Country Profile:
Syria
Syria
Syria is considered to be one of the 15 nations that comprise the so-called cradle of civilisation. It is widely regarded as an area where the first non-nomadic, agrarian societies were established. The importance of agriculture is still seen today, with 26% of an active workforce of 5.5m working in the sector. The industrial sector is the second-largest employer, with nearly 16%, and, as a result of economic reforms, this number is steadily increasing. The other 58% of the workforce is employed in the services sector. With nearly 65% of the population under the age of 25 and the labour market absorbing only some 200,000 graduates a year, many are finding it difficult to find employment and some 14% of the active workforce is unemployed. As Syria continues to grow, however, its young, educated population will be an important contributor to development. The country is moving steadily away from a state-controlled economy and now enjoys private banking and insurance services. A stock exchange opened in 2009.
ISBN: 1-902339245
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
Since President Bashar Al Assad took office in 2000 Syria has undergone a number of significant changes, including the introduction of private banks, the opening of a stock exchange in March 2009 and increased liberalisation. But one of the biggest changes has been its improving relations with the rest of the international community. Notable visitors to Damascus since late 2008 have included French President Nicholas Sarkozy and British Foreign Secretary David Miliband, while Al Assad has accepted a number of invitations to Europe. Thawing relations with the US have been particularly striking, with both countries reaching out to establish closer ties, although a number of roadblocks remain in the partnership. Syria has insisted on the return by Israel of all its Golan territory, occupied by the Jewish state since 1967 and later illegally annexed. The US, for its part, has been seeking to loosen the ties between Damascus and Hezbollah, the Lebanon-based resistance movement and political party, as well as the Hamas party in Gaza. Still, both sides appear more ready to engage in serious dialogue than they have in years. One of the biggest beneficiaries from rapprochement would be the Syrian economy. Despite being in a state of virtual siege by the international community, Damacus has survived, but investment and commercial exchange for Europe would be very welcome. Additionally, the deputy prime minister, Abdullah Al Dardari, has said that the US should lift its sanctions to further improve US-Syrian relations. As the political situation continues to improve and the economy progresses in its transition to a free market, increasing opportunities will become available.
This chapter provides interviews with Prime Minister Muhammad Naji Al Utri and Bernard Kouchner, the French minister of foreign and European affairs.
THE ECONOMY
In the past five years Syria has undergone an economic transformation, shifting away from central planning towards a true market economy and reducing dependence on oil. A steady process of liberalisation has allowed for the proliferation of new products and the private sector appears increasingly capable of utilising Syria’s competitive advantages. Combined with a recent trend towards improved international political relations, the stage is set for Syria’s full integration into the global economy. GDP growth is expected to stabilise at around 6.5% in the medium term, a figure that is higher than growth forecasts for the rest of the region. Wholesale and retail trade, finance and insurance are all sectors that have shown strong growth in recent years and there is still much potential for the production of raw materials. Agriculture continues to make a big contribution, although yields have been low in the past two years because of drought. A combination of increased oil revenues, tax reforms and a partial lifting of subsidies helped to maintain the public accounts in 2008. Total government debt has fallen substantially, from 133% of GDP in 2002 to a projected 40.7% in 2008, with the IMF predicting that it could fall below 35% of GDP in the medium term, with the fiscal deficit stabilising at 3% of GDP. Syria will continue to move towards a social market economy under the current five-year plan, which runs from 2006-10.
This chapter provides interviews with Abdullah Al Dardari, the deputy prime minister for economic affairs, and Sebastiano Maria Del Monte, the Italian trade commissioner at the Italian Embassy in Damascus. Ahmad Hassan, the project director at the Institutional and Sector Modernisation Facility, provides a viewpoint on economic reforms. Poul Gadegaard, the team leader of the Small and Medium-Sized Enterprises (SME) Support Programme, provides a viewpoint on enhancing the business environment. Nabil Sukkar, the managing director of the Syrian Consulting Bureau for Development and Investment, provides a viewpoint on social market economics.
