Establishing a foothold in Iran’s marketplace

On 16 January 2016, the historic lifting of trade sanctions heralded Iran’s return to the economic stage. The country had met its obligations under the nuclear deal of 14 July 2015 after 12 years of negotiations, and finally had more freedom to trade globally. 

Since then, foreign investment into the oil-rich country has been more akin to a trickle than a flood. However, a few big deals signed in recent weeks and months indicate that multinationals are increasingly confident about establishing a foothold in what remains one of the riskiest, yet most promising, marketplaces on the globe. 

Deals and difficulties

In July, French oil giant Total agreed to spend $1 billion developing the country’s largest oil field – a great investment considering prices are set to rise. Iranians accustomed to driving clunky locally made cars will once again get the chance to sit behind the wheel of a brand-new Peugeot, following the manufacturer’s recent commitment to produce 200,000 new cars in Iran.

The transportation industry will also benefit from lifting sanctions on civil aviation. Iran’s transportation minister has stated that the country will need to replace at least 400 commercial airplanes within the next decade, so the American airplane manufacturer, Boeing Co (BA), should see an increase in revenues.

Indeed, Iran is still no place for the faint-hearted investor. Corruption lingers (Transparency International ranks Iran 131 out of 175 countries in its Corruption Perceptions Index, a spot shared with Nepal, Russia and the Ukraine) and some powerful Western companies are giving it a wide berth. Apple, for example, confirmed last week that it had removed popular Iranian apps from its App Store to comply with prevailing US trade sanctions, dealing a blow to Iran’s blossoming startup scene. 

A promising future

Google still allows free Android apps on its Play Store in Iran, while other Western governments are taking a more open approach than the US. The UK, after installing a new ambassador, Nicholas Hopton, in Tehran last year, offers financial cover to select companies wishing to do business there. Its trade department is actively encouraging business opportunities in the country’s energy, infrastructure, healthcare, retail, airports and aviation, mining and water sectors.

China and India, too, are continuing to lend support via the completion last year of the China-to-Iran ‘Silk Road’ train line. Starting in China’s eastern Zhejiang province, the train travels through Kazakhstan and Turkmenistan. With the introduction of the line, both China and Iran have also agreed to increase trade to $600 billion over the coming decade.

The accompanying arrival of professional services groups, such as English international law firm CMS last year, is stretching the country’s immature commercial property sector to the limit. To meet growing customer needs and make the most of the emerging market in Iran, Regus now operates office space in Tehran.

Time to invest

Crucially, there are signs that financial institutions are extending lines of credit, providing a springboard for companies long excited by Iran’s potential but restrained by a lack of financing support.

Their enthusiasm has a solid basis. Iran is blessed with a work-ready population: almost two-thirds of its 80 million residents are under the age of 35. And they’re so highly educated that the Crown Center for Middle Eastern Studies says the country is facing an "over-education crisis" with too many smart people competing for too few local jobs. Last year, the economy grew by 6.5 per cent and the IMF projects a growth of 3.3 per cent, 4.3 per cent and 4.4 per cent in 2017, 2018 and 2022, respectively.

To an increasing number of corporate trailblazers, it appears that Iran has much to offer – a sizeable emerging market, 78 million population and a nominal GDP of $400 billion – and they’re prepared to take the risks in their strides.