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Country Report

Syria

April 2010

Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom

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Syria 1

Country Report April 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010

Syria

Executive summary 3 Highlights

Outlook for 2010-11 4 Political outlook 5 Economic policy outlook 6 Economic forecast

Monthly review: April 2010 10 The political scene 12 Economic policy 12 Economic performance

Data and charts 16 Annual data and forecast 17 Quarterly data 18 Monthly data 19 Annual trends charts 20 Monthly trends charts 21 Comparative economic indicators

Country snapshot 22 Basic data 23 Political structure

Editors: Rory Fyfe (editor); Justin Alexander (consulting editor)

Editorial closing date: March 24th 2010

All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: To request the latest schedule, e-mail [email protected]

2 Syria


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Syria 3


Executive summary

Highlights

April 2010

• The president, Bashar al-Assad, is expected to remain in power in 2010-11 and, despite some tensions within the regime, there is no significant threat to his rule. Some limited domestic political reform is expected.

• Relations with the US and leading Arab states are expected to improve, albeit gradually, although rapprochement will be overshadowed by ongoing tension between the US and Iran, Syria!s closest ally.

• It is unlikely that Israel!s hardline government will seriously negotiate to return the occupied Golan Heights during the forecast period, but Israel and Syria may both have an interest in being seen to resume indirect talks.

• As the global recession ends and gas production increases, Syrian real GDP growth will rise to 3.9% in 2010 and then 4.2% in 2011.

• Inflation will rise to an annual average of 6.7% in 2010-11 as global commodity prices increase slightly and VAT is introduced, although it will remain well below its 2008 peak.

• The current-account deficit will narrow slightly to US$1.1bn (1.8% of GDP) in 2010-11, largely because of an increase in the non-merchandise surplus, resulting from a boom in tourism.

• The newly designated US ambassador has made it clear that the existing sanctions against Syria will be maintained as long as Syria is deemed to support "terrorist groups like Hizbullah and Hamas".

• The government has announced that it will resume talks with the EU to resolve issues that have delayed the signing of the Association Agreement.

• The Egyptian trade and industry minister has visited Syria, marking an improvement in relations between the two countries.

• A new labour law has made progress through parliament. It will replace a 1959 law and is aimed at strengthening employment contracts.

• EFG-Hermes, an Egypt-based investment bank, has established an office in Syria and plans to launch a locally focused private-equity fund.

• The stock exchange has marked its first anniversary. It remains small but has grown rapidly in terms of index value and market capitalisation and further listings are expected this year.

• Inflation has eased, owing primarily to lower fuel and food prices.

• Three new oil discoveries have been made in the Euphrates Basin with a combined flow of the wells of about 10,000 barrels/day.

Outlook for 2010-11

Monthly review

4 Syria


Outlook for 2010-11 Political outlook

The Syrian president, Bashar al-Assad, and his ruling Baath party are expected to retain a secure grip on the country, supported by key elements in the security services. The core of the elite is drawn largely from Mr Assad!s Alawi sect, and any move against him would risk endangering its hold on power. However, tensions within the regime persist, accentuated by external pressures such as the UN inquiry into the killing of Rafiq Hariri, a former Lebanese prime minister, and the ongoing investigation by the International Atomic Energy Agency (IAEA) into allegations that a Syrian building bombed by Israel in 2007 was part of a nuclear programme.

Only limited progress is expected on political reform over the forecast period. Although some promised measures may be implemented, it is hard to envisage any steps being taken that would significantly diminish the Baath party!s hold on power. Mr Assad initially advocated political reform when he came to power in 2000, but he has acknowledged that the pace of reform has been slow since then. He has pledged to increase popular participation in the political process by introducing a political parties law, which will create a second chamber of parliament, the Majlis al-Shura"in addition to the existing lower chamber (the Majlis al-Shaab). He also pledged to devise a local administration law to bring about greater decentralisation. Although there have been no visible signs of progress with these reforms in over two years, the reduction in international pressure on Syria will make it easier for at least a few cosmetic changes to be made at home during the forecast period. However, the security and intelligence services, which are pervasive and effective, will continue to clamp down on activists demanding democratic reform. The various opposition-in-exile groups and domestic critics are unlikely to pose a substantive threat to the government.

After a period of considerable diplomatic isolation in 2005-07, Syria has been developing steadily better relations with many Western and regional states"notably France, Turkey and Saudi Arabia"and this process is expected to continue over the forecast period. One consequence is that the EU is now ready to sign its long-delayed Association Agreement with Syria, and talks to resolve some outstanding issues with the agreement are expected to be resumed soon. The catalysts for the improvement in relations include the more constructive role that Syria is playing in Lebanon and a desire by Western and other Arab countries to weaken Syria!s alliance with Iran. Syria would like to play the role of a bridge between Iran and the West, but this will be difficult if tensions increase further over the Iranian nuclear issue.

After a hiatus of five years, the US has nominated a new ambassador to Syria. However, the US will still expect Syria to make concessions on a range of issues"in particular ending support for Hizbullah and Hamas"before sanctions (which were renewed in May 2009) are relaxed. Meanwhile, Syria will be

Domestic politics

International relations

Syria 5


looking for the US to take concrete actions that go beyond vague promises of a better relationship. There is a danger that these improving relations could be set back if Syria either obstructs the IAEA!s investigation or responds negatively should the UN inquiry into the Hariri assassination formally charge senior Syrian officials with involvement.

The rapprochement in 2009 between Syria and Saudi Arabia is widely believed to have facilitated the formation of a Lebanese government with Saad Hariri (the son of Rafiq) as prime minister. Mr Hariri!s visit to Syria in December 2009 suggests that Syrian-Lebanese relations will be cordial over the forecast period.

