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Country risk analysis of Syria Mahmoud Ballo July 2007 Supervised by: Prof. Michel Henry Bouchet AGENDA Overview Political Analysis Macroeconomic Analysis Economy Analysis BOP Analysis Risk Analysis Strengths and weaknesses AGENDA A brief overview Location of Syria Political Map Overview Location: Syria is bounded by the Mediterranean and Lebanon on the west, by Israel and Jordan on the south, by Iraq on the east and by Turkey on the north. The frontier between Syria and Turkey was settled by the Franco-Turkish agreement of 22 June 1929. Area: Syria has an area of 185,180 sq km (71,498 sq mi). 185,180 sq km, Comparatively, the area occupied by Syria is slightly larger than the state of North Dakota. Included in this total is the Golan Heights region (1,176 sq km/454 sq mi), which Israel captured in 1967 and annexed on 14 December 1981; the annexation was denounced by Syria and unanimously condemned by the UN Security Council. Land boundaries: total: 2,253 km. Border countries: Iraq 605 km, Israel 76 km, Jordan 375 km, Lebanon 375 km, Turkey 822 km. Capital: Damascus. Overview Language: Syrian Arabic is the official language, spoken by 89% of the population, while 6% speak Kurdish, 3% Armenian and 2% other language. English and French are spoken in business circles. Ethnic Syrians are of Caucasian Semitic stock. Religion: The overwhelming majority of the Syrian population is Sunni Muslim. Other Muslims include Ismailia, Shiites, and Alewives (a schism of the Shiite branch). The non-Muslims in Syria, most are Christians, primarily Greek and Armenian Orthodox. Religious minorities include Druze, who follow a religion related to Islam, and a community of approximately 1000 Jews. 65% Sunni Muslim, 17% Christians (mostly Orthodox and Greek Catholic) and 18% other minority groups including Jews and Druzes. Natural resources: Crude oil and natural gas, phosphates, asphalt, rock salt, marble, gypsum, iron ore, chrome, and manganese ores. Overview Agriculture: Products--cotton, wheat, barley, sugar beets, fruits and vegetables. Arable land--32%. Industry: Types--mining, manufacturing (textiles, food processing), construction, petroleum. Natural hazards: Earthquake in the north and sandstorms. Largest city: Damascus. Population: The population of Syria (2007 estimate) is 19 millions, giving the country an overall population density of 91 persons per sq km (230 per sq mi). The largest non-Syrian minorities are Kurds, most of whom are pastoral people concentrated along the Turkish border, and Armenians, who dwell chiefly in the larger cities. The Syrian Desert is the most sparsely populated part of Syria. The most densely settled area of the country is in the west. Membership: Syria is a member of the UN and Arab League and Organization of the Islamic Conference. Overview Syria Time Difference: GMT + 2. Age structure: 0-14 years: 37.4% (male 3,556,795; female 3,350,799) 15-64 years: 59.3% (male 5,601,971; female 5,333,022) 65 years and over: 3.3% (male 288,868; female 317,052) Population: Growth rate: 2.3% . Birth rate: 28.29 births/1,000 population (2007 est.). Death rate: 4.88 deaths/1,000 population (2007 est.). Life expectancy at birth: total population: 71.03 years male: 68.75 years female: 71.38 years (2007 est.) Overview Currency: The basic unit of currency is the Syrian Lira, divided into 100 piasters. Syrian banking was controlled by foreign companies. Until 1956 currency was issued by the largest commercial bank in Syria, the French-owned Banque de Syrie et du Liban. In that year the Syrian government established a new, state-owned bank, the Central Bank of Syria, and authorized it to issue the national currency. Literacy: definition: age 15 and over can read and write total population: 79.8% male: 86.0% female: 73.6% (2007 est.) Environment Issues Major environmental issues in Syria include deforestation, overgrazing, soil erosion, desertification, water pollution from the dumping of raw sewage and wastes from petroleum refining, and inadequate supplies of potable water. Water shortages, exacerbated by population growth, industrial expansion, and water pollution, are a significant long-term constraint on economic development. Dust storms and sandstorms are natural hazards in desert areas. History/Background Archaeologists have demonstrated that Syria was the centre of one of the most ancient civilizations on earth. Around the excavated city of Ebla in northern Syria, discovered in 1975, a great Semitic empire spread from the Red Sea north to Turkey and east to Mesopotamia from 2500 to 2400 B.C. The city of Ebla alone during that time had a population estimated at 260,000. Scholars believe the language of Ebla to be the oldest Semitic language. Syria was