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Country Report

Syria

June 2010

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ISSN 0269-7211

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Syria 1

Country Report June 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: June 2010 9 The political scene 11 Economic policy 12 Economic performance

Data and charts 15 Annual data and forecast 16 Quarterly data 17 Monthly data 18 Annual trends charts 19 Monthly trends charts 20 Comparative economic indicators

Country snapshot 21 Basic data 22 Political structure

Editors: Rory Fyfe (editor); Robert Powell (consulting editor)

Editorial closing date: May 26th 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

June 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 West and leading Arab states are expected to improve, albeit with some setbacks. 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 an average of US$196m (0.3% of GDP) in 2010-11, because of an expanding non-oil private sector and increases in the non-merchandise surplus from booming tourism.

• The Russian president, Dmitry Medvedev, has visited Damascus, highlighting the growing importance of Syria's regional role. He also relayed a message from Israel that it has no intention of attacking Syria.

• US sanctions on Syria have been renewed for another year, but US objections to Syria's bid for accession to the WTO have been lifted and the application of aviation sanctions has been relaxed.

• A decree has been approved that ensures that all state pensions remain higher than the minimum wage. Some pensions had fallen below this level. The estimated cost of the measure is S£875m (US$18m) for 2010.

• The Syrian Telecommunications Establishment, a state-owned company with a monopoly in fixed-line and broadband services, has cut subscriber tariffs by about one-third, but they remain comparatively high for the region.

• The Central Bank has launched a new regular monthly inflation bulletin, which reported consumer price inflation of 5.41% year on year in February.

• Cham Holding has signed an agreement that will strengthen its position for an upcoming wind-farm tender. An agreement in principle has been made for a Qatari-Syrian joint venture to construct two power stations.

• CNPC has acquired a 35% stake in Shell's Syrian subsidiary.

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, which is likely to issue an indictment in the autumn. A number of leading Syrian figures could be implicated in the assassination, and demands for them to be handed over to an international tribunal could bring domestic rivalries to the fore. Tensions could also arise from the ongoing investigation by the International Atomic Energy Agency into allegations that Syria has a nuclear programme. Syria has denied officials access to re-examine a site that was bombed by Israel in 2007�a new report is due at the end of May.

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 arrest activists demanding democratic reform and Syria faces numerous accusations of torture and unfair trial of political prisoners. 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, Saudi Arabia and Lebanon. 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. Relations with the US have also improved and although US sanctions on Syria were renewed in May, the US has withdrawn its objections to Syria's accession to the World Trade Organisation (WTO).

Domestic politics

International relations

Syria 5


However, Syria's international rapprochement could be upset by a number of issues, in particular Syria's continued commitment to a strong relationship with Iran and its ongoing support of the Lebanese militant group, Hizbullah, and Hamas, a Palestinian group. Recent accusations that Syria has supplied Hizbullah with long-range missiles have added to tensions. Improving relations could also be held back by US politicians. A group of Republican senators are intent on blocking US concessions to Syria�a new US ambassador to Syria has been nominated after a hiatus of five years but is yet to be confirmed by the Senate.

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).

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, there is little popular or parliamentary support in Israel for a withdrawal. Any peace agreement would probably require Syria to end 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. A peace agreement is thus unlikely in 2010-11. 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 will inhibit the formulation and implementation of policy. There are also powerful members of the business elite who benefit from the 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. Moves intended to increase domestic and foreign investment include expanding the Damascus Securities Exchange, relaxing foreign-currency restrictions and boosting bank lending. There are also plans to cut government subsidies, which are burdensome and inefficient, particularly fuel subsidies.

Policy trends

6 Syria


Syria's fiscal deficit is expected to narrow to S£129bn (US$2.2bn), or 5% of GDP, in 2010 as oil prices and thus revenue increase, and to S£78bn 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 2011�probably at a rate of around 10%�boosting government revenue. The government may also receive windfall revenue from extending existing mobile-phone contracts and awarding a licence for a third operator. Plans to reform public enterprises�most of which are unprofitable�by transforming them into autonomous companies with their own budgets, should also 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. Expanding revenue should enable the government to maintain relatively high investment spending while also reducing the budget deficit over the forecast period.

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 only uses them sporadically to finance specific development projects. Plans are in place to issue them on a regular basis by the end of 2010. There are also plans to launch a local bond market, increasing the number and sophistication of monetary tools and paving the way for the issue of corporate bonds. 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 (which can now be 60% foreign owned) are playing an increasing role.