Relations with Iraq are likely to remain turbulent as long as some Iraqi insurgents continue to operate from Syria (which hosts a population of over 1m Iraqi refugees). However, Syria!s complicity in recent bombings in the Iraqi capital, Baghdad, and its potential to restrain the insurgents, had probably been overstated by Iraqi politicians for domestic reasons prior to the Iraqi parliamentary election on March 7th, and tensions are now likely to ease.

Syria has expressed its willingness to resume Turkish-mediated peace talks with Israel, suspended since 2008, but only on the understanding that peace would be based on Israel!s full withdrawal from the Golan Heights (captured from Syria in 1967). However, the Israeli prime minister, Binyamin Netanyahu, has repeatedly said that the Golan Heights will remain Israeli "forever", and there is little popular or parliamentary support in Israel for a withdrawal. Moreover, the Israeli foreign minister, Avigdor Lieberman, has rejected a resumption of Turkish mediation. A peace agreement is thus unlikely in 2010-11. The main stumbling block on the Syrian side is that any peace agreement would probably require an end to its strategic alliance with Iran and its support for Hizbullah and militant Palestinian groups. This would be politically difficult, although not impossible, for Syria to deliver. Nonetheless, Syria and Israel may both decide that it is in their interest to be seen to conduct talks, without expecting an agreement to be reached.

Economic policy outlook

Syria is expected to continue the gradual liberalisation of its centrally planned economy, a process that has been led by the deputy prime minister for economic affairs, Abdullah al-Dardari. However, there remain influential officials who argue instead that socialist and protectionist policies should be retained, and these conflicting interests could inhibit the formulation and implementation of policy. There are also powerful members of the business elite who benefit from the current status quo and might resist certain changes that would threaten their advantages. The recent removal of Tayseer al-Reddawi as head of the State Planning Commission, apparently over public criticisms he made about policy implementation, indicates that the economic debate remains highly charged. The overriding policy challenge will be to offset the impact of the decline in oil production by developing other sectors of the economy, particularly those that can boost export earnings in the medium term, such as tourism. This will require making established state-owned and family businesses more dynamic and encouraging entrepreneurship and investment.

Policy trends

6 Syria


Moves intended to increase domestic and foreign investment include expanding the Damascus Securities Exchange, relaxing foreign-currency restrictions and boosting bank lending.

Syria!s fiscal deficit is expected to narrow to S£164bn (US$3.2bn), or 6.4% of GDP, in 2010 as oil prices and thus revenue increase, and to S£125bn in 2011 owing to stronger tax revenue. Fuel subsidies have been substantially reduced, but they remain a fiscal burden as Syria imports a high proportion of the refined products it consumes. After much delay, a value-added tax (VAT) is likely to be introduced in 2010-11"probably at a rate of around 10%"boosting government revenue. The government may also receive windfall revenue from the conversion of existing mobile-phone contracts into longer-term licences in 2010, paving the way for the award of a licence for a third operator in 2011. Currently fewer than 10% of the 260 public enterprises are profitable, and thus the government!s public-sector reform plans, which include transforming state-owned enterprises into autonomous companies with their own budgets, will probably have a net positive impact on the public finances. The government may consider privatising some firms, particularly if the Damascus Securities Exchange displays more vibrancy.

The Central Bank of Syria is expected to continue to implement monetary reform and gradually gain greater autonomy. It has experimented with issuing Treasury bills, but now seems to have scrapped plans to issue them on a regular basis and will instead only use them sporadically to finance specific develop-ment projects. Nonetheless, there are plans to launch a local bond market, increasing the number and sophistication of monetary tools. The Central Bank is likely to continue to reduce the restrictions on foreign-currency transactions, a process that it started in early 2008, in order to facilitate investment. These measures should also help to develop and modernise the banking sector, in which privatised banks (in which 60% foreign ownership is now permitted) are playing an increasing role.

Economic forecast

International assumptions summary (% unless otherwise indicated)

2008 2009 2010 2011

Real GDP growth World 2.9 -0.9 3.8 3.5

OECD 0.5 -3.4 2.1 1.6

EU27 0.7 -4.2 0.9 1.1

Exchange rates ¥:US$ 103.4 93.7 90.9 90.0

US$:� 1.470 1.393 1.365 1.393

SDR:US$ 0.629 0.646 0.650 0.642

Financial indicators � 3-month interbank rate 4.65 1.23 0.70 0.93

US$ 3-month commercial paper rate 2.18 0.26 0.20 0.50

International assumptions

Monetary policy

Fiscal policy

Syria 7


International assumptions summary (% unless otherwise indicated)

2008 2009 2010 2011

Commodity prices Oil (Brent; US$/b) 97.7 61.9 77.0 73.0

Cotton (US cents/lb) 72.1 62.7 79.8 83.8

Food, feedstuffs & beverages (% change in US$ terms) 29.5 -20.6 2.3 -2.8

Industrial raw materials (% change in US$ terms) -5.1 -25.6 32.0 1.1

Note. Regional GDP growth rates weighted using purchasing power parity exchange rates.

The Economist Intelligence Unit forecasts that world real GDP growth (at purchasing power parity exchange rates) will be 3.8% in 2010 and 3.5% in 2011 as the effect of government stimulus packages fades. We now expect the Federal Reserve (the US central bank) to delay interest rate increases until the third quarter of 2011, a year later than previously forecast. The benchmark dated Brent Blend is forecast to average US$75/barrel in 2010-11. Syrian crude, most of which is heavy, will trade at a discount to this, averaging about US$66/b.

We have revised up our estimate of 2009 real GDP growth to 3% owing to indications of a better than expected harvest and to an average of 4% for 2010-11 owing to higher than expected oil production following three new oil discoveries. Foreign investment into Syria is likely to rise because of Syria!s increasing economic openness and improving international relations, although it will be held back in the short term by the ongoing global squeeze on credit"Groundstar Resources of Canada, for example, relinquished an oil-development contract in September 2009 because of problems securing financing. Government consumption growth will accelerate in 2010 as the fiscal stimulus is sustained but will slow in 2011 as expenditure is scaled back. Fixed investment will strengthen in 2010-11. Private consumption growth will pick up in both years, although if there is a significant improvement in security in Iraq (not our core scenario) following its election and the planned withdrawal of most US troops by late 2010, a sizeable number of the 1m or so Iraqi refugees in Syria may return home, thereby depressing consumption. Imports will pick up after contracting in 2009.

