Syria's Troubled Economy

By John Haldane

Before the big oil finds in the Middle East, Syria was one of the few countries in the region with the economic potential to develop into a modern industrialized nation capable of insuring a rising standard of living for its people. Lying in the western part of the Fertile Crescent, Syria is endowed with a temperate climate, good soil, adequate water resources and significant oil and mineral resources. With a population of ten million in a land area the size of North Dakota, Syria is a nation which should be enjoying steady economic growth towards a goal of becoming a major center of Middle Eastern agricultural and industrial production.

Unfortunately, politics, ever the undoing of fine economic theories, has brought Syria to the edge of financial ruin. The present Government, headed since 1970 by President Hafez al-Assad, is holding fast in its determination to pursue an energetic program of socialism, land reform and nationalization of industry, while maintaining a military force which consumes more than DO percent of the annual budget. Admittedly, the present Government has succeeded in reducing income disparities and in substantially improving such necessary infrastructure as transportation, electrical power systems and educational and health facilities. But the high cost of these efforts has become evident in the increasing dependence on foreign imports and remittances from Syrian workers abroad, in the stagnation of a once dynamic commercial sector, and in the unhealthy reliance on aid from other Arab countries and the Soviet Union.

The serious economic situation did not go unnoticed at the January Arab Socialist Resurrection (Ba'ath) Party Congress. Reports of the proceedings indicate that a substantial part of the discussions related to economic matters, thus giving public recognition to the dangers of continuing neglect of the agricultural sector and the need to encourage foreign investment and private entrepreneurship. Left unsaid was the fact that only a reduction of Syria's back-breaking defense commitments could bring the economy back into order. Western diplomats in Syria report, however, that meaningful economic reforms are unlikely, since President Assad seems determined not to move away from the strict socialist economic models introduced when the Ba'ath Party assumed power in 1963.

Balance of Payments Outlook Grim

Unless drastic action is taken to improve private investment opportunities and revive the agricultural sector through the loosening of oppressive price arid marketing controls, the Syrian economy is unlikely to show significant improvement in the near future. Syria's ability to engage profitably in international trade and to secure funds from world financial centers will continue to diminish.

An important source of income for Syria since 1978 has been the support payments which were pledged by Saudi Arabia and the Gulf states as a result of the October 1978 Arab summit meeting in Baghdad. Some sources estimate that $1.8 billion per year was pledged then in support of Syria's defense effort against Israel. Only Saudi Arabia and Kuwait, however, have actually maintained the regular payments stipulated in the agreement. And this July Kuwait's national assembly voted to cancel its $190 million Syrian subsidy for 1985. Therefore, Syria soon may be receiving as little as $600-700 million annually in Baghdad Agreement aid—a mere third of the originally promised amount.

Iran, as well as the Arab nations, has been a source of aid. Since 1982 it has provided Syria with an estimated six million tons per year [approximately 120,000 barrels per day (b/d)] of crude oil for refining in Syrian refineries. One million tons is provided free of charge ("free oil"), with Syria supposedly paying near-commercial prices for the balance of five million tons. This Iranian crude is shipped via supertanker to Suez, where it is transferred to smaller Syrian tankers for transit of the canal and delivery to Syrian ports.

Informed sources believe, however, that Syria either has not been able, or has not deemed it necessary, to make regular payments for the Iranian oil. Since Iran agreed in mid-1984 to reschedule almost $1 billion in oil payments due from Syria, they furthermore suspect that any income Syria generates from its own new oil finds will be offset by a reduction in the amount of crude oil Iran provides.

New Fuel For the Economic Engine

The only economic good news to come out of Syria of late has been the recent discovery of promising new oil supplies in the Deir-al-Zor field in eastern Syria by the American Pecten International Company. Pecten, which shares the concession with the Royal Dutch/Shell group and the West German Deminex company, is currently completing its exploration of the area in order to determine the extent of reserves. Actual production may start as soon as next year, at the rate of about 35,000 b/d. Unlike most of Syria's other crude, this oil is light, with a low sulphur content. According to the best unofficial estimates, the field may eventually produce between 100,000 and 150,000 b/d—a potential of $1.5 billion in annual revenues. This future income on top of that already produced by Syria's current crude oil production of about 170,000 b/d should provide a measure of relief to a troubled economy. Oil alone accounted for almost 70 percent of Syrian exports in 1983-far ahead of textiles, cotton fiber, phosphates and fruits and vegetables.

Syria presently is nearing the end of its 1981-85 development plan and the Government has initiated work on the new 1986-90 plan. While no details are yet available, various public announcements indicate that high priority will be given to the completion of ongoing infrastructure projects and to the expansion of agricultural and agri-business production. Goals for agricultural development will probably include significant extension of existing irrigation systems and expansion of the area under cultivation.

It remains to be seen how much foreign assistance the Syrians can expect for their economic reconstruction efforts. The World Bank, a source of development funds for many Middle Eastern countries, has granted so far only one loan to Syrians—$30 million for a sewage treatment and disposal facilities project, supplemented by another $17.1 million made available through a co-financing agreement with the Arab Fund for Economic and Social Development. The only other major foreign aid to Syria consists of West German reactivation of a $70 million loan for various economic projects and some Soviet project assistance in the areas of infrastructure and irrigation system development.

As for U.S. aid, Congress voted in November 1983 to end the economic assistance program for Syria that had been in existence since 1975. That aid, designed to support Syria's agricultural and transportation development, amounted to almost half a billion dollars over the eight-year period. It appears unlikely, however, given Syria's strong rejection of the Camp David accords and its close relations with the Soviet Union, that Congress will designate any new funds for Damascus in the near future.

The picture is slightly brighter for U.S.-Syrian trade. Current U.S. exports to Syria are running a little over $100 million per year, placing Syria 14th among Arab world importers of U.S. goods and services. Syrian government procurement still provides a limited market for such American goods as agricultural commodities, agricultural machinery, oil well drilling equipment, medical and hospital supplies and computers and word processors. The small amounts of Syrian exports to the U.S. consist mainly of refined petroleum products, tobacco, skins and hides.

John Haldane is a specialist in Middle East affairs who has served as a foreign service officer in Baghdad, Beirut and Cairo, and as an international economist in the Departments of Commerce and Treasury.