occupied successively by Canaanites, Phoenicians, Hebrews, Arameans, Assyrians, Babylonians, Persians, Greeks, Romans, Nabataeans, Byzantines, and, in part, Crusaders before finally coming under the control of the Ottoman Turks. Syria is significant in the history of Christianity; Paul was converted on the road to Damascus and established the first organized Christian Church at Antioch in ancient Syria, from which he left on many of his missionary journeys. History/Background Damascus, settled about 2500 B.C., is one of the oldest continuously inhabited cities in the world. It came under Muslim rule in A.D. 636. Immediately thereafter, the city's power and prestige reached its peak, and it became the capital of the Omayyad Empire, which extended from Spain to India from A.D. 661 to A.D. 750. Damascus became a provincial capital of the Mameluke Empire around 1260. It was largely destroyed in 1400 by Tamerlane, the Mongol conqueror, who removed many of its craftsmen to Samarkand. Rebuilt, it continued to serve as a capital until 1516. In 1517, it fell under Ottoman rule. The Ottomans remained for the next 400 years, except for a brief occupation by Ibrahim Pasha of Egypt from 1832 to 1840. History/Background French Occupation: In 1920, an independent Arab Kingdom of Syria was established under King Faysal of the Hashemite family, Following the clash between his Syrian Arab forces and regular French forces at the battle of Maysalun. French troops occupied Syria later that year after the League of Nations put Syria under French mandate. With the fall of France in 1940, Syria came under the control of the Vichy Government until the British and Free French occupied the country in July 1941. AGENDA Political Analysis Overview Conventional name: Syria republic. Government type: republic under an authoritarian military-dominated regime. Constitution:13 March 1973 . Executive Branch: chief of state: President Bashar al-ASAD (since 17 July 2000); Vice President Farouk al-SHARA (since 11 February 2006) oversees foreign policy; Vice President Najah al-ATTAR (since 23 March 2006) oversees cultural policy. Head of government: Prime Minister Muhammad Naji al-UTRI (since 10 September 2003); Deputy Prime Minister for Economic Affairs Abdullah al-DARDARI (since 14 June 2005). Overview Cabinet: Council of Ministers appointed by the president. Elections: president approved by popular referendum for a second seven-year term (no term limits); referendum last held on 27 May 2007 (next to be held in May 2014); the president appoints the vice presidents, prime minister, and deputy prime ministers. Election results: Bashar al-ASAD approved as president; percent of vote Bashar al-ASAD 97.6%. Legislative branch: Definition Field Listing - unicameral People's Council or Majlis al-Shaab (250 seats; members elected by popular vote to serve four-year terms) - elections: last held on 22-23 April 2007 (next to be held in 2011) - election results: percent of vote by party - NA; seats by party – NA. Overview Political parties and leaders: legal parties: National Progressive Front or NPF [President Bashar al-ASAD, (includes Arab Socialist Renaissance (Ba'th) Party . Arab Socialist Renaissance (Ba'th) Party [President al-ASAD]; Socialist Unionist Democratic Party [Syrian Arab Socialist Union or ASU Syrian Communist Party (two branches) . Syrian Social Nationalist Party; Unionist Socialist Party [Fayez ISMAIL]); illegal parties: Kurdish Azadi Party Kurdish Democratic Alliance (includes four parties); Kurdish Democratic Front. Overview Political pressure groups and leaders: Damascus Declaration (a broad alliance of opposition groups including: Committee for Revival of Civil Society [Michel KILO, Riyad SEIF]; Kurdish Democratic Alliance; Kurdish Democratic Front; National Democratic Front. Syrian Human Rights Society or HRAS); National Salvation Front (alliance between former Vice President. The SMB, and other small opposition groups); Syrian Muslim Brotherhood or SMB; (operates in exile in London; endorsed the Damascus Declaration but is not an official member). Results of last presidential elections in 2007 President Assad reelected for second term in office Posted: 05/30/2007 According to results released by the Interior Ministry on May 30, President Bashar al-ASSAD was reelected for a new seven-year term in a referendum in which more than 95 percent of the eligible voters turned out to the polling booths. President ASSAD was the sole presidential nominee selected by the parliament and obtained 97.6 percent of the vote in the referendum. There were no other candidates allowed to compete with the president’s election. Freedom House Ratings 2007 (1 represents the most free and 7 the least free rating) Civil society: 7 / The government tightens control