Posted by Joshua on Saturday, December 13th, 2008
The Economist forcasts that Syria’s real GDP growth will fall from 4.8% in 2008 to 3.6% in 2009, and recovering slightly to 4.1% in 2010.
The World Bank Report Provides a lower estimate for Syria’s GDP Growth. A bi-annual report by the World Bank has forecast growth of 2.5 percent in Syria’s Gross Domestic product next year. Read
The following economic and political reports suggest that Syria is fairly well isolated from the world recession. For once, Damascus’ habitual reform footdragging paid off handsomely. The fact that the long promised stock market has yet to be launched has saved Syrian businessmen money and headache.
The terrible run up in commodity prices that threatened to force so many more Syrians into the poor house during the first half of 2008 was largely reversed during the second half. The recession has moderated the price of basic goods and inflation.
The collapse of commodity prices has a down side, however. Oil price declines will hit Syria’s government budget hard, both because of Syria’s own diminishing supplies but also because of the smaller price. Less revenue will flow into the government coffers also because the Gulf countries, which do most of the foreign investing in Syria, will hold tight to what money they have.
Here is what the Economist predicts:
Export earnings will decline by 13% in 2009–owing to the steep fall in oil prices as well as an easing in global agricultural prices–but will grow by 5% in 2010 as cotton (which together with textile products represents about 15% of exports) and some other commodity prices strengthen slightly. We forecast reasonably good harvests over the outlook period, but if drought persists it will have a significant impact on wheat and other food exports. Oil production is increasing at a number of small fields but declining at the larger, mature fields. As a result, overall production will remain relatively flat, averaging 374,000 barrels/day (b/d) in 2009 and 376,000 b/d in 2010.
Here is what the World Bank says about Syria in the latest “Doing Business” report issued a few days ago.
“Syria was the second biggest reformer in business start-up in the region” but still ranks at 137 globally in “doing business.” Syria issued a new company law and commercial code that took registration out of the court, introduced statutory time limits and made using lawyers optional. But along with these reforms, Syria also made starting a business more difficult: a 33% increase in its minimum paid-in capital requirement.
Forty-nine economies, of which 10 are in the Arab World, simplified start-ups and reduced costs. These are among the 115 economies—more than half the world’s total—that have reformed in this area over the past 5 years. The Arab economies reforming in this area are Egypt, Jordan, Lebanon, Mauritania, Oman, Saudi Arabia, Syria, Tunisia, West Bank and Gaza and Yemen…..
The third most popular were reforms to ease trading across borders. Four Arab countries reformed in this area: Djibouti, Egypt, Morocco and Syria. In all 3 areas, administrative reforms increased efficiency and transparency….
Who is reforming in 2007/08?
Syria introduced a new commercial code that simplified business start-up by abolishing the court and lawyers’ involvement in the registration process. At the same time, reforms in the tax directorate further simplified tax registrations for new business. The entry of private banks into the Syrian market sped up the issuing of Letters of Credit. This led to a reduction of 2 days in document preparation time for both exports and imports….
Arab economies WHO reformed consistently IN the past 5 years
Syria reformed 3 years in a row. It reformed in 3 areas: starting a business, trading across borders and paying taxes…..
Starting a business
Syria introduced a new commercial code that simplified business start-up by abolishing the court and lawyers’ involvement in the registration process, while reforms at the tax directorate further simplified tax registration for new business…..
Syria’s business start-up reforms have not followed a straight path. In 2006, Syria reduced its stamp duty from 1.5% to 0.5% of capital. In 2007, it made business registrations more expensive by requiring Limited Liability Companies (LLCs) to publish their memorandum of association in the official gazette. In 2008, it passed a new law and commercial code, opening the door to electronic processing. Syria also tried to harmonize its laws with laws around the world. Furthermore, Syria’s 2008 reforms included detailed explanations of legal forms while abolishing of the concept of a “closed company” in order to encourage formation of LLCs. As a result, the following aspects of business registration were also reformed:
- Court involvement in the registration process was abolished
- Decisions regarding companies’ memorandum of association were given a statutory time limit of 2 weeks
- Lawyers’ involvement in the drafting of the memorandum of association was abolished and replaced with a standard version
- Publication of the entire memorandum of association was no longer necessary; companies could simply publish a copy of their registration certificate.
- At the same time, a new directorate of taxes with reduced tax registration processing times helped further improve Syria’s business environment.
