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Syria - NEWS BRIEFINGS
Syria | 03.09.2008
In the midst of a whirlwind diplomatic campaign aimed at improving ties with the West, Russia and the Middle East, Syria has also taken time to bolster relations with Libya in hopes of attracting foreign investment and boosting trade.

Syria

The Report: Emerging SyriaThe Syrian government is focusing on building a social market economy with the aim of increasing foreign investment and encouraging diversification in the face of dwindling oil returns. Several sectors are at the vanguard of this move, in particular financial services, which has blossomed since liberalisation in 2004, and industry. Tourism is seen as a path to future economic growth, with promotional shows taking to the road to highlight Syria's rich history and Damascus' architectural appeal. The all-important agriculture sector is set to receive a boost through the implementation of more effective irrigation methods, while the government is seeking to encourage private sector involvement in infrastructure improvements and innovations. Taken as a whole, Syria's economy is changing fast, to compete in the global market place and safeguard itself for the future.

ISBN: 1-90202339-99-1
ISSN (Online): 1758-7638
ISSN (Print): 1744-4624

TABLE OF CONTENTS

COUNTRY PROFILE

This section provides a quick overview of some facts about the country, its population, languages, natural resources, geography, climate, religion and history.

POLITICS

There was good news for president Bashar Al Assad in 2007, as a referendum on his presidency assured him a second seven-year term, with 97.6% support on a turnout of 96%. On the home front, the government's aim of creating a social market economy, combining the stability of socialism with the dynamism of the free market, appeared to be creating modest growth and foreign direct investment rose in 2007 to $778m, an increase of 30% on 2006. However, looking beyond its borders, 2007 saw Syria becoming increasingly internationally isolated as its long-term strategic alliance with Iran brought repercussions. An Israeli air strike in September 2007, the intended target of which was claimed by Israeli officials to be a nuclear facility containing material imported from North Korea- a facility that Syria denies the existence of- was met, significantly, by silence from the Arab world. Relations with Saudi Arabia became strained, with a large part of the Arab League critical of Syria's relationship with Lebanon. To the future, Iraq looks set to become an important trading partner, while trade relations with Asian powers are growing.
The chapter features interviews with President Bashar Al Assad; Abdullah Al Dardari, Deputy Prime Minister, Economic Affairs; Vassilis Bontosoglou, Head, European Commission Delegation to Syria and Béatrice Patrie, MEP, Chairwoman of the Delegation for Relations with Egypt, Jordan, Lebanon and Syria.

THE ECONOMY

The Syrian economy is changing, and quickly. In 2003, oil accounted for 47% of exports, 20% of GDP and 51% of government revenues. By 2007, these figures had dropped to 28% of exports, 20% of GDP and 49% of government revenues, leading Muhammad Hussein, the minister of finance, to announce in May 2007 that Syria had become a net importer of oil-related products in 2006, four years earlier than expected. So where does this leave the Syrian economy? Its diversification efforts appear to be paying some dividends, with non-oil real GDP growth increasing from a low of 2.5% in 2003 to 6.5% in 2006, before slowing to around 5.8% in 2007. This gradual growth has been attained by increased private sector involvement, through the creation of free trade zones for example, and the influx of over 1.5m Iraqi refugees, who have set up businesses, invested in Syria and increased demand for local goods and services. The financial services sector is showing strong growth since liberalisation in 2004, while the agriculture sector remains vital. The government is also taking the public purse strings in hand, in the main through a series of tax and currency reforms. Unemployment needs to be tackled however, particularly among the young, with an extra 200,000 job seekers entering the market every year and many analysts urging the government to invest more heavily in education.

The chapter features an interview with Amer Husni Lutfi, Minister of Economy and Trade and a viewpoint from Nassib Ghobril, Head of Economic Research and Analysis, Byblos Bank Group.

