Syria's market reforms dent socialist model
Thu Dec 8, 2005
By Suleiman al-Khalidi
DAMASCUS (Reuters) - On a main square in the Syrian capital's commercial center, a laborer pastes up a poster showing a blue-and-red can and the words "Pepsi now in Syria."
The U.S. soft drink giant recently got a license to sell locally manufactured Pepsi in Syria -- another sign of changing times in a socialist-style economy where foreign franchises were once banned and long ignored.
"Customers are ... asking for Pepsi thinking it's the best. They are dazzled by the name but it tastes just like the others," said shopkeeper Mazen Qabani in Shahbandar square.
After 40 years of socialist planning, Syria's economy is opening up. This year, the government eased state planning, privatized state enterprises and opened markets to imports and foreign investment.
There is more to come. Deputy Prime Minister Abdullah al-Dardari said last week that a wide-ranging economic reform package would be unveiled on December 10.
Officials say the reforms are driven by economic necessity not mounting international political pressure since a United Nations probe implicated top Syrian security officials in the killing of former Lebanese Prime Minister Rafik al-Hariri. Syria denies any role in the murder.
Dardari, Syria's top economic reformer, says the prospects of tough economic sanctions and increased isolation should be met by faster moves toward a market economy.
After the nationalization of many companies in the 1960s, many believed Syria, which had close ties to Moscow in Soviet times, needed mammoth steps to amend arcane laws blamed for inefficient government and for alienating investors.
"From this year, people are starting to feel reform is becoming credible," said Nabil Sukkar, managing director of the Syrian Consulting Bureau for Development and Investment.
BANKS LEAD THE WAY
The changes are most visible in the banking sector. Syria allowed the first private-sector bank to open last year, ending four decades of state control, and the Arab world's top private banks have rushed to grab a slice of the market.
In Damascus' Salhia district, a board announces the imminent launch of a branch of one of Lebanon's largest banks, Bank Audi. Jordan's Arab Bank is also nearly ready to open in a city where ATMs were a novelty just two years ago.
In the narrow alleys of the old city, speculators and investors informally trade in stocks of telecoms operators, tourism and real estate firms only months before the first Damascus bourse in decades is due to open.
Foreign businessmen sip coffee in hotel lobbies, talking about red-carpet treatment by officials offering incentives to investment. In the affluent Mezah neighborhood, wealthy Syrians throng the capital's first mall, snapping up luxury goods.
In September, Syria eased strict foreign exchange controls, allowing Syrians to buy hard currency and private sector exchange firms to replace black market money-changers.
Officials promise more investor-friendly reforms.
"We will allow capital gains transfers by foreign investors freely and full trade liberalization and substantial customs cuts by year end," Dardari said.
Syria has also promised a new investment law to allow full foreign ownership and further easing of foreign currency controls and capital flows.
Dardari said a surge of foreign capital into Syria since 2005 meant that investors were shaking off political uncertainty and eyeing opportunities in a long overlooked country.
BRING THE MONEY BACK
Even the country's protected textile industry is now exposed to full foreign competition after customs barriers on imports were lifted, despite an industry outcry.
Officials hope the economic reforms will encourage the repatriation of billions of dollars from Syrian immigrants.
"The investment climate has improved and we are working on easing all obstacles facing investors," said Mustafa Kafri, the head of investments in the prime minister's office.
Officials say $8 billion of Arab, foreign and Syrian immigrant capital had been earmarked for projects since January, more than the country received in the previous decade.
In the suburbs of the prosperous industrial city of Aleppo, thousands of private factories have sprung up in the last two years, making everything from shoes to fertilizers.
But there are still obstacles: corruption and inefficient state-owned firms are preventing the country from reaching double-digit annual growth, analysts say.
Syria stills has thousands of state firms which soak up much public investment, and many of them lose money.
Officials privately acknowledge that reforms have moved too slowly and criticize bureaucrats for obstructing progress.
Some investors caution that without a more aggressive push by the authorities to open the economy to more private and foreign competition, Syria could lose momentum.
"These next steps are so difficult for Syria as more economic openness threatens so many vested interests and state monopolies," says a Syrian businessmen, who requested anonymity
"We have to make a bold leap over the shadow of our past."
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