Syria, seeking investors, turns cautiously to Iran

Syria, seeking investors, turns cautiously to Iran
By Hugh Naylor
Thursday, October 4, 2007

DAMASCUS, Syria: Ahmed Ansare likes to think of himself as a pioneer.

His petroleum recycling business, the Damascus Petrochemical Refinery Company, was the first private Iranian company to set foot in Syria, the first of many, it now seems.

"Billions of dollars of Iranian projects are expected to be coming here now," Ansare, an Iranian citizen who started operations here in 2003, said in impeccable Arabic as he lounged on a khaki-colored couch at his office in Damascus.

From car manufacturing plants and a proposed $2 billion industrial zone for Iranian businesses, to plans to overhaul urban transportation systems, Iranian companies are charging into Syria, looking to cash in on a recent privatization push by Damascus.

Weighed down by a behemoth public sector, an influx of nearly two million Iraqi refugees and falling oil production, Syria's leaders are trying to liberalize their economy in hopes of avoiding a financial meltdown.

In another time, the privatization effort might have presented an opportunity for the United States and Europe to use their enormous commercial muscle to drive a wedge between Syria and Iran, Washington's foremost antagonists in the region.

But the United States imposed sanctions in 2004 as punishment for Syrian support of militant Palestinian and Lebanese organizations. These banned American exports to Syria and gave President George W. Bush the added option of outlawing American investment in the country, effectively scaring off American and other Western companies.

At the same time, Iran, the subject of two recent rounds of United Nations sanctions for its suspected nuclear weapons ambitions and a long boycott by the United States, has few opportunities to invest abroad. The end result, Western diplomats and analysts say, is that Washington has effectively pushed Damascus and Tehran into deepening their alliance of nearly three decades.

"It's logical why we have been working much closer with the Iranians," said Mustafa Alkafri, head of the Syrian Investment Agency, a government body. "We're both under the American blockade."

The Syrian government estimates that Iranian investment in 2006 alone surged to more than $400 million, making Tehran the third-largest foreign investor here, behind Saudi Arabia and Turkey. Though exact figures are unavailable, by some estimates Iran has invested a total of $3 billion in Syria, most of that in the last few years.

In September, officials from both countries announced plans to expand Iranian projects in Syria to $10 billion over the next five years, which would cast Tehran as the economic powerhouse here.

The countries' growing economic ties are reinforced by cultural ties, with more than half a million Iranian tourists, mainly pilgrims, flocking to shrines in Syria every year.

"Syria looks a lot like the Iranian presence in Najaf," said Vali Nasr, a professor at the Fletcher School of Law and Diplomacy at Tufts University, referring to the Shiite holy city in Iraq. "You have businesses springing up that cater to Iranian pilgrims, which deepen personal relationships that continue to grow and evolve into partnerships."

Syria's sudden interest in foreign investment, and Iran's eagerness to supply it, springs from an emerging economic crisis here. Food and energy subsidies, for instance, are predicted to cost $7 billion next year, almost 20 percent of the country's gross domestic product, but the state has been unable to increase tax collections significantly.

"We didn't know how drastic the situation was until recently," said Andrew Tabler, editor of Syria Today magazine. "Syria has no choice but to follow the liberalization path."

But according to Tabler, American sanctions "are preventing the U.S. from using the one lever of influence it has right now, which is economics."

Some analysts doubt that assertion, saying that political issues dividing the United States and Syria — from Israel to the activities of Hezbollah, the Syrian-backed Shiite party that Washington considers a terrorist group — need to be settled before Syria will ever begin reconsidering its growing ties with Iran.

And even in the absence of sanctions, a jungle of red tape in Damascus and political turmoil in nearby Lebanon and Iraq would still give American investors pause.

Bureaucratic obstacles are said to be holding up a number of Iranian projects, with several stuck in the planning stages. "In general, it's much easier and more profitable to invest in places like Egypt and Jordan," said Jihad Yazigi, editor of The Syria Report, an online Syrian economic journal.

But none of that has dampened the zeal of Iranian companies, in part, many here say, because of backing from Tehran.

State-owned and even privately held Iranian companies often have links to political figures like Ali Akbar Hashemi Rafsanjani, a financial oligarch and former president of Iran, and even the Revolutionary Guards, according to Nasr, of the Fletcher School.

"There is no doubt that Iranian economic expansion is going to markets where there are political interests," Nasr said.

This form of state-led capitalism allows Tehran to direct its investments more easily in its desired sphere of influence, he said, much like President Hugo Chávez of Venezuela's neosocialist agenda across Latin America. Places like western Afghanistan and southern Iraq, for instance, war zones that are considered too perilous for most investors, are flush with Iranian-made goods.

"At one level, Iranian investment is strategic," Nasr said. "At another, it's simply based on economic opportunity. But you can bet that Rafsanjani won't pass up a chance to invest in Syria."

That has some Syrians concerned. One senior adviser to the Syrian government, speaking on condition of anonymity because he was not authorized to discuss such matters, said it was no coincidence that Iran was investing in strategic industries like concrete production and power generation.

"These industries are vital and would give the Iranians a huge say," the adviser said.

In addition to these projects, he said Syria was considering having Iranian companies manage the nationwide ATM network, print Syrian passports and supervise a proposed system to allocate monthly allotments of food subsidies using debit cards.

"These projects will give them knowledge about all of us, even our personal spending behavior," the adviser said. "This isn't just about profit — it's about influence."