The Difficulty Surrounding Reform within Syria and Morocco
By: Jim Lindley
December 7, 1998
Globalization - Boone/Henry
The road to economic liberalization of capital within the Middle East and
North Africa (MENA) is one fraught with difficulty. The difficulty often
arises from the entrenchment of political regimes which have long
controlled the governance of society and the economy. Such regimes are
oftentimes unwilling to replace state control with liberalizing policies
that might jeopardize the political power such regimes hold. However, the
expanding global economy dictates the necessity for change so that these
nations can effectively join the international market place. A tradition
of control by the political elite as ancient as the notion of "sultanism,"
lie at the very root of the difficulty of transition for many of these
nation-states.
"Part of the superficial attractiveness of machine bureaucracies is that
they do quite well in coping with hostile political environments. Power is
centralized in the administrative apex, and this arrangement provides clear
responsibility for administrative action and quick response to political
threats. A large, older administrative system must decentralize if it is
to deal with change effectively, but this will not happen unless it has
legitimacy and acceptance (i.e. unless the political environment is
sufficiently benign that the just-mentioned political defensive advantages
of Weberian systems are not perceived by the organization as vital to its
security) [Fathaly and Chackerian, 1983: 202-7]."
The ability to effectively control most aspects of society and the power
associated with near dictatorial structures are extremely difficult to
change. Indeed, rulers of the nations of the Arab world appear to prefer
"a system of administrative authority in which all power emanates from a
single political leader; and where the influence of others is derivative in
rough proportion to their perceived access to him or their share in his
largess." However, the world is changing and the necessity to reduce such
political power and open up the economic systems to foreign capital and
competition is bringing with it a proportion of structural change for these
nations. The modes of transition for the nations within this region are as
diverse as the nations themselves. The variation among these nations and a
multitude of differing external factors also impacts how far along the road
to economic liberalization these nations in the MENA region can be found.
The situation within Morocco and Syria exemplify the differing degree of
transition to greater economic liberalization found within this region of
the world.
These nations gained independence in the post-World War II world and
established authoritarian regimes. The government structure utilized
methods aimed at attaining and retaining all-encompassing control of the
economic sector. The utilization of patronage measures and clientelism to
consolidate the state’s control over the economic and political sectors
further complicates the structure of governance in these nations.
Additionally, the rent-structure of the economy resulted in the rise of a
political elite. These factors attest to the predatory nature of the state
within both of these countries in the period following their independence;
although, Morocco has undergone dramatic changes of its state-structure.
Morocco has instituted reform largely because of economic downturns and the
huge debt crisis it faced in the mid-1980s. The result for Morocco is an
increased degree of openness to foreign investment and the privatization of
its banking system. On the other hand, Syria is just beginning the
transition process. Syria has felt the impact of economic recession, as
well. Coupled with the fall of the Russian economy, which provided a
source of aid, and decreases in oil prices, Syria has become aware of its
precarious economic position and begun marginal changes. These countries
still have problems which must be faced if true incorporation to the global
capital markets is to become a reality.
The relative size of these two nations differ somewhat. The relative sizes
of these two nations can be best understood when compared with other
nations found in the region. Additionally, the total Gross Domestic
Product received expose the difference in revenues available (See Table 1).
TABLE 1:
Population 1995 GDP 1975 1985 1994 1995
(millions) $US Bill.
Morocco 26.6 Morocco 9 12.9 30.3 32.5
Algeria 28 Algeria 15.6 58 42.1 41.4
Tunisia 9 Tunisia 4.4 8.4 15.7 18
Egypt 57.8 Egypt 11.4 34.7 42.9 47.3
Palestine 2.5 Palestine 3.1 3.2
Jordan 4.2 Jordan 5 6
Syria 14.1 Syria 6.8 16.4 15 16.8
Turkey 61.1 Turkey 46.7 67.2 130.7 164.8
Source: World Development Indicators, World Bank: 1997.
