Wed 05 Aug 2020

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Free zones… new investments stabilizing Iranian presence in Syria and reaping benefits

Adra Free Zone

Adra Free Zone

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Enab Baladi – Mais Shetian

With the increasing Iranian presence in Syria, Iranian companies have been granted the right to invest in Syrian free zones, at a time when Tehran has expressed its desire for such investments, especially when entering the reconstruction phase.

Iran has been continuously seeking to stabilize its presence in Syria by deploying its militias to be an essential auxiliary and supporter of the Syrian regime in its military operations, or by entering with vital long-term investment projects in Syria.

Relations between the Syrian regime and its Iranian ally have witnessed the signing of extensive trade and investment agreements within nine years.

Vice President of the Joint Syrian-Iranian Chamber of Commerce, Fahd Darwish, announced at the beginning of February that the Iranian center in the Free Zone in Damascus had been completed to receive Iranian goods and distribute them in Syria and neighboring countries. He also indicated that it is likely to start operating within three months.

He announced the establishment of two joint free zones between Syria and Iran in Hassia in Homs and Latakia, according to local newspaper al-Watan.

After the visit of an Iranian delegation to Syria, the head of the Joint Syrian-Iranian Economic Committee, Kiwan Kashfi, announced in January 2019 the establishment of a commercial center for the Iranians in the Free Zone in Damascus shortly, according to ISNA news agency.

“After reaching security in Syria, a fertile ground has been provided for activists in the Iranian public sector to participate in the reconstruction process and fulfill the needs of Syria, and we must take advantage of this opportunity,” said Kashfi.

He added that “the Syrian government and private sector are keen to enhance the level of economic relations with Iran.”

The Syrian regime is subject to a series of US and European economic sanctions because of the violations committed against Syrians during the war years. Iran is also subject to a round of US sanctions because of its nuclear program, support for militias of the Iranian Revolutionary Guard, and support for the Syrian regime.

How can Iran benefit from investing in the Syrian free zones, and will these investments be useful for the Syrian regime?

Benefits and a marketplace for selling products 

The Minister of Finance and Economy of the Interim Syrian Government, Abdel Hakim al-Masri, told Enab Baladi that Iranian investments in the free zones make them close to the market where they sell their products in Syria, which reduces transportation and production costs.

These investments benefit from the low cost of the Syrian labor force and enjoy the privileges of investing in free zones, such as the exemption from customs duties on their products.

Most of the investments will focus on industries related to reconstruction, such as building materials. In the case of the start of the reconstruction process in Syria, the materials produced by Iranian factories will be available and close to the market at a low cost.

Consequently, the Syrian market will be flooded with Iranian goods, according to al-Masri, to compete with those Syrian counterparts, especially since the goods produced in the Syrian free zones or imported according to the FTA with Iran enjoy a customs exemption that sometimes reaches 100 percent.

Iranian products will also compete with imported products, such as the Chinese ones, and the opportunities for entry of other foreign or local companies in the free zones will be significantly limited.

Iran seeks to stabilize its presence and compensate its losses

Al-Masri indicated that Iran is trying in various twisted ways to maintain its presence in Syria even after the fall of Bashar al-Assad, through companies, factories, and private investments in free zones or other projects in Syria, to compensate for the losses it is paying in the Syrian war.

Al-Masri supported media reports stating that a large number of Iranian commercial companies are closely linked to the Iranian Revolutionary Guard, and are being used as a front to achieve political and military goals.

The US Treasury announced in a statement in March 2019 the imposition of sanctions on a group of individuals and companies, which it says they have formed an international network to help raise millions of dollars to finance operations linked to Iran’s Revolutionary Guard.

This network uses both the UAE and Turkey as fronts to facilitate these operations. Below, we review these companies in detail, according to the ministry’s statement that reached the CNN website.

These companies include Ansar Bank, Ayatollah Ibrahimi, Al Ansar Exchange, Sakan General Trading, Reda Sakan, Suleiman Sakan, and Atlas Doviz Trading.

On Iran’s losses and gains in Syria, a report of the US-based Al-Hurra website stated that Iran spent about 48 billion US dollars during the war years in Syria.

In contrast, the Iranian trade balance was positively affected by trade relations with Syria during the war period, and the value of Iranian trade increased from $ 361 million in 2011 to about $ 869 million in 2017.

