Country Profile:
Syria
Syria
A focal point of the famous Silk Road, Syria in the 21st century is moving away from a state-controlled economy to become a bigger regional player. The agricultural sector is vital, employing more than a quarter of the population – as a result, the government is taking measures to conserve water and combat environmental degradation. With 65% of Syrians under the age of 25, demographic pressure will also be a concern in the coming years. A series of economic reforms in addition to a recent thawing of US-Syrian relations should help the country regain regional prominence.
ISBN: 978-1-907065-16-3
ISSN (Online): 2041-0697
ISSN (Print): 2041-0689
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
The accession of Bashar Al Assad as president in 2000 is widely seen as the starting point for the current process of reform in the economy. The president, who was confirmed for a second seven-year term in 2007, belongs to the ruling Baath Party, which has undergone a technocratic reform in recent years. Syria is assuming a greater regional role, working closely with Saudi Arabia and Turkey. The return of the Golan Heights from Israel has been the country’s overriding political goal since 1967. Talks between Syria and its neighbour collapsed in December 2008 following the Israeli invasion of Gaza. US-Syrian relations improved with the election of Barack Obama, with American envoys, including former President Jimmy Carter, visiting Syria throughout 2009. Some US sanctions have been waived, enabling Syrian Arab Airlines to finally import spare Boeing parts for its air fleet. Syria and Iran have pledged to increase bilateral trade, and may collaborate on a Middle Eastern gas pipeline and inter-regional transportation development. Despite a lingering dispute over the Hatay province, Syria’s relations with Turkey have normalised, and the two countries are cooperating to solve regional conflicts such as Nagorno-Karabakh. Damascus is pursuing a political partnership agreement with the EU to increase bilateral trade – the bloc currently accounts for 27% of Syria’s exports and 40% of its imports.
This chapter contains an interview with President Bashar Al Assad. David W Lesch, Professor of Middle East History, Trinity University, gives a viewpoint on relations between Syria and the US. Benita Ferrero-Waldner, European Commissioner for External Relations and Neighbourhood Policy, gives a viewpoint on the EU-Syria Association Agreement.
THE ECONOMY
Some 10 years have passed since the accession of Bashar Al Assad to presidency, and during this time he has made substantial headway towards economic reform and liberalisation. Despite the global turndown, the economy grew 6% in 2008. The government forecasted a similar rate for 2009, but with low oil prices, poor global demand and a major drought, 3% looks more likely. Heavy inflationary pressures drove the average consumer price index up 15.2% in 2008, which has since fallen 7% in 2009. In May 2009, the finance minister announced that the budget deficit for 2009 would be significantly lower than the 9.8% initially predicted. A value-added tax should be introduced in 2010 to compensate for declining oil revenues, which have forced the government to adjust its budget in recent years. Previously the largest economic sector, agriculture shrank from 24.1% of GDP in 2006 to 14.7% of 2008 due to the drought. A series of economic reforms have been passed to boost GDP and decrease unemployment, given Syria’s continuously expanding labour force. Syria’s exports hit $14.4bn in 2008 – a year-over-year growth of 16.7% – with the Greater Arab Free Trade Area accounting for 69% of exports. Foreign direct investment (FDI) increased 70% between 2007 and 2008, reaching $2.1bn. Having fallen in ranking on the World Bank’s Doing Business 2010 report, Syria is working to improve its institutional capacity – for example, a 14% tax rate has been offered to businesses that convert to joint-stock companies. Five large Syrian holding companies have emerged since market liberalisation at the start of the decade, signalling the growing power of domestic private capital. NGOs, noticeably absent from recent history of Syria, have increased civil society activity under the patronage of the First Lady.
This chapter contains interviews with Abdullah Al Dardari, Deputy Prime Minister for Economic Affairs; Haytham Joud, Chairman of Souria Holding; and Nasser Hassan Al Ansari, Chairman of Syrian Qatari Holding.
