Business-Gateway-Syria.Pdf

Business-Gateway-Syria.Pdf

Syria SETTING UP A BUSINESS IN SYRIA BODIES DEDICATED TO SUPPORT BUSINESS IMPLEMENTATION AND INVESTMENT ATTRACTION PICTURE OF SYRIAN ECONOMY THE TRANSPORTATION INFRASTRUCTURES THE FINANCIAL AND BANKING SECTOR, THE INSURANCE SECTOR Tourism Energy Sector – Oil and Gas, Electricity and Water Car industry Textiles Chemical Industry Agriculture CHAMBERS OF COMMERCE Setting Up a Business in Syria Encouraging investment has been a goal of the Syrian government since the early 1990s. This is because up until then, Syria was the recipient of general loans and grants for the purchase of Soviet weaponry and equipment from the former USSR. Furthermore, Syria also received free oil and very generous trade deals from Iran as a reward for severing economic and political ties with Iran's enemy Iraq. Upon the breakup of the USSR and the end of the Iraq v Iran war, Syria found itself looking for new sources of income. Therefore, in order to encourage investment from foreign countries, in 1991 the Syrian government passed Investment Law No. 10. This law offered investment incentives such as: tax breaks, customs duty concessions, increased freedom of capital movement and foreigners may own 100 % of a company and the land on which a business is located. Almost all sectors are open to foreign direct investment except for power generation and distribution, air transport, port operation, water bottling, telephony, and oil and gas production and refining. The investment law was initially quite successful in attracting investment into Syria as it opened up new parts of the economy and offered new incentives, which had not existed in Syria before. However, from the mid 1990s investments began to decrease owing to the unfavourable macroeconomic conditions in the country. Law N°10, at the time seen as revolutionary, is still providing attractive facilities. By way of example, this text sets no limit to foreign share holding, or to the nationalities of the members of the Board of Directors of companies. Among its most remarkable elements, this Law stipulates i) a five year tax exemption on business profit (which can be extended to seven years if more than half of business is to export); ii) the exemption of customs fees for all investment and transport goods, iii) the freedom to repatriate the capital and the profits. This law was significantly amended in 2000. By way of example, foreign investors now have the right to own the land on which their buildings are erected; this provision lead to the construction of a large number of new hotels owned by investors from the Gulf region, in Damascus and in the rest of the country. In order to benefit from the advantages of Law N°10, applicants simply have to put in a request with the Investment Bureau, which recently introduced a one-stop-shop system intended to facilitate the procedures. The only formal condition for the investments to be accepted is that the invested capital must be in excess of US$ 200,000. Almost all sectors are now open to private shareholding, after several decades of public monopoly that controlled whole blocks of the economy. All business statuses – from private limited companies to holdings – are authorized. Electrical power production and cement mills are among the sectors most recently made accessible to private investors. Air and rail transport, telephone systems, oil refineries, mineral water, the commercialisation of cereals are some of the few sectors still under public control. As to international trade, the Syrian authorities have also launched a gradual opening policy in the last few years. Some major free trade agreements have been signed with neighbouring countries. They provide real export opportunities at the regional level. The implementation of the Arab Free Trade Zone, scheduled for 2005, will enable Syria-based investors with free access – without tariffs or customs barriers – to more than 14 other Arab countries. Moreover, at the beginning of 2004 a partnership agreement should be signed with the European Union. BODIES DEDICATED TO SUPPORT BUSINESS IMPLEMENTATION AND INVESTMENT ATTRACTION The number of Investment projects that have been approved by the Higher Investment Council rose sharply in 2002. In 2002 over 1,177 investment applications were approved by the IB, half of the total number of projects approved in the first 11 years of Investment Law No.10. Out of these 1,177 projects, 968 were transport investments schemes accounting for a total capital investment of USD280 million, while the 209 industrial and agricultural schemes accounted for SYP61 billion (USD1.22 billion). In spite of these results, the whole investment regulatory framework, including Investment Law No.10 was overhauled in the next few months. The landmark Investment Law No.10 was adopted in 1991 and was seen at the time as the prelude to a larger opening of the Syrian economy to private investments. In spite of earlier high expectations, the law has failed to attract significant amounts of foreign investments, the original target of the law. Investment