SYRIA

Syrian Arab Republic

Al-Jumhuriyah al-'Arabiyah as-Suriyah

COUNTRY OVERVIEW

LOCATION AND SIZE.

Syria, a Middle Eastern country, is located on the east coast of the Mediterranean Sea. It is bounded by Turkey to the north, by Iraq to the east and southeast, by Jordan to the south, and by Lebanon and Israel to the southwest. Syria has an area of 185,180 square kilometers (71,500 square miles), including 1,295 square kilometers (500 square miles) of territory in the Golan Heights captured by Israel in the Six Day War of 1967. There are 2,253 kilometers (1,400 miles) of boundary length, with a coastline of 193 kilometers (120 miles). The area occupied by Syria is slightly larger than the state of North Dakota. The capital city, Damascus, is located on the Barada River in southwest Syria. Other major cities, Latakia and Aleppo, are situated on the Mediterranean coast in the west and in northern Syria, respectively.

POPULATION.

The population of Syria was estimated at 16,305,659 in July 2000, an increase of 3.4 percent from the 1990 population of 12,116,000. In addition, there are about 38,200 people living in the Israeli-controlled Golan Heights (excluding nearly 20,000 Israeli settlers). Syria has one of the highest population growth rates in the world. Over the last decade, however, Syria's population growth rate has gradually decreased from 3.30 percent in 1990 to approximately 2.58 percent in 2000. Despite the steady decline in its growth rate, the population is expected to reach 20.9 million by the year 2010.

Syrians are divided along profound ethnic and sectarian (groups divided by politics, language, and religion) cleavages. Arabs constitute the major ethnic group with 90.3 percent, while other minority groups such as Kurds, Armenians, Turcomans, and Assyrians make up the remaining 9.7 percent of the population. Sectarian divisions include Sunni Muslims (about 74 percent), Alawites (an extreme Shi'ite subsect), Druze (a secret Middle-Eastern sect and doctrine combining different Islamic, Jewish, and Christian elements), and other Muslim sects (about 16 percent). The Christian population in Syria is small (about 10 percent), and Jews number only a few thousand.

Syria's population is overwhelmingly young, with 41 percent below the age of 15 and only 3 percent older than 65. The urban-rural population ratio has been reversed over the last decade in favor of the urban population, which increased at a rate of 4.1 percent from 49.4 percent in 1988 to 53.5 in 1998. Because of this trend, major cities like Damascus, Latakia, and Aleppo have become the main venue of rural emigration within the country.

OVERVIEW OF ECONOMY

According to the World Bank, in 2000 the Syrian economy was classified as a low middle-income economy with a gross national product (GNP) per capita of about US$1,000. Although it does not possess the extensive natural resources of its richer neighbors, Syria was able to sustain one of the most integrated and productive economies in the region for several decades after gaining its independence in 1946. Following unification with Gamal Abdel Nasser's Egypt under the United Arab Republic and the rise of the Ba'ath Party, however, socialism became the official economic policy in 1958. Although Syria left the United Arab Republic in 1961, government-sponsored land reforms and the nationalization of major industries and foreign investments had confirmed the new socialist direction of Syria's economic policy by the mid-1960s.

During the 1970s, Syria achieved high rates of economic growth. The dramatic rise of world oil prices from 1973 to 1974 led to increased production in domestic refineries. Moreover, higher prices for agricultural and oil exports, as well as the state's limited economic liberalization policy, encouraged growth. The October War in 1973 and later ostracism of Egypt from the Arab League due to its peace agreement with Israel put Syria, as a front-line state, in a position of leadership in the Arab-Israeli conflict. Because of this, Syria began to receive substantial quantities of foreign aid from the oil-rich Gulf states. Besides these higher levels of aid, Syria's economic boom was furthered by increased remittances from Syrians working in the oil-rich Arab states. By the end of the decade, the Syrian economy had shifted from its traditional agrarian base to an economy dominated by the service, industrial, and commercial sectors. Massive expenditures for development of irrigation, electricity, water, road building projects, and the expansion of health services and education to rural areas contributed to prosperity.

By the mid-1980s, the country's economic climate had shifted from prosperity to austerity. Syria's economic boom collapsed for a variety of reasons: a reduction in worker remittances, declining world oil prices, lower export revenues, agricultural devastation due to drought, and costly military involvement with Lebanon. A drastic decline in Arab aid, due to Syria's support for Iran against Iraq in the Iran-Iraq War (1980-88), also contributed to the country's economic woes.

The final collapse of Soviet Russia after 1989 left Syria without the generous Soviet economic and military aid on which it had depended. Syria did receive aid through substantial financial rewards—in the form of large injections of credits from Saudi Arabia, the Gulf states, the United States, the European Community, and Japan—for its decision to support the coalition forces in the Gulf War of 1991 against Iraq.