On the sectoral side, agriculture is forecast to grow steadily in 2010-11, assuming that the severe three-year drought in the north-east of the country eases. Water availability will remain a source of risk for the economy. Industry will be boosted by investment in new oil and gas projects, which will help to limit declining output in mature fields, and investment in electricity generation. Services will continue to expand, driven largely by a strong increase in tourist arrivals. Construction will also expand, although securing financing for some projects may be difficult and concerns will grow about the real estate market overheating.

Economic growth

8 Syria


Consumer price inflation is expected to increase over the forecast period, as global commodity prices recover slightly, government subsidies on fuel are reduced and VAT is finally introduced. We forecast that annual average inflation will be 6.7% in 2010-11, up from just 2.6% in 2009, but well below the peak of 15.7% in 2008. If Iraqi nationals were to return home in greater numbers, this would have a deflationary effect, particularly on urban rents. However, this will only happen if security conditions in Iraq improve markedly.

The Syrian pound is projected to strengthen slightly against the US dollar in 2010-11, to an average of S£45.7:US$1, as the world economy moves out of recession and Syria!s current-account deficit narrows slightly. The pound has been pegged to a basket of currencies based on the IMF!s special drawing rights since October 2007 and, although this new regime is less rigid than the previous peg to the dollar, the authorities are unlikely to let the pound float freely, because they place a high priority on exchange-rate stability. The dominant position of the state-owned banks and the Central Bank!s control over foreign-currency transactions (even as some laws are relaxed) mean that the regime is well placed to control the value of the currency. The Central Bank!s foreign-exchange holdings are relatively healthy, at US$5.6bn (four months of import cover) at end-November 2009. (The Commercial Bank of Syria also holds some foreign reserves.)

The improved outlook for agriculture and oil production has led us to lower our forecasts for the trade and current-account deficits. We forecast that export earnings will rebound in 2010-11, to an average of US$11.6bn, below the oil-price-related peak of 2008. In recent years, drought has seriously constrained production and therefore exports of cotton and textiles. The drought has now eased, and our core scenario is that it will continue to do so in the 2010/11 season, although climatic trends are hard to predict. Oil production is increasing at a number of small fields but declining at the larger, mature fields, with the net effect that total production will be roughly flat, averaging around 377,000 barrels/day in 2010-11. The net impact of changes in oil prices on the trade balance is limited, because Syria!s imports of refined products are about equal in value to its exports of crude oil. A domestic factor affecting the trade figures is the relaxation of foreign-exchange controls, which has led to more non-oil exports moving out of the black economy and being officially recorded. Overall, the trade deficit will stay broadly level at an average of US$2.8bn in 2010-11, although as a proportion of GDP it will fall to an average of 4.7%.

After falling in 2009, most of the components of the non-merchandise account, both credits and debits, will rise again in 2010-11. In particular, tourism receipts will grow strongly as a result of improving international relations and a developing tourism infrastructure. The non-merchandise surplus is expected to widen over the forecast period, causing the current-account deficit to narrow slightly to an average of US$1.1bn (1.8% of GDP).

Inflation

Exchange rates

External sector

Syria 9


Forecast summary (% unless otherwise indicated)

2008 a 2009 a 2010b 2011b

Real GDP growth 4.3 3.0 3.9 4.2

Oil production ('000 b/d) 386.6 c 375.0 c 374.4 380.0

Gross agricultural production growth -8.7 5.4 2.2 2.8

Consumer price inflation (av) 15.7 c 2.6 7.1 6.2

Government balance (% of GDP) -1.9 -7.0 -6.4 -4.3

Exports of goods fob (US$ bn) 14.0 10.3 11.4 11.9

Imports of goods fob (US$ bn) 16.0 13.1 14.3 14.7

Current-account balance (US$ bn) -0.7 -1.3 -1.1 -1.0

Current-account balance (% of GDP) -1.4 -2.6 -2.0 -1.5

External debt (year-end; US$ bn) 6.9 7.0 7.2 7.4

Exchange rate S£:US$ (av) 46.6 c 46.7 c 45.9 45.5

Exchange rate S£:¥100 (av) 45.1 c 49.8 c 50.5 50.5

Exchange rate S£:� (av) 68.5 c 65.1 c 62.7 63.3

Exchange rate S£:SDR (year-end) 69.9 c 72.2 c 70.7 71.4

a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual.

10 Syria


Monthly review: April 2010

The political scene

Robert Ford, the new US ambassador designate, made clear during his confirmation hearings before the Senate Foreign Relations Committee on March 16th that the US administration does not want his appointment to be perceived as marking a substantial change in policy towards Syria. He said that the return of an ambassador would not be a "reward" for Syria, nor would it signify a change in "the fundamentals of our concerns". Rather, it would mark "a change in the way we try to secure our national interests in Syria", he said. Mr Ford specifically assured the committee that the administration will maintain sanctions on Syria "as long as it supports terrorist groups like Hizbullah and Hamas". He said that the US was deeply concerned about the risk of a regional war erupting if Syria continued to supply long-range missiles to Hizbullah. These concerns come amid a spate of reports from Israeli and US defence sources that Syria has transferred some of its most advanced weaponry to Hizbullah so as to enhance the Lebanese Shia group!s capabilities to launch missiles into Israel and counter Israeli air strikes.

