Posted by Joshua on Friday, October 6th, 2006
Economy Tsar claims Syria’s growth will climb to 5% next year. The Economist seems to be claiming that Syria is reforming – at least economically. We shall see.
In other news, Syrian authorities claim that the embassy bombers were home grown extremists. Three of the four were family members. “While not affiliated with known terrorist groups, the men had attended religious lessons in Saudi Arabia and were influenced by the United States’ role in the region and perceived bias for Israel, the ministry said.” Here is the Economist article, kindly sent by Atassi.
Syria: Return of the reformer
16 October 2006
Economist Intelligence Unit – Business Middle East
The Syrian president, Bashar al-Assad, has signed a slew of new decrees on the economy, including one that will pave the way for the creation of a stockmarket
Of the two principal aspects presented by Mr Assad, the one associated with liberal economic reform has for some time been overshadowed by that of the political spoiler, repressing dissent at home and exercising a malign influence in Lebanon and the Palestinian-Israeli arena. However, the start of October has seen a return of the economic reformer, with Mr Assad signing seven decrees approving legislation on the exchange rate system, taxation, the budget, the management of the public sector and the proposed stockmarket. The measures are all aimed at enabling Syria’s transition to a market economy and at equipping the country to deal with the financial implications of the rapid depletion of its oil reserves.
The most elaborate of the new decrees was No 51, comprising 29 amendments to Law 24 of 2003, which brought the top marginal corporate tax rate down to 35% from 65%. The amendments include provision for a further cut in the top tax rate, to 28% on net profit exceeding S£3m (US$58,000). The tax on profit of between S£1m and S£3m has been set at 24%; the other rates are 20% on profit of S£500,000 to S£1m, 15% on earnings of S£200,000 to S£500,000 and 10% for profit up to S£200,000. Public-sector enterprises, including the state oil and gas companies, will be subject to a fixed 28% tax on their net earnings. Private companies that offer at least 50% of the share capital for public subscription will only have to pay 14% corporate tax, and will be exempt from paying local taxes. There is also a 22% rate applied to the profits of companies set up under investment incentive legislation (to which these firms are presumably liable after their tax holidays have elapsed). Hotels and restaurants will be required to pay a 2.5% turnover tax and a 0.5% salary tax in lieu of tax on their profits. The next two decrees are also aimed at stimulating investment, as they entail lowering tax rates on the sale and rental of real estate.
The new rates take effect from January 1st 2007. The IMF noted in its recent Article IV report that the total corporate tax take had not declined following the earlier cut in the top rate, suggesting buoyant profits and some success in combating evasion.
Mr Assad has also approved a new basic finance law, the main significance of which is that it separates the operations of the public enterprises from the state budget. As of 2008, state-owned firms will be granted autonomy from the Ministry of Finance, and will be entitled to retain profits for reinvestment. They will pay corporate tax and will have the discretion to award dividends to the state, but they will no longer have to submit all their profits to the Treasury and rely on the state budget for their investment needs. The law replaces legislation that has been in effect since 1967. Other elements in the new law include giving the finance ministry complete control over the drafting and operation of the budget, in respect of both current and capital operations, enabling the budget to be managed on an accrual rather than a cash basis, introducing double-entry book-keeping and arranging budget categories by economic activity rather than government department.
The government is also planning to introduce value-added tax (VAT) in 2008, and is reviewing its system of petroleum price subsidies, which the IMF has described as unsustainable.
Since assuming power in 2000 on the death of his father, among Mr Assad’s most notable achievements in economic policy has been the opening of the banking and insurance sectors for private investment. His pledge to deepen financial sector reform through the establishment of a stockmarket also now appears to be closer to being realised. The early-October decrees include Law 55 covering the creation, operation and regulation of the proposed Damascus Stock Exchange. The text was prepared by the Syrian Securities and Exchange Commission, which was established by a law passed in 2005 and is chaired by Mohammed al-Imady, a former economy minister. The passage of the law means that the market is likely to commence operations in 2007.
Invest Group Overseas (IGO), a finance company based in the UAE and headed by Mowaffaq al-Qaddah, an expatriate Syrian businessman, has signed a Memorandum of Understanding with SSEC for the construction of the stock exchange buildng in the Eighth Gate, an estimated US$500m development being carried out at Yafour, on the outskirts of the capital, by the Dubai-based Emaar Properties. Many Syrian companies, including the leading mobile-phone operator and all of the private banks, have raised equity through initial public offerings, and such firms are likely to be among the first to list on the new market.
Meanwhile, Abdullah al-Dardari, the deputy prime minister for economic affairs, has said that he expects real GDP growth to reach 5% in 2006, compared with 4.5% last year.
Shell Oil Company has been rewarded the contract to explore for oil and gas in two areas of Syria. Shell has produced two billion barrels of Syrian crude in the 25 years it has been operating in the country. A 20-year agreement was signed late on Wednesday at the oil ministry granting Shell the right to explore and share production in the Amouria bloc near city of Deir al-Zour and in the Buthaina bloc south of the ancient city of Palmyra. Under the contracts Shell will spend $42 million.