Foreign businesses make tracks for Iran

Huge opportunities may open up as sanctions are lifted, but experts see steep barriers

TEHERAN • Foreign companies are eager to exploit the potential of Iran's long-isolated economy following a landmark nuclear deal, but experts say doing business in the Islamic republic will remain challenging.

The deal between Teheran and major powers announced in Vienna on Tuesday offers an opening for international companies as sanctions are rolled back in return for steps to rein in Iran's nuclear programme.

With the ink barely dry, German Economy Minister Sigmar Gabriel is set to visit Iran for three days starting tomorrow with a "small delegation of industry and science representatives". His ministry said there was "great interest in normalising and strengthening economic relations with Iran".

French Foreign Minister Laurent Fabius and Italian Economic Development Minister Federica Guidi also plan to visit Iran.

Still, despite the buzz over the historic agreement, analysts say Iran is no El Dorado for foreign firms keen to tap opportunities there.

MAJOR HURDLES

Doing business in Iran will not change overnight as the country suffers from an outdated legal system, restrictive labour laws and a lack of significant experience in dealing with international investors.

MR FIRAS ABI ALI, an analyst at London-based research firm IHS

"Doing business in Iran will not change overnight as the country suffers from an outdated legal system, restrictive labour laws and a lack of significant experience in dealing with international investors," said Mr Firas Abi Ali, an analyst at London-based research firm IHS.

French firms, particularly in the car industry, are already well established in Iran, although they have been affected by the international sanctions imposed since 2006.

Companies set to benefit most immediately from the rollback of sanctions are those already in Iran, said Mr Ramin Rabii, who heads Teheran-based investment firm Turquoise Partners. Such companies include Danone, Airbus and LVMH.

French carmaker PSA Peugeot Citroen quit Iran - its second-largest market - in early 2012, but is now discussing a renewed partnership with Iran Khodro.

PSA said the nuclear agreement "should allow significant progress in ongoing discussions".

Germany's BDI industry federation believes exports to Iran could rise fourfold to more than €10 billion (S$14.9 billion) in the medium term, up from €2.4 billion last year, thanks to the need to modernise industry, especially the oil sector.

Italian exports - which stood at €1.15 billion before the sanctions, led by machine tool sales - could reach €4 billion in 2018, based on estimates from export credit firm Sace quoted in the Italian press.

For major companies, one priority is for Iran to be reconnected to the global network of Swift banking transactions, so firms present in Iran can transfer funds directly to and from the country.

An area in need of urgent investment is the creaking oil sector.

Iran, which has the world's fourth-largest oil reserves, has seen its production fall to less than three million barrels per day (bpd) since 2012. Its oil exports have roughly halved to about 1.3 million bpd, from 2.5 million bpd in 2011.

Iran also has the world's largest reserves of gas and was the No.4 producer last year.

"Our priority is to develop our oil and gas fields using domestic and foreign potential," said Iranian Oil Minister Bijan Zanganeh.

He said his country wanted to accelerate the development of the petrochemical industry, but experts note that foreign energy companies face numerous hurdles.

"Although the deal will present foreign oil and gas companies in particular with a broad range of opportunities, the operating environment in a post-sanctions Iran will almost certainly remain challenging," said Mr Torbjorn Soltvedt, an analyst with Verisk Maplecroft.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on July 18, 2015, with the headline 'Foreign businesses make tracks for Iran'. Print Edition | Subscribe