In 2006, in an effort to encourage foreign and domestic investments and increase tax collection, a new tax law was issued lowering taxes. This was accompanied by the Tax Evasion Law and other laws that carried stricter enforcement measures, including imprisonment. Moreover, the tax administration has been reformed in Syria. Tax forms were unified in 2004 and were further simplified in 2007 to conform to the new tax laws. In September 2006, preparations started for a new VAT to be enacted later in 2008 or 2009….
Which Arab economies reformed in 2007/08?
Djibouti, Egypt, Morocco and Syria reformed. Syria eased up the entry requirements for private banks which then sped up the issuing of letters of credit. This led to a reduction of 2 days in document preparation time for both exports and imports in Syria…..
Which Arab economies reformed in the past 5 years?
While Djibuti, Egypt, Morocco and Syria continued their reforms. looking back, Algeria Jordan, Tunisia, Saudi Arabia and United Arab Emirates also reformed.
In 2005, Syria started modernizing its customs offices in order to implement an electronic data interchange system, simplify procedures, increase transparency and improve the productivity of its staff. By 2006, IT divisions in several customs directorates were set up, helping to roll out new IT equipment and software (specifically, ASYCUDA from EDI), starting in four main locations. So far, two data input centers have been set up in Damascus and Lattakia to allow traders to submit declarations electronically. In 2008, these customs reforms were fortified with the easing up of entry requirements for private banks which then sped up the time it took to issue letters of credit…..
FROM THE ECONOMIST INTELLIGENCE UNIT
SYRIA: Political outlook for 2009-10
The president, Bashar al-Assad, is expected to remain in power in 2009-10 and there is no significant threat to his rule. However, there will be ongoing tensions within the ruling elite, exacerbated by external pressures.
- Mr Assad will continue the push to reduce Syria’s political isolation, but any open interference in Lebanon would work against this, alienating new interlocutors such as France’s president, Nicolas Sarkozy.
- There is unlikely to be progress on negotiations with Israel, owing to a lack of public and parliamentary support in Israel for returning the occupied Golan Heights to Syria and the forthcoming Israeli elections in February 2009.
- Syria’s drive to increase investment and boost tourism will be affected by the global economic slowdown, with real GDP growth falling from 4.8% in 2008 to 3.6% in 2009, and recovering slightly to 4.1% in 2010.
- Inflation will decline sharply from its 2008 peak, averaging 7.2% in 2009 and 8.4% in 2010, as the global slowdown depresses global commodity prices.
- The current-account deficit will widen in 2009, to around US$1.2bn (2.1% of GDP), increasing to US$1.4bn in 2010.
DOMESTIC POLITICS: Mr Assad and his ruling Baath party are expected to retain a secure grip on the country, supported by key elements in the security services, but significant challenges will nevertheless arise in 2009-10. The core of the elite is largely drawn from Mr Assad’s Alawi sect, who are acutely conscious that any move against him would risk endangering their hold on power. However, there are still tensions within the regime, accentuated by external pressures such as the UN investigation into the killing of Rafiq al-Hariri, a former Lebanese prime minister, and the International Atomic Energy Agency investigation of allegations that a Syrian building bombed by Israel in 2007 was part of a secret nuclear programme.
INTERNATIONAL RELATIONS: Syria’s international isolation is expected to continue easing over the outlook period, although gains could easily be reversed. The progress is largely a result of an apparent shift in its approach to Lebanon, including an agreement to establish formal diplomatic relations for the first time. Syria’s engagement in indirect talks with Israel, brokered by Turkey, has also prompted a cautiously positive international response.
The early fruits of these developments have included financial assistance from Gulf Arab states and a visit to Damascus, the Syrian capital, by the French president, Nicolas Sarkozy. However, Syria’s relationships with the region’s heavyweights, Egypt and Saudi Arabia, remain severely strained and there is no obvious catalyst for improvement over the outlook period.
A rapprochement with the US will also be difficult, although it is now more likely, as the president-elect, Barack Obama, has said that he is willing to talk with enemy states, including Syria. However, Syria still considers Lebanon to be within its sphere of influence and so could get entangled in fresh controversy both in the run-up to the 2009 Lebanese parliamentary election and in its aftermath, especially if the anti-Syrian “March 14th” coalition were to gain ground. A further threat is the UN Special Tribunal for Lebanon investigating the assassination of Mr Hariri, which is scheduled to begin on March 1st 2009, as senior Syrian officials are likely to be among the suspects.
