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The US treasury market reaches breaking point

The US treasury market reaches breaking point

The structural issue that could cause the world's market of last resort to grind to a halt

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No. 6: If you don’t give it to me you’ll only lend it to someone else and look where that got us

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July 2001

Windows on a wider world


Syria’s commitment to the development of export-oriented sectors and new trade ties is paying off, with new incentives for domestic and foreign investors in place. Privatization, though, is not part of the package and the government is pledged to retain a mixed economy.




A more open attitude to international trade is an increasingly important element of Syria's economic strategy. The most obvious proof has been its commitment to participation in the Euro-Mediterranean Free Trade Project originally drawn up in Barcelona in 1995. In theory, this will open up a market of some 700 million consumers to Syrian exports. The downside is that it could open up Syria's domestic market to a flood of imports that have traditionally been strictly controlled or subject to prohibitive import tariffs.
Syrian officials and businessmen are keenly aware that at present most of its industrial output is hopelessly ill-suited to compete with goods manufactured in other markets on the EU's periphery that began economic integration years before Syria even contemplated reform. In that respect, such countries as Morocco, Egypt and Tunisia already have a formidable head start.
The good news is that Damascus has at least four elements on its side as it prepares for closer economic links with Europe. The first is time. It will be at least 10 years before the Euro-Mediterranean Free Trade Area is anything like a level playing field. And 10 years is a long time even to put fairly ramshackle economic houses in order.
Learning about marketing
A second positive factor for Syria is that there is plenty of overseas goodwill available in helping it to prepare for the challenges. A fruitful example is the Syrian-European Business Centre (SEBC), the second phase of which (SEBC II) was the result of a financing agreement signed between the Syrian government and the EU on June 19 2000. According to the most recent SEBC II newsletter: "the overall objective of the SEBC project is to increase the competitiveness of the Syrian business sector and its business support institutions, in view of the progressive transition towards a market economy."
       
Krac de chevaliers: reforms will lower Syria's defences
against global competition

Specifically, notes the SEBC: "Because of Syria's relatively protected home market, marketing skills and the connection to the customer and the market place are weak. Marketing skills are essential in a competitive environment. Due to the gradual opening of the Syrian market and the loss of traditional markets, the most urgent business skill which Syrian companies must adopt is knowledge of marketing and export development. The business centres in Damascus and Aleppo will continue to provide a range of professional services to raise the level of competitiveness of Syrian business to meet international standards."
A third positive element for Syria is that the government is already showing preparedness to lay down the foundations of trade-related reform. Finance minister Muhammed Khalid al-Mahayini announced after the 2001 budget that the government would "provide incentives to the export sector, because it promotes production and contributes to opening markets for Syrian goods, particularly under the globalization system, and increasing regional and international trade. We are currently preparing a bill to exempt Syrian exports from taxes, reduce tariffs on raw industrial materials to 1%, and issue a unified customs tariff".
A fourth bright signal for Syria has been its recent reaffirmation of a commitment to welcome foreign investors as a means of improving the competitiveness of local industry and importing capital, technology and know-how into the domestic economy.
Law 10 on foreign investment, originally unveiled in 1991, provided tax exemptions and regulatory privileges for investors in projects valued at a minimum of S£10 million - $190,000 at present rates - and also exempted them from the onerous foreign exchange regulations laid down in Law 24 of 1986. Under Law 10, full foreign ownership of local companies was permitted for the first time, and profits and revenues could be transferred annually in foreign currencies with imports for setting up and running projects free of customs duties and taxes. In the initial stages, Law 10 attracted a healthy inflow of investments, with some 1,250 projects valued at $5.6 billion approved between 1991 and 1994. However, this inflow declined substantially in the second half of the 1990s.
Critically, the amendment to Law 10 passed in May 2000 includes a new provision allowing overseas investors to own or rent the land needed for their investment, a departure from the previous regime in which the government was required to maintain a 25% holding in the venture's capital. Additionally, investors in projects in the remoter areas that are most in need of jobs and infrastructure were offered a two-year extension on the previous tax holiday period of five years.
Soon after the amendment, evidence that international investors were reacting positively came with the reactivation by a consortium of Syrian, Egyptian and Saudi Arabian investors of a project to construct a new $540 million cement plant north of Damascus.
Outside of the petroleum sector, this is the largest foreign investment project to have been launched since the revision to Law 10, although economists say the amendment has been warmly welcomed by prospective investors across a wide range of industries.
"We have noticed a very significant increase in the number of enquiries we have received since the new investment law was drawn up," says Nabil Sukkar, once of the World Bank and now managing director of the Syrian Consulting Bureau for Development and Investment (SCB). For most would-be investors in Syria, SCB is a natural first port of call, as it is a wholly privately owned organization that carries out independent economic research for international investors as well as for multinational aid agencies interested in development projects in Syria. That means that the number of enquiries fielded is an important barometer of international investor interest. "The commitment to reform is clear and things are moving ahead in a positive way," says Sukkar. "People ask me which industries they should invest in and I tell them to look at all sectors. There are plenty of opportunities for investment in Syria."
Looking to the much longer term, political factors over which Syria has limited influence will play a key role in the fate of inward investment flows. The most obvious would be an acceleration of the Middle East peace process, which would provide a massive fillip as far as global investor sentiment towards the entire region is concerned. More specifically it would allow Syria to reduce its immense defence expenditure, including a 450,000-strong army, which in the past has eaten up as much as 45% of the budget.
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Dear Sirs, In view of what seems to be happening internationally with banks at the moment, I was wondering if you could advise me. If one of my cheques is returned marked ‘insufficient funds,’ how do I know whether that refers to you or to me?

A letter by a customer to a bank seen by Euromoney. One can’t help feeling that the balance of power in the relationship has changed somewhat

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