“The Real Debate the Syrian Economic Team Should be Having” by Ehsani

The real discussion that the Syrian Economic Team should be having
by Ehsani
for Syria Comment, January 20, 2010

The recent firing of Mr. Tayseer al-Reddawi as head of the Syrian Planning commission is a reminder that the country’s economic leadership team is in the midst of an intense intellectual battle as the new 5-year plan looms.

While the differences in opinion between Mr. al-Reddawi and Mr. Dardari are interesting, the sad truth is that they don’t go to the heart of the discussion that the country’s economic planners should be having. For a true and meaningful debate to take place, the subject of privatization and subsidies should reign supreme.

In December 2009, Mr. Dardari was quoted as saying that “over the past years, economic reforms in Syria focused on trade liberalization, enabling and encouraging the private sector to play a greater role in the economic and social development of the country.” During the same interview, he concluded that “only market economy systems have the openness and the ability to adjust and cope with change, and we trust that Syria is up to this challenge.”

While Mr. Dardari has championed the market economy and has pushed for a larger role in the private sector, he has steered clear of any meaningful discussion of what to do with the state-owned sector.

To be sure, it is not easy to be on the Syrian economic leadership team. It is hard to achieve your goals when your hands are tied behind your back. The reformers are largely aware of what needs to be done on the economic front. They must realize that the public sector is in a dilapidated state and that the subsidies program is a huge burden on the state budget. This is what the Prime Minister himself said back in November:

“The subsidies cost the government SYP 720 billion over six years which could have gone to development. How many power stations, irrigation projects and roads could we have built with these funds, which went to people that don’t deserve them and who smuggled subsidized products illegally to neighboring countries? We also wonder about the size of the tax evasion as well as the size of corruption which could be bigger than the numbers mentioned above. We don’t need to borrow from abroad or to dip into our strategic reserves. What is required instead is an action plan which can be followed on the ground because we have what it takes to be on the forefront of economic challenges as we are in foreign policy. We must do the same economically.”

For Syria to match her admirable foreign policy exploits with her economic policy performance, a meaningful and immediate public policy debate must start regarding both subsidies and the state-owned enterprises.

Some 260 enterprises are run by government ministries. While the Baath party adopted the social market economic model in place of socialism back in 2005, the constitution still lists socialism as the country’s economic system. While the Syrian economy has been significantly reformed since Bashar al-Assad came to power in 2000, state-owned enterprises have been largely immune from the reform process. Government run businesses include manufacturing carpets, tires, glass, shoes, cement, beer, dairy products and bottled water. The private sector is permitted to compete with some government industries but not with others. For example, the government prohibits competition in cotton spinning, the filling of bottled water, or the brewing of beer. Beer can be imported from Lebanon or Turkey but it cannot be manufactured locally by the Syrian private sector. This makes no sense.

The vast majority of state-owned enterprises lose money. Last month, Finance Minister Hussein explained that “the government decided to write off SYP 507 billion in loans to various state-owned companies and that this write-off was the fifth since 2000.” It is important that these credit write-offs be included in the calculations of the profit and loss statements from these companies. Proclamations about the future profitability of public sector industries must be regarded with skepticism. The majority of these companies are so bloated and inefficient that it is impossible for them to compete in a free market. For years, attempts to reform the sector have been met with disappointment. These inefficiencies will not be eliminated in the future, despite government promises. The government sadly remains undeterred in its attempts to engineer a turnaround in the sector.

Syria’s New Water Bottling Plants

This week, the Minister of Industry inaugurated the opening of a new production line for the manufacture of plastic bottle tops. This factory will be the sole supplier to the four bottled water fillers that the government also owns. Syria’s bottling plants will no longer be permitted to purchase closures from private suppliers as they have done in the past. The new government factory is now a monopoly selling to another monopoly. Anyone care to guess what will happen to costs?

The private company that used to supply the tops to the four government run bottlers employs 18 people. Its manufacturing capacity is identical to the new government closure company; it runs four line. The government entity employs 270 workers for the same production capacity. The head of the new company boasts that the new addition will add close to $US 1 million in profits. This means that the profit per employee will be $3,844. Remember that this is a monopoly; it can charge what it wants. If the privately owned company employing only 18 people could charge the same price, it would turn a profit of $57,658 per employee, a 15 fold increase. The Syrian taxpayer would also not be assuming responsibility for paying the pensions of 270 Syrians for life. The Syrian people and the state coffers are being asked to underwrite the employment of an extra 252 people. A recent survey shows that the majority of citizens would like to work for the government because of the job security and pension benefits. Is there any wonder why? These are secure jobs that demand little work and provide benefits for life.

The new bottle cap factory cost 4.79 million euros — money which should have been spent on more productive investments. This example is not atypical. Billions have been spent on similar companies. Rarely has there been an economic rationale for doing so. Syria is not a wealthy country. It is not blessed with endless reserves of oil or natural gas that it can use to finance fake employment projects. The Syrian government employs something close to one out of every five wage earners in the country. It is time to start a real discussion about the merits and viability of the state-owned sector and how Syria can begin to transition away from it. This ought to stop being a taboo subject.

My Recommendation:

The private sector remains too weak to employ the vast number of laborers at the state-owned enterprises that would enter the job market if the public sector were disbanded rapidly. The economy is too weak as it is to employ the hordes of young Syrians without jobs. There are close to 250,000 that enter the labor force every year. In order to that reverse the rising unemployment the economy needs to grow at something like 7 or 8% a year. Even if the state-owned enterprises were to retrench by 50%, close to one million jobs need to be found to absorb the government sector employees. This is a formidable challenge. It explains why the government has been reluctant to privatize.

