Syria Today | Unbalanced Policies or Execution?

Syrian industry needs a long-term support programme to overcome both the recent crisis and problems stemming from its longer history.

By Abdul Kader Husrieh
Photo Carole al-Farah

Within ten years of its independence in 1946, Syria managed through the efforts of the private sector to make significant progress in transforming its economy from being low-income and dependent on agricultural production to being middle-income and with a vibrant industrial sector. But since 1946, the industrial sector has faced challenges and set-backs due to poor policies or the lack of good ones.

To begin with, because they lacked a diversified capital base, industrialists had to fund their operations by forming public joint stock companies. They subsequently suffered from nationalisation, which gutted the centrepieces of the industrial sector and transformed them into ailing public companies in chronic need of reform. Then, for four decades, due to the absence of industrial cities, industrialists had to invest heavily in premises most often located in areas without any infrastructure. To compensate, protectionist import substitute policies were implemented, which placed the burden of the premium on Syrian consumers.

However, the largest blow to the sector was the unbalanced execution of economic reform during the last few years. Its two main elements were trade liberalisation and improvement of the investment climate. The country's three main economic drivers were tourism, liberalising external trade, and attracting foreign direct-investment. This reform envisioned Syria operating as a service-driven economy "a la libanaise".

The previous government was able to proceed rapidly with trade liberalisation since it consisted mainly of issuing decrees. The government also signed several free trade agreements, trying to open political doors to prevent Syria's isolation.

However, very little has been done to reform the investment environment, which requires administrative reorganisation closely linked to political reform, since much depends on who appoints whom and from which party he or she is.

The current crisis clearly shows the government's deadly mistake in neglecting this sector while focusing on trade agreements and tourism. Some of these agreements such as those with Turkey are believed to be behind the closure of many Syrian factories, particularly in the north.

During the current unrest, the government has promised to support the industrial sector. In response to economic sanctions imposed by Turkey, the EU, and Arab countries, Syria froze its free trade agreements with Turkey. These sanctions will be mixed blessing for the industrial sector. On the one hand, factories will have more opportunities to sell in local markets, but they will find it more difficult to bring in raw materials and export their products. The suspension of the European technical assistance programme will also harm the public and private sectors.

Economic power goes hand in hand with political relations. What opens doors for our products are not only bureaucrats but also politicians who can negotiate good international economic relations. Thus, the crisis has negatively affected Syrian relations with its two major trading blocs, the EU and Arab states.

Last December, the Ministry of Economy and Trade announced the formation of a team to promote Syrian products and protect national industries. Besides promotional activities, it is tasked with evaluating national industries that merit government support. It will also seek target markets, specify which products are exportable to them, and establish storage and retail centres in them.

Support for the industrial sector should come with a clear long-term vision of its role and what may be expected of the sector in the future. It should focus on the competitiveness of Syrian industry rather than protection or subsidies. Strategic industries must be identified and programmes to support them implanted. Financial assistance for eligible industry partnerships should be based on modernisation, with emphasis placed on vital established public industries, although consideration should also be given to a wide range of areas, including building, transportation, and power. The industrial sector requires policies which make a difference in an environment where doing business is becoming a real challenge.

Abdul Kader Husrieh is a Damascus-based financial consultant.