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U.S. Department of State

Diplomacy in Action

2010 Investment Climate Statement - Syria


2010 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2010
Report
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Openness to Foreign Investment

Designated by the U.S. government as a state sponsor of terrorism, Syria has been subject to the U.S. Department of Commerce’s Export Administration Regulations (EAR) for over thirty years. All dual-use goods and advanced technology items have been controlled and/or restricted from the Syrian market since 1979. These restrictions were enhanced through the implementation of economic sanctions under the Syria Accountability Act (SAA) of May 11, 2004. As currently implemented, the SAA does not ban U.S. investments. However, the current ban on the export of almost all products of the United States has made investments by U.S. businesses more difficult to carry out, and the President has the authority to extend implementation of the SAA to ban all U.S. business and investment activity in Syria at any time.

SAA sanctions are in addition to restrictions under the Grassley Amendment that prevents U.S. corporations from taking advantage of foreign tax credits for taxes paid in Syria. Furthermore, the President has designated more sanctions under the International Emergency Economic Powers Act (IEEPA) and Section 311 of the USAPATRIOT Act regarding financial transactions with the Commercial Bank of Syria. As a result, the transfer of U.S. dollars to and from Syria has become difficult, making investments that much more challenging to execute. Therefore, since the end of 2006, a number of U.S. corporations, notably in the oil and gas sector, made the decision to divest and cease their activities in Syria.

Syrian officials and ministers routinely stress publicly the need for economic reform in order to attract foreign direct investment and thus stimulate economic growth and increase employment. Announced liberalizations are often rescinded or contradicted by other government officials, however, sometimes at the expense of private companies that have made business decisions based on government commitments subsequently annulled. Although a bloated bureaucracy, rampant corruption, and the lack of an independent judiciary are still significant impediments to business, in 2009 the Syrian Arab Republic Government (SARG) did issue new laws in the fields of investment, tourism, shipping, arbitration, intellectual property rights (IPR), banking and finance, real estate, and trade that continue its slow and halting effort to reform the country’s economy. Continued political instability in Syria's neighboring countries, however, as well as the international financial crisis, discouraged significant foreign investment.

Investment Law No. 10 (1991) and its amending Decree No. 7 (2000) were the SARG's initial attempts to stimulate foreign direct investment in Syria; unfortunately, the Higher Council for Investment's (HCI) lack of definitive criteria for adjudicating foreign applications left the process open to political pressures, lobbying and corruption. This first attempt at reform brought long delays and was seriously lacking in many areas. Consequently, due to poor implementation, Investment Law No. 10 fell short of its goal of making Syria a more attractive investment venue.

To address the shortcomings of Investment Law No. 10 and its amending Decree No. 7, the SARG announced Decrees Nos. 8 and 9 in January 2007, which resulted in a dramatic year-on-year increase in the number of HCI-approved projects. Decree 8 allows preexisting investment licenses (under Law 10 and Decree 7) to continue unchanged.

Decree No. 8 is designed to enable investors, whether Syrians, Arabs, or foreigners, to own or lease the land required for their projects, and provides for free repatriation of profits, dividends and invested capital on condition that all tax liabilities have been met. If a foreign investor encounters obstacles in setting up a project, and decides to withdraw within six months of receiving a license, all capital invested up to that point may be freely repatriated. Foreign staff will be entitled to repatriate up to 50 percent of their net income and 100 percent of any end-of-service benefits. Additionally, Decree 8 exempts investors from paying customs duties on equipment imported to set up their projects, but they are liable to standard corporation taxes which fall under the jurisdiction of the 2006 Tax Law. However, investors are eligible for tax deductions if they choose to establish their projects in one of Syria’s industrial zones. Decree No. 8 offers additional tax deductions for projects that create a high number of new jobs, as well as projects with many shareholders.

To encourage investments in the underdeveloped eastern region of the country, namely in al-Hasakeh, Dayr al-Zur and al-Raqqa, the SARG passed a law in September 2009 exempting investment projects located in those regions from taxes and fees for a period of ten years, provided the projects were licensed before December 31, 2012. Projects licensed after this date would not benefit from the tax exemption.

Most sectors are open for private investment under Investment Law 10, Decree 7, and Decree 8 except for cotton ginning, water bottling, and cigarette production. All investment laws and decrees cover projects in the fields of manufacturing, transport, agriculture, electricity, health and services. Tourism and real estate investments are covered by separate legal and tax frameworks and governed by the Ministry of Tourism. Oil and gas projects and salt mining must be coordinated directly through the Ministry of Petroleum. The Ministry of Finance governs the establishment of private banks and insurance companies and the Ministries of Education and Higher Education govern the establishment of private schools and universities.

As a corollary to Decree 8, the SARG also passed Decree 9 of 2007 stipulating the formation of the Damascus-based Syrian Investment Agency (SIA). The Higher Council for Investment (HCI) meets only twice per year to review general investment policies, but has delegated operational decision-making to the SIA. The SIA, under the auspices of the Prime Minister's office, has the overall responsibility for supervising national investment policies, developing and enhancing the investment environment in Syria, providing data and statistics to investors, approving projects and annulling licenses for those projects not implemented within the required timeframe. To facilitate investment and overcome bureaucracy, SIA opened branches in several major Syrian cities and plans to open additional branches to cover the whole country by the end of 2010.

Decree 9 also charged SIA with providing one-stop-shopping service to potential investors in order to speed the processing of investment applications and help reduce bureaucratic hurdles. SIA officially inaugurated its One-Stop-Shop in early December 2008. As part of its menu of services, the One-Stop-Shop offers an "Investment Map" of Syria that was produced with the assistance of the United Nations Development Program (UNDP). The map reportedly provides detailed information pertaining to laws and regulations governing investment in Syria, as well as a list of established investment projects and continuing investment opportunities. The map was launched online and is available in English, French and German. SIA plans to translate the investment map into 12 other foreign languages during the coming year to better promote investment. Furthermore, SIA representatives have been appointed in every Syrian embassy abroad to showcase Syria to potential investors.