Agriculture remains the dominant sector in Syria, yet only 20 percent of arable land is irrigated. Although Syria has sufficient water supplies, the great distance between major water supplies and population centers poses serious distribution problems. The water problem is exacerbated by rapid population growth, industrial expansion, and increased water pollution. Oil production is leveling off, and the efforts of the non-oil sector to penetrate international markets have fallen short. A vibrant black market , smugglers, corruption, cumbersome bureaucracy, and inefficient state-owned enterprises are huge barriers to growth and development.

Besides these economic burdens, Syria suffers from a substantial external debt , which was estimated about US$22 billion in 1999, including US$10 to 12 billion owed to the former Soviet Union and US$900 million to the former East Germany which many observers doubt will ever be repaid. Much of the US$22 billion owed dates back to the Cold War (a period in history, lasting from approximately 1945-89, characterized by the arms race between the United States and former Soviet Union), stemming from arms transfers. Russia and Germany argue that the debt should be paid, but Syria claims that the debt is no longer valid because the predecessor states no longer exist.

POLITICS, GOVERNMENT, AND TAXATION

Syria is a socialist republic ruled by the Ba'ath Socialist Party dictatorship. According to the Syrian Constitution of 1973, the president governs with the assistance of an appointed Council of Ministers, headed by a prime minister. The president also functions as commander-in-chief of the armed forces and secretary-general of the Syrian Ba'ath Party. Since 1970, Syria has been under the patrimonial rule of the Assad family. During the reign of Hafez Assad, the Ba'ath Party became the major instrument in implementing economic and fiscal policies . Assad's takeover in 1970 gave new momentum to the Syrian economy. He relaxed many socialist restrictions and measures by previous Ba'ath leaders and adopted a moderate foreign policy toward the conservative oil-rich Arab states to accumulate their oil money in Syria.

A second phase of economic reform in 1986 and 1987 added to Assad's economic reform and relaxation policies of the early 1970s. In this second phase, the government largely surrendered its control over foreign exchange to the market. The state-owned banking sector, instead of being an instrument of control over private exports and imports, was gradually reduced to the role of an intermediary. It passed a new investment law in May 1991 (Investment Law #10), lengthening the list of goods that the private sector can either produce or import. Apart from foreign trade and currency regulations, this second phase involved a substantial liberalization of Syria's agricultural economy (pricing, production, and marketing of fruits and vegetables have been placed in private hands by the government). Although these limited liberalization schemes served their purposes well, they were not enough for a complete transformation from a socialist to a market economy. Throughout the 1990s, Syria's economy suffered from instability, recession , unemployment, rising external debts, and capital shortages.

Thanks to the liberalization schemes of the 1970s and the 1980s, by 2001 Syria developed a mixed economy based on agriculture, trade, mining, and manufacturing. The government controls the most vital sectors of the country's economy and regulates private businesses. The economy, where the public and private sectors have an almost equal share, is managed through a central planning system. The public sector (composed of enterprises wholly or partly owned by the state and controlled through a public authority which does focus entirely on commercial profit) is dominant in oil, banking, construction, electricity, chemicals, and much of the textile and food processing industries. The private sector (com-posed of enterprises owned by individuals in pursuit of profit) is dominant in agriculture, tourism, domestic trade, and certain light industries. State control in commerce is restricted to foreign exchange operations.

The Syrian government depends heavily on oil revenue, foreign aid, remittances from Syrian workers abroad, tourism, and tax revenues. In 1997, tax revenue constituted 16.4 percent of the GDP. For the same year, taxes levied on goods and services made up 20.72 percent of the current government revenue whereas income taxes and taxes levied on international trade accounted for 30.15 percent and 10.58 percent, respectively. Income taxes are levied on 3 main categories of income: 1) profits from an industrial, commercial, or noncommercial activity; 2) wages; and 3) income derived from moveable capital assets. All businesses are charged a "profits tax" based on net profits derived from professional, industrial, commercial, and non-commercial activities. The business profit tax is applied in progressive rates (between 10 percent and 45 percent) depending on the amount of taxable income. Shareholding companies and industrial limited liability companies are taxed at a flat rate of 32 percent and 42 percent, respectively. An individual is liable for the same taxes as a company on his business income, income from movable capital, and real property. Individuals are also subject to a wage and salary tax; the rate varies from 5 percent to 12.5 percent. Tax on movable capital incomes, which is levied at a flat rate of 7.5 percent, applies to interest, royalties, and foreign source dividends.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Syria has an inadequate and outdated infrastructure and transport system that is mainly controlled by state-run agencies. The highways, which provide the chief means of transporting goods and passengers, run about 36,377 kilometers (22,604 miles), nearly 10,000 kilometers (6,214 miles) of which are unpaved. The major Syrian cities are linked by the 2,750-kilometer (1,709-mile) long railway network all around the country, but the service is slow because of the obsolete trains.