While inflation has been high, the price increases have not come from excessive real growth but from the freeing of many administrative prices and the lifting of some subsidies. The foreign exchange value of the pound has been very stable because it is linked to the SDR. As the banking system expands and lends more, it is essential that monetary policy become more expansionary to help promote growth. Inflation should not be the monetary committee’s main concern now. Instead, higher economic growth must be the goal.

Interest rates should be cut. Close to US$ 25 billion or 50% of GDP currently sits in bank deposits. The Syrian Pound is stable against the dollar; in fact, it has appreciated against it. There is room for interest rate cuts that would lower lending rates and make parking savings in bank deposits less attractive. These funds need to be invested in riskier projects that will generate employment. The government must also accept a possible weakening in the value of the Syrian currency as a result of the interest rate cuts. This will help to discourage imports, promote exports and fix the every increasing trade deficit. The central bank and the monetary policy committee must play a bigger role in promoting economic growth. They must employ every instrument at their disposal to promote sustainable economic growth at a level high enough to generate some 300,000 private sector jobs a year. The government must complement the expansive monetary policy with a continued commitment to lowering taxes (though they have already been slashed to 20% from a high of 68%). It must also continue to lower fees and untangle red tape in order to stimulate investment.

In sum, the government must embark on a shock-and-awe economic growth policy. It must generate so much growth that the private sector becomes a true and viable engine. In the meantime, it must start a public and open discussion about the bloated and unsustainable public sector; it must start to familiarize the public with the word, “privatization,” and explain how market forces work. Many countries have traveled this path. Some have been more successful than others. Syria can learn from the mistakes of its predecessors.

A Word on Subsidies:

Current subsidies put pressure on state coffers. Some estimates have put the tab at close to 19% of GDP or US$ 9.5 Billion. While it is true that many lower income families need these subsidies to survive, it is also true that those who don’t need the help enjoy the same subsidies. While the government has addressed this problem with the latest measures regarding fuel oil (mazot), the administrative demands of the program are extremely burdensome. The new 5-year plan must look at reducing most subsidies. Savings from these programs should go to increasing government worker salaries. Once the state starts reducing its assets through privatization, the remaining government workers need to enjoy a three fold increases in salaries if corruption is to be tackled meaningfully. Corruption is now inevitable. Government employees earning less than $300 a month cannot live honorably. Mother Theresa would also have succumbed to corruption had she had been a Syrian government employee living on $300 a month with 4 children. Once these salaries are tripled, the current need for a subsidies program would diminish. Rural poverty can only be overcome by economic growth.

[End]

During the previous discussion on American sanctions and how they impeded economic progress in the country, a number of commentators made the remark that changing the economic performance of Syria is a task that belongs to the Syrian government itself and not the U.S. and its foreign policy. This note seeks to address that point.

Comments (43)


1. Amir in Tel Aviv said:

“…Close to US$ 25 billion or 50% of GDP currently sits in bank deposits.”

Did you mean in private bank accounts, or in the central bank? and what is the source of this info ?
.

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January 21st, 2010, 9:26 am

 

2. EHSANI2 said:

“The Bank of International Settlement now estimates the size of bank deposits in Syria at $24 billion,” Makram Sader, the Secretary General of the Association of Banks in Lebanon, said.”

Recent articles have also mentioned numbers close to $25 Billion. Please note that Central bank reserves are exluded from this number

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January 21st, 2010, 1:16 pm

 

3. Anonymous said:

So in short, Ehsani recipe for the Syrian economy is to privatize the state owned sector so 80% of state workers will lose their jobs and at the same time cut subsidies. Is this a recipe for economic growth or a recipe for sending half the population below the poverty line??? Really.

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January 21st, 2010, 1:43 pm

 

4. majedkhaldoun said:

Two years ago I visited one goverment office as I entered one room there were six tables,each with one employee behind the table I asked to deposit money so my electric bill will be paid as I live in USA and can go there once a year, they told me the employee who handle this has not come in, I waited 4 hours and he did not come, most of the employees were talking about private things,some throwing jokes , finally one offer to help and the paper work was done in five minutes.
I felt that one employee can do the same work that has been done by all six.

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January 21st, 2010, 1:58 pm

 

5. EHSANI2 said:

Anonymous,

This is a fair criticism if the economy does not grow by close to double what it does today. I did say that the private sector and growth have to be much stronger before some sort of privatization takes place. I am not against state-owned enterprises from a dogmatic policy stand. I am against committing precious financial resources that could go to education and infrastructure budgets. If the government can do the latter without having to do the former, I will be more than happy.

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January 21st, 2010, 3:49 pm

 

6. Ford Prefect said:

What a timely post by Ehsani. Government-subsidies and government-owned enterprises are the remnant of the plague that hit Syria back in the early Sixties.

The Ba’ath plague of social engineering and communist-styled economy is what the modern planners in Syria must confront and eradicate.

Ehsani said it best: “it is not easy to be on the Syrian economic leadership team.” Indeed, one of the critical success factors is the focus first on developing a vaccine to prevent the Ba’ath plague from reappearing.

Only then, proper planning and execution can be trusted to succeed.

Cheers Ehsani for a great post!

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January 22nd, 2010, 1:56 am

 

7. norman said:

F P,
good to say you here ,

Ehsani ,

You should write under your real name , you will become famous ,

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January 22nd, 2010, 2:04 am

 

8. Ford Prefect said:

Thanks Norman – I can’t wait until I retire. Then you will see me here full time! I have only 10 more years to go 😉 (BTW, I read everything on SC – this is how I stay in shape.)

Ehsani is already famous, but he is trying to avoid the paparazzi brigades!

