III.  ECONOMIC TRENDS AND OUTLOOK

MAJOR TRENDS AND OUTLOOK

Syria is a middle-income developing country, with a diversified economic base
in agriculture and industry.  From the 1960's until recently, the government
pursued policies aimed at expanding the public sector, with tight controls
imposed on private sector activity.  During the 1980's, the country suffered
from a severe foreign exchange shortage, aggravated by a fall in remittances
and aid flows from the Gulf, and a severe drought in 1989-1990 that forced the
government to sharply boost food imports.  As the government imposed draconian
foreign exchange and trade controls, a parallel economy emerged, based on
large scale smuggling to and from neighboring Lebanon.  The Syrian government
cracked down on smuggling in May 1993, and most of the previously smuggled
commodities can now be imported via official channels.  Smuggling has not,
however, been completely eradicated.

Syria's economy has improved since 1990 due to a substantial increase in oil
production, the recovery of the agriculture sector from drought and years of
government neglect, renewed access to Gulf Arab aid due to its participation
in the coalition against Iraq, and piecemeal economic reforms that have
provided a boost to Syria's growing private sector.  During 1990-1993, the
economy registered average annual growth rates of 7-8 percent.  Oil production
has nearly quadrupled from 150,000 barrels per day (bpd) in the mid-1980's to
580,000 bpd at the end of 1993.  Syria has enjoyed record harvests, and has
received several billions of dollars in foreign aid to undertake a wide range
of projects to rehabilitate the country's deteriorating infrastructure and
public sector enterprises.  Since 1991, private sector investment has picked
up noticeably, as Syrian businessmen have taken advantage of

incentives offered under the 1991 investment law and other ad-hoc economic
liberalization measures.

The economic gains of recent years, however, have not been widely distributed,
and inflationary pressures are increasing.  Unemployment is a growing concern
as roughly 60 percent of the population is estimated to be under the age of
20.  Oil production has peaked and will be level for the next few years.
Foreign investors are hesitant about investing, with many waiting for signs
that the government will undertake additional measures to liberalize the
economy.  Syria may face a serious water shortage by the end of the decade
given current water policies.

Syria's vibrant private sector will play an increasingly important role,
particularly if the SARG presses ahead with economic reforms, but economic
growth over the next few years will still be largely dependent on such
exogenous factors as plentiful rain, an upturn in international oil prices,
and the generosity of foreign donors.  The fourth wild card is the makeup of a
"peace dividend," i.e. aid inflows, debt relief, the lifting of sanctions, or
other steps taken by the West if Syria signs a peace accord with Israel.


GOVERNMENT ROLE IN THE ECONOMY

From the 1960's until recently, the government pursued policies aimed at
expanding the public sector, with tight controls imposed on private sector
activity.  All large industry, including the banking and insurance sectors,
was nationalized in the 1960's.  Arab aid during the "boom years" of the
1970's was used to expand the state industrial sector with the creation of
hundreds of public sector enterprises.  Starting in 1989, the government began
to implement some economic liberalization measures to give wider berth to the
private sector.  It passed a new investment law in May 1991, and has gradually
lengthened the list of goods that the private sector can either produce or
import.  Despite these measures, the government retains control over
"strategic" sectors, such as oil, electricity, banking, and wheat and cotton
production.


BALANCE OF PAYMENTS SITUATION

Statistical shortcomings restrict a comprehensive analysis of Syria's balance
of payments position.  Nevertheless, Syria's current account appears to have
deteriorated markedly since 1990.  Lower international oil prices and
increasing domestic demand for oil have reduced oil revenues.  The breakup of
the former Soviet Union in 1989 resulted in the loss of Syria's largest market
for non-oil exports, including textiles and light manufactured goods.
Manufactured exports have not recovered despite numerous government
incentives.  Exports of fruits and vegetables, however, have jumped fivefold
since 1988, but these products still only account for about 8 percent of total
exports.  Roughly 63 percent of Syria's exports are sold to the European
Community.

Imports have risen sharply due to greater availability of foreign exchange, an
increase in private sector investment, and import liberalization measures
designed to encourage the importation of goods through official channels vice
smuggling from Lebanon.  Machinery and equipment, metal products, and
transportation equipment top the import list, but imports of petroleum
products are on the rise due to increased domestic demand and inadequate
domestic capacity to produce light-end petroleum products.  Over one third of
Syria's imports
originate in Europe, 22 percent in Iran, and about 17 percent from the CIS
countries.

Official data on service transfers is incomplete because it does not
accurately reflect the large volume of transactions that are conducted at the
unofficial exchange rate.

Nevertheless, tourism receipts jumped 46 percent in 1992 to USD 60 million,
and probably increased further in 1993.


TRADE AND INVESTMENT BARRIERS

Most foreign firms find Syria's business environment a difficult one in which
to work.  U.S. exporters are well advised to conduct all business transactions
with the public
sector on a cash or secured letter-of-credit basis due to the
government's poor payment record.  U.S. Government imposed foreign policy
sanctions include controls under the export administration act requiring
individual validated licenses for the export of goods controlled for national
security purposes, including many computers, software, aircraft and parts, and
other items.  U.S. exporters can negotiate contracts with the private sector
on an individual basis with little or no interference from the government.