Syria has 104 airports, including military airports, 24 of which have paved runways. The international airlines are in the capital of Damascus and Aleppo, where facilities can handle jet aircrafts. Syrian Airlines connects Syria with other Arab, Asian, and major European countries. Although Syria has a short coastline, which stretches for about 193 kilometers (120 miles) along the Mediterranean Sea between Turkey and Lebanon, it has a commercial fleet composed of 137 ships and 4 major ports and harbors in Baniyas, Jablah, Latakia, and Tartus.

Syria's electrical power is handled by the Public Establishment of Electricity for Generation and Transmission and the Public Establishment for Distribution and Exploitation of Electrical Energy. Syria's annual electricity production was 17.5 billion kilowatt hours (kWh) in 1998, 42.8 percent of which was generated from fossil fuel, whereas the remaining 57.2 percent was produced from hydroelectric resources. The main problems in the Syrian electricity sector are inefficiency and technical power losses that lead to periodic power outages.

The Syrian telecommunication system is undergoing a number of significant improvements and digital upgrades, including fiber-optic technology. The government-owned Syrian Telecommunication Establishment provides all services in this sector. The country had 1.4 million telephone lines in 1998. In addition, a pilot global system for mobile communications (GSM) cellular telephone network was launched in Syria in February 2000, with capacity for 60,000 subscribers in the Damascus and Aleppo areas. A permanent GSM telephone system to replace the pilot scheme was expected to launch in February 2001, according to an EIU Country Report of October 2000. Recently, the Syrian government approved the Syrian Computer Society (SCS) as the country's first Internet service provider. Only SCS members (Syrian scholars, university professors, engineers, computer specialists, public sector professionals, and some private entrepreneurs) are allowed access to the Internet. Their activities are subject to strict government control and monitoring. Most Internet services remain blocked, including most web mail and voice/telephony services.

ECONOMIC SECTORS

Since the 1970s, the Syrian economy underwent several sectoral changes not common in developing countries. Industry, especially service, has developed a great deal. Agriculture remains vital to the economy despite its diminishing contribution to GDP. In 1996 agriculture employed about 40 percent of the labor force and supplied

necessary products to the industrial sector. The oil sector is a driving force behind Syrian industry. Crude oil exports of US$1.342 billion accounted for nearly 43 percent of Syria's total exports in 1998. The Syrian services sector also made up 49 percent of its GDP in 1997 and employed about another 40 percent of the labor force.

Since the second half of the 1990s, the Syrian economy has been undergoing a recession. According to the 2000 EIU Country Profile, the Syrian agricultural sector has suffered in the last 3 years because of rapid climate changes and severe droughts in the region. The continuing rise of crude oil prices in international markets may promise an increase in Syria's export earnings, while service sectors such as construction, transport, and telecommunications have been steadily growing since the Gulf War in 1991.

AGRICULTURE

The agricultural sector in Syria accounted for 29 percent of the GDP in 1997 and employed an estimated 40 percent of labor in 1996, including a significant proportion of townspeople. The primary agricultural products are cotton, olives, wheat, barley, lentils, chickpeas, sugar beets, beef, mutton, eggs, poultry, and milk. Cotton, grown on irrigated land, is Syria's premier cash crop . Besides providing employment and income for a significant amount of the population, it also has provided Syria with much needed hard currency . Until 1974, when it was superseded by oil as the largest Syrian export, cotton accounted for about one-third of Syria's total exports. By the late 1990s, cotton accounted for almost 50 percent of the agricultural sector's contribution to GDP. Nearly half of the cotton produced is used for local consumption by the largely export-oriented clothing and textile industry. Syria is also the second largest olive exporter in the Arab world after Tunisia and is sixth in the world after Spain, Greece, Tunisia, Italy, and Turkey. According to the EIU Country Report, the total value of agricultural exports in 1998 was about 24 percent of total exports, while the share of agricultural imports in 1998 was nearly 16 percent of total imports.

The average farmer's reliance on outdated and inefficient irrigation methods is a major obstacle to improving agricultural outputs. The introduction of drip, sprinkler, and subsurface irrigation methods is handicapped because of the limited amount of money available to the common farmer. Because of these shortcomings, Syria is susceptible to food shortages during long droughts.

Because of the government's revitalization efforts during the 1980s and 1990s, the agricultural sector recorded a 10 percent increase in its share of GDP in 1998. This kind of liberalization effort has been essential to increased agricultural production. The enactment of Decree #10 in 1986 allowed joint sector companies to be established with a minimum 25 percent stake to be held by the public sector. Pricing, production, and marketing of fruits and vegetables have also been placed in private hands. Liberalization measures since 1991 include the lifting of subsidies for seeds and pesticides, and the reduction of the fertilizer subsidy.

Because of geographic and topographic conditions, Syria has no forestry sector. Fishing is also quite limited, with a few small and medium-sized boats fishing off the Mediterranean coast.

