Syria at a Turning Point by leF306


									    Syria at a Turning Point
     Trends in the Syrian Economy
         University of Reading
          23rd February 2005

           Dr Ken Charman

               Syrian Economy

• Closed Economy

• Under performed for many years

• Dependent on oil reserves for foreign exchange
  and macro-economic stability

• Economy in need of diversification

          Factors in Syria’s Favour

• Geographic position – between Europe and
  Middle East
• Transit country for oil and consumer goods
• Strong agricultural base
• Established industrial base in heavy and light
• Private sector accounts for 60% GDP

             Issues Facing Syria

• Rapid population growth 2.6% per annum
• 40% population under the age of 14
• Growing Demands on education and health
• 70% population earn less than 120 Euros per
• Growth rates in employment not sufficient to
  absorb growing labour force

             Policy Requirements

• To achieve faster growth

• Create employment

• Maintain stability (inflation, exchange rates)

             Oil Sector Dominates

• Oil producing country – but not a major producer
• 2.5 billion barrels of exploitable oil reserves (10
  years supply)
• 2.5 billion cubic metres gas (50 years supply)
• Up till 1990 Syria cotton and textiles 40% total
  export earnings
• Oil exports now dominate (60-75% total exports,
  40-45% total government revenues) during
  1980’s and 1990’s

             Agricultural Sector

• 26% GDP
• Employs 30% workforce
• Considerable state support – impact on
  government budget
• Wheat, barley and cotton sold to state marketing
  boards at fixed prices
• Market prices signals do not reach farm gate
• State support has not led to investment (e.g.
  cotton requires irrigation)
                Industrial Base

• Mining and quarrying - 14% GDP
• Manufacturing - 14% GDP
• Industry sectors:
• Oil sector, chemicals, water and electricity, wood
  and furniture, food beverages, textiles and yarn
• Low value textiles (yarn) exported
• Protection for local industry has led to low
  productivity and investment

            Industrial Policy to Date

• Investment financed by oil revenues
• Investment largely unproductive

At a time when Syria should have been emerging from
       an agricultural producer to a producer with a
       diversified industrial base, oil revenues and
      protectionism have led to un-competitiveness

• Private Sector Development has favoured Free
  Economic Zones – favoured tax status, and better
  facilities – these do not spill over to rest of economy

            Policy Reform too slow

• Investment Law No. 10 was important step
  (lower restrictions to capital inflows, and tax
  concessions), but was not accompanied by
  structural reforms
• Reforms needed in
• Liberalisation of trade / protectionism
• Undeveloped financial sector
• Incentives facing the private sector

             Apparent Stability?

• GDP growth 1.4% in 2003, (1.9% 2004?)
• Inflation 1% - 3% since 2000
• Trade balance 6.8% GDP 2003
• Fiscal deficit 4.1% GDP
• Foreign exchange reserves high (12.5 billion at
  end 2002 = 6 months import cover)
• But: GDP growth, foreign exchange and
  government revenues are dependent on oil –
  non-oil sector contribution is declining
              Policy Challenges

• Efficient taxation system that captures the
  private sector incomes
• Monetary policy (interest rate policy) that
  addresses inflation and exchange rate (interest
  rates fixed at 7-9% since 1981)
• Liberalisation (reduction in protectionism) that
  encourages competition
• Financial sector developed - to lend to private

       Recent Policy Changes Good

• Private banks allowed to operate since 2003 –
  but restricted to Free Industrial Zones
• Monetary Policy now with Monetary and Credit
  Council - Central Bank to follow more flexible
  interest rate policy
• Exchange rate liberalisations encouraging – but
  traders still need access to finance
• Reserves high enough to allow pegged
  exchange rate

        Institutional Policy Required

• Excessive customs regulations / bureaucracy
• Inefficient banking system / lack of access to
• Regulation system poor (especially for utilities),
  ministries to be “policy makers”, not “controllers”
• Lack of competition laws + agencies to oversee
  implementation of laws – reduce barriers to
  entry and restrict abuse of monopoly power
• Independent bodies required to implement
  policies transparent and efficient and

               Trade is a Priority

• GAFTA + EU-Syria Association Agreement
  provide framework for liberalisation

• Short term trade impact negative (increase in

• Long term ability of private sector to respond to
  liberalised market.

     Thank you


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