The SIA is supposed to meet at least bi-weekly to reduce the review process time to two weeks from application to decision. The SIA board members are appointed by the Prime Minister and include a Chairman, Director General, Deputy Director General, Deputy Ministers of Finance, Local Administration and Environment, Economy and Trade, Agriculture, Transport, Industry, Tourism, Social Affairs and Labor, Housing and Construction, and the State Planning Commission as well as a representative from each of the Federation of the Syrian Chambers of Industry, the Federation of the Syrian Chambers of Commerce, the Federation of the Syrian Chambers of Agriculture, and the Federation of the Syrian Chamber of Shipping, the Director of Legal Affairs at SIA, the Director of the One-Stop-Shop, and SIA's Director of Marketing.

According to Decree 9, HCI members include the Prime Minister, Deputy Prime Minister for Economic Affairs, Ministers of Finance, Local Administration and Environment, Tourism, Agriculture, Social Affairs and Labor, Economy and Trade, Housing and Construction, Transport, and Industry, the Head of the State Planning Commission, as well as the Chairman of the SIA and its Director General.

Despite the government's recognition of the need to change Syria's investment climate, both foreign and local business leaders continue to cite three main obstacles to growth in investment. First, the banking sector remains inadequate to meet the financing needs of not only multinational corporations, but also local enterprises. Second, the lack of rule of law makes contractual obligations inherently uncertain and potentially impossible to enforce. Finally, the lack of regulatory transparency and specificity, particularly when dealing with government-affiliated entities, leads to a climate of bureaucracy, confusion, intimidation, and corruption.

Foreign investors are often hampered by a lack of awareness throughout the tendering process and complain that winning bids are often based more on contacts and relationships than the actual merits of a proposal. Certain ministers in the government have acknowledged this problem within the last few years and have tried unsuccessfully to address it. Similarly, in the judicial system, judgments are subject to external pressures that make it difficult for businesses to ensure that contracts are binding.

Although government officials had previously stated that no privatization of state enterprises will take place during the current Five-Year Plan, which runs through 2010, in 2007 the SARG awarded a contract to a Philippines-based company to develop and run the small container terminal in the Port of Tartous. Similarly, in 2008, the SARG awarded a contract to a French-Syrian consortium to operate the container terminal at the Port of Latakia. The tendering process was typically opaque and the winning French company may have benefited from having an influential Syrian partner and an improving political relationship between Syria and France.

Despite recent legislative attempts at reform, the economy remains centrally planned, and uncompetitive public-sector companies continue to drain government finances. While government officials publicly reject the notion of privatizing state enterprises on ideological grounds, such positions likely reflect their unstated pragmatic fears of a dramatic increase in unemployment.

However, realizing the need for foreign investment in large infrastructure projects, the Deputy Prime Minister for Economic Affairs, Abdullah al-Dardari, in cooperation with The British Syrian Society, organized a two-day conference in late 2009 to promote Public-Private Partnership (PPP). The concerned authorities are currently preparing a draft law to pave the way for such projects, especially in the electricity, transport and petroleum and gas sectors.

In addition to the challenges mentioned above, business contacts highlighted the following specific difficulties of doing business in Syria:

- The SARG requires import licenses for every item imported, except for raw materials and items imported from Turkey and the GAFTA (Greater Arab Free Trade Agreement) countries. Likewise, foreign companies must acquire permits for each item of equipment intended for temporary use and subsequent re-export (i.e. drilling rigs) to avoid paying import duties. The validity of these permits can be difficult to extend if the company’s service contract expires and the company wishes to keep the equipment in the country for stand-by usage. Delays in the re-export of equipment after a temporary permit expires have resulted in heavy fines.

- Syrian corporate, income, and wage tax liabilities for foreign contractors have been unclear for quite some time, and they continue to complicate the operations of many companies.

- The awarding of contracts is often delayed by the lobbying efforts of influential local business interests and groups. Even in cases devoid of external influence, bureaucrats fear accusations of corruption and abuse, and therefore often require additional reviews of investment proposals that are not mandated by law and that inordinately delay projects. The SARG has reiterated its commitment to increasing the degree of transparency in the process, but foreign and Syrian firms continue to cite problems.

- Public-sector employees may demand bribes for required routine services. The average public-sector employee earns wages estimated at USD 215 per month. Public-sector wages have not kept up with rising inflation so many public employees have turned to petty corruption to make ends meet. In addition, labor laws are complex and significantly limit an employer's flexibility to hire and fire employees.

- Syrian property law – at least since the Ba’athists took power in the early 1960s - has been tenant-friendly, which made it difficult for landlords to lease residential properties, negotiate rent rates and evict problem tenants. In addition, at the end of 2004, the government implemented an 18 percent tax on any real estate leased for use by foreign persons or entities. In 2005, however, the SARG began implementing a residential rent law passed in 2000 that affords landlords greater rights and protections.

In 2006, the SARG issued a law permitting commercial real estate owners to lease their properties according to contract terms. The law allows the real estate owners to reclaim their properties after the contract’s term of validity has expired. In addition, foreign investors in real estate and the tourism sector have been able to take advantage of decisions of the Higher Council of Tourism that provide foreign landlords with exemptions from labor and tenant laws.

In June 2008, the SARG issued Law 11 regulating property ownership by non-Syrians. The law's objective is to facilitate foreign ownership of residential property as a means of stimulating greater overall foreign investment. Law 11 was followed quickly by Law 15 in July 2008, which established a Real Estate Development and Investment Authority specifically empowered to encourage investment in the real estate sector. Despite these steps, foreign individuals and companies are allowed to rent offices and residences for a maximum period of 15 years, which is not renewable.

In September 2008, the SARG passed Decree 9 in an attempt to curb illegal housing. The Decree applied to any new construction of illegal housing (but not existing housing) and listed a set of penalties that included prison terms from three months to ten years as well as fines of USD 4,000 to USD 87,000.

In December 2008, the SARG passed Law No. 33 authorizing the granting of title/deeds to owners of existing illegal housing units. The registration process took place at special councils established by the law that were entrusted with the task of confirming the property deeds. Beneficiaries had to pay 10 percent of the unit’s estimated value to the Treasury as property tax.

