As Syria’s production of oil for exports dwindles, Its trade deficit will continue to rise. High world oil prices helped offset part of the large non-oil budget deficit, but this scenario will change once oil reserves are depleted and Syria transfers into a net oil importer as forecasted by the IMF. Syria currently runs a current account deficit and it is estimated that it will increases in the coming years. With its estimated US$4.4bn foreign reserves, as per IMF reports, it is well positioned to cover the deficits. To lift the pressure off its oil sector, and to achieve a balance to its external as well as internal accounts, Syria needs to open up its economy to the international arena in order to bolster the other sectors mainly the industrial, and financial sectors. To this end, Syria has signed free trade agreements with a number of countries namely Turkey and Iran, and signed an Association of Agreement with the EU, that is intended to lead to a free trade agreement by 2010.
Industrial sector in Syria is relatively well diversified. It was largely dominated by the state-enterprises until the 1990s, when economic reforms allowed greater local and foreign private-sector participation in all industries. With the introduction of Investment Law No. 10 in May 1991, which offered substantial incentives to the private sector, the capital investments in private-sector industry started growing. The sector accounted for about 21.6% of the country’s 2005 GDP and employed about 13% of the total work force in Syria. The General index of Industrial Production in the Public Sector in Syria published in the Quarterly Statistical Bulletin 2006 by the Syrian Central Bureau of Statistics has shown a decrease to 89 from 92 in 2004 and a peak of 102 in 2002. The Syrian Industrial sector is characterized by a diversified base of industries, foremost of these industries is oil refining, electricity & water, chemical, basic metal & metal products, paper, foodstuff and textile industries.
New reforms introduced by the government enabled the private sector to get involved in industrial sectors they were previously dominated by the government. Such industries include sugar, cement and batteries, among others. However, there still remain the constraints of input and output pricing limits, cumbersome customs, foreign-exchange regulations, and poor marketing techniques. The new wave of reforms which began in mid-2000—including the authorization of the operation of private joint-venture foreign banks and greater freedom of access to foreign exchange—should see greater private-sector involvement in the industrial sector, especially in heavy industries.
The aim of the reforms is to induce the private sector to invest in manufacturing so that the sector becomes more market oriented. Syria plans to increase its industrial GDP, in real terms, by 10% in the next five years especially that the competition from other Arab countries is heightening with the enforcement of the Greater Arab Free Trade Agreement (GAFTA). The Syrian Investment Bureau asserted that the number of licensed projects in 2005 doubled to 550, having an aggregate value of US$7.8 billion, and out of which 237 are industrial ventures. During the first half of 2005, licensed investments in textiles, cement, industry and foodstuff totaled US$2.48bn. In a bid to boost its struggling economy, Syria is to launch a series of investment projects worth US$1.6bn from Syrian and foreign investors. Some 70 projects are planned for the industrial, agricultural and transport sectors, and will include building factories, commercial, residential and tourist complex. Among the recent developments, Saudi and Syrian investors have announced plans to build a US$32.7mn petrochemical plant in Syria to manufacture caustic soda and chloride. The new plant will be named the Saudi-Syrian Petrochemical Company. The plant will be operational at the beginning of 2007 with a production capacity of 25,000 tons per annum. The government initiatives to boost the manufacturing sector has started to pay off where Aleppo based National Company for Pharmaceutical Industry has become the first Syrian pharmaceutical manufacturing firm to meet EU and World Health Organization norms, qualifying it to export to European markets.
As part of Syria's plans to expand its cement production capacities, two state-owned Syrian companies and one of China's largest construction firms finalized an agreement to construct a US$200mn black cement factory in Adra near Damascus. The state-operated Chinese Sino Hydro Corporation agreed with the Syrian Cement and Building Materials Company and Farzat Company for Development – a Syrian construction firm – to build the new cement factory with a production capacity of 1.8 million tons of packed and liquid cement. The Sino Hydro Corporation will own 55%, Farzat Company for Development will hold 20% ownership and the rest of the shares will be offer to the public.
Real Estate Sector
Syria, being a net exporter of oil in 2005 have also benefited from the high oil prices. The introduction of all the investment-friendly regulations in the economy by the government served as an invitation of trust for Arab and International investors to park their money in the Syrian economy. Another important factor contributing to the real estate boom in Syria is the inflow of Iraqi nationals into Syria, consequently raising demand for real estate and boosting its prices.
