A Decade in Power, part 6: The Market, but at what cost?
Today, Damascus is a thriving, yet divided city. A small elite of nouveaux riches enjoy life to the fullest, drive the latest car models, shop in fancy fashion stores and dine in expensive restaurants. The majority of the Syrians though struggle hard to make ends meet.
The celebration of President Bashar Al-Assad’s tenth anniversary of accession to power took an unusual twist this year. There were no masses of citizens marching in Damascus’ streets, raising posters of the president and chanting slogans of “eternal loyalty” to him, as was customary on similar occasions when Bashar’s father, Hafez, was head of state.
This time, the ceremony took place in a public garden in the capital in the presence of Baath party officials and union leaders. But the real harbingers of the new Syrian era were a group of elite businessmen. During a key moment of the ceremony, a large flag was hoisted not by a government official but by Rami Makhlouf, the cousin of the president and the country’s leading tycoon.
This emblematic image reflects the new direction Syria has been taking in the past 10 years, from a socialist-type of economy with a heavy reliance on a centralised public sector to a more market-oriented one aspiring to become increasingly dependent on the private sector. At the forefront of this shift are Makhlouf and a group of other prominent businessmen, who are mostly heirs of leading party officials.
In order to keep pace with the changing economic landscape of a more globalised world, the relative liberalisation of the Syrian economy brought in new private banks, investments in the industrial, tourist and real-estate sectors and the establishment of a fledgling stock market.
According to a recent in-depth report by the Oxford Business Group, Syria has been making steady progress on the economic front that is promising to develop further with “revived relations with the US and… key trade partnerships with the EU”.
The report detailed how Syria was currently exploring its bid to build public-private partnerships, particularly in the oil industry, and tap investors for key projects.
Despite these prospects for an improving economy, many analysts inside the country say that wealth has not been trickling down and that rampant corruption has been protecting the interests of Syria’s powerful business circle.
In 2009, Syria ranked 126 out of 180 countries, according to a corruption perception index set by Transparency International. The previous year, Syria had ranked 147 in the world and some observers attributed this improvement to the country’s liberalisation of its banking and investment laws.
Market economy vs social justice
The economic shift in Syria mainly happened in the last five years when the Baath party adopted the “social market economy” during its 2005 national conference, the largest in the last decade. This was followed by a number of laws allowing foreign investors to open private banks.
Back then, the party asserted that change would lead to economic liberalisation while insuring “social justice,” a plan which was later poorly executed, according to several analysts.
Some also say that liberalisation has not yet born fruits because the Syrian productive sector is not empowered enough to compete with foreign products.
Today, Damascus appears totally different from what it was ten years ago. Luxury hotels, fancy restaurants and private banks and insurance companies, led by a young generation of entrepreneurs with strong ties to the regime, have emerged in the capital.
But behind the glitter of the new well-to-do neighbourhoods, the wealth gap between the poor and the rich has been widening. In contrast to the wealthy parts of Damascus and some of its suburbs, squalid slums also sprawl around large cities.
While property prices have soared in the capital, living conditions in the slums are suffering from poor services, pollution and congestion.
Although official figures show that poverty levels have been decreasing, the decrease is happening slowly. Compared with 1996 and 1997, Syria’s level of poverty fell from 12.6 per cent to 9.9 per cent in rural areas and from 16 per cent to 15.1 per cent in urban centres in 2006 and 2007, according to a national report submitted to the United Nations on progress made towards the millennium development goals.
The prices of goods, real estate and electricity have increased significantly in the last few years, placing a heavy burden on the lower social classes. Observers say that waves of Iraqi immigration since the US invasion of Iraq in 2003 also led prices to swell.
Unemployment has also been on the rise, especially among young people. According to official figures, unemployment in 2009 was around 8 per cent. But unofficial estimates claimed that the real figures were three times higher. This has driven a large section of the young generation to emigrate in search of better jobs and created a serious brain drain, according to some observers.
The lost “jewel of Syria”
Also noticeable are the waves of internal migration from rural areas to cities. While agriculture was one of the pillars of the Syrian economy in the past, contributing to around 44 per cent of the national income in the 1950s, its importance has dropped significantly in the last decade. Today, it is estimated that 15 per cent of the working population are employed in agriculture.
The al-Jazeera region, which traditionally contained some of the country’s most important strategic crops and oil wells and was once known as the “jewel of Syria”, has turned into Syria’s poorest area and currently relies on international aid.
While a severe drought has hit the region for three consecutive years between 2007 and 2009, some experts say that the onus for the deterioration of the agricultural sector in al-Jazeera lies with poor government policies, especially with relation to water management.
Water shortages have been exacerbated by the lack of modern technology in irrigation and the continued random exploitation of water from wells. This is coupled to years of poor investment and a lack of development of the agricultural sector. The past years have witnessed the massive movement of farmers from al-Jazeera who abandoned their barren lands to move to urban centres.
Some figures show the extent of the blow that the agriculture has known in recent years. The production of wheat decreased in 2008 by about 82 per cent compared to the previous year, forcing the country – a previous exporter – to import wheat for the first time in 15 years. Also, livestock was significantly affected.
