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u c n l n u e o s e a m t u d y i . c o m 2 0 J u 0 l y 9 Gross Domestic Product secure natural gas availability and benefit from the transit 3,000 SP billion 6.7% 8% receipts. In 2008, daily production stood at 20.7 million 5.9% 2,550 cubic meters, rising to 21.6 million cubic meters in the first 2,500 5.1% 6% 4.2% quarter of 2009, with estimated reserves around 8.5 trillion 5.2% 4% 2,000 4.5% 2,025 cubic feet (240 km3). 1,709 2% 1,491 The government has begun to work with international 1,500 1,263 1,118 0% energy companies in the hopes of eventually becoming a gas 1,067 exporter, even though at present all gas produced is 1,000 -2% -2.1% consumed domestically and Syria is importing around 5 500 -4% 2002 2003 2004 2005 2006 2007 2008 billion cubic feet of natural gas from Egypt via the Arab Gas Nominal GDP Real GDP growth rate Pipeline and is transporting the gas to Lebanon and Turkey. Syria is further discussing at present increasing the gas Sources: IMF, Bank Audi's Research Department export volume to 35 million cubic feet per day of Egyptian gas to reach the Lebanese market and thus raise its transit fees. Similar deals are being made with Iraq, the two 1. ECONOMIC CONDITIONS countries have started considering last February building a 1.1. REAL SECTOR new natural gas pipeline. Likewise, in April 2009 Syria signed with Iran a cooperation agreement planning the 1.1.1. Oil Sector construction of a natural gas pipeline between the two countries that could ultimately reach Europe. Syria’s oil industry has been hit by the price crash towards the end of 2008 and early on 2009 and, in a country partly Indeed, with this set vision and a good flow of foreign dependent on oil production, the sector might weigh on investments when considering the country’s political economic growth at large. According to the IMF, the sector isolation, the hydrocarbon sector is getting upgrades. The is expected to register in 2009 a -1.9% real growth rate, after regulatory environment is also developing with new a much smaller negative figure the previous year (-0.1%) legislation issued last February revising the drafting of new thanks to the hike in international prices at the beginning of building codes, mandating higher levels of energy efficiency last year. The contraction of this sector is, nevertheless, not and the rationalization of consumption. Another two new and is not only the result of the worldwide oil boom decrees were issued at the end of the same month to create bust, but has been ongoing over the last decade. The two new bodies charged with regulating the upstream and dwindling oil production kept oil GDP real growth at -3.6% downstream segments, respectively, in order to reorganize per annum over the last five years. and separate the functions of regulation and operations. A new entity, the General Organisation for Oil Refining and Crude oil production reached in 2008 an estimated 390,000 Petroleum Products Distribution, will be formed to be barrels per day (b/d) whereas total oil liquids production, responsible for the operating companies of Syria’s two which includes crude and natural gas liquids (NGL), was existing refineries and for the petroleum products estimated at about 450,000 b/d. Oil production has been distribution company. gradually falling and not expected to increase anymore in the near term. But at the same time, demand is expected to The downstream sector is also developing. Syria has increase by 4%-5% annually in the next couple of years, currently two public refineries having a total capacity of which would actually increase the country’s dependency on around 240,000 b/d and producing the heavy oil products oil derivatives. Syria has in fact been a net oil importer since only. According to local media releases, these refineries are two years, consuming 256,000 b/d of petroleum liquids in to be revamped to process crudes as well as lighter products 2008, according to the US Energy Information that meet European import standard. In addition, recently Administration (EIA). Oil and gas imports were valued at the Ministry of Oil and Mineral Resources and a Chinese US$ 5,656 million in 2008 while exports generated US$ company, the China National Petroleum Corporation, 5,608 million, according to the Central Bank figures. Oil made a deal to build a 100,000 b/d refinery, in the area of revenues that used to account for the bulk of public Deir el-Zour in the east. The facility will refine heavy Syrian revenues only represent around a fifth of government crude oil as well as other types of crude, and is due to be receipts today. completed by 2011. Likewise, the Ministry signed a contract for a 140,000 b/d refinery with Iran, Venezuela and Malaysia Syria’s oil reserves are being gradually depleted and reached, in Furoqlos, near the northern city of Homs. by January 2009, 2.5 billion barrels, the equivalent of only half Oman’s reserves and 3% of Kuwait’s reserves, according To sum up, Syria’s oil sector is not anymore an asset for the to the Oil and Gas Journal. Efforts are directed to more oil economy, especially with the latest international efficient usage, gas usage and importing from close by developments and oil supplies expected to be depleted by countries. Natural gas production, in contrast, is being the end of the next decade. However, the authorities seem viewed as the future opportunity in the horizon. The well aware of the situation and are rightly working on country hopes to benefit from its strategic location as a building on other strengths that make use of the existing transit hub for Egyptian, Iraqi, and Iranian gas. It will thus energy infrastructure and the strategic location close to

