Posted by Joshua on Monday, February 7th, 2011
What Does the Future Hold for Syria?
By George Saghir
For Syria Comment
February 6, 2011
The demographic challenge
Like most countries in the region, Syria has experienced rapid population increase since independence in 1946. According to the UN, total fertility or the number of children that the average Syrian woman gives birth to in Syria averaged 6.44 over the last 60 years. As one would expect, this rate had declined, but still averages 5.85 children per woman since 1970. Syria’s fertility rate today stands at 3.02 (2010), while Turkey’s is 2.18 (2010), Egypt’s is 3.01 (2010), and Yemen’s is an astonishing 4.81 (2010). For the record, the U.S. and Western Europe averaged 1.95 and 1.64 respectively since 1970. Run away population growth in Syria explains why the percentage of the population under the age of 14 is nearly 40% and those over 65 are a mere 3% (it is 18% in Western Europe). Is it any wonder that Egyptians feel that Mr. Mubarak is too old? Only 0.4% of Egyptians are 82 years old. Needless to say, most Syrians can identify with their president who is in his 40s; some 60% of Syrians are between the ages of 15 and 59?
Unemployment trumps all
It is an accepted truth that the Arab world can do with less corruption and more democracy and freedom, but none of this is likely to matter much if rapid population growth is paired with slow economic growth. The 40% of the people who are under the age of 14 will be looking for work in a few short years. To make matters worse, Syria, like others countries of the region, has one of the lowest women labor participation rates in the world – only 21% (2008) of Syrian females between 15 and 29 years of age are currently in the labor force. This is also likely to increase. Both demographic groups are expected to exert significant and steady pressure on Syria’s future unemployment rate.
Real Economic Growth
While Syria’s population almost doubled between 1975 and 2000, real (inflation adjusted) income growth was largely stagnant. The economic reform process of the past decade has brought the country faster growth, but not nearly enough given the population growth. While analysts and experts alike may offer a laundry list of reasons for the events in Egypt, there is little doubt the protests are primarily linked to the country’s failure to boost economic growth. Per capita GDP (Gross Domestic Product divided by the population) is a useful indicator. In 20 years, Egypt’s nominal per capita income has remained stagnant at USD $2,155. It has not grown at all. Factor in inflation and it becomes clear that real standards of living have actually fallen. There can be no surprise why Egypt’s youth poured into Tahrir Square to protest. It was only a matter of time.
Compare Egypt to Turkey
Over the same 20 years, nominal per capita income in Turkey grew by nearly 275%; it grew from $2,160 to $8,300 today. Had Egyptians been earning close to four times more than they were in 1990, one wonders if they would have taken over Tahrir in protest. Syria must emulate Turkey and not Egypt:
The best way to achieve this is by developing an increased sense of urgency about the need to accelerate economic growth and cut population growth. Patience in this case is not a virtue. Neither is indecisiveness. Every member of Syria’s economic team must get behind the reform agenda. Too much is at stake for indecision and backbiting.
Growth without population control will not cut it. According to the UN, Syria’s current population growth rate is 3.26%. This means that the population will double to 45 million by 2032, a short 22 years from now. However, were the birth rate to drop by a full percentage point to 2.25%, the doubling of the population to 45 million will be delayed till 2042, giving it ten extra years to grow the economy. Turkey’s current population growth rate of %1.24 is a full two percentage points lower than that of Syria’s. Were Syria’s population growing at Turkey’s rate, it would have until 2067, or 35 extra years, to raise incomes for the same amount of people.
When discussing economic growth, it is important to emphasize the difference between nominal (current dollars) and real (constant dollars) growth. The former does not factor in inflation. The latter does. The distinction between the two measures becomes more pronounced in high inflation environments. One may experience a growth rate in incomes of say 5% but if inflation is also at 5%, real (constant dollar) income growth is zero. This is why it is hard to achieve real economic growth rates of 7 and 8 percent when an economy is experiencing inflation of 5%. Nominal or actual incomes would have to grow by 13% to experience a real growth rate of 8%.
Turkey’s reform process kicked into high gear in the early 1980’s under the leadership of the late Turgot Ozal. For Syria to achieve Turkey’s per capita growth rate of the past 25 years, it must do two things: 1- It must grow its economy by a real inflation-adjusted 8.5% if population growth continues at 3.26%. 2- It can grow by a real inflation-adjusted 6.5% if it succeeds in slowing its population growth down to Turkey’s current level of 1.25%. Either option presents a formidable challenge and highlights the feat that Turkey has pulled off since 1980. Growing an economy at an inflation-adjusted rate of 8.5% is of course what China has been able to do recently (if you trust the country’s statisticians). Chinese planners have also been able to drop the country’s population growth rate to low of 0.63%.
Syria must tackle its population growth challenge
The late Yasser Arafat once famously said that “the womb of the Arab woman is my strongest weapon”. The region had long held the belief that high total fertility rates are positively correlated with economic and strategic strength. Up to a few years ago, Syria used to hand out medals to women who conceived 12 children or more. As a result, family planning was never thought of as applicable public policy for the region. This must change. Syria’s resources cannot keep pace with the present galloping population growth. Water will run out and incomes will fall. We can all imagine a number of nightmare scenarios about how thing will begin to go wrong.