To better regulate the real estate sector, the SARG passed Law No. 39 in late December 2009 establishing a Mortgage Finance Supervisory Authority (MFSA). Starting in 2010, the MFSA will be responsible for issuing all mortgage finance related legislations and regulations including standard contracts, licensing instructions to mortgage companies and funds, as well as the set-up of a national mortgage entity. Law 39 imposes penalties on mortgage firms that violate the existing regulations.

- Enforcement of the Arab League Boycott of Israel (dating from 1967) may lead to difficulties in the importation of needed products or in registering trademarks because the government requires additional paperwork certifying compliance with the boycott. U.S. law prohibits companies from providing this paperwork. Anecdotal reports indicate the SARG has occasionally waived its requirement for boycott compliance certification in order to facilitate business with large U.S. companies. As of September 2009, the Syrian Trademark Office is no longer asking foreign companies to fill out an application declaring their compliance with the Arab League Boycott of Israel.

Index/Ranking2009
Transparency International Corruption Index126
Heritage Economic Freedom Index141
World Bank Doing Business Index138

Conversion and Transfer Policies

Under the guidelines of the USAPATRIOT Act, the President has designated the Commercial Bank of Syria (CBS) as an institution of primary money-laundering concern. Consequently, the Secretary of the Treasury issued a decision on March 9, 2006 banning correspondent relations between the Commercial Bank of Syria and U.S. financial institutions. Although the U.S. Treasury sanction only targets CBS, many U.S. and European banks subsequently cut off correspondent banking relationships with all Syria-based financial institutions.

In March 2001, the SARG passed Law No. 28, which authorized the establishment of private and joint-venture banks. The law made general provisions for the operation of private banks and set a minimum Syrian ownership requirement of 51 percent. At the same time, a banking secrecy law was also issued that authorizes numbered accounts and restricts asset seizures. To date, eleven private traditional banks are operating in the country and are generally able to carry out the same banking operations that are permissible to the Commercial Bank of Syria. In May 2005, a Presidential decree (Decree 35) allowed the establishment of Islamic banks in the country with a minimum of 51 percent Syrian ownership. At present, two Islamic banks are operating in the country while the third, al-Baraka Islamic Bank, is scheduled to begin operations during the second quarter of 2010.

In early January 2010, the SARG passed Law No. 3 amending some articles of Law No. 28 of 2001 and Decree 35 of 2005. Law 3 stipulates an increase in the capital of private banks from USD 60 million to USD 200 million and of Islamic banks from USD 100 million to USD 300 million. Law 3 also increased allowable foreign ownership of private banks from 49 percent to 60 percent. Law 3 gives licensed banks operating in Syria a period of three years to increase their capital to the required minimum.

Under current Syrian laws, investors are permitted to open foreign exchange accounts with CBS, the Real Estate Bank and the eleven existing private banks, and may retain 100 percent of their export revenues. Decree 8 allows the repatriation only through Syrian banks of foreign currency profits generated from the import of capital into the country.

Newly opened private banks can provide the same level of banking services as CBS and Real Estate Bank, including opening saving/checking accounts and issuing Letters of Credit (L/Cs), provided the money originates from outside the country. In some limited instances, private banks are allowed to issue U.S. dollar-denominated L/Cs backed by Syrian pounds.

In 2006, the government allowed private investors to have access to foreign currency through CBS to finance the import of raw materials. In 2007, the SARG authorized foreign investors to receive loans and other credit instruments from foreign banks, and to repay them as well as any accrued interest from the proceeds of their projects using local banks. In February 2008, the SARG permitted investors to receive loans in foreign currencies from local private banks provided that the loans are used to finance capital investment, particularly the import of machinery and production equipment. Debtors are free to repay their loans from their foreign currency accounts in Syria or abroad or by purchasing foreign currency from the lending bank.

To boost investment in the tourism sector, the SARG allowed local banks to provide financing to hospitality projects developed on the Build-Operate-Transfer (BOT) model. Local banks can now fund up to 50 percent of the cost of the project and repayment will begin after the project enters into operation.

Aside from the loosening of controls under the previous Investment Law No. 10, Decree No. 7, and Decree 8, strict foreign exchange restrictions were enforced until mid-2003. Even though relatively recent legal changes permit the possession of foreign currency, overseas borrowing and the export of capital still require the approval of the Central Bank. These restrictions, however, are often disregarded. Foreign companies operating under the provisions of other laws may transfer capital inside Syria only in accordance with special agreements, usually in the form of a Presidential decree. The SARG passed Law 24 in April 2006 which permits the operation of private money exchange companies, provided such operations are licensed. To date, there are ten currency exchange companies and 12 currency exchange offices operating in Syria, although many more continue to operate illegally on Syria's vast black market.

Outward capital and profit transfers are permitted to companies licensed under Decree 8. Otherwise, they are prohibited unless approved by the Prime Minister or arranged separately, as in the case of production-sharing agreements with oil exploration companies. Decree 8 allows free repatriation of profits, dividends and invested capital, on condition that all tax liabilities have been met. In addition, if a foreign investor encounters obstacles in setting up a project, and decides to withdraw within six months of receiving a license, all capital invested up to that point can be freely repatriated. Foreign staff will be entitled to repatriate up to 50 percent of their net salaries, and 100 percent of any end-of-service benefits.

In a bid to liberalize the Syrian Pound and to loosen restrictions on hard currency outflows, in July 2009 the SARG permitted local banks to open accounts for clients to use for their international debit cards. These accounts may hold a maximum of USD 10,000 or its equivalent in Syrian Pounds or any other foreign currency. The holders of these accounts will be able to withdraw up to USD 10,000 per month while travelling abroad.

In the case of foreign oil companies, "cost recovery" of exploration and development expenditure is governed by formulas specifically negotiated in the applicable production sharing agreement. Foreign oil partners in production-sharing joint ventures with the state oil company report delays in the recognition of "cost recovery" claims, although payments are eventually approved.

