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Syria’s Economic Growth Requires Fundamental Reforms First

November 2010


Translating from Arabic, the following headlines appeared in the electronic media during the second half of October 2010:
On October 17, 2010 Shamlife headlined: “Dardari in ‘Industry’s’ stronghold: No industrial policy-maker knows industry’s needs”.
On October 24, 2010 ALL4SYRIA said: “Labor unions will attack the government... by throwing tomatoes”.
On October 26, 2010, Shamlife: “Dardari: We could not reduce poverty…”.
On October 26, 2010 ALL4SYRIA: “Dardari inundates unionists with ‘misleading’ data”.
On October 26, 2010, Syriasteps: “A minister in Mr. Outri’s cabinet… I disagree…  I disagree”, referring to Minister of Industry’s reaction to demand by union leaders for more workers in Jableh textile factory.
On October 27, 2010, Shamlife: “Sharp exchanges between the Minister of Labor and Damascus’ labor unions leader”.
On October 28, 2010, ALL4SYRIA: “Asi: The high price of tomatoes is caused by Dardari”.
These headlines suggest the existence of tension between labor union leaders and government ministers responsible for labor, economic, and financial affairs, on one hand, and among the ministers themselves, on the other.
The tension may be attributed to government’s attempts, led by deputy prime minister for economic affairs, Mr. Abdullah Al-Dardari, to transform Syria’s economy from a “socialist” economy to a “social market economy” and the possible effects such transformation might have on, among others, unemployment.
Although the terminology “social market economy” is vague, the word “market” reveals a fundamental nature of the new economy. Under a “market” system, future government investment decisions would be made according to rate of return on investment criterion. Such an approach generally tends to allocate scarce resources rather efficiently and help steer GDP on a path of optimal growth. A rate of return approach invests taxpayers’ money and national wealth in the most rewarding investments for the country as a whole, not to one segment of the population at the expense of the others. Other approaches are inefficient because of the ideological, ethical, or emotional bias that typically influences decision makers.
As for those business enterprises the government already owns and manages, a “market” economy should open Syria’s doors to competition. More competition from Turkish, Chinese, and Korean goods, for example, would expose Syria’s loss making government owned enterprises to greater losses. Eventually, the government will have little choice but to sell off the 250, or so, loss making firms it owns. Ehsani wrote in Syriacomment.com convincingly about the need to privatize these companies in his “The Sin in Syria is Low Wages” on October 17, 2010.
Whenever this happens, a proportion of the workers currently employed by these establishments will be laid off, exposing them to the vagaries of unemployment. 

The Challenge
According to Syria-News.com on October 29, 2010, Mr. Dardari revealed that Syria needs to create over the coming few years, presumably during the life of the forthcoming Five-year Development Plan, 1.25 million jobs, of which 65,000 will be achieved during the first year of the Plan“[Dardari on poverty and unemployment… in numbers”.
However, the author of the Syria-News.com report estimates that the Plan needs to produce 2.1 million new jobs if Syria were to maintain the unemployment rate at 11.8%, presumably the rate at present.

Syriasteps, on November 2, 2010, quoting a study by the Planning Commission found that, “economic growth in Syria dropped during 2008 and 2009 to 3% from 5.5% in 2007” and that, “according to the economic summary of the first national population report (2009), the rate of growth in Syria’s important real economic sectors was negative during those years.
It is clear that the path of future economic growth in Syria is challenging, if only to: 1) provide young men and women with work opportunities upon graduation from schools and universities, 2) absorb the 600,000 already unemployed out of Syria’s 5.44 million work force, 3) absorb those who would become unemployed as a result of being laid off from privatized enterprises in the future, 4) raise the country’s real per capita GDP.
High unemployment rates have serious negative consequences in terms of lost economic contribution, prolonging poverty, and fomenting discontent; even possibly societal unrest.
Examining Syria’s development plans is difficult. Wading in Syria’s numbers game is of little value. The assumptions behind the Eleventh Five-Year Plan are unknown and the accuracy of the available public data is in doubt. The IMF Country Report on Syria, No. 10/86, dated March 2010 states on page 30: “Government finance statistics suffer from major deficiencies with respect to definitions, coverage, classification, methodology, accuracy, reliability, and timeliness”.
Possible solutions
In addition to government’s effort already under way to attract foreign investors, factors that can accelerate Syria’s future rates of economic growth will be outlined next. Five factors are structural, requiring a long time to work their effects through. Three other factors are operational and can produce quick results. Hopefully, the government will muster the political will and wherewithal to implement both.

