Russia, Lebanon seek synergy in projects to rebuild Syria

When Lebanese President Michel Aoun paid an official visit March 26 to Moscow, some observers thought it indicated Lebanon’s “shift into Russia’s orbit.” The speculation progressed a month later, when a high-ranking Lebanese delegation visited Arabia-Expo 2019 in Moscow. The delegation was led by freshly appointed Minister of Telecommunications Mohammed Choucair, who also heads Lebanon's economic organizations.

It seemed that, in addition to the Syrian refugee issue — on which Russia and Lebanon have worked together for some time — Beirut was interested in gaining economic dividends from Russia's influence in Syria.

As far as Lebanese politics are concerned, Russia has worked to establish an image as a neutral player — unlike Iran, which supports Hezbollah and many local Shiite Muslims; Saudi Arabia, which backs up Lebanese Prime Minister Saad Hariri and Sunni Muslims; and Western European powers that favor Aoun and the Christians.

Russia has sought to monetize that perception by entering Lebanon’s energy market. Russia’s private Novatek company is part of a consortium with France’s Total and Italy’s ENI for drilling oil on the eastern Mediterranean shelf, while Russia’s state-owned Rosneft holds a 20-year license to modernize an oil storage facility in Lebanon's seaport of Tripoli. In return, Lebanese authorities may ask for Russia’s political assistance in getting access to lucrative reconstruction contracts in Syria.

At first glance, Lebanon’s present economic ties with Syria seem to be on the rise. According to the Observatory of Economic Complexity, in 2017 Lebanon was the top destination for Syrian exports ($131 million), and the No. 3 source of imports ($246 million). Lately, the Lebanese have been sending delegations to various exhibitions in Syria, including the back-to-back Damascus International Fair and the Rebuild Syria exhibition last year in September, and have cultivated business-to-business contacts. 

In parallel with Russia, Lebanon is seeking common ground with other potentially important economic players in Syria. For instance, Beirut is trying to attract large-scale investments from China into Tripoli, which is positioned by Beirut as a hub for Syria’s reconstruction. No wonder that in private conversations with Russian counterparts Lebanese businessmen and bankers often call Lebanon a “bridge” to Syria’s economic recovery.

However, in Syria, the Lebanese face a challenge of being left far behind Iran, Russia, China and even Arab Gulf states, due to the traditional complexity of bilateral political relations with Damascus, which sees Beirut as a junior partner. Besides, for some Lebanese entrepreneurs, doing business in Syria is a virtual taboo — especially to Sunnis close to the Hariri family, which has opposed Syrian President Bashar al-Assad since the beginning of the Syrian crisis. For them, joint projects with Moscow — for instance, those blessed by Russian-Saudi consent — can constitute a profitable solution.

In turn, Russian businesses, especially midsize companies, may also be interested in collaboration with Lebanese partners. A top-level Syrian consultant, who spoke to Al-Monitor on condition of anonymity, outlined the following advantages of doing business in Syria via Lebanon, instead of directly:

• Correct legal incorporation of a business entity in Lebanon guarantees access to the maximum scope of national and international business services such as consulting, auditing, financial, insurance and banking, which minimizes risks related to anti-Syrian sanctions imposed by the United States and EU.
• Lebanese banks currently host a large share of Syrian deposits, made in anticipation of reconstruction projects there, with an eye for cooperation with other states on a consortium basis. The Lebanese platform provides real opportunities for better market positioning of Russian companies, especially newcomers to the Middle East, with the aim of creating multiparty alliances (for instance, between Russian companies, the Lebanese and their partners from the Arab Gulf), for investing in Syria’s reconstruction. 
• Registering a branch or representative office of a foreign company in Syria limits its potential to rely on professional human resources, business information and legal services — all of which are available in Lebanon.

Another official working in the Middle East for an authoritative international audit company agreed to speak with Al-Monitor not for attribution. The official believes conducting entrepreneurial activities in Syria through Lebanon makes sense compared with other options like the traditional Russian pattern of opening offices in Dubai. The official noted several factors that favor doing business via Lebanon.

First, Syria and Lebanon share a border. Second, lower arbitration costs make Beirut attractive as a foreign jurisdiction compared with, for example, the Dubai International Arbitration Center. Third, there's a long record of successful joint projects and family partnerships between Syria and Lebanon, often based on marriage. Though, as stated earlier, some Lebanese avoid doing business with Syria because of Assad, many Syrian merchants and industrialists have obtained Lebanese citizenship. Also, many of Syria’s prominent entrepreneur families either reside in Lebanon or have property there. Fourth, there are sustainable land communications, which during the Syrian crisis became vital for ensuring cash flow to and from sanctioned Syria. 

Russia-Lebanon tandem projects for reconstructing Syria can become valuable for Russia in financing economic activities in Syria, as well as for boosting Russian-Syrian bilateral trade. The obvious deficit of means to ensure banking transactions — given Western sanctions against Moscow and Damascus — has become a challenge for Russia, especially after the October 2017 collapse of the legendary Moscow-based Tempbank, which had specialized in operations with Syria and Iran.

According to a 2018 report prepared by a Middle East consulting bureau and largely based on inside information, some elements of which became known to Al-Monitor, the list of top Lebanese banks that deal with Syrian projects, host Syrian deposits and/or have subsidiaries or branches in Syria and so can be used for respective business projects, includes:

• BLOM Bank, which operates in Syria through the Bank of Syria and Overseas and specializes in commercial, corporate, private and investment banking, as well as Islamic banking, asset management, capital market services and insurance products.
• Byblos Bank, which provides investment banking, treasury, capital market and private banking services, along with investment products.​
• Fransabank, known as a pioneer Lebanese bank in terms of cooperation with Chinese banks. Fransabank reportedly provides banking services to the Syria-friendly states of Belarus and Cuba. At the same time, Fransabank preserves the potential for cooperation with international financial institutions, such as Agence Francaise de Developpement, European Investment Bank and International Finance Corp., all of which abide by the anti-Syria sanctions. This opens rather unique opportunities for Fransabank to conduct commercial mediation on issues of Syria’s reconstruction.​
• Al-Mawarid Bank, famous among second-tier banks for hosting Syrian deposits.

Most of the challenges facing Russian businesses working in Lebanon have to do with the strong dependence of both national banks and Lebanon’s own financial system on the United States, as the dollar is officially used along with the Lebanese pound. Thus, it's not by chance that new foreign companies, especially from Russia, that seek work in Lebanon are subject to prior-compliance banking approval. Banks are setting their own buffers for compliance, to avoid US sanctions. It can take more than 45 days for Russian citizens to open bank accounts in Lebanon. And regardless of the Lebanese Banking Secrecy Law promulgated in 1956, which is still in force, local banks make new clients sign special waivers, lifting banking secrecy de facto in favor of the US Office of Foreign Assets Control.

In sum, Russia-Lebanon tandem projects working toward Syria’s reconstruction pose both opportunities and challenges. Their success will depend largely on the development of the political-military and socioeconomic situation inside Syria, as well as the status of strategic power balances around the country.