FINANCIAL SERVICES

Syria's financial services sector is blossoming, with the first private banks beginning operations in 2004 and now stealing market share from their state-owned counterparts bringing a wealth of new products to the market. Private insurance got underway a year later in 2005 with eight companies now operational, bringing the total in the market to nine, with over 50 applications for licences received by the Insurance Supervisory Commission. In 2007, brokerage firms, foreign exchange businesses and special smaller-scale institutions, designed to handle services, from lending to insurance, for individuals and small and medium-sized enterprises, entered the fray. Meanwhile the opening of the Damascus Stock Exchange (DSE) is eagerly anticipated, with around 15 companies able and willing to list. The liberalisation process has helped the country as a whole in making it a more attractive place to invest and bringing opportunities for its citizens and companies to benefit from modernised financial services and improved economic prospects. Meanwhile many financial dealings that were previously conducted in neighbouring countries, such as Lebanon, have been brought home to Syria. Exciting times, then, but the sector is still, in real terms, a toddler, lacking domestic financial expertise with highly-qualified Syrians often succumbing to the brain drain effect and taking better jobs abroad while senior management positions are filled by expatriates. A number of training programmes have been implemented to rectify this situation, including a $1.8m joint EU and Central Bank of Syria initiative aimed at bringing modern banking knowledge to industry professionals. Plans are also afoot for a specialised insurance institute, the first of its kind in the Arab world. The chapter includes interviews with Mohammed Al Hussein, Finance Minister; Adib Mayaleh, Governor, Central Bank of Syria; Jassim Al Mannai, Chairman and Director-General, Arab Monetary Fund and a viewpoint from Bassel S Hamwi, Deputy Chairman and General Manager, Bank Audi Syria.

TRANSPORT

Syria, located at the heart of the Arab world, has been at the crossroads of international trade since ancient times. The government now wants it to reclaim its place as a major transport hub and has earmarked infrastructure expansion and improvement as one of its top priorities. Indeed, an efficient transport system has become all the more important if Syria is to capitalise on free trade agreements signed with Turkey, Iran and the Arab region. It is also crucial in attracting investment into Syria's free trade zones and industrial cities. A sum of $1.52bn has been set aside under the current five year plan (2006-2010) to help improve ports, railways and roads. Given the government's aim of increasing private sector involvement in the economy, it is looking to acquire half of the budget from build-operate-transfer (BOT) and private management contracts. Perhaps the most important initiative for the transport sector is the development and modernisation of the country's sea ports, with EU and Japanese funds dedicated to the upgrade of ports at Tartous and Latakia central to this. Taking to the skies, tourist and domestic traveller numbers are set to increase as there have been a greater number of choices of carrier since 2005, when the private sector was given the green light to invest in the aviation industry. Meanwhile Damascus International Airport is being upgraded. In the short tern, capacity is set to increase from 1.5m to 3.5m passengers annually and in the long term a second terminal will up capacity to 8m a year. Plans to get the rail network back on track include improving rail access to Syria's ports and Ministry of Transport plans to improve rail access between Damascus and Aleppo. A tramway system is set to ease traffic congestion in Damascus, while the current five-year plan signals the need for an extra 8242km of roads, 1848km of which are highways. On a more sentimental note, the historic Hijaz railway, built by the Ottomans between 1900 and 1908, is at the centre of revival plans, with a study to upgrade the line to standard gauge already completed. The chapter includes an interview with Yarob Badr, Minister of Transport.

ENERGY

Oil has been the mainstay of the Syrian economy for over four decades, but production passed its peak of 610,000 barrels per day (bpd) in 1995 and is now falling even more rapidly than had been forecast, with a 7.9% decline expected in 2008, to 350,000 bpd. Estimates of the amounts of discoverable oil reserves are put at just over 2.5bn barrels which, it is forecast, will be depleted at some point between 2030 and 2035. Indeed, oil's contribution to exports and government revenue fell from more than half each in 2003 to 36% and 17% respectively in 2007. Syrian refineries are struggling to cope with total domestic production and to meet surging demand. Of the 380,000 bpd of crude oil produced in 2007, 230,000 bpd were refined in Syria and the remaining 150,000 bpd exported. Domestic demand was not met, meaning that refined oil products had to be imported at high global prices. This grim picture resulted in an announcement from the Minister of Finance in May 2007 that the oil trade deficit had reached $157m in 2006; particularly bad news when deficit was not expected until 2010. Now, just top make the situation even worse, there is a shortage of light crude oil, meaning that the Syrian Petroleum Company (SPC) must start importing light crude in 2009 to supply refineries. So what can be done? Apart from the diversification efforts the government is making across the whole economy, infrastructure in the energy sector is in need of updating and the government is aiming to attract outside investment to this end., while upping exploration activity with the involvement of foreign firms. Natural gas is being viewed as a beacon of hope, with the government aiming to position Syria as a serious producer and exporter of natural gas alongside developing it as a regional hub for the transport and processing of fossil fuels. Indeed, a greater focus on more environmentally friendly energy sources should reduce domestic demand for oil-related products and free up more oil for export, thus reducing pressure on the trade balance.