The current US sanctions on Syria were imposed by the previous president, George W Bush, in 2004. The US president, Barack Obama, issued an executive order in May 2009 extending the sanctions act and all measures taken in accordance with it for a further year"the sanctions would otherwise have expired. Mr Obama still has the discretion to lift executive orders taken under the sanctions act and to waive some of its provisions. A test case has been a request to allow Syrian Arab Airlines to upgrade its fleet through purchasing Boeing spare parts and acquiring new aircraft from France-based Airbus, which contain US components that are covered by the sanctions. As yet the US has shown no sign of acceding to this request.

The government announced in mid-March that it will hold talks with the EU about resolving issues that have led to the postponement of signing of an Association Agreement. The foreign affairs minister, Walid al-Muallim, made the announcement on March 16th during a visit to the capital, Damascus, by Catherine Ashton, the EU!s high representative for foreign affairs and security policy. The EU had arranged for the agreement to be signed in October 2009"following a long hiatus since it had been initialled five years earlier"but the Syrian government declined to go through with the signing owing to reservations about some clauses (November 2009, The political scene). Mr Muallim said that the date of the signing will depend on "the degree of flexibility" shown in the negotiations.

The government has not specified what objections it has to the agreement as it stands. One of the issues that had provoked comment at the time of the scheduled signing was a proposal from the Netherlands to add an annex specifying that the Association Agreement could be suspended on the grounds of human rights abuses. Some Syrian commentators in the local media had

New US ambassador rules out easing of sanctions

Talks on EU Association Agreement to resume

Syria 11


also raised concerns about the impact the agreement might have on domestic industry. The agreement provides for the phasing out of tariffs on imports from the EU over 12 years; tariffs on Syrian exports (other than farm produce) would be abolished as soon as the agreement took effect.

The Egyptian trade and industry minister, Rachid Mohammed Rachid, visited Syria in mid-March at the head of a delegation including representatives of more than 40 Egyptian firms. It was the first visit to Syria by an Egyptian minister for four years and, although the primary purpose was to develop trade and investment, it marked a significant improvement in political relations after a prolonged period of tension. Following Syria!s rapprochement with Saudi Arabia during 2009, Egypt is the only Arab state (with the exception of Iraq) with which Syria still has poor relations. Egypt has accused Syria of undermining its efforts to reconcile rival Palestinian factions, and the Egyptian president, Hosni Mubarak, does not conceal his strong personal dislike of his Syrian counterpart, Bashar al-Assad. The upcoming Arab League summit conference in Libya at the end of March would have provided an opportunity for the two leaders to meet and seek to resolve their differences, but Mr Mubarak is unlikely to attend, as he will still be convalescing from an operation that he underwent in Germany in early March.

During his visit to Damascus, Mr Rachid met the Syrian prime minister, Naji al-Otari, as well as the economy and trade minister, Lamiya Assi, and the deputy prime minister for economic affairs, Abdullah al-Dardari. He was quoted by Al Hayat, a pan-Arab newspaper as saying that Syria had expressed interest in seeking Egypt!s advice in pursuing accession to the World Trade Organisation. The countries are already part of the Greater Arab Free Trade Area, which allows for tariff-free exchange of goods, albeit with a large number of exceptions.

Mr Rachid said that two-way trade has grown rapidly in recent years, reaching US$1.1bn in 2009. Mr Dardari said at an inaugural meeting of the Syrian-Egyptian business council during Mr Rachid!s visit that he was confident that trade between the two countries could reach US$3bn per year in a relatively short period of time. According to Al Ahram, a state-run Egyptian newspaper, the two sides agreed to set up a "hot-line" to ensure speedy resolution of problems that have affected exporters, in particular queries over certificates of origin, agricultural goods exceptions under Arab free-trade area rules and health inspections.

Syrian trade with Egypt (S£ bn)

2005 2006 2007 2008Exports 6.7 19.1 20.5 34.0Imports 12.9 27.5 29.7 28.7

Source: Syrian Central Bureau of Statistics.

Egyptian trade visit marks potential thaw in relations

12 Syria


Economic policy

The Majlis al-Shaab (parliament) approved a number of contentious articles in the new draft labour law in March, including those dealing with severance pay. The government submitted the law to parliament in December (January 2010, Economic policy). The law is aimed at giving stronger force to employment contracts, and is part of the broader policy of modernising the Syrian economy in accordance with the directives of the 2006 Baath party congress to establish a "social market" system.

Existing labour legislation, which dates back to the socialist era of the union with Nasserite Egypt and the early period of Baathist rule, theoretically provides extensive entitlements and protection for workers, but the system has been subject to widespread abuse. The government argues that this has been to the detriment of workers and investors, a view that is strongly endorsed in several recent World Bank surveys of the business environment in the Middle East.

One of the most controversial areas of the new law is that dealing with dismissal of workers. The severance benefits under the existing law are so generous that employers commonly resort to forcing new staff to sign undated letters of resignation, while refusing to provide certified contracts of employ-ment. This allows employers to avoid onerous compensation payments by claiming that their workers have resigned voluntarily and by withholding records of when a term of employment started. The new law forbids undated resignation letters and requires that every worker must have a contract of employment (in Arabic or in the language of the employee). Both the employer and employee must retain a copy of this contract, and a third copy must be lodged with the Directorate of Labour and Social Affairs within three months of the start of work. In the event of unjustified dismissal, a worker is entitled to compensation equivalent to two months of salary for each year worked, but with an upper limit of S£150,000 (US$3,360). Under the previous system, the compensation was 80% of final salary for as long as the dismissed employee remained out of work.

Other areas covered by the 280-article law include social security payments, regular salary reviews, maternity leave, holiday entitlements, medical cover, and health and safety regulations. By the end of March, parliament had approved about half of the 280 articles.