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January 22nd, 2010, 2:32 am

 

9. norman said:

FP,

I think we will retire at the same time , when we can get Medicare ,

you should jump in sometime , i enjoy what you write,

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January 22nd, 2010, 2:50 am

 

10. Averroes said:

Ehsani,

Excellent post. Thank you very much.

I have a question. How about stipulating that the incoming private sector provide training to the existing manpower, and possibly retain a certain percentage of the work force for a certain amount of time. For instance, and the numbers are arbitrary here, let’s say that the government stipulates that the private sector shall retain 30% of the current existing force for at least three years from takeover, and shall institute extensive training to bring them up to par. The training shall have to be approved by a specialized committee set up by a consultant firm.

Human resource development is key in this process. The work force working in the public sector has had very little incentive to develop in the past. The result is a vastly incompetent workforce that has very low efficiency. But, as lousy as they may be, we can’t just throw these people in the street without giving them a reasonable chance.

I think we can find a formula that will make economic sense to the private investor, and yet not rock the boat so hard that it threatens to sink it.

It’s going to be painful, but if we stipulate the HR development as an integral part of the privatization process, then maybe we have a chance of a viable, integrated plan.

What do you think about that?

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January 22nd, 2010, 2:52 am

 

11. norman said:

Averroes ,

my worry about your plan is the layers that it establishes , committees and consulting firms and compliance by the private sectors ,all that will open the way for more corruption and bribery ,

the way i see it is for Syria to keep things as they are in the government sector but open the way for the private sector to compete and open manufacturing in anything they want even if they will compete with the government owned factories , what i see happening is that the aggressive hard working and ambitious workers in the public sector will move to the private sector where compensation will match hard work better , then what will happen is the the public sector employees will retire and or have to work harder to keep their jobs and with less employees in their factories now that the more aggressive employees are moving to the private sector ,

We should all remember that most jobs in the US are created by mom and pop businesses not big corporation , it the plumber , the painter , the doctors , the engineering firms and the stores around the corners and the construction companies that are going to be and should be the engine of the Syrian economy ,
These can be helped by what Ehsani mentioned , (( LOW INTEREST RATE )) loans ,

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January 22nd, 2010, 3:26 am

 

12. EHSANI2 said:

Norman,

You are being way too kind.

Averroes,

The state can sell an enterprise and commit the new buyer to keep the employees for x number of years. This would mean that the buyer will pay less than if had bought the assets without this restriction. For those businesses that the State cannot find a buyer, the workers can take them for free (Turkey tried this).

Who went for more decisive action? Read here:

http://www.afrol.com/articles/23911

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January 22nd, 2010, 3:34 am

 

13. Innocent Criminal said:

Excellent post and recommendations Ehsani,

But as i am short on time i would like to quickly play the
pessimist and ask how would you avoid transferring state-owned monopolies to the handful of Holding Companies that are owned by the a handful of elite Syrian businessmen?

I hope we can agree that while economic restrictions might be loosened, corruption will remain widespread. So, how would you realistically (realistically being the key word here) suggest this plays out without the most connected and wealthy 0.5% of the nation pick up all major industries the second they are privatized?

I personally see it developing more like Russia’s first few years. where a handful of shady personalities and ex-politicians popularized the term Oligarch by ‘magically’ taking over the failing Soviet state-owned industries and becoming billionaires over night. Or better yet by having these large Syrian holding companies adding these industries to their portfolio. Basically we would shift from an ineffecient monopoly to an more profitable oligarchy. Only in Syria’s case the state will not have enough natural resources to keep the middle class growing as well.

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January 22nd, 2010, 5:23 am

 

14. Ford Prefect said:

IC, you are correct in that privatization will transfer major industries from the hand of the government to the hands of the top elite. This is inevitable as all the needed capital is concentrated up there.

But, this transfer will have a huge impact on those industries and the workers running them. To start, they must, at some point, turn a profit. Second, they must remain competitive in the face of a global consumer economy. And finally, those “elitists” must play in a global market place – from foreign exchange, to supply chain, to logistics and fulfillment.

This will result in a triage of these industries – some will fold, some will be reengineered, and new ones will emerge – all under a highly competitive marketplace. One can look at Syriatel, for example. Although it is a privileged company with a complete monopoly over the cellular market, it is being run as a profitable enterprise – with a top-notch customer service, audited financial statements, and constant upgrades to its technical infrastructure.

In privatization, unfortunately, many workers will be left behind. This is where Ehsani explained it very well: take the burden of loosing enterprises off the government’s hand and let the it focus on providing education, vocational training, and much needed services to an exploding population.

The current system is unsustainable: the Syrian government has probably reached the tipping point. It will no longer be capable of providing defense, security, free healthcare and education, and producing plastic flip-flops.

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January 22nd, 2010, 2:28 pm

 

15. just asking said:

Ehsani,

I feel that what is missing in the analysis is a discussion concerning which areas Syria has a competitive advantage. Tourism is an obvious strength and a no brainer. But what else, especially with the Syrian policy of allowing Chinese imports?

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January 22nd, 2010, 3:48 pm

 

16. EHSANI2 said:

Innocent Criminal,

You make two distinct points. When the State sells an enterprise, it must make sure that it selling the assets at fair value. As long as the new private owners don’t buy such assets at a discount to fair value, it is difficult for the state to dictate who should or should not own these companies. To avoid new monopolies, anti-trust laws are usually there to do the job. I believe Syria has already drafted such laws recently. What is fair value? For this to work, other countries have hired international and large regional investment bankers to help it value an enterprise and help it come up with proper valuation. The government does not have the expertise to do this and even it did, it is best to avoid accusations of disposing assets on the cheap. As I said earlier, some countries have been more successful than others at this.

