January 1, 2002 No. 17

Special Focus: Syrian Economy

January 1, 2002 | By Dr. Nimrod Raphaeli*
No. 17

Syria: Economic Performance in Second Half of Decade
A report issued by the Syrian Ministry of Economy and Foreign Trade on the performance of the Syrian economy indicates that there was a deterioration in economic performance in the second half of the last decade compared with the first half. This is attributed to a decline in the gross domestic product and a slow-down in investments. Exports have achieved limited success because the measures taken in recent years have had but marginal impact on the trade distortions, particularly those resulting from visible and hidden taxes and tariffs on external trade. Industrial products represent only 10% of total Syrian exports, with the primary commodities representing the remaining 90%. Non-industrial exports are made up of oil and phosphates (66%), fruits and vegetables (18%) and ginned cotton (6%). Throughout the decade, the Syrian balance of trade had run considerable deficits.

The report calls for expediting the introduction of structural changes in the composition of Syrian exports by encouraging the production of non-traditional goods that offer high value added. This strategy must be linked with a plan to create more employment opportunities for a labor force growing at 7.2% at a time when job opportunities are growing at 3.3%.
Source: Al-Sharq Al-Awsat, December 26, 2001.

Assad's Economic Reforms Disappointing
In connection with the installation of a new Syrian government under outgoing premier, Dr. Mustapha Miro, the newspaper Al-Hayat said: "Now, and after two years have passed on President Bashar al-Assad's assuming power in Syria, his march on modernization and progress has been delayed, and international economic circles have been disappointed as these circles still think that the Syrian private banking sector has not been established while unemployment persists, reaching 20% of the work force." In this connection, the article points out that Syrian businessmen have $6 billion deposited in Lebanese banks that are more reliable than Syrian government-owned banks {the only banks free to operate in Syria]. These businessmen question the prospects of attracting foreign direct investment in the absence of a reliable banking sector and economic reforms that have so far been on paper only.
Source: Al-Hayat, December 19, 2001.

Syria: Population and Economic Development
Under the slogan "Synchronization between economic and social development and population growth," The National Council for Population, in collaboration with the United Nations Fund for Population Activities (UNFPA), held a conference in Damascus last week to discuss the problem of population growth in Syria and the development of technical skills for the future.

The population problem was viewed primarily as a political one. For fifty years, the state has encouraged a high rate of birth, and the state has awarded "The Family Medal" to women who gave birth to 12 or more children. Certain privileges, such as lower transportation fares, were also extended to pregnant women. On the other hand, the promotion or sale of drugs or medical devices to avoid pregnancy is subject to severe punishment. Public information [propaganda] has completely overlooked the problem of population growth, and population planning was never adopted by the state. As a result, the population of Syria has almost quadrupled over the last 40 years, registering one of the highest population growth rates in the world. For example, 41.5% of families in the rural areas consist of 10 or more children.

The rapid population growth in Syria has had two major undesirable economic consequences. A recent report by UNFPA points out that because of high fertility rates between the early 1970s and late 1980s, Syria has a young population, and it is estimated that as many as 382,000 persons will enter the labor market each year during the years 2000-2005. Approximately 420,000 persons per year will also be entering their reproductive age.

Primary school enrolment for the year 2000 was estimated at 98.4% for girls and 98.9% for boys. Secondary school enrolment is low and a gender gap is apparent. It was estimated in 2000 that 9.5% of men and 26.1% of women were illiterate. Although citizens of Syria have equal rights under the law, "the social and economic status of women," says UNFPA, "still lags behind their legal rights."

Government's encouragement of a rapid population growth was not accompanied by a commensurate level of public expenditure on health. UN data show that public expenditure on health in Syria comprised 0.4% of gross domestic product in 1990 and rose to 0.8% in 1998, one of the lowest in the world. For the corresponding period, public expenditure on health in Jordan was 3.6% and 5.3% and in Israel 3.8% and 6.0%, respectively.
Sources: Al-Hayat, December 22, 2001; UNFPA, Second regular session 2001, September 1-14, 2001, New York; United Nations Development Programme, Human Development Report 2001, pp.195-7.

