Country Report

Syria

September 2009

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Syria 1

Syria

Executive summary 3 Highlights

Outlook for 2009-10 4 Political outlook 5 Economic policy outlook 6 Economic forecast

Monthly review: September 2009 9 The political scene 11 Economic policy 11 Economic performance

Data and charts 13 Annual data and forecast 14 Quarterly data 15 Monthly data 16 Annual trends charts 17 Monthly trends charts 18 Comparative economic indicators

Country snapshot 19 Basic data 20 Political structure

Editors: Justin Alexander (editor); Robert Powell (consulting editor) Editorial closing date: August 25th 2009 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: To request the latest schedule, e-mail [email protected]

Country Report September 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009 2 Syria Al Malkiyah IRAQ k a Railway Main road International boundary Main airport Capital Major town Other town Territory occupied by Israel UN buffer zone established May 31st 1974 h c o i l K

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e h T The Economist Intelligence Unit Limited 2004 © The Economist Intelligence Unit Limited 2009

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Executive summary Highlights

September 2009

Outlook for 2009-10 • The president, Bashar al-Assad, is expected to remain in power in 2009-10 and, despite some tensions within the regime, there is no significant threat to his rule. Some limited domestic political reform is expected. • Relations with the US and leading Arab states are expected to improve gradually, although rapprochement will be overshadowed by heightened tension between the US and Iran, Syria's closest ally. • Relations with Lebanon and Iraq are likely to remain turbulent, and there is little prospect of meaningful peace talks taking place with the hardline Israeli government and leading to a return of the Golan Heights. • Syria's drive to increase foreign investment inflows will be undermined by the global recession, and Syria's real GDP growth will fall from 5.1% in 2008 to 2.2% in 2009, before recovering slightly to 3.8% in 2010. • Inflation will decline sharply from its 2008 peak, to an average of 5.9% in 2009-10, as the global economic slowdown depresses commodity prices. • The current-account deficit will widen to an average of US$1.4bn (2.5% of GDP) in 2009-10, largely because of an increase in the trade deficit.

Monthly review • Mr Assad has received a visit from another US delegation, which included a senior general. However, the US president has not yet eased US sanctions on Syria, extending for a year restrictions against two Syrian officials. • Mr Assad has reaffirmed his ties to Iran in a visit to congratulate the president, Mahmoud Ahmadinejad, on his controversial re-election. France has thanked Syria for its role in mediating the release of a French citizen detained in Iran. • The Iraqi prime minister, Nouri al-Maliki, visited Damascus on August 18th. However, a week later Iraq recalled its ambassador to Syria over allegations that a series of bombings in Iraq on August 19th was orchestrated from Syria. • Assef Shawkat, Mr Assad's brother-in-law, has been shifted from the position of chief of military intelligence to that of deputy chief of staff of the Syrian armed forces. • Tourism is booming in Syria, up by 16% year on year in January-July. In this context, Abdullah al-Dardari, the deputy prime minister, has announced plans to amend the investment law to increase incentives to develop tourism. • The Syrian Petroleum Company has said that crude oil and condensate production averaged 377,000 barrels/day (b/d) in the first half of 2009, a decline of only 1,250 b/d on the same period of last year.

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Outlook for 2009-10 Political outlook

Domestic politics The Syrian president, Bashar al-Assad, and his ruling Baath party are expected to retain a secure grip on the country, supported by key elements in the security services, but significant challenges will arise in 2009-10. The core of the elite is largely drawn from Mr Assad's Alawi sect, and any move against him would risk endangering its hold on power. However, tensions within the regime persist, accentuated by external pressures such as the UN inquiry into the killing of Rafiq al-Hariri, a former Lebanese prime minister, and the International Atomic Energy Agency's ongoing investigation into allegations that a Syrian building bombed by Israel in 2007 was part of a nuclear programme. Only limited progress is expected on political reform over the forecast period. Although some promised measures may be implemented, particularly if the Syrian government feels less isolated, it is hard to envisage any steps being taken that would significantly diminish the Baath party's hold on power. Mr Assad initially advocated political reform when he came to power in 2000, but has acknowledged that the pace of reform has been slow since then. To address this, he promised in 2007 that the government would begin work on a political parties law, designed to increase popular participation. He also said that a second chamber of parliament, to be called the Majlis al-Shura, would be created, in addition to the existing lower chamber (the Majlis al-Shaab), to contribute to the legislative process and to expand the decision-making circle. A further pledge was to devise a local administration law to bring about greater decentralisation. Although there have been no visible signs of progress with these reforms, reduced international tensions will make it easier for at least a few cosmetic changes to be made in 2010. However, the security and intelligence services, which are pervasive and effective, will continue to clamp down on activists demanding democratic reform. The various opposition-in- exile groups are unlikely to pose a substantive threat to the government.