In 2009, farmers were faced with another challenge when the government decided to lift subsidies on fuel. The price of diesel, which is used as the main source of energy by farmers, increased threefold.
Local production in crisis
The condition of the industrial sector has not been better. With the market opening its doors to cheaper Chinese and Turkish products, many small and medium-sized factories and businesses were not able to compete. Over the last decade, the local media has reported the closure of hundreds of businesses unable to compete.
The rise in the price of fuel in 2009 also put more pressure on local industries. Liberalisation of the economy has also lowered the tariffs on imported products, leading to a reduction in the treasury’s revenues and a subsequent increase in taxes.
Some analysts say that the government has not invested enough in the industrial sector to make it more competitive. Only 13 per cent of investments in the country are in the industry, which employs 17 per cent of the active population, according to a lecture held at a Damascus cultural centre in April by Syrian economist, Fouad Al-Lahham.
He also noted that most Syrian exports are raw materials or semi-manufactured products, while the country imports mainly end products, pointing out that Syria could benefit from finishing the production cycle.
Economists fear that an economic partnership agreement with the European Union, which is expected to be signed soon, will further strain local production.
An ailing public sector
Another burden on the Syrian economy is a weak, faltering public sector. When he died, Assad the father left a weakly productive public sector rife with corruption and bureaucracy. Although his son has moved to partly privatise ailing public companies, nothing has been seriously done to overhaul this sector.
In 2009, only 48 out of the 91 public companies were making a profit, according to Lahham. The fate of thousands of employees working for unproductive state-owned companies remains unknown.
Some say that privatisation has not been considered carefully. They say that the private sector has been introduced to win the fruits of successful public companies as in the case of steel, cement or paper factories.
Currently, reports say that the government is considering the privatisation of the electricity, ports and other sectors.
Overall, the Syrian economy is not yet at a productive stage. In 2008, the production sector contributed to 45 per cent to the country’s GDP, according to official figures.
Experts also warn that the projected decrease in oil production in the next decades will put more pressure on the economy.
Revenues from oil production are currently the first source of income for the treasury. But many fear that the oil will run dry by 2025, with levels of oil falling over the past decade.
Foreign investments flowing
Faced with these challenges, the Syrian government is hoping to secure foreign investment to redress and invigorate the economy.
Legal and structural steps were initiated during the last decade to encourage investors to come to Syria.
According to official figures, foreign investments in the country increased ten times over between 2003 and 2008. Those investments contributed 27 per cent to the GDP or 1.8 billion US dollars, according to a report published in 2008 by the national news agency, SANA.
Funds are mainly coming from oil-rich Gulf countries like Qatar, Kuwait and Saudi Arabia, but also from Syrian expatriates in the UK and Canada. Investments are in the sectors of telecommunication, banking, insurance, electricity supply, extractive industries as well as hotels and restaurants.
In 2009, Syria received 1.5 billion US dollars in foreign investment and was ranked 11th in a list of Arab countries receiving direct foreign investments, according to a 2009 report by the Arab Investment & Export Credit Guarantee Corporation, a Kuwait-based joint-Arab agency.
But analysts say that the government still needs to make more effort to reform the judicial system, fight corruption and halt monopolies in order to attract more investors in the future.
Another step taken to encourage raising funds for local projects was the creation of the country’s first real stock market in the beginning of 2009.
But more than a year after its establishment, the Damascus Stock Exchange is still yielding modest results, according to experts. The number of companies listed on the market is currently 24, including 10 banks and a number of insurance companies. But the volume of trade is still relatively low, with the highest number of shares traded in one session reaching the equivalent of 2.25 million US dollars.
Observers say that the population is still largely not aware how to invest in the stock market.
Thriving tourism sector
Arguably, the most successful economic sector today is that of tourism, which contributes today to 11 per cent of the GDP, according to the Syrian ministry of tourism.
The World Tourism Organisation placed Syria in the third rank with respect to growth in tourism in 2009, when more than six million visitors came to the country.
And the numbers of tourists has doubled since the beginning of 2010 as a result of the cancellation of visa requirements with a number of countries such as Turkey and Iran.
According to the tourism ministry, tourism from Europe and Gulf countries currently account for more than 23 per cent of Syria’s foreign currency revenues.
Another important source of revenue comes from Iranian pilgrims who come to Syria en masse every year to visit Shia religious sites.
Overall, it does not seem that economic liberalisation has led to the desired effect, partly because of the deterioration of the country’s productive potential and partly because the country cannot reach its full potential with the continued US embargo on Damascus.
Experts say that US sanctions, existing since 2004, might be preventing foreign investments in Syria from reaching higher levels. Hopes are that a relaxation in relations between the US and Syria would help remove some of the obstacles which prevent Syria from becoming a more globalised economy.
One sign of an improvement in relations was that Syria received an observer status this year at the World Trade Organisation after the US dropped its opposition to this step. Also, key US figures, especially in the technology sector, have visited Syria in recent years in a sign that US investors might be directing their attention to the Syrian market.
