Josh Landis on Syria for the Arab Reform Bulletin

Syria: The Nexus of Economy, Diplomacy, and Reform

Joshua Landis April, 2009

The winds of change coming out of Washington have rekindled talk of liberalization and reform in Damascus. The Obama administration’s abandonment of a regime change approach to Syria has emboldened officials in Damascus to speak out about economic vulnerabilities—and the impact of U.S. sanctions—with refreshing candor. Long delayed economic reforms, particularly the launching of Damascus’s stock exchange, have been pushed through. President Assad has also promised to put political liberalization back on his agenda because he no longer believes Western powers seek to destabilize Syria.
Deputy Prime Minister Abdullah Dardari, who coordinates economic planning in Syria, broke with the government’s party line on the economy in a recent interview with Reuters. Rather than repeating bromides about how Syria’s economy would not be affected by the world downturn, he warned Syrians that they would indeed face tough times. He explained that “Syria’s foreign trade makes up 70 per cent of GDP and this means that the country’s dependence on external factors is very large.” Mohammed al-Hussein, Syria’s finance minister, took Dardari’s warnings one step further, saying that 2009 would be a “difficult” year. The country’s banks were secure, but the industrial, transport and tourism sectors would suffer, he predicted.

Projections of an economic downturn are loaded with political significance in Syria. During the Bush administration, Syrian officials kept up a brave front in order to counter thinking in Washington that economic pressures would enable Israel and the United States to drive a better bargain on the Golan. U.S. sanctions were unimportant and ineffective, Syrian officials scoffed. Abdullah Dardari began to promise in 2005 that by 2010 he would have Syria’s economy purring along at 7 percent growth, the magic rate at which most economists believe Syria will begin to dry up its growing pool of unemployed laborers and youth. Damascus could afford to wait out Washington without abandoning its precious regional assets or “cards” that, if played wisely, it believed would win back the Golan and allow Syria to project its influence in the larger Middle Eastern arena.

So when Dardari admitted that Syria would fall far short of 7 percent growth, foreign analysts took note. More importantly, Dardari as much as confessed that U.S. sanctions were taking a toll on Syria. In a shot across the bow of Syria’s foreign ministry, he demanded that “the U.S. should lift its economic sanctions on Syria before relations improve between the two sides.” “The lifting of sanctions will likely have a positive effect on increased foreign investment,” he explained and would “remove a psychological barrier” to companies that now hesitate to put money in Syria. Only $700 million in foreign direct investment came to Syria last year; 2009 is likely to see even less.

According to Dardari, Syria’s infrastructure must undergo massive improvements on the order of $50 billion over the next ten years in order to grease the wheels of commerce and keep its main industries (textiles, cotton spinning, plastics, cement and canning) from being done in by cheap imports. Syria’s manufacturing sector has been battling on a number of fronts for the past few years, well before the current global crisis. For decades, it avoided competition from imports thanks to a program called “national protection.” High tariffs on imports gave local producers a false sense of security as they sold inferior products at high prices. But recent economic reforms have opened Syria’s doors to a wide array of new imports; tariffs between Arab states have been eradicated altogether, forcing Syrian manufacturers to compete with inexpensive imports for the first time.

Among notable recent developments was the launching of Syria’s stock exchange, which opened on March 10 after years of delays. Six companies were listed but only one traded a total of 15 shares on the first day. Volume was disappointing throughout the first weeks because fewer than 100 accounts have been registered with the five approved financial brokers. More importantly, cumbersome restrictions have been placed on the exchange to prevent “speculation” and promote “investment.” Securities cannot be sold on the same day of purchase and a 2 percent daily price movement limit has been imposed on stocks in an overzealous attempt to protect investors. These are some of the kinks that must be worked out, but Syrians were enthusiastic about having a working bourse after fifty years of socialism.

President Bashar al-Assad assured Syrians in March that the pace of reform would pick up now that Syria is “less affected by difficult international circumstances.” What is more, he suggested that reforms would not only be economic, but also political. When asked to elaborate, Assad responded: “For example by expanding political participation, creating another chamber in addition to the parliament, such as a freely elected senate with a legislative role to give more space to the opposition, by further liberalizing the political media and the Internet to promote dialogue, and finally by enacting a law regulating political parties. But all that will come about gradually, at our own pace.” Most Syrians may not hold their breath for political change, but they are gratified by the new climate of engagement with the United States, hoping that it will have important economic repercussions and perhaps bring some relaxation of the political atmosphere.

Joshua Landis is co-director of the Center for Middle East Studies and assistant professor of Middle Eastern Studies at the University of Oklahoma.