As per the latest census taken by the Syrian Central Bureau of Statistics, the licensed construction area, during 2000-2004 period increased from square meters (sqm)1.81mn in 2000 to sqm11.4mn sqm in 2004, a CAGR of a whopping 58.6%. The growth rate in the licensed construction area for the year 2004 was also a remarkable at 72.7%. Both the sub-sectors, residential as well as non-residential have contributed to the growth in the sector, however, the residential sector accounted for much of the activities. License permits for residential sector jumped by 80% to 9.2mn sqm and accounted for about 81% of the total license permits. Non-residential sector also registered a significant growth of 49.8% to 2.2mn sqm.
The booming construction activity was backed by the rising rents in Syria. As price index of rent witnessed a sharp rise of 13% (CAGR) during 2001-2005, its index has gone up from 101 in 2001 to 162 in 2004. Rents in Syria have been on the rise as Iraqis seeking safety and conveniences of nearby Damascus and Amman away from their country. And with their influx to Syria, the high demand for housing has sent rents skyrocketing and caused a real estate boom. Apart from this, a rise in cost of building materials, especially cement, is also one of the reason for price escalation.
The construction activity in the country is booming as many projects are coming up in the sector. The government has plans to build around 50,000 new flats in the coming five years for the youth which entails an investment of about SP45bn. To attract foreign capital in the real estate sector the government is preparing a draft law. In a first such move, the Syrian government gave permission to the Sharjah-based Tiger Group for the construction of the Damascus World Trade Centre, to be built at a cost of US$120mn. Tiger Real Estate, part of the Tiger Group, will invest nearly US$530mn in a series of projects in Syria. It includes the construction of the Damascus World Trade Centre, a five star hotel, a shopping mall, residential and office towers, terraces, restaurants, theatres and associated structures. Plans also include establishment and construction of a data centre, shopping mall and movie theatres. These activities are expected to generate 3,600 jobs.
Among the other upcoming projects, Dubai-based developer Emaar Properties and offshore group Investment Group Overseas (IGO) are investing AED1.83 billion in a residential, commercial and retail development called Eighth Gate in the Syrian capital Damascus. Dating back to its ancient history the city walls of Damascus have seven gates as access points. Divided into three zones, the Commercial Centre, The Waterfront and the Residential Zone the exclusive development contains both apartments and villas as well as a classical style piazza, commercial tower, plaza and a 450,000 sq. ft. retail mall inspired by the souks of Damascus as well as high street shopping and al fresco dining.
In a recent move, Qatar signed a US$140.6mn deal with Lattikia city council in Syria to build two resorts on the Northern shores of the city. The project will include two five-star hotels, one restaurant and furnished apartments. The city council offered the land as part of its share in the project while the Qatari company will be responsible for the financing. Various financial sector firms from Qatar are also getting set to invest in Syria. Over the next decade Qatari investments could amount to US$10bn. Similarly, the Syrian authorities gave their approval to a Saudi company to launch a series of real estate ventures in different parts of Syria. The first project will be the Pearl of Damascus tourist resort which would cost US$60mn. Saudi tourism investments in Syria have reached US$800mn. The Four Seasons Hotel which is 67% owned by Saudi prince Al Waleed bin Talal is the most important of these investments. Apart from this, Syria has given an initial approval for a consortium of Syrian, Kuwaiti, and Saudi Investors to launch projects valued at US $15bn in the region of Jabal al-Sheikh near Hermoun Mount between Syria and Lebanon. The project will be implemented in 15 years and will include hotels, trade, tourist, sport and skiing centers, as well as medical, learning, and entertainment centers. In addition to those, many UAE based real estate firms such as Emaar Properties, Tiger group, Al Futaim, etc are either contemplating investment projects in Syria, or have been granted the approval and are about to launch multimillion dollar projects.
Going forward, we believe that the country’s real estate sector is expected to attract foreign investments especially from the Arab countries. However, much depends on the country’s political stability and the government’s further policy initiatives. (Source: Global)
© 2007 Al Bawaba (www.albawaba.com)