BANKING
Syria’s banking sector has been transformed beyond recognition in the past five years as a series of reforms has led to increasing liberalisation and development. Since legislation passed in 2001 permitting the establishment of the first private banks since 1960, 15 have opened, including three Islamic banks. The banking sector has averaged annual asset growth of 7.9% since 2004 and total assets reached S£1.67trn ($32bn) in September 2008, or 69% of GDP. Annualised asset growth for the first three quarters of 2008 was 6.3%. This solid growth has mainly been driven by a dramatic increase in deposits, which have averaged annual growth of 29% since 2004, reaching S£1.03trn ($20bn) in September 2008, or 42% of GDP. The new banks are expanding the number of products offered, including housing and car loans, credit cards and retail lending. Corporate and trade lending is well established and banks are beginning to focus on increasing microfinance and SME lending. Private finance, advisory and banking services are also being expanded. Still, the sector is relatively underdeveloped, which should help to protect it from the international financial crisis. However, remittances and investment, particularly in real estate and construction, may be negatively affected. Nevertheless, the government is working to increase the sector’s profile and a number of opportunities are available, including the major task of restructuring state-owned banks. Syria lags behind in the region in terms of branch coverage and human resources, but further investments and reform should help bring it up to speed.
This chapter provides an interview with Adib Mayaleh, the governor of the Central Bank of Syria. Bassel Hamwi, the deputy chairman and general manager of Bank Audi, provides a viewpoint on the need for sector expansion.
FINANCIAL MARKETS
The opening of the Damascus Securities Exchange (DSE) on March 10, 2009, is a significant step towards formalising the Syrian economy and offers great potential for growth. The stock exchange is initially to be divided into two markets, a “regular” market and a “growth” market. To list on the regular market, banks and insurance companies that are already joint-stock companies will be required to have a minimum of S£300m ($5.8m) capital; more than 300 shareholders; two years of profits greater than 5% of paid-up capital; 20% publicly held capital; more than three years of operations; and a ratio of net shareholder equity to paid-up capital of 100%. The growth market will require companies to have a minimum capital of S£100m ($1.9m); at least 100 shareholders; a minimum of one year of breaking even; 10% of the capital held publicly; and two years of operations. Companies that list will be required to disclose reliable information on their performance, which will in turn convince banks to increase lending to individuals and corporations. Although some private firms have been reluctant to give up their control, particularly since many companies are family-owned, the government is working to provide incentives to those considering converting into joint-stock companies. According to the DSE, by February 2009 there were 14 that were eligible to list on the exchange, eight in the regular market, with a total market capitalisation of S£15.1bn ($293m), and three in the growth market, with a total market capitalisation of S£1.8bn (35m). The remaining three have not yet been assigned. The DSE will be monitored by the Syrian Commission on Financial Markets and Securities (SCFMS), which was established in 2005 and is responsible for surveillance, control and regulation of the issuance of shares in the primary market, such as IPOs and rights issues, that are then listed on the DSE. To create a stable stock market a maximum daily price movement restriction of 2% has been placed on stocks, and buying and selling a stock on the same day has been prohibited. If more private sector firms can be persuaded to list, the DSE will offer sizeable opportunities for raising capital and investing.
This chapter provides interviews with Mohamad Al Imady, the chairman of the Syrian Commission on Financial Markets & Securities, and Ratib Shallah, the chairman of the DSE. Mazen Mourtada, the managing director of Syrian Financial Group, provides a viewpoint on investment and transparency.
