Between Autocracy and the Pressure to Open Up
Tuesday, November 18th, 2008
The Arab Republic of Syria is divided into thirteen provinces (muhafazat) and the capital city region of Damascus. Many Syrians feel that their country is an artificial entity because of the French right of mandate that existed from 1920 until full autonomy on April 17, 1946 – this date is considered to be the national holiday. Independence had been declared as early as September 28, 1941. According to the new constitution ratified by a referendum in 1973, Syria is a presidential republic with the character of a people’s social democracy. Bashar al-Assad, an ophthalmologist who earned his degree in Great Britain, has been president since July 17, 2000, as successor to his deceased father, Hafez (1971-2000), of the ruling Ba’ath Party (“Arab Socialist Resurrection Party”). Despite recent economic liberalization, the country’s old socialist orientation is evident everywhere.
Following the Gulf War of 1991, billions of U.S. dollars flowed from the West and the Gulf states into the economy of this Middle Eastern country bordered by Lebanon, Israel, Jordan, Iraq and Turkey. This, together with the increased oil revenues of the time, brought on a rapid rise in economic growth. The rerouting of the water from the Euphrates onto fertile plains instead of unproductive ground improved agricultural production. The prospects for the economy in the long run, however, remain uncertain. State control still blocks private companies and investment. Syrian businessmen would rather put their money in the more free Lebanese economy. Since 2000 there has been a stock exchange and the first private banks. Two years later, the possession of foreign currency was allowed.
Among the economic assets are the agrarian economy and a still manageable inflation rate. On the negative side are inefficient government enterprises, a strong population growth (2.4 % average increase in the population for the last 15 years; 40 % of the 19.3 million Syrians are younger than 14) with recent hidden unemployment at more than 20%, problems with the drinking water supply and large defence expenditures that considerably burden the whole economy. The reforms introduced by President Bashar al-Assad, who was only born in Damascus on September 11, (1965), are only slowly taking hold.
40 Years of Socialism leave their mark
For four decades, the government was able to live its dream of socialism thanks to the bubbling oil revenues. Now the wells are drying up. Syria, who exploited its reserves to the full in the 1990s and was thus able to avoid the necessity of economic modernization, must today pay for it. Oil production dropped in 2007 to about 370,000 barrels a day and the export of crude has greatly decreased since 2004. By now, some 12.5 million cubic liters of natural gas are produced daily, which is used solely for domestic energy production. Syria has proven natural gas reserves amounting to about 240 billion cubic meters.
Damascus has realized that the old system no longer functions. The pressure to change has become ever greater. But, of course, the reforms that have been introduced are meant as much as possible not to shake the political order. A handful of influential families close to the government have little interest in basic changes. At the same time, the productivity, quality and innovativeness of the Syrian economy is far removed from leading national economies. While considerable sums drain away in the governmental machinery, the state continues as always to hold down the cost of living by subsidizing items like rice, sugar and diesel. Economic collapse is threatening if a profitable economy has not been built up by the end of the chief of state’s second seven-year term in office in 2014. At least Syria has signed debt rescheduling agreements with Poland, the Czech Republic, the Russian Federation and Romania in 2004/2005 and 2007, solving almost all of the old debt problems. The servicing of debts with Western countries is running according to agreement. The Arab Republic of Syria will receive special attention from the European business world in 2009 when the Near East state will be the official partner nation at the German-Arab Economic Forum between the 24th and 26th of June, an event organized mutually by Ghorfa (Arab-German Chamber of Commerce and Industry) and the DIHK (German Chamber of Industry and Commerce) – both headquartered in Berlin – as well as the General Union of Arab Chambers of Industry and Commerce.
Syria’s deputy prime minister and chief economic reformer, Dr. Abdullah al-Dardari, has repeatedly stressed at a number of appearances in Europe that Damascus, along with all the other measures, is working not least of all on the development of a system of social security and the improvement of the social infrastructure, as well as the health care and educational systems. “We need well qualified manpower for a social market economy. But above all entrepreneurs. A strong middle class is immensely important for our development, not only for economic reasons … naturally individual reform measures are to the detriment of certain established interests – above all now when we are pushing through the core concept of a market economy; competition, the end of monopoly.” While Dardari speaks openly of a market economy, he is continuing nonetheless to assign a high degree of socio-political responsibility to the state, a responsibility for the whole future development of the country, without being, however, by means of a centrally planned economy but rather through macroeconomic policies and the corresponding incentives.