over civil society through laws, formal and informal pressure, and increased funding by the state or agencies controlled by the state . Independent Media: 7 / Almost all opposition newspapers are closed or fully controled by the military state.print media and the Internet are controlled pervasively, there is widespread disinformation campaign against opposition. Judicial Framework: 6 / The country's executive system is based on presidential patronage, the judiciary, like the legislative branch, has remained loyal to the regime. It has served to protect the interests of the state and its functionaries rather than those of individuals, minorities etc. Electoral process: 7 / Pro-regime financial interests and political parties control the Parliament, which does have a single opposition or independent deputy inside the country . Freedom House Ratings 2007 (1 represents the most free and 7 the least free rating) Corruption: 6.5 / Governance and economic conditions helped to control corruption at lower and middle levels of bureaucracy, but the virtual absence of an independent judiciary and media mean that it is impossible to proof corruption at the top level of the ruling elite. Overall Freedom House Rating: Political Rights: 6 Civil Liberties: 5 Status: Not Free Prince Model decision-making Importance in The Ba‘th party The president‘s Army France Public sector Russia World Bank USA Corruption in administraion & judiciary Private companies War in Iraq Israel Positve Influence Negative Influence Political Analysis Officially, Syria is a republic. In reality, however, it is an authoritarian regime that exhibits only the forms of a democratic system. Although citizens ostensibly vote for the President and members of Parliament, they do not have the right to change their government. Previous President Hafiz Al-Asad was confirmed by unopposed referenda five times. His son, Bashar Al-Asad, also was confirmed by an unopposed referendum since July 2000 President and his senior aides, particularly those in the military and security services, ultimately make most basic decisions in political and economic life. After the independence a phase in which media freedom, civic and democratic activism begun which was dispersed on 1995 when the president adopted a new constitution that increased the power of the presidency dramatically. Political analysis Syria has been under a state of emergency since 1963. Syrian governments have justified martial law by the state of war, which continues to exist with Israel and by continuing threats posed by terrorist groups. The political system is open to considerable financial and business interests/investors that are loyal to the president but closed to independent financial and political interests that follow alternative ideologies. The Asad regime (little has changed since Bashar Al-Asad succeeded his father) has held power longer than any other Syrian government since independence; its survival is due partly to a strong desire for stability and the regime's success in giving groups. The expansion of the government bureaucracy has also created a large class loyal to the regime. All three branches of government are guided by the views of the Ba'ath Party, whose primacy in state institutions is assured by the constitution. Political analysis Nine smaller political parties are permitted to exist and, along with the Ba'ath Party, make up the National Progressive Front (NPF). The Ba'ath Party dominates the parliament, which is known as the People's Council. With members elected every 4 years. There was a surge of interest in political reform after Bashar al-Asad assumed power in 2000. Human rights activists and other civil society advocates, as well as some parliamentarians, became more outspoken during a certain period. The 2001 arrest and long-term detention of the two reformist parliamentarians and the apparent marginalizing of some of the reformist advisors in the past five years, indicate that the pace of any political reform in Syria is slow. A crackdown on civil society in 2005, in the wake of Syria's withdrawal from Lebanon. AGENDA Economy Analysis Syria economic structure The Syrian financial sector consists of the following institutions: The Central Bank of Syria (CB). Six specialized public banks. Nine functioning private banks. 