INSURANCE
Since the liberalisation of the insurance sector in 2006, 13 insurance firms, including two sharia-compliant ones, have set up shop alongside the Syrian Insurance Company (SIC). Under the SIC annual premium income growth had remained relatively modest, reaching S£6.7bn ($130m) in 2005. In 2007, the first full year of operations for some private companies, total premium income increased by 25% to S£9.3bn ($180.6m). Growth continued to accelerate through 2008, with premium income reaching S£8.9bn ($172.8m) in the first three quarters, which represented growth of 35% on the same period the previous year. The Syrian Insurance Supervisory Commission has said that it hopes the market will be worth about $505m by 2010. The SIC has lost market share to new companies, taking 43% of premium income in 2008. The most successful private firm thus far has been the National Insurance Company (NIC), which took premium income of S£1.4bn ($27.2m) in the first three quarters of 2008. This is a 16% share of the market and growth of 142% on the same period of the previous year. NIC has achieved its strong figures by dominating the rapidly expanding compulsory car insurance market. Compulsory third-party car insurance accounted for 42% of premium income and comprehensive insurance accounted for 19% in 2008. Following car insurance, fire, transport, engineering and liabilities are among the next largest sectors. Health and life insurance are still relatively small, but they have been expanding rapidly: 84% and 191%, respectively, over the first three quarters of 2008.
TRANSPORT
Although the country has historically been a major crossroads for international trade, Syria’s status as a regional transport centre has seen some challenges in recent years, largely due to underinvestment. Now the country is in the process of reinstating itself as a gateway to the Middle East. The government’s 10th Five-Year Plan (2006-10) makes developing transport infrastructure a high priority, allocating around $1.5bn to the development of a nationwide multi-modal transport network. In addition to rehabilitating existing infrastructure, new ports, airports, railways and roads are under construction. Though the sector remains predominantly state-run, private investment is taking off as the government promotes public-private partnerships (PPPs) and foreign direct investment (FDI), and as build-operate-transfer (BOT) contracts are increasingly being used to develop large-scale projects. Significant upgrades are being made to much of the country’s infrastructure, including the Tartous and Latakia container terminals and the Damascus airport. Rail and road networks are being expanded, to provide better links both domestically and internationally. Though the global economic downturn will likely hamper investment in the short term and perhaps delay certain projects, Syria will continue to attract significant investment, based on its strategic positioning and increasingly business-friendly policies.
This chapter provides an interview with Romeo Salvador, the general manager of Tartous International Container Terminal.
ENERGY
Recent discoveries, successful development of its hydrocarbon reserves and an improved regional outlook have created the opportunity to reinvigorate the Syrian energy sector. Oil revenues remain a crucial economic resource, although Syria has successfully weaned itself off oil dependency. The oil sector accounted for 23% of government revenues, 20% of exports and 22% of GDP in 2008. Although average oil production has declined since its peak of 610,000 barrels per day (bpd) in 1995, it is expected to increase to between 380,000 bpd and 385,000 bpd in 2009, up from 369,000 bpd in 2008. The downward trend has been bucked by discoveries made by the UK company Gulfsands and improvements at other oil fields undergoing redevelopment. New refineries, gas processing plants and pipelines are in the process of being constructed, thereby enhancing the country’s ability to transport and add value to oil and gas products. As of 2009, 15 production-sharing contracts (PSCs) had been signed with international oil companies. The PSCs commit companies to drilling and seismic surveys and outline the terms of the joint venture with the Syrian Petroleum Company if commercial discoveries are made. In addition to oil, Syria also has natural gas reserves of 309bn cu metres (cbm). Recent discoveries could add close to 20m cbm per day to current production levels. There are currently four processing plants under construction. While the energy sector is strong, it does face some shortages, most notably in retaining qualified local staff and the increasing strains on the power grid. Demand for electricity has increased steadily in recent years and is expected to continue rising, with forecasts of 49bn KWh in 2010 and 94bn KWh in 2020. Generation capacity currently totals 8000 MW but this is barely sufficient to meet demand, and a programme to increase capacity by 5500 MW between 2008 and 2012 has been launched. Plans have been slow to get off the ground, but the government will invest $1.5bn in developing renewable energy sources, with the intention to produce 5% of the country’s energy needs by 2011. Nuclear power is another option, although plans have been met with scepticism from the international community. Syria’s energy sector has room for growth, but the government will need to be fully committed to the development of infrastructure to bring the resources on-line and develop the nation as a regional transport conduit.
