by : Dr.  MehrdadSyadatnasab

Commercial Attaché of Iran Embassy, Pretoria, South Africa

 
Iran is an important and historical country with ancient civilization in the Middle East Region, situated in strategic location, with a population of about 80 million and it is the world’s 17th-most-populous market. Economy of Iran is the eighteenth largest economy in the world by purchasing power parity (PPP). In fact, Iran is a very young nation and it is not only about quantity, but also quality.
Iran, as a major energy producer in the Middle East holds 10% of the world’s oil reserves (second largest oil producer) and second largest reserves of natural gas (15% of the world's total) and it has the potential to become an energy superpower.
 
The economic fundamentals are strong. It’s been described as the Germany of the Middle East, an educated workforce, developed Infrastructure and a proud tradition of manufacturing with 7 Free Trade-Industrial Zones and 30 Special Economic Zones. The country has competent farmers, carmakers, drug firms and a fairly sophisticated service sector with abundant potential in Engineering & Technical services (721 Techno-Engineering projects have been executed in 42 countries by Iranian companies over the last 10 years), making it less dependent on oil, now at rock-bottom prices, than other big producers such as the Persian Gulf states.
 
The economy of Iran has been hit by sanctions and extensive trade restrictions in recent years, yet the nuclear deal has opened a clear path for total obliteration of sanction policy against the country. Although being sanctioned has been a big issue for the economy, but we can address this issue also as an opportunity than a threat.
After years of intensive negotiations have finally cleared all the misunderstandings around Iran's nuclear activities and In July 2015, Iran signed a historic deal with the P5+1 group of international mediators and now are taking the next step towards integrating more deeply into the global economy.
But foreign companies began flocking to Iran even before the deal was signed. In 2015, Tehran hosted a flurry of trade delegations and signed new contracts to boost cooperation and elaborating various opportunities in tourism, transportation, technology, foodstuff, aviation and machinery as well as oil and gas and other sectors. (Around 60 foreign delegations visited Iran in 2015 that at least a dozen were from Europe.)
In recent report the IMF noted that "prospects for 2016/17 are brighter, owing to the prospective lifting of economic sanctions. Higher oil production, lower costs for trade and financial transactions, and restored access to foreign assets, are expected to lift real GDP of Iran to about 4–5.5 percent in 2016."
 
As the largest untapped market with a very young population, the lifting of sanctions will bring around a host of new opportunities to foreign businesses with a prior presence in Iran as well as those interested in entering the Iranian market. New Iranian legislations such as the Foreign Investment Promotion and Protection Act have come into force in an attempt to attract more foreign investment, removing previous restrictions on the percentage of foreign shareholding in Iran, and the possibility of registering an Iranian company with 100% foreign capital as well as unlimited transfer of capital and dividends where applicable.
 
The country has one of the lowest levels of external debt in the world, which makes it more resistant to global shocks. (While the external debt to GDP is less than 5 percent in Iran, the number goes to around 50 percent for Turkey). Considering the substantial amount of not-satiated demand in almost every sector, an industrial base which requires renovation and rich natural resources mainly underutilized due to investment deficiency in recent years, Iran has extra ordinary expansion and investment potentials in the fields of Oil, Gas, Petrochemicals, Mines, Industries, Agriculture and Service sectors and it’s easy to see why investors and international companies are getting very excited about Iran.
At the end it is worth to mention that after years of economic isolation, the prospect of the world’s last major frontier market opening up in 2016 and we can say Economic Renascence are started and “Iran’s Golden Times” are not far away.

Heinrich Matthee


Since the nuclear deal, European companies have been flocking in trade missions to Iran. These companies often also enjoy the support of national and regional governments from Germany and France to Italy or the Netherlands. However, their main obstacle at present is the lack of active support by their preferred financial lenders.
Several major European banks have stated that they are not prepared to do business in Iran at this stage. These banks include Germany’s Deutsche Bank, Zurich-based Credit Suisse Group and the U.K.’s Standard Chartered.
The considerable potential in Iran is as apparent to these banks as to European companies. The inhibitions of European banks are rooted in the USA. They remain scared of running afoul of remaining US sanctions on Iran.
Painful recent examples keep them alert to the potential drawbacks. BNP Paribas had to pay a record $9 billion US fine partly due to its dealings with Iran. The German Commerzbank agreed to pay $1.45 billion in 2015 in an investigation into whether it breached US sanctions against countries including Iran.
Thus, a major French bank like Société Générale indicated in May 2016 that it does not plan to restart activities in Iran given the “strong operational risks for financial institutions.” SWIFT, the global bank transactions network, has been reconnected to Iran, but remains dormant.
It will for now remain difficult to finance major projects and operations. European businesses will either have to find funders or the contracts will not be finalized. For smaller projects, European businesses may find lenders like the Belgian KBC and smaller German banks. Invoicing in Euro and other non-dollar denominations will remain advisable for some time.   
However, for bigger projects, the funding issue will remain and has now landed on the agenda of European economic diplomacy too.

Several European governments have started talks with U.S. authorities to get a commitment that banks can do business without incurring legal woes.
European trade diplomats indicate that there is progress but that it will take time to resolve all the issues. There have been tense US-Iran relations for almost a quarter-century. The financial issue clearly remains a bargaining chip for some US actors.
The US political position over the long term will also play a role in the reticence of some European banks. After all, the outcome of the US presidential elections in November and the actual policies of a new president remains unclear. These banks do not want to be caught in a new political minefield.
Thus, for major projects, the funding issue will take time to resolve. It will also remain important for many European companies to understand the ownership and control of their counterparts in Iran. External stakeholder and reputation management and embedding corporate governance standards in their operations remain on the agenda of many.
In this regard, a remark by Hans-Peter Rapp-Frick, the CEO of the German regional trade association SIHK, deserves attention. One of the biggest drivers of Iranian-European business ties is that Iran’s actors do not only want to conduct business, but that people also want to continue building something of value in Iran.  Despite current obstacles, Iran’s potential will continue to attract European business interest. Those businesses with a longer view, persistence and a commitment to Iranian society will have the greater chances for success.   

Dr. Heinrich Matthee is a director of JISR, an EU-based strategic advisory firm.