International relations Syria's regional and international isolation is expected to continue to ease over the forecast period, although gains could easily be reversed. This progress is largely a result of a shift in its approach to Lebanon last year, which resulted in the establishment of formal diplomatic relations between the two countries for the first time since they became independent states. Significantly, Syria did not appear to interfere in the Lebanese election on June 7th, in which its allies in the "March 8th" bloc were soundly defeated. Syria's engagement in indirect talks with Israel in 2008, brokered by Turkey, also prompted a cautiously positive international response. The early fruits of these developments have included visits to Syria by the French president, the British foreign minister and a number of senior US officials. Israel's assault on the Gaza Strip and its election of a government dominated by right-wing parties catalysed Arab unity, causing pro- Western countries such as Saudi Arabia and Jordan to reach out to Syria after years of strained relations. Relations with Egypt, however, remain strained because of differences over Palestinian issues. A dialogue is developing with

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the US, which is planning to appoint an ambassador to Syria after a four-year hiatus, but Syria will be expected to make concessions on a range of issues before sanctions (which were renewed on May 8th) are relaxed. The UN tribunal into the assassination of Mr Hariri, which opened in March, could have a significant impact on these newly improved international relations, depending on how Syria responds if senior Syrian officials, thought to be among the suspects, are formally charged with involvement. Relations between Syria and Iraq are likely to remain turbulent as long as some Iraqi insurgents continue operating from Syria (within a population of over 1m Iraqi refugees); Syria's involvement, and potential to restrain them, however, is probably overstated by Iraqi politicians for domestic consumption. Syria has expressed its willingness to resume suspended indirect peace talks with Israel, but only on the understanding that peace would be based on Israel withdrawing from the Golan Heights (captured from Syria in 1967). However, although the Israeli prime minister, Binyamin Netanyahu, negotiated with Syria in 1998, during his previous stint as prime minister, and has said that he is willing to talk again, he has also repeatedly said that the Golan Heights will remain Israeli "forever". This stance means that a peace agreement is unlikely in 2009-10. There is also little popular or parliamentary support in Israel for a withdrawal. The main stumbling block on the Syrian side is that any peace agreement would almost certainly require, in return for a full Israeli withdrawal to pre-1967 borders, an end to Syria's strategic alliance with Iran and its support for Hizbullah (a Lebanese Shia group) and militant Palestinian groups. This would be politically difficult, although not impossible, for Syria to deliver. Meanwhile, the turmoil in Iran, following its disputed presidential election, could play either way for Syria. If the reformist Iranian camp eventually emerges victorious, then regional tensions are likely to ease significantly, enabling Syria to improve many of its bilateral relationships. Conversely, in the more likely scenario that the Iranian president, Mahmoud Ahmadinejad, remains in power and increases his regional adventurism, in response to opposition at home and abroad, then Syria will be in the uncomfortable position of having to distance itself from Iran or face once again becoming isolated from the West and many Arab states. It would like to play the role of a bridge between Iran and the West, but this may not be sustainable.

Economic policy outlook

Policy trends Syria is expected to continue the gradual liberalisation of its centrally planned economy, a process that has been led by the deputy prime minister for economic affairs, Abdullah al-Dardari. The overriding policy challenge will be to offset the impact of the long-term decline in oil production (albeit temporarily checked) by making established businesses more dynamic and encouraging entrepreneurship and investment, particularly in sectors that can boost export earnings in the medium term. As government revenue will fall in 2009 and financing will be difficult to secure, as a result of the global economic crisis, Syria will have to be more fiscally prudent.

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Fiscal policy Syria's fiscal deficit is expected to widen to around S£188bn (US$4bn), or 7.6% of GDP, in 2009, before narrowing to S£128bn (4.6% of GDP) in 2010 as oil prices increase and tax revenue grows. Fuel subsidies have been substantially reduced, but they remain a fiscal burden. Syria imports a high proportion of the refined products it consumes, although lower international oil prices will reduce this cost. In 2010, when, after much delay, value-added tax (VAT) is likely to be introduced, probably at a rate of around 10%, there will be a considerable boost to tax revenue. The government may also receive windfall revenue in 2010 from the conversion of existing mobile-phone contracts into longer-term licences, and from allowing a third operator to enter the market. Currently less than 10% of the 260 public enterprises are profitable, and thus the government's public-sector reform plans, which include transforming state- owned enterprises into autonomous companies with their own budgets, will probably result in a net positive impact on the public finances. The government may consider privatising some firms, depending on the success of the Damascus Securities Exchange, which began trading in March 2009.

Monetary policy The Central Bank of Syria is expected to continue to implement monetary reform and gradually to gain greater autonomy. In July 2008 it experimented with issuing Treasury bills, and these are expected to become a regular feature over the forecast period as a means to finance development projects and ultimately the fiscal deficit. There are also plans to launch a local bond market, increasing the number and sophistication of monetary tools available. The Central Bank is likely to continue to reduce the restrictions on foreign-currency transactions, a process that it started in early 2008, in order to facilitate investment. These measures should also help to develop and modernise the banking sector, in which privatised banks are playing an increasing role.

Economic forecast

International assumptions International assumptions summary (% unless otherwise indicated) 2007 2008 2009 2010 Real GDP growth World 5.0 2.8 -1.4 2.7 OECD 2.7 0.6 -3.7 1.1 EU27 2.8 0.8 -4.3 0.0 Exchange rates ¥:US$ 117.8 103.4 96.1 94.8 US$:€ 1.369 1.470 1.363 1.388 SDR:US$ 0.651 0.629 0.654 0.647 Financial indicators € 3-month interbank rate 4.27 4.65 1.28 1.15 US$ 3-month commercial paper rate 5.06 2.18 0.26 0.28 Commodity prices Oil (Brent; US$/b) 72.7 97.7 62.0 74.0 Cotton (US cents/lb) 64.8 72.1 60.9 71.0 Food, feedstuffs & beverages (% change in US$ terms) 30.9 29.5 -20.3 3.7 Industrial raw materials (% change in US$ terms) 11.2 -5.1 -33.9 10.2 Note. Regional GDP growth rates weighted using purchasing power parity exchange rates.

