Iran is open for business, but sanctions and political risk remain
A nuclear agreement agreed in July has triggered interest from European countries who expect their sanctions to be lifted next year. But the US will maintain non-nuclear sanctions that could stifle investment.
An Iranian oil worker makes his way through an oil refinery south of Tehran last December. Iranian bankers say $800 billion in projects, including building new oil refineries, have already been identified as spending needs by the government in the wake of the Iran nuclear deal.
Vahid Salemi/AP/File
Geneva
Iran says it is ready for a gold rush, as trade delegations flock to Tehran to be first in line when sanctions聽are聽lifted聽under the landmark nuclear deal agreed in July.
And there is real hope and opportunity in a聽well-educated聽country of 80 million with聽massive deposits of聽oil and gas, one聽that investors see as聽an untapped market聽emerging from years of isolation.
But cashing in will not be easy and is fraught with risk, experts say.聽One major brake is聽US sanctions on terrorism and human rights聽that聽will continue 鈥� with strict enforcement and steep penalties.聽Another is the聽uncertainty聽inherent to Iran鈥檚 opaque political system.
That seesaw between enthusiasm and caution was evident at聽last week鈥檚 2nd Europe-Iran Forum in Geneva, where Iranian officials, Western consultants, lawyers, and potential investors聽gathered聽for the first time since the nuclear聽deal.聽
Iran is a high-risk, high-reward market, but investors should guard against 鈥渆xcessive expectations,鈥� said Charles Hollis, the managing director of FTI Consulting, a Washington-based聽advisory group. Political risk is another factor in a country where the聽terms聽of the nuclear deal 鈥撀燼nd its fruits 鈥� are already being heavily contested. 聽
鈥淐learly the nuclear deal has empowered the moderates in Tehran, but the hardliners are very good at conducting trench warfare,鈥� Mr.聽Hollis told the forum. 鈥淚ran will be good, but it鈥檚 not going to be brilliant, and it鈥檚 not going to be brilliant tomorrow.鈥�
The business environment聽"remains a minefield,鈥� he adds. 鈥淪o the first piece of advice is: Understand sanctions, and abide by them.鈥�
A flood of business delegation
Iranian officials聽say聽the Islamic Republic is open for business, pointing to the timetable for the lifting of聽key聽European and banking sanctions, probably early next year.
鈥淚ran is now there for you as a partner,鈥� said Abdulrasoul Dorri Esfahani, a senior advisor to the governor of the Central Bank of Iran, who was a member of Iran鈥檚 nuclear negotiating team. Speaking聽about Europeans and others being held back by years of sanctions, he said, 鈥渢hat fear is gone.鈥�
More than 100 top French companies visited Iran last week, the latest of 130 groups, official and unofficial, since the nuclear deal was signed. Italy plans to send a group of 400 companies in late November, with interests from construction to railways. Italian officials hope their exports to Iran will聽expand from less than one billion euros ($1.12 billion) now to three billion euros ($3.35 billion) by 2018.聽
Iranian bankers say $800 billion in projects have already been identified as spending needs聽by the government,聽everything from gas extraction and oil refineries, to major infrastructure projects and new commercial aircraft. With the third largest economy in the Middle East behind Turkey and Saudi Arabia 鈥� Iran's GDP was more than $400 billion in 2014 鈥� some suggest Iran聽could eventually become a regional economic powerhouse,聽the Germany or South Korea of the region.
Some US sanctions remain
But while companies are eager to be the first in, they will find a tricky business environment.聽While EU and United Nations sanctions are due to be terminated in early 2016, the US has only agreed to suspend nuclear-related sanctions, such as on Iran's oil and banking sectors; a permanent lifting isn鈥檛 due until 2023. Non-nuclear US sanctions on Iran will remain, and all sanctions can 鈥渟nap back鈥� in case of violations.
Barthelemy Helg, a partner with ACL, a financial advisory firm specializing in Iranian capital markets,聽says聽that, from the US point of view, 鈥渧ery little will change,鈥澛燽ecause聽the Congress-mandated sanctions on Iran聽mean聽the 鈥渆ntire arsenal [of sanctions] will remain in place.鈥�
International聽banks are likely to be reluctant to聽engage unless there is 鈥渁bsolute clarity鈥� from US officials, says Mr. Helg. US regulators have imposed billions of dollars in fines on European banks for sanctions and money-laundering infractions.
Companies must also ensure that their Iranian counterparts aren鈥檛 subject to Western sanctions, directly or indirectly. This includes people and entities聽linked to the multifaceted Revolutionary Guard,聽which do not always have clear lines of ownership.聽
'Tip of the iceberg'
As in all emerging markets, foreign investors must also beware of fraud issues, knowing who your partners are and who they associate with, and whether they have the influence they say they have.聽
鈥淪anctions are just the tip of the iceberg when it comes to risks in Iran,鈥� says Jonathan Friedman, an assistant director with the global risk management firm Stroz Friedberg, whose clients have in the past done聽pharmaceutical trade with Iran.
鈥淎t the same time, you have to be part of the conversation,鈥� says Mr. Friedman.聽鈥淭his is a big story, capital needs a place to go; there are not too many places for growth.鈥�
Still,聽Helg says聽working in Iran is聽easier than聽Russia, Sudan, or Myanmar, because Iran is a developed and sophisticated market.聽鈥淚ranians are very close to the Western mentality 鈥� and it is very easy to engage with them. So if you choose the right partners, you鈥檒l have a very good experience.鈥�
Any investor will have on their side the government of centrist President Hassan Rouhani, who promised since his 2013 election to boost the economy.
鈥淲hen you compare the environment vis-a-vis international business and investment in Iran that we had three years ago, to today, it鈥檚 a 180-degree difference,鈥� says Rouzbeh Pirouz, executive chairman of Turquoise Partners, which manages over $70 million of foreign investment funds in the Tehran Stock Exchange.
The need for a strong private sector not hampered by restrictions is a 鈥渃ontinuing challenge鈥� that the Rouhani government recognizes, says Mr. Pirouz. 鈥淪anctions obviously affect the extent to which international business can engage, and Iran can operate in the global economy, but the domestic issues are there regardless."聽
鈥淚n Iran, come in, we welcome you,鈥� said Ali Amiri of ACL, the advisory firm. 鈥淏e brave, be selective, and you will win."