European businesses are eager to seize investment opportunities in Syria but security risks and a government in transition make them wary of jumping in at the deep end.
The last package of crippling US sanctions on the country was lifted in December, a year after the collapse of the former dictator Bashar Al Assad's regime. Syrians desperately need reconstruction as the country emerges from a devastating 13-year war.
The opportunities for those who seize them on time are immense: British firm Zaha Hadid Architects will design the masterplan for a $4 billion Qatar-backed expansion of Damascus Airport.
Saudi Arabia is investing in a new private Syrian airline as part of a multi-billion-dollar investment package expected to be announced on Saturday. It is also set to include telecoms and real estate.
The new government has pledged to shed the socialist policies of the Assad era and embrace the free market as it courts investors. “My last name is free market,” Mazen Derawan, president of the Federation of Syrian Chambers of Industry and former adviser to the Economy Ministry, told The National. Syria aims to become “the most investor-friendly country in the world”.
The country has “tremendous potential” he said. “A trained workforce, a young population, expertise gained by displaced Syrians, and large Syrian capital abroad.”
The Economy Minister, Mohammed Al Shaar, said the country was “back with open hearts” at the International Monetary Fund (IMF) and World Bank in October. Business delegations from the UK, Germany and France, have started courting Syria, but are still slow to invest.
“Europeans are returning to Syria very slowly,” a development economist working as a go-between for the Syrian Central Bank and European companies said. “I don’t see a rush to Syria. There have been announcements, but nothing concrete. Basic requirements, including access to data, remain unavailable.”
The challenges are compounded by what critics suggest is an increasingly risk-averse Europe. German bankers cancelled a business delegation to Damascus last month, after clashes broke out between the Syrian army and the Kurdish armed group that controlled Syria’s north-east.
The trip had been viewed as vital to help reconnect Syria’s isolated financial system with international banks, and was scheduled a few weeks after a meeting to discuss Syrian banking reform in Istanbul with US and European counterparts.
“Syria is a high-risk country. Usually this means high returns, but foreign lenders are not ready yet,” said Thaer Laham, deputy chairman of Fransabank Syria.
‘Tremendous potential’
Eyes are on Syria’s new central bank governor, Abdulkader Husrieh, a financial consultant who was involved in banking reform laws during the civil war.
His first major move since his appointment in March was to conduct Syria’s first Swift transfer. Europeans were puzzled by claims of that international bank transaction. “We don’t know how it was done,” a development economist said.
The central bank also printed new bills for the country in transition, though mystery remains over where they were printed.
But his most challenging task, connecting the central bank to the international banking system, remains unsolved. Syrian banks are still struggling to open correspondence accounts with banks in Europe and the US. These correspondent banking relations were severed during the Syrian civil war.
Ties have started to be re-established in recent weeks, more than nine months after the UK and EU started lifting sanctions on Syria. Last summer, Mr Husrieh told The National he was seeking to woo big US lenders to forge ties with local partners and open representative offices in Syria.
The bank is currently seeking technical advice from the French government body Expertise France to update its anti-terror financing and money-laundering laws. This is a vital step in establishing a working relationship with Western banks, by being in line with the Financial Action Task Force, an inter-governmental agency based in Paris.
France appears to be the only European country involved in providing in-depth technical support to the central bank. Other actors, which assist on shorter missions, are the IMF and the World Bank.
Mr Husrieh is reported to be pushing for direct discussions with French banks, which have proven more timid than German banks in engaging with Syria. They have signalled that they are worried about their reputations and lack sufficient information to move forward. “If financial sector actors don’t understand a situation, they won’t go there,” the development economist said.
The promise of technical help has been welcomed by observers such as the German-Syrian lawyer Naseef Naeem, who argues that what Syria needs as a priority is technical help from European experts in management before investments can pour in. “The Syrian central bank system is at 2010 level. It’s a huge problem,” he said.
Investor-friendly?
Potential investors in Syria are seeking assurances that the government will stay true to its professed commitment of shifting from the socialist model that dominated since the late 1950s to a free-market economy.
New resistance from Syrian business owners, who fear they will not be able to compete with Turkish businesses moving into the country and Chinese products, has caused the government to back track.
This, and the lack of precedent from Syria’s current rulers, leaves businesses wary that government restrictions increase over time, according to Mounzer Nazha, who chairs the newly launched Syrian British Business Council (SBBC).