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World GDP (at purchasing power parity) is expected to contract by 1.4% in 2009, and to expand only modestly, by 2.7%, in 2010. The benchmark dated Brent Blend is forecast to average US$68/barrel in 2009-10, below the 2008 average of US$98/b, but well above the lows of the first quarter of 2009. Syrian crude, much of which is heavy, will trade at a discount to this, at an average of about US$60/b. The global recession will also hit the prices of other commodities, reducing the value of Syrian agricultural exports but also easing import costs.

Economic growth The sharp downturn in key export markets, restricted government spending because of lower oil revenue and a third year of drought in much of the north- east will lead to a slowdown in Syria's real GDP growth, from an estimated 5.1% in 2008 (although the preliminary figure from the Syrian Central Bureau of Statistics is higher, at 7%) to 2.2% in 2009. Syria's increasing economic openness and improving international relations will encourage foreign investment, although the global economic recession and credit crunch will limit it in the short term. Growth will strengthen in 2010, to 3.8%, as export markets begin to recover. Private consumption will be weak in 2009-10, in part because of a decline in the contribution from Iraqi refugees as they run down their savings and return home in growing numbers. Fixed investment and imports will contract in 2009, before picking up in 2010. Agriculture will grow in 2009-10 after two years of decline. Services will continue to expand, although more gradually than in recent years, driven largely by growing tourism receipts. Construction will also expand more weakly, as financing is harder to secure and concerns grow about the real estate market overheating. Industry will benefit from investment in oil and gas projects, including new refineries, but will shrink overall as oil output falls.

Inflation Consumer price inflation is expected to decline markedly over the forecast period, driven by global commodity price falls. Inflation reached an average of 15.7% in 2008, its highest level since 1994, on the back of soaring food, fuel and rental prices. The global economic crisis sparked a decline in commodity prices in the final quarter of 2008 as demand weakened. In Syria the impact of this will be seen mainly in lower food prices and a reduction in the officially set prices for fuels. As a result, inflation is forecast to ease to 3.8% in 2009. (Prices fell by 1.3% in the first five months of 2009, but are expected to pick up in the second half of the year as commodity prices strengthen.) If greater numbers of Iraqi nationals were to return home, this would have a deflationary effect, particularly on urban rents, but this is more likely to happen in 2010, assuming security conditions in Iraq continue to improve. However, its impact would be offset by a partial recovery in commodity prices and the expected introduction of VAT, pushing average inflation up to 7.9% next year.

Exchange rates The Syrian pound has weakened from its May 2008 peak of S£45.8:US$1, and is projected to average S£46.7:US$1 in 2009-10. The pound has been pegged to a basket of currencies based on the IMF's special drawing rights since October 2007, which initially resulted in a marked appreciation against the US dollar, partly reversed in late 2008. Although this new regime is less rigid than the previous peg to the dollar, the authorities remain unlikely to let the pound float

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freely, because they place a high priority on exchange-rate stability. The dominant position of the state-owned banks and the Central Bank's control over foreign-currency transactions (even as some laws are relaxed) mean that the regime is well placed to control the value of the currency. The Central Bank's foreign-exchange holdings are relatively healthy, at US$4.4bn at end- March 2009. (The Commercial Bank of Syria also holds some foreign reserves.)

External sector We forecast that export earnings will decline by 26.1% in 2009—owing to lower average oil and agricultural prices—but grow by 8.7% in 2010 as oil prices increase and the prices of cotton (which, together with textile products, represents about 15% of exports) and some other export goods strengthen slightly. The drought that has seriously constrained agricultural production in recent years, while easing in much of the country, is expected to persist in the north-east during the 2009/10 season, preventing a significant recovery in agricultural exports. Oil production is increasing at a number of small fields but declining at the larger, mature fields. As a result, overall production will decline slightly to an average of 377,000 barrels/day in 2009-10. The net impact of oil prices on the trade balance is limited, because Syria's imports of refined products are about equal in value to its exports of crude oil. The decline in the prices of refined products is the main factor behind the forecast 17.9% drop in imports in 2009. A domestic factor affecting the trade figures is the relaxation of foreign-exchange controls, which has led to more non-oil exports moving out of the black economy and being officially recorded. Overall, the trade deficit will widen substantially to an average of US$2.9bn (5.1% of GDP) in 2009-10. On the non-merchandise side, remittances from expatriate workers will fall as a result of job losses in the Gulf and elsewhere, but tourism receipts will continue to grow as a consequence of improving international relations. Overall, the non- merchandise surplus is expected to widen only modestly over the forecast period. As a result, the larger and widening trade deficit is forecast to cause the current-account deficit to increase to US$1.3bn (2.5% of GDP) in 2009 and US$1.5bn in 2010.