In February 2007, the President issued Decree 15 permitting the establishment of financial, banking and social institutions that provide micro-financing and insurance to small investment projects. These institutions target clients in the suburbs and rural areas, and are expected to provide loans as small as $100. Anyone with the required minimum capital of $5 million may open such an institution, though foreigners must first obtain approval from the Prime Minister. The First Microfinance Bank (FMB), as the bank is named, started operations in November 2008.

Expropriation and Compensation

The main period of the expropriation of private property occurred from 1964 to 1966, after the Ba’ath Party seized power on March 8, 1963. During this period, as well as in the late 1950s after Syria’s brief union with Egypt, the government nationalized many private farms and factories without paying any compensation. To the best of the Embassy’s knowledge, no one has been compensated for the material losses that occurred as a result of nationalization, although we have heard anecdotal accounts that there were some offers of derisory sums for compensation that landowners rejected out of hand. Between 1967 and 1986 there were fewer cases of expropriation because the government had already seized the most valuable properties. The Embassy does not have any knowledge of private property nationalized after 1986.

Investment laws enacted in 1985-86 for specific sectors, i.e. tourism and agriculture, included clauses that protected against expropriation and nationalization. Decree 7 of 2000 explicitly stated that projects licensed under Investment Law No. 10 could not be nationalized or expropriated. Likewise, Decree 8 of 2007 explicitly states that projects could not be nationalized or expropriated. Decree 8 opened many sectors to private investment including petroleum refining, electricity generation, cement production, sugar refining, infrastructure, air transportation, environment, and services. Projects in the fields of oil and gas production, private schools and universities, banking and insurance, and tourism and real estate continue to be regulated under separate, specific laws.

In late 2008, the SARG authorized the private sector to invest in salt extraction and mining projects subject to licensing by the Ministry of Petroleum and Mineral Resources. In late 2009, the SARG issued legislation governing the private extraction and investment of quarries. The law allows companies which obtain the required licenses to invest in a quarry for a period of three years, extendable. The law also permits the formation of partnerships between the private and the public sectors to operate in areas that were previously restricted to the public sector.

Despite these protections, the rule of law is weak in Syria and the SARG does occasionally seize the property and business interests of political opponents and officials who have fallen out of favor. In early 2006, alleging corrupt practices, the SARG confiscated all residential, commercial and business assets of former Vice President Abdul Halim Khaddam, his wife, and all other members of his family, including his children, their spouses and their children. In early 2008, the Ministry of Finance seized the assets of the board members of al-Nama' Company due to corruption and for providing misleading information.

Dispute Settlement

On June 8, 2005, Syria signed the Washington International Convention on Investment Dispute Settlement. In addition, as a party to the New York Convention on Arbitration, the SARG accepts binding international arbitration of disputes between foreign investors and the state in cases where the investment agreement or contract includes such a clause. Otherwise, local courts have jurisdiction. Arbitration cases involving the public sector must be tried by the State Council, which attempts to ensure the integrity of the process; however, they have no authority to enforce their decisions.

In March 2008, the SARG issued the country’s first arbitration law. Law 4 authorized the establishment of an official arbitration center in Syria, which was registered with the Ministry of Justice and included a registry of accredited arbitrators. According to the law, public-sector entities were permitted to resolve disputes through arbitration. In December 2009, Syria launched its first economic arbitration center the “Hammurabi Arbitration and Reconciliation Center,” for the protection of local, Arab and foreign investments in the country. According to the SIA, 11 new centers are expected to open shortly after applicants obtain the necessary licenses from the Ministry of Justice.

A number of U.S. suppliers and companies have asserted claims against state enterprises for non-payment of goods and services delivered. The government has made an effort since 1996 to settle some of these cases on a case-by-case basis and one American supplier finally received payment in 2002 for goods delivered in 1982. Long delays are common in settling disputes through negotiation and arbitration. In the past several years, fewer investment disputes have been filed or brought to the Embassy’s attention as U.S. business activity in Syria has decreased steadily over that period.

While property and contractual rights are protected on paper, the government regularly interferes in the judicial process. Judgments by foreign courts are generally accepted only if the verdict favors the Syrian government. Although an official bankruptcy law exists, it is not applied fairly because a creditor's ability to salvage any investment is contingent on the amount of influence he can exert and not on the letter of the law. Monetary judgments, if granted, are made in local currency and cannot be converted to hard currency.

Performance Requirements and Incentives

Investment Law No. 10 and its amendment, Decree No. 7, did not stipulate formal performance requirements as a condition for establishing, maintaining, or expanding an investment or for determining eligibility for tax and other incentives. Decree No. 8, however, raised the minimum investment capital from USD 200,000 to USD 1,000,000 if the investment projects are located in greater Damascus, Aleppo, Homs, Latakia, Tartus or Hama and to USD 600,000 if the projects are located in the rural areas of Dayr al-Zur, al-Hasakeh, al-Raqqa, Dar'a, Quneitra, Idleb, or Sweida. Furthermore, Decree 8 offered tax deductions if investors chose to locate their projects in one of Syria’s industrial zones, for high job-creation projects, and for share-holding projects.

To encourage investments in the least developed eastern region of the country, namely in al-Hasakeh, Dayr al-Zur, and al-Raqqa the SARG passed a law in September 2009 exempting investment projects located in those regions from taxes and fees for a period of ten years, provided the projects were licensed before December 31, 2012. Projects licensed after this date would not benefit from the tax exemption.

All three investment decrees do mandate that investors must begin implementing projects within a period of three years or risk losing their investment license. According to official sources, 40 percent of all licensed investment projects are never completed due to financing and other technical problems. More than 120 licenses were revoked in 2009 for projects that were either not executed during the required timeframe or because the investors had requested revocation. Since 2004, the HCI began to review annually the status of licenses granted and automatically annul those which were not implemented. The new SIA has assumed this license review function.

While investors are not required to hire a fixed number of local employees, the SARG looks more favorably on proposals that include a large element of local labor, that use local raw materials, and that are designed for undeveloped rural areas. As a result, informal guidelines on labor and materials are usually negotiated on a case-by-case basis during the approval and licensing process. Syria’s labor laws are generally considered an impediment to foreign investment, although some recent investments in the tourism sector were exempted from the SARG Labor Law.

