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Country name: Syrian Arab Republic
Population: 19,314,747 (July 2007 estimate)
Land Area: 185,170km²
Official Language: Arabic with both English and French widely spoken
Currency: Syrian Pound
Capital: Damascus
Main Cities: Aleppo, Homs, Hama, Idleb, al-Hasakeh, Dayr al-Zur, Latakia, Dar’a, al-Raqqa and Tartous
Syria has long been a leading trading hub in the region. Its capital, Damascus, one of the country’s numerous historic cities that boasts a community of some four million, stands alongside Cairo and Baghdad as one of the foremost ancient centres of Arab civilization. Like all countries in the region, it is keen to attract investment to develop its economic potential and has embarked on a course of reform make this possible.
In early 2007 it issued two new presidential laws to boost investment by foreign companies. Under investment law 8, the telecoms, environmental, electricity, petroleum and mineral resources sectors will all be opened up to investors. The previous law, law 10 of 1991, had excluded these sectors. Exemptions from taxes, fiscal and municipal duties and customs duties will now be extended to investment projects in the new areas. The new law also extends the exemptions to projects deemed of “great importance to the national economy” it says. In a further move, law 9 will allow a new Syrian Investment Commission (SIC) to be set up, affiliated to the prime minister’s office. The new commission, which will take over from the existing Syrian Investment Office (SIO), will manage investments for the Higher Investment Council, implement policy, conduct advertising campaigns abroad and advise investors.
The country’s deputy prime minister for economic affairs, Abdullah Dardari, a leading figure in the drive for reform, looks forward to a positive future, with increased growth levels, falling unemployment and a streamlining of investment procedures. Syria envisaged economic growth of 5% in 2006, 5.2% in 2007 and 7% in 2010, according to the provisions of the five-year plan, Dardari stated in December 2006. The tenth five-year plan foresees a gradual evolution towards a market-based economy. To achieve this, Dardari said there would be further reforms to legislation covering investments, finance and fiscal policy. Reforms already enacted have seen Syria's ranking in the World Bank's indicator for the ease of starting a business improve from 135 to 91, one of the largest jumps among the countries listed.
The deputy prime minister also cited forthcoming changes to laws governing the previously highly controlled energy and telecommunications sectors, key areas to attract foreign investment, as well as opening up industrial cities and improving infrastructure. Another reform that will serve to both encourage overseas investors and boost Syria's private sector and which is due to come into effect in 2007 is the slashing of the top corporate tax rate from 65% to 35%.
Syria has been making a particular effort in attracting investors from neighbouring Arab countries with Damascus hosting the Second Conference of Investment and Stock Markets on December 4 and 5 2006 to inform a largely Arab audience about economic reforms and the soon to be launched Damascus Stock Exchange.
To date the majority of Gulf investments into the country have been directed to the tourism sector, with more than $1 billion committed in the past year. The upper end of the real estate market has attracted a similar figure and the newly liberalised banking and insurance sectors have also drawn significant investments. Along with the opening of the Stock Market in mid-2007, the overhaul of Syria's banking sector will be completed by the establishing of a Treasury bill market, ministers have indicated.
Speaking at the December conference, Naser al-Muri, the deputy chairman of Kuwaiti firm Noor Financial Investment Company, said that Syria was developing a promising investment environment for Arab and foreign investors. Noor is in the process of establishing an Islamic insurance company in Syria with start up capital of $30 million, and also has a $100 million stake in the new Syrian Islamic Bank. The company is considering further investments in the country, al-Muri said.
Internationally, Syria is seeking out new markets and partnerships, with regional countries such as Iran and Turkey, but particularly with the European Union with whom negotiations on an Association Agreement began in the late 1990s, although the pact has yet to be agreed, with the EU citing “political deadlock” as the obstacle. Syria, however, believes that it is technically ready to ink the far-reaching Association Agreement.
Syria’s latest five-year economic plan, which covers the period 2006-2010, was drawn up following an extensive consultation process with wide sections of civil society and the private sector. Negotiations took place over some fifteen months. Officials adopted the new approach to boost the reform process and integrate local businesses in the plans. Abdullah al-Dardari, minister of state for planning affairs and head of the State Planning Committee at the time, stated that the rationale behind the plan was to co-ordinate the various strategies currently developed at ministerial levels with the ultimate goal of establishing a market economy. The overall target is for 7% growth in GDP over the next five years, former UNDP official al-Dardari stated.
The private sector's role in developing the plan stands as testimony to its growing influence in the economy. Private business today accounts for 60% of total GDP. The government is trying to attract private sector investors into state firms, such as food-processing industries, through the use of build-operate-transfer (BOT) contracts. Syria is also investing in the modernization of companies in its textile, engineering and chemicals sectors to the same end. Syria has also decided that measures shielding profitable state businesses from competition will be removed within two years leaving them free to compete on an equal basis with other companies.
In a further bid to stimulate private sector activity, Syria is embarking on the development of industrial cities and free trade zones and it was reported in February 20007 that work was underway to establish one in the northern city of Idleb.
Islamic banking is becoming more important as the country opens up its banking sector with licences issued to the first Islamic banks in September 2006. In March 2007 United Islamic Bank of Syria backed by Gulf investors was set up. “We are aiming to launch an initial public offering [IPO] offering a 51% stake in the bank to local investors by the end of May,” stated Ahmed al-Dawsary, chairman of Bahrain’s Global House Group (GHG). Foreign shareholders, led by GHG, will hold the remaining 49%. GHG is in talks to bring in United International Bank of Bahrain and Dubai-based Commercial Bank International as additional foreign shareholders by early April. The bank will be capitalised at $250 million. GHG is also to set up a takaful insurance company with a capital of $50 million with private investors. It is also planning a brokerage firm. Other Islamic banks in the pipeline include a $200 million bank planned by Dubai Islamic Bank.
