Features from the “Black Hole” of Corruption; Is 77% the proportion of Wasting Public Investment?
Ashtar Mahmood Ashtar Mahmood

Features from the “Black Hole” of Corruption; Is 77% the proportion of Wasting Public Investment?

There is a striking phenomenon in the Syrian statistics in recent years, which is: a large increase in the proportion of GDP devoted for investment. That is, a larger part of the income produced annually goes to local investment, while a smaller proportion goes to consumption, whether private consumption that household consumption constitutes most of it, or public consumption spent by the government.

In 2019, the proportion of GDP for investment reached 60%; an unprecedented proportion in Syria. It is a proportion that means: most of the income produced inside the country goes to projects and construction?!

Out of 11,9 trillion Syrian pounds income, there is 7 trillion for investment. A figure that approximates in today’s prices $2,4 billion. Despite all these “investment” resources, the GDP achieves little increases, and the least amount of consumer capacity remains for household.

Between the Recent Past and Today

Only 22% of the GDP was being invested in Syrian economy in 2010, and the proportion raised to 40% in 2017–2018, and suddenly reached 60% in 2019. A high and exceptional proportion to such a point that should be looked at in doubt. (Nevertheless, national statistics in these conditions are questionable, but it is the only source for comprehending the trends in this regard). However, despite the high proportion, GDP in Syria does not increase in close proportions, and even in official statistics, growth is only accomplished at low rates that are not compatible with a 60% investment in GDP! Practically, according to the preliminary and simple economic basis, increasing investment accommodation is supposed to reflect in an increase in growth rate, and income increases in each year more than the year before, but that is not happening.

What is Swallowing Growth?

Prior to the crisis, every 1% increase in investment could achieve a 0.25% increase in GDP growth annually, which is the income or wealth that is distributed as wages, jobs, profits, expenditure and others. The relationship between both is expressed by an economic rate called the marginal efficiency of capital, and back then it reached 0.25 in Syria, which is the rate determined by the data of economic environment and investment at the time; from the nature of investment to the technological level, reaching the structure and efficiency of workforce, all the way to policies and corruption and its effects on the absorption of investment capacity, and other factors. Today, this rate that expresses the overall economic environment and policies has declined to 0.06, with a deterioration rate of 76%. 

By this measure and within this environment, we can achieve a growth rate of 5% only, i.e., in the low and insufficient level of 2010, we need an investment of more than 80%. This means that despite the large resources in the country that are included in investment, this investment absorbs the energy of producing additional income, which is being swallowed inside a large black hole.

Private investment is exceptional “non-natural” figures. What is noteworthy, if we separate private investment from public investment, is that the private sector is witnessing an improvement in its investment indicators, compared to before the crisis, and the factor has increased by 170% and it witnessed exceptional figures in 2019. For example: between 2018 – 2019, it achieved an annual growth rate by 24%, and that was after it invested a proportion close to 70% of the output it achieved. Practically, every 1% increase in the investment of the private sector achieves a 0.34% increase in the annual income achieved in 2019, while it only achieved 0.2% in 2010.

This huge increase in the investment of the private sector from its output does not necessarily reflect positive indicators. First: because it reflects the small share of private consumption; household consumption. Second: because these large returns of private investment do not include all segments, of course, and there is huge injustice in distributing them. For example, while profit rate in industry is 9% in the statements of the chambers of industry, the profit rate in commerce and import may exceed 200%. That is why if we follow the positions where the private sector invests, we will find that nearly half of it 48% goes to investment in sector requirements: trade, finance, government and private services. Whereas, the remaining half gets distributed to all other investment sectors with a share of 35% for industry and agriculture together, and a sum of no more than $80 million for agriculture and industry equipment and machinery in all sectors! 

The previous initial features of the situation of the private sector’s total figures indicate the amount of private profit versus the very small proportion of wages distributed in the investments of the private sector. It also indicates that this profit money no longer comes out of the country due to sanctions, but rather finds high feasibility in investment inside of it. Where does it primarily invest: in trade, finance, and services, and within that the private sector invests in government services, and contributes to achieving gains from this investment through corruption.

Public Investment; Features of the Black Hole

According to the government’s own figures, public investment is suffering from negative efficiency of capital, which means that when the public sector invests, its output does not increase rather decreases! It is also an exceptional case. Indeed, the output of public sector has declined by 11% between 2018 -2019. In detail, in 2019, every 1% increase in public sector investment was accompanied by a 0.21% decline in output. That is, in the current structure of the public sector’s investment, investing in it is a huge loss, even if it doubles its investment while all other conditions remain the same, its income will decline by one fifth!

Investments that are allocated to the public sector are being swallowed up. When resources are allocated for investment spending on the public sector’s equipment and supplies, the result will be negative, and these investments reduce the output of the public sector. It does not constitute a small figure, as it approached 3000 billion Syrian pounds in 2019, nearly one billion dollars today, and 4 billion dollars back then in the government exchange rates! These sums that all get disbursed in partnership with investors from the private sector, are imported, paid for, or cost more than their ability to generate income. This is the result of two main things: first, the costs of corruption, and second, the overall underdeveloped productive and administrative structure, which lead to waste in the Syrian public sector secondly. 

Importing electrical equipment or paying investment sums to maintain it with high corruption costs for example -without electricity production in return- is turning these investments into a negative output. The same thing applies to refineries when doubled sums are being paid for maintenance and investors in it, and in return, not enough oil is supplied, as public investment in refineries will decrease. The same thing also applies to spending on water systems, road allocations, bread production, and others.

Subsidy and selling at low prices are not the reason for the decline in the public sector’s output. On the contrary, the sums of subsidy that are put as government consumption with what is left from the wages of employees are the main part that keeps a share from the output for the public sector through its necessary consumption expenditure.

To estimate this amount of waste, we can compare roughly with the factor of the private sector, as if the public sector companies had a capitol factor in the private sector, the additional income generated nationwide would have been growing at a rate of 20% in real terms, instead of 3.7%. The difference of approximately 2,300 billion pounds wasted and 77% of investment spending in the public sector! What if this proportion is also generalized on consumer spending in the public sector?! This is only a model of the impact of corruption and structure on investment spending in the public sector. Facts say that there is no partnership or serious investment with an economic structure and investment environment of this kind, and the private sector will only share as an intermediary that benefits from the capabilities of plundering in public sector investment.

(Arabic version)

 

 

Last modified on Thursday, 19 August 2021 18:18
No Internet Connection