Economic performance

EFG-Hermes, an Egypt-based investment bank with operations across the Middle East and North Africa region, announced on March 3rd that it has established an office in Syria, in partnership with Firas Tlas, a prominent Syrian businessman, and that it intends to launch a private-equity investment fund in the country. The Egyptian firm said that it will own 70% of the venture, with Mr Tlas owning the remaining 30% and taking the post of chairman. Mr Tlas (the son of a former Syrian defence minister) has a wide range of business interests, mainly in the food-processing, construction and building-materials

New labour law makes progress through parliament

EFG-Hermes' entry could boost investment banking

Syria 13


sectors. His biggest investment so far has been in a cement factory in Aleppo as part of a joint venture set up with another prominent Egyptian firm, Orascom Construction Industries, which subsequently sold its worldwide cement interests, including those in Syria, to Lafarge of France.

The initiative reflected the growing perception of Syria as one of the region!s most promising new investment locations. However, it was not immediately clear whether the announcement signified that the EFG-Hermes venture was ready to start operations or whether it marked the start of its active preparations to enter the market. The Syrian Commission on Financial Markets and Securities issued a statement on March 4th pointing out that it had not provided preliminary or final approval for EFG-Hermes to conduct investment banking activities in Syria. Such activities are covered by the capital market law (No. 55 of 2006).

The commission has provided several licences to brokerages and investment banks over the past three years, including to two other Egyptian firms, Pioneers Securities and HC Securities. (There was also some regulatory confusion in the latter case, as the Central Bank of Syria issued a statement specifying that it had not issued a banking licence to HC Securities, as had been reported in a local newspaper.) The entry of EFG-Hermes would mark a qualitative leap, given the company!s pre-eminent status among regional investment banks.

If EFG-Hermes goes ahead with its equity fund, it would be the second of its kind targeted on Syria, following the launch last year of the Gibraltar-registered Syria Rising Private Equity Fund (August 2009, Economic policy). The value of the fund has been proposed at US$300m.

In focus

Stock exchange marks first anniversary

The Damascus Securities Exchange (DSE) celebrated the first anniversary of its launch on March 10th. The market is still small, with only 12 listed securities, and the three days per week of trading sessions rarely see more than US$1m of business transacted per day, providing thin returns for the 14 licensed brokerages. However, there has been a steady addition of new securities since the six inaugural listings a year ago, and market capitalisation has risen fourfold as the prices of all the listed stocks have risen. That said, the total capitalisation is only about S£74bn (US$1.6bn), which is just 3.2% of GDP"compared with 150% for the Amman Stock Exchange in Jordan and 46% for the Egyptian Stock Exchange. Financial services dominate the market, with banks accounting for seven of the 12 stocks listed; one of the other five is an insurance company. The DSE provides a steady stream of trading information and company disclosures on its website, and introduced an all-share index at the end of 2009. The index was up by 13.1% by March 18th. The market would have an opportunity to build up its capitalisation if the government were to allow state-owned enterprises to raise equity through share flotations, but such a move is not yet part of the official policy agenda (see Economic policy). The chief executive officer of the DSE, Mohammed Jalilati, said that he expected the number of firms to reach 20 by year-end, and that trading would be stimulated by a forthcoming revision to the companies! law that

14 Syria


would reduce the minimum nominal value of a share to S£100 (US$2.18) from S£500, providing more opportunities for smaller investors.

DSE stocks' performance since launch

Launch date Launch

price (S£) Mar 19th 2010

price (S£)Market cap

(S£ m)Arab Bank Syria Mar 18th 2009 720 1,190 7,140Bank Audi Syria Mar 18th 2009 1,380 2,556 12,780

Bank of Syria and Overseas Mar 18th 2009 750 1,376 8,256Banque Bemo Saudi Fransi Mar 18th 2009 1,050 1,703 11,070

Al-Ahliah Transport Mar 18th 2009 900 1,322 5,288United Group Mar 18th 2009 170 459 1,377International Bank for Trade &

Finance Apr 2nd 2009 850 1,594 9,564

Syrian International Islamic Bank Jun 4th 2009 630 1,172 11,720

Agricultural Engineering (Nama) Apr 16th 2009 400 736 412

Al-Ahliah Vegetable Oil Company Jun 15th 2009 550 639 1,917

United Insurance Company Jul 7th 2009 700 930 1,581

Byblos Bank Syria Dec 22nd 2009 575 743 2,972

Source: Damascus Securities Exchange.

The DSE would also benefit from the listing of telecommunications and technology stocks, in particular Syria!s two mobile-phone companies, Syriatel, which sold 10.5% of its shares to the public in 2004 (Economic policy, November 2004), and MTN Syria (an affiliate of South Africa!s largest telecoms firm). However, these firms may be reluctant to proceed with a listing until the details of proposed new legislation on the structure of the telecoms sector becomes clear. The new law is expected to corporatise the state-owned fixed-line monopoly (which could pave the way for its partial privatisation through the stockmarket) and to set out the conditions for the award of a licence to a third mobile operator and for the transformation of the build-operate-transfer contracts with Syriatel and MTN into licences.

Damascus Securities Exchange index (Dec 31st 2009 =1,000)

Source: Damascus Securities Exchange.

980

1,000

1,020

1,040

1,060

1,080

1,100

1,120

1,140

1,160

16th9thMar1st

18th11thFeb4th

28th21st14thJan 7th10

Dec2009

Syria 15


The Central Bank of Syria has published end-year headline inflation data, showing that the consumer price index rose by 2.8% on average in 2009, compared with 15.2% in 2008. The dramatic slowdown in the inflation rate was the result of lower food prices and the unravelling of the effects of the sharp increase in prices for petroleum products in 2008, which was part of the government!s effort to reduce subsidies. The standard price of gasoil/diesel for domestic use"which was previously the most heavily subsidised fuel"was increased from S£7 (15 US cents) per litre to S£25/litre in May 2008, although consumers were entitled to buy 100 litres per month at S£9/litre. The standard price was lowered in mid-2009 to S£20/litre, and at the end of the year a new system went into effect, entailing the replacement of the 100-litre/month ration by a means-tested cash benefit (December 2009, Economic policy).