2 private banks started before the end of 2005. The Syrian Insurance Company (SIC). The Public Debt Fund (PDF). The Establishment of Social Security (ESS). The pension funds of professional trade unions. The Main Characteristics of the Syrian Financial Sector are: High proportion of cash money in circulation. In spite of the existing control system over foreign currency, 80% of imports used to be done through unlicensed currency exchange dealers. Interest rates not sensitive to inflation or exchange rates. While the public banks and CBS have benefited from the technical assistances of several donors, this has not been done through a comprehensive reform program. The structure of the liabilities of the Syrian banking sector indicates a high percentage of demand deposits compared to total deposits and a high percentage of unclassified debts. Foreign currency assets constitute more than 50% of total assets in the public sector banks and high proportion of credits are granted to the public sector. The government finances the deficit through loans from the public banks, creating pressures on the financial resources available for the private sector. Economic overview The Syrian economy is characterised by its centralised nature as the syrian government plays a large role in planning and running the economy. However the biggest income generator for the syrian economy is the oil sector providing approximatly 75% of exports receipts. Oil exports also provide the syrian government half of its revenues. Services industry and Argiculture Sector provide the Syrian government with the rest of its income in descending order. Syria is classed as lower middle-income economy by the World bank, due to challenges faces by the economy which undermine its Performance. Prices were liberalized, trade distortions reduced and SMEs privatized while the treasury and budget processes were substantially enhanced. Economic Overview Syria and Turkey built up a strong relations since the previous 5 years. A free trade zone is opening between the 2 countries. Syria and Russia also signed an accord with Russia which aims to increase bilateral trade from current figures $250 million to $1 billion over the next 5 years. The long delayed Association Agreement with the EU is expected to be signed this year however this year. Furthermore the tourism sector is expected to play a major part in the future advancement of the Syrian economy. So Syrian government is developing its tourism infrastructure to encourage investors in the sector specially from Gulf countries. Water management is developing regarding the agricultural sector. Challenges of the Syrian economy Syria over reliance on oil is one of the main challenges faced by the Syrian economy, especially as the country’s current oil resourced are dwindling. Expectations say Syria wont become a net oil importer until 2025,that means 50% of the revenues will just fall, unless new resources are found which will have a significant impact on the economy. Bureaucracy, patronage and corruption are also other major challenges which limit the growth of the Syrian economy. Syria was identified as the 73 rd most corrupt country in the world by transparency international organisations. Syria’s economy has also been classed as ‘’mostly unfree’’ to do business by the 2005 index economic freedom due to strong government control and intervention in areas such as property rights, capital flow and trade policy. Challenges of the Syrian economy The sanction placed by US affected Syrian economy, due to restrictions to Syrian exports to the US whilst placing an embargo on the sale of American goods and investment by their companies in Syria. The employment of many Syrian labours in Lebanon and their annual $2 billion remittances sent home have also been a major source of income for the Syrian economy. Impact of the aforementioned problems is compounded by the relatively high unemployment rate which currently stands at 20% whilst the labour force rate in Syria is growing by 5% a year. This is in addition to the country’s growing population growth rate of 2.6% per year which places more pressure on Syria's dwindling economic and natural sources. The main problems hindering the development of financial sector: The absence of an accounting system in the public financial institutions able to provide accurate data that reflect the financial position of the financial institutions owned by the public sector. The interlacements between the financial institutions and the Public Debt Fund on the one hand, and between the PDF and the economic public sector on the other hand. The slowness of the institutional reform. The absences of a wide-based financial sector willing to take risk. The absence of an objective statistical system able to provide a real view of the performance of the national economy in general and the different institutions in particular. The financial statements of public financial institutions do not accurately reflect their financial status. The absence of a sovereign credit-related assessment of Syria. The absence of cooperation between the parties responsible of the management of the public debt; and the absence of periodic statistics about the public finances