This chapter provides interviews with Sufian Al Alao, the minister of petroleum and mineral resources; Nabil Kuzbari, the chairman of Cham Holding; and Ole Myklestad, the general manager of Syria Shell Petroleum Development.
TOURISM
Syria is becoming an increasingly appealing tourist destination, with European travellers beginning to visit in higher numbers. There was a 15% year-on-year (y-o-y) increase in the number of visitors between 2007 and 2008, and tourist expenditure for 2008 was SP174bn ($3.4bn). Although 74% of tourists come from Arab countries, the European and American segments have been growing, up 32% y-o-y in October 2008 alone. Additionally, French President Nicholas Sarkozy and British Foreign Secretary David Miliband’s visits in 2008 have increased Syria’s reputation as a stable destination for Western travellers. Syria offers a variety of attractions, such as coastal and mountain regions, historical and cultural sites, and religious destinations for both Christians and Muslims. Upmarket accommodation has traditionally been based in Damascus, but new hotels are also being built outside of the capital, with the coastal resorts of Latakia and Tartous expected to see a rise in visitors in the next five years. Notable projects include Qatari Diar’s $350m Ibn Hani Bay resort in Latakia, Kempinski’s Hotel Sulaiman Bacha Khan, Hotel Damascus and Hotel Al Hayat, the Intercontinental Damascus and Rotana’s Afamia Rotana resort. One of the biggest challenges Syria faces is supplying the human resources to handle the influx of tourists. At present, state-sponsored training delivers 700-800 staff each year, but an extra 50,000 are needed to meet the needs of all developments in the pipeline until 2010. To fill the spaces the government is creating more training centres, which is hopes will be sponsored through private sector investments. Securing this financial support is crucial to Syria’s ability to meet international standards. With tourist arrivals expected to continue to rise in 2009 developing human resources will remain at the top of the sector’s agenda.
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.
REAL ESTATE & CONSTRUCTION
In recent years, the supply shortfall for residential, office, retail and tourism real estate has fuelled both a surge in construction and a rise in prices. For the residential sector, Syria’s population growth rate of 3%, coupled with a large-scale influx of Iraqi refugees, contributed to housing shortages. The residential market has traditionally been driven by the public sector and despite opening up to private investment, the state is still very much the dominant player. By far the majority of demand is from the affordable housing segment, although private developers mainly focused on the luxury projects in 2008. A number of projects are in the works, many of which seek to offer an escape for wealthy Syrians looking for homes outside Damascus. New developments include the Palmyra Real Estate Development’s Jasmine Hills and Emerald Hills, the projects in Yafour and the Saudi Binladin Group’s Palm Village in Sabboura. The residential market forms the backbone of Syrian real estate, but there is also room for development of office and retail space. The shortage of office space has made Damascus the eighth-most expensive city to rent in worldwide, but new projects should help to add supply and bring down costs. As the economy has begun to open up retail has also become an important segment, with increasing numbers of foreign brands entering the market. Consumer demand is strong and a number of new mall projects are in the works at present. Although real estate prices were estimated to have fallen by up to 20% in the second half of 2008 and are predicted to fall in 2009 by around 10%, there is still great potential in housing, office and retail space, and with demand continuing to grow, saturation seems to be a long way off.