2 other more important hydrocarbon producers. At the same harvest was estimated by USDA at 700,000 tons of seed time, resources and efforts need to be directed away from oil cotton, very close to that of the previous year. Lint and more towards other productive sectors that can push production was estimated by the same source at 235,000 tons. national development and hedge against energy downturns Total domestic lint consumption for yarn spinning is in the long-run. estimated at 180,000 tons while the rest is exported. Farmers of cotton are also suffering from the liberalized high energy 1.1.2. Agriculture and Manufacturing prices and fertilizers, although authorities are trying to find Agriculture that was facing hard times in Syria over the past alternative ways to support the sector. Last year and this year, couple of years has seen some improvement in 2009, after the the government gave cash bonuses to offset input price hikes, severe drought conditions of 2008. As rainfall levels picked but these were still considered low compared to the increase. up over the last few months, this year is expected to yield Likewise, the government’s lowered procurement prices somewhat better crops and slightly expand the agriculture added to the hurdles discouraging farmers from sector’s share in the economy that dwindled to 14.7% of GDP expanding their cotton production. in 2008, down from 20.4% in 2007 and 25% in 2006, Cotton and lint also feed into an important textile according to preliminary data from the Central Bureau of manufacturing sector which is the second export July Statistics. Apart from environmental conditions, Syrian foreign receipt source, after oil, accounting, in farmers have been hurt by market liberalization that general, for 15% of the total exports. The 2009 increased the prices of fertilizers and diesel fuel double and government's goal is to increase production of triple folds and by the worldwide economic downturn. cotton yarn and textiles and to increase this With only a quarter of Syria’s arable land being irrigated and category of exports in lieu of cotton lint. the rest still dependent on rain and other water resources, The textiles industry that suffers from weak competitiveness agriculture was seriously hit by a series of severe droughts. In is one of the main sectors under overhaul but remains under particular, it is the northeast region that suffered most, state control. Last February, the Syrian Cabinet approved 25 leaving around one million people with food insecure. Syria’s measures and recommendations targeted at manufacturers, northeast is of strategic importance being situated on the in particular the ailing textile industry to help bring down border of Iraq and Turkey, generating most agricultural production costs, ease the cost of credit, reduce import output, and having most of the country’s oil reserves. dumping and promote exports. In contrast, a more successful In response, authorities took a number of emergency industry in Syria has been pharmaceutical that seems to be measures including the distribution of food aid. By June more export-oriented and ready to meet competition, as 2009, the government added to these measures long-term denoted from the recent certification of two pharmaceutical plans to develop the most affected rural areas by boosting companies, by EU-accredited inspectors to sell their products investments. Incentives to stimulate investment include an in European markets, adding to another four companies in exemption of all taxes and fees for a period of ten years for the same field that already got certified. projects in the eastern area, debt rescheduling plan for Other manufacturing sectors that saw developments in 2008 farmers in the region and the permission to dig wells for are cement and cars. The Iranian carmaker IKCO launched drinking purposes. Authorities also declared that the water in May 2009 the second phase of its Samand sedan assembly transfer and irrigation project from the Tigris River would be line in Syria. The factory is part of the company’s largest accelerated, although such a US$ 2 billion project remains overseas car production facility and its first phase was quite far from completion requiring 18 years of work. competed in December 2007. The other car assembly At the same time, the government supported indirectly the manufacturer, SIVECO, commissioned in July 2009 a new sector, after removing all forms of direct subsidies. It production line at its plant to assemble a new car model. established the Agricultural Support Fund in the middle of SIVECO plans to sell 2,000 cars a year of this new small sedan last year to boost strategic crops since prices of fertilizers and car. In addition, local media reported that a delegation from gas oil were liberalized and increased tremendously. In May Geely, a Chinese car manufacturer, was also looking into 2009, the Fund received SP 1 billion (US$ 20.8 million), yet setting a plant in Syria to export its cars throughout the this is only one tenth of the amount it is supposed to receive region. according to this year’s government budget. As to cement, a Turkish firm, Guris Group, launched Syria’s Under such conditions, Syria’s wheat harvest declined, first privately-owned cement manufacturer and started a forcing it to import the staple crop for the second consecutive clinker milling plant. The first phase of the project relied on year. According to the US Department of Agriculture imported clinker. The next phase, which will take up to two (USDA), Syria’s wheat output totalled 2 million tons last year years to complete, will involve the construction of quarries and is expected to rise to around 3-4 million tons in the and other complementary parts. The aim is to produce one 2009/2010 harvest. This is still not enough to meet domestic million tons of cement per year to serve the domestic market. consumption and Syria will need to import this year a record Syria has also another cement company, Al Badia Cement, high level of 1.5 million tons of wheat. under construction that was established last year as a joint venture between Saudi, Italian and local shareholders. Last Another strategic crop in Syria is cotton that had a slightly May, construction works on Al Badia’s factories also started, better performance in 2009 than wheat. The 2008/2009

3 in the aim of launching production by end-2010-early 2011. collateral were also being eased with the property itself The plant will initially produce some 1.5 million tons a year. serving more and more as the only collateral required. At the A second production line, that will raise capacity to 3.2 same time, a draft mortgage finance law is being prepared million tons a year, will be added at a later stage. Cement and should ensure a much sounder regulatory framework for remains in shortage in Syria with demand averaging at the market and help ease access to finance. around 7-8 million tons a year while local production Within this context, many large scale projects under joint hovered around 5.3 million in 2008. ventures between local and foreign, mainly Arab parties, were It is also worth highlighting another major industrial started in 2008 or earlier and scheduled for completion in the development launched in the last few months. A Danish next few years. These were estimated to cost more than US$ international paints manufacturer, in a joint venture with 2 billion as at May 2009, and tackle the residential, counterparty from the Gulf, commissioned a US$ 10.6 commercial and office segments. In fact, although the million plant in the outskirts of Homs last March. This is the residential market forms the backbone of Syrian real estate, largest new private industrial plant to start production since there is also room for development of office and retail space the National Sugar Company was established in early 2008 that are in shortage and are in need to meet the growing under a partnership between Syria’s National Sugar consumer demand. Company and a number of foreign counterparts from the In addition, another number of sizeable real estate west and Arab regions. developments announced in 2009 have not started yet, but In short, the economic reforms to move into a market-based are still under planning or about to start this year. Among the economy and provide a business-friendly environment have latter, it is worth mentioning the large scale US$ 1 billion succeeded in attracting in the past two years foreign Majid Al Futtaim project in the trendy Yaafour area in investments to Syria, as the previous developments show. Damascus, by far the largest mixed-use real estate project in Yet, the outburst of the international financial crisis is the country. The development should serve as a new town expected to decelerate the foreign direct investment (FDI) centre for local residents. It will spread over an area of 1.5 flow that ended 2008 at record high of close to US$ 1.2 billion million square meters, next to Emaar’s Eighth Gate venture. and more than nine times the flow seven years ago, despite The first phase of the project would be completed in 2012. Syria’s political isolation from the western world. Abraj Souria is another offices and commercial space project scheduled to start this year, in September and should cost Once a global economic recovery starts, Syria should be able US$ 319 million. The project should be completed in 2014. In to resume this significant growth in investments in the the residential segment, the Naser Gardens is a US$ 168 primary and secondary sectors. The increased private sector million upscale residential compound spanning over 452,000 involvement, economic openness and authorities’ will to square meters in Kafar Qouq area, 30 kilometers away from diversify into non-oil activities, are enough to push the Damascus. Aleppo Gate is a US$ 64 million project on industrialization process ahead and ultimately improve 300,000 square meters, expected to start this year as well, and competitiveness of Syrian production. completion is scheduled for the year 2011. 1.1.3. Construction and Real Estate However, the outbreak of the crisis in the last few months of The real estate buoyancy reported in recent years went onto 2008 and the ensuing tightening of liquidity conditions left 2008, but towards the end of the year and early on 2009, the an impact on some of these projects. Remittances from spillovers of the economic and financial crisis became more expatriates in the Gulf, an important source of demand for felt on Syria’s construction and property estate sectors. Many the sector, and transfers from Gulf investors aimed at project large scale projects went on in 2008 and others were to start financing, were reportedly diminishing, delaying the start or in 2009, while reforms continued at different levels to boost disrupting the course of some real estate developments. investment in this sector. No project cancellation was Industry sources see this slowdown in activity to be a trigger announced amidst the prevailing global economic downturn, for price drops. The spillovers of the global financial crisis, but delays are expected to happen. coupled with the increase in supply, the return of a sizeable chunk of Iraqi refugees to their homeland, would push prices The year 2008 saw several needed real estate related-laws down after they have reached a peak and started to embrace introduced, covering the reorganization of the informal a downward slope in certain segments of the market. Indeed, housing areas, which are estimated to host nearly 40% of the according to the Oxford Business Group, real estate prices Syrian population, the right of property for foreign were estimated to have fallen by up to 20% in the second half individuals and the establishment of a new regulator for the of 2008 and are predicted to fall in 2009 by around 10%. sector. All such laws have helped increase the sector’s visibility for developers, investors, and homeowners alike. In The current worldwide economic downturn that hit the addition, last year, almost all private banks operating in Syria region in general and reached Syria and the hurdles of the started offering housing loans. Loans, which reach up to SP legislative and bureaucratic environment governing the 10 million, used to run for short periods of time, but now, Syrian real estate and construction sectors should not, can last up to 25 years, and the required down payments are however, mask the real need for property development. getting smaller, although few banks would accept deposits of There is still a great shortage in housing, office and retail less than 25% of the total property cost. Requirements for space, amidst a continuously growing demand. All market