according to international standards. Macro-economy analysis 2007 Currency Code: Syrian Lira or (pound) (SYP) 1 USD = 50 SYP 1 EUR = 67 SYP Export partners : Iraq 26.3%, Italy 10%, Germany 9.9%, Lebanon 9.1%, Egypt 5.1%, France 4.9%, Saudi Arabia 4.6%. Imports – partners: Saudi Arabia 11.6%, China 6.1%, Egypt 5.9%, Italy 5.8%, UAE 5.7%, Ukraine 4.6%, Germany 4.5%, Iran 4.2%. Current account balance :$529 million. GDP : $77.66 billion (PPP) GDP-per capita : $4,100 (PPP) GDP-real growth rate :4.5% GDP composition by sectors: agriculture: 24industry: 18% Services: 58% Unemployment rate: 7.5% . Population below poverty line:15-25%. Average distribution of GDP amongst sectors (1995-2007) Merchandise exports % of GDP in Syria Major Agricultural Crops share of Total Production Labour Force Distribution on Economic Sectors(1991-2007) Exchange Market Indicators Syria oil production (bbl/day) Syria oil exports (bbl/day) GDP & Labor Force &composition by sector 60 52,7 50 50 41,1 40 30 30 20 20 10 6,3 0 Agriculture Industry Services GDP Employment Inflation rate Exchange rate of US$ against SYP (2007) 54 52 50 48 SYP 46 44 42 40 90 92 94 96 98 00 02 04 06 19 19 19 19 19 20 20 20 20 REER of countries whose price competitiveness has deteriorated compared to Syria’s(2006=100) 2/ Real GDP Growth Rate% Real GDP Growth (% change YOY): 10,0% 8,0% 6,0% 4,0% 2,0% 0,0% -2,0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 -4,0% -6,0% Real GDP Growth (% change YOY): FOREIGN TRADE IN SYP 600000 500000 400000 300000 200000 100000 0 2001 2002 2003 2004 2005 2006 2007 Trade Balance SYP(mn) Exports SYP(mn) Imports SYP(mn) Structure of net domestic product (constant prices) Syria exports in US$ Syrian exports by products (1998 –2007) Syrian imports by products (1998 –2007) Syria foreign trade Syria is quite open to international trade. Free-trade agreements have been signed with Lebanon, Jordan, Morocco and Iraq. Syria also signed an Association Agreement with the EU in October 2004. The share of foreign trade in country’s GDP is nearly 70%. Its top three export partners are: Italy, France and Iraq. Syria mainly exports mineral fuels & oils, cotton, livestock, and cereals. Trade: Exports--$10.2 billion: petroleum, textiles, phosphates, antiquities, fruits and vegetables, cotton. Imports--$10.8 billion: foodstuffs, metal and metal products, machinery, textiles, petroleum. Government Budget (SP bn) 600 Revenues 500 Expenditure Surplus/Deficit 400 300 200 100 0 2002 2003 2004 2005 2006 2007 -100 -200 Syria offcial reserves in US$ Index of Economic Freedom World Rank 2007: 142 Regional rank 2007: 15 of 17 Economy Freedom 2007 48.2% free World Bank Starting a Business (2007) Paying taxes: Doing Business in Syria Ease of... 2006 rank 2005 rank Change in rank Doing Business 130 135 +5 Starting a Business 142 146 +4 Dealing with Licenses 87 92 +5 Employing Workers 89 103 +14 Registering Property 88 87 -1 Getting Credit 117 117 0 Protecting Investors 118 114 -4 Paying Taxes 59 59 0 Trading Across Borders 147 161 +14 Enforcing Contracts 153 153 0 Closing a Business 77 75 -2 AGENDA BOP Analysis Current Account Balance/GDP% Current account Balance/GDP(%) 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2001 2002 2003 2004 2005 2006 2007 Current account Balance/GDP(%) Solvency ratio% External debt (percent of GDP) 2/ 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2001 2002 2003 2004 2005 2006 2007 External debt (percent of GDP) 2/ Public Indebtedness Debt service-to-exports ratio (payments basis) in $ billions Debt service-to-exports ratio (payments basis) 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2001 2002 2003 2004 2005 2006 2007 Debt service-to- exports ratio (payments basis) The Syrian external trade relations - Imports (2007) The Syrian external trade relations - Exports (2007) AGENDA Risk Analysis Country Percentile rank between other Arabic speaking countries Country Percentile rank between other Arabic speaking countries Country Ratings COFACE,Fitch and Standard & poors couldn’t access any rating process in Syria yet,that is because mainly there is no stock exchange in the country yet, and there are no stocks or bonds offered to the international market. But hopefully in year 2008 Syria is intending to open the first stock exchanege in Damascus. Corruption Perception Index 2007 Syria: Rank 142, CPI Score 3.4, Confidence range 2.7 - 4.1 Human Development Index Syria is ranked 107 out of 177 in the Human Development Index Categories: High 0.8-1, Medium 0.5-0.8, Low 0-0.5 The Human Development Index (HDI) is a comparative measure of life expectancy, literacy, education, and standards of living forcountries worldwide. It is a standard means of measuring well being, especially child welfare. Indicators of Market’s size