Economic forecast

International assumptions summary (% unless otherwise indicated)

2008 2009 2010 2011

Real GDP growth World 2.8 -0.8 4.1 3.5

OECD 0.5 -3.3 2.3 1.6

EU27 0.7 -4.2 0.8 1.0

Exchange rates ¥:US$ 103.4 93.7 93.2 93.0

US$:� 1.470 1.393 1.298 1.223

SDR:US$ 0.629 0.646 0.666 0.684

Financial indicators � 3-month interbank rate 4.65 1.23 0.68 0.85

US$ 3-month commercial paper rate 2.18 0.26 0.22 0.50

Commodity prices Oil (Brent; US$/b) 97.7 61.9 80.2 78.5

Cotton (US cents/lb) 72.1 62.7 85.1 83.3

Food & beverages (% change in US$ terms) 28.3 -20.4 -2.8 -1.6

Industrial raw materials (% change in US$ terms) -5.1 -25.6 35.6 2.7

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

International assumptions

Monetary policy

Fiscal policy

Syria 7


We forecast that world real GDP growth (at purchasing power parity exchange rates) will be 4.1% in 2010, declining to 3.5% in 2011, as the effect of government stimulus packages fades. We have revised our currency outlook owing to concerns in the euro zone, and the US dollar is forecast to be substantially stronger against the euro than previously expected. The benchmark dated Brent Blend is forecast to average US$79/barrel in 2010-11. Syrian crude, most of which is heavy, will trade at a discount to this, averaging about US$70/b.

We forecast that real GDP growth will pick up from an estimated rate of 3.6% in 2009�when the effect of the global recession was mitigated by strong government spending�to an average of 4.1% in 2010-11. 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. This will support stronger fixed investment in 2010-11. Government consumption growth will be steady in 2010-11 as the fiscal stimulus is sustained but will slow slightly. Private consumption growth will pick up in both years. However, if there is a significant improvement in security in Iraq (not our core scenario) once the new government is formed and US troops are withdrawn�planned 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, despite a poor wheat harvest in 2009/10. 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, as well as 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.

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. Rental prices are already falling as Iraqi nationals return home. This trend could accelerate, which would hold back inflation, but this would require a significant improvement in security conditions in Iraq.

Owing to our expectations for a weaker euro than previously forecast in 2010-11, the Syrian pound is now projected to depreciate slightly against the US dollar to an average of S£48.2:US$1. The depreciation will be checked by Syria's narrowing current-account deficit. 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

Inflation

Exchange rates

Economic growth

8 Syria


placed to control the value of the currency. The Central Bank's foreign-exchange reserves are relatively healthy, at US$4.9bn (around four months of import cover) at end-2009. (The Commercial Bank of Syria also holds some foreign reserves.)

Data released for 2008 showed a better current-account outturn than was expected, and this has had a knock-on impact on our forecasts. We expect that export earnings will recover in 2010-11, to an average of US$13.4bn, 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 but the 2009/10 wheat crop is expected to be disappointing, although Syria is not expected to need imports as it did in 2008/09. Oil production is increasing at a number of small fields but declining at the larger, mature fields, with the net effect that total production may pick up in the short term to an average of 384,000 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 widen slightly to an average of US$1.6bn in 2010-11, although as a proportion of GDP it will fall to an average of 2.8%.

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$196m (0.3% of GDP).

Forecast summary (% unless otherwise indicated)