4 segments seem to be far from saturation and the momentum Motorway. The hotel, which is expected to be completed in should pick up again as soon as the overall regional 2011, will be the third property in Syria under the conditions improve and more reforms are introduced. management of the Abu Dhabi based company. Dedeman Hotels and Resorts International, a Turkish firm, took over 1.1.4. Services the management of Le Meridien Hotel Damascus at the Syria’s tertiary sector continues its expansion. In particular, beginning of 2009. InterContinental Hotels Group also has tourism that has strong linkages with other services and with announced towards the end of 2008 that it signed a internal trade activity, enjoyed a relatively favorable management contract for a five-star 300-room hotel to be performance in 2008 and in the first part of 2009, though its built in the old city of Damascus. growth pace was slowed down by the repercussions of the In addition to these recent developments, a main indicator of international financial crisis and economic turmoil. the lucrative opportunities that the Syrian The number of tourists that visited Syria in the first half of hospitality industry is offering has been the this year rose 9% compared to the same period of last year performance of the Four Seasons Damascus that and reached 1.98 million (excluding Syrian expatriates), started operation in 2005 and is ranked at the very according to the Ministry of Tourism. The 2009 first half top end of the luxury market with no competition July growth rates are good, yet represent a slowdown from last so far. The hotel posted in 2008 a 36% increase in year’s 15%, when the number of tourists reached 3.67 its revenues from 2007, and more than double the 2009 million, and from the past five years’ an annual average rate 2006 figure, as a result of a 32% hike in its average of 14.0% (excluding Iraqis, Syrian expatriates and one-day room rates and a moderate increase in occupancy visitors from neighboring countries). rate from 66.8% in 2007 to 68.6%. Revenues per available room rose by 35% year-on-year. The increase in tourist numbers, despite the difficult economic conditions in the Gulf countries where most In short, it is definitely clear that the tourism sector is visitors come from, could be partly explained by the fact that considered to be operating below its full potential and has Arab visitors are usually of the middle and lower-middle good prospects, particularly if political stability and further income classes that were relatively less hit by the rapprochement is made with Western countries. international crisis. In fact, Arab tourists were also up 9% The expanding tourism sector should benefit even further as year-on-year in the first half of 2009. Syria has been working on upgrading its transport Furthermore, what is more interesting is that European infrastructure. In the nation’s tenth Five-Year Plan (2006- visitors that make up less than 8% of tourists jumped 25% 10), around US$ 1.5 billion were set for the development of a over the first half of this year according to the official source. multi-modal transport network. Syria aims to benefit from In 2008, tourists from Western Europe and the US had shot its location and become a regional transport hub, but in the 41% year-on-year. This could be the result of the recent past years this was difficult to achieve due to a shortage in political rapprochement with some European countries and, investment. at the same time, the advertising campaign that the Ministry This is why now the authorities have been trying to move of Tourism launched in several large European countries last away from the state-run services and infrastructure projects year to promote Syria as a tourist destination. and attracting private investment, public-private The overall expanding tourism flow has been achieved, even partnerships (PPPs), foreign direct investment (FDI), and as as the hospitality infrastructure requires a good amount of build-operate-transfer (BOT) contracts to develop large- upgrading, not to mention the need for additional leisure scale projects. This mode of project financing is, usually, facilities and international-standard hotel services. However, expected to slow down, delaying some projects, under the authorities have been putting visible efforts in this respect current unfavorable worldwide economic conditions, yet and continue to involve the private sector to develop the Syria should be able to still lure in investors as it is newly sector and attract investments. The Ministry of Tourism reforming its economy to become business friendly. offered last April 65 new sites for investment at an estimated The upgrading projects are covering currently the country’s total investment cost of more than SP 143 billion (US$ 2.9 entire infrastructure, namely the capital’s international billion), according to data obtained by The Syria Report. All airport, the ports’ container terminals, and the land transport projects will be offered for development and investment on networks. Works on the Damascus International Airport, BOT terms for periods ranging between 20 and 60 years. including the overhauling of passenger facilities, are expected Foreign firms, mainly from the Arab region, are becoming to finish this year. The vision is to increase the airport’s increasingly interested in this new market and are coming in, capacity from the current 3.2 million to around 8 million either under management contracts or in direct passengers per year. Maritime transport is also under the participation. Coral International, a Dubai-based Arab hotel development and management of the private sector and, in chain announced in May 2009 that it will manage its second the last couple of years, Syria’s two container terminals in the hotel in Aleppo starting mid next year. Rotana Hotels, Ports of Tartous and Latakia have been managed by private another Arab hotel management company has also been foreign firms that are expanding the terminals’ capacities. In awarded last April the management of the five-star hotel land transport, two railway lines have been launched this under construction by Bena Properties on the Mazzeh year, linking Syria to Iraq and Turkey.