Human development Index Life expectancy at birth: 71.5 Adult literacy rate(% age 15 and above): 75.3 Combined primary, secondary and tertiary gross enrolment ratio(%): 59 GDP per capita (PPP US$) 3280 Life expectancy index 0.77 Education index 0.7 GDP index 0.58 Human development index(HDI)value 0.658 GDP per capita(PPP US$)rank minus HDI rank: -1 AGENDA Strengths/ Weaknesses & Risk assesment Strengths Interial Political stability. Perfect geografical location,between europe and the middle east. High percentage of youth, which gives the country a young productive future. Huge amount of Oil and Gas revienues Capital inflows especially. High level of natural resources, in particular oil and gas and Agricultural sector either. Diverse programs of the World Bank and the UNDP. Now Syrian government decided to follow a fixed exchange rate against dollar. Wages and Salaries are quite low. Weaknesses Oil revenues (financing 50% of the budget and accounting for 2/3of exports) are running out. Unemployment is high and growing . Eventhough the father of our current president managed to bring political stability to the country the power is centralized too much, there is a high price for this stability. Corruption is very high too. Very poor infrastructure. Unstability regarding the running indirect war with Israel. Human Development Index shows shortcomings in the quality of life and that people are not properly academically educated. Weaknesses These resources are not efficiently managed, competitiveness and production is not high enough. Environmental problems, pollution is quite high in the industrial cities like Aleppo and Damascus. Currency Tenge is highly dependent on poiltical stability. The banking sector has been shaky with non-performing loans already at high levels, and morover the new openning progress of private banks in the country. Banks used to face broblems in selling dollar to the market, as Syria used to ban selling or buying Dollar or any other foreign currencies in the interior market,but now its liberlized again,like it used to be 45 years ago. Challenges for the future A poor investment climate. Too many taxes and an inefficient, corrupt and unpredictable tax administration. Extremely restrictive labour legislation. Excessive business licensing and operating permits and associated corruption and anti-competitive practices. Poor and inefficient customs and trade regulations and practices and overall regulatory policy uncertainty. Poor economic infrastructure ,electricity, telecommunications and transport. Poor access to finance and cost of financing. Conclusion Weaknesses definitely outweight strengths, so there must be a better performing in the economy future. The biggest problem outlines is corruption. A political unstability regarding dictatorship in the regime and war threats from many countries. Unlimited previllages to the surrounding community of the president, focused in trades’ monopolies. A huge war could occur and not if and only if Israel signs a peace treaty with Syria which can stablize the current stressful situation in the area. Syria must perform highly in its petroleum exports which can back up the bad economy by using the revenues in developing the infrastructure. Conclusion More political parties should be allowed. Tourism sector must be developed in the right way. Syria must attract more and more foreign investments which can protect it from foreign attacks. Syria is entering into many internationl treaties regarding taxation, which can eliminate the double taxation in exports and imports. President promised many changes in the end of years 2007, which can be the start for internationl investors to enter the market there. Human right must be more respected to eliminate any suspecious hesitations of foreign investers . A huge Monopoly and control of the public sector, privatisation should take a quick effect soon. Sources IMF The Worldbank Syria ministry of finance www.syrianbankingconference.org www.doingbusiness.org Aleppo&Damascus Chamber of commerce CIA www.heritage.org www.researchandmarkets.com Syria Ministry of tourism COFACE UNDPN Transparancy Internationl International Country Risk Guide (ICRG) Corruption control (Kaufmann D., Kraay A., Zoido- Lobaton P.), Tariff and non- tariff barriers (The Heritage Foundation-The Wall Street Journal) The freedom of exchange on the capital market (The Fraser Institute), The free use of foreign currency (The Fraser Institute), www.syrialive.net/business Economist Intelligence Unit (EIU). 2005. Country Report: Syria, March 2005. London, England. www.syriafinance.org, Dec 2002-2006 Samer al sabagh, CEO, Blom bank in Syria, Aleppo, 2007 Abdul alfatah majid, .الوضع األقتصادي في سورياThe university of Damascus.2006
"Slide 1 - Global Finance"