Financial Sector Development and Capacity Building: The Case of Syria

BSSP II aims at assisting in the first stages of the institutional, legislative, and operational modernization of the Syrian banking sector by rationalizing banking procedures and improving banking services and products. One of the focus areas is the improvement of the skills of staff and management at different levels of the public and private banks as well as the Central Bank.
The following document aims at highlighting the enormous Human Resource Development (HRD) efforts needed to modernize the economic systems of the MENA region (Middle East and North Africa), in particular in Syria. It will in a first step describe the general education and training situation in the MENA countries, before pointing out the specific situation in Syria. In the second part, the scope and need for training activities within the BSSP II project will be outlined. Finally, it describes how overall deficiencies in education and training affect the Syrian financial sector and what lessons can be drawn for the implementation of the Banking Sector Support Programme II.

INTRODUCTION: Education and Training in the MENA Countries

The MENA countries have demographically young populations and high population growth rates. As a result MENA labour growth rates are among the highest in the world and the labour-exporting countries (Egypt, Morocco, Tunisia, Syria and Lebanon) are experiencing high unemployment rates and out-migration of their labour force. Therefore, priority should be given to investment in human capital, with public sector investment geared towards education, on-the-job training and health.
In recent years, many if not all MENA countries have embarked on major reforms of the education and training systems in order to make them more quality-oriented and more relevant to the needs of the country concerned. Overall, on average, MENA countries spend a significant percentage of their GDP on education.

However, despite investments in the education and training fields, MENA countries are still presenting some significant weaknesses in the education and training sector, which could be outlined as follows:

• Decisions regarding the structure and content of the educational and training systems are made centrally, with very little, if any, real autonomy for schools.
• The system is geared towards general academic-oriented curriculum and studies, leading, at university level, to socially well-considered professions such as law, medicine, engineering, etc. Vocational training is still perceived as some kind of "second grade" education.
• Fairly rigid educational and initial vocational training structure that hinders mobility and progression within the system.
• Teaching content remains information-based and not knowledge-application oriented.
• In most, if not, all MENA countries, teachers and trainers are public servants: their promotion is essentially based on seniority and not on performance.
• Examinations at the end of each educational cycle are organised to function more as an eliminating device (to gain access to a higher level) than as a tool for measuring skills.
• Except for some MENA countries (for example Lebanon or Jordan), private educational institutions usually remain essentially outside the recognised formal education sector - and where they exist, they function essentially as "cramming" places where young people prepare exams.

The above comments should not give the impression that nothing has changed in MENA countries over the past decade or that the educational and vocational training reforms that were introduced have failed. The major issue is that the reforms of the MENA education and training systems remain significantly uneasy to implement.

1. EDUCATION AND TRAINING IN SYRIA

Notwithstanding some levels of success and achievements in the economic, social and educational fields in recent years, Syria still faces many hurdles and difficulties to overcome in order to reach all goals of sustainable development and prosperity, specifically in the training and education sector.

In general, one of the biggest problems facing development efforts and modernisation is the population structure in Syria where about 40% of the population is between the ages of 0-14, about 56% are between 15-64, an only about 4% over 65. Clearly, education presents the biggest burden on all economic and social levels. Adding a population growth rate of 2.5% and fertility rate of just below 4%, the issue of providing adequate education and training becomes the highest priority.

In Syria, like in most MENA countries, fast-expanding school and university enrolments have resulted in a significant increase of the number and quality of human capital, but economic growth has been disappointing and labour productivity growth has been quite weak. With inadequate job opportunities in the private sector to accommodate the influx of educated labour, new graduates and school-leavers tend to choose for low-productivity public sector jobs and employment opportunities abroad, or find or create their own jobs in the informal sector. Based on the recent study conducted by the European Training Foundation (ETF) at the request of the State Planning Commission (SPC) of Syria to support the preparation of Syria's new five-year plan (2006-2010), "in 2003, 75% of the total active population with a higher education degree (university plus intermediate institute) was employed in the public sector, which is characterised by overstaffing and low labour productivity. Only 20% of higher education degree holders were employed in the private formal sector."

