For thousands of years, Syria has been a regional trading hub due to its position as a crossroads for merchants and travelers. Damascus, after all, claims to be the oldest continuously inhabited city on earth, and the country’s covered souks are a standard must-see for any visitor and a still favored outlet for traditional and cheap goods. But in the years, since President Bashar al-Assad inherited his father’s political mantle, the Baathist state has come in from the economic cold and is realizing it has to open up to the idea of foreign investment, especially in the retail, tourism, construction and banking sectors. The message is loud and clear: there is clearly money to be made for companies and investors willing to stick their necks out to invest in Syria.
While origins of the Damascene retail conversion can be traced back 40 years, change has taken on greater momentum in the past decade (a key moment came in 2003 with the passing of Investment Law 10, which allowed the import of foreign goods) as the capital plays catch up with Amman and Beirut. The latest development saw a new investment law passed in early February that allows the export of profits.
The changes brought about by these reforms are considerable. Benetton and other international clothing outlets have a presence in the capital with billboards touting wares that would have been unknown under the senior Assad. Indeed, over the past five years advertising has surged 50% as branding becomes as much a part of Syrians everyday lives as anywhere else on the planet. Satellite television, estimated to beam into 85% of Syrian homes despite being officially banned, is also playing its part in whetting consumer appetites
“For years it was a closed system, and now Syrians are motivated to buy Western brands,” said Karim Saidah, General Manager of France’s Bel Groupe in Syria.
Syria’s withdrawal from Lebanon in April 2005 has also, somewhat ironically, played its part, with more affluent Syrians no longer driving to Beirut to pick up much coveted products, thereby creating a more viable domestic retail market for Western and luxury goods.
The car market has grown by a staggering 60% since taxes were slashed in 2005. The Joud Company has secured 50% of the $100 million soft drinks market since Pepsi was taken off a Syrian blacklist, and the Bel Groupe’s market share of the processed cheese market skyrocketed from 5% to 65% in the 18 months since opening a $17 million factory (see box on page 63).
After the relaxing of banking laws in 2000, Lebanon’s Bank Audi originally planned to open just the one bank in Syria, but within a year had seven branches. Total banking deposits reached $263 million in 2006.
Of the 11 private banks in Syria, three are Islamic, a financial sector that is booming throughout the region. In February, the Syrian International Islamic Bank—30% controlled by the Qatar International Islamic Bank along with 19% in the hands of Qatari investors—launched the largest investment drive in Syria’s history, offering $51 million worth of shares.
Retail dreams
Statistics on Syrian retail growth are not easy to find, but the surge in major retail project development is as good an indicator of change as any.
In 2004, the Town Center complex opened on the outskirts of Damascus, heralding the introduction of the shopping mall into the Syrian consciousness. Funded by Syrian investors, including the London-based Krayyem family, the five-level mall now attracts between 8,000-10,000 customers a week according to Walid Habash, the center’s head supervisor.
Although all retail spaces are taken at the mall, such weekly figures are low in comparison to the Ashrafieh ABC mall in Beirut, which claims that amount a day. The Town Center is not the only show in town, and admits it will have to become more competitive when two major malls—one of which is planned for the center of the capital behind the historic Hejaz railway station and backed by heavyweight businessman Rami Makhlouf—are unveiled. While, Makhlouf’s multi-million dollar project is predicted to revolutionize Syrian retail, no progress has been made since the foundations were dug three years ago. The project has reportedly been bogged down in urban management problems, such as where to park cars and how to solve the city’s increasingly problematic congestion (although the Damascus rumor mill is buzzing with stories of plans to build a monorail or metro).
“There has been a lot of opposition to the project from various NGOs, including the Friends of Damascus Society, to preserve the Hejaz building,” explains Nabil Sukkar, managing director of the Syrian Consulting Bureau for Development and Investment.
Elsewhere, a more adventurous project is the $500 million Eighth Gate, a joint venture between Dubai’s Emaar Properties and IGO, an offshore investment and development company. Located in Yafour, 15 minutes from Damascus’ city center, the project is expected to be the largest mall in the Levant and will include a commercial center, waterfront and residential area.
How viable or indeed how realistic, such projects are is still unclear.
