Industry

Industry

Manufacturing, other than that represented by traditional handicrafts, textiles, and animal-powered flour mills, is a postWorld War II addition to the Syrian economy. Requirements of Allied Forces stationed in Syria during the war and shortages of imported goods for local consumption stimulated industrial development, and wealthy merchants and landowners channeled resources into industrial expansion. Factories established in the 1950s and 1960s processed local agricultural goods and manufactured a wide range of light consumer products. Although the nationalization measures of the 1960s disrupted privately financed industrial expansion, in the 1970s the state embarked on a major industrial development program stressing heavy industry. Between 1953 and the mid-1970s, the growth rate of the industrial sector was 8.3 percent (in constant prices)--a major factor in the rise in incomes and in the improvment in standards of living. Manufacturing (including extractive industries and power generation) contributed 22.4 percent of GDP in 1976 but only about 13.4 percent in 1984 as the state committed scarce resources to completing existing projects rather than to initiating new ones. The public sector dominated the chemical, cement and other construction materials, engineering, sugar, food, and various textile-manufacturing industries. The private sector, stymied by government restrictions, concentrated on certain textiles, electrical and paper products, leather goods, and machinery.

Energy and Natural Resources

Although Syria's crude oil reserves were small and production minor by Arab and international standards, in the 1970s and 1980s petroleum extraction played a vital role in Syria's economy, generating much-needed foreign exchange. However, the size of Syria's proven crude oil reserves remained secret. In 1977 United States government figures placed Syria's proven oil reserves at 2.2 billion barrels. International sources estimated that Syria's crude oil reserves had fallen to 1.5 billion barrels by the end of 1983, indicating a life span of no more than twenty-years at 1984 production levels. Some publications listed substantially higher reserves (perhaps reflecting total rather than recoverable reserves) that appeared large in relation to Syrian production data in the 1980s.

Although Syria awarded its first oil concession to foreign firms in the 1930s, it did not emerge as an oil producer until the late 1960s. In 1956 an American company discovered oil at Qarah Shuk (Karachuk) in the northeast near the Iraqi border. In 1959 a West German firm discovered the Suwaydiyah field, located about fifteen kilometers south of the first oil discovery. The Syrian government nationalized the oil industry in 1964, and in the late 1960s the Syrian General Petroleum Company (SGPC),the national oil company, brought the two fields on stream with Soviet assistance. Although Suwaydiyah initially averaged 20,000 barrels per day (bpd) and Qarah Shuk produced 30,000 bpd, the oil from both fields carried American Petroleum Institute (API) quality ratings of 25.5 and 19, respectively. Both had high sulfur contents, confirming the poor quality of Syrian oil. Syria became an oil exporter in 1968 with the completion of a 663- kilometer pipeline to transport oil to a terminal at Tartus on the Mediterranean coast. Both the Qarah Shuk and Suwaydiyah fields continued to produce oil into the 1980s.

Oil exploration intensified in the 1970s. SGPC discovered the Rumaylan field, about ten kilometers southwest of Qarah Shuk, which had produced over thirty-nine million barrels of oil by mid-1984. Smaller fields also produced minor amounts of heavy crude in the 1970s. The Jubaysah field, located about 150 kilometers southwest of Qarah Shuk, came on stream in 1975. It had a 40.2 API crude oil rating but a 0.6 percent sulfur content, suggesting that Syria might look forward to discovering major quantities of light crude. In 1974 the government eased the way for the return of foreign contractors, granting a Romanian company a production-sharing concession. Western companies returned in 1977 when Pecten, a Shell subsidiary, won a 20,000- square-kilometer exploration concession in northcentral Syria. The Syrian American Oil Company and Samoco, a subsidiary of the American-based Coastal States Gas Corporation, won the 15,570- square-kilometer concession to exploit the resources of Dayr az Zawr Province in 1977. Deminex, a West German company, joined the group in 1979. In 1983, after Samoco dropped out, Deminex joined Pecten in an expanded concession of 21,800 square kilometers. Pecten held 31.25 percent, Royal Dutch Shell 31.25 percent, and Deminex the remaining 37.5 percent. Chevron, Pennzoil, and Marathon Oil also won exploration concessions in the 1980s. Marathon's two wells at Sharifah, nears Homs, produced promising results for gas exploitation from 1983 to 1985. Syria's state- owned oil company also continued exploration and drilling to bring the small, newly discovered Qayrik, Wahab, Sa'id, and As Safih fields on stream by the mid-1980s. The 1984 discovery of large quantities of light, sweet crude oil at the Pecten consortium's Thayim field near Dayr az Zawr gave a much-needed boost to the Syrian oil industry and economy. The Dayr az Zawr oil, ranked at API 36 with a low sulfur content, offered the prospect that Syria could cut by up to $200 million its own imports of light crude oil required for use in domestic refineries in the 1990s. Early production estimates confirmed an initial output of 50,000 bpd when the Thayim field came on stream in late 1986. In 1985 the Syrian General Petroleum Company and Pecten formed the Furat Oil Company to operate the concession with the state. In 1986 Czechoslovakia's Technoexport completed a ninety-two-kilometer spur line linking the Thayim field to the currently unused Iraqi-Syrian pipeline. Syrian government officials estimated that production levels at Dayr az Zawr would rise to 100,000 bpd in 1988.