2008 a 2009 a 2010b 2011b

Real GDP growth 4.3 3.6 3.9 4.2

Oil production ('000 b/d) 386.6 c 375.0 c 377.9 389.4

Gross agricultural production growth -8.7 5.5 1.0 2.8

Consumer price inflation (av) 15.7 c 2.6 6.5 6.9

Government balance (% of GDP) -3.1 -5.7 -5.0 -2.7

Exports of goods fob (US$ bn) 15.3 11.8 13.0 13.7

Imports of goods fob (US$ bn) 16.1 13.3 14.7 15.3

Current-account balance (US$ bn) 0.1 -0.3 -0.3 -0.1

Current-account balance (% of GDP) 0.1 -0.6 -0.5 -0.2

External debt (year-end; US$ bn) 7.0 7.0 7.2 7.3

Exchange rate S£:US$ (av) 46.6 c 46.7 c 47.4 48.9

Exchange rate S£:¥100 (av) 45.1 c 49.8 c 50.9 52.6

Exchange rate S£:� (av) 68.5 c 65.1 c 61.6 59.8

Exchange rate S£:SDR (year-end) 69.9 c 72.1 c 73.2 70.0

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

External sector

Syria 9


Monthly review: June 2010

The political scene

The visit of Dmitry Medvedev, the Russian president, to Damascus, the Syrian capital, on May 10th-11th served to highlight the growing importance of Syria's regional role, both as an ally of Iran and of Iranian-backed Palestinian and Lebanese political and military groups, and as an essential element in any comprehensive Middle East peace settlement. It was the first visit to Syria by a Russian or Soviet head of state. At a joint press conference with the Syrian president, Bashar al-Assad, Mr Medvedev described the current political situation in the Middle East as being dangerously tense, with a major risk of an explosion of violence, and he said that Russia was consequently keen to play an active role in promoting peace negotiations, both between Israel and Syria and with a view to resolving the Palestinian issue. While in Damascus, Mr Medvedev held talks with Khaled Meshal, the head of the political bureau of Hamas, in an indication of Russia's view that the Palestinian Islamist group, which controls the Gaza Strip, should be included in peace negotiations.

As well as discussing political and strategic issues, Mr Medvedev sought to promote economic and business ties between Russia and Syria. Russian companies have become increasingly active in the oil and gas sector since the signing of a debt restructuring accord in 2005, which set aside a portion of the debt to be used to pay Russian contractors (February 2005, The domestic economy). Stroytransgaz has recently completed a major gasfield development in central Syria, as well as working on the Syrian section of the Arab Gas Pipeline�which ambitiously aims to transport Egyptian gas to Europe. Another Russian firm, Tatneft, is planning to develop a small oil discovery that it has made close to the Iraqi border.

Following Mr Medvedev's visit, the head of Russia's Federal Service for Military-Technical Co-operation said that sales to Syria of MiG-29 military aircraft, Pantsir air-defence missiles and unspecified armoured vehicles were ongoing. It is not clear what stage these sales have reached or how they are to be financed�they have been under discussion for several years. The MiG-29 is a relatively old model; there have been reports in the Russian media about the possible sale of the more advanced MiG-31E, but these plans appear to be on hold. (A journalist who wrote about this supposed deal died in suspicious circumstances�June 2009, The political scene.)

Intriguingly, Mr Medvedev also said that Russia and Syria could co-operate on a civil nuclear power programme, with Russia building reactors in Syria. However, he gave no further details. Russia is also helping Iran to build a nuclear power plant at Bushehr.

Russian president's visit reflects Syria's regional role

10 Syria


In focus

Israel claims that it does not plan to attack Syria

The visit of Dmitry Medvedev, the Russian president, to Syria came in the wake of suggestions from the US and Israel that Syria may have played a part in stoking regional tensions by transferring ballistic missiles to Hizbullah, a Lebanese Shia group. This has prompted speculation in Arab countries that Israel is about to attack both Lebanon and Syria. Mr Medvedev was reported to have brought reassurances from Israel that it had no intention of attacking Syria�the Israeli president, Shimon Peres, had met Russian officials in Moscow immediately before Mr Medvedev's departure to Syria. This message was amplified by the Israeli prime minister, Binyamin Netanyahu, who announced during a visit to an army training base on May 11th that the speculation about Israel's supposedly belligerent intentions was based on misinformation spread by Iran. Israel has shifted its ground with respect to its claims about weapons transfers to Hizbullah (May 2010, The political scene). The Israeli defence minister, Ehud Barak, said that it remained unclear whether any Scud missiles had actually been delivered to the group. However, the Israeli military censor on May 4th lifted a ban on publication of reports that Syria had supplied Hizbullah with M600 missiles (a version of Iran's Fateh-110), which have a range of 300 km. In testimony to a parliamentary commission on the same day, Brigadier-General Yossi Beidatz said that Syria and Iran carried out weapons transfers to Hizbullah "on a constant and structured basis", and that the group's medium- and long-range missiles "cover ranges far greater than we were aware of in the past". General Beidatz alleged that Hizbullah is regarded by Syria as an integral part of its defence establishment. However, he added that his department considered that Syria was still committed to reaching a peace agreement with Israel, provided that it entailed the return of the Golan Heights. He said that Israeli military intelligence believes that the Syrian president, Bashar al-Assad, is prepared to make radical changes to his regional role, but that he does not believe that any progress towards a viable peace settlement is possible with the current Israeli government.