One early indication of the wide interest generated by the opening up the banking sector to private interests came in August 2005 when shares in the Banque Audi Syria were offered and it was massively oversubscribed. The local initial public offering (IPO) of shares in Banque Audi Syria closed with subscriptions reaching $115 million, nearly 10 times more than the original target of $11.7 million. On offer were 625,000 shares. The IPO accounts for 25% of shares in the new bank, while the remaining 26% of locally owned capital has been raised through a private placement. 47% of shares in the bank are held by Banque Audi and 2% by a private Saudi investor.
On 15 July 2005, the Syrian Insurance Company’s official monopoly came to an end when private insurance companies were given the go ahead to apply for operating licences for the first time in four decades. The decision to open this sector up to competition can in part be explained by the positive results experienced in the banking sector following the introduction of reforms over the past two years.
For investors in the financial services sector, the Syrian insurance market is definitely untapped and thus offers significant growth potential. There are some outstanding issues to be resolved such as a lack of financial tools and a limited local purchasing power but these should not ultimately prove insuperable barriers to enable companies to start investing.
Under Insurance Law No. 45 enacted in May 2004 foreign insurance companies have the right to operate without the need for a local partner, as well as the ability to repatriate all net profits in hard currency after having paid the relevant taxes. The new law also allows foreign board members of private insurance firms to transfer 50% of their net salary and any compensation payments out of Syria, and this rises to 100% for their final leaving salary.
As it seeks to establish a broader based economy in order to end a structural dependency on oil and gas, Syria has increasingly turned to developing its tourism sector as a foreign currency earner. Syria has embarked on a plan to increase the number of tourists to 8 million by 2010, a move expected to increase revenues from the tourism sector to $6 billion, Syria's News Agency SANA reported.
In November 2006 Syria’s Minister of Tourism Sadallah Agha al-Qalaa launched a joint program to develop the country as a venue for cultural tourism in cooperation with the European Union. This will focus on Syria’s many archaeological and heritage sites. Damascus hosted its Third Tourism Investment Forum in April 2007, a major conference event for potential international investors showcasing the attractions of tourism in Syria.
Revenues from tourism in 2004 reached $2.2 billion, according to the country's Tourism Ministry. Numerous tourism investment opportunities in new projects are being unveiled including ambitious plans to extensively rehabilitate old cities and archeological sites through foreign financing and partnership.
According to government figures, 2005 saw 4.4 million tourists visit Syria. As a sign of the dynamic activity in the sector new hotels, such as a $100 million Four Seasons hotel scheduled to open later this year, are becoming a common sight on the Damascus skyline.
Nevertheless for Syria tourism remains an exciting new industry, extremely rich in potential given the country's numerous assets in terms of ancient sites and attractive locations that could bring in many more visitors from around the world. Success in the longer term depends on factors such as developing a modern infrastructure through initiating construction projects and adopting a sophisticated marketing strategy. Today, tourism revenues in Syria still significantly lag behind those of Egypt, Turkey and Cyprus. However, the Tourism Ministry reports increases in tourist numbers of some 20% in the first quarter of 2005 in year-on-year terms to reach 1.41 million and revenues for 2005 are expected to surpass $2.8 billion, up from $2.2 billion last year, reflecting the growing importance of the sector to the economy.
The first commercial oilfield in the country began production in 1969, but exports only started in the 1980s. Oil production was averaging 450,000 b/d at the start of 2005, according to the country’s Minister for Petroleum and Mineral Resources, Ibrahim Haddad. This was down from 600,000 b/d in 1998, a fall attributed to both lack of investment and limited resources. Syria came to be highly reliant on export earnings derived from oil, which has accounted for around 75% of export earnings over the past decade. Nevertheless the country is a non-OPEC member and its oil and gas industry is relatively small in comparison with other countries in the region. Furthermore, on present output rate, its exploitable reserves are only expected to last for another 10-15 years.
Syria’s gas potential is very much stronger than oil. Production has increased to 24 million m3/day, a rise which now enables some 50% of Syria’s electricity needs to be met from gas and the aim is to increase this to 75% soon.
Syria’s Petroleum & Mineral Resources Ministry gave international oil companies until 12 July 2007 to submit bid proposals for exploration and production sharing agreements (EPSAs) for seven onshore blocks. The seven blocks included in the new round cover 40,000km2 and will be awarded on the basis of 25-year agreements. Blocks 3, 4, 7, 14, 16, 19 and 21 are all included. The EPSAs will offer a 12.5% royalty from the amount produced, while recovery costs are put at 40%.
Syria possesses an exceptional high standard basic education system as the authorities have long been committed to investment in education guided by the view that an educated population is a foundation of economic development. Literacy rates are thus very high in comparison with some of its regional neighbours. Adult literacy stands at around 83% and youth literacy 95%, according to the UN. Recently the government has pursued a drive to increase the educational use of computers and Internet in an attempt to equip a new generation with the latest skills needed to compete in the hi-tech global economy.
Quelle: Ghorfa, Arab-German Chamber of Commerce and Industry e.V.
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