Economy of Syria

Basic information

During the 1960s, along socialist lines, the government nationalized most major enterprises and adopted economic policies designed to address regional and class disparities. This legacy of state intervention and price, trade, and foreign exchange controls may have hampered economic growth. Syria also has low investment levels, and relatively low industrial and agricultural productivity. Economic reform has been incremental and gradual. In 2001, Syria legalized private banking. In 2004, four private banks began operations. In August 2004, a committee was formed to supervise the establishment of a stock market. Beyond the financial sector, the Syrian Government has enacted major changes to rental and tax laws, and is reportedly considering similar changes to the commercial code and to other laws, which impact property rights. (Ohachq) Syria has produced heavy-grade oil from fields inside in the northeast since the late 1960s. In the early 1980s, light-grade, low-sulphur oil was discovered near Deir ez-Zor in eastern Syria. This discovery relieved Syria of the need to import light oil to mix with domestic heavy crude in refineries. Recently, Syrian oil production has been about 379,000 barrels per day (bpd). Syria's oil reserves are being gradually depleted and reached 2.5 billion barrels in January 2009. Experts generally agree that Syria will become a net importer of petroleum by the end of the next decade. Recent developments have helped revitalize the energy sector, including new discoveries and the successful development of its hydrocarbon reserves. According to the 2009 Syria Report of the Oxford Business Group, the oil sector accounted for 23% of government revenues, 20% of exports, and 22% of GDP in 2008. Syria exported roughly 150,000 bpd in 2008, and oil accounted for a majority of the country's export income.

Ad hoc economic liberalization continues to add wealth inequality, impoverishing the average population while enriching a few people in Syria's private sector. In 1990, the government established an official parallel exchange rate to provide incentives for remittances and exports through official channels. This action improved the supply of basic commodities and contained inflation by removing risk premiums on smuggled commodities.

Foreign aid to Syria in 1997 totaled an estimated US$199 million. The World Bank reported that in July 2004 that it had committed a total of US$661 million for 20 operations in Syria. One investment project remained active at that time.

Agriculture

Agriculture is a high priority in Syria's economic development plans, as the government seeks to achieve food self-sufficiency, increase export earnings, and halt rural out-migration. Thanks to sustained capital investment, infrastructure development, subsidies of inputs, and price supports, Syria has gone from a net importer of many agricultural products to an exporter of cotton, fruits, vegetables, and other foodstuffs. One of the prime reasons for this turnaround has been the government's investment in huge irrigation systems in northern and northeastern Syria. The agriculture sector, as of 2009, employs about 17 percent of the labor force and generates about 21 percent of the gross domestic product, of which livestock accounted for 16 percent and fruit and grains for more than 40 percent.

Most land is privately owned, a crucial factor behind the sector's success. Of Syria's 196,000 km² (72,000 square miles), about 28 percent of it is cultivated, and 21 percent of that total is irrigated. Most irrigated land is designated "strategic", meaning that it encounters significant state intervention in terms of pricing, subsidies, and marketing controls. "Strategic" products such as wheat, barley, and sugar beets, must be sold to state marketing boards at fixed prices, often above world prices in order to support farmers, but at a significant cost to the state budget. The most widely grown arable crop is wheat, but the most important cash crop is cotton; cotton was the largest single export before the development of the oil sector. Nevertheless, the total area planted with cotton has declined because of an increasing problem of water shortage coupled with old and inefficient irrigation techniques. The output of grains like wheat is often underutilized because of poor storage facilities.

Water and energy are among the most pervasive issues facing the agriculture sector. Another difficulty the agricultural sector suffered from is the government's decision to liberalize the prices of fertilizers, which have increased between 100% and 400%. Drought was an alarming problem in 2008; however, the drought situation slightly improved in 2009. Wheat and barley production about doubled in 2009 compared to 2008. In spite of that, the livelihoods of up to 1 million agricultural workers have been threatened. In response, the UN launched an emergency appeal for $20.2 million. Wheat has been one of the crops most affected, and for the first time in 2 decades Syria has moved from being a net exporter of wheat to a net importer. During the civil war which began in 2011, the Syrian government was forced to put out a tender for 100,000 metric tonnes of wheat, one of the few trade products not subject to economic sanctions.

Less than 3 percent of Syria's land area is forested, and only a portion of that is commercially useful. Limited forestry activity is centered in the higher elevations of the mountains just inland from the coast, where rainfall is more abundant.