I am afraid that the concern you raised is shared by many. This subject matter has been a taboo subject because it is viewed as too risky to touch. I think that most people realize the logic behind it but view it as a hot potato that is best left alone.

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January 22nd, 2010, 4:50 pm

 

17. EHSANI2 said:

Just Asking,

You ask a very valid question. Clearly, tourism comes first. Syria can attract large sums to invest in this sector and I think it will. Clearly, this will not be enough to address the unemployment issue. Developing countries usually start with overdependence on agriculture and light and underdeveloped industry. Such countries lack the strong domestic purchasing power to help charge their growth ahead by levels that can help their rising labor force. The only way forward is to rely on global consumer purchasing power and rely on exports to augment relatively weak domestic consumption. This is what the Malaysian
And other South East Asian countries did as part of their development turnaround.

This sounds easies than it looks. Heavy investment in infrastructure, energy and education are prerequisites. Syria’s geographic location is ideal. A large Turkish group of consumers is directly on its borders. It already enjoys free trade agreement with that country. In order to compete though, it must rely on more labor intensive industries where it has a comparative advantage. It must compliment that by very generous subsidies to exporters. The late Mr. Ozal did precisely that in Turkey starting in the early 1980’s. The results were spectacular.

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January 22nd, 2010, 5:51 pm

 

18. just asking said:

Ehsani,

I agree with what you say but there is a systematic Catch-22 that needs to be addressed. What Ozal did in Turkey could work in Syria. But Ozal succeeded because he worked hand in hand with the US. As Syria is so far reluctant to do that what are its alternatives?

Let’s face the facts. Syrian-US relations are not going to improve significantly in the next few years. Giving this constraint, what alternatives could Syria pursue? And if there is no viable alternative, what is the strategy that will hurt Syria the least?

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January 22nd, 2010, 6:19 pm

 

19. EHSANI2 said:

No question that improved relations with the U.S. and the lifting of the sanctions will be very welcome in Syria. As I wrote earlier, these sanctions are unfairly designed to punish Syria for how she chooses her allies and how she fights back against her adversaries. One hopes that the U.S. will come to its senses and reverse this policy. Am I hopeful? No. Will Syria change its strategic options and strategy if this does not happen? No.

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January 22nd, 2010, 6:47 pm

 

20. Alex said:

Ehsani,

I agree with Averroes (and with you) that a condition can be made that private investors who plan to purchase state owned corporations must retain all employees and to train them according to a carefully planned training program. THEN those who do not show marked improvement at the end of their training program can be asked to leave. How many will stay depends on the ability of the new owners to grow their business. One assumes that through better management and due to Syria’s growing population consistent growth can be expected.

Of course this can be subsidized through a reduction in the asking price of those corporations as you suggested.

Syria can experiment with this process by asking a number of HR consulting firms to handle different state owned companies and see the benefits of applying advanced human resources management knowledge in Syria… there is a rich mix of training, compensation, evaluation of skills and talents, communication, and motivation options and strategies when it comes to managing human resources and I am not sure Syria cares much for spending money on consultants to help come up with the most attractive HR strategy for each state owned corporation that might be a candidate for privatization.

As for other areas of fast growth for Syria … I see the need for establishing Syria as the India of the Middle East … software development, accounting, customer support, and graphic design services can be provided efficiently by Syria’s young population if we spend the next few years focusing on this direction.

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January 22nd, 2010, 6:50 pm

 

21. jad said:

Alex,
Adding to what you wrote I think if Syria wants to grow it should concentrate more on future-oriented industries, like light recycling industries (electrical/computer/building materials), Green industries (solar panels, wind turbines, biodegradable materials), Pharmaceutical industries(which already exists and need more support), Healthcare applications, Food industries.
I don’t believe that depending on service industries like tourism are sustainable; they are in many ways a form of wasting national resources on foreigners and leaving your country, your citizens and your grand children poor and dependable on others.
Tourism is extremely important but is not supposed to be treated as a sustainable industry.
The Syrian government is useless they keep adding mess to all fields, be it in Justice Agriculture, Industry, Tourism, Transportation, Media, Energy, Health, Education, Economy….besides, non of the ministers is willing or trying to fix anything, it’s a cycle of failure.

الحكومة تستنزف المياه السورية .. !
علي عبود – كلنا شركاء
http://all4syria.info/content/view/20362/161/

إيها السوري لم يعد إستك في الماء ورأسك في السماء
سامي يوسف رجب: كلنا شركاء
“ياحكومتنا ويامجلس شعبنا ويا أولي أمرنا : إن الشعارات لاتطعم خبزا والمزايدات لاتولد إلا الإحتقان وغياب افق حرية التعبير لايشكل إلا سببا إضافيا للتخلف وتحويلنا الى اضحوكة و(مسخرة) خصوصا لجهة المحاكمات( بسبب اضعاف الشعور القومي ووهن نفسية الأمة- شبوش لنفسية الأمة) كما ان فتح البلاد امام جحافل الراغبين بمراكمة ارباحهم واستثماراتهم سيودي بالمزيد من السوريين الى مهاوي الفقر والهم و(الرذالة) والإجرام والإنحطاط على كافة اشكاله ومستوياته ”
http://all4syria.info/content/view/20365/161/

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January 22nd, 2010, 8:31 pm

 

22. EHSANI2 said:

“I don’t believe that depending on service industries like tourism are sustainable; they are in many ways a form of wasting national resources on foreigners and leaving your country, your citizens and your grand children poor and dependable on others.”

