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

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Classified By: Charge d'Affaires Maura Connelly for reasons 1.4(b,d)

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Summary
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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.

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Culture drives non-Governmental Commerce
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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.

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Skepticism over Shia Intentions
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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.

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Disdain for Iranian Business
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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?"

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Concerned about Risk?
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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.

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Overtures to Rami
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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

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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.

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Comment
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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