Despite a raft of development projects announced in recent years, in 2008 much of Syria’s potential in the construction sector remained unmet. Much media fanfare is made of new projects signed but only a relatively small number have broken ground. Those experiencing delays include some of the biggest projects announced to date, such as the $15bn Syrian Bonyan City by Dubai-based Bonyan International Investment Group and the Souk Al Hijaz project, a $100m commercial project by Cham Holding. The government has made significant progress in its efforts to improve the investment climate for real estate development, including reforms that allow developers freer range over their master plans and zoning, but obtaining all the necessary permits and licences to start work can still be time consuming. Rising labour costs and volatile raw materials costs have also put some pressure on the sector in recent years. Still, there are a number of new projects in the works and Yafour, in particular, has progressed significantly, with 25% of the first phase of Emaar’s Eighth Gate completed at end-2008 and the rest of the first phase projected to finish up by end-2009 or early 2010. The government continues to show that it is committed to making Syria an attractive investment destination. However, developers would like to see greater legal clarity and more unified planning. With the global financial crisis leading some developers to reconsider the scale of their projects in the upcoming year, the government needs to streamline bureaucracy and ensure that lengthy delays are reduced.
In this chapter Michael Dunn, the chairman of Michael Dunn & Co, provides a viewpoint on differing dynamics.
INDUSTRY
Industry remains a pillar of the economy: the sector contributed 25% of GDP in 2007 and is growing at an annual rate of 4.5%. With the government’s 10th Five-Year Plan (2006-10) focused on moving the country towards a social market economy and diversifying away from hydrocarbons, industry is being transformed into an engine of economic growth. To encourage investment, the government is reorganising the sector through the construction of industrial cities and legislative reform. The opening-up to private investment of areas previously monopolised by the state, such as cement and sugar production is stimulating growth, with several significant projects coming on-line. Textiles and agri-food are traditionally the country’s main industries, and still contribute almost 70% of total industrial exports between them. Though the five-year plan continues to promote light industry, the state is looking to develop heavy industry, and the less labour-intensive segments like engineering and chemicals are growing rapidly. Manufacturing has predominately been controlled by the state since the 1960s, but gradual reforms are opening it up to private investment. Industrial cities in particular offer a wide range of incentives, such as 100% ownership for foreigners, free zones and affordable land prices. There are currently three such cities, with plans for a fourth and the eventual goal of having one such city in each governorate. Though the global financial crisis may make private investment harder to secure in 2009, the country will continue to attract significant funding, particularly as legislative reforms create a friendlier business climate. The government’s focus on the development of the heavy industries and value-added segments will increase the number of public-private partnerships and raise the value of investments. Syria will, however, need to expand electricity output to meet the sector’s growing energy needs.
TELECOMS & IT
A draft law proposed in 2008 heralded changes for the telecoms sector. Once approved and ratified, it would pave the way for the state-owned Syrian Telecommunications Establishment (STE) to be removed from its regulatory role in the sector. Instead, an independent regulatory authority would be created, which would be legally mandated to issue licences, assign spectrum and frequency, as well as regulate the sector currently dominated by the country’s two main telecoms firms, Syriatel and MTN. The law is expected to make provisions for all types of technologies and to provide clear steps as to how licences for such technologies can be awarded. It would still allow the STE to continue its monopolistic role as fixed-line operator and owner of the existing telecommunications infrastructure. At one point full liberalisation of the sector was expected by 2010, in line with a promise made to the EU, but this has since been revised. Fixed-line penetration levels stood at 17.8% at the end of 2007, with 3.45m subscribers. In November 2008 the number of fixed-line subscribers had risen to 3.8m. Another 300,000 are expected to be added in 2009 and in the future an additional 350,000 to 400,000 will be added annually. A penetration rate of 22% is targeted for 2010. Mobile telephone penetration rates, at 36%, have already surpassed the goal for fixed-lines, with an estimated 7.1m users at the end of 2008. While both Syriatel and MTN have reported strong growth figures, they are also facing challenges in acquiring new subscribers in the economic downturn. Additionally, both companies are working under 150 year build-operator-transfer (BOT) contracts under which they pay STE a portion of their revenue. The BOTs have been controversial since their start in 2008 and Syriatel and MTN hope the BOTs will be converted to licences before the entrant of a third operator next year. The STE’s prediction that this should happen in late 2009 may prove optimistic, but Syria holds a great deal of potential for a new operator. Its relatively low penetration rate in comparison with the rest of the region means there are still untapped segments of the population.