TOURISM

The Syrian tourism sector is only just beginning to exploit its full potential, with 2007 topping all expectations; this despite a slow start to the year as a cause of renewed fighting in Lebanon. Thanks to promotional road shows, however, total income in the sector came in at $3.85bn for the year, with the Ministry of Tourism predicting a 9% increase in tourists in 2008. ‘It was a fantastic year and beyond anything we expected,' said Markus Iseli, the general manager of the Damascus Four Seasons' Hotel. The reasons behind the sunny outlook are multi-fold: the government is providing strong backing; private sector involvement is growing and the country is receiving positive media attention as a tourism destination. Indeed, Condé Nast Traveler magazine readers picked Damascus as the number two city in the Middle East and Africa and it currently holds the accolade of 'Arab Cultural Capital' for 2008. The impact of good press is evident from the fact that 10% of Arab tourists and 14% of non-Arab tourists travel to the country as a result of favourable media coverage. The highest number of visitors are Arab nationals, four times the number of non-Arab nationals, although travellers are being tempted from further afield. To the future, challenges for the sector include improving infrastructure, a need for more international-standard leisure facilities, an increase in the number of workers to fill the growing number of positions in the industry and more available options for budget travellers.

CONSTRUCTION & REAL ESTATE

The Syrian government is actively encouraging private investment in the traditionally state-dominated construction sector as part of its drive to counteract falling oil revenues with growth in other areas. Indeed, contractors regard 2006 and 2007 as witnessing the beginning of real growth, marked as they were by the entry onto the scene of several high-profile Gulf investors backing big projects. In terms of new developments, tourism is drawing a lot of the attention while there is a growing level of private sector interest in Syria's infrastructure. This has been buoyed by the announcement in February 2008 of a partnership between three Kuwaiti firms and Syria's Al Sham Holding Company for large-scale public-funded infrastructure programmes, focussing on the electricity, wastewater and energy sectors. Residential construction is centred around areas outside the city limits, in particular around the highways leading from Damascus to Beirut and Daraa. Receiving the most attention is Yafour, thanks to its selection as Emirati developer Emaar's site for its Eighth Gate project. In terms of retail construction, mall culture is taking root in Syria, offering good and relatively fast returns to investors. All positive news but some developers are feeling the pinch when it comes to the rising prices of raw materials like cement, demand for which is currently outstripping supply, while recruiting the right people for the job can be difficult as there is a shortage of skilled labour, down, in part, to the brain drain effect. The big news in 2008, however, is the expected passing of a new construction law, the goal of which is to pave the way for whole new cities to be built, putting in place a framework that will allow for the establishment of companies while guaranteeing the rights of the government and investors. The chapter includes interviews with M Hassan Istwani, Chairman, United Contracting & Engineering Company and Nasser H Al Ansari, Chairman, Qatari Diar Syria and a look at some of the country's largest mega-projects.

TELECOMS & IT

It's a case of call waiting in the Syrian fixed-line market, with some of Syria's 704 telephone exchange centres, for example in Damascus, having waiting lists stretching as far back as 17 years. The government-run Syrian Telecommunications Establishment (STE) is looking to wireless technology as a method of speeding up the connection process, with two contracts with a Syrian-German joint venture in place alongside contracts with Siemens and Ericsson. International players are weighing in to provide services under the third rural telecoms project, the aim of which is to see around half a million fixed lines installed in 5000 villages and settlements across the country. Getting mobile, there were a total of 5.79m mobile subscribers in Syria by the end of November 2007, up from 4.14m at the end of 2006, with the spoils split between Syriatel and Spacetel (now MTN), both of which were awarded build-operate-transfer (BOT) contracts by STE in 2001. Innovation is key in the duel between the two: in 2007 MTN launched 10 new products while Syriatel launched 20 new services, six of them using GPRS. To the future, 3G is being commercially released in 2008, while a third operator is set to enter the mobile market in 2009. The date of 2010 is earmarked for the liberalisation of all telecoms services.

The Syrian IT sector is very much in its infancy, lagging behind the advances made by some of its more technologically savvy neighbours. International investment needs to be attracted, but this can only really happen when infrastructure is up to standard and greater financial incentives offered. The brain drain effect needs to be combated, as Syria's highly skilled IT graduates are lured abroad by higher wages. The government is showing its commitment to the sector by pushing forward with its e-government initiative. Meanwhile, the Syrian Computer Society, a non-governmental organisation designed to promote and encourage the IT sector, is rolling out a major initiative this year with the provision of access centres to rural areas.