POLICY TRENDS: Syria is expected to continue with a process of gradual liberalisation of its centrally planned economy, a process that has been led by the deputy prime minister for economic affairs, Abdullah al-Dardari. The overriding policy challenge will be to offset the impact of the recent (albeit temporarily checked) decline in oil production by making established businesses more dynamic and encouraging entrepreneurship and investment, particularly in sectors that can boost export earnings. As financing will be difficult to secure in the context of the global economic crisis, Syria’s spending will be constrained by its revenue, which will require fiscal prudence. The reduction in fuel subsidies in May 2008 was a significant step in that direction, but the simultaneous increase in public-sector salaries largely offset the fiscal benefits and both moves risk stoking inflation.
Although the introduction of a value-added tax (VAT) has been approved in principle, and would diversify government revenue, its implementation has been delayed repeatedly, and will now not be implemented before 2010.
INTERNATIONAL ASSUMPTIONS: World GDP growth (at purchasing power parity exchange rates) is expected to slow sharply to 2% in 2009, owing largely to the impact of recession in the US and many other OECD economies, before recovering to 3% in 2010.
The Economist Intelligence Unit has revised down its forecast for the benchmark dated Brent Blend to an average of US$65/barrel in 2009 and US$68/b in 2010, far below the July 2008 peak of US$147/b. The slowdown in the global economy will also hit the prices of other commodities, particularly food–most of the dramatic food price rises of 2008 will be reversed during 2009 and industrial materials prices will fall sharply.
ECONOMIC GROWTH: Global factors, including a downturn in key export markets, will lead to a slowdown in Syria’s real GDP growth, from an estimated 4.8% in 2008 to 3.6% in 2009, despite a partial recovery in agricultural exports (following the drought and poor harvest this year). Foreign investment will not be as strong as previously expected owing to the global economic crisis, and despite growing opportunities resulting from Syria’s increasing economic openness and improving international relations. Growth will strengthen slightly in 2010 to 4.1% as exports markets begin to recover. Growth in private consumption is likely to weaken in 2009-10, because of a drop in disposable incomes (owing to the cuts in fuel subsidies and to inflation) and a decline in the contribution from Iraqi refugees as they run down their savings, find it more difficult to enter the country and return home in growing numbers.
INFLATION: Consumer price inflation, which we estimate will have averaged 14.7% in 2008, is expected to decline but remain relatively high in 2009-10. It will take some time for the secondary effects of the rise in fuel prices (owing to the reduction in subsidies) and the 25% increase in government salaries and pensions to work their way through the economy. However, we forecast that lower fuel prices in 2009 (which may be partly offset by a further cut in subsidies) and an easing of non-oil commodity prices will help to bring down inflation to 8.6%. Any significant return of Iraqi nationals to their homeland could lower it even further by reducing demand pressures, although that is more likely to happen in 2010, when we forecast inflation will ease further to 7.6%.
EXCHANGE RATES: The Syrian pound has been pegged to a basket of currencies based on the IMF’s special drawing rights since October 2007, resulting in a marked appreciation against the US dollar. Although the new regime is less rigid than the previous peg to the dollar, the authorities remain unlikely to let the pound float freely, because they place a high priority on exchange-rate stability. The dominant position of the state-owned banks and the Central Bank’s control over foreign-currency transactions (even as some laws are relaxed) mean that the regime is well placed to control the value of the currency. The pound has declined slightly from its May 2008 peak of SP45.8:US$1, and we do not expect any substantive change over the outlook period, with the exchange rate forecast to average SP46.4:US$1 in 2009-10.
EXTERNAL SECTOR: The value of exports will be significantly affected by the change in oil prices (as oil still represents around one-third of total exports). We forecast that export earnings will decline by 13% in 2009–owing to the steep fall in oil prices as well as an easing in global agricultural prices–but will grow by 5% in 2010 as cotton (which together with textile products represents about 15% of exports) and some other commodity prices strengthen slightly. We forecast reasonably good harvests over the outlook period, but if drought persists it will have a significant impact on wheat and other food exports. Oil production is increasing at a number of small fields but declining at the larger, mature fields.
As a result, overall production will remain relatively flat, averaging 374,000 barrels/day (b/d) in 2009 and 376,000 b/d in 2010. However, the net impact of oil prices on the trade balance is limited because Syria is now importing around the same value of refined products as it exports in crude oil.
Non-oil exports are continuing to benefit from the relaxation of foreign-exchange controls, which has led to more exports moving out of the black economy and being officially recorded. Import spending growth will ease over the outlook period, owing to falls in commodity prices. Overall, the trade deficit will widen to about US$2.3bn (4.1% of GDP) in 2009, increasing slightly to US$2.6bn in 2010.
