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Syria (officially the Syrian Arab Republic) is a country in Western Asia, bordering Lebanon and the Mediterranean Sea to the west, Turkey to the north, Iraq to the east, Jordan to the south, and Israel to the southwest. Syria has been governed by the Baath Party since 1963, although actual power is concentrated to the presidency and a narrow grouping of military and political strongmen (Wikipedia, 2010).
Moreover, the nature in Syria is distinctly diversified. It contains seashores, mountains, forests, dessert, rivers, caves, natural and artificial lakes, and a lot summer resorts. All this along with the diversity in the antiques, the ancient cities with its markets, khans and old domiciles, the handicrafts and the traditional industries contribute to formulate a unique attracting compound tourism product.
Analysis of Syria Business Environment
Cultural Environment in Syria
Arabic is the official language, spoken by 89% of the population, while 6% speak Kurdish, 3% Armenian and 2% other languages. Otherwise, English and French are spoken in business circles (Arabic German Consulting, 1999).
Syrians are an overall indigenous Levantine people, closely related to their immediate neighbors such as Lebanses, Palestinians, and Jordanians. While modern-day Syrians are commonly described as Arabs by virtue of their modern-day language and bonds to Arab culture and history; they are in fact largely a blend of the various Aramaic speaking Syriac groups indigenous to the region who were Arabized when Muslim. Arabs from the Arabian Peninsula arrived and settled following the Arab expansion.
The overwhelming majority of the Syrian population is Sunni Muslim. Other Muslims which include: Ismailis, Shiites, and Alawites. Of the non-Muslims in Syria, most are Christians, primarily Greek and Armenian Orthodox. Religious minorities include Druze, who follows a religion related to Islam, and a community of approximately 1000 Jews. Syria has 70% Sunni Muslim, 12% Christians (almost is Orthodox and Greek Catholic) and 18% other minority groups including Jews and Druzes (Arabic German Consulting, 1999).
Syria is a traditional society with a long cultural history. Importance is placed on family, religion, education and self discipline and respect. The Syrian’s taste for the traditional arts is expressed in dancing such as the al-Samah, the Dabkeh in all their variations and the sword dance. Marriage ceremonies and the birth of children are occasions for the lively demonstration of folk customs (Advameg, Inc., 2010).
Traditional Houses of the Old Cities in Damascus, Aleppo and the other Syrian cities are preserved and traditionally the living quarters are arranged around one or more courtyards, typically with a fountain in the middle supplied by spring water, and decorated with citrus trees, grape vines, and flowers.
Political and Legal Environment in Syria
The Syria government hopes to attract new investment in the tourism, natural gas, and service sectors to diversify its economy and reduce its dependence on oil and agriculture. Syria has begun to institute economic reforms aimed at liberalizing most markets, but reform thus far has been slow and ad hoc. For ideological reasons, privatization of government enterprises is still not widespread, but is in its initial stage for port operations, power generation, and air transport. Almost sectors are open for private investment except for cotton mills, land telecommunications, and bottled water.
Syria has made progress in easing its heavy foreign debt burden through bilateral rescheduling deals with its key creditors in Europe, most importantly Russia, Germany, and France. Syria has also settled its debt with Iran and the World Bank. Syria and Poland reached an agreement by which Syria would pay $27 million out of the total $261.7 million debt in December 2004. Moreover, in January 2005, Russia forgave 73% of Syria’s $14.5 billion outstanding debt and in June 2008, Russia’s parliament ratified the agreement. In 2007, Syria and Romania reached an agreement by which Syria will pay 35% of the $118.1 million debt. In May 2008, Syria settled all the debt it owed to the Czech Republic and Slovakia.
Economic Environment in Syria
Syria is a developing country with an economy based on agriculture, oil, industry, and tourism. However, Syria’s economy faces serious challenges and impediments to growth, which including: a large and poorly performing public sector; declining rates of oil production; widening non-oil deficit; wide scale corruption; weak financial and capital markets and high rates of unemployment tied to a high population growth rate. Furthermore, Syria currently is subject to U.S. economic sanctions under the Syria Accountability Act, which prohibits or restricts the export and re-export of most U.S. products to Syria (World Harvest Now, 2002).
Source: (Encyclopedia of the Nations, 1999).
Moreover, the IMF recently projected real GDP growth at 3.9% in 2009 from close to 6% in 2008. The two main pillars of the Syrian economy used to be agriculture and oil, which together accounted for about one-half of GDP. Agriculture, for example, accounted for about 25% of GDP and employed 25% of the total labour force. On the other hand, higher crude oil prices countered declining oil production and led to higher budgetary and export receipts (Bureau of Near Eastern Affairs, 2010).
The Nature of Advantage
Advantage in the context of International Trade Theory can be classified into five categories and defined: 1) Natural advantage by means of climate, soil and etc; 2) Acquired advantage through the processing of one of the basic factors of land, labour and etc; 3) Comparative advantage against another nation’s endowment of assets; 4) Country size as a proxy for the range of natural factors such as climate, soil, minerals and etc,; 5) Factor proportions that suggest their optimum utilisation in production (Daniels, J. D., Radebaugh, L. H. & Sullivan, D. P., 2010).
According to Daniels, Radebaugh and Sullivan (2004) framework, the evolution of International Trade Theory is depicted as below:
Apart from Porter’s Competitive Advantage of Nations theory, I have chosen to relate Product Life Cycle theory and Factor Proportions theory.
Raymond Vernon’s International Product Life Cycle Theory
Raymond Vernon (1966) International product life cycle (PLC) theory of trade states that the location of production of certain kinds of products shifts as they go through their life cycles, which consists of four stages: Introduction, Growth, Maturity, and Decline (Daniels, et al. 2004, pp. 153). Therefore, the business environment in Syria would relate to figure (C) less developed countries.