Syria: Efforts to Fight Unemployment
Syria has promulgated a special law for fighting unemployment. In a working group meeting to establish the mechanism for the law's implementation, Prime Minister Mustapha Miro emphasized the need to fight bureaucracy and the complexities in the work procedures of various ministries in order to create a suitable environment for investment. He also called for the introduction of innovations in banks and financial and economic institutions, for training of professional cadres, and the proper implementation of rules and laws. [The Prime Minister did not mention the rampant corruption, low salaries and low motivation under a highly bureaucratized socialist economy and an authoritarian regime that serve as a break to effective economic reforms.]
Source: Al-Sharq Al-Awsat, December 22, 2001.

Damascus: Plan to Build Technological City [Park]
Drawing upon the experience of other countries such as Malaysia, India, France and Germany, Syria has decided to build a technological city [park] that will be connected with rapid transit to Damascus. The project will focus on telecommunication and information technology and its application to industry, agriculture, health, medicine and services.

A number of international companies have expressed interest in the project. However, only one company was mentioned, namely Cable and Wireless of the U.K.
Source: Al-Thawra (Damascus), December 21, 2001.

Iraq: Crude Oil Export to Syria
Quoting Energy Intelligence Briefing Journal, Iraqi newspaper Babil says that Iraq exports to Syria, "without a UN green light," 222,000 b/d. This figure was arrived at through the following calculation.

Syria produces 510,000 b/d and uses 295,000 b/d for local consumption. This leaves a surplus of 215,000 b/d. However, Syria exports 437,000 b/d, thereby exceeding the local surplus by 222,000 b/d that is filled by the Iraqi imports through the Iraqi-Syrian pipeline.

However, when Syria joins the Security Council on January 1st, the paper adds, it will come under pressure to close the pipeline or to subject Iraqi oil exports to the UN sanctions committee.

There has been no confirmation from Syria that it was importing Iraqi oil, and Baghdad has denied it. [Obviously, the denial is not very convincing because the story appears in a newspaper published by Saddam Hussain's son.]
Source: Babil (Baghdad), December 20, 2001.


Impact of September 11 on Arab Economies – A Syrian Perspective
In an article in the Syrian newspaper Teshreen, Hamidi Al-Abdallah, reviews in detail the consequences of the September 11 events on the Arab economies. He depicts two extremes: the Egyptian economy, which is moving toward integration into the world economy, and is, therefore affected the most, and the insular Libyan economy which is affected the least.

The events of September have affected Arab economies in six sectors: oil, tourism, air transport, insurance, investment, and foreign trade sectors. In the case of the oil sector, the author sees the decline in demand and prices as a function of an economic slowdown in the industrial countries that had existed before September 11 but was accelerated thereafter.

The insurance sector was affected mildly because of the inherent weakness of this sector and because Arab insurance companies lack the size and the resources to participate in large insurance policies, such as those issued to airlines. In fact, premiums collected by Arab insurance companies amount to 0.03% of global premiums.

In the investment sector, expatriate Arab capital, estimated in the hundreds of billions [there are various estimates ranging from a low of $600 billion to a high of $1.4 trillion. Whatever the actual amount, it is definitely significant] which has suffered considerable losses in the world stock markets. Also, given a perception of anti-Arab attitude in the West, some of the expatriated Arab capital may trickle back for investment in the home base. However, there is still no evidence of a major movement of capital into Arab economies either from Arab sources or from foreign investors except perhaps in the oil sector.

The air transport sector has been affected because of the precipitous decline in tourism. Discussions are underway among Arab airline companies to enter into business partnerships to reduce the number of flights and, consequently, the cost of operations.

The tourism industry has been affected the most, particularly in Egypt, but much less in Tunisia and Morocco. Arab countries are concentrating their efforts to attract Arab tourists. According to available statistics, Arab tourists from the Gulf countries spent $27 billion on their travel and tourism in 2000. They are the biggest users of luxury hotels, averaging $1875 per trip per person compared with $936 per trip on average by a European tourist.

There is evidence, based on reservations in a number of luxury hotels in cities like Tangier, Marakesh and Aghadir that a growing number of Gulf tourists are shifting to these hotels from Europe and the U.S. This would provide a shot in the arm to the ailing tourism industry.

In terms of foreign trade, there has been a sharp decline in exports of manufactured goods, particularly from Egypt, causing the deficit in Egypt's balance of trade to rise to $12 billion. There has also been a decline in oil revenues which have affected the balance of trade of most oil-exporting countries in the Middle East.
Source: Teshreen, December 24, 2001.

