AT LAST THE DEAL, BUT DON'T RUSH TO IRAN MARKET!
Master's degree on International relations, YSU, YEREVAN
Iran is the second largest economy in the Middle East and North Africa region, with an estimated GDP of US $ 406.3 billion in 2014. It also has the second largest population of the region, with an estimated 80.8 million people in July 2014. Iran’s economy is characterized by a large hydrocarbon sector, small scale agriculture and services sectors, and a noticeable state presence in manufacturing and financial services.
The nuclear deal, promising to lift of economic sanctions against Iran, will open up the world's second-largest natural gas reserves and fourth-largest oil reserves, along with an outdated energy sector that needs hundreds of billions of dollars and foreign technology and expertise to reverse a long-term decline.
Iran has seen its oil production fall to less than three million barrels per day since 2012. Its oil exports have roughly halved to about 1.3 million bpd, from 2.5 million bpd in 2011.
Iran's priority is to develop oil and gas fields using domestic and foreign potential.
The oil sector alone requires up to $200bn to make up for a decade of under-investment.
So, for giants big international oil and gas companies, that try to increase the investment in Iran, the coming months are promising. With US ties improving, American multinationals such as Halibertun, Shell, ExxonMobil and Chevron, which were previously absent from Iran, now are looking for investment in Iranian Oil and Gas sector. Italy’s ENI and Glencore have already visited Tehran.
Opportunities are not just limited to oil. The automotive sector — the biggest in the Middle East — has been particularly hard hit by sanctions. Companies in this sector hope finally to be able to import more parts and attract investment not only from the French carmakers such as Renault and Peugeot, but also from American and Japanese manufacturers. Several companies, such as Fiat Chrysler have already declared, that if Iran’s market opens up, it will be a good opportunity for them. Chinese company Changan has signed a partnership with Iran's Saipa Automotive Group to jointly develop new vehicles. In May, Brilliance Auto Group became the latest of several Chinese automakers to begin production in Iran, opening an assembly plant west of Tehran with a local partner, Pars Khodro, to make sedans and hatchbacks. While others, like Ford are taking a more cautious tone, saying it complies with U.S. sanctions.
The aircraft industry expects a huge boost, too. The country has one of the world’s worst airline safety records, as the sanctions have made it impossible for Iran to buy new Western-made planes. Transportation Minister Abbas Akhoundi has said, that Iran is prepared to spend about $20 billion to purchase some 400 aircraft over the coming decade.
Thus, the nuclear agreement gives the companies green line to provide aircrafts and some spare parts and this refers also to Boeing Co. and engine-maker General Electric Co., who stopped the cooperation with Iran after the 1979 revolution.
Discount carrier FlyDubai launched a major expansion to Iranian destinations from its base in the Mideast's busiest airport of Dubai, announcing five new Iranian destinations on top of two it already serves.
Iranian businessmen hope to see foreign investment in other sectors such as tourism, technology, mining and banking. In recent months, multinationals with less visible products, like pharmaceuticals, food and construction, have been visiting Iran regularly and want to open offices there.
U.S. drug makers and health-care companies are likely to see some gain, as they've already had more access to Iran's markets under exceptions to sanctions for humanitarian goods. More than 50 medical companies received sanctions waivers from the U.S. Treasury Department last year to export to Iran, including Boston Scientific, GE Healthcare, and Bausch & Lomb. The problem they've faced is getting paid, particularly after Iranian banks were cut off from the SWIFT global payments system in 2012, which stands for Society for Worldwide Interbank Financial Telecommunication. From 2012 to 2014, the value of legal U.S. pharmaceuticals exports to Iran fell by more than half.
The market is also prosperous for Apple and even McDonald’s that are looking into franchise-based business operations in the country.
Stock market investors also appear keen. Charlemagne Capital, an asset management group, recently teamed up with a Tehran-based firm to establish a fund to invest in the Iranian securities market.
Thus, the lifting of international economic and financial sanctions opens new opportunities for states to review their economic relations with Iran. Business leaders are wasting no time in trying to tap into a large and what they hope will be a lucrative Iranian market. But it will take time for trade to open up and for the economy to recover. Though Iranian authorities have adopted a comprehensive strategy encompassing market-based reforms, the country still plays a key role in the economy by owning large governmental and quasi-public enterprises which partly dominate by Iranian Guardians and other dependent governmental alliances. The financial sector is also dominated by Governmental banks. Other difficulties also, such as structural problems, corruption, outdated legal system, poor banking services still remain.
A significant change, will be when Iran regains access to the SWIFT system, which is essential for doing business in the contemporary world.
So, economic and business situation in Iran will not change overnight. Although foreign firms are eager to exploit the potential of Iran's long-isolated economy following the nuclear deal, doing business in the Islamic republic is still remaining hugely challenging.
|1222 reads | 15.08.2015|