5 Another interesting sector that would be restructured is seems to be another attractive opportunity that is benefitting telecom. Towards the end of 2008, a law was drafted - yet still from economic liberalization and attracting the private not ratified - to set an independent regulatory authority that sector, especially as the government is also taking regulatory would issue licenses, assign spectrum and frequency, and measures to expand the sector. The enactment of a new law, regulate and open up the sector, that is currently dominated in February 2009, recognizing electronic signatures in by two main telecoms firms, Syriatel and MTN. The Syrian business and other dealings is a major step in this direction. Telecommunication Establishment would however continue to monopolize the fixed-line operator. The aim was to fully liberalize the sector by 2010, but this seems to be under 1.2. EXTERNAL SECTOR reconsideration at present. Syria’s external sector saw an overall growth in 2008 in The fixed-line penetration level is estimated at around 18.0% terms of aggregate activity. According to the latest statistics at end-November 2008 according to the latest available released by the Central Bank of Syria, the overall foreign figures when subscribers were 3.8 million. This compares to trade volume stood at US$ 30.8 billion, registering a yearly 17.8% at end-2007. In 2009, the Oxford Business Group increase of 21.7%. It is worth noting that this increase is reported that another 300,000 would be added, with an only slightly lower than the advancement of 23.3% additional 350,000 to 400,000 annual growth thereafter witnessed in the year 2007. It seems that growth in trade driving up the penetration rate to 22% by 2010. activity resulting from the oil boom that reigned over the first three quarters of the year has offset by far the The mobile segment is even more dynamic with a contraction caused by the crisis and witnessed in the last penetration rate of 36%, according to the above mentioned quarter of the year, at the level of both imports and exports, source, and an estimated 7.1 million users at end-2008. Syria as Syria’s imports of petroleum products are somewhat has currently two mobile operators, while a third is expected equal in value to its exports of crude oil. to come in within the next few months, though the terms of Similar to the previous year, the progression in trade activity in the agreement with the authorities have not been set yet. In 2008 was more triggered by a growth in imports that surpassed fact, this segment of the telecom market has been receiving that of exports, resulting in a significant deterioration in the strong interest from foreign firms, as penetration rates are trade deficit, which reached US$ 3.6 billion, 78% higher than relatively low compared to the region and as the current its previous record high of US$ 2.0 billion recorded in 2007. operators’ financials show good results, even though recently Indeed, this is the first time that the trade balance deficit jumps the current economic downturn has slowed their subscribers’ beyond the US$ 2 billion benchmark, and this has had its growth rate. All eyes are turned now towards the entry of a negative ramifications on Syria’s overall external performance, new player and the terms of agreement with the authorities. as its current account has fallen into a deficit for the first time In line with these developments, internet usage has also been in more than five years now. growing over the past decade, but has been recently facing The swelling of the merchandise trade deficit stems from infrastructural hurdles, with the public data network running the fact that the annual growth of imports was almost 10% at full capacity. Thus, by end-2008, Syria signed with the greater than that of exports, noting that the latter recorded Cyprus Telecommunications Authority an agreement to raise a healthy growth rate of 16.7% to reach US$ 13.6 billion. internet capacity through the submarine cable link between Here, one should note that oil exports, which increased by Tartous and Cyprus. The US$ 12.5 million agreement a yearly 27.5% in 2008 to reach US$ 5.6 billion, represent includes a first phase that will raise the capacity by two-and- the lion’s share of Syria’s exports, accounting for around a half times from its current level and a second phase of a ten- 41% of total exports, and thus it is natural for Syria’s export fold increase. At the same time, the mobile operators started activity to have subdued in the last quarter of the year, on 3G networks to expand services. Overall, the telecom sector account of tumbling oil prices. Furthermore, the drought that has seriously constrained agricultural production in Syria in recent years has exacerbated the toll on wheat and Number of Tourist Arrivals to Syria (all nationalities except other food exports, which altogether account for a relatively Syrian expatriates, Iraqis and one-day visitors from neighboring significant 20% of total exports. countries, in millions) Nonetheless, in spite of the aforementioned barriers to 4 3.67 export activity in Syria, total exports did grow in 2008, and 3.27 3.20 this is to some extent attributed to the relaxation of foreign- 3 2.64 2.41 exchange controls in the country, which, in turn resulted in 1.90 more non-oil exports moving out of the black economy and 2 being officially recorded.

1 In parallel, imports soared upwards to reach a five-year high US$ 17.2 billion, recording an annual increase of 25.9%, on

0 account of increased trade liberalization measures and 2003 2004 2005 2006 2007 2008 markets’ opening to the private sector, not to mention the Sources: Central Bureau for Statistics - Syria, Bank Audi's Research Department relatively improved domestic demand, noting that the