Inflation 2005 2006 2007 2008 2009Consumer price index 100 110 115 132 136Average annual inflation (%) 7.4 10.0 4.5 15.2 2.8

Source: Central Bank of Syria.

Syria!s prospects of prolonging its status as an oil exporter have been enhanced by new discoveries in the Euphrates Basin. ONGC Videsh of India and UK-based IPR Mediterranean Exploration announced in mid-March three promising oil discoveries in the Block 24 concession that they hold jointly. The partners said that the combined flow of the wells was about 10,000 barrels/day (b/d), and that they had applied for a development licence. Initial production is expected to come on stream during the second quarter of 2010. Syria!s total oil production has stabilised at about 377,000 barrels/day over the past two years,, as the decline of some major mature fields has been offset by flows from newly discovered fields and from fields where enhanced recovery work has been undertaken (March 2010, Economic performance).

It emerged in mid-March that Gulfsands Petroleum had rejected a US$570m offer from two state-run Indian companies"Indian Oil Corporation and Oil India. Gulfsands is a UK-listed company and the lead operator of the Khurbert East block in north-east Syria where a number of discoveries have been made in recent years.

Inflation eases as fuel prices fall

New oilfield to start commercial production

16 Syria


Data and charts Annual data and forecast

Pl ea se se e g ra p hi c b el ow

2005a 2006a 2007a 2008b 2009 b 2010c 2011c

GDP

Nominal GDP (US$ m) 28,210 32,786 40,376 49,193 49,442 56,180 63,072

Nominal GDP (S£ bn) 1,506 1,705 2,018 2,292 2,309 2,581 2,869

Real GDP growth (%) 6.2 5.0 5.7 4.3 3.0 3.9 4.2

Expenditure on GDP (% real change)

Private consumption 13.3 3.0 1.0 2.3 3.4 4.6 4.7

Government consumption 1.9 1.5 23.6 -0.5 2.2 4.6 3.6

Gross fixed investment 12.7 7.1 -8.3 -5.9 -0.8 4.4 5.2

Exports of goods & services -1.5 20.6 1.4 -2.3 -1.9 2.1 3.2

Imports of goods & services 26.0 -12.7 11.3 2.5 -4.4 2.5 3.5

Origin of GDP (% real change)

Agriculture 7.8 10.2 -13.5 -8.7 5.4 2.2 2.8

Industry -3.0 0.6 3.8 5.5 -0.9 5.3 5.0

Services 13.3 3.4 16.6 8.3 3.8 3.9 4.2

Population and income

Population (m) 19.1 19.8 20.5 21.2a 21.9 22.5 23.1

GDP per head (US$ at PPP) 3,999b 4,191b 4,398b 4,524 4,574 4,701 4,816

Recorded unemployment (av; %) 8.0 8.3 8.4 8.6 9.2 9.7 9.4

Fiscal indicators (% of GDP)

Central government revenue 23.7 25.5 22.7 22.0 18.2 19.0 20.0

Central government expenditure 28.6 29.0 25.8 23.9 25.1 25.3 24.4

Central government balance -5.0 -3.5 -3.1 -1.9 -7.0 -6.4 -4.3

Net public debt 32.4b 33.9b 28.4b 25.8 32.4 35.0 35.6

Prices and financial indicators

Exchange rate S£:US$ (end-period) 54.85 51.10 48.10 46.45a 45.70 a 46.01 45.32

Consumer prices (av; % change) 7.2 10.0 3.9 15.7a 2.6 7.1 6.2

Stock of money M1 (% change) 14.4 -4.0 10.7 12.9a 10.3 4.9 6.4

Stock of money M2 (% change) 21.0 7.8 14.7 12.4a 9.2 5.7 7.6

Lending interest rate (av; %) 8.0 9.0 10.0 10.2 9.3 8.7 9.0

Current account (US$ m)

Trade balance -140 886 -521 -1,996 -2,822 -2,858 -2,776

Goods: exports fob 8,602 10,245 11,756 13,982 10,283 11,412 11,883

Goods: imports fob -8,742 -9,359 -12,277 -15,978 -13,105 -14,270 -14,660

Services balance 551 404 849 1,051 1,388 1,507 1,580

Income balance -863 -935 -689 -718 -641 -654 -674

Current transfers balance 747 535 820 976 806 866 900

Current-account balance 295 890 459 -687 -1,269 -1,139 -972

External debt (US$ m)

Debt stock 6,508 6,502 6,732b 6,899 6,992 7,206 7,389

Debt service paid 205 187 189b 161 153 149 140

Principal repayments 144 130 126b 117 110 108 102

Interest 61 57 62b 43 43 41 37

International reserves (US$ m)

Total international reserves 4,716b 5,419b 5,968b 6,205 6,328 6,642 7,040

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.

Source: Central Bank of Syria; IMF, International Financial Statistics; World Bank, Global Development Finance.

Syria 17


Quarterly data Pl ea se se e g ra p hi c b el ow

2008 2009

1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr

Prices

Consumer prices (2000=100) 126.1 131.4 134.4 137.4 134.8 133.8 135.9 138.4

Consumer prices (% change, year on year) 9.6 18.6 18.2 16.7 6.9 1.8 1.1 0.7

Financial indicators

Exchange rate S£:US$ (av) 47.5 46.0 46.1 46.7 47.3 47.5 46.3 45.7

M1 (end-period; S£ bn) 755.7 792.0 842.4 825.9 823.9 843.4 926.3 912.6

M1 (% change, year on year) 9.7 9.1 13.8 12.9 9.0 6.5 10.0 10.5

M2 (end-period; S£ bn) 1,510 1,586 1,655 1,656 1,669 1,682 1,783 1,808

M2 (% change, year on year) 23.8 24.0 26.5 25.2 10.5 6.0 7.7 9.2

Sectoral trends

Crude oil production (m barrels/day) 0.37 0.38 0.39 0.41 0.38 0.37 0.37 0.37

Crude oil production (% change, year on year) -6.1 0.0 2.6 12.0 3.7 -1.8 -4.4 -8.8

Foreign trade (US$ m)a

Exports fob 3,642 5,031 4,732 3,634 2,302 3,221 3,214 n/a

Imports cif 6,133 7,520 7,820 7,104 4,792 5,773 6,049 n/a

Trade balance -2,491 -2,489 -3,088 -3,469 -2,490 -2,552 -2,835 n/a

a IMF, Direction of Trade Statistics estimates.

