Bashar's weird timing

Leave it to Syria to decide to undertake a more expansive approach to financial sector liberalization in the middle of the worst economic downturn in sixty years. In March, the Syrian government launched the Damascus Securities Exchange, and according to an article in today's Journal, they are preparing to grant new private banking licenses to foreign investors. The hope (on the government's part, that is)is that Syria will attract enough foreign investment to begin to offset its declining oil output.

Don't get me wrong- Syria has been working slowly towards this in recent years. It's been quietly allowing Arab foreign investors (usually from the Gulf) to open JVs with local partners in an array of financial services. It's also welcomed investment in oil and gas exploration and real estate. But presumably the little dog and pony show the government put on recently for the Journal is designed to attract a wider audience beyond the usual cast of characters- namely Kuwait, Iran, sometimes Russia, and UAE. I guess Damascus didn't get the memo, though, that foreign investment, like trade, has slipped sharply as most companies hunker down to outlast the crisis. In fact, I've seen more reports recently of companies selling off assets rather than buying new ones. Even China, once the hands down global leader in attracting FDI, saw a 23 percent drop in FDI in the month of April, compared with April 2008 numbers. And 2008 was a drop off from 2007.

Even with all of this in mind, Syria's best hope for further FDI remains with its neighbors. Taking UAE out of the equation, since they are largely a region onto themselves in their ability to attract FDI, few countries were able to attract non-Arab investment during the booms years. Saudi Arabia managed to attract interest in its financial service sector and in downstream oil industries, like petrochems, from US and European firms. Egypt saw some early interest for Europeans and Asians in its privatization program but even that was quickly superseded by Arab FDI. At the end of the day, the FDI boom which swept across the Middle East and North Africa between 2003-2008 was largely driven by a handful of companies coming out of an even smaller number of countries. Much of the FDI was sourced in either UAE or Kuwait. The nice thing about Arab FDI is that it doesn't give a whit about political stability or authoritarian governments. If there is money to be made, they'll go- whether or not going means dealing with governments as far afield as Sudan and North Korea, or, in this case, Syria.

But the rub for the Syrians now is that their biggest patrons in recent years are the two countries who have endured the biggest fallout from the crisis. Which may be why they are raising the flag of interest more broadly now. The thing is, though, that there are few people with cash left these days and even they are a little less willing to hold their nose than they used to be. Look at some of China's recent decisions in Africa.

So if Bashar is thinking he can get his cake and eat it too, he is in for a rude awakening. Best to go back to plan A, I think, and wait for oil prices to rise again. After that, I am sure Dubai's emir would love a visit.