BANKING
Liberalised in 2001, the Syrian banking sector continues be dominated by the state-run Commercial Bank of Syria, which controls 69% of the market. Nonetheless, private commercial banks are seeing rapid growth. Legislation was passed in 2010 expanding the stake in banks allowed by foreign shareholders from 49% to 60%. However, financial firms must reduce their level of expatriate staff. The reserve requirement ratio for Syrian banks has been increased from 5% to 10% to decrease liquidity in the system. While the bank penetration rate has increased in recent years, Syria still has fewer bank branches per head than any of its regional neighbours and transactions remain predominantly cash-based. However, Syria’s Islamic banking laws are relatively advanced, and it was the first nation in the region to develop a code for microfinance. The Arab Monetary Fund has provided Syria with significant loans to support financial sector reform and to launch a treasury bill market. Local investors have been encouraged to develop relationships with regional banks, resulting in 12 private commercial banks partnered to foreign financial institutions.
This chapter contains an interview with Adib Mayaleh, Governor of the Central Bank of Syria. Bassel Hamwi, Deputy Chairman and General Manager, Bank Audi Syria, gives a viewpoint on domestic financial intermediation.
CAPITAL MARKETS
After years of delays, trading began on the Damascus Securities Exchange (DSE) in March 2010. Legislation for the stock market was passed in 2006 as part of an economic reform programme by President Bashar Al Assad. To ease the DSE into full-time operation, working hours are abridged, and some restrictions, such as a ban on short-selling, are in place. Trading days are expected to increase from three to five in 2010. Bank Audi’s DSE index was also launched soon after the bourse, allowing investors to track the trading prices, the market capitalisation of listed companies and the volume of shares traded. Currently, there are 12 listed companies, with 50 to 60 expected by 2013. The DSE is hoping to attract Syria’s large number of family firms and older joint stock companies. After trial issues of treasury bills in late 2008, the Central Bank is looking at setting up a government bond market.
This chapter contains an interview Mohamad Al Jleilati, CEO of the Damascus Stock Exchange (DSE). Omar Al Ghraoui, Chief Operating Officer of Bemo Saudi Fransi Finance, gives a viewpoint on the restructuring of family businesses.
INSURANCE
Since the insurance sector was opened up in 2005, 13 private companies have been established, competing with the state-owned Syrian Insurance Company, which controls about half of the market. In the same time period, annual premiums have grown substantially: in H1 2009 premiums increased by 23% over the same period a year earlier. Syria’s two takaful firms, which offer sharia-compliant insurance products, saw strong growth in 2009. To increase premium levels, the government instituted a pool system for compulsory car insurance in 2009 – car owners are assigned insurance firms on a rotating basis. Third-party motor insurance is the most popular insurance product, accounting for 44% of premium income in H1 2009, followed by fire, transport, engineering and health. While life is the fastest-growing segment, it still accounts for just 1% of premium income. The Union of Syrian Insurance Companies is campaigning to increase public awareness of insurance, which has a penetration rate of less than 1%.
This chapter contains an interview with Sulaiman Al Hassan, Chairman, Syrian Insurance Federation (SIF), and General Manager, Syrian Insurance Company (SIC).
TRANSPORT
Transport factors greatly into the government’s 10th Five-Year Plan (2006-10), which calls for the sector to increase its GDP contribution from 14% in 2004 to 16%. The plan targets extending the main road system, regular road maintenance of 10% of the network per year, increasing the number of two-lane routes, and improving road safety. Regional connectivity will be improved via projects such as the $300m Aleppo-Yaroubiyah motorway, a 350-km route to the north-east, as well as vital east-west and north-south highways. Taxis and cargo vehicles make up a large percentage of cars on the roads, as private car ownership remains low. In 2008 and 2009, Damascus introduced 1000 new buses meeting Euro-4 emissions standards, to alleviate traffic density. With one of the region’s largest railway systems, Syria has seen rail usage increase 279% since 2000 to 2.49m in 2007. The Syrian Civil Aviation Authority (SCAA) covered the country with new navigation systems as of September 2009. Syria’s airports are undergoing modernisation and expansion, driven by rapid passenger growth and encouraged by the restructuring of the air transport sector. The largest airport is Damascus International, which handled 3.6m passengers in 2008, up 54.6% from 2004 – in January 2008, the SCAA awarded a $59m contract for the rehabilitation and expansion of the airport’s ageing terminals. Under the Syrian Accountability Act of 2004, the US, among other things, limited the export of technology to Syrian airlines. However, there are signs of a thaw, with Washington issuing two export licences for Boeing parts in February 2009. Syria’s second private carrier, Syrian Pearl Airlines, took flight in March 2009, but is restricted from covering the same lines as the state-owned flag carrier Syrian Arab Airlines. In contrast, the port sector is more liberalised, with private companies operating the country’s two ports.
