"Syria’s promises on foreign investment questioned," by Biedermann

Syria’s promises on foreign investment questioned
By Ferry Biedermann in Damascus
Published: March 14 2006 18:33 | Last updated: March 14 2006 18:33

The highway between Damascus and the Lebanese capital Beirut cuts through some prime, as yet undeveloped, real estate not far from the Syrian capital.

The area is a focus for some of the billions of dollars of foreign investment that were touted loudly several months ago by the Syrian government. But a quick look around a sparsely furnished room in the offices of the Arab Investment Holding Company in the centre of Damascus makes clear that Syria has been here before – in much better times – and all it has to show for it are some mock-ups.

Pointing at several models of large-scale real estate developments, some meant for exactly the same roadside locations as those now being considered, general manager Bashar Dardari says: “They all got stuck.”

Syria’s domestic obstacles to foreign investment, such as endemic corruption, resistance by Ba’ath party bureaucrats wedded to a centrally planned economy and its failure to enact reforms killed the projects, he says.

The Syrian government, still under political pressure over the UN investigation that implicated it in the murder of Rafiq Hariri, the former Lebanese prime minister, has recently tried to put a positive spin on its ability to withstand economic measures.

Just last week the US government sharpened its sanctions against Syria when it ordered US banks to terminate accounts involving the Commercial Bank of Syria and a subsidiary, the Syrian Lebanese Commercial Bank. In anticipation last month, Syria had switched from the dollar to the euro as its reserve currency for foreign trade. Such a climate may not encourage investors.

Yet, the vice-prime minister for economic affairs, Abdullah Dardari, a cousin of the AIHC general manager, has on several occasions said interest expressed by foreign private investors has, if anything, increased since the trouble started.

In an interview with the Financial Times late last year, Mr Dardari the vice-Prime Minister said many Arab investors regarded Syria as “the last man standing” and would not let it fall, like Iraq had. His government has highlighted several announcements by Arab investors, such as Dubai-based Emaar and Al-Futtaim and the Aref Group of Kuwait.

During a visit to London late last year, Mr Dardari told reporters that Syria would pull in more than $2bn (€1.7bn, £1.2bn) in foreign direct investment in 2005. The government had signed a $1.2bn refinery deal with China and was negotiating with Russia on a $2.4bn oil project.

One of the most visible foreign investment projects that came to fruition in 2005 was the opening of a €13m cheese factory that the French Bel company built for its La Vache Qui Rit brand on the outskirts of Damascus.

At least one Syrian economist is sceptical about any deluge of investment. “They are mostly expressions of interest and I doubt much will come of it,” says Samir Seifan, a consultant.

He and Nabil Sukkar, another prominent economist, estimate actual foreign investment in Syria at some $300m. “That is the size of a single project in many other countries,” says Mr Saifan. Rather than improving, foreign investment has been flat over the last couple of years, he adds.

Like Bashar Dardari of the AIHC, he puts the blame squarely on Syria’s domestic investment climate. This, rather than international pressure, is what has frightened off foreign investors all along. “Not even Syrian businessmen want to invest in this country,” he says. “And a lot of money is leaving the country, rather than coming in.”

The government has promised economic and institutional reforms that should make the country more attractive to investors but after initial banking reforms, the pace has slowed.

The task does looks daunting and the need for reforms ranges from the legal to the financial, from the field of insurance to the area of currency control.

His colleague, Mr. Sukkar, agrees on the analysis of the source of the problems but is convinced that actual reform is around the corner.

Mr Dardari of the AIHC thinks the companies that have now expressed interest in investing will have an easier time of it than him. “Things have changed a bit over the last five years. We were the first, but now people are more used to it.” His partners include some of the top names in the Saudi Arabian business community including the Bin Laden Group and Mr Hariri’s company, now led by his son, Saad Hariri.

Politics did have an impact, says Mr Dardari. His Saudi partners froze all activities in 2004 when the UN passed resolution 1559, which called on Damascus to end its presence in Lebanon.

Both Mr Dardari and Mr Seifan say the really big players will stay away as long as Syria’s overall relationship with the west, and with the US in particular, does not improve. In the past, every time the country’s economy did well, this coincided with a thaw in relations with the outside world.