Posted by Joshua on Wednesday, February 16th, 2011
What I would have loved to read in Mr. Aita’s critique of my article – What Does the Future Hold for Syria - is a road map for how Syria can achieve its objective of 7-8 percent economic growth. I was looking forward to a discussion on the role of the public sector and the merits (or not) of privatization. For the record, I am in the privatization camp. I was hoping that I would learn what Syria should do to attract the enormous amounts of foreign investments that its government has set as a top policy objective. Sadly, Mr. Aita decided to spend his energy refuting my population growth estimates and accusing me of being part of a discourse talking about Arabs who are “underdeveloped and making a lot of children”.
The population growth assumption:
In comment number 50 in my post, I reiterated to one of the readers the source and logic behind my data. The latest statistic from Damascus is sourced from end of 2009 data. My source is the UN’s population division. The tables can be accessed by visiting their population database which is under “the 2008 revision”. Readers are invited to do so themselves. Those who decide to do so will notice that the tables are listed in 5 year increments. The population growth rate for the 2005-2010 is clearly listed at 3.26%.
Mr. Aita explains that this number is due to the sudden rise of the population in 2006-2007 as Syrian experienced the arrival of around 1.5 million Iraqis. If Mr. Aita is correct in his hypothesis that Iraqi refugees are behind the 3.25% and that Syria has no population problem to worry about then great. Perhaps he should arrange for a meeting with the country’s health minister and assure you him of such since he said the following just a few days ago:
واعتبر الوزير تسارع النمو السكاني مشكلة كبيرة، وسيتم التعامل معها بجدية في هذه المرحلة، من خلال التعاون مع هيئة تنظيم الأسرة للعمل على تخفيض نسبة الولادات، مشيراً إلى أن هذه المشكلة لا تؤثر على القطاع الصحي فحسب بل على كافة القطاعات، ولذا فإن معالجتها لا تنحصر بوزارة الصحة بل هي قائمة على تعاون جميع الوزارات مع بعضها البعض، ولا يكفي تحديد النسل بل يجب نشر الثقافة والتوعية من خلال السلطات الدينية
The health minister is not alone of course. Various government officials including the Prime Minister himself have warned of high population growth rate over the past few years. Hopefully, they don’t also belong to my group of people who are accusing Arabs of being “underdeveloped and making a lot of children”.
Where Mr. Aita does agree with me is on the low participation rates for women. Not only does he repeat my point here but he goes a step further and informs us that:
“Not only is the participation of women in the labor force low in Syria, but it has declined significantly!”
It would have helped of course if he would have shared with us his reasoning of how the low and falling labor participation rates for women would be consistent with a falling population rates to 1.69%. I was under the impression that a population rate of as low as 1.69% for Syria would be consistent with much higher women labor participation rates especially that day-care help is not widespread in our society. This was again a missed opportunity for us to learn more from Mr. Aita.
I have spent almost 20 years analyzing the relationship between economic growth and the performance of the labor market in the U.S. My note for Syria Comment was not a research paper on growth-employment dynamics. If he felt that my argument was too simplistic then he ought to know that this was precisely what the objective was. Of course, employment and growth are not automatically or perfectly correlated.
That a person with Mr. Aita intellect would say that I want “consciously or not – that Syria follows the fate of Egypt” is indeed astonishing as he himself phrased it.
We are told that consecutive Egyptian governments have tried to increase growth and reduce the population growth rate as their only slogans for “more than two decades”.
This is an inaccurate statement.
Egypt failed to grow its per capita nominal income for nearly two decades. The country’s average nominal GDP per capita was little changed at $2160 in 2009 compared with $2155 in 1989. The economic reforms did not start till 2004 when the former President was finally convinced that he needs to do something to increase growth. Thanks to corruption and cronyism these reforms never trickled down and the simplistic per capita nominal income does a fine job at explaining why Egypt has struggled of late.
Mr. Aita and the IMF article IV seem to know more about the extent of the subsidies in Syria than the government itself. I do stand by my $8 billion number.
Politically speaking, reducing the subsidies in this environment is not going to be easy as I alluded to in my post. This does not make the subsidies a sound government policy. Subsidies distort the price signals that allocate resources efficiently in an economy. This is a fact. As for the public sector, Mr. Aita defends the sector and the people who decide to seek employment in it. Indeed, Syrians are rationale individuals. The public sector is a magnet for those in the labor force. Government jobs come with a formal contract, health insurance, retirement benefits, maternity leave, “and a minimum level of dignity even when the salaries are low”. It is of course also a job for life so it comes with tremendous security that the private sector will not match. While no one disputes the above, this is hardly a rationale or an endorsement of the sector as a viable economic model.