On May 3rd the US president, Barack Obama, issued a notice that he had decided to keep in place for another year the sanctions imposed on Syria under the 2003 Syria Accountability and Lebanese Sovereignty Restoration Act. Mr Obama said that he had taken this action since the Syrian government continued to pose a threat to US security through its continuing "support of terrorist organisations and pursuit of weapons of mass destruction and missile programmes". Mr Obama did acknowledge that the Syrian government had made "some progress in suppressing networks of foreign fighters bound for Iraq". The renewal of the sanctions is a routine measure, and did not come as a surprise, despite Mr Obama's having decided to appoint an ambassador to Damascus after a five-year hiatus. (The designated envoy, Richard Ford, has yet to take up his post, as his appointment awaits final approval from the US Senate and could be delayed for some time or even permanently blocked.)

As well as appointing an ambassador, Mr Obama has made a number of other conciliatory gestures towards Syria, notably by clearing the way for Syria to pursue its bid for accession to World Trade Organisation (WTO). The General Council of the WTO agreed on May 4th to grant Syria observer status and to

US renews sanctions, but clears Syria's WTO bid

Syria 11


establish a working party for Syria's accession. Syria originally applied for membership in 2001, but its progress has been blocked by the US and Israel. The WTO breakthrough has been a boon for the economy and foreign trade minister, Lamiya Assi, who was appointed earlier this year with a mandate from the president to improve Syria's international trade links.

Mr Obama has also shown some flexibility over the application of US sanctions on Syria's civil aviation sector. According to the Syrian transport minister, Yarob Suleiman Badr, the national carrier, Syrian Arab Airlines, has signed a contract with Germany's Lufthansa Technik to refit the engines of six of the airline's Airbus aircraft. The deal is likely to have required clearance from the US, as the European-made aircraft include components covered by the sanctions. Mr Badr also said that a waiver had been granted by the US to allow Saudi Arabia's Al Salam Aviation Group to refit Syrian Arab Airlines' three Boeing 747s.

Economic policy

On May 2nd Mr Assad approved a decree specifying that the state pension must not be lower than the national minimum wage as set in 2001 and subsequently increased. The aim of the legislation is to deal with an anomaly whereby some pensions of more elderly retirees have fallen behind the minimum wage, which is now S£6,010 (US$130) per month. The finance minister, Mohammed al-Hussein, said that about 90,000 pensioners will benefit from the measure, with payments starting from June 1st. The cost during the 2010 financial year will be S£875m (US$18m). The retirement age in Syria is currently 60. The pension burden on the state is relatively light because of the young profile of the population. According to the World Bank's World Development Indicators, only 3% of Syria's population of 20.6m in 2008 were aged 65 or over, whereas 35% were aged 14 or less.

The reform of the pension system is part of a broader government policy to address social issues. It follows the passage of a new labour law earlier this year (April 2010, Economic policy).

The Syrian Telecommunications Establishment (STE) has announced cuts in broadband (ADSL) tariffs, as it seeks to narrow the gap between its charges and those of other regional providers. The move also appears to signal an attempt to assuage the frustrations of Syrian Internet users, the vast majority of whom have no option but to use slow dial-up connections owing to the limited availability of broadband capacity. The STE has reduced access tariffs by between 31% and 35%, depending on bandwidth.

According to the World Development Indicators (using data from the International Telecommunication Union), Syria had the lowest proportion of broadband users in the Middle East and North Africa region at end-2008 after Yemen, as well as the highest broadband access tariff. Only five people out of every 10,000 had broadband in Syria, compared with 503 in Lebanon, 425 in Saudi Arabia, 232 in Jordan and 94 in Egypt. Syrian users paid US$51 per month for their broadband access (the bandwidth is not specified, but it is consistent

Pensions increased to match minimum wage

Broadband subscriber tariffs cut by about one-third

12 Syria


with the charge for 512 kbps before the recent reductions), compared with US$23 in Lebanon, US$31 in Jordan, US$40 in Saudi Arabia and US$8 in Egypt.

The STE said that the number of broadband subscribers rose rapidly last year, from 11,055 at end-2008 (which is consistent with the World Bank figure, assuming a total population of about 20m) to 34,657 at end-2009. During this period, a Chinese firm, Huawei, has been carrying out a contract to install 33,000 extra ADSL portals (October 2009, Economic policy). However, arguably the greatest boost to the sector would come from the arrival of competition, which would probably lead to both lower pricing and improved availability. Nonetheless, the government has indicated that it does not have any immediate plans to end STE's monopoly over fixed-line services, including broadband.