Generally, both countries’ population have been rising, although they are
still relatively small in comparison to other third world developing
countries. The data indicates an increase in Moroccan GDP since 1975. The
Syrian case has also risen in its GDP levels, but not as dramatically. The
greater proportion of GDP that Morocco collects alludes to the beneficial
results of its economic reform programs. Descriptions of each of these
countries and historical backgrounds provide further understanding of the
difference of reform measures and their effectiveness.
Following the declaration of independence of April 17, 1946, Syria went
through a period of rapid economic development and political upheaval. In
the period following Syria’s independence, the political scene was
embroiled in a number of coups. A military coup in 1954 concluded with
Arab nationalist and socialist elements attaining power. In the aftermath
of the Suez Crisis, Syria joined with Egypt in the creation of the United
Arab Republic. However, the UAR did not last, and Syria regained its
independence following another military coup in 1961, resulting in the
formation of the Syrian Arab Republic. The newly formed government
suffered instability and finally concluded with the takeover of the
National Council of the Revolutionary Command in 1963. This takeover was
largely engineered by members of the Ba’ath Party. Coups continued in
Syrian politics until President Hafez al-Assad attained power in 1971.
Presently, Syria’s political scene is marked by the continued rule of the
Ba’athist authoritarian regime under President Hafez al-Assad.
President Assad, currently in his fourth seven year term, is a member of
the Alami minority sect of Islam that represents roughly 11 percent of
Syria’s population, and is Syria’s longest-lasting modern leader. The
Presidential monarchy in Syria, similar to the French etatist model, is
vested with broad policy-making powers, and controls the civil and military
bureaucracies. The Presidential monarchy relies on oil and state
production rents to keep the bourgeoisie subservient and dependent on the
state through patronage. Moreover, the regime utilizes public policy
making to further its own interests over the other classes. The resultant
economic scene is plagued by corruption and tax evasion by the private
sector. Therefore, the Presidential monarchy must defend its public
sector to retain its revenues. President Assad’s policies regarding the
economy are aimed at limited economic liberalization for these very reasons.
Morocco its independence from status as a French protectorate in 1956.
The political scene following independence was subject to a number of
political coups. The political turmoil resulted in the formation of three
different constitutions. The current government structure in Morocco is a
constitutional monarchy under the rule of King Hassan II, the head of
State, and governed by Prime Minister Filali. The monarch (Commander of
the Faithful), in the Moroccan case, serves as the secular and religious
leader who is given sufficient powers to ensure control over the political
institutions functioning within the country. The monarch has the ability
to appoint and dismiss the prime minister and other government ministers
and presides over all important government bodies such as the Council of
Ministers, the Supreme Council of the Judiciary, the Supreme Council for
National Development and Planning, and the Supreme Council for Education.
The king also possesses a form of veto power over legislation.
The political regime in place was characterized as authoritarian
utilizing forms of patronage since 1958. The patrimonial rule kept the
opposing political parties pitted against one another and stemmed from the
royal family’s makhzan. After 1983, the IMF and World Bank imposed
measures for economic liberalization which were also meant to stifle
traditional forms of patronage. The makhzan’s purchase of Omnium
Nord-African (ONA) in 1980, provided the monarchy a new method by which to
maintain control over political and economic reform while meeting
international commitments, thereby extending the patronage of the monarchy.
The ONA was utilized to establish a solid foundation in the commercial
banking industry before starting to privatize and lift credit restrictions.
The end result was a policy of liberalization of financial capital and yet
providing the opportunity for this highly powerful conglomerate to
establish control over the liberated economy.
Morocco is a middle-income economy that depends mainly on services,
agriculture, and the mineral industries. In 1995, the services sector
comprised 52.5% of the total Gross Domestic Product (GDP), industry
comprised 33.2%, and agriculture comprised 14.3%. Morocco’s agricultural
sector is mainly devoted to the production of cereals such as wheat,
barley, corn, and oats which are mainly used for domestic consumption, but
overall Morocco is a net importer of cereals. Modern farms also produce
citrus and vegetable crops for export. The agricultural sector is contains
a substantial share in livestock raising, fishing, and forestry. The
manufacturing sector of the economy includes the production of foodstuffs,
chemicals, metal products, and construction materials, accounting for
approximately 19.2 percent of GDP in 1995. The natural resources found
here also include a large supply of minerals, especially phosphates and
phosphate derivatives that account for over a quarter of Moroccan exports.
