DAMASCUS, Syria — In the midst of a transition from a centrally planned economy to a “social market,” Syria’s economy is faring well.

The International Monetary Fund (IMF) reported that growth in GDP was strong at 4 percent last year despite the global financial crisis, and predicted to rise in 2010. The government’s push to attract investment from outside the country is showing signs of success, the target being $130 billion worth of investment by 2015. Foreign companies are circling, looking for opportunities to invest in what was viewed as an untouchable pariah state just a few years ago.

In Damascus, the capital, the new wealth stemming from the economic transition is evident. Sleek advertising billboards, private universities and new restaurants abound. Recommended by The New York Times as one of the top-10 travel destinations for 2010, tour groups these days swarm Syria’s souqs and mosques, providing revenue for the government and encouraging private entrepreneurs to found tourist services.

“We are effectively moving towards a market economy and enhancing the role of the private sector in the economy,” said Nabil Sukkar, a Syrian economic analyst, formerly of the World Bank.

“The focus so far has been on opening the financial and services sectors — banking, insurance and the stock exchange — and a liberalizing of foreign trade.”

The number one factor pushing economic reform in Syria has been the decline of oil revenue. The '90s were marked by complacency owing to funds coming from oil sales. When these began to deplete and revenues dropped, both foreign and fiscal, the urgency of economic reform returned, pushed along by President Bashar al-Assad’s government, which came to power in 2000.

While U.S. sanctions still apply to the country, rapprochement between Syria and European and Arab states has led to increased economic ties and investment. A slowly improving business environment — Syria ranks 143 out of 183 countries rated by the World Bank when it comes to ease of doing business — is an encouragement to those put off not by Syria’s political isolation but by its difficult investment atmosphere.

The reform is bringing benefits to the country — both in terms of economic growth and political openness. Goods and services not previously found are now readily available and there are more business opportunities for the population.

Read about how improvements in the Syrian economy have inspired an art market renaissance.

But not all in Syria are benefiting from the economic transition. Many Syrians are suffering from the wealth gap that existed under socialism but has been much widened by the liberalization.

“It’s a constant struggle to make ends meet,” said middle-class Syrian textiles businessman Housam Kotob. “Everything has become more expensive and because of deteriorating public services everyone is trying to save for private services, such as private schooling for their children.”

Those working in the public sector fare worse than Kotob. A teacher in a state school bemoans the low salary, saying she treats it as pocket money while working afternoons as a private Arabic tutor for foreigners. Many government workers have second and even third jobs to go to once public office hours end.

A recent annual survey of Middle East professionals confirmed the discontent on a larger scale. According to YouSiraj and Bayt.com this year the biggest disparity in the increase in living costs compared to salary rise was felt in Syria, where respondents said the living costs had risen by 28 percent compared to a wage increase of 9 percent.

Economic analysts say wealth gaps are a usual byproduct of economic opening.

“A wealth gap is one of the problems of economic liberalization and has happened in countries from Indonesia to Russia,” said Sukkar.

There are aggravating factors in Syria.

Inflation has risen in recent years. A rising population is putting pressure on house prices in the towns and cities, which have also risen with real estate speculation and rural to urban migration, the latter in part due to drought in the country’s northeastern region.

Traditional national industries such as textiles are creaking to a halt, unable to withstand competition from cheap goods imported from outside — mainly Turkey and China. Agriculture, too, is suffering.

Meanwhile, the new economic openings are not as accessible to all as they could be. With the focus on professional services, new skills are needed in the workforce. Starting a business is no easy task for the average Syrian. The banking sector is relatively new and averse to risk-taking, making credit hard to attain other than for the well-off. Connections and corruption are additional factors to tackle.

Economic analysts say the situation is worsened because of the lack of a social security cushion; unemployment benefits do not exist and subsidies are ill-targeted.

The effects are not just economic; the situation is having knock-on social effects in the country. Traditionally, men must be able to afford a house before they marry. With house prices rising, that goal is taking longer to reach. Anecdotal evidence suggests that this is delaying the age of marriage.

All of which means Syria’s economic reforms need work to ensure the country’s wealth gap isn’t turned into a permanent feature.

“These people must catch up or there will be a problem,” said Sukkar. “It requires supporting education and entrepreneurship, changing the mindset of young people so they don’t want to leave and putting in effective support schemes.”

Many of these initiatives are underway. Subsidies are being replaced by targeted cash-transfer schemes, NGOs are offering credit to small and medium enterprises and social security plans are being developed.

The government is continuing to reform the business environment, removing some of the miles of red tape.

“We believe supporting small and medium enterprises will help the economy grow in a healthy way and reduce any inequality,” said Reem Hilali of the Ministry of Industry.

“The situation is not perfect yet, but it is improving.”

The issue is even more critical as Syria copes with a bulging youth demographic suffering from skills not competitive at an international level. Syria’s population — currently estimated at around 22 million — is set to rise to 30 million by 2025 according to estimates by Syrian Commission for Family Affairs.

If economic catch-up doesn’t occur, analysts warn there could be social and political unrest — something Syria will be keen to avoid.

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