JAD,

This is an odd statement. How would you be wasting national resources on foreigners if they choose to fly to your airports, stay at your hotels, eat at your restaurents, shop from your souks, tour around your old castles, lie on your beach, help employ all those catering to them and then head back home? I wish I owned a business like this to sell to tourists. To survive and thrive, a country needs “differential advantage”. All the other industries you mentioned are already subject to intense competition from countries who jumped on the globalization bandwagon way earlier than Syria. To suggest that we can somehow compete effectively in the global market place for these products is not easy. China cannot make souk al-hamidiye or the Aleppo castle. They can manufacture almost everything else.

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January 22nd, 2010, 8:54 pm

 

23. jad said:

Dear Ehsani,
My statement is not odd, especially when the local government is doing nothing to clean, support, maintain and sustains the wasted resources they are throwing on service industries like tourism and depriving our grandchildren of the little resources we have.
The government is doing nothing on industry, agriculture, education or media to support your statement (To survive and thrive, a country need “differential advantage”), nothing has been done to improve any of the area that will make a sustainable and long term stable economy therefore concentrating the effort on tourism is not considered sustainable and in my statement I didn’t mean not to have Tourism industry at all.

“All the other industries you mentioned are already subject to intense competition from countries who jumped on the globalization bandwagon way earlier than Syria.”
Europe and the US had cars way before Korea yet the Koreans build cars and compete in that market.
Europe starts the green technology way before China yet the Chinese are building green technology inside the US and Europe.
Ireland didn’t have any stable industry in the 80s yet now they have one of the biggest pharmaceutical research industries in the world.
What I want to say is that it doesn’t matter when you jump on the globalization bandwagon, what matter is to jump and compete and do your best. The future industries are the ones I mentioned so we better start going that way if we really want to compete in anything even in Hamidiye and Aleppo castle.

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January 22nd, 2010, 9:42 pm

 

24. norman said:

Ehsani,

i want to ask you a question ,

Why would any private individual buy the assets of a public company , aren’t the assets old and almost obsolete ,

If i were in the business of opening a factory in Syria , wouldn’t i be better off for me to buy the equipments getting the training for my employees which comes with buying the equipments directly ,
The only thing i would want from the government is tax break and tax exemption of all exports,
I would be better off ,

Alex ,
about keeping the employees and train them , isn’t that the reason that these factories are in the red , (( TOO MANY EMPLOYEES )),

I think the state should not sell the assets as i doubt they will find buyers except if it comes with new monopoly for the private investor ,which we do not want , replace the government monopoly with another ,
They should stop imposing employees on these businesses because somebody wants his cousin employed and give responsibility to the managers and hold them accountable with bonuses depending on productivity and export , i think they will do much better .

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January 22nd, 2010, 11:48 pm

 

25. Alex said:

Norman,

They are in the red because they have too many employees, because they are badly managed and because the productivity of those employees is far from optimal.

I am suggesting that those employees will be a burden on the state even if you fire them. They will still need to be supported somehow.

It is better that they get trained on skills needed at the same kind of business that employed them in the past so that when their (now private) company’s market expands (due to much better management and due to the fast growth in Syria’s population) those employees will be more and more useful … it will be better to keep them and train them for the first year or two than to fire them then to look for new employees, then train those new employees, after few years when business grows.

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January 23rd, 2010, 12:43 am

 

26. norman said:

Alex,
I do not think that the Syrian government should sell these factories ,they can keep doing what they are doing which basically a welfare , what i think they should do is to open the way for the private sector to compete in the same industries , what will happen is that the private sector will seek workers and will probably go after the public sector employees for the same reason you mentioned , they have experience , that will decrease the overhead on the public sector , and make it leaner ,
you mentioned that they are in the red because of poor management , you are right , having more employees than what you need is part of it , it is simple for me , to manage a successful business you have to cut overhead and increase sale , i do not think there is anything else , to be profitable you have to make things faster with increase productivity and cheaper and sell what you make for the best price you can get ,

The public sector can do that if they give lay way to the managers that they have then hold them accountable , you can expect them to be profitable if you hold their hands behind their back by imposing employees on them that they do not need , set their prices and having no encouragement to export ,and preventing them for buying new machines ,

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January 23rd, 2010, 1:28 am

 

27. Leo Leoni said:

Hey Norman,

What would lead one to buy assets from the government

Briefly,

1. A perception from the investor/buyer that those assets are being underpriced, and thus buying them would offer a higher ROA (Return on asset) & ROI (Return on investment). If the buyer does not hold that perception, then he would either bid less or refrain from bidding.

2. “Better for me than my competitor”. It’s a strategy to prevent the competitor buying it on the cheap, or avoid the creation of an additional competitor or strengthening of an existing one. that’s the same reason why so many people at auctions bid on items they don’t really need or want. They simply do it to raise the price on their competitors, draining them, or buying it away in order to prevent future competition.

Side points,
Thanks Ehsani
I do believe in the potential of the private sector, and do believe that the state owns too many wasted enterprises that are being run inefficiently. Privatization will be a necessary step in the very near future. I hope that
1. The steps are not taken radically the same way the private enterprises and lands were nationalized few decades ago.
2. The valuations and transfer of ownership are done by INDEPENDENT 3rd parties, to increase transparency and decrease the chance any kind of corruption, kickbacks and under the table transactions.
3. The fair chance and opportunity given to ALL Syrians to engage in the process of privatization without prioritization and nepotism. Transferring STATE companies to one or few people who are tied to the government one way or the other really defeats the purpose of this whole process.

It’s time to have a serious public debate on this issue.

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January 23rd, 2010, 2:06 am

 

28. Off The Wall said:

Dear Ehsani
I have a much longer comment, but it will take sometime to finish.