Sources: Central Bank of Syria; International Energy Agency, Monthly Oil Market Report; IMF, International Financial Statistics; Direction of Trade Statistics.

18 Syria


Monthly data Pl ea se se e g ra p hi c b el ow

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Exchange rate S£:US$ (av) 2007 51.1 51.0 50.9 50.8 50.6 50.5 50.2 49.7 49.7 48.8 48.4 48.2

2008 48.1 47.9 46.6 46.0 45.9 46.1 45.9 46.2 46.3 46.4 46.9 46.7

2009 46.9 47.4 47.6 47.8 47.5 47.1 46.8 46.3 46.0 45.9 45.7 45.6

M1 (% change, year on year) 2007 0.3 4.7 8.3 10.5 7.7 12.8 13.8 15.1 15.3 16.6 18.1 10.7

2008 10.6 10.6 10.1 9.5 10.6 9.6 12.1 13.4 14.2 12.3 8.8 13.1

2009 10.0 11.1 8.4 7.6 7.1 6.4 8.7 8.1 9.6 6.0 13.5 10.3

M2 (% change, year on year) 2007 10.3 13.2 14.6 15.8 14.1 16.7 17.6 16.9 16.7 16.5 16.2 12.4

2008 23.7 24.2 24.2 22.8 23.4 24.0 24.7 26.6 26.5 24.8 22.1 25.2

2009 10.4 10.5 10.2 10.1 8.9 6.0 7.7 5.9 7.7 7.2 12.5 9.2

Consumer prices (av; % change, year on year) 2007 4.5 4.8 3.4 2.6 0.9 0.2 3.7 5.6 4.5 5.5 6.3 4.8

2008 7.0 9.3 12.4 15.2 20.0 20.8 17.9 17.5 19.1 19.2 16.3 15.5

2009 10.6 6.2 4.9 3.1 1.7 1.6 2.2 1.9 0.2 -0.7 1.3 1.7

Deposit rate (av; %) 2007 9.0 9.0 9.0 9.0 9.0 9.0 9.0 8.0 8.0 8.0 8.0 8.0

2008 9.0 9.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 n/a n/a n/a

2009 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

Lending rate (av; %) 2007 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0

2008 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 n/a n/a n/a

2009 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

Total exports fob (US$ m) 2007 1,010 806 880 1,076 1,681 1,124 1,181 1,132 1,272 1,326 995 1,068

2008 1,291 1,029 1,322 1,600 2,018 1,414 1,645 1,320 1,766 1,445 1,210 979

2009 828 644 830 882 1,399 940 1,110 998 1,106 n/a n/a n/a

Total imports cif (US$ m) 2007 1,407 1,456 1,957 1,873 1,921 1,882 1,827 2,081 2,205 1,957 2,025 2,239

2008 1,797 1,891 2,446 2,504 2,516 2,500 2,429 2,632 2,759 2,466 2,188 2,450

2009 1,427 1,415 1,951 1,939 1,865 1,970 1,900 1,993 2,157 n/a n/a n/a

Trade balance fob-cif (US$ m) 2007 -397.7 -650.8 -1,076.8 -797.2 -239.2 -758.0 -645.8 -948.4 -932.9 -630.8 -1,029.4 -1,171.9

2008 -505.7 -862.0 -1,123.5 -904.2 -498.4 -1,086.2 -783.2 -1,311.8 -993.1 -1,020.9 -977.8 -1,470.6

2009 -598.7 -770.5 -1,120.7 -1,057.0 -465.7 -1,029.9 -789.3 -995.1 -1,051.1 n/a n/a n/a

Sources: Central Bank of Syria; IMF, International Financial Statistics, Direction of Trade Statistics; Haver Analytics.

Syria 19


Annual trends charts Pl ea se se e g ra p hi c b el ow

Annual trends charts

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Budget balance (% of GDP)

Current-account balance (% of GDP)



Real GDP growth(% change)

Consumer price inflation(av; %)

Others 44.4%

Iraq 30.9%

Germany 9.4%

Lebanon 9.3%

Italy 6.1%

Others 66.2%

Saudi Arabia 12.9%

China 8.7%

UAE 6.3%

Italy 5.9%

Destination of exports, 2008(share of total) (share of total)

Origin of imports, 2008

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0 World Middle East and North Africa Syria

11100908070620050.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0 World Middle East and North Africa Syria

1110090807062005

-10.0

-5.0

0.0

5.0

10.0

15.0 Middle East and North Africa Syria

1110090807062005-5.0

0.0

5.0

10.0

15.0

20.0 Middle East and North Africa Syria

1110090807062005

20 Syria


Monthly trends charts Pl ea se se e g ra p hi c b el ow

Monthly trends charts

Exchange rate (S£:US$; av)

Monetary aggregates (% change, year on year)

Foreign trade (US$ m; goods only)

Oil: Brent crude price (US$/b; av)

Source: Economist Intelligence Unit.Source: Economist Intelligence Unit.

Source: Economist Intelligence Unit.Source: Economist Intelligence Unit.

