More than a decade after the outbreak of armed conflict, Iran is coming to realize That in focusing on reinforcing its military power and cultural influence in Syria, it has neglected the importance of improved economic relations in strengthening ties between the two countries. Although Iran has taken many steps in this regard, economic cooperation between Tehran and Damascus still faces many structural challenges. These include limited information on the nature of Syria’s markets and economic potential; inadequate branding of Iranian goods and services; faltering key logistical services; and inadequate economic and trade policies given that the Ministry of Foreign Affairs’ main role is confined to political and security concerns.
In the context of Iran’s latest efforts to improve relations with regional countries, it has moved to improve economic relations with Syria. In early 2022, Iranian minister of urban development Rostom Ghasemi, visited Damascus, and met with President Bashar al Assad. Following the meeting, it was announced that a joint bank, and a free trade zone between the two countries would be established. Iran’s ambassador to Damascus also met with Syria’s minister of foreign trade to discuss enhancing bilateral trade relations, especially in the industrial and agricultural sectors.
Despite Syria’s economic potential, Iran’s approach towards Damascus was focused on political and security aspects. As evident by its prosperity pre-2011, the Syrian economy features large agricultural areas, manufacturing capabilities, as well as important seaports. Nonetheless, several issues present hurdles to the development of economic relations between Iran and Syria, these include:
Limited market information: Despite political and cultural closeness between Damascus and Tehran, studies reveal that Iranian investors perceive Syrian markets in the manner it is portrayed by foreign media, as an exhausted economy and an unstable security risk, especially since the Arab Spring of 2011. Needless to say, security and stability are important prerequisites for investors in any country. Syria’s economic potential is largely underestimated in Iran, as Iranian investors mistakenly equate the conditions in Syria with Iraq. On the other hand, although some Iranian products are popular in the Syrian market, such as ceramics, the Syrian market is largely unaware of many Iranian goods and services, particularly those based on modern technologies such as the pharmaceutical, electric power and construction. Another challenge is the presence of competitors such as Turkey, which holds more than 20 percent of the Syrian market.
A decline in trade with Syria: On January 17, 2022, the Director General of the Arab-African Bureau of the Iranian Trade Development Organization, Farzad Belton, reported that during the seven months following March 2021, Iran’s exports to Syria were valued at USD 73 million, while its imports from Syria came to around USD10 million. According to Belton, “the volume of trade between the two countries has declined.” Indeed, Iran’s share in the Syrian market is less than 3 percent. An important challenge to increasing trade between the two countries is the absence of land routes to facilitate the export and import process, especially in light of onerous shipping costs. Additionally, bank transfers between Tehran and Damascus tend to be problematic given the severe economic sanctions on Iran.
The need to outline a market strategy for Syria: Developing economic relations with any state requires an effective entry strategy that identifies useful market tools as well as low-risk sectors for investors. This is especially important in crisis states such as Syria and Iraq. Amongst other countries, Syria stands out as an industrial state with a demand for raw materials, equipment, and technical knowledge which Iran can provide. To meet this demand, Iran first needs to establish a large number of high-tech companies in the Syrian market, develop its technological infrastructure, and facilitate the insurance necessary to secure these companies against incorporation and operational risks. Iran’s position in foreign markets stands in contrast to other countries. For example, Turkey has sustained a fivefold increase in the volume of trade with African countries from USD 5.4 billion in 2003, to USD 25.4 billion in 2020; and India has developed its own foreign market strategy to bolster economic and commercial ties with various countries around the world.
Weak logistical services: Ground logistics is one of the most critical issues preventing the development of economic relations between Iran and Syria. The lack of necessary infrastructure, or rather its disruption, makes it difficult to develop plans to improve trade relations. Although maritime logistics are slightly better, many traders are reluctant to transport via sea as it is time consuming to load ships to travel long distances, not to mention risks associated with common hazards of bulk cargo, and damage caused by difficult weather conditions. It is clear that trade-related challenges extend beyond the need for knowledge-based (technological) companies, to structural challenges that pose an obstacle to trade with Syria as well as many other countries, including Russia.
Inadequate branding of Iranian products: Effective branding is one of the most important tools to stimulating demand. For example, Syria requires 20 to 30 million tons of cement per year, and despite Iran’s significant production potential for this commodity, inadequate branding stands as a barrier to increased trade activity. Additionally, some Iranian IT companies reported disputes with a number of Syrian banks who refused to establish commercial relations. This points to a need by Iran to make significant efforts to improve its economic goodwill by organizing fairs in Damascus and inviting Syrian businessmen to participate in joint chamber of commerce programs, if it seeks to bolster the brand value of Iranian goods and services, in line with other countries like South Korea and Turkey.
The absent role of the Ministry of Foreign Affairs: The Ministry of Foreign Affairs in Iran appears to be limited in function to political and security aspects, playing a small role, if any, on economic and trade issues. These issues are managed by the Ministry of Industry , while chambers of commerce focus on the import and export of energy sources or raw materials. Iranian traders are either importers or exporters of raw materials, pistachios, carpets or saffron. In other words, Iran has not updated its structural approach to conducting commerce with Syria.
In this context, Iran differs from other countries in the region, such as Turkey, which places its economic objectives on the agenda of its embassies, and requires them to provide assessments of the economic situation in the states in which they are located. These assessments include outlining what these markets would need for their next five-year and ten-year plans, and the volume of Turkish exports it has received. Turkey has also inauguration of new consulates, for example, in sub-Saharan Africa. Apart from a faltering foreign market strategy, Iran lacks trade advisers in many countries around the world, including Syria, and has recently returned them from the countries in which they were serving, owing to the impact of economic sanctions, which makes paying their salaries difficult.
In conclusion, despite the intensive efforts being made by Iranian authorities, trade between Iran and Syria is not expected to grow much over the coming period, given the aforementioned structural obstacles. Iran will not be able to tap into specific markets in Syria, such as food products, clothing, and household appliances. Other more promising sectors include heavy industries, petrochemicals, energy, electricity, information technology, detergent, and health. Iran may also seek to establish joint production ventures, enabling the two countries to build distinct common commercial brands.