Syria's oil production remained virtually static in the mid- 1980s. The IMF put production at 162,000 bpd for 1985. Excluding the new Dayr az Zawr discovery, however, Syria claimed production of approximately 170,000 bpd in 1985, blending one-third of its heavy sulfurous domestic crude with two-thirds imported light oil. Domestic consumption of oil products averaged around 190,000 bpd in the mid-1980s, with up to 120,000 bpd of this total coming from Iran in 1985. Oil contributed about 10 percent to Syria's GDP through the 1980s. Following the rapid rise of world oil prices in 1973, oil became Syria's chief source of foreign exchange. The value of Syria's oil exports rose from LS291 million in 1973 to LS1.6 billion in 1974 and almost doubled to LS2.6 billion in 1976, accounting for 63 percent of total exports. In 1979 the total export value of oil reached 68.9 percent before declining to 51.4 percent in 1982 and rising slightly to about 55 percent in 1984 and 1985. However, Syria's oil and petroleum products trade surplus of the late 1970s (and 1980) turned into a deficit in the 1980s. The 1980 surplus of LS2.42 billion fell to a deficit of LS767 million in 1984, making Syria's ability to boost domestic production and reduce oil imports an economic imperative of the 1990s.

Since 1982, when Syria closed its oil pipeline from Iraq and stopped purchasing Iraqi oil as a show of support for Iran in the Iran-Iraq War, Iran has supplied large quantities of oil to Syria on concessionary terms and as outright gifts. In 1984 Iran provided Syria with 6.4 million tons of oil, discounted by US$2.50 per barrel, and 1.6 million tons free, for a total of 8 million tons. In 1985 Iran supplied Syria with six-million tons of oil, including a one-million ton gift. However, Iran interrupted supplies in October 1985 because of Syria's estimated US$1.5-billion payment arrears and price disagreements. Syria turned briefly to Arab suppliers on the spot market, further depleting foreign exchange reserves, before Iran negotiated a new agreement with Syria in July 1986, guaranteeing the supply of 2.5 million tons of oil between October 1986 and March 1987.

Until oil prices jumped in the early 1970s, Syria earned more from the international pipelines that crossed its territory than from domestic oil production. In the early 1950s, the Tapline (Trans-Arabian Pipeline)--running from the oil fields in Saudi Arabia across Jordan and the southwest corner of Syria to a sea terminal on the Lebanese coast--was completed. Capacity was 25 million tons of crude oil a year. Syria earned small amounts of foreign exchange from transit fees (reportedly US$2.8 million in the mid-1970s) for the oil crossing the country via Tapline. Various interruptions of pipeline operations, escalating transit fees, and the reopening of the Suez Canal in June 1975 reduced use of Tapline in the 1970s. Pumping via Tapline was suspended in 1977, while Syria negotiated a new arrangement with Lebanon. In 1987 observers were pessimistic about the future uses of Tapline.

The larger and more important pipeline carried crude oil from the former Iraq Petroleum Company (IPC) fields across Syria via Homs, after which the pipeline branched, with one spur leading to Tripoli in Lebanon and the other spur leading to the Syrian terminal at Baniyas. The IPC pipeline (actually three separate lines) had a capacity of about 55 million tons a year in the 1970s. The pipeline began operation in the early 1950s, providing transit fees as well as the crude that was refined at the Homs refinery into products for Syrian consumption. In the 1960s, Syria frequently used its control at the pipeline for political leverage over Iraq, which depended on the pipeline across Syria until the late 1970s, when its pipeline through Turkey began operation.