“We need to be competitive,” he told The National. “If we are protected, then we will not try to be competitive in the quality and not in the price,” he said.
The SBBC – which was launched in the presence of Foreign Minister Asaad Al Shibani in London last November – is working to build bridges for British companies seeking opportunities in Syria, and Mr Nazha notes there is palpable excitement but also many questions.
“If (companies) start an investment, would the government decide to nationalise that sector after two years? Or interfere with the management? Or put limits on what they can import?,” he said.
The government’s draft financial law, which was unveiled last summer and is expected to be finalised in the coming weeks, will help clarify some of these doubts. Mr Nazha said the SBBC would help its members understand and navigate the new law when it is passed.
Syria moved towards a socialist economy in the late 1950s during its brief union with Gamal Abdel Nasser’s Egypt and later under the Baath Party. Major industries and foreign investments were nationalised and economic decision-making was centralised to the state.
Attempts to reform and open up the economy in the 2000s led to what critics have described as a “crony capitalism” akin to that of the former Soviet Union, in which actors close to the Assad regime were awarded monopolies of different industries.
The civil war in 2011 and the ensuing sanctions on the Assad regime drove out what legitimate businesses were left in Syria. “It is not easy to bring those businesses back to Syria,” Mr Nazha said.
Kilian Bälz, a German lawyer at the law firm Amereller, said the issues went beyond sanctions. “This has to do with the persisting compliance issues that are not limited to sanctions, opaque government structures, and a business landscape that is very hard to navigate,” he told The National.
A timid Europe risks losing out
But as European businesses wait for the stars to align, they risk losing out on major contracts and ultimately being sidelined from the new Syria, which has the potential to be a large economy in the region.
The French logistics giant CMA CGM last year signed a 30-year partnership with the port of Latakia, and will invest $260 million to expand the terminal. Siemens Energy is in negotiations to supply gas turbines to a $7 billion Qatar-linked power plant project.
Marina Scognamiglio, the head of Italy’s trade agency office in Beirut, has first-hand experience of this hesitation. She regularly travels to Syria to promote Italian companies that are seeking to establish a foothold in Syria’s oil and gas industry. Italy was the second most represented country at Damascus’s first oil and gas trade fair in December, after Saudi Arabia.
Italian banks continue to delay or refuse payments to Syrian companies, Ms Scognamiglio said. As a result, Syrian companies have adapted by asking to be paid elsewhere. “Several Syrian operators in the business world work through accounts that are not in Syria, but in other countries,” she said.
An Italian company recently won a tender to operate at a Syrian port, but feared sending personnel to operate on the ground, and would for now manage operations remotely, she added.
The effects of waiting are already palpable. From Damascus Airport and the port of Tartus to the energy sector, most deals have been secured by Gulf companies. “Europeans are trying to do a lot of things, but I think also that there are other actors that are becoming more and more important,” Ms Scognamiglio said. “We have to be present and have an impact too.”
British companies are among the most popular in Syria for their legal and financial expertise, according to Mr Nazha. But they are juggling the need to make a quick decision to enter the Syrian market with waiting to see how things develop, Mr Nazha said.
“These companies are waiting now for opportunities, they are not yet taking decisions. They know how important it is to be fast in their decision. As soon as things are clear they are hoping to do something,” he said.
Germany is considering giving state-backed so-called Hermes guarantees to German companies that would want some support in returning to the Syrian market.
Talks are already taking place between small and medium-sized companies (SMEs) from Germany and Syrian authorities over potential contracts. “It’s quite concrete. There are companies ready to enter the market,” a German diplomatic source told The National, adding that some could qualify for government support, including, eventually, Hermes guarantees.
But the government is waiting for the IMF country assessment as well as a national budget to understand the Syrian government’s financial situation, and from there would be able to issue government guarantees for exports and investments in Syria.
In France, the equivalent Fasep, the Fund for Studies and Assistance to the Private Sector, which supports French SMEs entering foreign markets, could also be used for Syria.
Like France, the EU has been criticised for lacking a vision in Syria – and could pay for it in the long term. “This is a somewhat underwhelming response,” said Julien Barnes-Dacey, director of the Middle East and North Africa programme at the ECFR think tank.
“The broader political and economic partnership offer … could have been initiated at a much quicker pace to help incentivise a positive transition and ensure that the EU is taken more seriously as a key outside actor.”
