SYRIAN BANKING & FINANCIAL SERVICES CONFERENCE SPEECHES

 

Panel Session 1: Economic Outlook for Syria

Presentation:
Jane Macpherson
Head ME Division
European Investment Ban

 

Your Excellencies, Ladies and Gentlemen,

Since ancient times, Syria has stood at the crossroads of international trading routes and offered a marketplace for the exchange of ideas and investment opportunities.

Syria’s attraction then was that it was a good place to do business – investors and entrepreneurs found the right conditions for them to flourish and the opportunities they created in turn attracted others, and helped generate employment and prosperity.

So when we talk about the economic and investment outlook in Syria today, let us look at what it is that encourages business and investment and let us consider what role we, as outsiders, can play in accompanying and supporting Syria along this path.

When I was last asked to make a presentation to such a distinguished audience, at the Syrian Banking and Finance Conference held in May 2004, we identified a number of ‘targets’ that were key to attracting investment and bolstering economic prospects, such as:

Distinguishing between what the state should do and what private enterprise can do.
It is evident that a vibrant and dynamic private sector is a major factor in boosting growth and employment.

And as globalisation and market integration influence international trade, and we move towards the goal of a Free Trade Area in the Mediterranean region by 2010, it is flexible and pro-active companies, typically from the private sector, who will be best able to access and take advantage of open markets.

Boosting efficiency and competition
Private sector participation in the supply of goods and services can take over responsibilities that traditionally belonged to the public sector and encourage competition and greater choice.

Similarly, private participation in infrastructure can bring about improvements in output and the quality of service.

Creating employment opportunities
The imperative of job creation points to the need to create nearly 4 million new jobs between now and 2020 in Syria; relying on the public sector to provide sufficient employment to soak up labour demand is simply not feasible – these jobs will need to be created by the private sector.

Providing an ‘enabling environment’
In other words, encouraging governments to create a favourable environment that will stimulate business and investment – by putting in place adequate infrastructure to service the primary needs of productive enterprises and by reducing the so-called ‘red tape’ or administrative and fiscal burden that can limit private sector growth. Whilst at the same time maintaining a proper regulatory framework that will sustain market incentives and investor trust.

Deepening and strengthening financial markets
To underpin business growth and development, a sound and efficient financial system is essential to respond to the needs of investors with an appropriate range of financial products

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We will be hearing over the coming two days from leading speakers about the important steps that have taken place over the last few years, and especially in recent months, towards opening up the Syrian economy. There is no doubt that these developments have had a favourable impact on the business climate and have helped to encourage international investors.

The range of reforms brought in to improve the investment climate have raised Syria’s ‘doing business’ ranking up by 5 points over the last year and almost every indicator, from ‘starting a businesses and dealing with licenses’ through to ‘employing workers and trading across borders’ has shown notable improvement.

The broadening and depending of the financial sector has contributed to greater efficiency and a wider range of products and services, and it is here that the European Investment Bank has played a key supportive role.

The EIB has not only continued its long-standing support for investment projects in Syria by providing nearly a billion euros over the last six years in tailored long term finance linked to sectoral reform (for example, in key infrastructure projects in transport, healthcare, energy, telecoms and the environment)… but has also contributed to developing the private sector – both business and banking – through loans and technical assistance programmes, in association with the European Commission, to finance small and medium sized enterprises and strengthen the banking sector.

Clearly we have some way yet to go.  A recent study financed by the EIB looking into the options for private sector investment financing in Syria pointed to the need for further in-depth reflection on how to reform public sector banks and restructure the banking sector.

Equally, whilst there has been welcome influx of private sector banks applying for licences, witnessing the attraction of Syria as a business destination, deep-rooted deficiencies of a regulatory and institutional nature remain numerous in the banking system.

These inefficiencies in the banking sector (such as market segmentation) and competitive rigidity (for example in interest rates and foreign currency transactions) have contributed to a risk adverse culture that needs to be addressed under the ongoing reform process.

Let us hope that that the path to reform continues to proceed at a gradual and steady pace, one in keeping with the needs of the country and in balance with social pressures. Liberalisation must be seen as an opportunity, not a threat, with appropriate safeguards in plans to cushion those parts of society most at risk, for example from loss of employment in certain sectors or certain areas.

Equally importantly, progress made towards reform and openness must be at the Syrian initiative and because they are seen as necessary for Syria.

The EU’s broad experience of financial cooperation in Europe and in the Mediterranean Partner Countries places it is a unique position to assist countries as they move towards liberalising their economies. Both the European Commission, which supports the economic reform process, and the EIB which provides financing for investment projects linked to structural and sectoral reform, can work hand-in-hand under the European neighbourhood Policy to accompany and support Syria as it moves to develop the economy, create job opportunities and move towards greater prosperity for its citizens.

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