PART III OF A SERIES: IRANIAN ECONOMIC ACTIVITY IN

S E C R E T SECTION 01 OF 03 DAMASCUS 000742 NOFORN SIPDIS STATE FOR NEA/ELA; NEA/IR NSC FOR ABRAMS/MCDERMOTT E.O. 12958: DECL: 10/14/2018 TAGS: ECON EFIN EPET ETRD PGOV IR SY SUBJECT: PART III OF A SERIES: IRANIAN ECONOMIC ACTIVITY IN SYRIA OVERSTATED (C-NE7-02556) - PRIVATE SECTOR REACTIONS REF: A. DAMASCUS 55 ¶B. DAMASCUS 240 ¶C. DAMASCUS 524 ¶D. DAMASCUS 559 DAMASCUS 00000742 001.2 OF 003 Classified By: Charge d'Affaires Maura Connelly for reasons 1.4(b,d) -------------- Summary -------------- ¶1. (C) This is the third and final cable in a three-part series examining Iranian economic activity in Syria. The greatest interaction between the Syrian and Iranian private sectors results from Syria's historical importance in Shi'ism. Iranian religious pilgrims represent the largest single bloc of foreign visitors to Syria, representing about 20 percent of all foreign tourism in 2008. The majority Sunni Syrian businessmen, however, are skeptical about the Iranian government's attempts to take on a greater role in the Syrian economy and are disdainful of Iranian business practices. While the Iranian government seeks business partnerships with Asad cousin Rami Makhlouf, the most prominent Shia Syrian businessman is lowering the profile of his ties to Iran. End summary. -------------- Culture drives non-Governmental Commerce -------------- ¶2. (C) Most Iranian-Syrian private sector commerce results from Syria's historical importance in Shi'ism. Chairman of the Federation of Syrian Chambers of Tourism Nashaat Sanadiki (protect) told us that Iran is the largest single non-Arab source of foreign tourism to Syria. According to Sanadiki, Iranians will represent about 800,000 of some four million tourists estimated to visit Syria in 2008. Most Iranians, he said, are religious pilgrims visiting the Shia shrine of Sayeda Zeinab in rural Damascus (ref C). Iranian pilgrims in Syria tend to be lower middle class, and do not generally patronize Western hotels or shopping areas in Damascus. Iranian tour groups prefer to stay at one of the "Iranian-friendly" hotels near Sayeda Zeinab and shop in the various souqs in Damascus' Old City. -------------- Skepticism over Shia Intentions -------------- ¶3. (C) The Syrian business community generally views Iranian economic activity in Syria with skepticism, wary of the ruling Alawite relationship with Shia Iran. Although Christian Arabs, Armenians, and some Shia are represented among Syria's business class, the vast majority are Sunni (ref D). Almost all business elites are fluent in English and have children or other close family members living in the U.S., Canada, U.K., or France. Among the Sunni middle and upper classes, their affinity for the West is, perhaps counterintuitively, matched by a growing outward religiosity. The Sunni elites' angry reaction to widespread rumors of Shia proselytizing among Syria's poor is believed to have influenced President Asad's late 2007 decision to request a replacement for Iranian Ambassador Mohammad Hassan Akhtari from Tehran. ¶4. (C) In another example, Embassy contacts told us in early 2008 that the Iranians had offered to sell the SARG "smart card" technology to help curb diesel smuggling and deter corruption in the fuel distribution chain. One Iranian proposal reportedly suggested that the smart cards would be DAMASCUS 00000742 002.2 OF 003 used in lieu of traditional SARG ration cards for household staples, which are issued to each Syrian family. Revealing a deep-seated suspicion about "the Persians," our contacts expressed concern that the Iranian offer would allow the Iranian government access to a vast body of Syrian personal information. As reported in ref B, we later learned that the SARG ultimately installed Chinese smart card technology at gas stations across Syria. -------------- Disdain for Iranian Business -------------- ¶5. (C) Despite 40 years of a centralized Ba'athist economy, the Syrian private sector is remarkably vibrant and sophisticated. In foreign trade and investment, Syrians are seeking the latest technology, best business practices, and trustworthy partners. One contact characterized the increase in Turkish investors in Syria as a "positive Turkish invasion," because the Turks were bringing Western technology -- technology that the Iranians could not provide. Where U.S. sanctions have limited their trade with the West, Syrian companies have skipped the Iranian private sector and gone farther East -- to China, India, and even Malaysia. ¶6. (S/NF) While the Iranian private sector has little to offer, Syrians are equally unimpressed by the performance of Iranian state-owned companies in Syria. A Syrian subcontractor providing imported Ukranian steel rebar told us that the project's Iranian prime contractor was habitually late in paying and refused to pay via EFT. He claimed that he had complained about the Iranians' delinquency to SARG officials, who shrugged and blamed his predicament on "politics." The contact lamented, "Our public sector is corrupt and incompetent enough. Why do we need to import another?" -------------- Concerned about Risk? -------------- ¶7. (C) The most prominent Syrian Shia businessman is Saeb Nahas, CEO of Nahas Enterprises Group. Contacts tell us that Nahas built his fortune developing the Iranian tourism industry in Syria, and he owns the largest hotel in Sayeda Zeinab. Reportedly possessing an Iranian passport (along with several others),Nahas was for years the Syrian Chair of the Syrian-Iranian Business Council. As the Syrian and Iranian governments have increasingly tried to force a marriage of their respective private sectors, Nahas pushed back by resigning his position at the Syrian-Iranian Business Council -- where he was replaced by the virtually unknown Hassan Jawad. (Note: Perhaps indicating his reading of the political tea leaves, Nahas was named Chair of the Syrian-French Business Council prior to Sarkozy's recent visit. End note.) The Syrian agent for Oshkosh of Wisconsin, Nahas attends nearly all U.S. Embassy representational events and attempts to develop a personal relationship with each U.S. Chief of Mission. -------------- Overtures to Rami -------------- ¶8. (S/NF) An Embassy source with access to Rami Makhlouf related an account of the Iranian government's overtures to Bashar's billionaire cousin. Shortly after Makhlouf's February 2008 designation under E.O. 13460, visiting Iranian First Vice President Parviz Davudi reportedly assured Rami that Iran would seek financial opportunities to partner with DAMASCUS 00000742 003.2 OF 003 him to offset any economic losses he might suffer due to the U.S. action. We have since heard that the Iranians have proposed partnering with Makhlouf in building cement factories, which some experts believe will be needed to fuel a regional real estate boom driven by Gulfi petrodollars. -------------- Comment -------------- ¶9. (C) SARG and Iranian government efforts to strengthen their political relationship through increased economic cooperation have largely been ineffective. First, bilateral trade has been limited by the incompatibility of the two economies and, to a lesser degree, lack of a free trade agreement. Next, the few Iranian capital investment projects in Syria are not significantly contributing to Syria's GDP. Most Iranian projects touted as "investment" are nothing more than government-to-government patronage -- with Syria paying Iran. Syria's transition to a market economy and rapidly expanding services sector requires technology, workforce development and modern business acumen. Desperate for economic integration with the West, Syria's business community only looks to Iran when (a) the SARG forces it to; or (b) it has no other options. CONNELLY