This chapter contains an interview with Yarob Badr, Minister of Transport.
ENERGY
While Syria’s reserves are small in comparison to the Gulf countries, oil extraction is an important contributor to GDP (22%) and government revenues (23%). An average 369,000 barrels of crude oil per day were produced in 2008 – the government predicts an average output of 300,000 bpd for the next 50 years. In August 2009, the Ministry of Petroleum and Mineral Resources announced that Syria had reserves of 7.2bn barrels, much higher than the 2.9bn previously reported by trade press. Rising lifting costs, however, could hamper the recovery of reserves. While US sanctions have kept some international players out of Syria, others have renewed their commitment to the country’s oil sector. In September 2008, France’s Total and Royal Dutch Shell renewed their production-sharing contracts, while Chinese oil firm Sinopec bought Syria-based Tanganyika Oil Company for $2bn in the largest-ever transaction involving a Syrian firm. Producing an average of 20.7m cu metres of natural gas per day, the country must also import it, though discoveries by Shell, Petro-Canada and Croatia’s INA Nafta could allow Syria to become a net gas exporter. Three new oil refineries and two new gas processing plants are being developed, predominantly by foreign companies, while work on the Arab Gas Pipeline (AGP), now stretching from Egypt to Syria’s Tishreen and Deir Ali power stations, continues. The pipeline will potentially link to the Nabucco system in Turkey. In September 2009, the government signed a deal with Egypt to transport 600m cu metres of Syrian gas to Lebanon every year via the AGP. Syria is working to meet its domestic need for electricity, with 1000 MW of new capacity under construction as of mid-2009.
This chapter contains an interview with Sufian Al Alao, Minister of Petroleum and Mineral Resources, and Raoul Restucci, Executive Vice-President for the Middle East, Russia and CIS, Shell Exploration & Production.
CONSTRUCTION & REAL ESTATE
Gulf construction companies have converged on Syria in the past five years, resulting in a slew of large-scale projects and a general rise in standards. Most future infrastructure projects will likely be contracted under the build-operate-transfer model, with the government pledging to spend $50bn on the sector between 2009 and 2015. The British Syrian Society held an international PPP conference in Damascus in October 2009 to increase private sector participation in construction, leading to a PPP procurement law being drafted at the end of the year. Syria is facing a large housing deficit, and needs up to 687,000 homes built. Syrian Qatari Holding, for one, is looking at building replacement homes for those currently living in illegal housing throughout urban centres. The Ministry of Electricity will also require additional power plants to increase its energy capacity an additional 5000 MW by 2020. In late 2009, the government launched a tender for pre-qualification bids for road networks to the Syrian borders, while a metro system for Damascus is also in the pipeline. Local developers have found it difficult to receive financing given a cap on lending by public banks.
Demand for bricks and mortar stayed steady during the crisis, although un-zoned land prices fell by as much as 50%. Residential property prices fluctuated, while demand for rented accommodation grew. Several pieces of legislation were introduced in 2009 to ease the process of financing a house, including a mortgage law drafted at the end of the year. The luxury-housing segment remains active, with villa compounds and mixed-use projects ongoing. Numerous housing developments are taking place in the Yafour district to the west of Damascus. Commercial office space in the capital was ranked eighth-highest in the world by Cushman Wakefield, although several purpose-built office and commercial developments are under way, which will drive down the price. After the first shopping mall opened in Damascus in 2004, many larger shopping centres have followed. After strong initiatives from the Ministry of Tourism to encourage investment, some of the biggest regional real estate players, including Qatari Diar, Saudi Bin Laden Group and Kharafi Group, have entered Syria with tourism-related projects.
This chapter provides interviews with Saadullah Agha Al Qalaa, the minister of tourism, and Nashaat Sanadiki, former chairman of the Federation of Syrian Chambers of Tourism.
