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Progress in Economic Reform in Syria Peter Young Adam Smith International Focus on Syria Conference 2007.

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Presentation on theme: "Progress in Economic Reform in Syria Peter Young Adam Smith International Focus on Syria Conference 2007."— Presentation transcript:

1 Progress in Economic Reform in Syria Peter Young Adam Smith International Focus on Syria Conference 2007

2 2 Why Syria must reform Syria has many strong points – entrepreneurship, beauty, location, but faces many challenges: Oil revenues (financing 50% of the budget and accounting for 2/3 of exports) are running out - 6.5% decline in oil production in 2006 Productivity is extremely low Unemployment is high and growing The population is growing very fast -Another 8 million in 10 years -An extra 200,000 per annum seeking to join the workforce Continuing oil revenues provide a short window for reform

3 3 A poor investment climate - 2006 analysis Too many taxes and an inefficient, corrupt and unpredictable tax administration Extremely restrictive labour legislation Excessive business licensing and operating permits and associated corruption and anti-competitive practices Poor and inefficient customs and trade regulations and practices and overall regulatory policy uncertainty Poor economic infrastructure, especially electricity, telecoms and transport Poor access to finance and cost of financing Inadequate workforce skills

4 4 Investment climate – 2007 update Taxes – some simplification and reduction of tax rates, but tax administration still very inefficient Labour legislation in the process of being modernised Excessive business regulation – still very burdensome. Syria’s ranking in the World Bank ‘Doing Business’ survey worsened from 134 to 137 but new company laws have been drafted Customs still highly inefficient Little improvement in economic infrastructure Growth in private banks with increased role in short-term capital Workforce skills still need significant upgrading Large increase in FDI - $9.2b in 2006, 2.5 times greater than 2 years before

5 5 The public sector is a barrier to growth – 2006 analysis State enterprises (SOEs) are highly inefficient, consume subsidies, and divert resources from productive uses SOE monopolies in key sectors hold back the entire economy Both SOEs and the civil service are heavily overmanned, with many employees non-productive The civil service cannot recruit and retain sufficient qualified staff to manage complex reforms 2007 update: No improvement in SOEs, tentative steps towards reform State banks under pressure from growing private sector Policy and legislative reform hampered by poor coordination

6 6 A politically viable strategy - 2006 analysis Avoid short-term threats to the position of groups that oppose reform Try and convince them of the benefits to all of economic growth as opposed to economic collapse Focus on growing a new economy within the old Privatize the private sector Strengthen the government’s capacity to design and implement reform 2007 update Some good progress in privatizing the private sector Now it’s time to privatize the public sector The longer one waits the more difficult it will be Regional liquidity + Iraqi influx has boosted growth – but how long will the effects last?

7 7 Reform priorities - 2007  Strengthen the central policy-making and legislative reform process  Introduce a competitively paid senior executive service within the public administration  Introduce a special skills cadre – specifically to hire in good people from the diaspora  Increase salaries in specific parts of the civil service, e.g. tax, in return for honesty & performance  Reform those parts of the public sector that most affect the rest of the economy & remove monopolies of SOEs  Corporatise and commercialise SOEs – hard budget constraint  Focus on creating state-of-the art telecommunications and IT infrastructure  Upgrade workforce training efforts  Speed up VAT implementation to drive tax simplification, accounting & other reforms  Create a minimal regulatory environment for small businesses  Communicate the case for reform

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