Egypt: Arab Countries Urged to Join Electronic Trade
According to a study made by Dr. Sa'id Abd Al-Khaliq Mahmoud, Director of Research in Egypt's Ministry of Foreign Trade, global electronic trade will increase from $2.3 trillion in 1999 to $7 trillion in 2004. At the same time, the number of users of internet services in the Arab countries remains at 6% of the population [households] compared with 88% in the industrialized countries. The number of Internet users will have increased from 50 million in 1997, to 288 million in 1999 and 700 million in 2001. Egypt has the largest number of Internet users but only 0.8% of the population. This is compared with U.A.E. (10.2%), Lebanon (8%), Kuwait (5%) and Jordan (2%).

The report calls for increasing investment in human resources to be capable of handling the requirements of the information technology, communications technology and networking. The report also calls for the development of the legal framework that would strengthen the confidence in electronic trading.
Source: Al Sharq Al-Awsat, December 20, 2001.

OPEC: Armistice with Non-Members
There is a common agreement that the OPEC extraordinary meeting to be held in Cairo on December 29 will confirm the reduction of 1.5 million b/d by OPEC members and another 500,000 b/d by non-members.

Oil analysts consider Russia's decision to reduce its production by 150,000 b/d as a seasonal measure dictated by rising consumption in Siberia during winter. They say Russia will resume its full exports by April; indeed, it will increase it. As a result, the share of OPEC in the oil market is estimated to decline to 34.5% in 2002 from 36.5% in 2000.

The meeting in Cairo is not likely to resolve the fundamental difference between OPEC and non-OPEC members. At best, it will reach an armistice.
Source: Al-Sharq Al-Awsat, December 26, 2001.

World Bank: Arab Countries Suffer from Large Water Shortages
According to a World Bank report, issued recently, Arab countries suffer from large water shortages that will be their next biggest challenge. The report is quoted as stating that the majority of Arab countries "have entered a stage of water poverty where consumption exceeds their water resources, both surface and subterranean."

The World Bank called on the Arab countries to put together a firm strategy that would benefit from rain water which exceeds 3 trillion cubic meters annually of which 90% is lost through evaporation and flow to the sea.
Source: Al-Sharq Al-Awsat, December 26, 2001.

Gulf Wealth Overseas Estimated at $1.4 trillion
Gulf Wealth Overseas Estimated at $1.4 trillion According to a study by an international financial institution [not identified] the size of Gulf wealth in American and European banks is estimated at $1.4 trillion, owned by 2000 individuals. Radio Monte Carlo said 75,000 individuals from one Gulf country own $700 billion in American, British and Swiss banks. This wealth has been accumulating over a period of 30 years and has yielded enormous profits to the banks themselves.
Source: Al-Ahram, December 23, 2001.

Saudi Arabia: bin Laden Foundation Organizes A Seminar on Family Companies
The bin Laden Foundation is organizing a seminar to be held in Jeddah, Saudi Arabia, on January 15 and 16 on the subject of "Family Companies in the Middle East—Reality and Prospects of Development."

According to Dr. Muhammad bin Ibrahim Al-Tuwaijri, the Director General of the bin Laden Foundation, family companies "are the spine of the economies of the Arab countries" because of the role they perform in providing services and goods to the population and employment opportunities to a large number of people. Family companies represent 95% of all registered companies in the Middle East.

One of the themes for the seminar is the future of family companies in the age of globalization.
Source: Al-Sharq Al-Awsat, December 20, 2001.

Car Industry in Arab Countries Threatened by Collapse
A report issued by the Arab Organization for Industrial Development indicates that Arab countries involved in car production are experiencing difficulties in exporting their products because the cost of production is 30% higher than in other countries.

Egypt is the largest producer in the Arab world, with a production of 76,000 cars a year, followed by Morocco (25,000), Tunisia (3200), Algeria (2125), Saudi Arabia (1800) and Libya (1500). [It is not obvious why would any country be involved in the production of a small number of cars unless it is merely a car assembly operation. Even so, profitable cars production requires economies of scale which are not now present in many countries in the area.]
Source: Al-Thawra (Damascus), December 27, 2001.