TELECOMS & IT
Syria made strides towards the target of increasing its fixed-line penetration rate. At the end of 2008, it stood at 18.5%, in line with the global average. However, customers still experience lengthy lags for fixed-line services installation. In 2006, the state-owned Syrian Telecommunications Establishment (STE) launched a three-year project to increase fixed-line access in rural areas. Mobile phones, which have a 36% penetration rate, have become a more popular medium than fixed lines for international calls. Since the introduction of mobile services in 2001, the sector has been run as a duopoly between Syriatel and MTN. A new draft telecoms law under cabinet discussion in 2010 should restructure how the telecoms sector is regulated, while the auction of a third mobile licence is also forthcoming. Affordability is a major issue in the mobile market: in June 2009, a nationwide boycott was organised to protest the price of mobile services. Post-paid users tend to pay less than pre-paid users, though more flexible billing conditions were introduced at the end of 2009. STE plans to construct a high-capacity fibre-optic network in 2011, though no contracts have been signed yet.
The Syrian ICT sector is small with less than 30 private sector companies, and the government is still regarded as the largest client. 2009 was a dry year as the global crisis impacted sales. In addition, Egypt and Lebanon have tended to offer cheaper labour and better language skills in the ICT sector, making it a challenge for Syrian companies to stay competitive. The Syrian Computer Society sponsors two ICT incubators for fledging companies as well as competitions to promote entrepreneurism among ICT students. Internet penetration is estimated at 16.8% by the International Telecommunication Union, with most customers using dial-up connections. However, there is a huge demand for ADSL services, and the total number of broadband ports was increased from 20,000 to 50,000 in H1 2009. 3G was also introduced in 2009, and each mobile operator was limited to accepting 12,000 subscribers in the initial phase.
This chapter contains an interview with Nazem Bahsas, Director-General of Syrian Telecom.
INDUSTRY
Convertible industries saw an impressive 34.1% annual growth in 2008, while industries relating to oil and natural gas grew 21.3%. However, these figures do not necessarily reflect the real economic impact of the global crisis. Domestic demand for most industrial products virtually collapsed with the onset of the crisis, falling 80% between October 2008 and March 2009. The textiles industry was hit particularly hard, and is struggling in the face of bulk supply from China. Cement production, on the other hand, has not kept up demand, leading the country to import from Turkey in 2008. The government’s 10th Five-Year Plan, which ends in 2010, has greatly increased non-oil industrial exports, due in part to the effects of the Greater Arab Free Trade Area. Despite the global downturn, FDI has remained strong at $1.3bn in 2008. Much of this money has gone to the agri-food industry and petrochemicals refining, with a $3bn refinery planned for Deir ez Zor. Syria has become a leading regional pharmaceutical exporter in recent years, while meeting 92% of local demand. The signing of an association agreement with the EU in 2010 should expand the pharmaceutical market, which has become an increasingly vital export earner.
This chapter contains an interview with Fouad Issa Al Jouni, Minister of Industry. Poul Gadegaard, Team Leader, Small and Medium-Sized Enterprises (SME) Support Programme, gives a viewpoint on the need for new institutions to encourage companies to reach a higher level of competition.
HEALTH, EDUCATION & DEVELOPMENT
The Syrian government has doubled the percentage of budget funding towards education since 2000, which has increased the primary enrolment to 98% and literacy to 92.5% among 15-24 year olds. Additionally, a growing number of educated women are entering the workforce. Nonetheless, with a high population growth rate, pressures on the education system are substantial, and the government has had to limit enrolment at public universities. The Aga Khan Development Network is supporting government efforts to increase English and IT training, while private universities have also emerged since 2001, when the education sector was liberalised. The EU-sponsored Modernisation of Vocational Education and Training programme ending in 2008 helped to expand vocation training to bridge the gap between the needs of the market and the skills of labourers. Within in the framework of a new educational initiative, the Massar Discovery Centre is slated to open in downtown Damascus in 2012 and promote interactive learning with exhibits and activities.