Morocco also imports a substantial amount of oil, machinery and
transportation equipment (See Table 2).
TABLE 2:
Trade: Morocco 1980 1985 1994 1995
$US Millions
Imports 4160 3850 7188 8563
Total Exports 2490 2170 4013 4802
Ex. Fuels/Min/Met 1128 686 563
Source: World Development Indicators, World Bank: 1997.
Syria’s is a middle-income developing country whose economy is divided
between a large agricultural, industrial, and expanding energy sector. In
1985, the World Bank estimated that agriculture comprised 21 percent of
total GDP, industry comprised 21.9 percent, and the services sector
comprised the remaining 57.1 percent. However, the World Bank provides no
estimates for the current period. Cotton production had been the main
staple of the Syrian economy as a cash crop since ancient times until the
introduction of petroleum export. Cotton continues to be an important
component of the agricultural sector along with other products such as
tobacco, wheat, and fruits. (See Table 3)
TABLE 3:
Trade: Syria 1980 1985 1994 1995
$US Millions
Imports 4120 3970 5467 4616
Total Exports 2110 1640 3547 3970
Ex. Fuels/Min/Met 1648 1235 1013 **
Source: World Development Indicators, World Bank: 1997.
** The figures in bold are estimates based on the decreasing prices of oil
during the late 1980's and the percentage of oil exports from total
exports.
Syria’s geography limits agricultural production to approximately one-third
of its area. Agricultural production is largely financed by the Syrian
government. After redirecting its economic development priorities in 1989,
Syria has gone from a net importer of agricultural products to an exporter.
Syria’s oil resources are small in comparison to many of the other Arab
oil-producing countries, however; the petroleum industry provides
substantial revenues for the regime. In 1989, petroleum production helped
Syria achieve a trade surplus and accounts for three-quarters of the
country’s export income. An IMF estimate states that government oil
revenues accounted for 45 percent of total revenues in the period between
1996 and 1997.
Morocco has increased its total volume of exports as well as its volume of
imports. A far better measure of how open these economies are to trade is
the combination of total exports plus imports as a proportion of total GDP.
The following table also displays another important factor, the openness
to investment. The data does not provide very much insight for the
Moroccan case, except a small rise in the openness to trade from 1994 to
1995. Syria on the other hand has increased its openness to trade by an
amount close to double by 1994 and then falling back. (See Table 4)
TABLE 4:
Openness to Trade
Openness to Investment
Total Exports + Imports / GDP
Total Exports + Imports / FDI
1985 1994 1995 1994 1995
Morocco 0.467 0.37 0.411 20.3 46.1
Algeria 0.39 0.431 1009
Tunisia 0.536 0.716 0.743 26 50.7
Egypt 0.212 0.318 0.321 10.9 25.4
Palestine 0.416 0.461
Jordan 0.704 0.801 1602 127.1
Syria 0.342 0.601 0.511 63 132.1
Turkey 0.287 0.317 0.348 68.1 64.8
The greater openness to trade for both countries also alludes to the
reality that rents either through the collection of oil revenues or
remittances is decreasing in its importance in Morocco and Syria. The
consequence of the large proportion of oil revenues or remittances results
in the ability of the government to delay the process of reform. Oil
revenues and remittances combined are a portion of the total amount of rent
revenues that MENA countries receive. Morocco and Syria are no exception
to the use of rents as an input to their total revenues. The true
importance of rents can be seen from the proportion of rent revenues to
GDP. Syria has dramatically decreased this percentage from the period
between 1980 and 1994. The decrease came largely as the result of
decreasing oil prices around the world, in addition, Syria’s limited oil
supplies are estimated to be decreasing. Another reason for the decreasing
amount of total rents is a decrease in the amounts of remittances that are
being brought in by Syrian workers abroad. Even though the proportion of
rents is decreasing, it is still well above many of the other developing
countries found around the world. The dependence of the countries of the
MENA region on income from rents has hampered their progress towards true
globalization and liberalization of capital markets. (See Table 5)
TABLE 5:
Total Rents 1980 1994
Morocco 2297 2669
Algeria 14244 8799
Tunisia 1579 1202
Egypt 4891 7490
Palestine 612
Jordan 2076 1737
Syria 4073 1501
Turkey 2500 3487
Total Rent = Remitances + Exports Fuels/Mineral/Metals + Grant Aid
Rents as % of GNP 1980 1994 Other Countries
Rents as % of GNP 1994
Morocco 12.6 9.1 Argentina 0.5
Algeria 34.6 21.8 Brazil 1.2
Tunisia 18.6 7.9 Chile 8
Egypt 22.8 **17.7 S. Korea 0.6
Palestine 17.6 Thailand 0.5
Jordan 30.5 Malaysia 7.5
Syria 31.2 10.6
Turkey 3.6 2.66
** When revenues from the Suez Canal ($1.9 Bill 1994) are factored
into the calculation then Rent % rises to 22.2%
Workers Remittances 1980 1988 1992 1994 1995
($US Millions)
Morocco 1094 1303 2171 1827 1904
Syria 774 360 550 370 400
Source: World Development Indicators, World Bank: 1997.