My “dependency on the state” comment:
The readers seem to have responded negatively when I inferred that the Syrian public has grown dependent on the state. This is fair. Perhaps a better way to have phrased my idea was to say that the state has made the public dependent on it. Most government programs are easier to get into than getting out of. Subsidies and publicly owned enterprises are no exceptions. The Syrian state spends an enormous amount of subsidies on basic commodities and especially energy products. The public criticizes the government for the lack of services ignoring the cost of subsidies and state employment costs. Were the state to have the hindsight of 20/20, there is very little probability that it would have designed such a subsidy system in the first place. I strongly believe that it would not have chosen to be in the business of running so many businesses either. Regrettably, it did.
There is no doubt that the subsidies help cushion the gap between income and expenditures for the low income groups. While the poor benefits, the rich benefits by more. The average Syrian family consumes 600 liters of mazot per year. The range of consumption is 200 to 2000 liters. The government has recently raised the price per liter from SYP 7 TO SYP 20. The family that consumes 200 liters had to endure an extra outlay of $56 a year. The family that consumes 2000 liters (presumable the wealthy), had to incur 10 times that.
Total subsidies on total energy products (including electricity and fuel) add up to approximately $5.6 billion a year.
How does an average family benefit from say Mazot subsidies?
Given that the average consumption is 600 liters, monthly outlays on mazot add up to SYP 12,000 a year or SYP 1000 a month. The statistics office has recently announced that average median family expenditure on all items is close to SYP 30,000 a month. This means that spending on energy is 1/30 of monthly family spending on all items. The people who benefit from the subsidies are therefore not necessarily the average and poor income families. It is the industrialists who use cheap subsidized fuel and electricity to power plants. It is the smugglers who empty their tanks across the border.
When it comes to electricity, it costs the government SYP 8 per kilowatt. It is sold to households for SYP 2 and to industry for SYP 4. The higher rates only apply when one consumes as high as 2000 kilowatts. It is easy to do the math. There are 5 million household and 3.7 million independent dwellings in Syria.
Education is free in Syria. It should be for the poor. But why should the wealthy end up getting the same benefit. My own parents did not need the subsidies to send me to a Syrian university. The money that they received in my subsidized education at the time should have gone to a hospital or to an infrastructure project.
In sum, subsidies cannot be a blanket right for every Syrian citizen. The government must find a way to do a targeted approach where only the needy receive the help they so desperately need. Robbing from paul (hospitals, roads, infrastructure) to give to peter (my parents who can afford buying sugar, rice, mazot and electricity at market prices) does not strike me as a sustainable business model. With time, the government will go broke opening its subsidy checkbook to 23 million Syrians and growing.
More on the Syrian PMI:
Having checked my name following the posting of my note, Mr. Aita came across the realization that I was “a specialist in financial derivatives”. That discovery seems to have raised his concerns about the fate of our beloved country that has “charged” a person like me with publishing a “reliable” indicator. Mr. Aita should take comfort from the fact that The Syrian government is not directly or indirectly involved in this project. Both Banque Audi and I were not charged by anyone with carrying out this project.
The PMI stands for the Purchasing Managers Index. I have been following this economic indicator since the mid 1980’s. It is widely monitored by both policy makers and global investors. Over the past few years, the index was developed for an increasing list of economies thanks to its simplicity and timeliness. Over time, the index does an excellent job at tracking a country’s GDP. More specifically, it helps indicate whether business conditions in a country are improving, decelerating or staying the same this month versus last month.
Like many developing countries, Syria suffers from the lack of timely data. Following a personal meeting with the chief Executive of Banque Audi –Syria during one of my visits to the country, a discussion took place about the merits of looking into whether such an initiative can take place in Syria. After a few months of discussions, we decided to undertake such an endeavor. Those in charge of calculating the index in the U.S, Saudi and the UAE were contacted. The formulas and methodologies were checked and agreed upon. The success of the index will be based on the response rate from Syrian businesses. This was explained during a meeting with key business owners back in December. Senior members of the Syrian government were notified and were present during the launch. It is important to reiterate that this is a private undertaking. The Syrian government has not “charged” anyone to carry out this effort. Government officials have made it clear that they will support and encourage similar private initiatives and that the presence of Mr. Dardari at the launch was not an exclusive endorsement of this project at the expense of other similar future endeavors. The role of the Syrian government, and especially the office of Mr. Dardari, was exemplary. They supported the project but at an arm’s length. Lastly, it is worth noting that Saghir Advisory Services was recently created just to carry out this none-for-profit initiative. More details especially under the frequently asked questions (About Us tab) can be found by visiting this website.
The U.S. Purchasing Managers Index (PMI) has recently been renamed the Institute of Supply Management (ISM) report on business:
The Syria PMI is modeled on the US version and will use the same exact methodology.