While Syria’s health indicators are high, certain lifestyle risk factors, including obesity, smoking and hypertension, could pose a threat in coming years. The health care system itself is in need of reform, with the absence of an effective health insurance system, low pay for doctors and a wide gap in quality between public and private medical centres. The 10th Five-Year Plan (2006-10), designed to modernise the health sector, aims to double the government’s spending on health care. Greater sector regulation is being pursued to increase the quality of Syrian medical services, with new accreditation standards for hospitals recently adopted. Demographic pressure is also affecting the health sector, but the 20 private hospitals licensed since 2003 should help fix that. A memorandum of understanding was signed in May 2009 for a $100m medical city outside Damascus.
This chapter contains interviews with Syria’s First Lady Asma Al Assad; and Dr Rida Said, Minister of Health.
TOURISM
The global slowdown adversely affected the tourism industry worldwide, with Syria no exception. Occupancy levels dropped from 61.3% in Q1 2008 to 48.8% in Q1 2009, while revenue per available room from $87.04 to $75.86 in the same period. However, the number of tourists to Syria did increase 8% year-on-year in the first eight months of 2009, nearing 4m. The ratio of Arab to non-Arab hotel guests fell from a traditional 68% to 52% as Syria became more popular with European and North American tourists, the latter following a thaw in US-Syrian relations. Le Meridien Damascus, Syria’s first five-star hotel, was bought by Turkish group Dedeman Hotels & Resorts International, leaving only two global hotel chains in the country – the Sheraton and the Four Seasons. However, several more – Moevenpick, Holiday Inn, Kempinski and Intercontinental – are under construction, with the earliest opening in 2011. The north-eastern city of Aleppo has also seen hotel development, including build-operate-transfer (BOT) projects to renovate historical buildings and a 600-year-old bathhouse. The Mediterranean coastline is also being developed, although it is primarily seen as a summer destination.
This chapter contains interviews with Saadullah Agha Al Qalaa, Minister of Tourism; and Riad Kahale, Vice-President, Arab Tourism Organisation. a.
MEDIA & ADVERTISING
Since the Syrian media sector opened for private investment in 2001, over 200 publishing licences have been granted, with another 175 on request as of 2009. Due to restrictions on freedom of speech, some publishers operate out of the Damascus Free Zone, where press laws do not apply. Baladna English, launched in December 2009, is the leading English-language newspaper, replacing the now-shuttered Syria Times. There are at least 13 private radio stations operating in Syria, but few private television channels, despite extremely high viewing figures (99% of the population). Web-based advertising has begun to propel the development of online media – however, strict censorship laws have blocked many news and information websites.
Advertising spending has increased from $18m in 2000 to $67m in 2007, while estimates for 2010 range around $150m-$180m. Print is the leading advertising format with a 44% share of the market, followed by outdoor (37%) and television and radio (19%). International firms, including subsidiaries of JWT and Ogilvy, dominate the market, and are regulated by the state-run Arab Advertising Organisation, which controls pricing and content. One impediment to advertising sector growth is lack of market research, with no concrete consumer data available since Ipsos left Syria in 2007.
This chapter contains an interview with Majd Suleiman, Chairman and CEO of United Group.
AGRICULTURE
After years of drought, more rainfall in the 2008-09 season meant increased production of some crops, including citrus fruits. Wheat and barley targets, however, were not met. The number of sheep in the country fell by 60%-80% between 2007 and 2009 due in part to a rise in mortalities related to the drought. To conserve water, the government is considering making water-efficient irrigation equipment mandatory for farmers. Cotton exports have been reduced in recent years in order to increase supplies to local textile factories. Low international prices in 2009 meant activity in one of the most valuable enterprises – olive oil exports – decreased. In 2009, the General Commission for Scientific Agricultural Research introduced breeding programmes to improve the milk yields of goats and sheep, while a new joint venture between the Syrian and Qatari governments intends to add cattle and equipment to public dairy farms. The state-run Agricultural Support Fund, launched in 2008, continues to provide subsidies to the agricultural sector.
THE BUSINESS GUIDE
OBG introduces the reader to the different aspects of the legal system in Syria, in partnership with Karawani Law Firm. Raed Karawani, Partner, Karawani Law Firm, provides a viewpoint on the need for a well-structured PPP framework.
In conjunction with ASAS for Business Consultancy, OBG explores the taxation system, examining Syria’s investor-friendly environment. Hanadi Yassin, Managing Partner, ASAS for Business Consultancy, provides a viewpoint on the benefits for family firms of becoming joint stock companies.