Internet usage has seen extremely rapid growth since 2000. In 2007 alone the number of subscribers grew by more than 20% from 340,000 to 425,000, while the total number of users was estimated at 3.47m. Infrastructure is still one of the main challenges of the internet sector as the public data network (PDN) is considered as running to capacity. A project to increase the internet capacity of a submarine cable between Syria and Cyprus will take place during 2009, with capacity set to reach 10 GB/s in line with the STE’s requirements. Syriatel and MTN’s launch of 3G networks will help increase access, although to see internet penetration really increase, Syria needs more digital content in Arabic. Language is also somewhat of a barrier to the country’s ambitions to become an outsourcing hub, with India and other nations having a big edge in English-language proficiency. Still, with economic liberalisation enticing the private sector, there is potential for IT outsourcing to major companies located in Syria. The biggest potential customer for private sector ICT firms is the government but to date it has not provided the level of business that the private sector would like to see. The Ministry of Telecommunications and Communication is aware of the issues and is prioritising the provision of a regulatory framework. At the end of 2008 there was a strong belief that the government is taking steps to ensure reform and that the ICT sector is poised for a period of growth and success.
This chapter provides an interview with Nazem Bahsas, the general manager of the Syrian Telecommunications Establishment.
MEDIA & ADVERTISING
The sector has been quite active since the passage of a presidential decree in 2001 authorising private investment. Some 220 private publications have been licensed since then, with the majority covering economic and cultural issues. The sector, however, remains limited by a restrictive press law, and the Ministry of Information has granted licences to just two political publications, while political radio stations are banned. Journalists continue to exercise self-censorship and even though most issues pertaining to the military, the president and other state symbols are strictly off limits, the boundaries of what is considered acceptable criticism are not clearly delineated. Despite the limitations of domestic media outlets, the advent of satellite television and the internet have enabled Syrians to access outside news sources, and information is overall much more readily available today than it was a decade ago.
With the increase in the number of private publications, printed press is becoming the outlet of choice for advertisers, accounting for about 44% of total sector expenditure in 2007. Advertising is dominated by JWT Syria, a subsidiary of US-based global advertising giant JWT and media agency Fortune Promoseven Doha. JWT Syria’s network includes big multinational corporations, such as Unilever, Nestlé, and PepsiCo, as well as regional and local brands, such as Lebanon’s Byblos Bank and Syria’s leading cosmetics company, Hamol. The remaining advertising firms are mainly small players that deal almost exclusively with local brands. As Syria liberalises, however, large multinationals are showing increasing interest in entering the market. Advertising in outdoor venues and the printed press will remain strong, but radio broadcasting and television are due to capture an increasing market share in the medium term.
In this chapter Abdulsalam Haykal, the CEO & group publisher of Haykal Media provides a viewpoint on the outlook for print media.
HEALTH & EDUCATION
Syria is on track to achieving the education-related millennium development goals. Primary school enrolment is estimated at 98% and primary school completion at 93%. However, regional disparities remain, and there is a stark difference between the national primary school completion rate and that of northern governorates such as Aleppo and Deir ez Zour, estimated at 76%. Gender equality has increased from 86% to 92% between 1990 and 2004. The government also allocates significant resources to the sector, giving 16.7% of national spending to education in 2007. The public sector is the main education provider, but the private sector is developing rapidly, particularly in Damascus and Aleppo. Though resources have increased considerably, they have not kept up with Syria’s population growth, and the sector suffers from overcrowding. The 10th five-year plan focuses on meeting increasing higher education needs and these reforms, along with the growth of the private sector, should help to ease the crowding.