6 Economist Intelligence Unit (EIU) estimated the increase in deficit added to it the deficit of US$ 717 million in the Syria’s private consumption at 5.9% in 2008. Syria has been income balance. Indeed, Syria’s current account registered a recently forced to liberalize aspects of its economic system deficit of US$ 705 million, in 2008, the equivalent 1.4% of in order to make up for oil revenue that has been slipping GDP, and down from a surplus of US$ 402 million in 2007. by around 10% a year. Indeed, the importance of these Finally, in order to improve its external sector activity, Syria measures has been brought to light more recently following needs to undertake measures targeted at bolstering its the outburst of the global financial crisis, which has resulted capital account by attracting capital investments, a trend in a significant damage in the external accounts that rely to which has already started two years ago but needs to be a large extent on oil revenues. strengthened further, especially since Syria’s trade deficit is Liberalization measures include the reduction of expected to further aggravate in 2009, as a result of the transaction costs, the lowering of tariffs, a new publication crisis. The EIU forecasted that in 2009 Syria’s of the tariff schedule and the unified negative list of export earnings would drop by 26.6%, owing to imports, and Free Trade Agreements (FTA). Within the lower oil and agricultural prices. Oil production is latter context, Syria is a member of the Greater Arab Free increasing at a number of small fields but Trade Agreement (GAFTA) and the Arab Common declining at the larger, mature fields in the July Market, and is a signatory to FTAs with Jordan, Turkey, country. As a result, overall production will India, and more recently Belarus and Slovakia. There have decline slightly to an average of 376,000 2009 also been talks of trade agreements or joint investments barrels/day in 2009. However, the net impact of oil with Iraq, Iran, Malaysia, and Qatar. Furthermore, Syria has prices on the trade balance is limited, because as recently been working with the UNDP on an extensive trade mentioned earlier, Syria’s imports of refined policy reform program, which aims at placing the country’s products are about equal in value to its exports of crude oil. trade regime in compliance with WTO pre-accession In fact, the decline in the prices of refined oil products is the requirements. main factor behind the forecast 20.4% drop in imports in 2009. Overall, the trade balance is expected to widen Growth in Syria’s imports in 2008 was also driven to a large substantially in 2009, by around 26.4%, as per the EIU. extent by skyrocketing oil prices in the first three quarters of the year, as imports of petroleum derivatives went up by On the non-merchandise side, tourism will be hit by the 33.1% in 2008 to reach US$ 5.7 billion. One should keep in global economic downturn, curbing services receipts. mind here that such a growth rate was to a certain extent Tourism could, however, be surprising with an upside, if subdued by the crisis, which caused nosedive in global oil sustained improvement in diplomatic relations with Arab prices. Nonetheless, it seems that the oil boom of the first and Western countries leads people who have avoided Syria three quarters of the year was more felt at the level of in recent years to visit the country. Remittances from imports in Syria, as the country’s oil-trade balance fell into expatriate workers will continue to support the current a small deficit of US$ 48 million for the first time in five account, although they will fall as a result of job losses in the years. The slight difference between oil imports and exports Gulf and elsewhere. The widening trade gap, in has been in favor of imports in 2008, and the oil-trade combination with a sizeable income deficit, will cause the deficit of last year compares to a surplus of US$ 146 million current-account deficit to increase to US$ 1.1 billion (2.1% registered in 2007. of GDP) in 2009. Thus, the IMF recommendations in its latest Article IV of continuous efforts to improve the Syria’s overall merchandise trade balance came under business climate and thus provide the private sector with immense pressure. This has taken its toll on the current increased incentives to invest are certainly crucial for Syria account balance, which could not manage to pull off with a for the time being. surplus, unlike previous years. Syria did manage to register a growth in the services balance, as per the latest EIU estimates, of precisely 8.5%, for the latter to reach US$ 920 million, benefitting from the booming tourism sector, especially in the first three quarters, prior to the global Foreign Sector Indicators crisis, as tourists had higher purchasing power back then. 140% 129.5% 130.0% 4% Further, the country profited from the rise of 18.2% in the 120% 109.6% 3.4% 103.8% current transfers, which reached US$ 803 million. The main 98.4% 95.6% 100% 2.9% 88.6% source of income in this balance is remittances of Syrians 2.3% 2% working abroad, and although remittances are highly 80% 2.0% susceptible to the crisis, keeping in mind that most of 60% 0.9% 1.0% 0% Syrians working abroad are in Gulf countries, the said 40% -1.4% source of income saw a huge boost in the first three quarters 20% of 2008, as the oil boom was still reigning back then. In 0% -2% short, Syria’s services balance and current transfers balance 2002 2003 2004 2005 2006 2007 2008 expanded in 2008 and remained in the positive zone, yet it Exports/Imports Current account/GDP was not large in volume enough to counterbalance the trade Sources: Central Bank of Syria, EIU, Bank Audi's Research Department

7 1.3. PUBLIC SECTOR to US$ 2.3 billion or 4.4% of GDP in 2009 but still consider it a sustainable level. The public sector in Syria, just like the rest of the economy, is witnessing drastic changes, to embark on Syria’s The relatively contained fiscal imbalances kept debt levels in transition from a centrally planned economy closer to a check and, as matter of fact, public debt-to-GDP has been market economy and to confront contemporary declining since more than five years to reach a comfortable international and domestic political, economic and social level of 30.8% in 2008, down from over 120% in 2003. In challenges. Fiscal conditions that used to heavily depend on absolute terms, total public debt is estimated at US$ 16.9 oil have come under pressure with the regular decline in this billion in 2008, with most of this debt being domestic. Syria source of revenue and rising social pressures, which caused has been paying off most of its external debt especially that the public finance deficit to expand year-after year reaching related to the Soviet era. Yet it is worth highlighting that around US$ 1.8 billion or 3.2% of GDP in 2008. concerns from the growing domestic debt, which has been, so far, in the form of direct borrowing from the Central This level remains nonetheless sustainable, especially with Bank, are rising, especially as the budget deficit increases the reforms that authorities have been implementing over and as the government starts issuing Treasury bills. the past few years and the progress made at the level of the non-oil fiscal balance. The non-oil revenues are bolstered By 2010, some fiscal improvement is foreseen, as through indirect taxes and good surpluses from state owned adjustments and reforms continue along the same line of entities. Indeed, central government revenues increased in the past few years. The government has a number of 2008 by 25% to an estimated US$ 11.5 billion or 20.9% of resources to boost public revenues that might be introduced GDP. within a couple of years time, if economic conditions permit. The value added tax is being considered to offset the In addition, Syria has been limiting both current and capital decline in oil revenues. Reforms of customs administration spending despite social pressures. Last year, it took a major and modernization of budget processes are proceeding as step phasing out oil subsidies and even though it raised well. In addition, the government can expect to reap good public salaries by 25% to alleviate the impact of higher fuel revenues from the conversion of existing mobile-phone prices, public expenditures appear to be contained so far. In contracts into longer-term licenses and from allowing a total, central government spending increased by 27.9% third operator to enter the market soon, not to mention the year-on-year to reach around US$ 13.3 billion or 24.2% of privatization or restructuring of the many state-owned GDP in 2008. companies. The year 2009 is expected to see a slight deterioration on Overall, Syria has recently made a progress on the fiscal account of the drop in oil prices below the budgeted level, front, but the near-term outlook requires further fiscal the relative economic slowdown, and the difficult consolidation as it can be subjected to downside risks with worldwide conditions. Estimates of the IMF raise the deficit the next two years considered to be a challenging phase. Pursuing strictly the implementation of structural reforms Public Indebtedness should keep public finance conditions under control and US$ billion maintain an overall positive outlook of the Syrian economy 30 140% 26.1 27.5 in the near term. 109.8% 120% 25 121.0% 100% 20 17.5 16.9 16.3 16.7 80% 1.4. FINANCIAL SECTOR 15 60% 10 56.9% 1.4.1. Monetary Situation 52.1% 40% 41.1% 5 30.8% 20% Despite the outburst of the global financial turmoil, Syria was characterized in 2008 by buoyant economic activity, 0 0% 2003 2004 2005 2006 2007 2008 strong growth in lending and record high level of capital Total Government Debt Total Government Debt/GDP inflows, which triggered soaring inflation rates, moderate Sources: IMF, Bank Audi's Research Department growth in money supply and an increase in the Central