The New Investment Law
The government knows that Syria desperately needs a strong private sector. In the Five-Year Plan 2006-2010, which forms to a certain extent the basis for a new social contract for the country, the government is heavily relying on building projects in the areas of infrastructure development, tourism and homebuilding. Customs duties and taxes were in part drastically reduced, trade embargos lifted and investment laws made flexible. And yet the expected rush of direct foreign investment has not materialized until now. The decrees Nos. 8 and 9 on promoting investment and the formation of a new investment authority with the guideline of a decentralization announced by President Bashar al-Assad on January 27, 2007, have not yet excessively changed much, although investment incentives were set on a considerably broader basis that bears the stamp of the dynamic president.
- Foreign investors may freely transfer their profits in foreign currencies.
- Proceeds from divestiture may equally as well be freely transfer in foreign currencies.
- Non-Syrian workers receive work and residency permits.
- Foreign workers may transfer up to half of their net income in foreign currency out of the country.
- A return transfer of Foreign investment is guaranteed if the investment plan is unable to implemented within six months at no fault of the investor.
- Machinery and equipment necessary for the project may be imported and later exported duty-free – with prior permission of the investment authority.
- Equipment and raw materials are exempt from the general import restrictions.
- The procurement of property or buildings to realize the investment plan is equally exempt from the otherwise usual restrictions governing real estate acquisition by foreigners.
- Protection against seizure of movable goods and confiscation of commercial property.
Private Banks were allowed to open their doors in 2004 and insurance companies in 2006. As Islam disallows all kinds of income from interest, clever Muslims therefore put their money in stocks – and there is no religious ban on that. The liberalization is most evident in the shopping streets of the nation’s capital located in the southwest. Until the torch of national leadership was past from father to son, the stores all offered local products, not counting smuggled goods and a few Western products licensed for production in Syria. Since the lifting of the ban on imports in 2005, brands like Escada and Mango, Armani and Versace have taken the elegant district of Damascus by storm. The changes have remained largely confined to consumption. There is hardly any genuine industrial production taking advantage of the low wages. Even the strongest economy sectors, textiles and agriculture, remain below their potential. A lot more could be made of the high quality Syrian cotton than has been the case until now.
Tourism as an Economic Factor
During the ITB 2008 (International Travel Trade Show) in Berlin, the most important fair of the industry worldwide, Syria presented itself to the decision makers and professionals of international travel and transport as the official partner nation of the 10th German-Arab Tourism Forum. Tourism is one of the most important motors for growth not only in this Near East nation, but in the whole of the Arab world, as well. Promoting tourism is part of a large scale strategy of the state leadership in Damascus to create an economic foundation independent of oil and to generate further employment.
As hardly any other country, Syria can present a cultural heritage reaching back 5,000 years that offers a true diversity of cultures, along with historical buildings dating from antiquity and the Arab middle ages with its intact old towns and caravanserai, mosques and bazaars. Of the some 3,500 historical places and excavation sites in the whole land, only a minute minority of the places and regions of touristic interest are on the programs of tour operators. Despite steadily increasing numbers of tourists, Syria possesses a huge potential for development, particularly in cultural tourism. For that reason, the government in Damascus is doing everything to develop new tourist destinations and to win private investors to support the whole process.
Economic Statistics at a Glance
Imports with a volume of 24.0 billion U.S. dollars (2005) largely dealt with machinery and transport equipment (22 %), food and livestock (18 %), metal and metalic products (17 %) as well as chemical products (10 %).
The most important import partners:
Saudi Arabia (7 %),
Republic of Korea (6 %),
People’s Republic of China,
United Arab Emirates,
Egypt and Italy (4% each),
Germany (3 %).
Exports in 2005 with a total value of 14,6 billion U.S. dollars were largely the following products: crude oil (63 %), petroleum products (7 %), fruit and vegetables as well as cotton fiber (5 % each), textiles (3 %), livestock and meat (2 %).
The most important export countries for Syrian products:
Iraq (19 %), Turkey (15 %), Saudi Arabia (13 %), Germany and Italy (7 % each), Lebanon (6 %), Egypt and France (4 % each), Jordan (3 %).
Export amount for all EU nations (European Union) combined: 23 % of all Syrian exports
Bernd-Dieter Fridrich (Berlin/Brussels)