Egypt: New Investments in Liquefying Gas for Export
Anglo-Dutch Shell Oil will invest $1.7 billion in a gas liquefying plant, the first in the Middle East. The plant will produce the equivalent of 70,000 b/d of liquefied petroleum products and will employ 5000 workers. Since early this year, Shell Oil has entered local the gas distribution market in Egypt through partnerships with two local companies.

In a related story, Egypt has confirmed reserves of 55 trillion cubic feet of natural gas and another 65 trillion cubic feet of prospective reserves.
Sources: Al-Ahram, December 22, 2001; Al-Ahram, December 22, 2001.

Egypt: Concerns About further Devaluation of Currency
Some bankers in Egypt believe that the Central Bank of Egypt has failed to pump enough dollars into the exchange market to create an equilibrium in the supply-demand equation that would keep the exchange rates stable. As a result, the money changers are calling the tune in the exchange market, and another devaluation of the Egyptian currency seems imminent.
Source: Al-Hayat, December 23, 2001.

Egypt Will Not Suspend Service of Foreign Debt
The Egyptian government has denied rumors that it intended to suspend the servicing of its foreign debt, estimated at $26 billion. Prime Minister Obeid characterized such a move as "a grave mistake," and confirmed Egypt's determination to integrate its economy into the global market
Source: Al-Hayat, December 23, 2001.

Egypt: Record Revenues from Tobacco
According to the economic indicators of the 2002 budget, revenues (tariffs and taxes) from the import and sale of tobacco and tobacco products will reach approximately 4 billion Egyptian pounds ($900 million) in 2001.
Source: Al-Ahram, December 23, 2001.

Baghdad: Transactions in U.S. Dollar
In recent days, there have been increasing transactions in the Iraqi markets using the U.S. as the currency of choice because the alternative is to carry a heavy basket of Iraqi dinar which sell at the rate of 2000 dinars per 1 U.S. dollar. In any event, the prices the market, both at the whole and the retail levels, are calculated according to the exchange rate of the dollar which often changes several times a day and with each change comes a change in the price of the goods traded in the market.
Source: Al-Sharq Al-Awsat, December 20, 2001.

Baghdad: Russia Eager to Protect Economic Interests in Dealings with U.S.
A Russian diplomat is quoted as saying that Moscow would be eager to protect its economic interests in Iraq in its current discussions with the Americans regarding the list of goods that Iraq will be allowed to import under the "Oil for Food" program. The diplomat, who refused to be identified, said that any agreement with the U.S. must not affect Russian exports to Iraq.

{Russia is the leading trade partner with Iraq, followed a distant second by France.]
Source: Babil (Baghdad), December 22, 2001.

Jordan: No difficulties with Cement Exports to Israel
Jordan has confirmed that cement exports to Israel are continuing despite a strike declared by Israeli traders asking their government for compensation [as a result of complaints about dumping by Jordan, Turkey and Romania]

The Marketing Director of the Jordanian Cement Company, Ali Al-Bedour, said that all the Jordanian cement reaching the northern crossing of "Al-Sheikh Hussain" has entered Israel although there were some delays due to traffic on the bridge and Israeli security procedures.

Cement is considered one of the most important Jordanian exports to Israel and the Palestinian Authority. However, the Jordanian cement industry has sustained losses because of Israeli's refusal to allow the shipment of cement to the Palestinian Authority.

In a related news item, Al-Hayat Al-Jadeeda (mouthpiece of the Palestinian Authority) has reported demonstrations at the crossing point as well as at the Nesher cement factory in Israel against cement dumping by Jordan, Turkey and Romania. The police arrested for investigation the head of the labor union involved in the demonstration.
Sources: Al-Sharq Al-Awsat , December, 22, 2001; Al-Hayat Al-Jadeeda, December 24, 2001.

Iraq and Jordan Sign a New Oil Agreement
A Jordanian delegation headed by the Minister of Energy and Mineral Resources, Eng. Muhammad Al-Bataina completed a 5-day negotiation with their counterparts in Baghdad for a new agreement on the supply of Iraqi oil to Jordan. Jordan's demand were twofold: first, it requested that the price of oil set at $21.5 p/b, established in the 2000 agreement be reduced to reflect new market prices; and second, Jordan asked that half the oil supplied by Iraq should continue to be supplied free as "a gift from the Iraqi President Saddam Hussain."