The Study also cites number of factors that have been instrumental on labour supply pressures in Syria. These are:

• Demographic pressures have led to a large influx of young people into the workforce.
• Female labour force participation is increasing.
• Political developments in Lebanon have resulted in the return of many expatriate workers, placing additional pressure on the labour market.

Improving the Effectiveness of the Human Resource Sector in Syria

The EFT Study has made a number of comprehensive proposals aimed at addressing 'some of the most critical issues to maximise the social efficiency of investment in education and training.' The proposals were made with the aim of improving both the labour market situation in Syria and to adopt the education and training system to a new proactive employment policy.

The recommended proposals were as follows:

• "Reforming Human Resources policies in the public sector.
• Promoting employment in the private sector
• Facilitating job creation in small companies
• Developing appropriate tools to assess quality in education
• Improving the relevance of vocational education and training to the private sector
• Support the development of continuing vocational education and training (CVET)."

The authorities have recently taken a step in the right direction to abolish mandatory recruitment by Ministries of graduates from some higher education institutes. However, as a next step, public institutions should be allowed to adopt redundancy and attrition policies aimed at reducing overstaffing and improving labour force utilisation tough longer effective working times, coupled with salary premiums and financial incentives in order to retain key qualified personnel (Commercial Bank of Syria has already introduced a kind of a financial incentive, and similar incentives are currently being proposed to motivate university personnel taking over certain tasks).

Moreover, all public entities should be requested to prepare a comprehensive human resources development plan aimed at improving staff performance, manpower, and addressing organisational deficiencies.
It should be noted that another small step in the right direction was taken at the end of July 2005 when the Presidential Decree No. 322 was issued specifically for the implementation of staff performance appraisal in all public institutions with seven objectives.

1. Using the results of the performance appraisal as a base in making employees' promotion, transfer, termination, and end of an employee's contract if the employee is being contracted.
2. Plan for the human resources and define employment structure. 
3. Appraise current policies and methods of hiring employees.
4. Define the employees' training needs.
5. Define the success range of employees' performance, and controlling the administration decisions concerning improving the performance level in the future.
6. Improve employees' position in which their competencies, qualification, and performance would fit. 
7. Appraise current leadership and supervision method.

Even though the above Decree is another small step in the right direction, it does not provide leverage to the public entities to establish their own respective human resources development plan and address their organisational deficiencies regarding overstaffing, working hours, and salary structures.
The Decree merely calls for carrying our two kinds of employees' performance appraisal: a semi-annual performance appraisal aimed at evaluating and improving employees' performance periodically, and a performance appraisal with promotion intention to be carried out every two years.

2. THE BANKING SECTOR SUPPORT PROGRAMME II IN SYRIA

Within the scope of the Terms of Reference of BSSPII Project, in addition to improved procedures, systems and services of banks, BSSPII aims at achieving to train key staff at different levels in the banks, develop sustainable banking training programmes based on overall bank reform strategies and needs analysis, and delivery and operational use of relevant training equipment for the Bank Training Centre and/or the training departments of the banks. Therefore, training component and support in the establishment and operational setup of the Bank Training Centre (BTC) are one of the key implementation activities of BSSPII.

At present, the Banking Support Programme II is implementing a series of training courses for middle and senior management of both the state-owned banks and the Central Bank of Syria as well as providing technical assistance to the banks in order to help them in the implementation of the performance management appraisal system in line with the procedures set forth in the Decree mentioned in the section above.

As far as the overall banking sector is concerned, the lack of professional knowledge and skills is prevalent among the public banks' staff: the majority of banking professionals and the General Managers of the state-owned banks interviewed in Damascus during the inception phase of BSSPII considered that 90 to 95 percent of bank staff needs serious training to be able to meet somehow an international level of qualification. This situation is generally the same in each of the six state-owned banks. However, private banks stand at an advantage compared to the public banks.

During the inception phase, the key problems to the development of the banking sector in Syria were identified, and the problems can be grouped into three different categories depending on the origin or the roots of the issue (i) economic and legal environment, (ii) insufficient co-operation and representation within the banking sector, and (iii) absence of adequate banking knowledge at least approaching Western standards.

