Country Report Syria September 2010 Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For 60 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. 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ISSN 0269-7211 Symbols for tables “0 or 0.0” means nil or negligible; “n/a” means not available; “–” means not applicable Printed and distributed by IntypeLibra, Units 3/4, Elm Grove Industrial Estate, Wimbledon, SW19 4HE Syria 1 Syria Executive summary 3 Highlights Outlook for 2010-11 4 Political outlook 5 Economic policy outlook 6 Economic forecast Monthly review: September 2010 9 The political scene 10 Economic policy 13 Economic performance Data and charts 15 Annual data and forecast 16 Quarterly data 17 Monthly data 18 Annual trends charts 19 Monthly trends charts 20 Comparative economic indicators Country snapshot 21 Basic data 22 Political structure Editors: Rory Fyfe (editor); Robert Powell (consulting editor) Editorial closing date: August 26th 2010 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 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010 Country Report September 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010 2 TURKEY Al Malkiyah AAlAl-Qamishlil- QamishliQamishli Jarabulus RRasas aal-Aynl-Ayn TallTall KochakKochak Azaz TallTall al-Abyadal-Abyad Afrin ManbijManbij Hassakah AlAl BabBab Salqin AAleppoleppo Buhayart al-Asad Idlib MEDITERRANEAN AAll RaqqahRaqqah AshAAls hShadadah ShadShad SEA TabaqahTabaqah MaarratMaarrat anan NNumanuman Latakia Al-TibniAAll- TTibniibni Jablah KhanKhan ShaykhunShaykhun Banias Deir al-Zour HamaHama MasyafMasyaf SYRIA E Salamiya u p Tartous Al Mayadin h ra t IRAQ e Burj Safita s R. Tall KalakhKalakh HomsHoms AAll QQusayrusayr Tadmur AAbubu KKamalamal AlAl QaryataynQaryatayn LEBANON Railway AnAn NabkNabk Main road YYabrudabrud t r International boundary e Al Zabadani Jayrud s e Main airport D DumaDuma Capital DAMASCUSCUSCUS n a Major town r i S y Other town QQuneitrauneitra Territory occupied GolanGolan by Israel HeightsHeights UN buffer zone established Lake Tiberias IzraIzra May 31st 1974 ISRAEL AlAsAs SuwaydaSuwaydaSuwayda DaraaDaraa JORDAN 0 km 25 50 75 100 SalkhadSalkhad 0 miles 25 50 © TheThe EconomistEconomist IntelligenceIntelligence UnitUnit LimitedLimited 220042010004 Syria Syria 3 Executive summary Highlights September 2010 Outlook for 2010-11 • The president, Bashar al-Assad, is expected to remain in power in 2010-11 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 West and leading Arab states are expected to improve, albeit with some setbacks. Rapprochement will be overshadowed by ongoing tension between the US and Iran, Syria's closest ally. • It is unlikely that Israel's hardline government will seriously negotiate to return the occupied Golan Heights during the forecast period, but Israel and Syria may both have an interest in being seen to resume indirect talks. • As the global recession ends and gas production increases, Syrian real GDP growth will rise to 4% in 2010 and 4.6% in 2011. • Inflation will rise to an annual average of 6.3% in 2010-11 as global commodity prices increase and value-added tax (VAT) is introduced, although it will remain below its 2008 peak. • The current-account surplus will widen to an average of US$770m (1.2% of GDP) in 2010-11, as non-oil exports grow and booming tourism boosts the non-merchandise surplus. Monthly review • Iran has been seeking to shore up its alliance with Syria. Syria has been courted by regional and international adversaries of Iran after it emerged that the Special Tribunal for Lebanon may not indict Syrian officials. • The government has passed a law allowing the establishment of investment banks, albeit with a high minimum capital requirement. EFG-Hermes, an Egyptian investment bank, claims to have already begun operations. • The cabinet has approved, in principle, a third mobile-phone licence, and the two incumbent mobile-phone firms, Syriatel and MTN, have reported healthy increases in turnover in the first half of 2010. • The EU has signed an agreement with the State Planning Commission for a €129m (US$168m) aid programme running from 2011 to 2013, including €20m to support an Association Agreement that is under negotiation. • Oil production rose in the first half of 2010 to 386,000 b/d, compared with 375,000 b/d in the first half of 2009, owing to rising production at new fields. This rise will probably be temporary, as the new fields are relatively small. • Natural gas consumption has increased sharply as higher domestic production and increased supplies from Egypt have allowed Syria to increase gas supplies to power stations and to reduce imports of fuel oil. Country Report September 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010 4 Syria Outlook for 2010-11 Political outlook Domestic politics The president, Bashar al-Assad, and his ruling Baath party are expected to retain their grip on the country, supported by key elements in the security services. The core of the elite is drawn largely from Mr Assad's Alawi sect, and any move against him would risk endangering its hold on power. Underlying resentment of Alawi rule and friction between reformers and conservatives mean that tensions within the regime are likely to persist. Only limited progress is expected on political reform in 2010-11. Although some promised measures may be implemented, 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 he has acknowledged that the pace of reform has been slow since then. He has pledged to increase popular participation in the political process by introducing a political parties law, which will create a second chamber of parliament, the Majlis al-Shura—in addition to the existing lower chamber (the Majlis al-Shaab). He also pledged to devise a local administration law to bring about greater decentralisation. Although there have been few visible signs of progress with these reforms, a reduction in international pressure on Syria owing to improving relations will make it easier for at least a few cosmetic changes to be made domestically. However, the security and intelligence services, which are pervasive and effective, will continue to arrest activists demanding democratic reform and Syria faces numerous accusations of torture and unfair trial of political prisoners. The various opposition-in-exile groups and domestic critics are unlikely to pose a substantive threat to the government. International relations After a period of diplomatic isolation in 2005-07, Syria has developed steadily better relations with many Western and regional states—notably France, Turkey, Saudi Arabia and Lebanon. One result is that the EU is now ready to sign its long-delayed Association Agreement with Syria, and talks to resolve some outstanding issues with the agreement are ongoing. The catalysts for the improvement in relations include perceptions that Syria is playing a more constructive role in Lebanon, and a desire by Western and other Arab countries to weaken Syria's alliance with Iran. Relations with the US have also improved and although US sanctions on Syria were renewed in May, the US has withdrawn its objections to Syria's accession to the World Trade Organisation. However, Syria's international rapprochement could be upset by a number of issues, in particular Syria's continued commitment to a strong relationship with Iran and its ongoing support for Hizbullah, a Lebanese militant group, and Hamas, a Palestinian group.