My objection to tourism is rooted in the nature of jobs that supports the industry. I am not willing to base the Syrian Economy on a sector that is well known for being the lowest paying sector to its workers. I want more Syrian’s to be well trained factory workers, engineers, programmers, merchants, but much less dependent on waiting tables, room cleaning, and portering jobs. These jobs must be done, and they are honorable, but low paying jobs. The sector must be an integral sector of Syria’s economy but I for sure do not want it to be the primary sector. This has nothing to do with pride, and all to do with what level of income I want for the majority of Syrians.

I lived for 15 years in a “snow-bird” town, which depended to a large extent on service economy. Despite of the presence of a flagship university in that town, and a major army base, the average educational level of its permanent residents, their income, and their health was well below that of neighboring more industrious towns who did not need to wait for elderly Midwesterners to come and spend the winter in a nice sunny town. The only thing that saved the town was the high demand for medical services by these snow-birds, which fostered some cottage bio-tech firms, and lifted the total town cash flow substantially and provided some high paying jobs. This is not likely to be the case in Syria. Jordan has done much better on the medical tourism front.

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January 23rd, 2010, 2:44 am

 

29. Joshua said:

Why shouldn’t Syria get into the medical tourism business? It is a natural. All those excellent Syrian doctors waiting to return to their country if the conditions were right, but not being able to because of the red tape and the inability of Syrians to pay for their services. Syria could easily under-price turkey, Jordan and Lebanon on plastic surgery and the routine procedures that are so expensive but common, such as by-pass surgery. Syria has already developed a fine pharmaceutical industry. It could recruit Iraqi medial expertise if it had to and would have much of the Iraqi public as potential consumers. There is no reason why Syrians need advanced medical attention should be going to Beirut to get it.

Norman, what would it take to convince you to set up a clinic in Syria?

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January 23rd, 2010, 4:38 am

 

30. Nicolas92300 said:

Thanks to Ehsani and everyone for this very stimulating debate; I wish Josh can put all these into a book and present a copy to the Pres + the economics team to enjoy some other sides of the debate.

A little 2 cents worth from my side:

-In regards to the employees or target assets for privatization debate, one option to consider is to incentivize these employees to quit. How? a combination of: imposing taxes on the employees of state economic enterprises, offering them free training and/or seed capital to start a business back in the village. Thses could be offered during a certain window of time, and those who do not take it will find themselves in the mercy of a new private sector owner who may or may not want to retain them with their current level of productivity.

-Other ideas on privatization, is to follow a gradual privatization period, like what is happening in the banking sector in Libya (I can’t belive I’m using Libya as an economic example, but I know this from first hand experience…, anyway); there they invited international banks to bid for 30% of a couple of local state owned banks, this 30% also comes with a management contract for 3 years. After the 3 years, the international investor ca neither terminate the contract and try to sell back their shares or have the options to buy out the balance of shares they don’t already own up to 100%. This would allow for gradual transition of the management style (local manager still a must under this arrangement to help in negotiations, passing messages, etc), and then after 3 years a full overhaul of the enterprise can be considered.

-The other option, is to sell these state enterprises to their management and employees with the help of the local banks. A local bank can help the management of structure an MBO/LBO and the govt. can be lenient with the conditions, and then let these guys decide how they can run that business efficiently; a good chunk of them will realize that they need a way out and will negotiate accordingly.

In regards to future industries, I agree that building a full economy only on services will make this economy very vulnerable (consider the UK’s situation, I know it from the inside). An industrial base is a necessity. Not all industries though, but trying to identify those where the country can have something to offer – ENERGY is one to consider, not only renewable bcs of the sunlight levels ,etc, but even conventional utilizing the networks and connections being built.

Is there any study presenting the competitive advantages of Syria in comparison to other regional economies. It would surely be worth a read, please let me know if there is.

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January 23rd, 2010, 3:00 pm

 

31. EHSANI2 said:

ذكر أن 14 شركة من شركات القطاع العام الصناعي من وضع متعثر, حيث تواجه هذه الشركات خسائر كبيرة, الأمر الذي جعلها غير قادرة على دفع رواتب موظفيها وجعل الحكومة تفكر بإغلاقها أو طرحها للاستثمار من قبل القطاع الخاص توفيرا لخسائر بملايين الليرات.

سيريانيوز

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January 23rd, 2010, 5:30 pm

 

32. norman said:

Ehsani
why specifically these companies are losing money , not just bad management , where do you see the problems ?.

Joshua ,

when i started to read your note about medical tourism , i said Hurrah , then you you put me the spot i wanted to think , so i will answer later,

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January 23rd, 2010, 6:09 pm

 

33. EHSANI2 said:

Norman,

Low salaries. Too many committees making decisions. Lack of capital to reinvest. Lack of incentives to outperform. Little risk of being fired for under performance. We should be shocked if they made money unless they have a monopoly and no private sector competitors of course.

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January 23rd, 2010, 6:34 pm

 

34. Ghat Albird said:

JOSHUA said:

Why shouldn’t Syria get into the medical tourism business?

The same challenge could be made for other business activities. An excellent opportunity lies in the recent decision by Russia to stop importing tons of “chickens” from the US claiming that the US uses “clorax” [ a toxic material to clean their chickens for export }.

At the present Syria’s neighbor Turkey is filling in the demand. A Middle Eastern/Arab “Canne Film Festival” once a year could also provide an economic stimulus.

My 2 centavos worth. Best wishes to all the Syrians in what ever undertakings they decide to apply their talents to to improve their liestyles.