Selected Public Finance Indicators US$ billion 2002 2003 2004 2005 2006 2007 2008 Central government revenues 6.0 6.2 6.8 6.9 8.5 9.2 11.5 Central government revenues/GDP 26.5% 28.8% 27.2% 24.0% 25.5% 22.7% 20.9% Central government expenditures 6.5 6.8 7.8 8.1 8.9 10.4 13.3 Central government expenditures/GDP 28.5% 31.4% 31.4% 28.5% 26.6% 25.7% 24.2% Central government fiscal balance -0.5 -0.6 -1.0 -1.3 -0.4 -1.2 -1.8 Central government fiscal balance/GDP -2.0% -2.6% -4.2% -4.5% -1.2% -3.0% -3.2% Sources: IMF, Bank Audi's Research Department

8 Bank’s net foreign assets. nominal exchange rate in the present context shall be maintained, according to the IMF, as it appears to be in line Inflation rate averaged 15.2% in 2008, its highest level since with market forces and consistent with the CBS’s policy of 1994, on the back of soaring food, fuel and rental prices containing inflation. In addition, the IMF recommended a during the first half of the year. The Syrian government’s gradual move toward greater exchange rate flexibility, as decision to reduce oil subsidies in April 2008 and to raise the increased flexibility would help maintain stability over the price of fuel by 50% starting December 1, contributed to medium term and would facilitate a gradual increase in adding pressures on prices in 2008. It is worth noting that monetary policy independence. the sharp fall in oil and global commodity prices following the outburst of the global financial crisis didn’t trigger any The unprecedented high level of capital inflows that poured drop in the general retail price index during the fourth in the country during the year 2008, contributed to boosting quarter of the year. However, inflation is expected to fall to the net foreign assets at the Central Bank of Syria 7.1% in 2009, according to the Economist Intelligence Unit, from SP 189.9 billion in 2007 to SP 214.2 billion in as food prices and the officially set prices for fuels are 2008, moving up by 12.8%. However, in view of projected to decline in Syria in the coming period. In the slowdown in foreign investments in the addition, the return home of many Iraqi refugees may play aftermath of the global financial crisis, the Central July a role in lowering inflation by reducing demand pressures, Bank’s net foreign assets are going to face the particularly on urban rents. challenge of reporting a positive growth in the 2009 coming period. In an attempt to rein in inflation and mop up part of the excess liquidity, the Central Bank of Syria (CBS) increased The rise in the authorities’ net foreign assets the reserves requirement ratio from 5% to 10% in October coupled with a substantial growth in lending during the year 2008. However, in May 2009, it announced a reduction in 2008 resulted in moderate growth rates year-on-year. In the compulsory reserves requirement for commercial banks fact, the money supply in its broad sense (M2) expanded in order to encourage lending to the industrial sector. The from SP 1,472.6 billion in 2007 to SP 1,656.1 billion in 2008, reduction in reserve levels is going to take place on a gradual up by 12.5%. This compared to a similar expansion of scale depending on the volume of commercial banks’ 12.4% in 2007. The money supply growth in 2008 is mainly lending to the industrial sector as a percentage of their total explained by a growth in net domestic assets of 39.3% year- loan portfolio. on-year that resulted from a 46.5% surge in claims to non- financial public enterprises and a 27.7% rise in claims to the Another factor may have played an indirect role in curbing resident private sector. inflation, namely the currency peg to a basket of currencies based on the IMF’s special drawing rights since October On the other hand, in view of the Central Bank’s strategy to 2007. Eventually, Syria has benefited from the peg, as it implement monetary reform and to develop indirect resulted in a marked appreciation of the Syrian Pound monetary policy instruments, it started in July 2008 issuing against the US Dollar in 2008. The current level of the Treasury bills on a trial basis. However, full fledged issues of

Exchange Market Indicators Money Supply and Inflation 30% 15.2% 225 SP billion 214.2 30% 16% 189.9 200 14% 175 27% 148.1 98. 20% 19.9% 10.0% 12% 150 132.8 135.1 26.0% 25.9% 116 10% 116.9 24% 132 125 13.4% 7.4% 98.9 135 12.4% 12.5% 8% 100 5.1% 11.8% 21.7% 21% 148 10% 9.2% 6% 75 21.2% 21.5% 189 4% 19.7% 214 8.1% 50 19.4% 18% 4.4% 4.5% 1.0% 2% 25 0% 0% 0 15% 2002 2003 2004 2005 2006 2007 2008 2002 2003 2004 2005 2006 2007 2008 Net Foreign Assets Net Foreign Assets/Money Supply M1 Money supply growth Consumer Price Inflation Sources: Central Bank of Syria, Bank Audi’s Research Department Sources: Central Bank of Syria, Bank Audi's Research Department

Monetary Situation Flows in SP million 2002 2003 2004 2005 2006 2007 2008 Var 08/07 Net foreign assets (monetary system) 78,609 25,690 52,030 997 -15,709 -24,556 -116,905 376.1% Claims on public sector 5,781 18,170 27,093 74,293 53,333 53,555 91,260 70.4% Claims on private sector 5,198 25,468 38,366 74,759 32,222 50,774 85,609 68.6% Total 89,588 69,328 117,489 150,049 69,846 79,773 59,964 -24.8% Money supply (M2) 145,033 71,329 126,794 127,142 110,002 161,914 183,491 13.3% Other items (net) -55,445 -2,001 -9,305 22,907 -40,156 -82,141 -123,527 50.4%

