have halted, and the different stakeholders can examine the damage directly in the war-torn areas and calculate the cost of the conflicts and of reconstruction.

However, in the meantime some partial estimates are available regarding the economic spill-overs of the wars in the Middle East, highlighting the vast damage that has taken place over the past few years and the huge resources that could be required just for the restoration of pre-war conditions.

In Syria, the war that started in mid-March 2011 caused direct physical damage to infrastructure and productive assets amounting to an estimated $68 billion from 2011 until 2016. Syrian GDP contracted by 16 per cent annually from 2011 to 2015 and by four per cent in 2016, meaning an accumulated loss of three times Syrian GDP in 2010 before the war started.

This loss of assets and output has coincided with the loss of three million jobs, which has raised the unemployment rate to 66 per cent of the workforce. As a result, 85.2 per cent of Syrians have fallen below the poverty line during the armed conflict and now lack basic needs.

Besides the physical damage, the human toll of the Syrian conflict has been the worst in the Middle East in recent decades. Up to an estimated 460,000 people have been killed and 1.1 million wounded during the war.

The conflict has forcibly displaced 11.5 million people, nearly half the country’s population, leaving 2.8 million children not going to school. It is estimated that the Syrian economy has lost during the war years some $10.5 to $16.5 billion in human capital due to loss in school years alone. 

In Yemen, the costs of the physical damage that has taken place since the outbreak of the war in 2015 could reach some $15 billion.

Because of the decline in oil production that has taken place in addition to the damaged assets due to the war, Yemeni GDP contracted by 28.1 per cent in 2015 and by 4.2 per cent in 2016 as nearly 35 per cent of the country’s service enterprises, 29 per cent of its industrial enterprises, and 20 per cent of its commercial enterprises have suspended their operations.

The war in Yemen has also internally displaced 2.5 million people and has left nearly 21.2 million, about 80 per cent of the Yemeni population, in urgent need of humanitarian assistance, with 14.4 million of them suffering from chronic food insecurity.

Besides the specific vulnerability of children to shortages of basic needs, nearly half the school-age population in Yemen, about 3.4 million children, are now out of school because of the war, and this will have a long-term negative impact on human capital and economic productivity in the country.

In Libya, the reliance of the country’s centralised economy on oil revenues has meant that the armed conflict in the country has nearly shut down the economy at times by disrupting oil production and exports through damage to the relevant assets or suspending their operations.

Libyan crude oil production thus declined from 1.5 million barrels per day in 2010 to 390,000 barrels per day in 2016, and lost revenues due to sluggish oil exports amounted to nearly $100 billion over three years.

This has impacted the provision of basic needs and has left some 2.4 million people in need of humanitarian assistance, with one million children suffering from acute malnutrition.

Owing to such preliminary estimates of the costs of recent conflicts in the Middle East, the corresponding costs of the reconstruction can only be roughly estimated. The actual costs of the conflicts may be greater than these estimates, and so may the actual costs of the reconstruction.

As the aggregate damage and economic costs of the three wars in the region are estimated to reach nearly $300 billion, almost as colossal resources will be needed to restore the pre-war economic performance of these countries. They might need resources that reach two to three times the amounts of their GDP in 2010 just to restore their economies to 2010 conditions. 

The reconstruction should also not focus only on physical assets and infrastructure, but should also extend to building new institutions, economic, political and legal, in the light of the legacy of weakness or even the absence of suitable institutions in these three countries and in the wider region.

This could turn out to be a major challenge in the reconstruction efforts, as it would require building institutions from scratch and avoiding as much as possible the restoration of pre-war institutional settings that were in large part a main cause of the conflicts themselves.
 

*The writer is a researcher in economics at the Al-Ahram Centre for Political and Strategic Studies

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*This article was first published in Al-Ahram Weekly

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