INDUSTRY

The Syrian industrial sector contributed 22 percent of the GDP in 1997 and 20 percent of the labor force in 1996. State-owned organizations dominate heavy industry. Mining and quarrying (mostly oil) generates about 28 percent of gross industrial output, followed by the agro-food and chemical industries. The textiles and clothing industry comes next, and accounts for about 12 percent of industrial output.

MINING.

Petroleum is Syria's chief mineral product. Most of the petroleum comes from fields in the northeastern part of the country. Phosphate rock is another important source of income. Phosphate, which is used to make fertilizer, is mined in the Palmyra area of central Syria. The principal limestone quarries are located north and west of Damascus, near the city of Aleppo. Marl is used in the cement industry with quarries near Damascus, Aleppo, and Rastan. Sandstone suitable for glass manufacture is mined in the Palmyra Mountains. The country's other mineral products include asphalt, gypsum, natural gas, and table salt.

OIL.

Most of Syria's oil fields are located on the Euphrates Graben, which runs across the northeastern region of the country. The discovery of large crude fields in the mid-1980s boosted the role that oil plays in the Syrian economy. Since this time, output has expanded rapidly and reached a peak of 604,000 barrels per day in 1996. Production has been falling in recent years, because many fields discovered in the 1960s reached maturity. According to the International Energy Agency (IEA), as of 2000, Syria's production was about 520,000 barrels per day, of which some 325,000 barrels per day have been exported, accounting for some 65 percent of export revenue. Because of Syria's old, small, and dispersed oil fields, the EIU Country Report claims that the decline in Syrian oil production will continue in 2001, and most observers agree that the decline will continue for years to come.

Intense exploitation in the late 1980s and early 1990s saw oil production rise rapidly, fuelling economic growth, but at a cost. Fields were damaged as groundwater seeped into reservoirs and reservoir pressure fell, requiring injection projects to maintain pressure. Additionally, harsh government terms caused many foreign oil firms to leave the country. Investors have complained about the restrictive terms for exploration and development in the Syrian oil sector. In fact, international observers have forecasted that Syria will revert to being a net importer of oil within a few years as production declines and domestic consumption rises, unless new, substantial, and financially viable reserves are soon found. Syria exports Syrian Light, a blend of light and sweet crude oils produced from the Deir ez-Zour and Ash Sham fields. The country also exports fuel oil and other products. Syria is a member of OAPEC (Organization of Arab Petroleum Exporting Countries), but not OPEC (Organization of Petroleum Exporting Countries).

The oil exploitation of the 1980s attracted international interest to the Syrian oil sector, and several consortiums (companies formed to undertake an enterprise beyond the resources of any one member) were formed. Companies such as Agip, Bay Oil, Chevron, Conoco, Marc Rich, Shell, Elf, Total, and Veba are the most prominent involved in the sector. The largest of these is the Shell consortium made up of Pecten, Shell, and Deminex. In 1985 the Shell consortium entered a joint venture with the Syrian Petroleum Company (SPC) to create the Al-Furat Petroleum Company. This joint venture produces about two-thirds of Syria's oil output. All Syrian oil, including that produced by foreign companies, is sold on a monthly basis by the state-owned marketing company Sytrol. Since January 1994, Sytrol has had a clause in its term contracts prohibiting customers from re-selling Syrian crudes without written permission from Sytrol. This is intended to curb spot trading in Syrian crudes, especially sales to Israel. The unfavorable contract terms for exploration, development, and poor exploration results have only left 3 (Elf, Shell, and Deminex) out of the 14 companies that were operating in the country in 1991.

Syria's 2 oil refineries are located at Banias and Homs. Total production from these refineries was 242,140 barrels per day in 2001. Syria is planning to construct a third refinery, with an initial capacity of 60,000 barrels per day, at Deir ez-Zour to supply products to the eastern part of the country. The country's major oil export terminals are at Banias and Tartous on the Mediterranean, with a small tanker terminal at Latakia. Tartous is connected through a pipeline to the Banias terminal. The Syrian Company for Oil Transport (SCOT) operates all 3 terminals and is in charge of Syria's pipelines.

GAS.

Syria's proven natural gas reserves are estimated at 8.5 trillion cubic feet (Tcf). Most (73 percent) of these reserves are owned by SPC, including about 3.6 Tcf in the Palmyra area, 1.6 Tcf at the al-Furat fields, 1.2 Tcf at Suwaidiyah, 0.8 Tcf at Jibsah, 0.7 Tcf at Deir ez-Zour, and the remainder at al-Hol, al-Ghona, and Marqada. In 1998, Syria produced about 208 billion cubic feet of natural gas, a 5-fold increase over the previous decade. As part of a strategy to substitute natural gas for oil in power generation to free up as much oil as possible for export, Syria plans to increase this production even further in the coming years. According to the EIU Country Report of 2000, Syria produced about 460 million cubic feet per day of gas, but this will nearly double by 2005 to 850 million cubic feet per day, as new gas sources are extracted.