Forecast summary (% unless otherwise indicated) 2007 a 2008 b 2009c 2010c Real GDP growth 6.3 5.1 2.2 3.8 Oil production ('000 b/d) 380.4 386.6 377.8 376.3 Gross agricultural production growth -10.3 -21.2 3.5 4.2 Consumer price inflation (av) 3.9 15.7 3.8 7.9 Government balance (% of GDP) -3.5 -1.9 -7.6 -4.6 Exports of goods fob (US$ bn) 11.7 14.0 10.3 11.2 Imports of goods fob (US$ bn) 12.3 16.0 13.1 14.2 Current-account balance (US$ bn) 0.4 b -0.8 -1.3 -1.5 Current-account balance (% of GDP) 1.0 b -1.6 -2.5 -2.5 External debt (year-end; US$ bn) 6.9 b 7.2 7.6 8.1 Exchange rate S£:US$ (av) 49.98 46.58 a 46.94 46.41 Exchange rate S£:¥100 (av) 42.43 45.07 a 48.84 48.98 Exchange rate S£:€ (av) 68.40 68.48 a 63.96 64.39 Exchange rate S£:SDR (year-end) 76.77 70.28 a 71.76 71.83 a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.

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Monthly review: September 2009 The political scene

Another US delegation A senior US delegation visited Damascus, the Syrian capital, on August

visits Syria 12th-13th, led by Major General Michael Moeller, the Central Command's director of strategy, plans and policy, and including Frederick Hoff, the deputy to the US Middle East envoy, George Mitchell. This followed a series of US delegations in April-June. The US State Department said that the main purpose was to follow up on initial discussions about curbing the infiltration of foreign fighters and military equipment into Iraq, although Mr Hoff's presence suggests the Arab-Israeli conflict was also covered. A US diplomat was quoted by Reuters as saying that the US had presented Syria with a list of names of the "main facilitators of insurgents" they want captured. Neither the US nor Syria announced any details about the substance of the talks. Unnamed State Department officials suggested that the US is offering a range of incentives to Syria to change its approach on security and political issues, in particular on Iraq, but also with respect to logistical support to Lebanon's Hizbullah, a Shia military and political organisation, and to Palestinian Islamist groups. Thus far, the US administration has agreed to send an ambassador to Damascus, after a break of four years, and to ease the terms for approving export licences to Syria under the 2004 sanctions act. The Syrian government has indicated that it would like the US to go further; for example it would like a meeting between the Syrian president, Bashar al-Assad, and the US president, Barack Obama, and a lifting of sanctions. However, Mr Obama is taking a cautious approach—he renewed the sanctions act in May and at the end of July he extended for a further 12 months an executive order imposing restrictions on Hafez Makhlouf, a senior intelligence official and a first cousin of the president, and on Mohammed Nassif Khairbek, a former chief of general intelligence who had requested a waiver so as to receive medical treatment in the US.

Mr Assad affirms ties to Iran On August 12th, while the US security delegation was in Damascus, Mr Assad's office announced that he would be visiting Iran the following week in order to congratulate Mahmoud Ahmadinejad on his re-election as president. The timing of the announcement suggested that Mr Assad wished to make clear that any rapprochement between Syria and the US would not be at the expense of Syria's strategic relationship with Iran. Syria's argument that its close ties to Iran could be beneficial for the West was bolstered by an announcement from France thanking Syria (among other countries) for help in securing the release of Nazak Afshar, an employee of the French embassy in Tehran, the Iranian capital, who had been arrested during the post-election protests in Iran. France again paid tribute to Syria after Iran then released on bail Clotilde Reiss, a French academic, who had also been arrested in relation to the protests. However, no details have been released on the precise role Syria played in their release. Official Iranian statements on Mr Assad's visit emphasised the importance of Syria's role in resisting US plans to dominate the Middle East. The office of the

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Iranian supreme leader, Ayatollah Ali Khamenei, said that the US was attempting to sow divisions within the resistance front, but that Syria and Iran would stand firm in opposing such moves. The office quoted Mr Assad as apparently saying to Mr Ahmadinejad: "The defeat of the efforts made by some Western countries to interfere in Iran's affairs after your presidential election … [showed] that the Iranian nation is still favouring … the path of resistance." The reference to supposed attempts to weaken the resistance front suggests that Iran is becoming increasingly uneasy about Syria's recent rapprochement with Saudi Arabia and about the efforts by the US to improve relation with Mr Assad.

Syria-Iraq relations deteriorate The Iraqi prime minister, Nouri al-Maliki, visited Damascus on August 18th,

following Baghdad bombings partly in response to the earlier talks between the US and Syria, in which matters relating to Iraq's security were discussed without its participation. One of Mr Maliki's aides, Ali Moussawi, said that Syria was presented with a list of people, believed to be in Syria, to be handed over to the Iraqi authorities. The list was reported to include Izzat al-Douri and Mohammed Younis al-Ahmed, the leaders of two rival wings of the Iraqi Baath party. Iraqi officials said that the visit had been successful, and that there would be follow-up meetings involving military delegations from Iraq, Syria and the US. However, this process was derailed following a series of truck bombs near government offices in Baghdad, the Iraqi capital, on the day after Mr Maliki's visit to Syria, killing around 100 people. On August 23rd the Iraqi government broadcast a video in which Wissam Ali Kazem Ibrahim, a man purported to have been arrested while attempting to carry out a failed truck bomb attack at the same time as the other explosions, said that he had been acting under orders from Mr Ahmed's wing of the Iraqi Baath party. He stated that he had spent seven months in Syria before the operation, and his instructions and financing (including US$10,000 to be used to bribe Iraqi security officials) had come from Sattam Farhan, whom he described as an Iraqi Baathist leader based in Syria. The Syrian government issued a statement condemning the Baghdad bomb attacks. This was not sufficient, and on August 25th Iraq recalled its ambassador from Damascus, demanding that Syria hand over Mr Farhan and Mr Ahmed; Syria responded by recalling its ambassador to Iraq. It will be difficult for either side to climb down without loss of face, particularly Mr Maliki, as elections in Iraq are due next January.