Foreign investors are not required to partner with a Syrian citizen. However, successful foreign investments usually involve a well-connected local partner who can overcome bureaucratic hurdles, frequently by bribing the appropriate official.

The SARG requires a bid bond for all public tenders, usually five percent of the value of the tender. If selected, a bidder must put up a performance bond, which is usually ten percent of the value of the contract. Even though these monies are held in CBS on behalf of the foreign investor, most companies now incorporate the amounts into their overall bid because the monies are rarely, if ever, returned after completion of the contract. In addition to these bonds, the government may also require disclosure of proprietary information before approving a project.

While the Ministry of Economy and Trade has the authority to set prices and/or profit margins on products imported for the local market, it has not usually done so for products brought in through foreign investments. Similar types of incentives, outlined in various pieces of legislation, include increased flexibility on hard currency, reduced income taxes for share-holding companies, and incentives to promote investments in underdeveloped regions and sectors.

Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity after completing sometimes extensive licensing requirements. Moreover, private entities have the right to freely acquire and dispose of interests in business enterprises. All private investment projects must be licensed. Over the past few years, the SARG has opened most sectors formerly reserved for government monopolies to private-sector investment. Key sectors opened since 1994 include flour milling, sugar refining, cotton ginning and spinning (if the project is completely integrated to include manufacturing and finishing), banking, insurance, electricity generation, petroleum refining, aviation, cement production and salt mining. Nevertheless, state enterprises have a comparative advantage in winning bids due to their connections in the HCI and the new SIA. Several projects that have been approved have not reached implementation because investors have failed to produce the necessary resources and/or found the final conditions of the project unsuitable. The HCI and now the SIA revoke licenses if the project is not implemented within three years of receiving a license.

Protection of Property Rights

Violations of intellectual property rights (IPR) are rampant in Syria. Patent, trademark, and copyright laws are all inadequate. As a result, Syria provides minimal protection for local producers and almost no protection for foreign producers.

In July 2002, Syria officially joined the 1967 Stockholm Convention on Intellectual Property Rights. Subsequently, the authorities began to enforce the protection of IPR through raids and confiscations of pirated goods from a number of local vendors and producers. However, direct government action to punish IPR violators ceased by the end of 2003 and the senior official at the Ministry of Culture who was spearheading this effort resigned. In May 2004, Syria became a member of the World Intellectual Property Organization (WIPO). In March 2007, the SARG passed Law No. 8 regulating trademarks, geographical indications, and industrial models and designs. Syria officially joined the Geneva Act of the Hague Agreement pertaining to the protection of international designs in May of 2008.

In August 2009, the SARG passed Decree 47 amending two Articles of the 2007 Trademarks Law No. 8. The new decree allows owners of “well-known and distinctive” trademarks in Syria, even if they are not registered, to submit a request to the Ministry of Economy and Trade to prevent others from registering or using an identical or similar mark. The Ministry of Economy will form an ad-hoc committee to look into such requests.

Furthermore, as of September 2009, the Syrian Trademark Office is no longer asking foreign companies to fill out an application declaring their compliance with the Arab League Boycott of Israel. Previously, all applications were referred to the Boycott Office for clearance.

In late 2005, the Syrian Association for Intellectual Property (SIPA), an NGO, was established with a USD 50,000 grant from the UNDP. In November 2006, the NGO became an observer in the WIPO. SIPA's main objectives include increasing public awareness about IPR issues and supporting the execution of IPR laws and regulations. Among their activities are a quarterly newsletter; issuance of a geographical indicator list to protect national industries (e.g. Ifrin oils, Aleppo soap); evaluating protection rights in public and private companies (with Ministry of Industry assistance); issuing certificates regarding compliance with non-pirating/counterfeiting laws; and maintaining their website at www.sipa-sy.org.

The Syrian regulatory system is not sufficient to provide the necessary legal framework to actively protect and enforce IPR. The Ministry of Economy and Trade traditionally processes the registration of patents and trademarks, while the Ministry of Culture is responsible for copyrights. Books in English are frequently translated into Arabic and published without any royalties paid to the copyright holder. In addition, music, software, and video CDs, CD-ROMs and DVDs are copied and sold ubiquitously. Film industry contacts estimate that the home video market alone is 80 percent pirated, although the amount of revenue lost to U.S. IPR holders is unknown and very difficult to measure.

To enhance Syria’s IPR efforts, WIPO agreed in late 2009 to modernize the Patent Office in Syria and proposed setting up a technology innovation center as well as entrusting it to translate WIPO documents and publications into Arabic. In addition, WIPO gave Syria permission to make 2000 copies of a CD for small and medium-sized businesses of a guideline program on intellectual property issues offered by the Patent Office in North Korea. Syria earlier completed the translation of the WIPO book entitled “Learn from the Past, Create the Future.”

While IPR protection is almost non-existent, the protection of real property rights is much more developed, and therefore legally and socially accepted. Since bank financing and mortgage lending does not exist, real estate is bought through cash payments in full or through installments. Property ownership is not transferred until it is paid in full.

Transparency of Regulatory System

The Syrian regulatory system is not transparent on any level. As described by local private business leaders, corruption is endemic at nearly all levels of government. Decisions are made without consulting consumers, producers, or suppliers. Government regulations do not promote competition, either among private firms or between private firms and state enterprises.

In April 2008, the SARG issued Law 7, the first Syrian legislation addressing Competition and Anti-Trust. The law established a Competition Authority, managed by a Competition Council, empowered to ban or permit mergers and to impose fines. Law 7 states that prices will be defined by free competition, cartels are prohibited, and economic entities will be prevented from abusing their dominant positions in the market. The Competition Council has been ineffective in its enforcement of Law 7, as enforcement is financially detrimental to many senior regime officials and prominent business elites.