The first structural factor is to reduce the rate of population growth significantly. With an annual rate of 2%, possibly much higher, Syria needs to feed, keep healthy, and educate around half a million citizens every year, more in the future. Such increases are too heavy a burden for a relatively poor country. Unless Syria’s population growth rate is reduced measurably, Syria will be caught in a poverty and high unemployment trap.
Syria should institute effective programs to encourage family planning and birth control. For those who are guided by God’s views on this matter, religious scholars have it in their gift the skill to tailor their interpretations of the Holy Scripture to suit their political benefactors. Syrians would do well to ignore the dictums of orthodox ulama and the Pope. The Lord wants the faithful to be healthy, educated, and prosperous.
The second structural factor is to enact laws that would encourage Syrian women to participate fully in economic development. Women’s equality with men is a prerequisite for economic growth. Syria would never be able to attain its full economic potential while half of its population is mistreated like second-class citizens.
Equality for women with men before the law is an absolute right, not a favor. Equality would restore natural justice to fifty percent of the society, helping to enhance women’s contribution to Syria’s economic growth.
A modern secular family law that applies to all citizens regardless of religion, sect, and denomination should replace existing family laws, including Shari’a laws and courts. That a man can marry four wives, divorce any one of them without giving reason, that Syria’s two best known ladies for sophistication, intellect, and modernity; the First Lady and the Republic’s Vice President are equal to one man, who can be illiterate, in a Shari’a court of law in giving testimony, being a witness, or in inheritance bring into question the suitability of Shari’a law and courts to Syria’s way of life in the Twenty-First Century. Such an anomaly is all the more surprising in light of Syria’s keen interest to project itself as a modern “secular” society. Treating women like chattel leaves its scars on women’s personality, defining their view of themselves as lesser beings and inhibiting their contribution to the country’s development.
The third structural factor is to reform the educational curriculum in order to produce graduates with the skills needed in today’s competitive business world. The educational curriculum should aim at enhancing students’ analytical competence, inquisitiveness, creativity, and entrepreneurial drive. To this end, independent studies, term paper research, use of the school’s library and laboratory should become the order of the school day instead of attending lectures passively and memorizing textbooks. Teaching should emphasize student participation in the classroom and encourage debating taboo issues, especially religious dogma. Classroom size should be reduced from 40-50 students to 20-25 students. Large and sustained capital investment in school buildings, libraries, laboratories as well as expanding the size of the teaching staff need to become a priority.
The fourth structural factor is to fight corruption seriously. Corruption is expensive; be it in the inflated prices the government pays for goods and services, the unqualified employees in city hall, or the petty bribes citizens need to pay to minor officials in order to facilitate dealing with government offices. All forms of corruption are robbery and deny taxpayers fair value for their taxes.
The World Bank Institute’s Worldwide Governance Indicators shows Syria’s poor score in corruption control. Of the 213 countries in the study, Syria ranked among the worst, scoring a negative (0.96) while Denmark, for example, achieved the high score of positive 2.42. Disturbingly, Syria’s score has been on a downward slide in recent years; in 2003, it was a negative (0.5) and in 2005, it slid to a negative (0.63).
The structures that have been nourishing corruption in a “socialist” Syria could exacerbate the level of corruption that might emerge under a “social market economy”. A “market” economy could enlarge Syria’s business elites, adding ferocity to the culture of greed and exploitation that pervades the elite’s conduct. Today’s lawbreakers must be brought to justice so that would-be business offenders in the future are warned. Before the “market” economy gets underway in earnest, social welfare programs should be in place to protect the weaker members of society. Otherwise, “market” economy’s shortcomings, its focus on profit and efficiency, could scuttle the new experiment altogether, triggering even societal unrest.
The fifth structural factor is in the nature of an administrative house keeping. Given that high quality statistics can help improve the quality of planning and investment decisions and instill a culture of transparency and accountability, implementation of the recommendations contained in the March 2010 IMF Country Report on Syria to provide comprehensive, accurate, and timely statistics in accordance with international standards should become a priority.
The challenge of Syria’s data may be summarized in: A) Annual national accounts “reported for publication in the International Financial Statistics (IFS) with about 2-years lag” (IMF report, p. 30). B) Government finance statistics that “suffer from major deficiencies”, with “the largest, most persistent and volatile discrepancies, are between the financing requirements of the budget, as reported by the MOF, and government financing as reported by the Central Bank of Syria” (IMF report, p. 31).  C) Monetary and financial statistics “reported for publication in the IFS with about 10-month lags, falling short of recommended dissemination practices of 3-month lags” (IMF report, p. 31). D) External sector statistics presentation and compilation methodology being inconsistent with IMF standards.
On the other hand, the operational factors can provide rapid access to money to help fund the next development plan. Three sources can be worth billions:
First: Enforce tax collection vigorously. It is reprehensible that large family businesses pay an effective tax rate of something around 4%, according to Ehsani of Syriacomment.com.
Second: Stop politically convenient allocation of national resources. “Market” investment decisions are based on rate of return criterion. Return on investment should decide the priorities of future government investments, including irrigation projects.
The financial return on Syria’s investment in irrigation over the past few decades has been poor. The non-financial returns have not been not brilliant either: Migration from rural communities to urban centres continued, reliance on capricious rainfall was not reduced, and over-extraction of groundwater beyond the volume of renewable water have led to negative balances in five out the country's seven water basins; reducing the quantity and degrading the quality of the remaining water.
Food self-sufficiency in an arid/semi arid Syria is a mirage, notwithstanding the national appeal such a slogan evokes. Syria does not have sufficient groundwater and rain to feed more than 15 million people. New spending on irrigation schemes will be a waste of money and would exacerbate aquifers’ condition. Syria should divert investment in irrigation schemes to other fields, including rain-fed lands.
Third: Divert resources from the military to productive investment in infrastructure, education, health, and welfare. The military is not among Syria’s regional strategic strengths. In the regional balance of power, Syria’s armed forces are not a major factor. A well-educated healthy population makes for better soldiers and officers.