But the World has many examples of countries that have conquered run away population growth. Thailand is one such example. In 1974, the average Thai mother gave birth to 7 children. The politicians understood that they faced ruin unless they got control of the problem. Along came Mechai Viravaidya. His solution? Walk around the country handing out condoms. Over the past 36 years, the Thai state took up the example and has brought down the number of children per mother from 7 to 1.5. Ask about “Mr. Condom” in Thailand today. He is a hero. China of course saw the need for even more draconian action back in 1979. Chinese economic planners understood that unless they slowed down the population growth rates and significantly increased economic growth, the country also faced ruin.
By all accounts, the current demographic trend in the Arab world is a train wreck. Most Arab leaders will fail unless they can convince their societies that nothing else matters if they can’t control their exploding population growth. Until then, economic reforms will fail. More stomachs will go empty; and more kids will come of age with no prospect of finding an honest job. The old Arabic adage that a new born baby will carry his riz-keto (fortune) with him must be ridiculed. It is no longer funny.
The Urgent Need for Economic Growth
Even if Syria implements an aggressive family planning policy soon, significant population growth changes take time. This leaves most of the burden on faster economic growth to raise the country’s per capita GDP. Since 2003, real growth has averaged between 3.4% and 4.8%. At this rate, Syria’s per capita incomes will grow at half the speed that Turkey’s did over its past 30 years. This leaves Syria with little room for error. Losing one or two percentage points of growth exposes Syria to Egyptian sized problems – stagnant per capita income over the next two decades and a population of 40 million.
Syria’s economic planners understand this dynamic for they have targeted a real growth rate of 7 to 8 percent. However, doubling real incomes is not easy and requires that Syria’s economy fire on all cylinders. It must get its legislative, fiscal and monetary policy in sync. I think that even the government would admit that this is yet to happen. The area of legislation, in particular, needs urgent attention. Rather than embracing best-practices that already work in the rest of the world, legislators seem to get bogged down in a bureaucratic maze that ends in legislation that lacks clarity, simplicity or business friendliness.
A word on Subsidies:
Middle and low income families spend up to 50% of their incomes on food. Over the past 4 decades, the Syrian state subsidized a list of basic commodities and energy products as part of its socialist economic strategy. When this policy was adopted, the Syrian population was barely 6 million. The Soviet Union was a strategic partner. New oil was being brought on line until it peaked at just under 600,000 b/d in 1996. Today, production has fallen just under 400,000 b/d.
The Soviet Union is of course no longer. The population is now higher by almost four fold. As of last year, the Syrian government’s bill for total subsidies was close to USD$ 8 billion. This amounts to USD$ 355 for every man, woman and child. For an average family, this is close to USD$ 2000 a year. What started as a perfectly honorable and humane government program that may have cost less than USD$ 2 billion a year, when it was first initiated 40 years ago, will end up bankrupting the state. If subsidies are not cut the bill will rise to $30 billion in 40 years.
Subsidies distort the efficient allocation of resources. They work by robbing from Peter to pay Paul. The Peters in this case are government hospitals, universities, roads and municipalities. They are underfunded and in disrepair. The Syrian public is constantly griping about the decline in state services. The Syrian government is not a magician. It cannot be expected to subsidize the population to the tune of USD$ 8 billion at the same time as it provides quality health-care and education. It must either raise taxes, borrow, or print money. The political pressure on the Syrian government to continue subsidies is immense following the Egyptian uprising. It would be wise for the leadership to resist such pressure and stick to its guns on cutting subsidies. The short term pain will be great; it is imperative to begin impressing on the public that they will be better off in the long run for the added pain in the short run.
A culture of dependency on the state has developed in Syria over the past several decades that will be hard to reverse. While the subsidies help many needy Syrians, they also fatten the pockets of smugglers. When you sell heating oil at prices that are less than a third of what they are in neighboring countries, you invite illicit trade. Syrian taxis travel with a full tank of gas to Turkey, empty the gas right across the border and return for an encore. While there is no denying that the poor is being helped by the subsidies, the fact is that the rich and powerful are also benefiting. The government must communicate to the public that what it is doing is not an assault on the poor or that it is deaf to their predicament. The arithmetic of falling oil revenues and increased population has combined to make these subsidies unaffordable.
The High cost of housing and the need for more education reform:
Arabs have generated much of their wealth from asset price booms. Think of real estate or oil. In contrast to East Asian countries that have built industries and knowledge-based services, Arabs have counted on scarcity. Asset-based booms do not depend on human capital inputs. They do not indicate a real rise in competitiveness, education or social organization. This is best illustrated by the ratio of the price of a house to annual income. The average house price/income ration in the US is 3. It went up to 4 during the real estate boom but dropped back to 3 when the sector lost close to 25% following the 2006 collapse. Syria and the rest of the Arab world have ratios approaching 10. In other words, it takes close to ten years of wages for the average Syrian to buy his house. This is made worse by weak credit markets that leave many of the youth unable to access financing.
Youth also face the challenge of overcoming an outmoded education system, that values memorization over all else. Critical thinking, working in groups, sports, arts, and personal leadership qualities all have zero bearing on a young student’s prospect of success in high school or university. When they graduate, Syrian students often find that they lack the skills they need to find a meaningful job.
Syria, like the rest of the Arab world, can no longer afford to live without a serious family planning campaign. Also, it must deliver high growth rates. Only by pursuing both policies together can it hope to raise incomes and create the jobs that young Syrians count on to give dignity and meaning to their lives.