Morocco has a percentage of rents to GDP that is comparable with Syria, but
Moroccan rents are not attributed to oil production. The Moroccan case
stems from the large proportion of remittances which the country receives.
The impact of the decreases in the proportion of rents provides merit to
the postulate that these countries are having to cope with the expanding
world market and gradually open their economies to trade and more foreign
investment. New sources of capital have to be identified to offset the
losses from the rents. Syria is clearly the slower of the two at
implementing structural change towards this end.
The Syrian industrial sector was nationalized along with the banking and
insurance sectors in the 1960’s. However, Syria’s industrial sector has
emerged from its past of complete public ownership to a present composition
of mainly public, some mixed, and growing private ownership. The breakup
of Russia and the decline of its economic power combined with an economic
downturn in Syria during the mid-1980’s led Syria’s leadership to consider
broader reaching economic adjustment.
In 1991, Law No. 10, the Investment Law, was introduced which signaled the
Syrian government’s intention to open up its market to private investment.
The Investment Law provided a number of incentives to attract foreign
investors. These incentives included tax exemptions, lessened restrictions
on imports of material needed for investment projects, and relaxation of
hard currency restrictions to facilitate capital transfers. The
Investment Law was meant to open new opportunity for foreign investment
within Syria and aid in the overall improvement of the economy. The actual
amounts of foreign direct investment inflows can be found in the following
table. (See Table 6)
TABLE 6:
Long-term aggregate net resource flow and net transfers
($US Millions)
1980 1988 1992 1994 1995
Morocco FDI 89 85 422 551 290
Port Eq Inv 0 0 0 63 150
Grants 75 108 182 279 100
Net Trans 860 14 -1330 -611 -1088
Syria FDI 0 121 67 143 65
Port Eq Inv 0 0 0 0 0
Grants 1651 26 26 118 70
Net Trans 2496 951 80 298 222
MENA FDI -3313 1966 2228 -347 2229
($US Billions) Port Eq Inv 0 0 0 203 650
Grants 4696 1657 3946 3206 2775
Net Trans -1.9 -5.3 3.7 -5.6 1.9
FDI = Foreign Direct Investment
Port Eq Inv = Portfolio Equity Investment
Grants = Grants (excluding technical coop.)
Net Trans = Net Flow of Long Term Debt + FDI + Port Eq Inv - Interest LT
Debt - Profit remitances on FDI
Source: World Development Indicators, World Bank: 1997.
The data suggests just the opposite for the period between 1992 and 1995.
During this period, inflows rose from 67 million US$ to 143 million US$ in
1994, but then fell to 65 million $US in 1995. The calculation regarding
how open the economy is in terms of investment, provided earlier, does not
express the true impact of the investment law. The data shows quite the
opposite from the expected outcomes of such a proactive change. The true
impact is hidden within the calculation because if the total amounts of
exports and imports is rising to a greater extent than the total inflows of
FDI then the calculation will rise. However, a rising number does not
necessarily mean vis a vis that the economy is becoming more open to
investment. The enactment of the Investment Law alludes to the Syrian
governments commitment to increased foreign investment.
