The economy of Syria grew moderately over the last few years as can be portrayed in the real GDP growth rate which averaged approximately 5% between 2001 and 2006. Nominal GDP grew significantly by 14.6% YOY to reach SP1,708.7bn (US$32.8bn) in 2006 up from SP1,490.8bn (US$27.9bn) in 2005. Moreover, early estimates from government officials indicate that nominal GDP was SP2,037.8bn (US$40.8bn) in 2007, more than 19% increase. Per Capita GDP was US$1,785 in 2006, an increase of 15.6% YOY over 2005 level of US$1,544. Syria’s economy achieved a real GDP growth rate of 5.1% in 2006 and the IMF expects a real growth rate of 3.9%, and 4% for 2007 and 2008, respectively.
The Syrian government controls prices for many basic commodities and food items by substantially subsidizing them. These subsidies are draining the government finances because of the increasing population and the skyrocketing prices of those subsidized items, especially energy subsidies. Therefore, the government is phasing out energy subsidies, and it just recently increased the price of gasoline by 20% to reach SP720 (US$15) per 20 liters.
Currently, Syria is suffering from falling oil production. According to OPEC, oil production in Syria averaged 364,700 barrel per day (bpd) in 2007 from its all time high of 600,000 bpd in mid 1990’s. If the trend of declining oil production continues, combined with rising domestic energy demand, Syria could become a net oil importer within a decade. Currently, oil revenue accounts for 29.2% of the government’s total revenue.
Syria initiated a series of economic reforms to ignite its economy and to attract foreign capital. The reform efforts come as the Syrian administration is trying to expand its economic base beyond oil that is currently witnessing a rate of decline in production. The reforms are aimed at transferring the economy from state-controlled into a free market economy. The Syrian authorities realize the urgent need for changes in the economic policy framework if Syria is to maintain and accelerate its economic growth.
The Syrian government started its reform efforts in the 1990’s when Investment Law no. 10 was introduced to encourage private investments, and it was amended in 2000. Moreover, major financial reforms started in 2000 in order to unfreeze the credit market that is being controlled and monopolized by state run banks. In 2001, private banks were legalized, and the first private bank started operations in 2004. Controls on the foreign exchange were also relaxed and introduced new unified exchange rate for the Syrian Pound. Many basic banking transactions like issuing letter of credit, and selling foreign currency were legalized in Syria, in addition to simplifying the lending process. Besides private banks, the Syrian authorities also legalized private Insurance companies.
The Syrian Central Bank de-pegged its currency with the US dollar in August of 2007. The Syrian Pound was then linked to the International Monetary Fund's (IMF) special drawing rights (SDR) basket, consisted of 44% Euro, 34% US$, and 11% of British Pound and Japanese Yen each. After the de-pegging of the Syrian Pound to the US dollar, the SP appreciated against the US Dollar by approximately 9%.
The Syrian government has been on the right track so far to jump-start its economy that had been characterized as a socialist economy for many decades. Numerous reforms had been introduced by the Syrian officials since the 1990’s aiming to accelerate the private sector role in the economy. Those steps taken by Syria had been substantially successful in attracting investments , especially the Foreign Direct Investment (FDI) in banking, real estate, and industrial sectors. Besides, Syria had been engaging into bilateral agreements with Turkey, the European Union, and various other countries. These moves are part of the continuing efforts to move to a more market-based economy
The reform efforts had been successful in improving the economy as evident by Syria’s economical position relative to the rest of the world. According to “Doing Business 2009” report issued by the World Bank and the International Finance Corporation (IFC), Syria jumped eight places from 145th to 137th in the ‘Overall Ranking’ that includes 181 economies.
Regarding attracting foreign direct investments (FDI), the country has done exceedingly well. As per the World Investment Report 2008 released by United Nation Conference on Trade and Development (UNCTAD), Syria’s FDI as a percentage of Gross Fixed Capital Formation (GFCF) increased to 10.3% in 2007 from just 7.6% in 2005. Because of the reform, Syria has been attracting Arab and foreign investors looking for investment opportunities.
On the capital market front, Syria is due to open a stock exchange during the first half of 2009. Damascus Stock Exchange was first scheduled to open in 2006, but was postponed several times because of various reasons, most recently due to lack of technical expertise and equipment. The government hopes to attract new investment in the banking, tourism, insurance and gas sectors to diversify its economy away from dependence on oil and agriculture.
One of the major obstacles in the Syrian economy reforms is the US sanctions imposed by the Bush administration in 2004. The sanctions restrict exporting US made products to Syria, except for some food and medicine products. Syria can not also import products containing more than 10% components made in the US no matter where their origins are. However, the sanctions did not stop bilateral trade between the US and Syria , as evident by the growth in trade between them by 7.7% in 2007.
© 2008 Al Bawaba (www.albawaba.com)
