By Shahin Shamsabadi, Head of Business Intelligence MENA at The Risk Advisory Group
We are perhaps only days away from a deal that could open up a country that has been shunned for nearly four decades. This is a country that in spite of crippling sanctions boasts an established banking sector, infrastructural foundations in the transport, aviation and energy industries and a sophisticated consumer market. A large, well-educated workforce, an abundance of natural resources, as well as more than 20 free trade and special economic zones further add to its appeal for multinational companies. This is Iran and, if an agreement is reached on 7 July, its potential emergence from isolation could be the most significant opening of an economy since the fall of the Soviet Union and the US’ rapprochement with China.
Iran’s edge is that its Islamic Republic ideology does not present the same economic restrictions as Communism, which means that there is a whole host of promising opportunities available for businesses willing to take a leap into this new market.
The energy sector offers the most obvious opportunity for potential investors. With the fourth and second largest proven oil and gas reserves in the world, the Western technical expertise and equipment that Iran has lacked up until now could unlock massive wealth. The Iranian government has been explicit in expressing its intentions to court foreign investment as it attempts to play catch up with its neighbours in maintaining its production levels.
With a sophisticated consumer market, Iran is an exciting proposition for retail and FMCG businesses in particular. While luxury goods and brand-name clothing are already relatively prominent, most of these items enter through the grey market as re-exports from close neighbours. A liberalised consumer market would give retail outlets access to a young, savvy population that is increasingly brand aware. This would in turn lead to a boon for the construction and retail sectors as new shopping facilities would be constructed to meet the demand.
The aviation sector is also ripe for regeneration – offering opportunities both at home and away. Iran already has more than 15 commercial and cargo airlines, and over 300 domestic and international airports. The majority of Iranian airlines have, however, suffered from a high number of air disasters stemming primarily from dilapidated fleets that have not been able to consistently secure the necessary spare parts. The lifting of sanctions would rejuvenate the aviation industry and provide a number of economic and social incentives: the creation of much-needed domestic jobs, the chance to win back passengers lost to regional and European carriers, and a boost to the domestic and international tourism sector. The Iranian government recognises the importance of its aviation sector and announced last year that if sanctions were lifted it would purchase 400 new planes. The likely recipients of these orders would be Airbus and Boeing – companies with close ties to the European and American governments that would welcome a large order book from a new market.
Assuming an agreement on Iran’s nuclear programme can be reached, the future for Iran and potential investors looks bright. Countries to which Iran has already made overtures include Russia, China, India and Germany and there are a host more waiting on the sidelines for a deal to be announced. However, with the opportunities comes a unique set of obstacles for businesses to overcome. Despite attempts to privatise the Iranian economy, the state and religious institutions continue to hold direct and indirect interests in major industries. Navigating the local market and ensuring that a business partner is not associated with any entities that continue to be the subject of sanctions will be a priority to avoid risk and unlock the many possibilities offered by a new, post-sanctions Iran.