The banking structures of these two nations lie at completely opposite
ends of the spectrum. The banking system in Syria is characterized by the
fact that it is completely state-owned. The Moroccan system contains a
mixture of state and privately owned banks, the majority of which are
private. The Syrian Central Bank functions directly under the control of
the monarchy. The result of this situation is that the banks act as relays
of the central treasury and there is no real banking, or structural power
of private capital. Any available investment capital is kept out of the
banking system and contributes to the informal economy, or kept offshore,
in Lebanon or elsewhere. The current banking system is unable to
adequately service investors leading local businessmen to divert
transactions. A further reason why the regime hopes to maintain tight
control over the banking system stems from the fear that freeing foreign
currency exchange rates could devalue the Syrian pound and cause price
increases. Therefore, the regime’s pursuits at controlling exchange rates
has deterred the possibility of private or joint venture banking. The
high concentration in state-banking, coupled with the fact that Syria lacks
a stock market, severely limits the further expansion of the Syrian economy
into the global market place. The C.I.M. (Capital Intensive Money) ratio
for Syria exposes the reality that over half, 0.55 in 1992, of capital is
outside of the banking system. The reality is that there is an informal
economy which continues to operate. Rabet Shallah, president of the
Damascus Chamber of Commerce, illustrated how far the Syrian economy needs
to advance to provide small investors a share in the economy: "We (Syria)
have embarked on a development plan that is too big to be completed without
a stock exchange …. We have no doubt Syria cannot afford to have a
completely free market for banks, but within this there is a lot we can do."
Morocco’s banking structure includes a Central Bank, Bank al-Maghrib,
founded in 1907, which became publicly owned in 1959, and prior to the
privatization efforts of 1991, maintained strict controls over interest
rates and credit restrictions. There are currently two public sector banks,
the Banque du Credit Populaire (BCP), and the Banque Marocaine du Commerce
Exterieur (BCME), and the banking oligopoly also consists of five
medium-sized private banks. The commercial banking sector can be
classified as highly concentrated falling under the "German" variant of
capitalization which is defined by a small number of banks that "are
privately owned and universal, operat(ing) like an oligopoly, and
provid(ing) most of the finance capital to the real economy." Moreover,
the Moroccan system has an HHI ratio equal to 20.6%. Morocco’s C.I.M.
ratio has been stable around 0.76, throughout the 1990’s which means that
there continues to be an informal economy operating. The C.I.M. ratio is
also greater than that of Syria, meaning that the informal economy is
stronger in Morocco. The Casablanca Stock Exchange (the Bourse des
Valeurs) remains relatively small with only 71 companies quoted out of more
than 4000 firms registered, but the privatization program begun in 1991 has
increased the volume of trading. The volume of market capitalization has
increased dramatically between the period of 1990-95. Indeed, market
capitalization as percentage of total GDP has increased by over ten
percent. The following table illustrate the development of the stock
market in relation to some other countries. (See Table 7)
TABLE 7:
Stock Markets Turnover Ratio
Value Traded (value of shares traded
Market Capitalization % of GDP % of GDP as % of capitalization)
1990 1995 1990 1995 1990 1995 1990 1995
Morocco 966 4376 3.7 14.4 0.2 2.6 0 0
Tunisia 533 4006 4.3 22.3 0.2 3.7 3.2 20.2
Egypt 1765 8088 5 17.1 0.4 1.4 7.3 11
Jordan 2001 4670 49.8 75.2 10.1 10.3 19.6 11.2
Syria
Turkey 19065 20772 12.7 12.6 3.9 31.2 45.2 242.5
Source: World Development Indicators, World Bank: 1997.
The development of the Moroccan stock market is clearly rivaled by the
developments of many of these other countries stock markets. In January
1995, legislation was introduced to create closed-end investment funds
(Sicavs) and mutual funds, and Moroccan Finance and Foreign Minister Mourad
Cherif stated the governments commitment to further change when he said,
"We must move prudently, but we must move into new areas with new
instruments." What continues to stand out is that Syria will have to
establish a stock market for itself at some point in the near future if it
is to stand a chance in the modern world.