Sources: Central Bank of Syria, Bank Audi's Research Department

9 the bills didn’t take place yet because of the government’s spillovers of the global financial crisis that started to impact fears of falling in a debt trap. These are expected to become business and investor sentiment across the world in general, a regular feature over the forecast period as a means to and the Middle East region in particular. finance development projects and ultimately the fiscal The banking sector, although increasingly growing and deficit. gaining visibility, still is only mildly connected with major 1.4.2. Banking Activity international financial markets. Besides, banks in Syria, backed by a conservative strategy from the Central Bank, Syria witnessed a continuation of banking activity have little to no investments in subprime products and were expansion in the first half of 2009, with balance sheet thus not directly exposed to the demises of peers across aggregates reporting satisfactory growth albeit at a slower global markets. Total deposits managed to grow by a rate than last year. The banking sector is mildly connected positive 3.6% in the fourth quarter of the year, pretty much with major international financial markets, which made it in line with the growth reported in each of the previous relatively resilient to large investment losses. Besides, banks three quarters, and by 2.5% in the first quarter of 2009. in Syria, backed by a conservative strategy from the Central Bank, have little to no investments in toxic assets or even The breakdown of deposits by currency shows that both security portfolios of domestic/regional papers. The global those in local currency and those in foreign currency grew crisis’ more serious impact yet seems to be on Syrian banks’ similarly last year. Foreign currency deposits continued to bottom line, as a sizeable chunk of banks’ cash investments account for about 20% of total deposits, and grew by 16.4% are placed at financial institutions abroad earning lower last year, while local currency deposits progressed by 15.5% yields within the context of the marked drop in over the same period. international benchmark rates, thus creating pressure on Banks in Syria continued to enhance their branch network banks interest margins. Moreover, lending growth cannot in 2008, seeking to seize lucrative opportunities in a compensate the declining margins within the context of developing market. Total bank branches moved from 348 at slowing down economic conditions. Notwithstanding the year-end 2007 to 374 at year-end 2008, according to Central fact that there still is a lack of full-fledged financial monetary Bank statistics. Private banks in Syria were behind instruments (Tbs/CDs) in Syria for banks to invest their practically all the new branch additions in 2008, seeking to operating surpluses. enhance their coverage and offer clients a broader range of Syria witnessed a continuation of banking activity retail and commercial banking products and services. expansion in 2008, with balance sheet aggregates reporting Another driver of activity, loans to the private sector, healthy growth year-on-year. Operating conditions however registered a notable 28.0% growth in the year 2008, standing became increasingly difficult following the global financial at SP 391.1 billion at end-December. Yet, this growth is crisis’ eruption in the last few months of the year, and mostly accounted for by the growing needs for funding in banks’ lending activity and bottom line growth started to the pre-crisis period. The outburst of the global financial slow down. Overall, the sector’s size, measured by total assets, progressed by a satisfactory 7.7% in 2008, moving from SP 1,593.2 billion at end-December 2007 to SP 1,716.2 Banking Sector Comparative Ratios (Year 2008) billion at end-December 2008, and by 1.4% in the first 160% quarter of this year. 140% 120% Total deposits, a major activity driver accounting for nearly 104.0% two thirds of total sector size, managed to pull out a healthy 100% 80% 67.3% 15.7% yearly variation in 2008, moving from SP 924.4 60.1% billion at end-December 2007 to SP 1,069.4 billion at end- 60% 41.9% 44.5% 40% December 2008. In the first three quarters of the year, banks 15.3% in Syria benefited from enhanced local and regional 20% 0% liquidity that they channeled towards borrowers in need for Syria MENA countries funds to start or go on with projects at large, and thus witnessed a growth in deposits. In the last quarter of the Bank assets/GDP Bank loans/GDP Bank customer deposits/GDP Sources: Central Bank of Syria, Central Banks of MENA countries, IMF, Bank Audi's Research Department year, deposit growth was seemingly not hampered by the

Banking Activity SP million 2002 2003 2004 2005 2006 2007 2008 Var 08/07 Total assets 1,075,094 1,183,367 1,250,260 1,342,953 1,410,440 1,593,228 1,716,198 7.7% % change in assets 10.5% 10.1% 5.7% 7.4% 5.0% 13.0% 7.7% -5.2% Total deposits 571,834 618,199 669,661 733,253 804,457 924,448 1,069,384 15.7% % change in deposits 21.7% 8.1% 8.3% 9.5% 9.7% 14.9% 15.7% 0.8% Total loans to the private sector 83,935 109,403 147,769 222,528 254,751 305,524 391,133 28.0% % change in loans to the private sector 6.6% 30.3% 35.1% 50.6% 14.5% 19.9% 28.0% 8.1%

Sources: Central Bank of Syria, Bank Audi's Research Department

1 0 crisis late in 2008 seems to have slowed down lending advisory services and defend interests of their mother activity markedly, although the latter has not come to a halt. company, according to the Syria Report, but would at least The fourth quarter of 2008 was characterized by increased provide a first step towards the incorporation of foreign cautiousness from banks across the globe in lending to bank branches later on. Further, the Economist Intelligence customers amidst growing uncertainty and a consequent Unit asserted that the local regulator is considering a wait-and-see attitude adopted by many borrowers. Fourth proposal to raise the foreign ownership ceiling in joint quarter lending growth in Syria stood at 4.2%, nearly twice ventures from the current 49% to 60%, and thus encourage lower than that of the previous couple of quarters. This year, foreign investments in the country. lending activity appears to have progressed moderately, As such, it seems the banking sector in Syria is steadily growing by 6.7% in the first quarter. developing, with continued efforts from local authorities to The global crisis’ more serious impact seems to have been modernize the sector combined with the ongoing on Syrian banks’ bottom line. Indeed, a sizeable chunk of development of private banks and their banks’ cash investments are placed at financial institutions contribution to giving a boost to healthy abroad, and within the context of marked drop in competition and to raising the sophistication and international benchmark rates, has been recently yielding breadth of banking products and services in Syria. July considerably less than in previous periods. Banks are thus The global financial crisis would thus not alter the being squeezed on the revenues front, all the more so banking landscape in Syria, but would pose a 2009 lending growth cannot embrace a sharply ascendant challenge to market players in the period ahead: trajectory immediately and that there still is a lack of full- that of sustaining core revenues amidst delicate fledged financial monetary instruments in Syria for banks to conditions and relatively weaker business invest in and yield revenues through balance sheet items. sentiment while continuing to improve financial soundness ratios at large in a country seeking to raise its financial Anyhow, in the face of tightened credit conditions across services sector’s visibility on the broader regional arena. the globe, local sector authorities have lately reduced the compulsory reserve requirements for commercial banks - 1.4.3. Capital Markets after having increased them late in 2008- in an attempt to give a boost to lending to the industrial sector in Syria. Along the Syrian’s government policy to implement Authorities have actually reduced such requirements on a liberalization after four decades of nationalization and state gradual scale, according to the Syria Report, depending on control over the economy, Syria has launched on March 10, each bank’s share of lending to the industrial sector in total 2009 the Damascus Securities Exchange (DSE). The loans portfolio. The higher the share of loans to the exchange is actually open for trading two days a week, every industrial sector in the total portfolio, the higher the Monday and Thursday. Share prices on the DSE are allowed exemption on reserve requirements. As such, the discount to fluctuate within a small range of 2% up or down per on legal reserves reportedly ranges from 1% (for a share of session in order to limit the exposure of the exchange to loans to the industry between 5% and 10%) to 5% (share of price volatility. In addition, investors are not able to buy and 40% and above). resell in a same day. These measures were taken by the DSE authorities in order to reduce speculation. Meanwhile, the tightened conditions have not prevented banking ventures from seeing the light this year. On one The DSE started its activity in March with six companies, hand, Fransabank Syria officially launched operations in the with the number of listed firms reaching eleven by the country this spring, becoming the tenth conventional finalization of this report. The daily trading value remained private bank in Syria. Apart from Lebanon’s Fransabank, thin since the inception day, reaching a maximum of SP 43 shareholders include several prominent individuals, while million early July 2009, and is expected to stay low, about a third of capital was offered to the public in an initial according to DSE authorities, until the number of listed public offering. On the other hand, a Syrian-Iranian companies reaches an attractive level. commercial bank, termed Banki, a joint venture between The months that followed the launch of the DSE witnessed two state-owned institutions (Syria’s Commercial Bank of a surge in prices. In fact, Audi Price Index traced Syria and Iran’s Bank Saderat), obtained a preliminary continuously an upward slope, rising by around 57% over license from the local authorities. Bank of Jordan, Lebanese the past four months. Accordingly, the DSE’s market owned Bank Al Sharq, and Qatar National Bank (through capitalization grew by a staggering 151% since the inception an affiliate) recently entered the market, while other banks day to reach currently about SP 46 billion. in the region -both conventional and Islamic entities- are also preparing to apply for licenses and launch activities. The DSE’s authorities have taken some measures to boost activity. In fact, they have set a new regulation that says that In parallel, authorities recently allowed foreign banks to a stock won’t be given a new closing price and reference establish a representative office in the country, a move that price if the number of traded shares during a session was less is seen to be an additional step towards the further than 200. Should the trading activity grow in the coming modernization and openness of the local banking sector. period, the Board of Directors may decide to open the DSE The representative offices would not be allowed to conduct for an additional third day. Such a decision was postponed banking activity within the country, and would provide until now given the current weak trading volumes. In