Transit rates increased substantially after 1966. In the early 1970s, earnings from the pipelines were more important than direct taxes and one of the most important sources of budget revenue. These earnings peaked in 1974 at LS608 million and were estimated at LS575 million in the 1975 budget. In April 1976, however, Iraq cancelled the transit agreement because of price disputes and cut off oil supplies to Syria. Saudi Arabia supplied oil for the Homs refinery until February 1979, when Iraq and Syria negotiated a new agreement, setting transit fees at $0.35 per barrel compared to $0.45 when the pumping stopped. In 1979 Iraq pumped ten million tons of oil through the pipeline, approximately two-thirds less than the average amount pumped between 1971 and 1976. The outbreak of the Iran-Iraq War in September 1980 again interrupted pumping, but it put Syria in a stronger position vis-a-vis the pipeline, given Iraq's need for revenues to finance the war. Although pumping resumed in February 1981, Syria argued that the pipeline cost more to operate (US$31 million in 1981) than it brought in transit fees (US$25.7 million in 1981). In April 1982, after negotiating an agreement to purchase oil from Iran, Syria closed the pipeline to Iraqi petroleum exports.

By the mid-1980s, Syria had two domestic pipeline systems and two refineries. A crude oil line, with a capacity of fifteen million tons a year in 1977, led from the fields in the northeast to a sea terminal at Tartus, with a spur to the refinery at Homs. Three pipelines for refined products from Homs (each with a capacity of 350,000 tons a year) led to the major consumption centers of Damascus, Aleppo, and Latakia. In 1984 the Syrian Company for Oil and Transport (state-owned) carried 9.5 million tons of crude through its pipeline, up from 8.9 million tons in 1983. In 1979 the new Baniyas refinery was also connected to the domestic crude oil and products pipeline system.

The refinery at Homs was completed in 1959 and began processing Iraqi crude oil for local consumption. In 1977 the refinery's capacity stood at about 2.7 million tons, but after the sixth planned expansion in 1985, its capacity doubled to 5.4 million tons per year. The US$143-million project contracted to Czechoslovakia's Technoexport included the construction of a 480,000-ton-per-year hydrogenation unit, a 380,000-ton-per-year catalytic reformer, and two steam-and power-generating units. Four hundred Syrian workers received training in Czechoslovakia in 1985 in connection with the sixth expansion of the refinery. The seventh expansion of the refinery, scheduled to be completed in the late 1980s, involved the construction of a 100,000-ton- per-year base lube oil complex located at the Homs refinery. The Homs refinery used a blend of crude oil in the 1970s, mixing light Iraqi oil with heavy Syrian crude. Israeli bombing raids on Syria during the October 1973 War severely damaged the operating capacity of the Homs refinery, and the desulfurization unit was not fully repaired until 1976. After 1982 Syria used imported Iranian oil with domestic products at the Homs refinery. In 1985 it processed 5.064 million tons, up from 5.197 million tons in 1984.

The Baniyas refinery was completed in 1979 at a cost of LS1.1 billion. The refinery's maximum capacity was six million tons. In its first year of production, the refinery produced only 1.7 million tons, but this figure more than doubled in 1982 to 4.4 million tons. In 1984 and 1985, the refinery operated at 95 percent of capacity, refining approximately 5.7 million tons of crude oil for an annual production value of LS4 billion. Principal products included high octane and regular gasoline, butane gas, jet fuel, asphalt, and sulfur. The plant employed 2,250 workers in 1984, including 73 Romanian technicians--a sharp decline from the 450 Romanian technical advisers who assisted operations at the Baniyas refinery in 1982.

Syria's natural gas was discovered in conjunction with oil- exploration operations in the northeast part of the country. In 1984 proven gas reserves were estimated at 98.8 billion cubic meters with associated gas reserves of 33.3 billion cubic meters. Although into the 1980s most natural gas was flared, Syria began exporting small quantities of liquified petroleum gas (LPG) in late 1981. Marathon Oil made two promising gas discoveries in 1982 and 1985, finding a gas potential of 450 million cubic meters a day in 1982 at Sharif-2 and 400 million cubic meters a day at Ash Shair I. The economic viability of Marathon's gas discoveries combined with uncertain market forces to cloud future exploitation of these resources. In 1982 Syria awarded major contracts to Technoexport of Czechoslovakia to build a gas treatment plant at Jubaysah and a gas transmission line to Homs for use in the Homs ammonia-urea plant. France also began construction on a gas treatment plant at Rumaylan.