At the conclusion of the negotiation, the Iraqi government announced that the new oil agreement between the two countries calls for Iraq to provide Jordan 5.5 million tons of oil in 2002, or10% higher than in the previous year at an estimated cost of $650 million. Jordan will pay 50% of the cost through exports (barter arrangement) and will receive the remaining 50% as "a sift" from Saddam Hussein.
Sources: Al-Hayat December 21 and 24, 2001; Babil, December 26, 2001.

Iraq: Suspended Contracts by UN Continue to Rise
The UN Sanctions Committee has so far suspended 1610 contracts for a total of $4,63 billion. In the week of December 8-14, the Committee suspended 57 contracts for $140.6 million while it approved 14contracts for $19.8 million. Iraq accuses the U.S. and U.K. behind the suspension of contracts because the two countries claim that the goods or material to be financed under the suspended contracts may have a dual usage
Source: Al-Thawra (Baghdad), December 20, 2001.

Turkey: Embargo on Iraq costs Turkey $100 billion
The Turkish news agency, Jihan, is quoted that Turkey's losses as a result of the embargo on Iraq have reached $100 billion in the last 11 years.
Source: Al-Thawra, December 24, 2001.

Kuwait Received $6.3 Billion Compensation for Iraqi Invasion
Kuwait has submitted to the UN Sanctions Committee claims totaling $177.6 billion for losses incurred by individual as well as by the public and private sectors as a result of the Iraqi invasion. The Committee has examined claims for $42.7 billion and rejected claims for $619 million. So far, the Committee has paid Kuwait $6.3 billion from the proceeds of the sale of Iraqi oil to settle claims from individuals and small claims.
Source: Al-Qabas, December 22, 2001.

UN Official Warns of Critical Palestinian Economic Conditions
The UN Special Coordinator for the Middle East Peace Process, Terje Roed-Larsen, said the region was experiencing "peace-building in reverse," citing the rising death toll and new studies on the economic conditions of the Palestinians. These studies show that by the end of September, 35% of Palestinians were out of work, with that figure rising to 50% in Gaza. Poverty rates are expected to climb by 40% by the end of the year—more than double the rate prior to the onset of the current crisis. These factors combined to leave almost half the Palestinian population living on less than $2 per day.
Source: Arabic News.Com., December 21, 2001.

Quoting a number of foreign newspapers, the World Bank says the Intifada has cost the Palestinian up to $3.2 billion during one year. According to the Israeli army, 5800 Palestinians were permitted to work in Israel. Also, there are no restrictions on the number of women over the age of 25 who are allowed to work in Israel. The army is also considering allowing Palestinian workers to spend the night in Israel, rather than having to cross numerous checkpoints.
Source: World Bank press release, December 23, 2001.

PA: Pressures Cause Withdrawal of Israeli Products
Selfridges department stores in England have agreed to remove from the shelves 4 Israeli products made in the settlements of the West Bank and the Golan Heights but were marketed as "Made in Israel." The removal of the products was in response to demonstrations by Palestinians outside Selfridges for its violation of a European Union policy that "forbids the importation of products produced in the occupied areas." [As a matter of fact, the EU has threatened to issue such policy but it has not gone through with it.]

A spokesperson for Selfridges said that the decision to remove these products before the Christmas shopping season was made to spare its customers the nuisance of the demonstration and the leaflets distributed at the scene.

A spokesperson for the Israeli Embassy characterized the decision by Sulfide as "a shameful surrender…to a small number of misguided protestors."
Source: Al-Jazeera, December 23, 2001.

PA: Islamic Bank Provides $24 million
The Islamic Development Bank (IDB), headquartered in Jeddah, has provided the Palestinian Authority $24 million in loans and grants for essential services. Of this amount, $10 million was drawn against the Intifada Fund established by the Arab states to support the Intifada.

In 1990, the Arab summit pledged $1 billion for both the Aqsa Fund and the Intifada Fund. So far, only $693 million has been contributed and only $444 million has been disbursed to PA.

Both funds were entrusted to IDB "after some donors balked at transferring the money directly to the authority, citing a lack of transparency in its management of public funds."
Source: Tehran Times, December 25, 2001.

*Dr. Nimrod Raphaeli is Senior Analyst of MEMRI's Middle East Economic Studies Program.

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