Mideast/North Africa Average = 57.2 World Average = 60.6 1995 2007 100 80 60 40 20 0 355 QUICK FACTS How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index. Syria’s economy is 48.2 percent free, according to our 2007 assessment, which makes it the world’s 142nd freest economy. Its overall score is 2.3 percentage points lower than last year, partially reflecting new methodologicca detail. Syria is ranked 15th out of 17 countries in the Middle East/North Africa region, and its overall score is lower than the regional average. Syria scores well in only one area: fiscal freedom. The top income tax is relatively low, and the corporate tax is moderaate Overall tax revenue is low as a percentage of GDP. Syria is weak in trade freedom, investment freedom, financial freedom, monetary freedom, freedom from governmment property rights, and freedom from corruption. The government maintains a high average tariff rate, as well as non-tariff barriers such as an opaque regulatory process. Significant state influence in most areas of the economy taints the civil service and makes court rulings subject to the diktats of the Ba’athist government. This interference bleeds into the Syrian financial market, which is unsophisticated and dominated by the state. Inflation is high, and the government directly subsidizes a wide array of goods. State expenditures are also high, and over half of Syria’s revenue comes from state-owned businesses. BACKGROUND: Syria has been ruled by the Assad regime since Minister of Defense Hafez al-Assad seized power in 1970. Assad was succeeded in 2000 by his son Bashar, who has failed to deliver on his promises to reform Syria’s socialist economy. Foreign investment has been dampened by U.S. economic sanctions and Syria’s growing isolation as a result of its involvement in the February 2005 assassinaatio of former Lebanese Prime Minister Rafiq Hariri. Military withdrawal from Lebanon has deprived Syrian officials of substantial opportunities for graft and the smuggling of illicit goods. SYRIA Population: 18.6 million GDP (PPP): $67.1 billion 2.5% growth in 2004 2.4% 5-yr. comp. ann. growth $3,610 per capita Unemployment: 12.3% (2004 estimate) Inflation (CPI): 4.6% FDI (net inflow): $1.2 billion (gross) Official Development Assistance: Multilateral: $126 million Bilateral: $134 million (0% from the U.S.) External Debt: $21.5 billion Exports: $8.2 billion Primarily crude oil, petroleum products, fruits, vegetables, cotton fiber, clothing, meat, live animals, wheat Imports: $7.9 billion Primarily machinery, transport equipmeent electric power machinery, food, livestock, metal, metal products, chemicaals chemical products, plastics, yarn, paper The economy is 48.2% free Rank: 142 Regional Rank: 15 of 17 @@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@BUSINESS FREEDOM — 56.6% Starting a business takes an average of 43 days, compared to the world average of 48 days. To maximize entrepreneurshhi and job creation, it should be easier to start a company. Obtaining a business license is relatively simple, but closiin a business can be difficult. Bureaucratic obstacles and delays are ongoing problems. The overall freedom to start, operate, and close a business is restrained by the national regulatory environment. TRADE FREEDOM — 49% Syria’s weighted average tariff rate was 15.5 percent in 2002. Prohibitive tariffs, import taxes, non-transparent trade regulations, import bans and restrictions, burdensoom standards requirements, restrictive biotechnology regulations, import taxes, and corruption all add to the cost of trade. Consequently, an additional 20 percent is deducted from Syria’s trade freedom score to account for these non-tariff barriers. FISCAL FREEDOM — 88.3% Syria has a low income tax rate and a moderately high corporrat tax rate. The top income tax rate is 20 percent, and the top corporate tax rate is 35 percent. Other taxes include a tax on insurance and a property transfer tax. In the most recent year, overall tax revenue as a percentage of GDP was 11.6 percent. FREEDOM FROM GOVERNMENT — 57.5% Total government expenditures in Syria, including consumpptio and transfer payments, are moderate. In the most recent year, government spending equaled 31.6 perceen of GDP, and the government received 57.7 percent of its revenues from state-owned enterprises and government ownership of property. The state maintains its controls over a large part of economic activity. MONETARY FREEDOM — 68.9% Inflation in Syria is relatively high, averaging 6.5 percent between 2003 and 2005. Relatively high and unstable prices explain most of the monetary freedom score. The governmeen controls product prices for many goods and sets prices, provides subsidies, and controls marketing in the agricultural sector. Prices are also influenced through stateowwne enterprises and utilities, and private participation in manufacturing remains constrained by input and output pricing limits. Consequently, an additional 15 percent is deducted from Syria’s monetary freedom score to account for these policies. INVESTMENT FREEDOM — 30% Officially, foreigners may own 100 percent of a company and may own land. New laws guarantee against expropriaatio and permit repatriation. Almost all sectors of the economy are open to foreign direct investment, except for power generation and distribution, air transport, port operation, water bottling, telephony, and oil and gas producctio and refining. However, a weak and arbitrary legal environment is a strong disincentive for foreign investoors Many capital transactions are subject to controls, and foreign exchange and trade are severely hampered by a requirement for government approval of all transactions. FINANCIAL FREEDOM — 10% Syria’s financial system is subject to heavy state influence, and financial services are so unsophisticated that they inhibit development. Regulations are cumbersome and unclear, and interest rates are fixed by the government. Although private banks are now permitted, the banking system remains dominated by five state-owned banks, which focus on certain economic sectors. Three private banks were licensed to operate in January 2004, and three more were licensed to operate in June 2004. However, state-owned banks account for 92 percent of private-sector lending, and the central bank is not independent. Foreign banks have been allowed to establish offices in free trade zones since 2000, but only six foreign banks, mostly Lebaneese have done so. The public sector is given priority in lending, and private borrowers find it difficult to obtain loans. The insurance sector is controlled almost entirely by a government-owned firm. The first private insurers were permitted to operate in June 2006. Capital markets are negligible and restricted to small amounts of government debt. There is no stock market. PROPERTY RIGHTS — 30% Protection of property rights is weak. The governmeent political connections, and bribery influence court decisions. FREEDOM FROM CORRUPTION — 34% Corruption is perceived as significant. Syria ranks 70th out of 158 countries in Transparency International’s Corruptiio Perceptions Index for 2005. LABOR FREEDOM — 57.4% The labor market operates under inflexible employment regulations that hinder overall productivity growth. The non-salary cost of employing a worker is high, and dismisssin a redundant employee is relatively costly. SYRIA’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 100 = most free, = world average 0 50 100 356 2007 Index of Economic Freedom 56.6 49 88.3 57.5 68.9 30 10 30 34 57.4 L L L L L L L L L L