Syria’s ruling Baath Party introduced a meager set of reforms at its June 6-9 congress, dashing hopes that the eagerly-awaited event would launch a more rapid process of economic and political liberalization. Facing unrelenting pressure from the United States and growing regional isolation, the Syrian government is attempting to bolster internal unity by establishing clear red lines for the opposition while loosening slightly its tight grip on Syrian society. But what will that entail for Syria’s struggling economy? Executive spoke to Dr Nabil Sukkar, managing director of the Syrian Consulting Bureau for Development and Investment.
Do you consider the speed of economic reform over the past five years as satisfactory? If not why not? What are the major obstacles?
The speed of economic reform over the past five years has not been satisfactory even though the pace of reform has accelerated. The reason is that domestic problems are mounting and external pressures to carry out reform are also increasing. I don’t mean political pressures but the pressures of having to join the Euro-Mediterranean Association Agreement. Domestic problems are mounting tremendously. We have increasing unemployment, economic growth is running at about 3 percent a year, the oil situation is becoming more serious in the sense that we are approaching a period where Syria will become a net importer of oil. Oil, so far, has been bringing us about 70 percent of the country’s foreign exchange receipts and about 50 percent of the budget revenues. When the oil dries up, this positive contribution will come to an end and we have to prepare ourselves as of now to find alternative foreign exchange income.
There has to be much faster economic reform to cope with all these internal and external challenges.
What reforms are being planned at this stage, and what is the projected speed of implementation?
There is no specific reforms on the agenda because there is no economic reform program. This is one of the problems. Syria has been carrying out economic reform, though slowly. But it was not part of a comprehensive economic reform program. It was an ad hoc reform, responding more to crisis needs than a program prepared in advance with a clear objective strategy and timeframe. There seems to be a reform and development program being prepared at the present time which will take us from 2006 to 2010. It is being prepared by the Planning Commission and is supposed to be put into effect in January 2006. It will be a new type of planning. It will be reform plus development in one package. We don’t know the framework of this plan but it will be announced.
Is the pace of economic reform dependent more on the Baath Party issuing directives or the government’s efficiency in implementing those directives?
What’s more important are the directives that come out of the Baath Party. One of the reasons we have not been moving fast on economic reforms is that there is still an ambiguity on the identity of the Syrian economic system. Are we still a socialist economy or are we moving toward a market economy? And if we are moving toward a market economy, what’s it going to look like? Once we cross that threshold and identify [what kind of economy] we will have, then there will be more clarity to guide the government. Right now governments are caught by the ideology of the party which says Syria has a socialist economy and a centrally-planned economy. It’s that conflict that has been delaying reform, or slowing down reform.
How much of the economy is driven today by the private sector and how large is the public sector share in economic activity?
Ever since the early 1990s, the economy has been driven increasingly by the private sector. In response to Investment Law Number 10 of 1991 and various reform measures that have taken place since then, the private sector started to play a larger role and investments increased considerably in the early 1990s. But Law Number 10 was not accompanied by other measures to liberalize the economy and to create an enabling environment for private business. The private sector hesitated and by the mid 1990s, [it] started slowing down because they realized that the government seemed was just giving them some tax incentives but not undertaking a deep change in the regulatory framework of the economy. The private sector now needs more assurances that we are moving toward a market economy.
Nevertheless, right now the private sector contributes about 60 percent of GDP compared to 40 percent in 1980, so the private sector contribution has increased considerably in the past 20 years.
How much has the private sector’s ability to function been improved in the recent past and where are the current best prospects for private sector development?
I think the private sector has been able to improve better because the regulations have eased up a bit, but not sufficiently. There has been an easing up in import regulations, export regulations, tax regimes.
As far as areas of private sector investment, it’s in practically every single sector. Syria is a virgin country. It has opportunities in tourism, industry, agriculture, telecommunications, transportation, banking. Banking and financial services are important areas. Syria allowed private banks about three years ago and now we have three private banks. There’s large room for financial services and insurance. Funds for venture capital, financing small and medium industries, micro financing, you name it.
Would it at all be economically feasible for Syria to maintain continued dominance of the public sector in the national economy?
Dominance of the public sector is diminishing anyway. But at the same time I don’t think the public sector should withdraw from social services. It should increase its role in the social services, in education, in health care. Otherwise if you open up to a market economy and don’t take sufficient care of social issues you end up with poverty and this is something we want to avoid.
How important is the issue of labor and unemployment in the Syrian economy?
Unemployment is about 20 percent. Official figures are about 11 or 12 percent. Some official sources came up with a figure of 16 or 17 percent recently, but I think the figure is more likely in the region of 20 percent. There are about 300,000 new people coming onto the labor market each year and this needs a high rate of growth to absorb them into the economy. Adding to these two factors of existing unemployment and new labor force is the extent of the disguised unemployment in the public sector. If you want to reform the public sector one of the things you have to do is get rid of the excess labor in the public sector. No less than 30 percent of employment in the public sector is excess labor. That will create another pressure on the labor market.
The problem of employment and unemployment is extremely important and any economic reform has to attend to this issue very seriously otherwise economic reform will be associated with more unemployment and more poverty.
In this context, how large of a contribution to Syria’s GDP do you attribute to Syrian expatriates working abroad, and specifically in Lebanon? How has this been affected in recent months?
Not much. The remittances coming from laborers in Lebanon is not more than maybe $400 million a year. If the number of laborers in Lebanon is 500,000 and they are making $400 million a year. Assume that 20 percent of the labor has come back [to Syria], then that’s the loss. It’s not a significant issue at all. And I think the laborers will return when the situation gets back to normal. I think the loss is more to the Lebanese economy than the Syrian economy.
How do you see economic and business ties between Syria and Lebanon developing in the coming two to three years?
I expect the ties to grow. Now that there are no more Syrian troops in Lebanon, I think economic relations will improve on a more equitable basis and a more relaxed basis and we can build a more sustainable relationship. Once the elections are over in Lebanon I think the two countries can work together and intensify their trade relations, tourism, labor movements and investment flow between the two countries. I think things will improve and become based on a more sustainable basis. I’m very optimistic.
Do you anticipate any short- or long-term economic repercussions on Syria from the US drive for change in the Middle East and from UN resolution 1559 in particular?
I think [US sanctions] are having an impact, not a direct impact because they are US sanctions not UN sanctions and as a result it’s the US that’s sanctioning its own companies. We don’t have much of an economic relationship with the US. Trade volume is about $300 million a year, which is insignificant. There’s little direct foreign investment in Syria. The major [foreign] companies here are Shell and Total. And Shell is a Dutch company and Total is a French company. There are some minor US companies doing some [oil and gas] exploration. But there is a rebound impact, a psychological impact, deterring some non-US companies and other governments from dealing with Syria at the present time because they don’t want to antagonize the Americans.
Resolution 1559 brought the French and US together in rare agreement on a Mideast issue. Do you expect to see that partnership fade now that the clauses relating to Syria in 1559 have to all intents and purposes been fulfilled?
The alliance between the US and France is temporary and all will depend on the results of the investigation into [the assassination of former prime minister Rafik] Hariri. If the results clear Syria, then the EU will go ahead and sign the Association Agreement. If the results raise doubts about Syria’s role in the assassination, then I think this could complicate things and continue this present state of pressure uncertainty, unusual alliances of foreign powers against Syria. The Europeans are not signing the Association Agreement with Syria pending the result of the investigation.
