Last week?s state visit to India by President Bashar al-Assad of Syria denoted more than just an expression of satisfaction with the deepening of mutual ties. The president wants more of the same.
Syria, which is experiencing a fall-off in oil exports, and is indebted internally, received investments in 2006 from India to the tune of $84 million out a total of $800 million. That was just $16 million short of China?s $100 million, while Iran topped the list. India, therefore, emerged third highest. Even Germany was fourth-ranked, with $24 million, while the EU as a whole put in $155 million. That must have been what led Syria?s industry minister, Fouad Issa al-Jouni, to visit Bangalore in January 2007. He outlined Syria?s investment potential at a CII conference there.
Even then, India?s investments in Syria have mostly been small-scale ones. That holds despite one of their main targets being the energy sector. But now Damascus seems to want bigger FDI and sector-diversification.
India, meanwhile, would like Damascus to open up in the new emerging sectors. Telecom is paramount amongst them, and even President Assad confirmed his own interest in the sector following his June 18 morning meeting with the Indian Prime Minister Manmohan Singh in Hyderabad House. No wonder India?s booming IT industry has Syria in its sights?a country that is about to enter the next stage of the communications revolution.
New Delhi is also eager to step up trade with Syria. Bilateral exchanges grew by 78.9% over 2006-07, going from $272.8 million (2005-06) to $487.9 million (2006-07). Exports to Syria grew by 47.6% during the interval 2005-06/2006-07 and amounted to $408.39 million in 2006-07; that is in contrast to the $276.7 million for 2005-06. As for imports, they added up to $79.5 million over this interval, including petro-product imports worth $67.5 million.
Syria would like stepped-up trade with India since the latter is a major oil importer, and petro-exports account for 50% of the Syrian government?s total revenue takings. Oil exports also account for 67% of its forex earnings.
But President Assad also knows that his country?s reliance on oil and agro-products like raw cotton or minerals cannot carry on indefinitely. He understands that industry must be promoted in order to set-off the exhaustion of oil reserves, and ensure employment for the ever-increasing numbers who are joining the labour force (unemployment is at 20%).
First of all, oil exports would resile because Syria is facing the problem of resource exhaustion. Reserves, output and exports have all been on the decline, making petroleum an unreliable revenue source. Indeed, crude output attained a peak of 5,40,000 b/d in 2000, but has been falling ever since: it declined to 4,14,000 b/d in 2005 and to 3,94,000 b/d in 2006. Exports mimicked that by touching a record high of 3,64,000 b/d in 2000, but thence fell to 2,11,000 b/d in 2005. The latest available approximations say that there was a further fall, to 1,83,000 b/d, in 2006.
A RAND Corp study of 2004 even noted how, faced with the challenge of declining oil production, the Damascus government had been summoning multinationals to invest in the oil and gas sector ?with no exception or discrimination?. But London-based, petroleum-sector analysts like Bassam Fatooh doubt if the new explorations will necessarily raise oil production; instead, it might merely maintain present output levels.
The second problem staring the Syrian government in its face is an imminent revenue crunch that, again, has to do with levies on oil. Export shortfalls are very worrisome from the viewpoint of domestic taxation. So it is unsurprising that Syria feels the need for non-oil?that is, industrial and service-sector?investments. Only those can put the economy onto another, far more sustainable, path of long-term growth. Alongside that, the other need is to finance infrastructure growth in a manner that would be commensurate with Syria?s intended manufacturing, and service-sector, ambitions.
In short, President Assad?s intents during the post-2000 regime has been to diversify, and accelerate, structural change?something signaled very clearly by the three collaborative agreements concluded by the two sides on June 18. In sum, Syria wants India?s assistance in order to carry out structural economic change?which includes stepped-up inflows of investable capital, employment creation, product diversification, and ascent along the marginal value added (MVA) ladder.
But there are difficulties too, illustrated by the difficulties faced by the Computer Maintenance Corporation (CMC). The latter has been finding it hard to finalise contracts for railway automation in Syria. But things may improve now that the Indo-Syrian Joint Trade Committee (JTC) has been upgraded to India-Syria Joint Commission. Kamal Nath spoke of the likely Indian investments in rock phosphates and fertilisers, cement, power, IT, education and agro-industries during Session I of the India-Syria JCM (January15-17, 2008). That was also when the Indian side offered to participate in developing Syria industrially. The instrumentalities for that would be investments, JVs, modernisation, supply of machinery, managerial expertise, and technology services.
Meanwhile, India has already allotted a $25 million credit line for upgrading and expanding Syria?s GECO Steel. Also, Kamal Nath has encouraged Syria to send across a delegation to explore the possibilities of chemical sector cooperation.
It is the twin intents of FDI host and donor economies that explain the first two of the three Indo-Syrian collaborative agreements. Signed on June 18 by the PM and President Assad, the first addresses the need to eliminate double taxation on income. It is titled ?Avoidance of the Double Taxation and prevention of Fiscal Evasion with respect to Taxes on Income?.
The second agreement also deals with bilateral investments, but the third sets out a framework for cooperation in agriculture and allied sectors.