The latter category - the absence of adequate banking knowledge - is of particular importance when striving at an overall improvement of the Syrian banking sector. Even if some successful technical assistance has been provided during the last few years in specific banking areas, banks need further support to develop their knowledge, skills and technology. This issue is commonly admitted at all levels of the hierarchy.

Generally, the General Managers of the public banks are aware of the need to train their staff and management at all levels. This has been clearly emphasised by the number of staff the banks have identified to be trained. This can be done through the vehicle of an efficiently run and totally committed indigenous Syrian Bank Training Center (BTC), under strong leadership, which is well supported by bankers. This project will develop that capacity by assisting to build and strengthen the BTC, both in term of infrastructure and tutorial support, thus contributing to further development of the banking sector in Syria.

2.1. INSTITUTIONAL ANALYSIS OF THE BANK TRAINING

All the persons met during the inception phase expressed the opinion that the set-up of such a local bank training centre should solve a substantial part of the existing problems, provided an adequate service could be supplied.
The main conclusions of the findings were as follows:

• Limited training for the staff of public banks other than the banks' internal procedures and computer skills. Without exception the six public banks surveyed indicated that they do not posses qualified and well-trained staff.
• No formal HRD or training department exists in any of the public banks. Most training is identified and organised by the administration or planning departments of the public banks. There appears to be no well thought out and structured training plans and most of the training, other than of a basic nature, is of an ad hoc nature.
• Most of the banks do not have a training specialist, and besides training materials in their internal/department procedures and systems, no training materials have been developed as resource materials for their staff. To rectify the above deficiencies it is recommended that a series of Train-the-Trainer programmes be given high priority and delivered as soon as possible.
• Due to the lack of any established national/local training institutes, a number of regional training institutes have been providing specialised training programmes to both the public banks and the Central Bank, in particular Arab Academy for Banking and Financial Sciences (ABFS) and the Union of Arab Banks. Other institutes include Arab Planning Institute (Kuwait), Arab Monetary Fund, METAC (regional centre of IMF), Banque de Leban, Banque de France, Bank of England, and London School of Economics, which have provided training primarily to the Central Bank of Syria.
• There is a strong cross sectional and across-the-board demand for training in operational, technical and managerial areas.  
• Since December 2002 when permission was granted to private banks to operate in Syria, six private banks have already entered the Syrian banking sector. With their international expertise, and aligned against a local state-owned banking system, the private banks have been able to capitalise on the access they have to international markets and their appeal to local business and individuals who seek a more efficient, secure and credible services to meets their banking needs.
  The private banks prefer to recruit young graduates, with foreign language skills, and train them according to their parent bank's own systems and procedures rather than employ staff already experienced in banking in Syria.
• Overall, the banks have shown their genuine interest in the development of the Bank Training Centre as an independent institute providing top quality professional training to the Syrian financial sector. The necessity for the complete independence of the BTC has also been emphasised by all the General Managers of the public banks.

2.2. OVERALL ASSESSMENT OF THE SYRIAN PUBLIC BANKS

As a result of the assessment of the Syrian public banks which was carried out under the BSSPII Project during its inception phase, the findings and recommendations, particularly in the context of the training needs, can be summarised as follows:

Under Law No.15 of 2004, the State Employment Law, legislation sets out amongst other things the maximum level of remuneration that can be paid to bank employees and the maximum number of staff that can be recruited. Despite the newly introduced Decree for implementation of staff performance review and appraisal of public institutions, it is quite clear from the comments and responses of the General Managers of the public banks that if they could be free from the constraints of Law No.15 the banks would be able to introduce more positive HRD measures.

Therefore, substantial and comprehensive restructuring of the state-owned banks is urgently needed if an effectively operational and functioning banking system is desired by the authorities in Syria. However, as a precursor to what will be a relatively lengthy process, serious consideration should be given by the authorities to reclassifying the staff of the state-owned banks as non state employees or at least, take the necessity steps towards the implementation of the proposals outlined in the EFT Study, thereby releasing the state-owned banks from the constraints of developing their own adequate and appropriate human resources planning.