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Last Updated: Monday, 7 March, 2005, 23:52 GMT
Syria seeks to keep Lebanese ties
By Gavin Stamp
BBC News business reporter

The presence of 14,000 troops on Lebanese soil is the most overt symbol of Syria's influence over its neighbour.

Protestors calling for withdrawal of Syrian troops from Lebanon.
Rafik Hariri's killing unleashed a popular backlash against Syria

Equally powerful and no less a source of resentment to some within the country are the economic ties linking the two countries.

And whereas the killing of former Lebanese Prime Minister Rafik Hariri has intensified international pressure on Syria to end its 29 year military presence in the country, there is also a widespread acceptance that their mutual economic interests may be harder to shift.

"The two countries' economies are inextricable because they are neighbours," says Dr Nadim Shehadi, director of the Centre for Lebanese Studies at Oxford University.

"There are good and bad aspects to this."

Bound together

Although it is difficult to calculate the precise economic benefits which Syria derives from its occupation of Lebanon, there is no doubt they are considerable.

Since Hariri's assassination many workers were terrified to stay in Lebanon and have flown back to Syria
Rime Allaf, Royal Institute of International Affairs

In a recent report, the US Congressional Research Service said it was clear that the "Lebanese economy is vital to Syria's own economic health".

On one level, Lebanon's economy provides work for the large number of Syrians who cannot find employment at home.

With more than a million Syrians out of work - about 20% of the working age population - Lebanon absorbs a large share of Syria's surplus labour.

More than half a million Syrians are estimated to be working in Lebanon and the money they send home is vital to Syria's restricted and sluggish economy.

In return, Syrian workers have helped rebuild a country shattered by more than a decade of civil war.

A building in downtown Beirut featuring a picture of Rafik Hariri, the slain former prime minister
Beirut has been rebuilt, in part, by Syrian hands

Indeed, Lebanese building firms are so reliant on Syrian workers that the political crisis triggered by Mr Hariri's killing has proved a major headache.

"We know that since Hariri's assassination that many workers were terrified to stay in Lebanon and have fled back to Syria," says Rime Allaf, a fellow in Middle East affairs at the Royal Institute of International Affairs.

"It is said that the construction industry has come to a complete halt."

Investment outlet

Economic links between the two countries are pervasive, with Prime Minister Omar Karami recently describing the neighbours as "interwoven".

Market stall in Damascus
Lebanon has for a long time been a free market lung for the Syrian economy
David Butter, The Economist Intelligence Unit

While Syria's exports to its neighbour are relatively small - accounting for 4% of total exports - Lebanese and Syrian leaders have significant business interests in common.

Lebanon's banks and money markets provide a vital outlet for Syrian capital.

"The Lebanon has for a long time been a free market lung for the Syrian economy," says David Butter, a Middle East analyst with the Economist Intelligence Unit.

Syria's banks have historically been state controlled, secretive and short of liquidity.

It has taken steps to liberalise them, but they remain uncompetitive and provide little support to private investment.

Syria's elite and many ordinary workers have invested their savings in Lebanese banks and that is unlikely to change.

Good and bad

Although the Lebanese economy underwent a revival under Mr Hariri's leadership, corruption in Lebanese business circles remains a major concern.

Groups hostile to Syria's role in Lebanon claim corrupt pro-Syrian interests are draining the economy of up to $3bn (1.56bn) a year.

Dr Shehadi is in no doubt what impact a Syrian disengagement from Lebanon would have on its economic life.

"The effect of a withdrawal would be that the bad aspects would go while the good aspects would remain," he says.

However, few among Lebanon's political elite seem willing to contemplate total economic independence from Syria.

Syrian President Bashar al-Assad
President Bashar al-Assad has tried to reform Syria's banking sector

For its own part Syria - whose own economy is beset by low growth, high unemployment and persistent cronyism - will find it hard to disengage from Lebanon, economically at least.

"I do not detect among any Lebanese opposition groups any desire for a complete separation from Syria," says Mr Butter.

"They are seeking a redefinition of the political relationship between the two countries but they want the economic relationship to continue because it is in both sides' interests."

External pressure

Whatever the benefits of the economic status quo, the unpalatable truth facing Syria is that it may have no option but to cut some of its ties with Lebanon.

Efforts to kick-start its economy under the leadership of President Bashar al-Assad have proved largely stillborn.

Military intervention begins in 1976
30,000 troops in Lebanon during 1980s, currently 15,000
Syrian forces crucial in ending the Lebanese civil war in 1990 and maintaining peace
Calls for departure of the Syrians increase gradually with Israeli withdrawal in 2000
UN resolution calling for withdrawal of all foreign forces passed in Sept 2004

Although Syria is self-sufficient in terms of food, exports are sluggish, having fallen 1.4% per annum between 1999 and 2003.

While oil accounts for more than 70% of its foreign sales, production has been declining since the early 1990s. Syria may become a net importer of oil within 10 years.

Syria's trading relationship with Iraq all but disappeared with the fall of Saddam Hussein while it faces even tougher US economic sanctions if it does not leave Lebanon.

Backwater threat

More importantly perhaps, much closer co-operation with the European Union and the prospect of a free trade agreement by 2010 hinges on it normalising its relations with Lebanon.

Market stall in Damascus
The Syrian economy has faltered as exports have fallen

"Whatever progress has been made in terms of economic reform has been thrown into doubt by the crisis in Lebanon and Syria needs to resolve the issue to sort out its relationships with the US and Europe," says the EIU's Mr Butter.

"Syria can probably get by without major changes but it will not take the country forward. It would be left stuck in a backwater."

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