Assef Shawkat is appointed to Assef Shawkat, Mr Assad's brother-in-law and long reckoned to be one of the

new post most powerful figures in Syria, has been shifted from the position of chief of military intelligence to that of deputy chief of staff of the Syrian armed forces. The new head of military intelligence is Abdelfattah Qudsiyeh, who has served as head of air force intelligence since 2006. The various intelligence agencies have played an important part in maintaining the regime's stability since 1970, when the accession of Hafez al-Assad, the current president's father, brought to a close two decades of serial coups. Mr Shawkat was promoted to head of military intelligence from deputy head on February 14th 2005—coincidentally the same day as the assassination of a former Lebanese prime minister, Rafiq al-Hariri. He is now filling a vacancy left following the retirement of Hassan Turkomani as defence minister in June and his replacement by the army chief

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of staff, Ali Habib (July 2009, The political scene). His change in position follows speculation that he had been placed under investigation after the assassination of Imad Mughniyeh, the military commander of Hizbullah, in a car bomb in Damascus in February 2008. The effectiveness of Syria's military operations came under fresh scrutiny in August when Kyodo News, a Japanese news agency, reported that 20 people had been killed in Manbaj, a market town in northern Syria, in late May when a missile launched from the south of the country, as part of a joint Syrian, North Korean and Iranian test, strayed off course. According to Kyodo News, Syrian military officials closed off the area and told residents that the incident had resulted from a gas explosion. The government issued a flat denial of Kyodo News's report. The Japanese agency's interest in the incident is likely to stem from Japan's own concerns about North Korean missiles. The alleged botched missile test took place shortly before the announcement that Mr Turkomani had stepped down, although there is no evidence of any connection between the events.

Economic policy

A change in law is planned to Abdullah al-Dardari, the deputy prime minister for economic affairs, has encourage tourism investment announced plans to amend the 2007 investment law (Law 8) to change the tax regime for tourism and increase incentives for further tourism development. Speaking on August 11th at the opening of a conference in Damascus on tourism and real estate, Mr Dardari said that the total value of tourism projects executed since early 2006 was S£117bn (US$2.5bn), compared with a target of S£90bn. Law 8 did away with previous provisions for tax holidays and customs exemptions and applied a corporate tax rate of 22% to companies set up according to the investment law; at the same time the standard corporation tax rate was lowered to 28%, or 14% for companies that offer at least 50% of their shares to the public (November 2006, Economic policy). Tourism projects, including hotels and restaurants, were not covered by the provisions and are instead liable to a 2.5% turnover tax and a 0.5% salary tax, in lieu of a tax on their profits. Investors in tourism are also required to allocate a 25% equity stake to the government, typically in the form of the land used for the project. Mr Dardari did not provide details of what amendments he is proposing to enact, but the context of his remarks suggested that he may be aiming to bring tourism under the umbrella of Law 8. He also said that the government is considering introducing a mortgage law, and he repeated an earlier pledge to amend the law covering private banks so as to allow foreign investors to hold majority stakes.

Economic performance

Tourism income rises by 16% Syrian tourism has enjoyed strong growth in visitor numbers and revenue so far this year, despite the effects of the global recession, according to the tourism minister, Saadallah Agha al-Qalah. In an interview with Al Hayat, a pan-Arab newspaper, on the sidelines of a tourism conference in Damascus, Mr Qalah

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said that tourism revenue in the first seven months of 2009 had reached S£125bn (US$2.7bn), up by 15.7% year on year, with solid growth in tourist arrivals from Syria's core markets—Europe and the Gulf Arab states. He said that Syria's offering of primarily cultural tourism to the European market had put the country in good stead, as this market is typically less sensitive than leisure tourism to economic downturns. Syria has benefited from the growing tendency of tourists from the Arab Gulf region to travel within the region, owing to the global recession, rather than going further afield. He said that tourism now accounts for 11% of GDP and 23% of Syria's foreign-exchange earnings. The most recent full-year balance-of-payments figures from the Central Bank of Syria are for 2007, when "travel" (largely tourism) receipts amounted to S£143bn, or 16.6% of total current-account credits of S£862bn. Syria does not include tourism as a separate category in its GDP statistics.

Travel and tourism reciepts

S£ bn; left scale % of current-account receipts; right scale 160 20.0

140 18.0

120 16.0

100 14.0

80 12.0

60 10.0

40 8.0 2002 03 04 05 06 07 Source: Central Bank of Syria.

Oil production decline slows The decline in Syria's oil production has slowed considerably, largely thanks to

markedly new output from the Khurbet East field, which is operated by Gulfsands Petroleum, a UK-listed firm with some prominent Syrian shareholders. According to the Syrian Petroleum Company (SPC), crude oil and condensate production averaged 377,000 barrels/day (b/d) in the first half of 2009, compared with 378,250 b/d in January-June last year. SPC said that it produced 197,000 b/d of oil and condensates itself (187,000 b/d of crude oil, the remainder condensates), while its joint ventures with foreign operators produced 180,000 b/d in total. The new output from Gulfsands, which is now averaging about 15,000 b/d, is partly compensating for a serial decline in output from Al Furat Petroleum Company, in which Royal Dutch Shell, the Anglo- Dutch energy giant, is the main partner. China's Sinochem has meanwhile submitted an offer worth £532m (US$880m) to buy Emerald Energy, a London- based firm that owns a non-operating 50% stake in the Khurbet East field. Sinochem made clear that the Syrian asset was a major attraction in the deal; Emerald also has interests in Colombia. It is the latest in a series of Chinese acquisitions, following Sinopec's takeover of the Tishrin and Oudeh oilfields last year. In addition, China National Petroleum Corporation has a minority stake in Al Furat, and China Oil and Gas Corporation is the foreign operating partner in Kawkab Petroleum Company, which produces small quantities of oil from the Kabibeh field.

