World Business and Economic Analysis
World Business and Economic Analysis
According to Financial Tribune ,Britain’s vote to leave the European Union and the rise of US presidential nominee Donald Trump have paralyzed efforts by western governments to encourage already highly reluctant international banks to do business with Iran.
Under the nuclear deal, international financial sanctions on Iran were officially lifted in January this year and yet it has secured banking ties with only a limited number of smaller foreign institutions.
One senior unidentified Iranian official told Reuters Tehran was examining alternatives. “Iran will continue to work with small banks, institutions as long as major European banks are reluctant to return to Iran,” said the official.
“Our estimation is that this uncertainty will continue for a few years. We are in talks with many countries, mainly China, Russia and African countries to widen our banking cooperation aimed at resolving existing banking, financial problems.”
US banks are still forbidden to do business with Iran under domestic sanctions that remain in force. European lenders also face major problems, notably rules prohibiting transactions with Iran in dollars - the world’s main business currency - from being processed through the US financial system.
Britain says it remains committed to tackling the banks’ concerns, while the US Treasury says it won’t stand in the way of legitimate business with the country.
However, Iranian officials and foreign bankers believe the British political upheaval after last month’s referendum has distracted governments in London and other European capitals, while the possibility that the shock will send the British economy into recession has deepened banks’ caution yet further.
“Fear over Brexit’s financial consequences have made Britain and other European countries more careful over their interaction with Iran. Most of them have adopted the policy of watch and see,” another senior unidentified Iranian official told Reuters.
Not interested
“The British banks and authorities have a very big problem to deal with and since the vote, they have been less eager about Iran and I can even say almost not interested. Of course, we believe we can still work with British banks and have told them so.”
European banks have generally cited the US elections as a political risk, while avoiding detailed comment on how a victory for the Republican nominee Trump might affect their business.
However, another Iranian official, who also declined to be identified, said the election and Trump’s promise to tear up the Iran nuclear deal if he wins was complicating Tehran’s efforts.
“Major European banks are worried about its outcome. An official from a German bank told us recently that they could not risk getting involved in Iran especially when Trump was a candidate,” the official said.
A US Treasury spokeswoman said Treasury officials were not going to stand in the way of permissible business activities with Iran. They had travelled worldwide to provide guidance to governments, companies, and financial institutions, she noted.
On July 12, Britain’s Foreign Office said a meeting between Iran’s central bank, the US Treasury, British officials and international banks in London had been postponed.
The resignation of prime minister David Cameron following the Brexit vote and a cabinet reshuffle by his successor Theresa May, who took office on July 13, has complicated matters.
“The new government has bigger priorities related to Brexit and the impetus to push the banking issue is likely to take more of a back seat now. Iran relations will also be affected by officials moving to other offices due to Brexit,” a western source said.
A Foreign Office spokeswoman said it was in both countries’ interests that legitimate business was supported. “Some challenges remain, but we are committed to working through them with international partners, Iran, and the banking community,” she said.
A British trade visit to Iran scheduled for May was postponed. Banking sources said this was partly due to bankers’ reluctance to join it. A British official said the new government was keen for the visit to go ahead this year.
But the UK sanctions manager was skeptical: “I would be hugely surprised if any of the UK banks would go. I do not think any of the banks want to stick their head above the parapet.”
To reach an average 8 percent economic growth during the next five-year period, according to decree of the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei, and following withdrawal of the financial embargo in January, the Iranian administration is shifting from a bank-based financial system into a more market-based one (i.e. switching the trend of financing away from banks towards securities market). This would create great plenty of opportunities and special incentives to entice overseas investments into the country in a bid to finance economic projects.
To capture a comprehensive view over the current conditions of the Iranian capital market, the Tehran Times conducted an interview with Amir Hamooni, CEO of Iran Fara Bourse (IFB), Iran's secondary securities exchange. Following is the full text of interview with him.
How do you evaluate the general trend of IFB market after implementation of the nuclear deal, known as Joint Comprehensive Plan of Action (JCPOA), with world powers in January?
After the execution of the JCPOA and in the last three months of previous Iranian calendar year of 1394 (December 21, 2015- March 19, 2016), IFB could manage to attract up to 2 trillion rials (above $57.6 billion, at free market exchange rate) of foreign investments and has been successful to absorb the same amount during the first three months of the current Iranian calendar year (March 20-June 20, 2016), i.e., around 4 trillion rials (above $115 billion) of foreign investments has been absorbed by IFB as of the sanctions’ removal.
Overseas investors sought to enter IFB market by investing in Structured Financial Products and via purchasing securities and principals, interest payments of which are fully guaranteed by the Iranian government (including different types of sukuk and Islamic Treasury Bills (ITBs)). They also pursue their investment goals through forging partnership with Iranian companies in IFB that need to apply modern technology to accelerate their renovation procedure, among we can name Pakvash. The recent Henkel-Pakvash agreement (Germany’s Henkel - one of the largest household and personal care manufacturing companies in the world - purchased 30 percent of Pakvash for a total value of around €51 million through IFB). It is worth mentioning that some other similar contracts with foreign investors are to be finalized within the next few weeks and consequently, the total volume of attracted foreign investments to IFB would surplus 10 trillion rials (above $288 billion) over the past six months following the JCPOA implementation.
How do you analyze risk-return relations in domestic capital market at the present time?
Iran’s primary and secondary capital market indices (TEDPIX and IFX respectively), have always reflected the country’s economic situation, clearly. During the past six months, despite some specific occasions when some emotional responses have influenced the market’s behavior, the general trend of the market has been rational.
How do you consider the impact of Iran’s current political situation as well as its relations with international financial bodies on domestic capital market?
