SYRIA's foreign investment growing much faster than Peace signatories Jordan & Egypt ...

OXFAN: Excerpts:

" The UN Conference on Trade and Development (UNCTAD) World Investment Report, published last month, showed a year-on-year increase of 70% in foreign investment in Syria for 2008, highlighting the government's efforts to open up the economy.

Syria has seen a dramatic increase in foreign investment, which is especially noteworthy when compared with Jordan and Egypt. Both of the latter have been lauded for their business-friendly policies, and historically, have been more successful than Syria in attracting foreign investment. However, in 2008, Egypt recorded year-on-year falls in foreign investment, and levels in Jordan remained static. For the first time, Syria outstripped Jordan. 

.... Syria's trade policy is significant..... dovetails with the US policy of pursuing constructive engagement with Syria as a means of achieving a solution to the Arab-Israeli conflict. The next stage in this procedure will be the removal of US sanctions against Syria; assuming congressional support, sanctions against Syria will probably not be renewed next May. Trade relations with Europe will also become closer when Syria signs the long-awaited EU Association Agreement:

• Although the deadline of the end of October has been postponed, recent government debate on WTO membership indicates a commitment to trade liberalisation.
• At the same time, France has deemed achieving Syrian membership a political priority.
• According to the EU, membership would ease tariffs and promote trade -- and investment -- through the progressive establishment, during a maximum period of twelve years, of a free-trade area between the EU and Syria.

Regional ties. Rebuilding economic relations with the West has also coincided with a marked improvement in relations with Saudi Arabia:

• Although Saudi Arabia's investment profile is not as impressive as the United Arab Emirates (UAE), with outward investment dropping dramatically in 2008, it is still a significant investor in Syria's tourism sector.
• Saudi companies, along with other regional investors, are also likely to be interested in the upcoming auction of a third mobile licence in Syria in late 2009 or early 2010. Gulf telecoms companies have pursued significant cross-regional investment, and the Syrian sector is an attractive target with plenty of room for growth...

.... Nonetheless, the increase comes from a low base. The UNCTAD report indicates that Syria, despite increases in year-on-year investment, still trails other countries in the region in terms of investment inflows: Even among the non-oil producing countries, Syria still languishes towards the bottom of the list, outstripped in 2008 by Lebanon (3.6 billion dollars), Tunisia (2.8 billion) and Morocco (2.4 billion).

 There are several reasons for the overall low level of investment: 

1.        Poor governance. Research by the World Bank has shown that, in Syria -- and indeed across the region -- poor governance and administration is a major deterrent for investors. This means that, despite the hugely significant legal reforms Syria has introduced, such as the Arbitration Law no. 4 -- which seeks to reduce the length of time necessary to resolve commercial disputes, and allows parties to opt for either local or international arbitration -- investment can still be held up by lengthy and opaque judicial procedures. The tendering process, particularly for public-private partnerships by government-affiliated entities, has also been described as opaque, with relationships determining successful bids. 

2.        Bureaucracy. Investors are also deterred by government bureaucracy. For example, businesses seeking to import machines and equipment must gain approval from the Ministry of Industry. However, this is not true in real estate development, covered by Law no. 15, or tourism, covered by separate legal and tax frameworks -- hence the far larger degree of investment in these sectors. 

3.        Interference. Investors are also deterred by the continuing degree of government interference in the economy. Although under Decree no. 8, most sectors are open for private investment, the government can -- and does -- interfere at any stage of production. 

An example is the garment industry, and particularly cotton. The government determines the price of cultivated cotton, standardising the profit margin for the farmer, and the state remains dominant in the early stages of production. This means that while Syria's relations with Washington will continue to improve, so paving the way for a free trade agreement like the US-Jordanian one, it is unlikely that Syria will be able to replicate Jordan's achievement of textile exports to the United States, representing a major source of foreign exchange earnings. 

4.        Export restrictions. Likewise, closer diplomatic ties between Europe and Syria, and the implementation of the Association Agreement, are unlikely to pave the way for significantly greater economic ties. The fact that possible Syrian exports to Europe, such as agriculture and textiles, will face European protectionism, will serve as a hindrance to European investment. 

5.        Political risk..........."