Phosphate was the country's other major mineral resource. The government claimed reserves of one billion tons. The first government-operated mine near Tadmur (Palmyra) began producing in 1971, and two others began operating in 1974. Syrian phospate was low grade (about 30 percent concentration) and high in moisture. Installation of a drying plant in one government-run mine in 1978 helped improve the quality and quantity of output. Production grew from 800,000 tons in 1978 to 1.5 million tons in 1984, but fell slightly to 1.3 million tons in 1985. Syria exported about two-thirds of its phosphate in the 1980s, largely to East European countries as part of barter arrangements concluded between the governments. Although Syrian government officials anticipated that output would triple by 1988 to five million tons and by 2000 equal the output of Morocco, the world's largest producer, production levels have remained well below projected targets. In 1981 Syria's giant triple super phosphate (TSP) plant, built by Romanian contractors at Homs, began production with a capacity of 450,000 tons of TSP, and 800,000 tons of phosphate and phosphoric acid. Syria's production of phosphatic fertilizer more than doubled from 1981 to 1984, rising from 68,333 tons to 191,176 tons.

The other products of the extraction industries were minor. Natural asphalt was extracted at a coastal site and in the central part of the country. In 1976 production amounted to 125,000 tons--a tremendous jump from the 31,000 or less produced in 1975; however, by 1984 production had declined to 52,000 tons. Pure rock salt deposits, totaling over 100 million tons, existed northwest of Dayr az Zawr. Expansion of the mine facilities in the early 1970s raised the potential capacity to over 250,000 tons a year, but production hovered around 50,000 tons through the mid-1970s. Production peaked at 102,000 tons in 1982, but fell back to 38,000 tons in 1984. In addition, construction materials (sand, gravel, stone, and gypsum) were mined in various parts of the country. In 1986 Syria signed an agreement with Turkey establishing joint ventures for mineral exploration, and Soviet and Polish scientific missions discovered sizable iron ore deposits near Az Zabadani and Tadmur. In late 1986, the government also announced the discovery of significant quantities of diamonds.

Electric Power

At independence, only a small part of the population in the larger urban centers had access to electricity, and per capita consumption ranked among the lowest in the world. Small separate, local companies owned by private domestic or foreign interests supplied electricity. During the 1950s, capacity increased, and production expanded by an average of 12.4 percent a year. Rapid expansion continued, and during the 1960s, the state began a national grid. In 1976 electric power generation amounted to 1,732 million kilowatt hours (KWH), an average annual increase of over 14 percent since 1966.

According to the Ministry of Electricity, electricity production rose from 3,720 million KWH in 1980 to 7,310 million KWH in 1984 and 7,589 million KWH in 1985. Annual production growth, however, fell from an average of 19 percent in 1980 to only 10 percent in 1984 and 1985. By 1986 electricity consumption outstripped production, forcing power cutbacks of four hours a day throughout the country. Industry consumed 52 percent of total electricy in 1984, but some factories reported operational capacity of only 60 percent because of power shortages. In May 1986, the People's Assembly debated the electricity crisis, urging renewed efforts to ration electricity consumption and to devise new projects to increase power generation and distribution. Although the electric-power industry was one of the fastest growing sectors of the economy in the 1960s and 1970s (Syria even exported electricity to Lebanon and Jordan in the late 1970s), the state's success in providing electricity to ever greater numbers of the population in a remarkably short time paradoxically precipitated the crisis.

Although the state nationalized electric power generation in 1951, the industry remained fragmented under local administration until a single national company emerged in 1965. In 1974 when the state created the Ministry of Electricity to supervise the development of the electric-power supply, the national electrical company became an agency of the ministry. By 1976 nearly all of the country's generating units were under the national electrical company and linked in a grid. At the end of 1984, the national system had an installed capacity of 2,834 megawatts compared with 1,779 megawatts in 1976. However, the 1980s witnessed a shocking and somewhat unanticipated decline in hydroelectric power production, the dominant source in the state's plan to increase electricity output. In 1979 hydroelectric power generated 73 percent of the country's electricity, up from 55.6 percent in 1975. Hydroelectric power accounted for 59 percent of installed nominal capacity in 1979. But by 1984 hydroelectric capacity produced only 820 megawatts (29 percent of total megawatts) and 1,928 million KWH of electricity or 26 percent of the total. Thermal capacity generated 2,014 megawatts, 71 percent of the total produced in 1984, and produced 5,382 million KWH of electricity, or 74 percent of the total.