We cannot deny the challenges that we still face in our relations with some international banks or some other global entities according to some political issues; however, it is worth noting that the said 4 trillion rials (above $288 billion) of foreign investments, as an available example, has been attracted under such trying circumstances and the related financial transactions have been carried out through Society for Worldwide Interbank Financial Telecommunication (SWIFT). Our near future transactions will also be done under the same conditions, since it would take some time both for us and our foreign partners to remove obstacles on the way to increase and ease our mutual transactions.
Some experts voice concern that Iran’s bureaucracy and opaque ownership structures may hinder attraction of foreign investments. How do you think?
The money which is presently moving towards the Iranian capital market is smart, i.e. it is invested by those foreigners experienced, well-informed, in-the-know or all three. Overseas investors have a comprehensive overview of their Iranian partners as well as the country’s regulations. They will pave their way to Iran’s lucrative market as they did under the sanctions, when the conditions were much tougher. There are some power plants in Iran, technology and equipment of which were imported in sanctions era. They were established and put into operation under the same conditions and now they are taking preparatory steps to offer their stakes through a block sale on IFB. Smart money knows where to go and who to do business with. Now it is time for us to offer various investment opportunities. Of course, well-organized Iranian investment funds and banks as well as investment advisors and brokers are highly active in luring foreign investments in sectors which are in Iran’s economy’s favor and accord our own economic strategies and targets.
Iran’s Sixth Five-Year Development Plan (2016- 2021), which outlines government strategies in its budget planning for the next five years and is going to be finalized by the parliament, pays a specific attention to improving the performance of securities markets with the participation of domestic and foreign investors in a bid to finance economic projects across the country via attracted investments rather than through banking resources. Will this plan be a practical and efficient one regarding Iran’s conditions? Can it hit the set targets?
The situation is set to apply market-based financing system in Iran. By the JCPOA execution, the country has reached a historical turning point and in comparison with the past years, holds enormous potentials, including well-educated human resources in financial engineering, financial economics, accounting and etc., who can improve financial knowledge of the country in the future, as they did so during the recent years. As the available evidence proves, the IFB’s stake of financing the country’s projects has reached 30 percent at the present time, from the previous two percent when it started operation. This proves that seizing the current opportunities, IFB and of course Tehran Stock Exchange (TSE) can remarkably expand their share of financing in the near future.
Securities and Exchange Organization (SEO) membership status in International Organization of Securities Commissions (IOSCO) became final recently, what about IFB membership in the international body?
IOSCO is currently studying our membership request as an affiliate member. Our next step would definitely be to apply for World Federation of Exchanges (WFE) membership.
Iran has been inundated with the rush of foreign investors who want to find a foothold to Iran’s untapped market. What is your message to them?
Islamic Treasury Bills and Sukuk offer one of the best investment opportunities for foreigners. Iranian sukuk offer very high yields compared to European bond yields, providing a lucrative opportunity for foreign investors. We are trying to rate our debt securities to ease their investment.
Source:Tehran Times
These days International companies looking closely Iran's Market to establish office in Iran,But what about International consultancy firms?
According to the Arabian Business ,The world’s ‘Big Four’ accountancy and professional services firms are taking steps to establish operations in Iran following the lifting of international sanctions in January.
KPMG, Deloitte, PWC and EY are understood to have held discussions over either setting up offices in Tehran or otherwise commencing operations in the country.
It is not yet known when such movements would take place, but the auditing firms told Arabian Business they had had sufficient demand from clients looking to enter the market to justify an expansion of their services into Iran.
A KPMG spokesman said: “KPMG is looking at establishing a presence in Iran as soon as is practicable and in a manner which is in compliance with all applicable laws and regulations.
“A team of non-US personnel are currently exploring the opportunities available so that KPMG can support clients looking to re-enter the market.”
PWC said in a statement: “PWC is monitoring developments in Iran closely and supports the goals of the Joint Comprehensive Plan of Action. We are the largest of the Big Four professional services networks around the world.
“Certain PWC member firms are assisting international clients who are considering business opportunities with Iran and evaluating potential opportunities to begin operations there.”
A Deloitte spokesman said that the firm has “no on the ground presence in Iran” at the moment, “but is able to provide clients certain professional services from teams outside Iran”.
The spokesman added: “Deloitte continuously assesses developments to set appropriate plans and strategy for the Iran market.”
And EY said in a statement: “EY is working closely with clients to support their commercial interests in Iran, consistently with applicable laws and regulations.”
The Big Four are among the first international companies to have publicly stated they are actively looking to work in Tehran following the lifting of sanctions this year.
It is believed a clutch of international law firms and at least one large global bank are also in talks to set up offices in Tehran – although experts say it could be some time yet before foreign investors rush to take advantage of the reopened market.
Although the majority of international sanctions have been removed, there remain restrictions against the direct involvement of US citizens in Iran, and the supply of US-sourced products and services to Iran-based companies.
Nicholas Coward, US-based attorney at Baker & McKenzie law firm, said: “The two words that best characterise the current situation are ‘balance’ and ‘caution’.
“Balance in terms of the government approach to the new relationship and strict enforcement in maintaining certain other sanctions, and balance from companies in terms of their cognisance of the things they can and cannot do, and how to police that internally.”
Ahmad Azizi, senior advisor to the governor of the Central Bank of Iran, said: “While there are negative foreign perceptions of [doing business in] Iran, prospective investors must remember that Iran is a large, local market and one of the most diversified economies in the Middle East.
“Last year it exported every single category of goods as defined by the International Monetary Fund (IMF) – a rare attribute in the region.
“Those concerned over the implications of the ‘snapback’ provisions contained in the deal [that sanctions will be re-imposed should Iran fail to keep up its side of the bargain] should be reassured that the country worked hard to negotiate with the US and would not throw away its investment overnight.”