SYRIA: Foreign policy successes constrained by caution
Wednesday, December 3 2008
EVENT: Lebanese Christian leader Michel Aoun today travelled to Syria, meeting Syrian President Bashar al-Assad — the first time since fighting a bitter ‘war of liberation’ against Syria in 1989-90.
SIGNIFICANCE:Upon Aoun’s return from exile after the 2005 assassination of former Prime Minister Rafiq al-Hariri and subsequent Syrian withdrawal, he sided with Syrian allies against the Western-backed government. Today’s visit to Damascus highlights Syria’s success in retaining strategic influence in Lebanon, despite its bloody past involvement and ignominious departure.
ANALYSIS: In recent years Syria found itself almost completely isolated, with the stability, and perhaps even the very existence, of the regime becoming increasingly endangered. In addition to constant worries over Israel’s intentions, the Syrians were concerned about the intentions of the Bush administration, which did not hide the fact that regime change was, if not a central objective, at least on its ‘wish list’.
The regime deeply distrusted the Bush administration, suspecting that it desired regime change; it did not believe that the US administration was prepared to pressure Israel or otherwise satisfy Syrian aims.
*It calculated that any concessions would be met by increased demands that Syria would ultimately be unable to meet, similar to the case of Saddam Hussein’s Iraq; the regime resolved not to show any sign of weakness.
It benefited from being seen publicly to oppose the Bush administration, wildly unpopular in Syria and the region; the shaky legitimacy of President Bashar al-Assad was consolidated by his opposition to US and Israeli projects.
Relations with the Bush administration reached a low point on October 26, 2008, when US helicopter-borne commandos attacked a farm near the Syrian village of al-Sukkariyya in the Abu Kamal area, not far from the border with Iraq. US sources claimed that an Iraqi al-Qaida activist named Abu Ghadiyya was killed in the attack.
Lebanon. The events of May 2008 in Lebanon, which witnessed a demonstration of force by Syria’s allies, highlighted Syria’s dominant role; this was reinforced by the Syrian diplomatic contribution to negotiations in Doha that led to a relaxation of tensions in Lebanon
Israel.Nearly simultaneously with the Doha Agreement, it was announced that Israel and Syria had been pursuing indirect peace talks with Turkish mediation. Although the announcement was received frostily by the Bush administration, Israeli strategic thinkers appeared to have concluded — particularly in the wake of the disastrous 2006 conflict with Hizbollah — that weakening the perceived ‘Iranian axis’ required transforming Syria’s foreign policy orientation.
Europe. The developments in Lebanon and Israel encouraged European players to re-engage. French President Nicolas Sarkozy took the lead, inviting Assad to Paris in July and then convening a summit with Assad in Damascus together with the emir of Qatar and the Turkish prime minister. Since then, a regular procession of European foreign ministers have passed through Damascus, with Syrian Foreign Minister Walid al-Mouallem once again welcome in most European capitals. Syria’s long-frozen EU partnership agreement is to be signed soon; human rights objections are long forgotten.
Back-channel discussions. Despite mutual recriminations, the leadership kept its channels to the United States open, and succeeded in encouraging a number of key Democrats to re-evaluate US Syria policy. Zbignew Brzezinski, Nancy Pelosi and John Kerry all visited Damascus and met Assad; they appear to have been encouraged by the prospects for rapprochement.
ensure the stability of the regime and remove any possible US threat to its existence;
get back the Golan Heights;
restore and legitimise Syrian influence in Lebanon;
see an end to the US presence in Iraq and prevent the emergence of an Iraqi entity hostile to Syria;
and obtain economic and political advantages from an improvement of relations with Europe and the United States.
The most grandiose ambitions of the Bush administration with regard to regime change are dead, and the prospects for a rapprochement under the Obama administration appear promising.
*The United States is closer than ever to leaving Iraq.
Israeli Prime Minister Ehud Olmert is amenable to a peace agreement in which Israel would return the Golan Heights.
In Lebanon, the assumption that Syria could be removed completely from the scene has been shown to be groundless.
However, although further diplomatic and economic successes are likely, there is a significant likelihood that the full potential of the situation will not be grasped:
Syria’s foreign policy has long been characterised by caution, indecisiveness and passivity; bold gestures such as Egyptian President Anwar Sadat’s visit to Jerusalem in 1977 are unknown.
*Negotiations have long been characterised by a hard-line, unwavering, all-or-nothing approach.
