This edition’s Mena Market View comes from Syria’s deputy prime minister for economic affairs, Abdullah al-Dardari.
He talks exclusively to GTR about the successful economic and social reforms of recent years, and how the next era of change will be an even tougher challenge.
The title ‘reformist’ has not been a particularly welcome one in the modern history of the Syrian Arab Republic.
In politics, especially, such an honour has often been reserved for those doomed to irrelevance, exile or worse.
And yet, for Abdullah al-Dardari, the deputy prime minister for economic affairs, leading the economic reform charge over the past few years has clearly been a role he relishes, viewing it as absolutely crucial in successfully repositioning Syria in a globalised economy that, year after year, has more of a direct impact on the everyday lives of Syrian citizens (for better, he argues – for worse, say his critics).
Stung last year by a series of reports assailing the partial liberalisation of the economy, including one by the state planning commission that he formerly headed, Dardari has recently gone back on the offensive, bolstered by the demotion of one of his key critics, and the evident support which President Bashar al-Assad continues to offer him during moments of particular pressure (a rare distinction for an official that is not a member of the ruling Baath party).
Although the threat of war may be hanging over Syria in the minds of some, Dardari prefers to point to IMF projections for the coming year that are fairly optimistic: the economy’s total output, excluding oil, is expected to rise by some 5% this year, led by a recovery in agricultural output, exports, FDI and remittances.
At the same time, the Damascus Securities Exchange (DSE) will celebrate its first anniversary on March 10 (although only 11 companies are listed and monthly volumes come in, on average, at a paltry US$6.2mn).
Transition – economic transition – is in the air in Damascus these days, as is the basic idea of making money in relatively virgin territory. But the next steps, the “deeper transitions” as Dardari acknowledges, will undoubtedly be far more difficult than those taken in the previous period. The question for some in Damascus and beyond is whether the Syrian society, and Dardari himself, are finally up to the task.
GTR: Around four years ago, the economic reform process you were ostensibly leading was in its infancy. Looking back now at this very difficult time – geopolitically and economically – for Syria, do you think your efforts and the efforts of the Syrian government have paid off?
al-Dardari: There is no doubt that the Syrian economy today is very different. The GDP structure has moved dramatically away from a dependence on crude oil – the same for budget revenues, the same for exports. Today non-oil exports represent almost 70% of our total exports, and oil revenues represent less than 30% of budget revenues compared to 60% in 2003. Today the balance of payments also includes important components like tourism, logistics and transportation and we have an FDI that exceeds US$2.2bn in 2009 compared to US$120mn in 2003. So I think the Syrian economy has a much more competitive outlook today than it did four years ago. It managed to avoid the possibility of a balance of payment and budget crisis at that time. Now I believe we are on a much stronger footing to go into phase two of reforms.
GTR: Is there more opposition now to economic reform than when you first started?
al-Dardari: What we will now be facing are the more difficult issues. For example, we are now embarking on reforming our labour laws and this is such a sensitive issue. So the debate is getting deeper and more intensive.
We will soon be embarking on social security reform – which is a very hot topic anywhere in the world – including health insurance. Look at what is happening in the United States nowadays on this subject. Now we are reaching the point where the full brunt of subsidies reforms is taking place. We will be moving now not just from diesel, but also to reform other energy prices like electricity tariffs, and again we expect that this will be a sensitive issue. We are moving into the liberalisation of traditionally state-controlled sectors, like an open skies policy in civil aviation.
We are now writing the public-private partnership law, bringing the private sector into infrastructure, such as water and sanitation and electricity, etc. What I am trying to say is that we are moving into the next level of reforms – with another important example in fiscal policy where we will be issuing the first treasury bonds this year, with all the impact this will have on public finance and monetary policy. On trade policy too – you have seen the dramatic reductions in our customs tariffs and trade liberalisation. The question is now to implement an export support system, where we are moving away from import substitution and are now going to export substitution. So the issues now are more difficult. It’s not a question of more or less resistance. The depth of the debate and the nature of the debate are now different.
GTR: There was a good deal of surprise in Europe and the US when Syria essentially put its signature on hold in regards to the EU Association Agreement late last year, after it was finally forwarded for government approval. What are Syria’s reservations?
al-Dardari: There is no doubt that the EU Association Agreement – even before the question of signing it , during the preparation process – has been a catalyst for pushing the reform process forward.
Today there are three major issues. First, we do not accept interference in our internal matters and the EU must be clear about that, association agreement or not. Secondly, we need to look at the quotas for Syrian products entering Europe with zero tariffs and whether these quotas today are still relevant and useful compared to when the draft was put to us in 2004-2005. The Syrian economy has dramatically changed since then.
And third is the financial compensation and support that we will receive to compensate us for the risks and the challenges and the loss in revenue in customs duties as a result of the association agreement. These are the three basic issues. There will soon be a European Commission delegation coming to Damascus and we will be talking about these issues.
What I would like to say here is that in 2003-2004, when we were negotiating the text that was initialed in October 2004, Syria had not yet started its reforms. Since then we have implemented almost 95% of the changes stipulated in the association agreement. So here we are today – do we sign a document that in many terms is no longer relevant? It was relevant to our realities of 2004. Now we are in 2010 and Syria’s GDP is today US$56bn. It was US$24bn at that time. Today Syria’s foreign trade is US$33bn and it used to be US$15bn at that time. The Syrian population was 17 million and we are 23 million today. So the laws, the legal and institutional framework of the Syrian economy has dramatically changed. The GDP structure, the sources of growth – these have changed and with all of these changing dramatically, this is where the challenges and the difficulties have arisen.
GTR: When you meet with foreign and domestic businesses, what are their main concerns? What are the main reforms they want to see implemented?
al-Dardari: First of all they want to have better access to finance so the development of our financial system is a must. That’s what I would call moving to the next level. We have established a financial system – banking and a stock exchange. Now we want to make sure that the intermediary role is functioning well. Access to finance is the number one issue, but access to good human resources, skills, is second.
The third area is the bureaucracy and the red tape. If we can fix those three – and that is what we are focusing on – then our business environment will move dramatically for the better.
GTR: Given the multiplying predictions of a possible war in the near future, are you seeing an impact on investment?
al-Dardari: We have undertaken all of these reforms under difficult times. Since the Rafik al-Hariri assassination (in Lebanon in February 2005) to today – well perhaps since the Iraq invasion or even 9/11, we have not had one day of comfort and still we pushed ahead with these reforms.
All this money came into the country, the building and so on. I believe that now in early 2010 everybody is very optimistic about Syria. It is really en vogue. The New York Times is writing about it, The Wall Street Journal, Newsweek and The Economist. So everyone wants to come to Syria. I am getting all the big names – JP Morgan, etc, everybody is coming here.