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Syria - Solid Economic Progress in 2010

Thursday, 30 December 2010 20:47

The Syrian economy continued to see solid progress in 2010, with the International Monetary Fund (IMF) estimating GDP growth at around 5% on the back of a global recovery in trade and buoyant tourist numbers, Global Arab Network reports according to OBG.

Tourist arrivals reached 5.7m visitors over the first seven months of 2010, compared to 3.3m over the same period last year, according to figures from the Ministry of Tourism. Remittances were projected to expand to $1.4bn, up from 1.33bn in 2009.

Inflationary pressures continued to ease, with price increases estimated in the region of 5% and the Syrian Pound retaining its value (which is pegged to the country’s special drawing rights at the IMF), weakening only slightly from 45 to the dollar to around 46.5.

World Bank figures put foreign direct investment (FDI) inflows into Syria at $1.4bn in 2009, a figure that was expected either to remain the same or rise moderately over 2010, particularly as Syrians moved capital home away from the turmoil affecting world markets.

The trade deficit was estimated to decline to around 3.9% of GDP, against 4.5% of GDP in 2009. Oil production was expected to continue its 13 years of steady decline to around 350,000 barrels per day – a 7% decline on last year – but also to continue to account for around 30% of government revenue.

The banking sector in particular saw robust growth. In addition to the six state banks, there are now 14 private banking institutions operating in Syria, of which three operate on an Islamic basis. Islamic finance still accounts for only a small proportion of the sector, however.

Total banking assets grew to top $40bn for the first time, with the bulk of the growth seen in the private sector, which now accounts for just under a quarter of all deposits. The country’s total loan portfolio expanded by 14.7%, with that of private conventional banks up by 33%, and that of Islamic banks by 64%. Syria remains underbanked, with one bank branch per 45,000 people, compared with one branch per 5,000 people in Europe, or for that matter, Syria’s neighbour Lebanon, with plenty of scope for expansion.

In January 2010, minimum capital requirements for private banks were raised, from SYP1.5bn to SYP10bn for conventional banks, and SYP5bn to SYP15 bn for Islamic banks, with a threeyear grace period in which to meet these requirements. At the same time, the maximum stake for foreign partners was increased from 49 to 60%, allowing for foreign majority-owned banks for the first time. Syria still has no mortgage law, and while many private banks do offer housing loans, mortgage lending is still not a standard income stream for banks.

The insurance sector received a boost when health insurance was made compulsory for all employees in the public sector earlier this year.

The stock market, the Damascus Securities Exchange, which will celebrate its second anniversary in March 2011, continues to suffer from restrictions on its trades (for instance, shares can only trade within a certain band and one cannot trade the same stock more than once on the same day). While these restrictions reflect an admirable desire to prevent speculation, they have also had the effect of dampening liquidity on the DSE. This has meant that trading remains modest, with only 18 firms listed. However, the strong interest in IPOs (many of which have been heavily oversubscribed) shows that there is certainly plenty of appetite for shares investment in Syria.

Agriculture, the mainstay of the Syrian economy after oil, continues to suffer from the three-year drought that has been affecting the country, particularly in the north-eastern provinces that have traditionally been Syria’s breadbasket. This year’s crop of wheat (a strategic crop for Syria) was only 2.4m tonnes, against expectations of 4m tonnes, while the latest cotton crop in 2009 was a disappointing 660,000 tonnes. These poor harvests are accelerating the relative decline of agriculture to industry and services in the Syrian economy.

Industry has had a mixed year. As of August 2010, Syria’s four new industrial cities, at Adra, Sheikh Najjar, Hassia and Deir el Zor, had attracted $9,6bn of investment. On the other hand, Syria’s traditional industrial base has been eroded by competition from Turkey, with production of cotton textiles down by 80%.

Indeed, in many ways, 2010 has been Turkey’s year in Syria. Along with rapprochement on the political level, Turkey has established itself as one of Syria’s most important trading partners. The free trade agreement between the two countries is already three years old, and bilateral trade has risen 162% since 2006, and is expected to breach the $2bn mark this year, accounting for about 5.5% of Syria’s foreign trade.

Syrian consumers are benefiting from cheaper and higher quality Turkish goods, and the initial losses have to be seen in the context of the government’s policy of reorienting Syrian industry towards higher value products. As part of its ongoing programme, the government set up a National Competitiveness Observatory in May 2010, to monitor the competitiveness of Syrian business and industry.

A number of Turkish banks have decided against entering the Syrian market in 2010, citing the rise in capital requirement as making entry too expensive. Over the long term however, this will strengthen the banks’ ability to finance much-needed investment projects. In October 2009, Damascus held its first ever conference on public private partnerships, and a law to govern these is presently being prepared. Already the country’s first IPP project is underway by Marafeq, a consortium of Kuwaiti and Syrian investors. The banks are still required to deposit 10% of their deposits with the central bank, at no return. Until such time as Syria should introduce government bonds then, PPPs are likely to throw a lifeline to the banks by opening a new line of business.

Global Arab Network

This article is published in partnership with Oxford Business Group

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Last Updated on Thursday, 30 December 2010 21:00

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