Global Arab Network | Planning ahead – Syria targeting $ 95 billion investment

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Planning ahead – Syria targeting $ 95 billion investment

Tuesday, 08 February 2011 02:49

The beginning of the new year saw the entry into force of Syria’s latest five-year plan, the 11th in the country’s history. The plan , which was approved by the cabinet on November 14, 2010, runs from the start of 2011 to the end of 2015. Although some have argued the use of five-year plans as outdated, the government believes the system continues to provide a helpful framework to set goals and benchmark progress in adopting a “social market” economy, Global Arab Network reports according to OBG.

The plan aims to achieve average growth of 5.7% in the next five years, with $ 94.9 billion of investment required. Of this, just over half (53%) is expected to be provided by the private sector. The bulk of this is likely to go into manufacturing, construction, finance and extractive industries, while public investment will be concentrated in government services, transport and storage, agriculture and water (particularly irrigation networks).

A theme running throughout the plan is the social dimension of development. To this end, the government aims to create 1.25m jobs to keep pace with the expected number of people entering the labour market to 2015, and a further 250,000 to absorb existing unemployment. Although exact figures are not available the IMF estimated unemployment at around 11% in 2009 and this is unlikely to have changed significantly since the result was published.

To achieve these objectives, the plan envisages a reorientation of government spending towards investment in physical and social infrastructure, public service reform, as well as changes to the regulatory and taxation regimes to promote greater domestic and foreign investment. A significant change in this direction is the government’s plan to dismantle Syria’s remaining energy subsidies and allow prices to gradually rise to market levels. Over the course of the previous five-year plan, the government spent S£1.3trn ($28.7bn) on energy subsidies, a sum greater than the total amount of social investment over the same period. In 2008, the government removed subsidies on heating oil and diesel, which reduced the cost of subsidies to around 5% of GDP in 2009, according to the IMF.

A number of food and agricultural subsidies are also due to be phased out by 2015, with the money saved reallocated to development spending. Despite this broader objective, on January 16, the government announced a rise of 72% in the heating allowance for civil servants and pensioners, a move that will cost S£15bn ($331m) and benefit around 10% of the population. The 11th five-year plan also outlines a new programme of administrative and institutional reform. Both Syrian businesses and members of the public often criticise the bureaucracy as slow, inefficient and tainted with corruption. In the 2010 Corruption Perceptions Index, produced by the anti-corruption organisation Transparency International, Syria ranks 127th out of 178 countries.

The 11th five-year plan aims to reduce corruption by introducing performance-related pay and decentralising responsibilities, both regionally and within individual departments. The state is also expected to increase the transparency surrounding public expenditure and introduce e-government services. By removing direct contact between citizens and officials, e-government should help to reduce bribery while at the same time improving the efficiency of services.

The plan rules out large-scale redundancies in the public sector and the privatisation of state-owned enterprises. However, the structure of many is to be changed, granting these organisations greater operational independence and the ability to retain profits, which can then be re-invested into the business. One of the main challenges currently facing Syrian industry is a lack of competitiveness, which is reflected by low levels of productivity. The government intends to tackle this by investing in infrastructure and human resources.

The government believes that increased connectivity with the global economy will allow the country to recover its traditional role as a hub on the eastern Mediterranean and is pushing ahead with integration plans while investing substantially in the country’s infrastructure.

The spending programme includes upgrades to the country’s two main ports, Latakia and Tartous, improvements to airports and roads, and reviving and upgrading the rail link to Jordan. To help attract investment, the authorities plan to introduce a dedicated public-private partnerships law, to be issued sometime this year.

With 2015 the target year for achieving its Millennium Development Goals, the government is using the five-year plan to support objectives to reduce poverty and unemployment levels. These remained static during the last five-year plan due to the impact of the global recession and high population growth. The authorities aim to reduce the rate of population growth from 2.45% to 2.1% and will allocate 30% of the plan’s budget – S£2trn ($44.1bn) – to human development, including health care and education.

To help pay for this, the government has committed itself to reforming the tax system to increase collection and encourage investment. Value-added tax (VAT), which the government has been preparing to introduce for a number of years, is expected to be rolled out within the period of the plan.

In another attempt to raise revenue, the government issued its first treasury bonds in decades in December 2010. The oversubscribed short- and longer-term bonds raised a total of S£5bn ($110.4m) for the state. The Syrian banking industry had long been awaiting this development, welcoming it as a means to increasing the country’s macroeconomic stability, as well as helping to mop up excess liquidity and contributing to greater price stability.

While Syria’s public sector looks set to retain its relatively central strategic role under the 11th five-year plan, with all of the associated costs that this entails, the government has laid out measures to rein in expenditure going forward, including a particular focus on reducing subsidies. In addition, the strategies for raising money and the developmental spending priorities laid out in the plan should help make it a success. If all goes to design, Syria can look forward to a period of sustained growth over the next five years as it increases its global competiveness and creates new job opportunities for its expanding workforce.

Global Arab Network

This article is published in partnership with Oxford Business Group

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Last Updated on Tuesday, 08 February 2011 03:03

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