Middle East and North Africa broadband access and tariffs, 2008

Internet users

per 100 peopleBroadband subscribers

per 100 people Broadband access tariff

US$ per month Algeria 11.9 1.41 17Egypt 16.6 0.94 8Iran 32 0.42 43

Jordan 27 2.32 31Kuwait 36.7 1.47 46

Lebanon 22.5 5.03 23Morocco 33 1.53 20Oman 20 1.15 31

Saudi Arabia 31.5 4.25 40Sudan 10.2 0.11 29

Syria 17.3 0.05 51Tunisia 27.1 2.2 13

UAE 65.2 12.43 22

Source: World Bank, World Development Indicators 2010 (based on International Telecommunication Union data).

Economic performance

The Central Bank of Syria launched a new regular monthly inflation bulletin in May, as part of its ongoing programme of upgrading its statistical services. The first bulletin provided data for the first two months of 2010, indicating that average inflation for this period was 3.87%, compared with 8.09% in January-February 2009. Year-on-year inflation was 5.41% in February 2010 and 2.18% in January. The main drivers of higher prices in February were increased costs of fuel, food and clothing. The bulletin noted that accommodation costs declined, reflecting the downturn in the rental property market that has resulted from the return home of some of the Iraqis who had taken refuge in Syria in the past few years. The inflation index is heavily weighted towards food (42%), implying that Syrians spend a relatively high proportion of income on food. The second-highest weighting is for a combination of housing, fuel and lighting (22%, of which 15% consists of rental costs).

Central Bank launches monthly inflation bulletin

Syria 13


Consumer price index (% change, year on year)

Source: Central Bank of Syria.

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

Jan10

NovSepJulMayMarJan09

NovSepJulMayMarJan2008

Consumer price index, Feb 2010

Index weighting

(% of total) % change,

year on yearFood & beverages 42 3.6Alcoholic drinks & tobacco 2 14.9

Clothes & shoes 8 7.0Housing, water, electricity, gas & other fuels 22 7.1

Rent (also included in the above category) 15 -2.4House equipment & maintenance 6 7.5Health 6 6.5

Transportation 3 -0.4Communication 3 1.2

Promotion & culture 2 -3.7Education 1 28.3

Hotels & restaurants 2 16.3Other goods & services 3 7.7Promotion & culture (non-profitable) 0 81.9

General index 100 5.4

Source: Central Bureau of Statistics.

The energy and utilities arm of Cham Holding, a well-connected Syrian business group, has put itself in a strong position to win the contract to develop the country's first privately operated wind farm by signing a strategic partnership agreement with Vestas, a Danish wind electricity generation company. The agreement provides for the submission of a joint pre-qualification application by Marafeq (a Cham affiliate), Vestas and Kuwait's Kharafi Group (the designated engineering, procurement and construction contractor) for the wind farm tender, which is being handled by the Public Establishment for Electricity Generation and Transmission (PEEGT). Two sites have been identified for the wind farm: Al Sokhna, near Palmyra, and Al Hijana, south of Damascus. The plant will have the capacity to generate 50-100 mw of electricity. The PEEGT is studying bids from consultants for a World Bank-backed advisory contract for the project. The consultant will be involved in preparing the terms of reference for the wind farm and evaluating the bids.

Cham Holding is poised to win wind farm contract

14 Syria


The PEEGT is also expected to solicit fresh applications to pre-qualify for a independent power project (IPP) to be built next to the existing Nasiriyah power station outside Damascus. Marafeq was among five groups that initially applied last year. The PEEGT then decided to engage the International Finance Corporation, an arm of the World Bank, as an adviser, thereby putting back the tender schedule (August 2009, Economic performance). The plant will run on gas or fuel oil, and will have a generating capacity of 250-350 mw.