Country Report September 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009 Syria 13

Data and charts Annual data and forecast

Plea se see g raphic bel ow 2004a 2005a 2006a 2007a 2008 b 2009c 2010c GDP Nominal GDP (US$ m) 25,991 27,973 32,662 40,416 50,777 52,499 60,227 Nominal GDP (S£ bn) 1,263.1 1,493.8 1,698.5 2,019.8 2,365.3 2,464.2 2,795.0 Real GDP growth (%) 6.7 6.0 5.2 6.3 5.1 2.2 3.8 Expenditure on GDP (% real change) Private consumption 11.1 13.3 3.0 2.1 5.9 2.2 3.9 Government consumption 17.9 1.9 1.5 23.6 3.3 2.0 4.3 Gross fixed investment 19.8 10.0 -11.7 7.9 5.8 -1.0 3.7 Exports of goods & services 23.9 -1.5 20.6 1.4 0.6 -2.0 1.9 Imports of goods & services 40.2 26.0 -12.7 11.3 2.1 -3.5 2.4 Origin of GDP (% real change) Agriculture -3.1 7.8 10.2 -10.3 -21.2 3.5 4.2 Industry 18.7 -3.0 0.6 2.8 17.1 -2.5 0.3 Services 7.7 10.0 3.0 16.2 9.3 3.8 5.1 Population and income Population (m) 18.5 19.1 19.8 20.5 21.2 a 21.9 22.5 GDP per head (US$ at PPP) 3,555b 3,965b 4,160b 4,385b 4,548 4,519 4,575 Recorded unemployment (av; %) 12.3 8.0 8.3 8.4 8.6 9.2 9.7 Fiscal indicators (% of GDP) Central government revenue 27.1 23.9 25.6 22.3 22.7 17.4 19.5 Central government expenditure 32.1 28.9 29.1 25.8 24.6 25.0 24.1 Central government balance -5.0 -5.0 -3.5 -3.5 -1.9 -7.6 -4.6 Net public debt 70.0b 32.7b 34.0b 28.8b 25.4 31.9 32.4 Prices and financial indicators Exchange rate S£:US$ (end-period) 48.60 54.85 51.10 48.10 46.74 a 46.53 46.29 Consumer prices (av; % change) 4.4 7.2 10.0 3.9 15.7 3.8 7.9 Stock of money M1 (% change) -4.2 14.4 -4.0 10.7 12.9 2.0 4.9 Stock of money M2 (% change) 10.7 21.0 7.8 14.7 12.4 3.0 5.7 Lending interest rate (av; %) 8.0 8.0 9.0 10.0 10.2 9.3 8.7 Current account (US$ m) Trade balance 263 -140 886 -521 -1,995 -2,773 -2,998 Goods: exports fob 7,220 8,602 10,245 11,747 13,972 10,330 11,233 Goods: imports fob -6,957 -8,742 -9,359 -12,268 -15,967 -13,103 -14,231 Services balance 378 551 404 848 1,050 1,386 1,359 Income balance -729 -863 -935 -689 -717 -641 -654 Current transfers balance 674 747 535 764b 872 730 814 Current-account balance 586 295 890 402b -791 -1,298 -1,479 External debt (US$ m) Debt stock 18,981 6,508 6,502 6,897b 7,167 7,603 8,088 Debt service paid 235 205 187 189b 161 153 149 Principal repayments 164 144 130 126b 117 110 108 Interest 71 61 57 62b 43 43 41 International reserves (US$ m) Total international reserves 4,963 4,716b 5,419b 6,507b 6,765 5,083 5,184 a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. Source: Central Bank of Syria; IMF, International Financial Statistics; World Bank, Global Development Finance.

Country Report September 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009 14 Syria

Quarterly data

Plea se see g raphic bel ow 2007 2008 2009 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Prices Consumer prices (2000=100) 110.8 113.7 117.7 126.1 131.4 134.4 137.4 135.4 Consumer prices (% change, year on year) 1.2 4.6 5.5 9.6 18.6 18.2 16.7 7.4 Financial indicators Exchange rate S£:US$ (av) 50.6 49.9 48.5 47.5 46.0 46.1 46.7 47.3 M1 (end-period; S£ bn) 725.7 740.2 731.7 755.7 792.0 842.4 827.3 820.5 M1 (% change, year on year) 12.8 15.3 10.7 9.7 9.1 13.8 13.1 8.6 M2 (end-period; S£ bn) 1,279 1,309 1,323 1,510 1,586 1,655 1,657 1,661 M2 (% change, year on year) 16.7 16.7 12.4 23.8 24.0 26.5 25.3 10.0 Sectoral trends Crude oil production (m barrels/day) 0.38 0.38 0.37 0.37 0.38 0.39 0.41 0.38 Crude oil production (% change, year on year) -9.5 -7.3 -8.5 -6.1 0.0 2.6 12.0 3.7 Foreign trade (US$ m)a Exports fob 3,987 3,678 3,457 3,697 5,133 4,812 3,697 2,365 Imports cif 5,692 6,103 6,210 6,186 7,504 7,666 7,059 4,831 Trade balance -1,704 -2,425 -2,754 -2,490 -2,371 -2,854 -3,362 -2,466 a IMF, Direction of Trade Statistics estimates. Sources: Central Bank of Syria; International Energy Agency, Oil Market Report; IMF, International Financial Statistics, Direction of Trade Statistics.