Mining

Phosphates are the major minerals exploited in Syria. Production dropped sharply in the early 1990s when world demand and prices fell, but output has since increased to more than 2.4 million tons. Syria produced about 1.9% of the world's phosphate rock output and was the world's ninth ranked producer of phosphate rock in 2009. Other major minerals produced in Syria include cement, gypsum, industrial sand (silica), marble, natural crude asphalt, nitrogen fertilizer, phosphate fertilizer, salt, steel, and volcanic tuff, which generally are not produced for export.

Oil and natural gas

Syria is a relatively small oil producer, accounting for just 0.5 percent of the global production in 2010. Although Syria is not a major oil exporter by Middle Eastern standards, oil is a major pillar of the economy. According to the International Monetary Fund, oil sales for 2010 were projected to generate $3.2 billion for the Syrian government and account for 25.1% of the state's revenue.

Electrical generation

In 2001 Syria reportedly produced 23.3 billion kilowatt hours (kWh) of electricity and consumed 21.6 billion kWh. As of January 2002, Syria's total installed electric generating capacity was 7.6 gigawatts (GW), with fuel oil and natural gas serving as the primary energy sources and 1.5 GW generated by hydroelectric power. A network totaling 45 GW linking the electric power grids of Syria, Egypt, and Jordan was completed in March 2001. Syria's electric supply capacity is an important national priority, and the government hopes to add 3,000 megawatts of power generating capacity by 2010 at a probable cost of US$2 billion, but progress has been slowed by a lack of investment capital. Power plants in Syria are undergoing intensive maintenance, and four new generating plants have been built. The power distribution network has serious problems, with transmission losses estimated as high as 25 percent of total generated capacity as a result of poor quality wires and transformer stations. A project for the expansion and upgrading of the power transmission network is scheduled for completion in 2005.

As of May 2009 it was reported that the Islamic Development Bank and the Syrian government signed an agreement stating that the bank would provide a €100 million loan for the expansion of Deir Ali power station in Syria.

Nuclear energy

Syria abandoned its plans to build a VVER-440 reactor after the Chernobyl accident. The plans for a nuclear program were revived at the beginning of the 2000s when Syria negotiated with Russia to build a nuclear facility that would include a nuclear power plant and a seawater atomic desalination plant.

Industry and manufacturing

The industrial sector, which includes mining, manufacturing, construction, and petroleum, accounted for 27.3 percent of gross domestic product (GDP) in 2010 and employed about 16 percent of the labor force. The main industrial products are petroleum, textiles, food processing, beverages, tobacco, phosphate rock mining, cement, oil seeds crushing, and car assembly. Syria's manufacturing sector was largely state dominated until the 1990s, when economic reforms allowed greater local and foreign private-sector participation. Private participation remains constrained, however, by the lack of investment funds, input/output pricing limits, cumbersome customs and foreign exchange regulations, and poor marketing.

Because land prices are not controlled by the state, real estate is one of the few domestic avenues for investment with realistic and safe returns. Activity in the construction sector tends to mirror changes in the economy. Investment Law No. 10 of 1991, which opened the country to foreign investment in some areas, marked the beginning of a strong revival, with growth in real terms increasing over 2001 and 2002.

Services

Services accounted for 45.3 percent of gross domestic product (GDP) in 2009 and employed 67 percent of the labor force, including government, in 2008. As of May 2009, it was reported that Damascus office prices are skyrocketing.

Banking and finance

The Syrian government under Assad started its reform efforts by changing the regulatory environment in the financial sector, including the introduction of private banks and the opening of the Damascus Securities Exchange in March 2009. In 2001, Syria legalized private banking and the sector, while still nascent, has been growing. Foreign banks were given licenses in December 2002, in compliance with Law 28 March 2001, which allows the establishment of private and joint-venture banks. Foreigners are allowed up to 49 percent ownership of a bank, but may not hold a controlling stakes. As of January 2010, 13 private banks had opened, including two Islamic banks.

Syria has taken gradual steps to loosen controls over foreign exchange. In 2003, the government canceled a law that criminalized private sector use of foreign currencies, and in 2005 it issued legislation that allowed licensed private banks to sell specific amounts of foreign currency to Syrian citizens under certain circumstances and to the private sector to finance imports. In October 2009, the Syrian Government further loosened its restrictions on currency transfers by allowing Syrians travelling abroad to withdraw the equivalent of up to U.S. $10,000 from their Syrian pound accounts. In practice, the decision allows local banks to open accounts of a maximum of U.S. $10,000 that their clients can use for their international payment cards. The holders of these accounts will be able to withdraw up to U.S. $10,000 per month while travelling abroad.