SPC has been working to increase Syria's gas production through several projects. The Palmyra area in central Syria is the site of much of this activity, including the development of the Al Arak gas field, which came on stream at the end of 1995. In October 1997 the Syrian government announced the discovery of a large new gas field in the Abi Rabah area of the Palmyra region. One of the main problems for the gas sector is the location of gas in the northeast regions of the country, while the population centers are in the southwest. According to EIU reports, in July 2000 a step to ease the disparity was taken with the announcement that a Dutch company, A Halk Pijpleidingen, had been awarded a contract to construct a US$46 million pipeline from newly developed gas fields in the Palmyra area to the city of Aleppo. The 124-mile pipeline will be used to supply gas to a 1,000 megawatt power station in the city, constructed by Mitsubishi Heavy Industries of Japan. Bids are being measured to build a gas pipeline from Homs to the Mediterranean port of Banias.

Given the small size of Syria's gas fields, most of the large oil companies have shown little interest in the market, given the complex government bureaucracy that they must navigate. One of the exceptions is Conoco, the only U.S. oil company operating in Syria. Another is Elf of France, with whom Syria Petroleum Company signed a US$430 million service agreement in November 1998 to utilize associated gas in the Deir ez-Zour oil fields. Elf and Conoco each hold a 50 percent interest in the project, with Conoco as the lead operator. In March 2000 the 2 companies awarded Houston-based Kvaerner ENC a US$160-million contract to engineer, procure, and construct the infrastructure for the project. The Deir ez-Zour gas development work will include the construction of a gas gathering system and processing plant, and a 155-mile pipeline that will connect the system to the national grid near Palmyra that serves western Syria. When completed in late 2001, gas output from 22 fields should be about 280 million cubic feet per day. According to the EIU Country Report, Syria is planning to supply 3 million cubic meters per day of gas to Lebanon via a 107-mile pipeline that will run from the Syrian city of Homs to northern Lebanon. Elf announced that it is also considering joining the US$175-million pipeline project that would supply power stations in Lebanon with natural gas from Syria.

MANUFACTURING.

Manufacturing accounts for about 6 percent of the value of Syria's production. The main industries are cement, glass, food processing, iron and steel, leather goods, brassware, fertilizers, and textiles. Cotton fabrics, wool, and nylon are Syria's most important manufactures. The textile industry is in Aleppo, Damascus, Homs, and Hamah. Natural silk is produced at Latakia. Technical engineering industries, most of which are in Damascus, are active in producing cement, glass panes, bottles, utensils, pharmaceuticals, plywood, and batteries. The food processing industry produces salt, vegetable oils, cotton cake, canned fruit and vegetables, tobacco, and a variety of dairy products. While manufactured goods made up 10 percent of total Syrian exports in 1998, the well-established textile industry contributed another 10 percent of export earnings and employed one-third of the industrial workforce.

Syrian manufacturing industries grew substantially in the 1960s. The government encouraged industrialization by raising tariffs on imported consumer goods and providing tax exemptions and credit for domestic industries. Therefore, most of the traditional handmade manufactures (damask steel, swords and blades, brass and copper work, wood engravings, gold and silver ornaments, mother-of-pearl inlays, silk brocades) have dramatically decreased since the introduction of industrial processing. Private sector participation in manufacturing has taken off in the 1990s, with the total capital investment in the industrial private sector growing from US$273 million in 1991 to US$735 million in 1995. Of the 1.1 million workers in manufacturing, more than 75 percent are now employed in the private or mixed sectors. While private sector involvement has been limited to the textile, food processing, leather, paper, and chemical industries, the government started to open heavy industry to private investment in areas where the public sector is unable to meet increasing demand.

SERVICES

TOURISM.

Syria's rich history attracts large numbers of tourists. Artifacts from the ancient Mesopotamian civilization, castles from the crusaders, and many other diverse historical sites appeal to world travelers. The United Nations Educational, Scientific, and Cultural Organization has declared Damascus and Aleppo world heritage sites because these date to the early development of civilization, well before the Greek and Roman empires.

With such a rich cultural heritage and a Mediterranean coastline, Syria's tourism sector shows great potential, and the number of tourists who visit the country each year is on the rise. Since the Gulf War in 1990-91, an average of about 900,000 visitors have visited Syria each year. But regional instability after 1996 has hindered the tourist sector, evidenced by the drop in tourists to 400,000 in 1999 from 2.5 million in 1998. In the same time span, tourism revenue declined from US$1.3 billion in 1998 to US$712 million in 1999. Arab tourists continue to visit Syria in increasing numbers, enjoying the improved luxuries offered by the sector. According to the EIU Country Report, capacity at the luxury end of the market is about 8,000 beds in the five-star hotels, with occupancy estimated at 80 percent during the summer season of 2000.