Country Report September 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009 Syria 15

Monthly data

Plea se see g raphic bel ow Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Exchange rate S£:US$ (av) 2007 51.1 51.0 50.9 50.8 50.6 50.5 50.2 49.7 49.7 48.8 48.4 48.2 2008 48.1 47.9 46.6 46.0 45.9 46.1 45.9 46.2 46.3 46.4 46.9 46.7 2009 46.9 47.4 47.6 47.8 47.5 47.1 46.8 n/a n/a n/a n/a n/a M1 (% change, year on year) 2007 0.3 4.7 8.3 10.5 7.7 12.8 13.8 15.1 15.3 16.6 18.1 10.7 2008 10.1 10.2 9.7 9.1 10.2 9.1 11.7 13.0 13.8 12.1 8.5 13.1 2009 10.5 11.6 8.8 8.0 n/a n/a n/a n/a n/a n/a n/a n/a M2 (% change, year on year) 2007 10.3 13.2 14.6 15.8 14.1 16.7 17.6 16.9 16.7 16.5 16.2 12.4 2008 23.4 23.8 23.8 22.8 23.4 24.0 24.7 26.6 26.5 24.8 22.1 25.3 2009 10.7 10.9 10.5 10.1 n/a n/a n/a n/a n/a n/a n/a n/a Consumer prices (av; % change, year on year) 2007 4.5 4.8 3.4 2.6 0.9 0.2 3.7 5.6 4.5 5.5 6.3 4.8 2008 7.0 9.3 12.4 15.2 20.0 20.8 17.9 17.5 19.1 19.2 16.3 15.5 2009 10.6 6.2 4.9 3.1 n/a n/a n/a n/a n/a n/a n/a n/a Deposit rate (av; %) 2007 9.0 9.0 9.0 9.0 9.0 9.0 9.0 8.0 8.0 8.0 8.0 8.0 2008 9.0 9.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 n/a n/a n/a 2009 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Lending rate (av; %) 2007 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 2008 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 n/a n/a n/a 2009 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Total exports fob (US$ m) 2007 1,039 822 909 1,103 1,734 1,150 1,212 1,159 1,307 1,355 1,017 1,085 2008 1,321 1,036 1,340 1,620 2,076 1,437 1,668 1,347 1,798 1,465 1,231 1,001 2009 854 664 848 n/a n/a n/a n/a n/a n/a n/a n/a n/a Total imports cif (US$ m) 2007 1,418 1,465 1,979 1,886 1,920 1,885 1,817 2,076 2,210 1,949 2,018 2,243 2008 1,824 1,888 2,474 2,508 2,524 2,472 2,309 2,603 2,755 2,364 2,205 2,490 2009 1,454 1,444 1,934 n/a n/a n/a n/a n/a n/a n/a n/a n/a Trade balance fob-cif (US$ m) 2007 -379.0 -642.6 -1070.5 -783.3 -185.6 -735.4 -605.7 -916.7 -902.2 -594.6 -1001.3 -1157.7 2008 -503.7 -852.7 -1133.5 -888.1 -447.4 -1035.8 -641.1 -1256.3 -956.8 -899.0 -974.0 -1489.2 2009 -599.8 -780.2 -1086.2 n/a n/a n/a n/a n/a n/a n/a n/a n/a

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

Country Report September 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009 16 Syria

Annual trends charts

Plea se see g raphic bel ow Annual trends charts

Real GDP growth Consumer price inflation (% change) (av; %)

Syria Middle East and North Africa World Syria Middle East and North Africa World 8.0 18.0 16.0 6.0 14.0 4.0 12.0 10.0 2.0 8.0 0.0 6.0 4.0 -2.0 2.0 -4.0 0.0 2004 05 06 07 08 09 10 2004 05 06 07 08 09 10

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Budget balance Current-account balance (% of GDP) (% of GDP)

Syria Middle East and North Africa Syria Middle East and North Africa 15.0 20.0

10.0 15.0

5.0 10.0

0.0 5.0

-5.0 0.0

-10.0 -5.0 2004 05 06 07 08 09 10 2004 05 06 07 08 09 10

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Destination of exports, 2008 Origin of imports, 2008 (share of total) (share of total)

Others Iraq Others Saudi Arabia 44.4% 30.9% 66.2% 12.9%

China 8.7%

UAE 6.3%

Germany 9.4%

Italy Lebanon Italy 6.1% 9.3% 5.9%

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Country Report September 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009 Syria 17

Monthly trends charts

Plea se see g raphic bel ow Monthly trends charts

Exchange rate Monetary aggregates (S£:US$; av) (% change, year on year)

55.0 M1 M2 30.0 54.0 53.0 25.0 52.0 20.0 51.0 15.0 50.0 10.0 49.0 5.0 48.0 0.0 47.0 46.0 -5.0 45.0 -10.0 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr 2006 07 08 09 2006 07 08 09