1 1 addition, there are plans to open a branch in Aleppo, year and all fall into recessionary traps at least in the according to DSE authorities. foreseeable future. All in all, the launching of the Damascus Securities Foreign direct investment is in principle a third external Exchange is expected to encourage investment and help growth driver that should be negatively impacted by the absorb capital and savings. Moreover, the government may crisis, although Syria has not been counting considerably on consider listing some firms (to be partially privatized or to FDIs. Some argue that Syria’s foreign direct investments be transformed into joint private public partnerships) in the might dwindle on lower liquidity in the region in the future depending on the success of the DSE. It is important aftermath of the nosedive in oil prices and the slide of to finally mention that besides the stock exchange, there are regional financial markets. However, such a questionable also plans to launch a local bond market in Syria, increasing pressure on FDI is likely to be offset by the political opening the number and sophistication of monetary tools available up of Syria to the western world, following the quasi- to the Central Bank. normalisation of foreign relationships with a number of European countries that maintained conflicting relationships with Syria since late 2004 and early 2005. 2. CONCLUSION As to tourism, the impact of the global financial crisis on Syria was obviously not insulated from the worst global regional touristic spending is definitely contractionary but crisis since decades that hit the world over the past year or its contagion effects on the Syrian touristic sector seems to so. The transmission channels were mostly at the real sector be negligible. As a matter of fact, the number of tourists in level, as the financial sector remains relatively under Syria was up by 9% in the first half of 2009 relative to the developed with limited integration with the global system corresponding period of 2008. It seems that there are two and with Central Bank regulations limiting banks foreign factors that are more or less shielding Syria’s touristic sector exposure. from the contractionary effects of the global crisis. On one hand, Syria counts more on low to middle income Arab The real sector is certainly apt to record lower growth this tourists that have been less affected by the relative Wealth year. The IMF recently projected real GDP growth at 3% in contraction phenomenon that was recently reported in the 2009 from close to 6% in 2008. All private and official region. On the other hand, western tourists seem to be forecasts hover within the 2%-4% bracket for 2009, increasingly interested in taking Syria’s direction following confirming the scenario of economic slowdown but refuting the political opening up since mid-last year. that of recessionary conditions, i.e those of negative real output growth. Among the most significant transmission In conclusion, a number of factors have contributed to avoid channels for Syria’s real sector we mention exports, a scenario of a recessionary trap in Syria in the aftermath of remittances, and to a much lesser extent FDI and tourism. the outburst of the global financial crisis, although slowdown in output growth is obviously inevitable. First, the Indeed, exports are likely to contract in 2009, following the agricultural harvest season this year was noticeably favorable, several consecutive years of positive growth. While it is true with an agricultural sector accounting again for a growing that Syria’s non-oil exports mainly consist of necessity share in the country’s output . Second, the banking sector, products revolving around agricultural products, textile and strictly regulated and conservatively managed with low cotton to the extent of 85% (rather than luxury and durable leverage, did not encounter serious direct losses from the goods) with a demand could be less impacted by the global global financial turmoil and its consequent spillovers on financial crisis, such Syrian non-oil exports are proving to be regional capital markets. Third, the improvement in Syria’s quite elastic, as preliminary post-crisis estimates suggest foreign political relations with the Western World, after four their growth already in the red. Oil is a different story, as years of political dissension, is apt to favorably impact Syria now became a net importer of oil following the bilateral investment and trade, dampening relatively the considerable decline in production over the past few years, Syrian slowdown. which puts it in an even situation as far as the impact of falling oil prices on Syria’s current account balance is On the longer term, it is the pace of Syria’s reform process concerned. that will determine its structural growth trajectory. Such a reform process that was initiated since the early years of the Remittances represent the second transmission channel, current decade, has proven to be somehow slow relative to with a plausible decline in financial inflows from Syrian the huge structural requirements of the Syrian economy, but residing abroad and experiencing a cut in income or even definitely promising and irreversible. All this in the hope job losses in the hosting Arab and Western countries. The hit that some of the local interpretation of the recent global that such remittances, estimated annually at close to US$ 1 financial crisis and which is actually starting to question the billion, are likely to receive is mainly due to the fast slowing whole transition towards the market economy would not down economic conditions in GCC countries which host hinder the serious and ambitious efforts aimed at ensuring more than 1.5 million Syrian expatriates. Saudi Arabia, UAE the macroeconomic fundamentals for strong and and Kuwait, where the Syrian expatriates are concentrated, sustainable growth and welfare in the Syrian economy at are all expected to witness negative real output growth this large. This publication is undertaken in the aim of informing and should not be considered as an encouragement to any form of financial or commercial activity. Although Bank Audi Sal considers the contents very reliable, it declines any responsibility for any action or decision based on contents herein.

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