The precipitous decline of hydroelectric-power generation resulted from technical and operational problems inherent in the Euphrates dam. In the mid-1980s, the dam's eight 100-megawatt turbines operated below capacity, often producing only one-third of projected output. The low level of water in Lake Assad, caused by poor rainfall and Turkey's use of the Euphrates waters for its Keban and Attaturk dams, also contributed to the difficulties. Although the Euphrates dam was the most important component in the state's plan to expand the national power system in the late 1960s and 1970s, it failed to produce the expected 80 percent of the country's electric power between 1977 and the early 1980s.

In the early 1980s, Syria implemented few new projects to meet the growing demand for energy, but it planned extensions of existing power stations to expand production and new projects for the end of the decade. The Baniyas station, completed in 1981 for US$140 million, anticipated a 2-turbine, 165-megawatt extension in the late 1980s. The Suwaydiyah power station also expected to benefit from a 150-megawatt extension and 4 new turbines. At the Muhradah power station, located west of Hamah and completed in 1979, a major extension totalling US$195 million and financed largely by Gulf development agencies was planned. The US$97 million Soviet-assisted Tishrin power plant (formerly known as Widan ar Rabih station) and another power station near Homs were under construction in the mid-1980s.

In addition, the government considered constructing a nuclear power plant with Soviet assistance. In mid-1983 Syria signed a protocol with the Soviet Union to conduct feasibility studies and select an appropriate location for the country's first reactor. Although Syrian and Soviet officials had originally intended that a 1,200-megawatt nuclear plant come on line in 1990, the project had advanced little beyond the design stage by the mid-1980s. Although nuclear energy promised a solution to Syria's pressing electricity shortage, the political and military obstacles to Syria's developing nuclear energy were formidable, especially in the wake of Israel's bombing of Iraq's nuclear reactor in 1981. As nuclear power became a more costly alternative energy source in the context of volatile Middle East politics, in the late 1980s the government explored the prospects for solar energy.

By 1978 a national grid linked nearly all of the country's generating units and most of the larger towns; distribution extended to rural areas only in the west around such major cities as Damascus and Aleppo. In 1970, based on a housing census, about 85 percent of the urban population had access to electricity but only about 10 percent of the rural population did. According to government statistics, 40 percent of the population remained without electricity in 1980. However, by the middle of the decade, almost all of the urban population had received electricity. Rural electrification projects, a top priority of the Ministry of Electricity in the 1970s, had also achieved widespread success. The government planned extending electricity to all villages with over 100 inhabitants by 1990. The number of villages receiving electricity grew from 424 prior to 1975 to 1,581 in 1979 and had reached 5,894 in 1984. In Ar Raqqah Province alone the number of electrified villages increased from 47 in the period from 1953 to 1979 to 405 in 1984, indicating the dramatic extension of electricity to rural areas. The number of subscribers in rural areas tripled between 1970 and 1984, increasing from 442,307 to 1,564,625.

Expanding electric power distribution and usage in the 1970s, sectoral mismanagement, lack of spare parts for power plants, technical impediments, and declining water levels in Lake Assad produced a mid-1980s electricity crisis. Syrian official statistics and Ministry of Electricity data projected that consumption, growing at an annual rate of 20 to 22 percent in the mid-1980s, would outstrip production until the mid-1990s. Syria could meet the surging demand for electricity in the mid-1980s only by producing 300 to 400 additional megawatts a year. However, with only one 25-megawatt unit at the Baath Dam scheduled to come on line in late 1986, ambiguous plans for 1987, a 320-megawatt increase projected for 1988, and a 400-megawatt increase expected when the Tishrin station began production in 1989, Ministry of Electricity plans fell far short of satisfying demand. The ministry's plans for the 1989-95 period projected a production increase to 2,970 megawatts to meet an anticipated demand ranging from 1,800 to 2,400 megawatts. The theoretical excess production, however, would barely meet the accumulated shortages of the mid-1980s. Electricity shortages, blackouts, power cuts, and rationing remained a prominent feature of Syrian life in the late 1980s, frustrating industrial development and impeding economic growth.