There are a number of problems in the tourism sector, including a lack of marketing activities on an international level, the low number of airline carriers to Syria, and the lack of a nationally coordinated policy for the development of tourism. The hazy divisions between public and private sectors and the non-existence of large centers for tourist entertainment and cultural activities are other major weaknesses inhibiting growth. The most important challenge that the tourism industry faces is the lack of big investments in this vital economic sector. To encourage private sector and foreign investment in Syrian tourism projects, the government has made several aggressive decisions since 1986. Incentives include tax exemptions on all tourism-based projects. All imports needed to build tourism installations, if these imports do not exceed 50 percent of total investment, are tax exempt. There is also a 7-year corporate tax exemption, after which taxes are paid at 50 percent of the normal rate.

FINANCIAL SERVICES.

The Syrian financial system has been run by the state since nationalization in the 1960s. The banking functions have been designed to cater to the financial requirements of the public sector. Because loans to the private sector are unknown, private businesses must finance projects with cash or through external loans. The Central Bank of Syria and the Commercial Bank of Syria are 2 of the 5 government-owned banks that deal in hard currency. Although previously only foreigners were allowed to open accounts with foreign currency in the Commercial Bank of Syria, beginning in September 1996 the government allowed Syrians to deposit foreign currency at government banks without disclosing the source of such currency, and plans to allow citizens to possess foreign currency. The new decision eliminates provisions in an old currency law that prevented Syrians from dealing in hard currency. The new decree allows hard currency to be transferred abroad provided it is used for education expenses, payments of books, medical treatment, newspaper subscriptions, and other non-commercial transactions. Changing money at rates other than official rates remains illegal and all transfers in and out of the country must be declared.

The EIU reports that the current banking system is in urgent need of reform. The system is criticized by business leaders for being inefficient and offering only basic services. There are, for example, no ATMs, checks, or credit cards in Syria. Commercial loans are hard to obtain without using political party or government connections or traditional patronage relations (a system of relations in which government or any other sectarian, tribal domineering authority distributes the sources at its expense to its supporters as rewards). The new Syrian government has acknowledged the need for reform of the financial system and these new moves show that progress is being made. Some modernization efforts have been initiated with the computerization of the Central Bank and other commercial banks.

The government has also announced that foreign banks will be allowed to open branches in Syria for the first time. Banks with at least US$11 million in capital will be permitted to operate in the country's free zones (an area where goods may be landed, handled, manufactured, reconfigured, and re-exported without the intervention of the customs authorities) to finance commercial and industrial activity. In August 2000 3 Lebanese banks were issued licenses while some non-Arab international banks expressed their wishes to enter the full international market rather than be restricted to the small free zones. The United Nations Industrial Development Organization (UNIDO) has estimated that Syria would gain US$8 billion in foreign investment if it allowed the establishment of private banks, opened a stock market, and unified exchange rates .

INTERNATIONAL TRADE

According to International Monetary Fund sources, because of the discovery of large oil fields, Syria's foreign trade volume has immensely increased over the last 3 decades. During this period, exports have grown from US$203 million in 1970 to US$4.8 billion in 2000, while imports have risen from US$360 million in 1970 to US$3.5 billion in 2000. Syria's foreign trade is highly dependent on its oil revenues and oil prices on the international markets. For the year 2000, the EIU reported that increasing oil prices have continued to boost export revenue and Syria recorded a surplus of more than US$1 billion for the first time since the Gulf War.

Syria's chief exports are petroleum, textiles, food, live animals, and manufactured goods which are exported to Germany (which received 21 percent of exports in 1999), Italy (12 percent), France (10 percent), Saudi Arabia (9 percent), and Turkey (8 percent). Syria's main import products are machinery, food and live animals, transport equipment, and chemicals. The country's main import partners include France (which purchased 11 percent of imports in 1999), Italy (8 percent), Germany (7 percent), Turkey (5 percent), and China (4 percent). Additionally, a large amount of trade (nearly US$200 million) with Lebanon, Turkey, and Iraq goes unrecorded. It is estimated that these invisible flows favor Syria, as evidenced by the use of its military and political influence on Lebanon to create a common market between the 2 countries, from which Syria will benefit.

As of 2001, there were about 200 state-owned trading companies that enjoyed prohibitive tariff protection, overvalued exchange rates, and restrictions on private-sector competition. These state-run companies regulated most of Syria's exports. According to the Syrian Ministry

of Economic and Foreign Trade statistics, in 1998 72 percent of exports were made by the public sector.

MONEY

Syria maintains a multiple fixed exchange rate system that pegs the value of currency to the U.S. dollar. All the official rates overvalue the Syrian pound to varying degrees. Two principal exchange rates are used: the Official Rate that devalued the national currency in 1988 from S£3.925 to S£11.225 per U.S. dollar, and the Neighboring Countries Rate (NCR) that was introduced in 1990 and is periodically adjusted. The NCR was S£46.50 per U.S. dollar, according to EIU estimates in 2000. Tourist hotels use the Official Rate. Most local transactions are carried out at the NCR rate. A blended rate applies provisionally to certain public sector transactions, including sales of oil and gas. The black market rate has hovered between S£46 and S£54 per U.S. dollar since the early 1990s.