To foster competition, the government has informed public-sector enterprises that they will no longer be permitted to operate as a monopoly, particularly if private capital, foreign or domestic, can be obtained to finance projects. However, there are no regulatory processes managed by non-governmental organizations or private-sector institutions to provide a system of checks and balances on government directives. As a result, legal, regulatory, and accounting systems are incompatible with international standards. Local businesses do not comply with what are perceived to be arbitrary regulations. They also avoid paying taxes because they consider payment as a means of official confiscation of their profits.

Efficient Capital Markets and Portfolio Investment

Syrian government policy does not facilitate the free flow of financial resources. The lack of a fully convertible currency and the absence of an adequate capital market continue to impede both domestic and foreign investment. However, to attract investment and to ease access to credit, the SARG issued Decree 4 in 2007 allowing investors to receive loans and other credit instruments from foreign banks, and to repay the loans and any accrued interests through local banks using project proceeds. Furthermore, in February 2008, the SARG allowed investors to receive loans in foreign currencies from local private banks to finance capital investment and, in particular, the import of machinery and production needs. Debtors are free to repay their loans from their foreign currency accounts in Syria or abroad or through the purchasing of foreign currency from the lending bank.

In October 2006, President Asad issued Decree 55 formally establishing the Damascus Stock Exchange (DSE), and has since named a governing board. DSE started official operations in March 2009.

The government has loosened its strict foreign exchange controls on currency outflows for private-sector operations that are not under the legal umbrella of Investment Law No. 10, Decree No. 7 and Decree No. 8. Foreign capital can be brought into the country and can be exchanged for commercial purposes at the daily rate established by the Central Bank of Syria. One-way, non-commercial foreign exchange transactions are currently available at branches of CBS and the Real Estate Bank at a set rate, which is close to the real or market rate.

In a bid to liberalize the Syrian Pound and to loosen restrictions on hard currency outflows, in July 2009 the SARG permitted local banks to open accounts for clients to use for their international debit cards. These accounts may hold a maximum of USD 10,000 or its equivalent in Syrian Pounds or any other foreign currency. The holders of these accounts will be able to withdraw up to USD 10,000 per month while travelling abroad.

The assets of the Syrian banking sector as a whole increased from USD 34.3 billion in 2007 to USD 36.5 billion in 2008, a 7.7 percent increase. Total assets of Syrian banks increased to USD 37 billion at the end of March 2009, a 1.4 percent rise. The deposits of these banks increased from USD 19.9 billion in 2007 to USD 22.7 billion in 2008. Total deposits stood at USD 23.3 billion at the end of the first quarter of 2009, a growth rate of 2.5 percent. Syrian banks are playing an increasing role in providing the business sector with foreign currency to finance imports and as a source of credit for business and individuals. However, the sector’s development is hampered by the continuing lack of human expertise in finance, insufficient automation and communication infrastructure, regulations that limit Syrian banks’ ability to make money on their liquidity, and restrictions on foreign currency transactions.

Competition from State-Owned Enterprises

Government regulations do not promote competition, either among private firms or between private firms and state enterprises.

The standard of competitive equality is not applied to private enterprises competing with state enterprises in a number of important areas. For example, although a number of state banks such as the Real Estate Bank and the Industrial Bank are authorized to loan local currency to help finance private-sector projects, state enterprises continue to have privileged access to local credit and exclusive access to official loans from the Commercial Bank of Syria. In previous years, private companies could sometimes access offshore financing and, if they were located in Syria's "free zones," could access financing from the few local branches of private foreign banks operating in the free zones. However, in December 2007, the Central Bank of Syria gave the six Lebanese banks operating in "free zones" the option of either ceasing operations within six months or becoming branches of onshore banks. This action aimed to ensure that all banks in Syria operate under uniform regulations monitored by the Central Bank.

To foster competition, the government has informed public-sector enterprises that they will no longer be permitted to operate as a monopoly, particularly if private capital, foreign or domestic, can be obtained to finance projects. However, there are no regulatory processes managed by non-governmental organizations or private-sector institutions to provide a system of checks and balances on government directives. As a result, legal, regulatory, and accounting systems are incompatible with international standards.

Corporate Social Responsibility

Until recently, there had not been a general awareness of corporate social responsibility among both producers and consumers. Local and foreign enterprises did not follow generally accepted corporate social responsibility. However, the SARG is currently more aware of the need to create necessary community projects and therefore has been adding clauses to that effect in its new contracts with foreign companies, especially in the petroleum and gas sector. Syria Shell Petroleum Development (SSPD) has been very active in this field during the past few years and has targeted social investment in health, safety, environment and human capacity building. Among its key social investments projects during 2008/2009 were enhancing road safety and public awareness (police, bus drivers, truck drivers) in cooperation with the Ministry of Transport, enhancing road safety awareness for elementary school children in the Dayr al-Zur area in cooperation with the Ministry of Education, awarding scholarships in cooperation with the British Council, developing entrepreneurs through SSPD’s "Intilaaqah" program in cooperation with the Ministry of Labor and Social Affairs, developing Dayr al-Zur through the Shell-sponsored Dayr al-Zur Development Fund in cooperation with the Ministry of Petroleum, and supporting NGOs by sponsorship of events or through direct donations.

The French Total Petroleum Company has also contributed to the community during the past couple of years.

PetroCanada has played an active role as a good corporate citizen and neighbor in Syria by sponsoring contemporary Syrian art and supporting creative activities to better promote Syria internationally.

Political Violence

Syria is an autocratic police state that severely restricts political dissent. Protests are rare and usually dispersed quickly. Syrian security services routinely jail protestors and outspoken political opponents for indefinite periods of time. In February 2008, a senior Hizballah operative was assassinated by a car bomb in a residential neighborhood of Damascus. In August 2008, a Syrian military officer was assassinated by a sniper in the coastal city of Tartus.

In September 2006, the U.S. Embassy was attacked without warning by a small group of terrorists using automatic gunfire and grenades. They attempted, unsuccessfully, to detonate a vehicle-borne improvised explosive device at the embassy's rear gate. One local guard was seriously injured. A Syrian bystander, one Syrian security officer, and all four attackers were killed in the ensuing gunfight.

Government-orchestrated demonstrations involving thousands of Syrians damaged Embassy property in December 1998 and October 2000.

