The economies of Syria and Lebanon have been closely intertwined since before they achieved independence from France in the 1940s. Now, with the two countries having recently opened embassies in one another’s capitals for the first time, an increasingly open and private-sector economy in Syria and a period of relative regional stability, there is now more potential than ever to take advantage of trade opportunities. These include not just goods, but services, expertise and labor – all of which illustrate Syria and Lebanon’s interdependent relationship.
Historical economic ties
Lebanon began its trade relationship with Syria in 1926 when it became an independent republic under French control. That same year, the Port of Beirut opened and Lebanon became Syria’s gateway to the world.
When Lebanon and Syria achieved independence from France in 1943 and 1946 respectively, the two countries continued a mutually beneficial economic relationship wherein Syria took advantage of Lebanon’s services, technical expertise and modern banking system, and Lebanon was able to make use of Syria’s labor force.
This complementary relationship was reinforced further in 1958. That year, Egypt and Syria merged to form the United Arab Republic, which led to the nationalization of Syria’s economy, leading many Syrian entrepreneurs to relocate to – or at least deposit their money in – Lebanon.
Lebanon’s civil war, from 1975 to 1990, marked the end of an era for the small eastern Mediterranean country’s reputation as the “Switzerland of the Middle East,” so-called because of its renowned top-quality banks in a stable climate. Still, during this time Syrians continued to use Lebanon’s banks because of their reliable services and secrecy policies.
Following the end of the war in 1990, Lebanon’s need for help with its reconstruction created a boom in need for Syrian labor. Throughout the 1980s and 1990s there were as many as a million Syrian laborers in Lebanon in any given period. At the same time, while wealthier Syrians waited for economic reform in their country, they used Lebanon’s renowned financial services and shopped at Beirut’s high-end retail stores to purchase items not available in Syria.
That all changed in February 2005 when Lebanon’s former Prime Minister Rafiq Hariri was assassinated. Syria was implicated in the assassination, but denies any involvement. Violent attacks on Syrian workers caused most of them to flee Lebanon, Syrians withdrew billions of dollars from Lebanese banks and Syrian shoppers abandoned their weekend trips to Beirut during a period of nationwide anti-Syrian sentiment.
The following years saw a thaw in Syrian-Lebanese political relations. Business has returned, but not at the same rate as before. Today, there are an estimated 300,000 Syrian workers in Lebanon, less than half of the pre-2005 level. Syrians who brought their business back home in 2005 have kept it there for the most part, mainly because luxury retailers and private banks in Syria have improved their quality and services to a level comparable to that of Lebanon.
With Syria’s ongoing economic opening and Lebanon beginning to warm-up politically to its next door neighbor, it appears that the two countries are in a good position to return to their traditionally mutually beneficial economic relationship.
“Even during the most difficult of times, trade relations slowed down, but then improved. This cannot stop. After… 2005, the only way left to go is up,” says Syrian political analyst Sami Moubayed.
Syria has traditionally resorted to trade pressure whenever relations with Lebanon have been tense
Politics and geography of trade
When it comes to trade between the two countries, Syria is at a definite political and geographic advantage. With a 375 km border with Syria that constitutes the only route for overland trade — the 79 km border to the south has been closed since 1948, when Israel became a state — Lebanon is dependent on Syria for its trade with most of the world. Transit through Syria represents 60 percent of Lebanon’s trade.
“Syria has traditionally resorted to trade pressure, whenever relations were [tense] between the two countries, to affect the political flow between Syria and Lebanon,” says Moubayed. “There are no other outlets from Lebanon, except the sea, or Israel, for ground trade. When pressure of this sort is applied, it certainly affects political events, always in Syria’s favor, however.”
In 1950, for example, Prime Minister Khaled al-Azm would shut the border, to pressure Lebanon into changing political dialogue, or positions, knowing that if the borders with Syria were sealed, its trade with the outside world would suffer.
More recently, in 2005 and 2006, Syria shut its borders with Lebanon, again to put political pressure on its smaller neighbor.
Still, goods usually reach their intended recipient somehow, regardless of political pressure.
“It’s a myth that the Syrian-Lebanese border is or can be closed to goods from the other side of the border,” says Samer Abboud, assistant professor in the department of political science at Susquehanna University in Pennsylvania. “The border is quite porous and will remain so even if there is full trade liberalization and improved transportation networks.”