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January 23rd, 2010, 7:11 pm

 

35. norman said:

Ehsani,

In the US as you know , when a company is not doing well , the management team will be fired and a new will be hired , can’t the Syrian government do the same , hire new managers for these public companies and give the manager , let us say 50,000 to 100,000 /month and a bonus if he turns the company around , that is given with a free hand to manage as he sees fit and if he wants to downsize or lay off people he should be able to do , the laid off employees can get unemployment from the government , the way things look to me is that the failure comes from interference by the political team in the management of these companies , something they do not know ,

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January 23rd, 2010, 8:28 pm

 

36. norman said:

Joshua said,
((( Norman, what would it take to convince you to set up a clinic in Syria? )))

I was thinking about your question and what my dream to do ,

I would like to establish a cancer center , small hospital included in a centrally location like Homs , with easy access to Jordon , Lebanon , Turkey and Iraq , so will need a reasonably priced land that can accommodate ,
1_ oncology center with infusion chairs
2_ Radiation center with the recent Radiation therapy machine , we use Trilogy from Varien , It has Radio-surgery , IMRT , IGRT , in my center now and we are very happy with it , so making it easy to obtain the equipment rapidly is needed to have the best machines , without import duties for medical equipments ,
other equipment i have and see good use for is Brachytherapy machine from Xoft that can finish Breast radiation after Lumpectomy for early Breast cancer in 5 days instead of the 5 weeks that needed for external beam Radiation treatment
3_Radiology center Pet-Ct Scan ,that can be used to simulate for radiation treatment and used by itself for diagnosis , MRI and other routine Radiology ,
4_ Pharmacy
5_ surgery center for out patient procedures designed per the American code
6_ small hospital with about 100 bed with 10 Beds ICU and 10 beds Telemetry , private rooms , all designed per the American code and available to take care of complications from treatment ,
7_ small motel or even a hotel that can accommodate the patients and their families coming from far away for treatment ,
8_ Cafeteria for the families of the Patients who coming for treatment as an out patients in the cancer center ,

Above can be owned by a corporation or even outsource the parts , so the pharmacy can be run by a private individual , the Motel/Hotel can be run by a company that has experience in that and so on ,

The major component of the cancer center is Medical oncology section and the radiation therapy and to provide these cervices ,
I would like the Syrian nurses that will be employed be able to be trained in my center in the US on chemotherapy administration side effects of treatment and management of these side effects ,
the major component of cancer treatment is chemotherapy drugs and these have to be available readily without shortage so if the government can negotiate prices as it can get better prices if it is buying for the whole country but i can order directly from the wholesale/supplier when i need these drugs without delay , the worst thing you can do is claiming to be a premier cancer center only to find out that you do not have the drugs ( Medication ) that you need , people will not come back ,
About the Radiation center ,
It should have the best machines so duty free importation of all medical equipment is needed and immediate approval so the machines will not become obsolete ,
The Radiation the Radiology Tech have to be able to be trained in our center in the US so they can be proficient in these machines

Now comes the biggest problem for the Syrian government to accept ,
NO RESTRICTION ON FEES, What sets the fees is market in and around Syria , Syrians now go to Lebanon even though it is more expensive
TAX FREE FOR 5 YEARS then 15% on profit
in return for above , 5% of the Patients treated in the center will be free for Syrian patients who show hardship and lack of income as long as the Government or charitable organization can provide the medications ,

To get my wife there Syria has to have nice malls

The American brand for the cancer center is essential for it’s success , everybody in the Mideast admire the American health system , King Hussein and many others came here , it is time to bring that system to the people of the Mideast

one other thing that can help is to have President Assad ears on improving health care in Syria.

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January 23rd, 2010, 9:51 pm

 

37. Off the Wall said:

Joshua
Why shouldn’t Syria get into the medical tourism business?

I wrote this while Norman was posting his outstanding professional road map. Thanks Norman

Thanks for picking up on this. I was hoping someone would start the discussion of the potentials for Medical tourism industry in Syria, because like you, I agree it is a natural. I was merely voicing my concern that Syria may be too late for that with competition now from not only Jordan, Lebanon, but Dubai as well. In fact, there are all reasons for Syria to think of medical tourism as a major industry. But that requires far more than what Syria now has in her contingent of world class doctors. A primary requirement is whole new view of the nursing profession and other medical support professions. Major investments in hospitals, modern equipment, housing for family members, and provision of short-mid-term care and follow up will be important.

I think Syria is a good candidate for medical tourism, but like any other industry, human resources would be he most important.

On another note. We all agree that many Syrians are by now dependent on government jobs. In the old days, when a mother wants to wean a child, she would sour her milk by eating certain foods that make the milk less palatable to the child. Can HR specialists find ways to wean people from government jobs. I think there are ways to do so that must go hand in hand with substantial increase in salaries. The best way is to institute modern HR practices, which include clear Job descriptions, annual reviews, and strict ethical standards along with term contracts that are only renewable based on performance including a 6 months probationary period. Instituting mandatory maximum processing time for files and requests would go long way in improving productivity in government agencies. I am not only thinking of industrial productivity, I am talking about workplace productivity, no matter where that is.
This will ensure that non-productive workers find government jobs more challenging and demanding and much less appealing to those who want to sip tea and collect low wages for doing so. I have confidence that most Syrians will rise up to the challenge when such arrangement are instituted. I know a few Syrian former mid-rank officers and government officials who left government service and found gainful, highly productive and professional employment in the private sector. They are among the best professionals I have met, they are happy and satisfied in their jobs and in their personal lives. None of the bitterness common to crushed government workers shows up in their lives.

This can only be done if a cadre of highly paid, well trained, auditors is established. In fact, there may be a major role for management consultancies in Syria, with the government being the first and most important client in the first few years if the government is serious about administrative reforms.

At the end of the day, nothing can be done without transparency, without eliminating external influences on decision makers at all levels and on those responsible for hiring and firing. The challenge is great.