Over the last decade, the Syrian government has contracted the inflation rate from 34 percent in 1988 to minus 0.5 in 1999. The EIU forecasts that weak Syrian growth and the current low level of economic productivity in the local economy will further help the government keep inflation in check. The potential increase in government spending due to public sector wages and a steady growth in global non-oil commodity and raw material

prices might threaten to reverse this trend over the forecast period.

POVERTY AND WEALTH

Besides existing ethnic and sectarian cleavages, Syrian society is also stratified along tense social and economic class divisions. The class structure is characterized by a high degree of maldistribution of wealth, meaning that much of the wealth is concentrated in the hands of the few, while large numbers of people live in poverty. Moreover, there is a high correlation between wealth and sectarian-ethnic background. The upper income group is composed of Alawite high-ranking officials, military officers, Sunni landowners, small industrial business owners, and important merchants. The middle-income group comprises most Alawite and Sunni government officials, shopkeepers, professionals, and farmers. The lower income group is made up of Alawite workers, peasants (farmers who do not own all the land they cultivate), and employees.

Although the Ba'athist Syrian government has directed its welfare policies—such as land reform—at easing social problems, an estimated 20 percent of the Syrian population lives under the poverty line. In the last 30 years, the pace of change from an agricultural to an industrial economy and the accompanying migration of people to the cities has worsened income distribution and caused the mushrooming of high-poverty shanty-towns (poorly constructed temporary housing) on the edge of populous cities. To compensate for disparities in the distribution of wealth, the Ministry of Municipal and Rural Affairs has constructed blocks of low-income flats in these areas. Meanwhile, the Ministry of Social Welfare and Labor has been empowered to find work for and distribute cash allowances to the unemployed. The Ministry also encourages such youth activities as athletics, scouting, literacy campaigns, and the organization of cooperatives. The government gives substantial grants to private welfare societies in solving poverty problems. According to World Bank sources, however, the share of GDP allocated to the social security and welfare policies was barely 0.7 percent a year between 1992 and 1997.

WORKING CONDITIONS

The Syrian labor force was estimated at about 4.8 million by the International Labor Organization in 1998. The service and agriculture sectors employ the majority of the labor force, each accounting for about a 40 percent stake. Although government figures put unemployment at below 10 percent, unofficial estimates more than double this figure, with under-employment accounting for another 25 percent. Syria has one of the highest population growth rates in the world, with an annual increase of 2.58 percent. Because of the high growth rate, an extra 200,000 new workers enter the labor market every year. According to the EIU Country Report, the unemployment rate among 15 to 29-year-olds is unofficially reported to be as high as 85 percent. As a part of an emergency plan in its 2000 budget, the government has allocated S£80 billion for the creation of 92,322 new jobs, but this falls far short of the number entering the labor market each year.

Due to these harsh conditions in the labor market, many Syrians go to Lebanon and the Gulf States to work. For that reason, in recent years, Syria has become economically dependent on Lebanon. Sources in Lebanon estimate that about 500,000 to 1 million Syrians work in the country. In Beirut, Syrian workers can earn twice what they make in their own country. Jobs in Lebanon reduce unemployment in Syria and the remittances of these workers to their families back home are estimated at US$1-3 billion dollars per year. The condition exacerbates economic deprivation in Lebanon, however. Lebanese Shiites and Palestinian refugees are hard hit by the influx of Syrian workers.

The 1973 Syrian constitution provides for the right of the "popular sectors" (workers, peasants, and state employees) of society to form trade unions. The government insists that there is in practice trade union pluralism (a condition in which a multiple number of unions with different particular interests can freely exist). Despite this, workers are not free to form labor unions independent of the government-prescribed structure. The General Federation of Trade Unions (GFTU) is the major independent popular organization. The government uses it as a framework for controlling nearly all aspects of union activity. The GFTU is charged with providing opinions on legislation, devising rules for workers, and organizing labor. In the private sector, unions are active in monitoring compliance with the laws and ensuring workers' health and safety. Strikes are not prohibited (except in the agricultural sector), but in practice they are discouraged.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1250. Mamluks take control of most of Syria.

1516. Syria is incorporated into the Ottoman Empire.

1869. The opening of the Suez Canal leads to a decline in Syria's economic importance.

1916. The Sykes-Picot agreement between Great Britain and France, made during World War I, places Syria and Lebanon under French "influence."