The countries within the MENA region also suffer from an inability to
effectively collect taxes. Tax avoidance is common place, and adjusting
the system to a more beneficial structure suffers because tax revenues are
offset by the collection of rents. The total amounts of taxes can be seen
in Table 8.
TABLE 8:
Tax Revenue (%GDP) 1980 1988 1992 1994 1995
Morocco 20.381 21.675 25.468
Syria 10.532 14.351 19.401 17.804
Direct Taxes (% Revenue) 1980 1988 1992 1994 1995
Morocco 19.245 19.102 23.829
Syria 9.698 29.546 29.617
Seignorage(%GDP) 1980 1988 1992 1994 1995
Morocco 0.701 1.955 -1.568 1.056 0.953
Syria 7.782 -1.938 9.065
Source: World Development Indicators, World Bank: 1997.
Large portions of the taxes collected comes from indirect sources as well.
Additionally, seignorage plays a large role in Syria, but Morocco has a
smaller portion of seignorage as a percent of GDP.
The conclusion that can be drawn from the analysis of these two countries
is that reforms for these countries economic systems, such as the accuracy
of prices and the elimination of all constraints on the market, can only be
accomplished through competition and transparency in the economic sphere.
Also, the distribution of rents, favors and privileges that has been a
reality for these countries traditionally and currently must be replaced
with individual responsibility, the rights of consumers and efficiency
through competition. The governments of these two countries are gradually
adjusting because of the external economic forces that they are facing.
Declining rents will continue to push the leaders of these countries to
make the necessary and unavoidable transition to the world market place.
Morocco and Syria have taken some measures towards this goal, but more are
required. The enormous debt crisis felt by these countries during the
1980’s are a further motivation for the implementation of these necessary
changes. The following table shows the seriousness of the debt problems
each of these countries faces. Total Debts have generally been on the rise
since the mid-1970s and this situation must be faced at some point in the
future. (See Table 9)
TABLE 9:
Tot. External Debt 1975 1985 1994 1995
($US Millions)
Morocco 2353.4 15753 21587 22146
Syria 785 10842.7 20558 21318.4
Debt/GDP (%) 1975 1985 1994 1995
Morocco 26.2 122.4 71.1 68.3
Syria 11.5 66.1 137.1 127
TDS/XGS(%) 1980 1988 1992 1994 1995
Morocco 33.4 26.7 40.3 34.7 32.1
Syria 11.4 16.4 6.1 7 4.6
Source: World Development Indicators, World Bank: 1997.
Haggard and Kaufman noticed that part of the failure of democracy taking
root in these developing countries is because the rulers of very poor
countries have a greater capacity to prolong their domination. The
continuation of the regimes is a result of the inability of the private
sector to attain independence and launch successful sustained protest
against declining economic conditions.
"In these societies, economic hardship was often associated with social
violence, palace coups, and the deterioration of central control over
population and territory. But into the early 1990s, predatory personalist
rulers were surprisingly adept at resisting reform and clinging to office
through continued access to external aid, repression, and careful
maintenance of patronage relations."
The relevance of this passage seems clear. Moroccan and Syrian regimes
have continually attempted to maintain their control of the economic and
political scene of their respective countries. Certainly, these countries
will continue to try to do so, but the problems surrounding their economies
are becoming more severe. The pressure from outside forces such as the
World Bank and the IMF continues to increase as well. The dependence on
rents and aid money will truly not last forever, and transition will become
inevitable. Eventually, these political regimes will fracture, thereby
opening the way for more through political restructuring.
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"There are going to be times when we can't wait for somebody. Now,
you're either on the bus or off the bus. If you're on the bus, and you get
left behind, then you'll find it again. If you're off the bus in the first
place - then it won't make a damn."
Ken Kesey
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James D. Lindley, Jr
MPAff Candidate - LBJ School of Public Affairs
MA Candidate - Center for Middle Eastern Studies
University of Texas at Austin