Contracts of compliance… The Syrian regime is the weakest circle

The Minister of Finance and Economy of the Syrian Transitional Government, Abdel Hakim al-Masri, said regarding the commercial contracts signed with Iran that the Syrian regime is the weakest circle, and does not have the option of accepting and rejecting. It gives Iran privileges to guarantee its support for the continuation of its authority, and the contracts the regime signed with Iranian and Russian companies are compliance contracts.

A compliance contract is defined as “a contract in which one of the contractors alone stipulates the terms and conditions and the other party has no choice but to accept or reject it altogether without discussion or negotiation. The other party is often unable to refuse these conditions, given its urgent and necessary need for these indispensable goods and services.”

Al-Masri added that both Iran and Russia would monopolize investments in Syria in the long run, by entering into infrastructure projects and long-term contracts, some of which may reach 50 years, such as phosphate, electricity, ports, roads and bridges contracts.

Other Iranian investments in Syria

Syria and Iran concluded a free trade agreement in February 2012, which included reducing customs duties to 4 percent on goods traded between the two countries, abolishing all quantitative restrictions, and measures prohibiting imports of similar effects.

In May 2015, the president of the Syrian regime, Bashar al-Assad, signed a law requiring the approval of a billion-dollar credit facility agreement from Iran.

In January 2019, the Prime Minister, Imad Khamis, signed with the First Vice President of the Republic of Iran, Eshaq Jahangiri, 11 agreements in various fields, including railways, housing, public works, geomatics, investment, anti-money laundering, and cultural and educational cooperation, in addition to a memorandum of understanding for cinematic collaboration between the Syrian National Organization for Cinema and the Iranian Audiovisual Film Organization, according to the official Syrian News Agency (SANA).

The Joint Syrian-Iranian Chamber of Commerce, which sponsors trade agreements between Iran and the regime government, was established in January 2019.

The Chamber concluded a contract with an Iranian company to export Syrian olive oil to Iran, with a quantity that could reach 5,000 tons annually.

Deputy Chairman of the Joint Syrian-Iranian Chamber of Commerce, Fahd Darwish, revealed to al-Watan newspaper talks to sign contracts with Iranian companies to export Syrian laurel soap, in addition to a study of signing contracts to export threads from the Ministry of Industry’s General Organization for Textile Industries (GOTI) to Iran, in annual quantities that may reach up to 10,000 tons.

Iranian Energy Minister, Reza Ardakanian, announced in October 2019 that Iran is currently building a power plant in Latakia Governorate with a capacity of 540 megawatts, according to Fars news agency.

The governor of the Iranian Central Bank, Abdolnaser Hemmati, announced in the same month the signing of an agreement between Iran and Syria to establish a joint bank between the two countries to be based in the capital, Damascus, according to the Iranian Mehr news agency.

What are the free zones, and what are their advantages?

The free zone is one of the distinct investment patterns. It allows the establishment and operation of projects in it, under the provisions of the investment law in the country. It is part of the state’s lands, falls within its political borders, and is subject to its administrative authority. The customs, import, and cash ways of dealing with the movement of goods in and outside it are different from other forms of dealing with the procedures applied inside the country for such dealings.

The free zone includes a set of exemptions, concessions, and guarantees, the most important of which is the exemption of the project’s capital assets and production requirements and the exclusion of project imports and exports from taxes and customs duties.

It also includes the exemption of all local components of customs duties in the case of selling to the local market, the exception of goods received within a specific transit trade from the free zone fee immediately upon receipt, the non-nationalization or confiscation of the project, and the non-filing of public lawsuits against the project only after the approval of the General Authority for Investment and Free Zones.

Foreign investors are granted facilities to reside within the country by giving them residence permits upon their request.

Free zones in Syria

The General Organization of Free Zones manages nine free zones in Syria: Adra Free Zone, Tartous Free Zone, Damascus Free Zone, Aleppo Free Zone, Hassia Free Zone, Al-Yaarubiyah Free Zone, the free zone at the airport, the port free zone in Latakia, and the internal free zone in Latakia, according to the classification of the Syrian Investment Authority (SIA).

The General Organization of Free Zones manages and invests the free zones, coordinates their activities, resolves their problems, creates and develops the necessary warehouses and stores, and suggests projects to establish or cancel free zones.

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