45.0

46.0

47.0

48.0

49.0

50.0

51.0

52.0

53.0

Jan10

OctJulAprJan09

OctJulAprJan08

OctJulAprJan07

OctJul2006

20

40

60

80

100

120

140

OctJulAprJan09

OctJulAprJan08

OctJulAprJan07

OctJul2006

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0 M2 M1

OctJulAprJan09

OctJulAprJan08

OctJulAprJan07

OctJul2006

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000 Balance Imports Exports

JulAprJan09

OctJulAprJan08

OctJulAprJan07

OctJul2006

Syria 21


Comparative economic indicators Pl ea se se e g ra p hi c b el ow

Comparative economic indicators, 2008

Gross domestic product(US$ bn; market exchange rates)

Gross domestic product(% change, year on year)

Consumer prices(% change, year on year)

Sources: Economist Intelligence Unit estimates; national sources.

Sources: Economist Intelligence Unit estimates; national sources.Sources: Economist Intelligence Unit estimates; national sources.

Sources: Economist Intelligence Unit estimates; national sources.

Gross domestic product per head(US$ '000; market exchange rates)

0 100 200 300 400 500

Jordan

Bahrain

Yemen

Lebanon

Tunisia

Syria

Sudan

Oman

Iraq

Libya

Morocco

Qatar

Kuwait

Egypt

Algeria

Israel

United Arab Emirates

Iran

Saudi Arabia

0.0 5.0 10.0 15.0 20.0 25.0 30.0

Yemen

Sudan

Egypt

Syria

Morocco

Iraq

Jordan

Tunisia

Iran

Algeria

Lebanon

Libya

Saudi Arabia

Bahrain

Oman

Israel

Kuwait


Qatar

0.0 5.0 10.0 15.0 20.0 25.0 30.0

Iraq

Morocco

Algeria

Israel

Tunisia

Bahrain

Saudi Arabia

Lebanon

Libya

Kuwait

Oman

Sudan

Jordan

Qatar

Syria


Egypt

Yemen

Iran

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

Algeria

Yemen

Israel

Saudi Arabia

Syria

Tunisia

Jordan

Libya

Morocco

Bahrain

Iran

Sudan

Egypt


Iraq

Lebanon

Kuwait

Oman

Qatar

64.6

45.2

43.0

22 Syria


Country snapshot

Basic data

185,180 sq km

20.5m (mid-2008 estimate)

Population in millions, 2006

Damascus (capital) area 4.01 Aleppo 4.23 Homs 1.59 Hama 1.44 Hassakah 1.33 Idlib 1.31

Subtropical on coast, arid in the centre, cold winters in the highlands

Hottest month, August, 18-37°C (average daily minimum and maximum); coldest month, January, 2-12°C; driest month, August, zero average rainfall; wettest month, January, 43 mm average rainfall

Arabic, French, some English

Sunni Muslim (72%); Alawi Muslim (14%); Christian (12%); Shia Muslim and Druze minorities

Metric system

Syrian pound (S£) = 100 piastres

GMT plus two hours

January 1st-December 31st

The dates of Islamic holidays are based on the lunar calendar and are therefore approximate. Mawlid al-Nabi (the birthday of the Prophet, February 26th 2010); Eid al-Fitr (September 11th); Eid al-Adha (Feast of the Sacrifice, November 17th); Islamic New Year (December 7th)

New Year!s Day (January 1st 2010); Revolution Day (March 8th); Mother!s Day (March 21st); Easter (April 4th); Orthodox Easter (April 5th); Independence Day (April 17th); Labour Day (May 1st); Martyrs! Day (May 6th); October Liberation War (October 6th); Christmas Day (December 25th)

Land area

Population

Main provinces

Weather in Damascus

Languages

Religion

Measures

Currency

Time

Fiscal year

Public holidays

Climate

Public holidays

Syria 23


Political structure

Syrian Arab Republic

Republic

Based on the constitution of 1973

250-member Majlis al-Shaab (People!s Assembly) directly elected for a four-year term

Universal adult suffrage

Next legislative and presidential elections due in 2011 and 2014 respectively

President, elected for a seven-year term. The president appoints the vice-presidents, the prime minister and the Council of Ministers. Bashar al-Assad, the current president, is also the commander-in-chief of the armed forces and the secretary-general of the Baath party

The prime minister heads the Council of Ministers, a large number of whom are drawn from the ruling Baath party and its partners

The ruling National Progressive Front includes the Arab Socialist Baath Party; Arab Socialist Party; Arab Socialist Unionist Party; Communist parties; Syrian Arab Socialist Union Party; Unionist Socialist Democratic Party; Union Socialist Party

Prime minister Mohammed Naji al-Otari Deputy prime minister for economic affairs Abdullah al-Dardari

Agriculture & agrarian reform Adel Saffar Awqaf (Islamic endowments) Mohammed Abdel-Sattar al-Sayed Communications & technology Imad Abdel-Ghani Sabbouni Defence Ali Habib Economy & foreign trade Lamiya Assi Education Ali Saad Electricity Ahmed Qusay Kayyali Environment (minister of state) Kawkab al-Sabah al-Dayeh Expatriate affairs Joseph Sweid Finance Mohammed al-Hussein Foreign affairs Walid al-Muallim Health Rida Said Higher education Ghiath Abdel-Wahab Barakat Housing & construction Omar Ghalanji Industry Fouad Issa Jony Information Mohsen Bilal Interior Said Sammour Irrigation Nader al-Buni Justice Ahmed Hamoud Younis Labour & social affairs Diyala al-Hajj Aref Local government Tamer al-Hijjeh Petroleum & mineral resources Sufyan Allaw Presidential affairs Mansour Azzam Tourism Saadallah Agha al-Qalah Transport Yacoub Suleiman Badr

Adib al-Mayaleh

Official name

Form of state

Legal system

Electoral system

Legislature

National elections

Head of state

Executive

Main political parties

Key ministers

Central Bank governor

best practices in energy management â€œworkshop on energy

Documents