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Private Investment in Syrian Agriculture
and Agribusiness
by Hector Maletta

3.1 Growth and stagnation in syrian agriculture

During the last four decades economic growth in Syria has advanced at a rate of 4.6 percent per year on average (between endpoints of the 1963-1999 period). This is a good rate of growth in the long term for many countries. Unfortunately, the growth in population in Syria is also quite high (3.3 percent average over the same period). Growth has accompanied the rapid growth in population, which is a real achievement, but per capita income has remained stagnant in the long-term, alternating ups and downs. The economy has progressed on a cyclical pattern of periods of rapid growth followed by periods of stagnation or decline. The 1990s have been a period of growth, but a decreasing rate, and not strong enough to go beyond the per capita product of 1980, and several factors constrain the continuation of the growth trend in subsequent years. The growth of agricultural production has followed a similar path.

Figure 3.1 Population and GDP in Syria, 1965-2000

Figure 3.2 Per capita GDP: Annual growth rate, 1990-1999

Figure 3.3 Per capita GDP and private consumption (Syrian Pounds at 1995 prices)

Figure 3.4 Real agricultural GDP per capita

Growth in Syria, both in general and in agriculture, has shown a markedly cyclical path along the past forty years. Periods of growth, such as before 1963 and in the 1970s, have been checked by large increases in foreign-trade deficit, forcing an adjustment and leading to a period of declining per capita growth, as happened in the early 1980s.

After the long decline of the 1980s, growth in per capita gross domestic product (GDP) and per capita agricultural GDP during the 1990s has been encouraging. The linear trend of the decade indicates a rate of agricultural growth per capita of 2.4 percent per year, and more than 5 percent in total agricultural GDP. In two good years (1996 and 1998) per capita agricultural GDP has actually been slightly above the level of 1980. But the performance of the 1990s has not been enough to overcome the long-term stagnation: the average level of per capita agricultural product in 1996-1999 is about the same prevailing in 1980 or 1963. The agricultural sector seems to be struggling to run fast, just to stay in the same place. Whether the future will show a new oscillation or sustained growth, taking off in per capita terms also, will depend on policies adopted now and in the coming years. The same is valid for overall GDP growth.

Figure 3.5 The future of agricultural GDP per capita: stagnation or take off

There are, in fact, grounds for doubt about the possibility of maintaining or increasing the level of per capita growth in the immediate future, unless some more fundamental changes occur in the agricultural sector and the macroeconomic system. The main constraint limiting agricultural growth is water, but also the general economic scenario. Regarding agricultural production and the water supply, it is evident that water utilization is already dangerously above the recommended levels, and thus an extensive expansion of production based on enlarging the irrigated areas would not be feasible or sustainable. The only way is to increase the productivity of water, i.e. economizing on water per hectare, increasing yields per hectare, and shifting to more profitable crops to make better use of the scarce water available. As these objectives require substantial and sustained private investment, changes in the economic scenario are required to make those investments more attractive.

Irrigating more hectares with less water and increasing the yields and the economic returns of irrigated crops are imperative challenges for Syrian agriculture in the 21st Century. Such developments will not be achieved without a vigorous increase in private investment both in agriculture itself and in related agro-industries. And such flows of private investment will not occur without further economic reforms.

Since the 1980s, piecemeal reforms were gradually introduced in macroeconomic policy, without altering much the overall macro scenario, and joint ventures with foreign investors where undertaken, chiefly in the hotel sector. In the 1990s, while macro policy innovations were somewhat expanded, new and specifically pro-investment legislation allowed and encouraged private investment in agriculture, industry and transportation. Under such a regime, more than 1 600 projects have been approved, though not all have been implemented yet. However, the implementation of one-third of the projects in the industrial sector, including more than 250 in the agribusiness sector, has implied a number of positive impacts. The projects have increased total investment, have contributed to the balance of payments and to the trade balance, and have increased production and exports, especially in the agribusiness sector. Impact on employment, however, has been generally very low, though somewhat more significant in the case of agro-industry, because of its lower capital intensity as compared with other sectors, and because of the strong positive backward linkage of agribusiness with agricultural employment.

Apart from direct promotion policies giving investors tax holidays and other advantages, there has been a sustained tendency to liberalize the economy after several decades of rigid central planning. This process, initiated timidly in the 1980s, and continued during the early 1990s, suffered a deceleration from about 1993 to 1999, but has accelerated lately with new laws authorizing private banking and other significant measures to improve the macro environment for private investment. However welcome these developments are, much remains to be done.

3.2 Private investment promotion in the 1990s

After some legislation allowed for joint-ventures and other limited private investments in the 1980s, the first real attempt to foster private investment was Law No.10 of 1991 and its attendant Decree 7/91 containing operational details about the implementation of the Law. More recently, Decree 7/2000 has partially modified the regime established in 1991.

Law 10/91 applies to private investment projects in agriculture, manufacturing and transportation. So far, farming projects have been exceptional, and mostly linked to some related investment in the processing of agricultural products. However, a substantial number of projects dealt with agro-industry. Projects eligible under Law No.10 should involve investments of at least ten million Syrian Pounds (about US$200 000). Granting benefits to specific projects rests on the Investment Council, a body formed by several Cabinet Ministers, and the selection process is the responsibility of the Investment Office, a technical body acting under the President of the Council of Ministers.

Approved projects enjoy several benefits. All equipment needed for the project can be imported duty-free, and the project is granted a tax holiday of five years (extendable for a few more years under special circumstances) covering income tax and real estate tax. Also, the company may open a foreign currency account at the Commercial Bank of Syria, though no provisions are made for the company to be able to buy foreign currency with Syrian funds.

Law No.10 allows for foreign capital repatriation and profit remittances. It authorizes non-resident investors to transfer abroad (after at least five years of commencement of operation) their capital invested in the project, on the basis of the project net worth but not exceeding the original amount of the investment brought from abroad. They are thus not authorized to transfer abroad any capital accumulated through reinvestment or otherwise not brought to the country from abroad (this significant limitation was later relaxed by Decree 7/2000). The Law also authorizes the transfer abroad of interest and profit accruing from the investment of foreign capital.

Decree 7 of 2000 corrects some shortcomings of the 1991 legislation that had become evident during the subsequent years. Investments were given a guarantee of no confiscation or expropriation, and also, they were given the right to sell their land rights and all constructions thereon, thus permitting investors to recover their investment in infrastructure in case they decide to sell or liquidate their company. The new decree also established stronger legal protection for investors, e.g. giving them the right of appeal before the Arab Investment Court or any other international jurisdiction arising from agreements signed between Syria and the country of the investor.

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