Industrial Development Policy

Through most of the 1950s, private investment primarily fueled industrial development while the government protected public order and fostered a climate suitable for economic growth. After Syria withdrew from a customs union with Lebanon in 1950, domestic manufacturing received considerable protection from competition by imports. The government also provided investment incentives through tax exemptions and cheap credit. Although data for the 1950s were sparse and of questionable reliability, they indicated that the growth rate of industrial production was about 12 percent a year between 1950 and 1958, substantially higher growth than for the economy as a whole. OT

Between 1958 and 1965, Syria experienced an almost complete reversal of development policy. The government assumed a greater role in economic planning, and by 1965 had nationalized most of the larger manufacturing concerns. Prior to nationalization in 1965, land reform, talk of socialism, and the 1961 nationalization decrees during the union with Egypt frightened private investors. In addition, the government was unable to implement the investments included in the First Five-Year Plan. Consequently, the rate of increase of value added by industry amounted to an annual average of 4 percent in constant prices between 1958 and 1965, although other factors, particularly a severe, prolonged drought (1958-61), contributed to the slower growth of industrial output.

Through the complete or partial nationalization of 108 large- and medium-sized enterprises, the state created the nucleus of the public industrial sector in January 1965. Thirty-seven firms were completely nationalized, and the other 71 firms were nationalized to an extent varying between 75 and 90 percent; however, these semipublic firms were fully nationalized in 1970, retroactive to 1965.

After nationalization, most public sector industry was located under the Ministry of Industry and organized under four broad holding companies called unions--specifically food, textiles, chemicals, and engineering unions. Separate ministries controlled the national electric power and petroleum companies. In the mid-1970s, the national petroleum company was divided into several separate companies responsible for such particular functions as exploration and production, transport and terminals, refining, and domestic sales and distribution.

After the 1965 nationalizations, the government dominated the economy and controlled most elements affecting industrial development, including planning, investments, foreign trade, pricing, and training. The planners avoided the temptation, succumbed to by many developing countries, of constructing large, expensive prestigious industrial projects that provided only small or distant returns. Most projects were geared to the size and needs of the Syrian economy. Development emphasized natural resources (essentially oil and phosphates for export), additional capacity for processing local materials (textiles, sugar refining, and cement), and import substitution (fertilizers, iron and steel, and consumer durables). In the late 1970s and the 1980s, however, observers questioned government priorities that resulted in creation of large industries relying on import substitution. An example of domestic questioning of the government's economic management occurred at the Eighth Baath Regional Congress in 1985. The issue of a planned sugar refinery- -a prominent symbol of public sector domination of an industrial sphere--generated significant debate. Critics challenged the wisdom of the project because the cost per kilogram of processed sugar would be several times the price of imported sugar. Completed in the late 1970s with a capacity of 1.6 million tons of sugar beet a year, the plant produced an average of only 500,000 tons of sugar per year from 1980 to 1983.

Since the late 1960s, economists generally have characterized Syrian public sector industry as inefficient, with underused capacity and high production costs. A number of factors contributed to inefficiency. For example, during the political instability of the 1960s, rapid turnover of key personnel and selection of high officials and managers on the basis of loyalty rather than qualifications contributed to inefficiency. Wide swings in agricultural output because of variation in rainfall was another factor. In addition, government pricing created distortions and even undermined the basis for judging efficiency; subsidies to plants were sometimes required because retail prices were kept low for consumers. Planning was also poor. For example, a US$100 million paper mill using straw for raw material went into production at Dayr az Zawr in 1979 but operated far below capacity, as officials realized that Syria barely produced enough straw to operate the mill. Furthermore, the cement works at Tartus were forced to cut production in half, falling from 5,000 to 2,500 tons a day in 1984, as a result of construction delays in the completion of a special unit to package the cement for export. However, the Eighth Baath Regional Congress in 1985 endorsed a series of measures to correct public sector mismanagement, upgrade administrative capabilities, and revitalize the industrial sector as a stimulator of economic growth.