For American citizens travelling to Syria, the Embassy's American Citizen Services Section in Damascus is located in the Embassy's Consular Section in Abou-Roumaneh, Al Mansour Street, 2, between Rawda Square and Malki Street. The telephone number is (011) 3391-4444. The mailing address is Abou Roumaneh, Al-Mansour Street No. 2, P.O. Box 29, Damascus, Syria. Services provided include passport applications and renewals, notary services, child custody assistance, victim assistance, federal benefits claims, affidavits of support, arrest assistance, death certificates and consular reports of birth abroad. In the event of an emergency, the Embassy telephone number (011) 3391-4444 is available. The district covered by the Consular Section in Damascus covers all of Syria.

Corruption

Syria was ranked 126 out of 180 countries in the London-based Transparency International’s 2009 corruption perception index. Syria’s ranking has improved for the first time in more than five years as it ranked 70th worldwide in 2005, 93rd in 2006, 138th in 2007 and 147th in 2008. Of the Arab countries in 2009, Lebanon, Libya, Yemen, and Iraq had lower rankings.

Corruption cuts across most sectors of Syrian society and affects the legal system as well. Bureaucratic procedures for receiving required documents and for obtaining licenses can cause protracted delays and often involve official approval from many levels within the government. Under-the-table payments are commonplace, as corruption is endemic in nearly all levels of government.

After 1998, state-run newspapers began publishing articles about the misappropriation of public funds and the lack of probity among public officials. As a result, a number of officials were jailed for corruption after an investigation into their abuse of power. Even with these public cases, however, corruption is prevalent, and the SARG often uses its anti-corruption campaigns to target its critics or those who have fallen out of favor. Wages and benefits in the public sector are insufficient to meet the cost of living, thus fringe benefits and excessive "agency" fees are widely tolerated as a means of supplementing income, especially during the procurement, investment licensing, import licensing, and customs clearing processes.

In an effort to reduce public graft, President Asad issued Decree 22 in April 2008 subjugating any embezzlement or corruption to the Economic Punishment Law and increasing the penalty from five to ten years of imprisonment.

In July 2008, Syria signed (but has not yet ratified) the UN Anti-Corruption Convention. The government-affiliated Central Commission for Inspection and Control is responsible for monitoring corruption in all government entities in Syria.

In February 2008, President Bush issued Executive Order (E.O.) 13460, which authorizes the U.S. Treasury Department to sanction individuals or entities found to be engaging in, facilitating, or profiting from official corruption with the government of Syria. Subsequently, the Treasury Department used this E.O. to designate Rami Makhlouf, Syria's most prominent businessman and President Asad's first cousin. The designation prohibited American individuals and companies from transacting business with Makhlouf. In July 2008, the Treasury Department listed two companies owned by Makhlouf, SyriaTel and RAMAK, as "blocked properties." SyriaTel is the largest mobile phone provider in Syria and RAMAK is a chain of duty-free shops present at Syria's land border terminals and airports.

Bilateral Investment Agreements

On August 9, 1976, Syria signed an investment guarantee agreement with the United States that protects investments from nationalization and confiscation. Similar agreements are also in force with Germany, France, Switzerland, Pakistan, China, Indonesia, Russia, Belarus, Iran, Italy, Bulgaria, Ukraine, Romania, Kuwait, the U.A.E, Morocco, Sudan, Yemen, Egypt, Lebanon, Jordan, Tunisia, Algeria, Bahrain, Turkey, Cyprus, Greece, Senegal, Tajikistan, India, Nigeria, North Korea, Serbia, Armenia, Austria, Slovakia, and Libya. In addition, a number of bi-national committees have been established with Arab, Asian, and European countries to explore private and mixed joint ventures, and improve bilateral trade.

The U.S. does not have a bilateral taxation treaty with Syria.

OPIC and Other Investment Insurance Programs

U.S. businesses are not allowed to utilize OPIC or other U.S. government investment insurance programs because Syria is on the State Department's List of State Sponsors of Terrorism. In addition, the Export-Import Bank, the Small Business Administration, the Commodity Credit Corporation, and the Trade Development Agency cannot extend financing for U.S. business activities. USAID terminated its assistance to Syria in 1983; subsequently, all funds appropriated through the annual foreign operations legislation are banned. While the Syria Accountability Act does not currently prohibit investments, the President can decide to ban U.S. investments at any future date. As a result, the U.S. Embassy does not actively promote U.S. investment in Syria.

Labor

The SARG reported an unemployment rate of 12.6 percent in 2009. However, more accurate independent sources estimated unemployment as high as 25 percent. It is worth noting that most public-sector entities suffer from over-employment, resulting in high costs of production and low rates of efficiency. Close to one-half of the population lives on less than USD 150 per month per household. In May 2005, the UNDP announced that around 20 percent of the Syrian population lives below the poverty line. The average public-sector salary is USD 215 per month, and public-sector employees constitute over one quarter of the total labor force. Many public-sector employees resort to accepting bribes or taking a second job in order to afford basic commodities.

Compared to the public sector, the private sector offers higher wages and better benefits and has usually been able to recruit and hire more skilled labor. However, recent developments in information technology have outpaced the level of competency among Syrian engineers. Syrian universities continue to teach many technical courses in Arabic and use outdated Soviet-era curricula. In recent years, several private universities have opened and provide competition for public institutions. As a result of the deficiencies inherent in the Syrian education system, both private- and public-sector firms are looking abroad to find qualified technicians for their IT needs. While the public sector is not competitive, the private sector is struggling to compete in the international marketplace for qualified engineers. Syria is continuing to lose a large number of highly skilled workers who leave the country for higher wages abroad.

Government officials acknowledge that the economy is not growing at a pace sufficient to create enough new jobs annually to match population growth. According to official Syrian statistics, the economy grew at about 4.5 percent in 2009, although others estimated real GDP growth below three percent. During the same time, population grew at 2.45 percent. Since 2001, the SARG has tried a number of initiatives to promote job growth without much success, including job fairs and loans for small and medium-sized investment projects.