Unlike Sadat’s Egypt, which abandoned the Soviet Union for US sponsorship, Syria is not interested in a wholesale strategic shift; the main concern is to guarantee the status quo, with a minimum of concessions on domestic matters or relations with Iran, which Syria sees as counterbalancing the West and thus creating space for independence in decision-making.
The return of the Golan Heights, which is the one prize that could tempt Syria thoroughly to reorient its foreign policy, depends on an Israeli domestic political situation that seems increasingly inclined to the Right.
Outlook. Syria has returned to the limelight and will be the focus of intensive diplomatic activity for the foreseeable future. Syria’s importance will also grow in light of parliamentary elections in Lebanon scheduled for May or June, which could further increase the power of Syria’s allies. At the same time, it is doubtful that Syria’s dialogues with the West will augur a dramatic change in policies. After all, the experience of recent years has taught Assad that it was precisely his stubborn adherence to his positions that extricated him from isolation and consolidated his power.
Therefore, there is no reason for him to alter or abandon the stances he has taken, especially now that there are no obvious threats or constraints on Syria compelling him to do so.
CONCLUSION: Syria’s foreign policy achievements in 2008 are considerable, and look set to continue into 2009. However, while the regional and international situation is becoming more favourable, the leadership may well not take full advantage of the opportunity for transformation, preferring the safety of the status quo.
From the Economist
Syria economy: Outlook – Impact of public-sector reforms to be mixed
EIU ViewsWire, 10 December 2008
COUNTRY BRIEFING: FROM THE ECONOMIST INTELLIGENCE UNIT
Syria is expected to continue with a process of gradual liberalisation of its centrally planned economy, a process that has been led by the deputy prime minister for economic affairs, Abdullah al-Dardari. The overriding policy challenge will be to offset the impact of the recent (albeit temporarily checked) decline in oil production by making established businesses more dynamic and encouraging entrepreneurship and investment, particularly in sectors that can boost export earnings. As financing will be difficult to secure in the context of the global economic crisis, Syria’s spending will be constrained by its revenue, which will require fiscal prudence. The reduction in fuel subsidies in May 2008 was a significant step in that direction, but the simultaneous increase in public-sector salaries largely offset the fiscal benefits and both moves risk stoking inflation. Although the introduction of a value-added tax (VAT) has been approved in principle, and would diversify government revenue, it has been delayed repeatedly, and it will now not be implemented before 2010.
Syria’s fiscal deficit is expected to widen to around S£173bn (US$3.7bn, or 6.7% of GDP) in 2009, before easing to S£137bn (4.7% of GDP) in 2010 as oil prices increase and tax revenue grows. Although fuel subsidies were reduced in 2008, public-sector salaries and crop purchase prices were both increased, largely offsetting the fiscal savings. The remaining fuel subsidies are still a significant fiscal burden, particularly as Syria imports much of the refined products that it uses. When VAT is introduced—now officially delayed until 2010 and likely to be at a rate of around 10%—there will be a considerable boost to tax revenue. The government may receive windfall revenue in 2009-10 from the conversion of existing mobile-phone contracts into longer-term licences and from allowing a third operator to enter the market.
The Economist Intelligence Unit expects the fiscal impact of the government’s public-sector reform plans, which include the transformation of state-owned enterprises into autonomous companies with their own budgets, is likely to be mixed. Although direct state revenue would fall, these firms would be required to pay corporation tax and would no longer receive state subsidies, probably resulting in a net positive impact on the public finances. The Central Bank of Syria is expected to continue to implement a process of monetary reform and gradually obtain greater autonomy. It began to issue Treasury bills on a trial basis in July 2008, and this is expected to become a regular feature over 2009-10 in order to finance development projects and ultimately the fiscal deficit. There are also plans to launch a local bond market, increasing the number and sophistication of monetary tools available to the Central Bank and helping to contain the inflationary impact of budget deficits. The Central Bank is likely to continue to reduce the restrictions on foreign-currency transactions, a process that it started in early 2008, in order to facilitate investment. These measures should also help to slowly develop and modernise the banking sector.
The Central Bank of Syria is expected to continue to implement a process of monetary reform and gradually obtain greater autonomy. It began to issue Treasury bills on a trial basis in July 2008, and this is expected to become a regular feature over 2009-10 in order to finance development projects and ultimately the fiscal deficit. There are also plans to launch a local bond market, increasing the number and sophistication of monetary tools available to the Central Bank and helping to contain the inflationary impact of budget deficits. The Central Bank is likely to continue to reduce the restrictions on foreign-currency transactions, a process that it started in early 2008, in order to facilitate investment. These measures should also help to slowly develop and modernise the banking sector.