Posted by Joshua on Wednesday, April 2nd, 2008
Syrian Economy in Downturn
by Ehsani 2
April 1, 2008 for Syria Comment
According to a number of Syrian industrialists that I have spoken to lately, business conditions seem to have deteriorated markedly as of late.
Set below are some of the explanations that were offered to explain the reasons why:
1- Iraqi authorities have made it very difficult for Syrian trucks to transport goods from Syria and back.
2- Trade with Lebanon and Jordan has suffered a setback as well
3- Increased import and other duties on Syrian importers.
4- General lack of liquidity in the economy.
5- The recent slide in the dollar and its impact on trade.
The domestic purchasing power was never adequate to satisfy the industrial production capacity. Syrian industrialists have long relied on increasing demand from neighboring countries. Clearly, the drop in demand from Iraq has had a noticeable negative impact on sales of various Syrian producers. Due to the tightening fiscal situation, the finance ministry has recently increased the fees on the import of raw materials as well as finished imported goods. Such fees now make up almost 30% of the total value of such imports. Given that Syrian merchants look to turn their capital close to three times per annum, this would mean that after one year’s worth of business, fees will equal total capital committed. Such fees would require a substantial profit margin to make up for the taxes levied. The slide in the value of the US dollar and the recent gyrations in the value of the Euro have added to the risks involved with such imports. Passing on the higher costs to the already stretched domestic consumers has become a real challenge. The response of the business community has been to wait and see in the hope that conditions would improve. Nevertheless, this morning, two large manufacturers reported that they have no choice but to lay off a number of their employees. Having seen production lower for a number of months now, they have finally decided to reduce their payroll count.
On another note, the launch of the Syria stock market is now officially postponed for another eight months. Supposedly, it is due to the lack of finding a supplier of the software system that would operate the exchange. This of course was the same excuse offered a few months ago when another delay was made official. Moreover, the official in charge of the project (Mr. Imadi) has made it clear that when the market does officially start it will be for “investors” and not “speculators”. Those who buy shares on day one will not be able to sell on the same day they were purchased. Somehow, we are led to believe that if you sell 24 hours later, then you must be an “investor” and not just a “speculator”. This is total nonsense. Today, people are only allowed to sell 24 hours after they purchase. What is to stop the authorities in charge from changing the allowed time to sell for an extra week or month if sellers seem to overwhelm the buyers at the time? This initiative has been a disaster from day one. One is hard pressed to find anything optimistic to write about on this subject matter.
The average Syrian citizen is feeling the strains of rising prices and the slow lifting of subsidies. The Prime Minister has hinted a new wave of wage increases that would add close to SYP 20 billion to the budget deficit. Fuel prices (Mazot) have raised the cost of a liter of that key commodity to SYP 50 per liter. The subsidy program dictates that it is sold to the public in the range of SYP 7. This will cost the Syrian treasury SYP 1.2 billion a day. The government seems to have decided to subsidize only 1000 liters a year to each family (supposedly 82% of the family’s consume this much per annum). This will be impractical if not imposible to implement. The general rise in the cost of raw materials and inflation will supposedly be met with “an iron hand against anyone who dares play with the public’s economic well being”.
Were the government to succeed in raising the salaries of the state employees, private sector employees will not be as lucky. The high national unemployment rate will continue place downward pressure on private wages as unemployed continue to underbid the wages of the employed.
In sum, the recent performance of the Syrian economy and the manufacturing sector in particular has suffered a clear deterioration. The Government is also under tremendous pressure to contain the recent hike in prices. The subsidy program will continue to put tremendous strain on the government’s ability to meet its obligations. While most observers are happy to see Emaar ‘s latest dazzling commercial real estate brochures, it is important to highlight the fact that underneath all this, the economy’s future outlook does not look so bright.
Oxford Business Report
Having gone through a series of ups and downs over the past decade and a half, Syrian-Iraqi relations are experiencing a definite upturn of late.