Nevertheless, currently there is some hope that better political relations will open the door for joint development projects.
“While private investment continues to grow in Syria, what’s missing are bilateral projects,” says Jihad Yazigi, editor of the Damascus-based economic bulletin, the Syria Report. “It’s not enough to open the borders if you don’t have strong government commitments. At the government level, there’s little coordination. Even in the West, there’s government involvement in bilateral projects. For big projects, private business can’t do much.”
For example, Yazigi suggests, “With daily power outages in Lebanon and Syria, we need more power plants.” Or, “Maybe the two countries could find a way to share water better.” He believes, “The two countries need to debate publicly.”
“Despite the obstacles – transport, financing, long border crossings – inter-Arab trade represents almost 20 percent of total Arab trade, when oil is factored out,” noted Abboud. “This is a very high figure and speaks to the already existing trade between countries that need to be supported through infrastructural and institutional developments.”
Getting goods across the border
At any time of the day or night, cars and trucks can be seen lined up at the official Syrian-Lebanese overland border crossings and in the Bekaa Valley, flare lights signal communication between smugglers.
No matter how cumbersome the process of trade between Lebanon and Syria, the two countries continue to meet the demand for one another’s products – be it at one of the three official border crossings, using the unofficial crossings or catering to the niche markets on either side of the border.
For Lebanese consumers, that often means clothing, agriculture, oil and other products that are less expensive in Syria.
But in the past several weeks this has been changing, with oil and some agriculture prices in Syria surpassing those of Lebanon – a sign of the times for both countries.
“Some prices of goods in Syria are higher than in Lebanon. The situation is completely different after 2000. Usually, Lebanon is the free market and Syria is the closed market. Now that is changing,” says Syrian economist Samir Aita.
Syrians are buying Lebanese goods, including everything from Portland cement, Lebanon’s biggest export to Syria, to Western products that can’t be found in Syria. There is a thriving black market of American products that are illegal due to the United States’ sanctions imposed on Syria.
Most of these items tend to be electronics, such as computer parts, which can be “re-exported” from Lebanon at an extra fee. “We (the Lebanese) don’t do this for free,” says Beirut-based Hussein Zeaiter, assistant professor of business and economics at the Lebanese American University.
“Illegal trade is probably higher than official trade,” estimates Abboud. “Illegal trade patterns have always existed between the two countries. While there is a host of trade in illegal goods – drugs and weapons – most of the actual trade is in basic products that are just taken across the border on a daily basis in cars and taxis and goes unreported or under-reported by officials. Export receipts are also a huge problem on the border.”
He adds that, “there have been few attempts to regulate it because the illegal trade functions almost as its own economy with powerful networks controlling large swaths of trade, or, on the micro-level, border officials being bribed to look the other way.”
Illegal trade functions almost as its own economy, with powerful, large-scale networks
Swapping labor for expertise
Throughout their history, Lebanon and Syria have been able to use the other’s workforce to their mutual advantage. Lebanon has benefited from Syria’s cheap laborers, who have been willing to do jobs that most Lebanese refuse to do, which in turn eases Syria’s high unemployment rate. At the same time, Syria has benefited from Lebanon’s well-educated entrepreneurs and bankers who have helped Syrian private investors before and during the country’s economic opening.
“Lebanon has been an important place for services to Syrians,” notes Aita. “But in the last three to four years, Syria has been working to capacity.” As for Lebanon’s traditional role as Syria’s banker, he sees Syria beginning to hold its own in that sector.
“A lot of top management bankers have been coming from Lebanon to Syria,” Aita says. “But this is diminishing. Now, there is a lot of Syrians working at Lebanese banks.” Syria’s unprecedented growth rate last year of 6.5 percent and its own construction boom, combined with Lebanon’s continued anti-Syrian sentiment and a trend toward favoring Egyptian workers, has meant a continued steady decline in Syrian laborers in Lebanon.
“Mistakes on both sides meant that Syrians are no longer going to Beirut for shopping and services the way they did in the past,” Aita says. “And now there’s less need for Syrians to go to Lebanon.”
It does indeed seem that Syria is no longer closed economically. However slowly, the dynamic is changing. Aita concludes by saying, “Lebanon’s role as Syria’s banking hub will disappear in three to four years. Both countries will have to rethink their roles toward themselves and each other.”
