Despite the U.S. Sanctions, Does Russia Dominate Investment Opportunities in Lebanon?

Once again, Russian businessmen return to Lebanon on a new exploratory tour to discuss the possibility of starting investments in this country, which has been mired in a severe economic crisis since 2019.

The economic presence of Russia in Lebanon has been significant, but it has notably intensified in the aftermath of the devastating Beirut port explosion in 2020.

This event dealt a severe blow to efforts to overcome the ongoing crisis and has brought increased attention to the role of Russia in Lebanon's economy.

Hence, Russian businessmen found a golden opportunity to put their money into profitable investments in Lebanon, even though Russian interest is increasingly focused on investing in Lebanon's oil and gas sector.

The economic relations between Lebanon and Russia "are not strong enough," mainly due to political reasons, as Lebanese officials confirm.

 

Russian Investment

Through the private sector gateway, the Lebanese–Russian Business Council, headed by Jacques Sarraf, received a delegation of Russian businessmen on April 12, 2023, comprising about 60 investors, at the Chamber of Beirut and Mount Lebanon headquarters.

The meeting was attended by the Moscow ambassador to Beirut, Alexander Rudakov, and a crowd of Lebanese economic figures and businessmen.

The meeting focused on strengthening cooperation between the private sectors of the two countries, creating working partnerships between companies, as well as presenting investment opportunities in Lebanon.

The discussion also focused on the advantages that Lebanon enjoys as a center for Russian companies interested in expanding into other countries in the region.

During the expanded meeting that brought together Russian and Lebanese businessmen in Beirut, Ambassador Rudakov affirmed that Western sanctions on his country following the invasion of Ukraine will not prevent Moscow from opening economic and trade channels with various countries in the world.

As the Russian war against Ukraine has continued since February 24, 2022, Western countries have responded with harsh sanctions.

Attention is turning to the Russian economy, which appears to be in a winter hibernation and is entering a recessionary phase.

The Russian newspaper, Izvestia, explained that national statistics indicate that the country registered a contraction in the third quarter of 2022, for the second consecutive time, as well as a decline in gross domestic product by 4% in the third quarter of 2022.

Jack Sarraf, the president of the Lebanese–Russian Business Council, stated that the widespread Lebanese presence in Gulf and African countries is very helpful in expanding the business of Russian companies in these countries.

Sarraf noted that Lebanon's unique location makes it a good business center, calling on Russian companies to adopt Lebanon as their business center in the region.

Given Lebanon's need for hands to boost its economy and shoulder it in achieving many projects that are dependent on foreign financing and expertise, Russian businessmen are exploring profitable areas within this country, where 90% of its population is below the poverty line.

Therefore, this visit by Russian businessmen is not the first of its kind to Lebanon. It comes as part of a series of moves to win contracts and projects, especially those related to the Beirut port.

However, these meetings, which can be called "exploratory," did not lead to the start of any real Russian investment in Lebanon, especially since Beirut has requested Moscow to repair the port of Beirut, which was destroyed by a massive chemical explosion on August 4, 2020.

The explosion at that time resulted in the death of 200 people and caused billions of dollars in losses, further weakening an economy that was already facing collapse after a banking crisis caused the Lebanese pound to plummet against the U.S. dollar.

 

Available Projects

In addition to the economic crisis, Lebanon has been suffering from a vacant presidential position since President Michel Aoun left the presidential palace at the end of October 2022, and the current caretaker government led by Najib Mikati has limited powers.

For this reason, Lebanese economists emphasize the importance of forming a government as soon as possible, so that it can be effective and capable of making appropriate decisions for the benefit of the country and attracting foreign investment and aid.

In late June 2021, the CEO of the Russian company Engineering and Construction Andrei Metsger stated that Lebanon needs to implement projects related to building ports and developing the energy sector.

He also offered the Lebanese authorities a financing system for construction that can be discussed in the future, in the context of mutual benefit.

At the time, Metsger noted that Lebanon has an opportunity to overcome the energy crisis, and one of these solutions is to process raw materials and convert them into consumable materials.

In response to a question about the mechanisms that could be followed to finance these projects if Russian companies contributed to their implementation, Metsger explained that they have their own proposal for the Lebanese authorities. He said: "We have our own proposal for the financing system for our projects - we build, manage, and then deliver, and it is possible to agree on a mechanism with acceptable conditions for both parties."

Metsger also revealed that he may propose to the Lebanese side to consider a large Russian bank with the aim of financing the projects.

In late June 2021, a delegation of Russian businessmen visited Lebanon for a week to study the possibility of establishing new silos for wheat storage at the Beirut port, which was destroyed by the explosion, as well as another at the Tripoli port.

At that time, a Russian investment delegation arrived in Beirut with the intention of working on 7 projects that are considered "rescue" projects for Lebanon. These projects include the reconstruction of the Beirut port, the renovation of the Tripoli port, and the construction of three power stations.

In addition, according to a source participating in the talks regarding the Russian offers to Lebanon, the delegation also proposed rehabilitating the oil refineries in Zahrani and Tripoli (al-Badawi station).

According to the source, the offers were met with "approval" from the majority of the Lebanese population, while certain parties, who may have "commercial and political interests" with specific external entities, "opposed" and "resisted" them.

 

New Market

It seems that the increasing Russian interest in the Lebanese market is aimed at opening new horizons beyond oil and gas investment, as petroleum derivatives accounted for 89% of the total goods imported by Lebanon from Russia in 2019.

Russian company Novatek is part of the alliance of companies exploring oil and gas in Lebanese waters alongside French company Total and Italian company Eni.

In addition, Russian company Rosneft won a contract in 2019 to invest in and rehabilitate the oil tanks in the Lebanese city of Tripoli.

Russian companies have also offered bids to rehabilitate an oil refinery and to produce electricity.

In this context, Leb Economy, a website specializing in all economic affairs in Lebanon, confirmed that the presence of Russian businessmen in Lebanon is to create business partnerships between companies in both countries, as well as to present investment opportunities in Lebanon, especially in the real estate, tourism, agriculture, and information technology sectors.

Previously, the official at the U.S. Department of Justice, Andrew Adams, stated in an interview with Reuters on April 3, 2022, that U.S. prosecutors have found evidence that what is known as the Russian oligarchy, referring to the elite wealthy in Russia, is trying to evade sanctions imposed on them.

Adams stated that some Russian businessmen are trying to transfer their assets in anticipation of any future sanctions.

Adams mentioned that efforts are ongoing, and some have been reported for transferring assets in the form of yachts, planes, and others to areas where businessmen believe freezing their assets would be difficult.

According to a report by the Lebanese newspaper Al-Akhbar, published in late February 2022, during a previous visit by a Russian delegation to the Governor of the Central Bank of Lebanon, Riad Salameh, the discussion focused on Russia buying a bank to facilitate financial transactions.

It is worth noting that many Lebanese banks are still cautious in conducting normal banking transactions with their Russian counterparts, in light of the sanctions imposed by the United States and some European countries on Russian companies.

According to data from the World Trade Organization, the volume of trade between Russia and Lebanon amounted to about $572.1 million in 2018, down from $665.7 million in 2017.