In the past few years, the heaviest traffic along Syria's border with Iraq has been a human one, with more than 1.5m Iraqis seeking sanctuary over the border. However, that seems set to change, with ties between Damascus and Baghdad thawing and trade set to soar.
On March 16, Amer Hosni Lutfi, Syria's minister of economy, met with Fawzi Francois Hariri, the Iraqi minister of industry and minerals, to discuss the need to increase trade links between the two countries. Apart from agreeing to promote joint investments in the textile and agriculture sectors, the talks focused on the possibility for opening the Syrian ports of Latakia and Tartus for both Iraqi imports and as an export outlet.
Evidence of Syria's link to Iraq is the oil pipeline running from the Kirkuk fields in the north of Iraq to the Syrian port of Banias on the Mediterranean. The pipeline was put out of action in the early days of the 2003 US-led invasion and none of the bomb or corrosion damage it suffered has been repaired since.
However, on March 26, Russian energy firm Stroytransgaz announced it had signed a deal with Iraq to reactivate the pipeline, which has the capacity to carry 300,000 barrels per day (bpd).
The pipeline would do more than give Iraq another export option for its oil. If restored to full operational capacity, analysts predict transshipments would earn Syria between $1bn and $1.5bn in transit fees annually.
In mid December, Syrian Oil Minister Sufian Allaw said after a meeting with Iraqi Deputy Prime Minister Barham Ahmad Salih that the section of the pipeline running through his country had been upgraded and was ready to receive shipments, though he acknowledged that repairs to the Iraqi section could take up to two years.
The same month, Syria announced it had completed the first stage of a free trade zone covering 2.5m square metres at al-Ya'robya on its border with Iraq. According to Ahmed Abdulaziz, head of Syria's Free-Trade Zones Authority, the new facility was part of efforts to increase trade exchanges between the two neighbours.
Another development that will have a major impact on the Syrian economy in the future is Iraq's plan to open up a large natural gas field close to their joint border. In mid-March, the Iraqi oil ministry called for tenders to develop the Akkas gas field in the province of Anbar. Once operational, it is intended that some of the field's output be exported directly to Syria for domestic use, with the remainder possibly being shipped to Europe or Turkey, with Syria again a likely route for transshipment.
Another factor that may further improve Syria's trade relations with Iraq was the visit to Baghdad by Iranian President Mahmoud Ahmadinejad in early March. While in Baghdad, Ahmadinejad proposed to assist with the rehabilitation of the run-down Iraqi rail network, and in particular the establishing of a direct rail link connecting Iran, Iraq and Syria.
If undertaken, the project would allow the rapid movement of Syrian exports to Iran, as well as speed up the flow of imports by avoiding the circuitous route presently used through Turkey.
However, Syria's plans to become a major transit route for Iraqi exports could run into difficulties, not least of which are the ramping up of sanctions and restrictions from Washington.
In early March, the US included Syria on its Port Security Advisory List, meaning that any vessels that include a Syrian port among its last five points of docking could be subject to additional security measures by the US Coast Guard when traveling to or arriving in an American port.
"The latest move to put pressure on Syria was prompted by concerns over links between Syria and international terrorist organisations," US State Department deputy spokesman Tom Casey was reported as saying on March 7.
While not preventing shipping from using Syrian ports, the decision could serve to discourage some maritime lines from operating through Syria due to the delays the security measures could impose.
However, to date, US-imposed sanctions have proved to be more of a nuisance than a real impediment to the Syrian economy. With Syria's exports to Iraq having broken through the $1bn mark in 2006, and believed to have performed even better in 2007, Damascus sees its neighbour as a willing customer and, in time to come, a significant trade partner.
On the Israeli economy:
"The main basis for our buy stance on all of the four banks over here that we cover is because the domestic economy is still booming — fixed investment is growing, household investment is growing, and things actually on the ground here are not suffering. That said there's a big link between the Israel and U.S. economy so we have to be careful on a slowdown in the second half of the year. So far there are no real signs of a slowdown.''