To attract investment and to ease access to credit, the government allowed investors in 2007 to receive loans and other credit instruments from foreign banks, and to repay the loans and any accrued interest through local banks using project proceeds. In February 2008, the government permitted investors to receive loans in foreign currencies from local private banks to finance capital investments. Syria's exchange rate is fixed, and the government maintains two official rates—one rate on which the budget and the value of imports, customs, and other official transactions are based, and a second set by the Central Bank on a daily basis that covers all other financial transactions. The government passed a law in 2006 which permits the operation of private money exchange companies. However, a small black market for foreign currency is still active.

Still after the opening of the financial sector, the six specialized state banks, the Central Bank of Syria, Commercial Bank of Syria, Agricultural Co-Operative Bank, Industrial Bank, Popular Credit Bank, and Real Estate Bank, are major financial operators. They each extend funds to, and take deposits from, a particular sector. The Central Bank of Syria controls all foreign exchange and trade transactions and gives priority to lending to the public sector. The Industrial Bank also is directed more toward the public sector, although it is under-capitalized. As a result, the private sector often is forced to bank abroad, a process that is more expensive and therefore a poor solution to industrial financing needs. Many business people travel abroad to deposit or borrow funds. It is estimated that Syrians have deposited US$6 billion in Lebanese banks. The U.S. sanctions of May 2004 may have increased the role of Lebanese and European banks because a ban on transactions between U.S. financial institutions and the Central Bank of Syria created an increase in demand for intermediary sources for U.S. dollar transfers. The US, EU, Arab league and Turkey all imposed Sanctions on the central bank because of the Syrian Civil War.

Tourism

Non-Arab visitors to Syria reached 1.1 million in 2002, which includes all visitors to the country, not just tourists. The total number of Arab visitors in 2002 was 3.2 million, most from Lebanon, Jordan, Saudi Arabia, and Iraq. Many Iraqi businesspeople set up ventures in Syrian ports to run import operations for Iraq, causing an increased number of Iraqis visiting Syria in 2003–4. Tourism is a potentially large foreign exchange earner and a source of economic growth. Tourism generated more than 6 percent of Syria's gross domestic product in 2000, and more reforms were discussed to increase tourism revenues. As a result of projects derived from Investment Law No. 10 of 1991, hotel bed numbers had increased 51 percent by 1999 and increased further in 2001. A plan was announced in 2002 to develop ecological tourism with visits to desert and nature preserves. Two luxury hotels opened in Damascus at the end of 2004. Since March 2011 tourism in Syria has fallen due to the ongoing civil war.

Labour

Syria has a population of approximately 21 million people, and Syrian government figures place the population growth rate at 2.37%, with 65% of the population under the age of 35 and more than 40% under the age of 15. Each year more than 200,000 new job seekers enter the Syrian job market, but the economy has not been able to absorb them. In 2010, the Syrian labor force was estimated to total about 5.5 million people. An estimated 67 percent worked in the services sector including government, 17 percent in agriculture, and 16 percent in industry in 2008. Government and public sector employees constitute about 30% of the total labor force and are paid very low salaries and wages.

According to Syrian Government statistics, the unemployment rate in 2009 was 12.6%; however, more accurate independent sources place it closer to 20%. About 70 percent of Syria's workforce earns less than US$100 per month. Anecdotal evidence suggests that many more Syrians are seeking work over the border in Lebanon than official numbers indicate. In 2002 the Unemployment Commission (UC) was established, tasked with creating several hundred thousand jobs over a five-year period. As of June 2009 it was reported that some 700,000 households in Syria - about 3.5 million people - have no income. Government officials acknowledge that the economy is not growing at a pace sufficient to create enough new jobs annually to match population growth. The UN Development Program announced in 2005 that 30% of the Syrian population lives in poverty and 11.4% live below the subsistence level.

Opportunity cost of conflict

A report by Strategic Foresight Group, an India-based think tank, calculated the opportunity cost of conflict for the Middle East for 1991—2010 at US$12 trillion in 2006 dollars. Syria's share in this was US$152 billion, more than four times the projected 2010 GDP of US$36 billion.

The Syrian Center for Policy Research stated in March 2015 that, by then, nearly three million Syrians had lost their jobs because of the civil war, causing the loss of the primary source of income of more than 12 million people; unemployment levels "surged" from 14.9 percent in 2011 to 57.7 percent at the end of 2014. As a result, 4 in 5 Syrians were by then living in poverty, with 30 percent of the population living in "abject poverty" and frequently unable to meet basic household food needs.