Independent labor unions do not exist in Syria. The General Federation of Trade Unions (GFTU) is government-controlled and oversees all aspects of union activity.

Foreign-Trade Zones/Free Ports

There are eight existing public free-trade zones throughout Syria. Through December 2009, the total capital invested in Syria’s free zones reached USD 884 million, with 84 foreign investment companies operating there at a total capital investment of USD 6.3 million.

The General Organization of Free Zones (GOFZ) has plans to establish four additional public free zones in Damascus, Dayr al-Zur, Idleb, and the port of Tartus. Homs Free Zone is scheduled to be officially inaugurated during the first quarter of 2010. Moreover, GOFZ has licensed the first privately owned and managed free-trade zone in the Damascus suburbs for use by the textile industry to produce exports for Europe and the U.S. In May 2000, a free-trade zone was inaugurated near the Syrian-Jordanian border as a joint venture between the two countries. The government is preparing international tenders to establish similar zones with Lebanon and Turkey. Both major ports in Latakia and Tartus have free trade areas; however, there are no free trade ports in Syria.

Both China and Iran have announced plans to build free zones in Syria; Iran later dropped this idea in favor of pursuing a Preferential Trade Agreement with Syria. "China Town," designed to house roughly 200 Chinese companies and act as a gateway to Syria for Chinese goods, was officially inaugurated in the Adra free zone in July 2008. Recently, a Syrian investor, in cooperation with Gulf partners, obtained preliminary approval for the establishment of a private free zone in the al-Tanf border area in Dayr al-Zur to promote trade with Iraq but, so far, this plan has not been finalized.

Foreign Direct Investment Statistics

A total of 273 local and foreign investment projects were licensed in 2009 which are expected to create more than 22,000 new job opportunities. Of those 273 projects, 44 were foreign investments that were expected to create 5,100 job opportunities. To accommodate these investments, eight new industrial zones have been approved with investment costs exceeding USD 40 million. The HCI and SIA have adopted a policy of reviewing the status of projects on a yearly basis and annulling licenses of those projects which are not implemented within the required period of three years. Accordingly, more than 120 licenses were revoked in 2009 for projects licensed but not executed.

In 2009, the Ministry of Tourism licensed several new tourism and real estate projects. In addition, work on several hospitality projects began in 2009 including al-Khurafi of Kuwait’s USD 217 million Kiwan project, Souria Holding’s USD 319 million “Syria Towers” project, and the Kuwaiti al-Jaz Investment group’s USD 360,000 tourism project located on the Euphrates River in Dayr al-Zur. Several tourism projects were also begun in 2009 including the Rotana Afamia Hotel in Latakia as well as many boutique hotels and restaurants in Damascus and Aleppo.

To boost investment in the tourism sector, the SARG allowed local banks to provide financing to hospitality projects developed on the Build-Operate-Transfer (BOT) model. Local banks can now fund up to 50 percent of the cost of the project and repayment will begin after the project enters into operation.

According to government statistics, 222 foreign investment projects valued at USD 7.12 billion were licensed from 1991-2009, excluding joint ventures in the petroleum and tourism sectors. Major foreign investors include companies from Turkey, Germany, Russia, Iran, Switzerland, the U.K., the U.S., France, Cyprus, Spain, China, Canada, South Korea, Belgium, Pakistan, Brazil, Venezuela, the Netherlands, Malaysia, Italy, Austria, Sweden, India, Saudi Arabia, Kuwait, Jordan, Lebanon, Iraq, Egypt, the UAE, Algeria, Bahrain, Qatar, Libya, Denmark and Morocco.

In August 2009, the U.S. International Investment Group, a Syrian-registered company, announced plans for a series of industrial projects worth USD 35 million to be established in Dayr al-Zur. The Group plans to build factories for the production of beverages, cosmetics, mineral oils, and feed.

The largest foreign investors are in the petroleum sector and include Shell (UK/Dutch), Total (France), INA Nafta (Croatia), Dublin (Canada), Dove Energy Ltd. (U.K.), PetroCanada, Gulfsands Petroleum (U.K.), and Stroytransgas (Russia). The government began to actively court international energy companies in the late 1980s. By 1990 twelve foreign firms had production or exploration operations in Syria; however, most departed as a result of dry wells, rising costs, and major disagreements with the government over contractual terms and tax liabilities.

The government redoubled efforts to attract foreign energy companies by opening five blocs in 2001 and eleven blocs in 2002 for international tenders. In an effort to reverse the downward trend in production, the government opened additional blocs for international bids in January 2003. As a result, Dublin, IPR (U.S.), Devon Energy / Gulfsands Petroleum (U.K.), INA Nafta, Tanganyika Oil Company (Canada), the Chinese National Petroleum Corporation, and Zarubezhneft (Russia) have all been awarded exploration and/or production sharing contracts. In November 2005, nine additional blocs were opened for exploration resulting in signed contracts and/or production sharing agreements with Shell (UK/Dutch), Maurel & Prom (France), Hunt Middle East (U.S.), Loon (India), Unkranadra Oil (Ukraine) and Soyuznaft (Russia). In 2007, GroundStar (Australia) was awarded exploration rights to two additional blocks in southern Syria. In November 2009, the Minister of Petroleum and Mineral Resources revealed that the SARG would soon announce twelve new blocs available for exploration by major international oil companies.

After the imposition of U.S. economic sanctions in May 2004, a number of major U.S. corporations made the decision to divest and pull out of Syria. These companies included ExxonMobil, Devon Energy, 3M (for household products), Conoco Philips, Marathon, and Veritas. In April 2008, the American oil field services firm Weatherford also ceased all its Syrian operations.

Web Resources

Transparency International Corruption Index: http://www.transparency.org/policy_research/surveys_indices/cpi/2009

Syrian Investment Agency:
http://www.investinsyria.org/

Syrian Investment Map:
http://www.syriainvestmentmap.org/

World Bank Doing Business Index:
http://www.doingbusiness.org/EconomyRankings/

Heritage Foundation Economic Freedom Index:
http://www.heritage.org/Index/Ranking.aspx

Consular Information:
http://www.travel.state.gov



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