The Qatar Electricity and Water Company (QEWC) has signed an agreement in principle with the Syrian-Qatari Holding Company (owned equally by the two governments) to invest in the construction and operation of two 450-mw combined-cycle power plants, at Sweidiyeh in the north and in the Adra industrial zone to the north of Damascus. The QEWC said that it would sign long-term contracts to purchase the gas for the plants from the Ministry of Petroleum and to sell its output to the PEEGT. These contracts would be guaranteed by the Syrian Ministry of Finance, the Qatari venture claimed. Total investment is expected to be in the order of US$1bn, part of which would be provided by an international partner. The company aims to start construction in April 2011 and to complete the first plant in 2013. This is a highly ambitious schedule. The finance ministry has not publicly confirmed that it is prepared to provide guarantees for such projects, and there is no precedent in Syria for the scale of the financing that would be required.

The China National Petroleum Corporation (CNPC), a state-owned Chinese oil company, has acquired a 35% stake in Syria Shell Petroleum Development (SSPD), the Syrian subsidiary of the Anglo-Dutch oil major, Royal Dutch Shell. SSPD has been operating for a number of years in Syria through the Al Furat Petroleum Company (AFPC), which is 50% owned by the Syrian government. CNPC already had a stake in AFPC of around 9%, but this deal will increase that to around 20%, roughly equal to Shell's stake. AFPC produces around 100,000 barrels/day at present, but this level is falling. The acquisition is a continuation of China's aggressive expansion into foreign production assets. CNPC is involved in other areas of Syria's upstream and downstream oil sector.

CNPC acquires stake in Shell's Syrian subsidiary

Syria 15


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 49,192 50,283 54,771 59,432

Nominal GDP (S£ bn) 1,506 1,705 2,018 2,292 2,349 2,598 2,907

Real GDP growth (%) 6.2 5.0 5.7 4.3 3.6 3.9 4.2

Expenditure on GDP (% real change)

Private consumption 13.3 3.0 1.0 2.3 3.7 4.4 4.8

Government consumption 1.9 1.5 23.6 -0.5 6.5 5.1 3.7

Gross fixed investment 12.7 7.1 -8.3 -5.9 -0.4 4.5 5.2

Exports of goods & services -1.5 20.6 1.4 -2.3 -1.9 2.0 3.2

Imports of goods & services 26.0 -12.7 11.3 2.5 -3.5 2.6 3.5

Origin of GDP (% real change)

Agriculture 7.8 10.2 -13.5 -8.7 5.5 1.0 2.8

Industry -3.0 0.6 3.8 5.5 -0.6 5.5 5.0

Services 13.3 3.4 16.6 8.3 4.7 4.1 4.2

Population and income

Population (m) 19.1 19.8 20.5 21.2a 21.8 22.4 23.0

GDP per head (US$ at PPP) 3,999b 4,191b 4,398b 4,524 4,610 4,737 4,857

Recorded unemployment (av; %) 8.0 8.3 9.2 10.9a 8.5 a 8.3 8.1

Fiscal indicators (% of GDP)

Central government revenue 23.7 25.5 22.7 21.4 22.7 22.2 23.3

Central government expenditure 28.6 29.0 25.8 24.5 28.4 27.2 25.9

Central government balance -5.0 -3.5 -3.1 -3.1 -5.7 -5.0 -2.7

Net public debt 32.4b 33.9b 28.4b 27.0 31.9 33.7 33.0

Prices and financial indicators

Exchange rate S£:US$ (end-period) 54.85 51.10 48.10 46.45a 45.70 a 49.87 48.10

Consumer prices (av; % change) 7.2 10.0 3.9 15.7a 2.6 6.5 6.9

Stock of money M1 (% change) 14.4 -4.0 10.7 12.9a 10.5 a 4.9 6.4

Stock of money M2 (% change) 21.0 7.8 14.7 12.4a 9.3 a 5.7 7.6

Lending interest rate (av; %) 8.0 9.0 10.0 10.0a 10.0 a 9.0 8.0

Current account (US$ m)

Trade balance -140 886 -521 -773 -1,580 -1,668 -1,529

Goods: exports fob 8,602 10,245 11,756 15,334 11,758 12,984 13,744

Goods: imports fob -8,742 -9,359 -12,277 -16,107 -13,338 -14,652 -15,273

Services balance 551 404 849 838 1,129 1,251 1,304

Income balance -863 -935 -689 -1,149 -913 -959 -1,016

Current transfers balance 747 535 820 1,150 1,038 1,090 1,137

Current-account balance 295 890 459 66 -326 -286 -105

External debt (US$ m)

Debt stock 6,508 6,502 6,732b 6,991 7,047 7,193 7,280

Debt service paid 205 187 189b 164 153 149 142

Principal repayments 144 130 126b 117 110 108 102

Interest 61 57 62b 46 43 41 39

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.