Heckscher-Ohlin Factor Proportions Theory
Heckscher-Ohlin Factor Proportions theory suggests that each country has important factor endowments and as a result will tend to export products which make use of factors that are abundant there. The country will tend to import products that are locally scarce (Chacholiades, M., 2006).
Justification of Foreign Investment Opportunities in Syria
Although a government decree prohibits confiscation of foreign investments, there are no safeguards against nationalization of property. In principle the judicial system upholds the obligations of contracts but in practice decisions are subject to outside pressures. In addition, poor infrastructure, power outages, lack of financial services, and complex foreign exchange regulations have all contributed to Syria’s failure to attract significant amounts of foreign investment. 4 major pieces of legislation have been passed to encourage foreign investment (Encyclopedia of the Nations, 2010).
The most significant foreign investment in Syria had been in gas and oil. In 1990, 12 foreign oil firms had operations in Syria but until mid-2002, only 5 remained: Shell, Total-Fina-Elf, Mol (Hungary), INA-Naftaplin (Croatia) and Conoco. Other foreign investors included Mitsubishi, Samsung, Mobil, Nestle, and Prince Walid Bin Talal of Saudi Arabia. Foreign investment is complicated by Syrian requirements of import and export licenses on every item imported and then re-exported, no matter the value, and with US sanctions on supplying Syria any dual use items such as computers, oil exploration equipment (Encyclopedia of the Nations, 2010).
Summary of Syria current Foreign Investment using Porter’s Diamond of National Competitiveness form
Source: (Porter, 1990)
According to Porter (1990), there are four principal attributes of a country’s economic system that together shape the environment in which local companies compete. Another research by Dunning (1993) found that there are secondary attributes that contributes to the extended form of the model. The secondary attributes are identified as the role of chance, the role of government and multi-national business activities.
Relating to foreign investment opportunities into Syria, the 4 principal attributes are:
Factor conditions would be land, labor, capital, educational level of workforce and quality of infrastructure. The education scenario in Syria has developed since the last few decades. There are about 97% of the children in Syria avail the primary education and the literacy rate of the children in Syria is over 90%. 87% of the male population in Syria is literate. The literacy rate among the women in Syria range to 73.9%.
Demand conditions would be the government’s efforts in spending to develop more into the international trading industry.
Tourism is one of the most dynamic activities in the country. The government has adopted a new vision for tourism, with plans to make it a pillar of the national economy. Acquired skills should make it possible to advance to a new stage of development, with new hotels and leisure equipment that meet demand for elitist, cultural tourism. The country’s middle-level hotel infrastructure is insufficient and in any case outdated and there is not much in the way of leisure facilities, aside from services offered at luxury hot (animaweb.org).
The country’s transport infrastructure needs to be developed, upgraded, and modernized. Syria should invest the equivalent of US$ 523 million for development of its eastern regions over the next five years (From 2006 to 2010), nearly LBP17 billion ($323 million USD) in investments in the Hassake area and LBP10.2 billion in the region of Deir Al-Zor area.
Recommendations for Syria’s International Trade Strategy
In conclusion, I conclude my research based on SWOT Analysis as below:
Syria’s chief exports are petroleum, textiles, food, live animals, and manufactured goods which are exported to Germany (which received 21% of exports in 1999), Italy (12%), France (10%), Saudi Arabia (9%), and Turkey (8%). Syria’s main import products are machinery, food and live animals, transport equipment, and chemicals.
Tourism is one of the most dynamic activities in the country. Syria Ministry of Tourism proposed 33 project ideas to foreign investors, 13 initiatives were contracted, worth $600 billion USD and for the first time hotel management companies were authorized to enter Syria: Intercontinental, Holiday Inn, Royal, and Accor (animaweb.org).
Some basic commodities, such as bread, continue to be heavily subsidized, and social services are provided for nominal charges. The subsidies are becoming harder to sustain as the gap between consumption and production continues to increase. Syria has a population of approximately 21 million people, and Syrian Government figures place the population growth rate at 2.37%, with 65% of the population under the age of 35 and more than 40% under the age of 15. Every year, approximately 200,000 people enter the labor market. According to Syrian Government statistics, in 2009 the unemployment rate was 12.6%.
According to International Monetary Fund, because of the discovery of large oil fields, Syria’s foreign trade volume has immensely increased over the last 3 decades. During this period, exports have grown from US$203 million in 1970 to US$4.8 billion in 2000, while imports have risen from US$360 million in 1970 to US$3.5 billion in 2000 (Advameg, Inc., 2010).
The services sector also offers many investment opportunities. Ongoing reforms, in particular in the financial sector, reflect the commitment of Syrian authorities to carry out a vast modernization program and a new legal framework for privatization that will ease market access (animaweb.org).
The banking and insurance sectors have been opened to private and foreign operators. In information technologies, the country’s telecom and internet grids will be extended and new operators, in particular on the web, are expected to propose new services and content (animaweb.org).
Water and energy are among the issues that sprit all over the agriculture sector. Another difficulty the agricultural sector suffered from is the government’s decision to liberalize the prices of fertilizers, which have increased between 100% and 400%. Drought was an alarming problem in 2008; however, the drought situation slightly improved in 2009. Wheat and barley production about doubled in 2009 compared to 2008. In spite of that, the livelihoods of up to 1 million agricultural workers have been threatened.
Syria has been on the U.S. list of state sponsors of terrorism since the list’s inception in 1979. Because of its continuing support and safe haven for terrorist organizations, Syria is subject to legislatively mandated penalties, including export sanctions and ineligibility to receive most forms of U.S. aid or to purchase U.S. military equipment (Bureau of Near Eastern Affairs, 2010).
(Word: 2,124 words, including heading title, diagram and table)
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