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Foreign trade Oil: Brent crude price (US$ m; goods only) (US$/b; av)

Exports Imports Balance 140 3,000 120 2,000 100 1,000 80 0 60

-1,000 40

-2,000 20 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr 2006 07 08 09 2006 07 08 09

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Country Report September 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009 18 Syria

Comparative economic indicators

Plea se see g raphic bel ow Comparative economic indicators, 2008

Gross domestic product Gross domestic product per head (US$ bn; market exchange rates) (US$ '000; market exchange rates)

Saudi Arabia Qatar 64.6 Iran United Arab Emirates United Arab Emirates Kuwait Israel Israel Algeria Oman Egypt Saudi Arabia Kuwait Bahrain Qatar Libya Morocco Lebanon Iraq Algeria Libya Iran Sudan Tunisia Oman Jordan Syria Iraq Tunisia Morocco Yemen Syria Lebanon Egypt Jordan Sudan Bahrain Yemen 0 100 200 300 400 500 0.0 10.0 20.0 30.0 40.0 50.0

Sources: Economist Intelligence Unit estimates; national sources. Sources: Economist Intelligence Unit estimates; national sources.

Gross domestic product Consumer prices (% change, year on year) (% change, year on year)

Qatar Iran Kuwait Yemen Iraq Egypt United Arab Emirates United Arab Emirates Egypt Syria Sudan Qatar Iran Jordan Oman Sudan Bahrain Oman Libya Kuwait Lebanon Libya Morocco Lebanon Jordan Saudi Arabia Syria Bahrain Tunisia Tunisia Saudi Arabia Israel Israel Algeria Algeria Morocco Yemen Iraq 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0

Sources: Economist Intelligence Unit estimates; national sources. Sources: Economist Intelligence Unit estimates; national sources.

Country Report September 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009 Syria 19

Country snapshot Basic data

Land area 185,180 sq km

Population 20.5m (mid-2008 estimate)

Main provinces Population in millions, 2006 Damascus (capital) area 4.01 Aleppo 4.23 Homs 1.59 Hama 1.44 Hassakah 1.33 Idlib 1.31

Climate Subtropical on coast, arid in the centre, cold winters in the highlands

Weather in Damascus Hottest month, August, 18-37°C (average daily minimum and maximum); coldest month, January, 2-12°C; driest month, August, zero average rainfall; wettest month, January, 43 mm average rainfall

Languages Arabic, French, some English

Religion Sunni Muslim (72%); Alawi Muslim (14%); Christian (12%); Shia Muslim and Druze minorities

Measures Metric system

Currency Syrian pound (S£)=100 piastres

Time GMT plus two hours

Fiscal year January 1st-December 31st

Public holidays The dates of Islamic holidays are based on the lunar calendar and are therefore approximate. New Year's Day (January 1st); Revolution Day (March 8th); Prophet's Birthday (March 9th); Mother's Day (March 21st); Easter (April 12th); Independence Day (April 17th); Orthodox Easter (April 20th); Labour Day (May 1st); Martyrs Day (May 6th); Eid al-Fitr (September 21st); October Liberation War (October 6th); Eid al-Adha (November 28th); Islamic New Year (December 18th); Christmas Day (December 25th)

Country Report September 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009 20 Syria

Political structure

Official name Syrian Arab Republic

Form of state Republic

Legal system Based on the constitution of 1973

Legislature 250-member Majlis al-Shaab (People's Assembly) directly elected for a four-year term

Electoral system Universal adult suffrage

National elections Next legislative and presidential elections due in 2011 and 2014 respectively

Head of state President, elected for a seven-year term. The president appoints the vice-presidents, the prime minister and the Council of Ministers. Bashar al-Assad, the current president, is also the commander-in-chief of the armed forces and the secretary-general of the Baath party

Executive The prime minister heads the Council of Ministers, a large number of whom are drawn from the ruling Baath party and its partners

Main political parties The ruling National Progressive Front includes the Arab Socialist Baath Party; Arab Socialist Party; Arab Socialist Unionist Party; Communist parties; Syrian Arab Socialist Union Party; Unionist Socialist Democratic Party; Union Socialist Party

Prime minister Mohammed Naji al-Otari Deputy prime minister for economic affairs Abdullah al-Dardari

Key ministers Agriculture & agrarian reform Adel Saffar Awqaf (Islamic endowments) Mohammed Abdel-Sattar al-Sayed Communications & technology Imad Abdel-Ghani Sabbouni Defence Ali Habib Economy & foreign trade Amer Hosni Lutfi Education Ali Saad Electricity Ahmed Qusay Kayyali Environment (minister of state) Kawkab al-Sabah al-Dayeh Expatriate affairs Joseph Sweid Finance Mohammed al-Hussein Foreign affairs Walid al-Muallim Health Rida Said Higher education Ghiath Abdel-Wahab Barakat Housing & construction Omar Ghalanji Industry Fouad Issa Jony Information Mohsen Bilal Interior Said Sammour Irrigation Nader al-Buni Justice Ahmed Hamoud Younis Labour & social affairs Diyala al-Hajj Aref Local government Tamer al-Hijjeh Petroleum & mineral resources Sufyan Allaw Presidential affairs Mansour Azzam To u r i s m Saadallah Agha al-Qalah Transport Yacoub Suleiman Badr

Central Bank governor Adib al-Mayaleh

Country Report September 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009