16 Syria


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 47.4 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 3,639 5,034 4,732 3,633 2,305 3,226 3,202 n/a

Imports cif 6,114 7,533 7,796 7,089 4,816 5,533 5,976 n/a

Trade balance -2,474 -2,499 -3,065 -3,456 -2,511 -2,306 -2,774 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.

Syria 17


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 8.0 8.0 8.0 9.0 9.0 8.0

2008 8.0 8.0 8.0 8.0 8.0 8.0 7.0 7.0 7.0 7.0 7.0 7.0

2009 7.0 6.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 6.0

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 10.0 10.0 10.0

2009 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0

Total exports fob (US$ m) 2007 1,009 805 880 1,076 1,681 1,124 1,181 1,132 1,272 1,326 995 1,068

2008 1,290 1,028 1,321 1,601 2,018 1,414 1,646 1,320 1,765 1,444 1,210 979

2009 828 645 831 884 1,400 942 1,110 997 1,096 1,090 1,000 n/a

Total imports cif (US$ m) 2007 1,405 1,453 1,952 1,869 1,917 1,879 1,825 2,077 2,199 1,954 2,022 2,236

2008 1,791 1,885 2,438 2,507 2,522 2,504 2,413 2,629 2,755 2,462 2,184 2,442

2009 1,434 1,422 1,959 1,860 1,783 1,890 1,885 1,994 2,098 2,034 1,913 n/a

Trade balance fob-cif (US$ m) 2007 -395.3 -647.6 -1072.6 -793.7 -236.2 -755.6 -644.4 -945.0 -927.6 -627.7 -1026.5 -1168.0

2008 -501.1 -856.6 -1116.5 -905.9 -503.7 -1089.7 -766.5 -1309.0 -989.2 -1018.2 -974.2 -1463.6

2009 -606.0 -777.0 -1127.7 -975.2 -383.1 -948.2 -775.5 -997.0 -1001.6 -943.7 -913.4 n/a

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

18 Syria


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; %)

-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

-8.0

-4.0

0.0

4.0

8.0

12.0

16.0 Middle East and North Africa Syria

1110090807062005-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0 Middle East and North Africa Syria

1110090807062005

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

Syria 19


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

Monthly trends charts

Exchange rate(S£:US$; av)

Consumer price inflation(% 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.

20

40

60

80

100

120

140

Jan10

OctJulAprJan09

OctJulAprJan08

OctJulAprJan07

Oct2006

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

Jan10

OctJulAprJan09

OctJulAprJan08

OctJulAprJan07

Oct2006

45.0

46.0

47.0

48.0

49.0

50.0

51.0

52.0

53.0

AprJan10

OctJulAprJan09

OctJulAprJan08

OctJulAprJan07

Oct2006

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000 Balance Imports Exports

OctJulAprJan09

OctJulAprJan08

OctJulAprJan07

Oct2006

20 Syria


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

Comparative economic indicators, 2009

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 50 100 150 200 250 300 350 400

Jordan

Bahrain

Yemen

Lebanon

Tunisia

Syria

Sudan

Oman

Libya

Iraq

Qatar

Morocco

Kuwait

Algeria

Egypt

Israel

United Arab Emirates

Iran

Saudi Arabia

0.0 10.0 20.0 30.0 40.0 50.0 60.0

Yemen

Sudan

Egypt

Syria

Iraq

Morocco

Jordan

Tunisia

Algeria

Iran

Lebanon

Libya

Saudi Arabia

Bahrain

Oman

Israel

Kuwait


Qatar

-8.0 -4.0 0.0 4.0 8.0 12.0 16.0

Qatar

Iraq

Jordan

Morocco

Lebanon


Libya

Syria

Bahrain

Israel

Oman

Yemen

Tunisia

Kuwait

Saudi Arabia

Algeria

Sudan

Egypt

Iran

-4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0


Kuwait

Libya

Saudi Arabia

Iran

Israel

Algeria

Tunisia

Bahrain

Jordan

Oman

Syria

Yemen

Sudan

Iraq

Egypt

Morocco

Lebanon

Qatar

Syria 21


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

22 Syria


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 Yarob Suleiman Badr

Adib al-Mayaleh

Amer Lutfi

Official name

Form of state

Legal system

Electoral system

Legislature

National elections

Head of state

Executive

Main political parties

Key ministers

Central Bank governor

State Planning Commission

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