The shortage of skilled workers and capable managers also plagued public sector manufacturing. Because of the nationalization drive and political instability of the 1960s, Syria experienced tremendous capital flight and a substantial exodus of administrators, engineers, plysicians, and other technically skilled professionals. The shortage of skilled labor intensified in the 1970s, as Syrian professionals found higher paying jobs and increased opportunities in the Persian Gulf states. In addition, many Syrians entered government service to gain experience and soon after went to work for private industries offering much higher salaries. Moreover, vocational training institutes could not keep pace with the needs of the economy. However, the shortage of skilled workers began to improve in the mid-1980s as Syrian workers came home to escape depressed economic conditions in the Gulf states and invested accumulated capital in new enterprises.

When Assad took control of the government in 1970, he introduced important modifications of economic policy. Although commitment to state socialism, central planning, and a large public sector remained firm, Assad liberalized controls and encouraged greater private sector industry. Encouragement to the private sector that extended to both domestic and foreign investors included decreased difficulty in obtaining construction permits and licenses for machinery imports plus various tax concessions. Although private investments in industry increased in the 1970s, domestic investors remained hesitant and foreign companies even more so, despite conclusion of bilateral investment guarantee agreements with the United States and some West European countries. Observers expected private investors gradually to increase their industrial activity if the government continued its liberalization policies.

The government attempted to introduce growth in the industrial sector by assuring the private sector a greater economic role. Between 1965 and 1970, the growth rate of the index of manufacturing (excluding extractive industries and public utilities) remained at 4 percent a year, revealing the largely static condition of manufacturing. The general index for all industrial production increased by 7.8 percent a year over the same period, reflecting the importance of the expansion of oil production after 1967.

Although the results of the government initiative to stimulate private sector investment after 1970 could not be distinguished in available data from a rise in public sector industrial growth, the index for the combined output of public and private manufacturing (excluding extractive industries and public power) showed remarkable improvement between 1970 and 1976, averaging 9 percent a year. The increase in 1976 alone was 17 percent. Increased production by manufacturing derived from public sector investments and reflected increasing government development expenditures since the mid-1960s. The increase also resulted from Syria's miniversion of the oil boom in 1974 and 1975, when industrial investments rose sharply as a result of increased aid from oil-rich Arab countries. Between 1980 and 1984, however, the general index for all industrial production increased only 6.8 percent a year, while the index for the combined output of public and private manufacturing grew at 13 percent per year.

In 1985 the government embarked on another liberalization campaign to encourage increased private sector investment in the productive sectors, as detailed in the Fifth and Sixth Five-Year development plans. Although the public sector continued to dominate the economy, the private sector's role grew in the 1980s, accounting for over 30 percent of GDP by 1984. The government hoped that its liberalization campaign would further boost the private sector's contribution to GDP in the 1990s. This hope was reflected in the final communique of the Eighth Baath Party Congress in January 1985, which recommended a more market-oriented approach to solving Syria's pressing economic problems. Accordingly, the government eased restrictions on the private sector and encouraged exports by establishing more competitive exchange rates for imports. The April 1985 reappointment of Muhammad al Imadi, architect of Syria's economic opening in the 1970s, as minister of the economy and foreign trade, confirmed the government's desire to proceed with its liberalization program. Imadi, who had served as chairman of the Kuwait-based Arab Fund for Economic and Social Development in the early 1980s, urged widespread economic reforms to improve Syria's economic performance through private sector initiatives and joint ventures between the state and private sector.

In September 1985 President Assad approved decree No. 356, which permitted importers, for the first time, to pay for raw materials, spare parts, and other industrial inputs with foreign currency earned through employment or investment outside the country. The severe foreign-exchange shortage of the 1980s, exacerbated by declining worker remittances from the Gulf states and shrinking oil revenues, frustrated industry's efforts to acquire much-needed raw materials and forced factories to shut down or significantly reduce production. The state's tight currency controls and restrictions on imports caused businesses to channel imports illegally into Syria via Lebanon and produced a drastic decrease in officially recorded imports in the 1980s. However, even the thriving "parallel economy" (or black market) did not meet industry's demands. The government continued the crackdown on smugglers, begun in 1984, and introduced reforms to decrease the time and capital expenditure required to obtain official import permits and letters of credit. Another major component of the government's mid-1980s liberalization drive involved an attempt to attract Arab and other foreign investment in Syria's tourism industry by offering a seven-year tax deferment and exemption from most foreign exchange and import restrictions.

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