“They are all plans on paper… They may be viable within 10 years,” says Sukkar, adding, “what takes six months in Qatar, takes six years in Syria. There are a lot of hurdles for permits.”
However, according to Sukkar, the recent change in investment laws has seen companies scramble to get projects started before the 1985 and 1986 laws are scrapped to qualify for government incentives. How long they then spend executing the deal is up to them. The Majid Al Futtaim Group is one such example, signing quickly in February after three years of talks to get a $1 billion tourism city outside Damascus underway, which will also include a shopping mall. The project is expected to take a decade to complete, according to Sukkar.
Pipe dreams
One reason for the change in the investment laws was to attract the estimated $37 billion Damascus needs in the coming five years to achieve a target growth rate of 7% and reduce unemployment and poverty. The decree creates provisions for the repatriation of profits, dividends and invested capital—with foreign workers allowed to remit up to half of their earnings—and a waiver on customs duties on items imported for business use.
There are other reasons for the new investment law and economic reforms spearheaded by the British-educated, former World Bank official Abdallah Dardari, Deputy Prime Minister for Economic Affairs.
Petrochemicals accounted for as much as 70% of Syria’s exports and around 50% of the fiscal budget, but recently the government has admitted what analysts had thought for quite a while: Syria is now a net importer of oil.
Commercial reserves, largely heavy crude, will not be exhausted until 2027, but this critical shift in Syria’s oil fortunes means that the economic diversification that should have taken place decades ago—sabotaged by the discovery of oil in 1984—is now a pressing concern.
“Oil created a sense of complacency,” said Sukkar. “We should have put our house in order and diversified.”
But all is not lost on the energy front. With the visit to Damascus at the beginning of the year by the Iraqi president—the first diplomatic visit by Iraq in nearly 30 years—the idea of pumping Iraqi oil through renovated pipelines to Syria’s coastline was put on the table. The Iraqis made quite clear that the plan was contingent on Syrian security vis-a-vis Iraq, but no progress will be made until the situation in Iraq settles down.
In purely business terms, the invasion of Iraq has been a mixed blessing for Syria. There are some 1.8 million Iraqi refugees in Syria, putting a major strain on the country’s society and economy, but the change in the Iraqi regime has also boosted growth in Syria, with increased trade and currency inflows from Iraq. Dardari expects Syria’s GDP to grow by 5.6% this year.
The long term potential for Syria as an oil and gas transit hub is of course there: with the opening of such pipelines, oil and gas could be pumped to energy hungry Europe, although realizing this scheme would take well over a decade, according to analysts.
In the meantime, the Al Arish gas pipeline, extending from Egypt through Jordan and eventually to Turkey, is steaming ahead, now just 40 kilometers south of Damascus. The project was intended to provide Syria with cheap Egyptian gas, but due to spiked domestic demand in Egypt and Jordan, the pipeline is more likely to be used to send gas the other way, from Iraq and Syria’s own fledgling gas sector to Jordan and Egypt.
A way to go
Since the Euro-Mediterranean Agreement kicked off in 1995 and Damascus signed in 2004, Syria has benefited from inflows of European Union cash. The agreement is not yet ratified, but $226 million will be allocated over the next seven years for 17 bilateral projects that include the modernization of the Ministry of Finance, the health sector, vocational education, municipal administration, tourism, the energy sector and a small and medium-sized enterprises support program.
Whether any of this will boost Syria in the Washington-based Heritage Foundation’s listing on economic freedoms next year is hard to tell.
According to the foundation’s 2007 index, Syria ranked 142 out of 162 countries assessed, 15 out of 17 in the Middle East, and 2.3 percentage points lower than last year.
“Syria is weak in trade freedom, investment freedom, financial freedom, monetary freedom, freedom from government, property rights, and freedom from corruption,” the report said.
Some, or perhaps most of the above is not likely to change anytime soon, but with EU cash in addition to the launch of a security exchange commission later this year, economic reforms may be given a much-needed boost.
“The stock exchange will inspire holding companies and corporations, and improve money transactions in the market,” said Laila Al Samman, general manager at the Bank of Syria and Overseas, adding that there was a big chance to make money as Syria is a new market.
That may be true, but for the time being Syrians will make do with the retail outlets on offer and wait, perhaps without much anticipation, for such mall projects—like the much touted economic reforms—to actually happen.