applications are put forward to the Investment Higher Council, a ten-man body that meets at least once every two months. Headed by the Prime Minister, it also includes the Deputy Prime Ministers for Economic Affairs and Social services, the Ministers of Economy, Agriculture, Transportation, Supply, Industry, Planning, Finance, as well as the Director of the Investment Bureau. The only definitive criteria for approving investments is the requirement that the projects must have a minimum paid-up capital of SYP10 million (around USD192,000). But the application is more likely to be approved if it: a) Maximizes the use of local resources, b)Uses modern technologies, c) Boosts exports, d)Creates jobs and e) falls in line with the government's development plans. The approved applications are then transferred to the Investment Bureau, which has in charge the monitoring of the implementation of the projects. Although, in principle, any type of investment can benefit from these incentives, in practice most of them are of an industrial, agricultural or transport nature, while touristic projects benefit from earlier more favourable regulations, namely Law No.186 of 1985 Economic Overview The Syrian Government estimates the economy grew by 4.5 % in real terms in 2005, led by the petroleum and agricultural sectors, which together account for about half of GDP. Economic performance and the exchange rate on the informal market were hit by international political developments following the assassination in February of former Lebanese Prime Minister Rafiq al-HARIRI and the spectre of international sanctions. Higher crude oil prices countered declining oil production and exports and helped to narrow the budget deficit and widen the current account surplus. The Government of Syria has implemented modest economic reforms in the last few years, including cutting interest rates, opening private banks, consolidating some of the multiple exchange rates, and raising prices on some subsidized foodstuffs. Nevertheless, the economy remains highly controlled by the government. Long-run economic constraints include declining oil production and exports, increasing pressure on water supplies caused by rapid population growth, industrial expansion, and water pollution. Syria has continued its pattern of economic growth only slightly higher than its population growth in recent years, despite some limited attempts to reform its economy. High prices for its modest quantities of oil exports have offset problems in other sectors of the country's economy in the short-term. Real GDP growth in 2004 was 3.4 %, and growth is projected at 3.7 % in 2005. The U.S. imposed additional economic sanctions against Syria in May 2004, under the provisions of the Syria Accountability Act, though the economic effects have been modest, due to the small volume of U.S. trade and investment with Syria. U.S. energy companies operating in Syria were not forced to divest their investments in Syria. Syria ended its long military occupation of Lebanon in April 2005, under pressure from the international community to implement United Nations Security Council Resolution 1559. Shortly after the assassination of Prime Minister Rafik Hariri in February 2005, and the subsequent withdrawal of Syrian military forces from the country, Lebanon held elections for a new national parliament in June 2005. The process of forming a new governing coalition is not yet completed, but parties opposed to continued Syrian influence in Lebanon appear to have gained a majority of seats in the Lebanese parliament. Lebanon's economy is experiencing reasonably strong growth, with real GDP growth projected at only 3.9 % for 2005, after posting growth of 4.5 % in 2004. The main economic problems faced by the new government are the country's large external debt and budget deficit. External debt is now approximately 170 % of GDP. Greater Arab Free Trade area Syria is a member of the Greater Arab Free Trade area (GAFTA). As per terms of the agreement, on January 1st 2005, there will be total free inter- Arab trade. Although the agreement does not place any requirement on Syria has to reform its economy, nevertheless the manufacturing industry is being placed under increased pressure to privatise. This is because in order to be able to compete with the flood of imports from other Arab manufacturers, Syria's manufacturers need to introduce more product range and efficiency into their products. As a result, the Syrian government has announced that a number of industries (including the Electrical goods and mineral water sector) will be privatised. It must be noted that the terms of privatisation will be restricted to joint ventures between foreign companies and the government. As a result, state owned companies such as Syronics are being allowed to participate in joint ventures with other Arab companies. It is expected that GAFTA will lead to further privatisation of the Syrian economy where perhaps by 5 - 7 years time the Syrian government will agree to complete privatisation of industries.

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