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January 23rd, 2010, 9:52 pm

 

38. trustquest said:

The bottle cap factory is contradiction to the government policy and preference of open market. How can government justify selling industrial public sector while still building and adding to this sector. How government can justify the privatization of some industries like telecommunications and air transportation and prevent the private sector from even competing, do you think Ehsani that this would discredit the system and this kind hypocrisy in economic planning could falsify all their efforts in helping the country from spiral down flow.

This type of planning, makes me think that the bottle cap plant is strategically essential for the country’s security?

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January 24th, 2010, 12:38 am

 

39. EHSANI2 said:

Trustquest,

Sadly, I don’t have an answer to your question.

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January 24th, 2010, 1:34 am

 

40. Off the Wall said:

Dear Ehsani

I believe that those who planned, built, and legally endowed the bottle cap factory with monopoly had the best interest of the country present in their minds even if slightly so. The problem I see is not necessarily a malicious intent, although there may be some of that against private sectors remains within the philosophical grounding of some at decision making level, but more so in a view point that sees government wealth as the primary measure of economic progress as opposed to national wealth. This means the more assets the government has, the richer the Syrian people are. We both agree that this is fundamentally wrong, but adherents to this theory continue to hold positions of power in planning and decision making. Off course I am never a fan of purges, but I am a fan of training, open discussion, and accountability. Had the government been accountable, and i mean before the execution of the plan, not after, open public hearings would have exposed the absurdity of the bottle cap factory accounting, in larger economic framework.

However, at individual levels, s second and more important point of view also relates to the economic duties of the government. We both agree that government policies create jobs. But that does not mean these jobs must be in government or in public sector. It means that government creates jobs by facilitating economic and labor conditions conducive of job creation. I have no doubt that the planners of the bottle cap factory boast the creation of 270+ jobs, perhaps in some rural area. And for all practical reasons, they can boast unchallenged. The private sector may have provided 20+ jobs and was much more efficient in the larger economic view frame, but to 270 families, it is the government factory that provided job security, albeit in less productive setting.

Your analyses are all superb and excellent. But I think you are focusing more on the symptoms than on the causes and your solutions, may address some of these symptoms. The cause is not 40 years of Baath policies, it is the theoretical foundation of the these economic policies. These foundations stipulate that it is acceptable for the government to lose money as it provides services, which is OK, but it also stipulate that the most important duty of the government is to provide jobs and job security to the citizen directly.

The only way this foundation can be challenged on the ground is not by continuously arguing for the sale of government factories so that the money can be diverted towards education and infrastructure. The most important thing for any Syrian is to find a job and to have job security, and to many, the government is doing just that through its huge, albeit inefficient and crumbling public sector. Go to any Syrian worker from lower middle class and working class and tell them the bottle cap story, I believe that a majority of their responses would be similar to the following:

what do I care if the private factory made 10 times more profit per worker, the public owned factory is employing more workers, and perhaps at salaries not far from those paid by the private sector (especially for low skills). The profit goes to a few people, while in government factory, higher profit is sacrificed by hiring more people, more Syrians will have bread to eat tonight, and I am OK with that, in fact, i hope they build a factory that employs me or my sons. This is more equitable and fair distribution of the country’s resources

No can can deny the power of their argument, hence the popularity of the government ownership. Trying to convince them that over time, freeing government resources would be better is useless unless one can back it up with demonstrable capacity of the private sector to create the same or similar number of jobs with similar benefits and pensions. Only then, reformers will have the upper hand, and workers and party members may stop vilifying the reformers. One of your posts highlighted this point very well when you indicated that the need to find 1 million job is the most formidable challenge facing reformers. Yet, I do believe that Trustquest’s comment # 38 captured a fantastic revolving door/catch 22 dilemma.

Please do not mistake my comment with a defense of current economic policies, think of it as a blood analysis aiming to find the root of the problem and as an attempt to add social depth to the economic discussion. Jobs are at the root of the problem. If the private sector fails to deliver jobs and benefits, one can expect a counter movement and further retrenching into a poor-state chinese model as Observer53 noted.

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January 24th, 2010, 9:20 pm

 

41. norman said:

Hey, OTW,

I have an idea for you ,

You want jobs , how about this .

To all Syrians ,
(( anybody who opens a factory or a corporation with more than 100 non related employees will pay no taxes for 5 years and if if you provide health insurance for these employees you will have no taxes on this business for another 5 years ))
The Syrian government will continue to get taxes through withholding from the employees , which probably more than what they are getting now ,

The government should sit and think of the the things that they think Syria should make locally then convene all these money people in Syria and ask them to do with financial and tax help from the government , if they will not or can not then the government has to act and do it but should not have monopoly on it, except if needed for national security like arm making ,

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January 24th, 2010, 9:44 pm

 

42. Tarek said:

The most important thing that needs to be done in this country, before we start discussing 5 year economic plans and opening up the stock exchange market, and allowing more foreign banks to operate within the Syrian market, is eliminating, not completely, but at least visibly, corruption. Corruption is the single most and biggest impediment to any true economic reforms that any government proposes in this government.
Take a look at how much (proportionately) a private sector employee pays in income tax at the end of every month in comparison to corporate taxes paid by private sector companies. One gets the feeling that the only institutions paying taxes are MTN, Syriatel and banks.Its pathetic.
Once we have a proper and fair taxation system, everthing else becomes clear.
Ive heard somewhere that two things are for sure in life….death and taxation. Well apparently in Syria that’s not the case.

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January 26th, 2010, 10:27 am

 

43. Syria Comment » Archives » Economics, NGOs and More said:

[…] Schmidt writes: I wish to add a couple of points to the ‘economics’ discussion that have not been mentioned, but are […]

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January 27th, 2010, 6:54 am

 

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