1922. The League of Nations approves the French Mandate for Syria and Lebanon.

1945. Syria becomes a member of the United Nations.

1946. Syria and Lebanon declare their independence from France.

1948. In the Arab-Israeli war, Syria joins the joint Arab forces fighting against Israel.

1958. Establishment of the United Arab Republic (UAR), a union of Syria and Egypt. Egyptian Gamal Abdel Nasser becomes president of the union and dissolves all political parties in Syria. He also introduces regulations on the size of land property.

1961. Opposition to the UAR grows in Syria, particularly against the socialist economic policies implemented by Nasser. The army takes control of Damascus, and declares a new independence for Syria.

1963. The Ba'athist party takes control of the country.

1967. In the Six Day War, Israel seizes the Golan Heights from Syria.

1970. Hafez Assad seizes power in a "corrective coup."

1971. Assad is elected president for a 7-year term in a plebiscite (a vote of the people).

1973. Syria and Egypt go to war with Israel to retake the Golan Heights.

1976. The Syrian army intervenes in the Lebanese civil war.

1981. Israel formally annexes the Golan Heights.

1982. An Islamic extremist uprising in Hama is crushed and thousands are killed. Israel invades Lebanon.

1987. Assad sends troops into Lebanon for a second time to enforce a cease-fire in Beirut.

1990. Following the Iraqi invasion of Kuwait, Syria joins the U.S.-led coalition against Iraq. This leads to improved relations with Egypt and the United States.

1991. Syria participates in the Middle East peace conference in Madrid, and holds bilateral talks with Israel. The Damascus Declaration aid and defense pact is signed with Egypt, Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman.

2000. Assad dies and is succeeded by his son, Bashar, soon afterwards.

FUTURE TRENDS

In order to overcome its existing economic problems, Syria will need to attract major international investors. This does not seem likely in the near future due to domestic and international problems. In the domestic arena, the 34-year-old Bashar Assad, son of the late Hafez Assad, tried to cement his position while launching his liberal political and economic agenda. Bashar and his reformist elite tried to bring a new openness to the country, but efforts were thwarted by the "old guard" of military and political veterans who remained loyal to the legacy of Hafez Assad.

With regard to regional politics, it is clear that Bashar Assad must strengthen his domestic political standing before entering into peace talks with Israel. Syria's other main foreign policy concern, Lebanon, has become akin to a domestic policy issue. Syria has politically dominated Lebanon for a decade, making foreign and defense policy decisions for the country, and approving all senior politicians. Under the elder Assad, no opposition was allowed to Syria's dominant position in Lebanon. After Israel withdrew from Lebanon in May 2000, many Lebanese continue to resent the presence of Syria and call for the removal of its troops. Bashar Assad might be forced to make a vital decision regarding his policy towards Lebanon. Most likely, the Syrian government will ask Lebanon for some concessions because of the economic advantages they gain from about 500,000 to 1 million Syrian workers in Lebanon.

Syria has long sheltered revolutionaries and terrorists to get leverage in regional politics. If the government wants to attract foreign investors, it must reconsider its support for international terrorism. Depending on policy options embraced by the new president, the outcomes of these domestic and international policy decisions will shape Syria's economic performance in the next decade. Because of population and unemployment problems, Syria's reliance on oil revenue puts it in an unstable situation. Decreasing production in the sector might have a negative impact on the economy in the end, while increasing oil prices on the international markets seems to continue boosting export revenues in the short-run.

DEPENDENCIES

Syria has no territories or colonies.

BIBLIOGRAPHY

Arab World Online. "Country Profile: Syrian Arab Republic."<http://www.awo.net/country/overview/crsyr.asp>. Accessed September 2001.

Economist Intelligence Unit. Country Profile: Syria. London: Economist Intelligence Unit, 2001.

Energy Information Administration. "Syria." <http://www.eia.doe.gov/emeu/cabs/syria.html>. Accessed September 2001.

Syrian Embassy. <http://www.syrianembassy.org>. AccessedSeptember 2001.

U.S. Central Intelligence Agency. World Factbook 2001. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed September 2001.

U.S. Department of State. FY 2001 Country Commercial Guide: Syria. <http://www.state.gov/www/about_state/business/com_ guides/2001.nea/index.html>. Accessed September 2001.

—Yüksel Sezgin

CAPITAL:

Damascus.

MONETARY UNIT:

Syrian Pound (S£). One Syrian pound equals 100 piasters. There are coins of 25 and 50 piasters and 1 Syrian pound. There are notes of 1, 5, 10, 25, 50, 100, and 500 Syrian pounds.

CHIEF EXPORTS:

Petroleum, textiles, manufactured goods, fruits and vegetables, raw cotton, live sheep, phosphates.

CHIEF IMPORTS:

Machinery and equipment, foodstuffs/animals, metal and metal products, textiles, chemicals.

GROSS DOMESTIC PRODUCT:

US$50.9 billion (2000 est.).

BALANCE OF TRADE:

Exports: US$4.8 billion (f.o.b., 2000). Imports: US$3.5 billion (f.o.b., 2000).