INDUSTRY

Industry is vital to the Syrian economy: it employed 14% of the workforce in 2006; contributed 24.8% to the country's GDP and represented around a quarter of national exports. In the face of diminishing oil reserves, the government is attempting to attract private investment into the industrial sector to create employment for its ever-growing population. Since the late 1980s the Syrian government has been promoting private initiatives in a bid to transform a state-led economy into what it sees as a social market model, offering, for example, tax incentives to investors. By the close of the 1990s three industrial cities had been set up: the trio have been so successful that in 2007 the government promised to create eight new ones. The EU-funded Institutional and Sector Modernisation Facility (ISMF) was established to aid the government in modernising the economy and offers technical assistance in terms of capacity building, developing policies and building a legal framework which will encourage change. Syria is a major agricultural producer with an annual surplus of wheat, olives, potatoes, fruit and vegetables. Today some 60% of the agri-industrial sector is in private hands. Textiles is another money spinner, with Syria ranking among the top cotton producers in the world and the textiles sector as a whole being the second-biggest foreign currency earner in Syria, employing nearly 10% of the national workforce. Meanwhile Investment Law No 8 has meant that private companies can obtain licences to produce cement: seven have taken advantage of this. Pharmaceuticals is another important segment, although changes are being called for as profits diminish. In terms of attracting foreign investment, China and Iran have become Syria's most important partners, with memories of the old Silk Road being rekindled as the country looks east in economic terms. The chapter features interviews with Rateb Shallah, Chairman, the Federation of Syrian Chambers of Commerce and Noha Chuck, CEO, Syrian Enterprise Business Centre.

MEDIA & ADVERTISING

In 2001 the Syrian media landscape opened up to private competition. Liberalisation has been uneven however. Print has embraced the change but strict publishing laws mean that even private print ventures tend to steer clear of displaying a political agenda. State-owned newspapers such as Tishreen, still provide the majority of the public with the news, although some private newcomers, such as Al Watan , are closing the gap. The magazine sector is blossoming, with over 200 offerings on the news stands and more awaiting licences. Radio has also welcomed liberalisation and a number of private stations have hit the airwaves, opening up FM to the nation. Television, though, has been slower to switch on. Addounia TV television was awarded its licence in mid-2007, although it is still too early to judge its impact. The state-owned Syrian Satellite Channel is undergoing a much needed technological overhaul while training across the broadcast sector is viewed as a priority. The internet holds promise for the future, especially in terms of allowing more freedom of expression.

The advertising industry in Syria, although lagging behind that of its neighbours, is full of potential with a yearly growth rate of around 20%. The increase in the number of private entrants into the media foray, along with early signs of penetration by international brands, all give good grounds for healthy optimism. Print is the predominant advertising medium, with outside advertising its main competition. Challenges remain, however, with advertisers being compelled to promote their products using, in the main, classical Arabic, and the 2007 disappearance of market monitoring organisation Ipsos leaving a gap that must be filled.

AGRICULTURE

A free market economy is thriving in the agricultural sector, with the advent of free trade agreements such as the Greater Arab Free Trade Area (GAFTA), the imminent EU association agreement and the expected eventual accession into the World Trade Organisation (WTO) causing excitement. Accession to the WTO is likely to spur the move from direct government subsidisation of the agricultural sector to indirect subsidisation. An irrigation modernisation scheme is being fast-tracked in a nation faced with limited land and a growing population. Indeed, water conservation is a priority for the government, with farmers being urged to conserve water where they can and an agreement being drawn up between Syria and Iraq for water from the Tigres to be transferred to dams to irrigate Syria's Hassake area. Cotton, for example, is losing out as yields are not as high as they could be thanks to inefficient irrigation methods. The emergence of new markets, for example China and India, across the agricultural sector as a whole is pushing up global food prices, a factor that will affect Syria both negatively and positively; negatively as the cost of imports increases and positively as the profits from exports rises. Increasing oil prices are a concern for the industry, pushing up the cost of everything from transport to storage to labour, even the price of fertiliser. To the future, olive oil looks set to become a rising star as new markets emerge in Japan and China, while the organic sector is experiencing a fast rate of growth. The chapter features an interview with Omar Shalet, Chairman, Syrian Chambers of Agriculture.

THE BUSINESS GUIDE:

In conjunction with Ernst & Young, Oxford Business Group investigates the new laws that govern taxation in Syria, providing an essential read for investors. The chapter also casts a legal eye over the changes in the business environment and the legislation that governs this, with the assistance of Karawani Law Firm. Abdul Kader Husrieh, Managing Partner, Ernst & Young Syria, offers his views on transforming the economy while Raed Karawani, Partner, Karawani Law Firm, shares his take on how to encourage investment in Syria.

THE GUIDE

Readers are invited to enter one of Damascus' best kept secrets; a hidden treasure trove of art in the workshop of Mamduh Al Ayoubi, with a range of over 6000 paintings in a variety of different styles. “Nobody leaves my store without buying something; there is something for everyone in here for any price,” Ayoubi told OBG. The section also includes details of the country's top hotels, government and other listings, including health. There is also a section of useful tips for visitors, featuring topics such as language, currency, transport, health and visa requirements.

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