End of the road for Syrian car, or just the beginning?

Assembled domestically, the Sham saloon is the first stage in a drive to jump-start a Syrian car industry. But after economic liberalisation, can it ever make sense?

Syrian President Bashar Assad, right, inspects a car at the Syrian-Iranian Company for Manufacturing Cars in the industrial city of Adra near Damascus.

In a show room some 25km east of Damascus, the Syrian businessman Abdul Hamid talks about how pleased he is to have bought a Sham car. "I decided to buy the Sham because it is well manufactured," he says. "It's a comfortable car with a nice design. And it's a car that was produced in my country.

"I had to buy it, and I encourage every Syrian citizen to buy it since it supports our country's economy, our national production and is an encouragement to our national industries." Launched in 2007, the car's name derives from the old Arabic word for Syria, and is a joint project between the Syrian General Establishment for Engineering Industries, which has 35 per cent, Khodro, the giant Iranian car company, which has 40 per cent, and a local company, Al Sultan, which owns the rest.

It is a mid range family saloon, based on Khodro's Samand car, and comes with either a 1600cc or 1800cc engine. It has air conditioning, central locking, electric windows and a computer that lets you know whether you've shut the door or if your oil's running low. The cheapest model costs slightly more than US$12,000 (Dh44,076) and is the first stage in the government's plan to create a Syria car industry. A second company, Saipa, another joint Irania-Syrian venture, has also now started producing cars in the country.

At the moment, all the Sham's parts are still being manufactured in Iran and only then transported to Syria for the company's 330 workers to assemble the pieces, add the trim and do the paint job. But the company hopes that, one day, the model will be manufactured fully inside the country. For now, the next stage, if all members of the partnership can agree on new financing, is to produce a more advanced model, according to Ziad al Naameh, the general manager of Siamco, the company producing the Sham.

The car would have "an automatic gearbox, ABS, aluminium wheels with front and rear new panels, a new dashboard and a more powerful engine", he says. To some, though, the Sham is a relic from the time the government was involved in every aspects of the economy. Abdulkader Husrieh, an economist at Ernst and Young, believes that producing the Sham no longer makes sense now the economy has undergone a period of liberalisation.

"There is no use assembling cars while you cannot be competitive in the international car market," Mr Husrieh says. "It should not about import substitution any more, it should be about specialising and focusing on areas where we have competitive advantage." Even though buying the Sham allows you to escape import tariffs and vehicle registration, which can add more than 25 per cent of the price, the car is still struggling to compete in Syria's crowded car market. Only 11,000 have been produced since the first one rolled off the production line three years ago, which means it makes up less than 0.5 per cent of vehicles on Syria's increasingly congested roads.

It could be argued the Sham should have been doing better since the past few years have been a boom time for Syria's car dealers. Six years of economic reforms, including a reduction in import taxes from more than 250 per cent to 50 per cent, and the creation of private banks prepared to loan the money to buy cars, has created an unprecedented surge in the number of vehicles on the road. In 2004, there were 400,000. Today the figure is 1,700,000.

Oman Shallah, the vice president of Rakha Trading, the company that owns the Nissan dealership, cannot stress enough the impact of the economic reforms. "It's definitely been very important because the car business is linked to all different sectors," he says. "If the economy [opens up], new companies are established which will pay more salaries and increase people's purchasing power. Companies are buying more cars for their fleet so overall the more the liberalisation, the better the opportunities we have."

Yarub Badr, the Syrian Minister of Transport, believes the car market still has room to grow since at present "vehicle ownership is no more than eight cars per one thousand inhabitants". So far, though, those buying the cars are limited to the miniscule 3 per cent of Syrians with a monthly income of between $1,000 and $2,100. And since there has been little sign of the reform programme significantly widening that limited demographic, the question is whether the Syrian car market might have already reached saturation point?

Simon Mars is a television producer based in Dubai and London