Bill Waite, Risk Advisory's CEO, writes for the Financial Times.
The least acknowledged economic race is gearing up for the starting line. Politics aside, the potential Iranian nuclear deal with the five permanent members of the United Nations Security Council plus Germany (P5+1) has led to multinational businesses focusing on the opportunities presented by a reconciliation with the Islamic Republic.
The magnetism of Iran as a destination for foreign investment is rooted in its large well educated workforce, richness in natural resources as well as, of course, its geopolitical importance.
In spite of sanctions, Iran has an established banking sector; infrastructural foundations in the transport, aviation and energy industries; a sophisticated consumer market that is conscious of international brands and products; a large number of port facilities and more than 20 free trade and special economic zones that are well placed to serve international companies.
The Iranian economy has, however, suffered from near complete isolation from modern western technology whether it be in oil and gas extraction or banking software. That is the attraction – European, North American and Middle Eastern businesses are beginning to review how they can exploit minerals and financial markets.
First and foremost is the energy sector. With the fourth and second largest proven oil and gas reserves on the planet, technical expertise and equipment will unlock massive wealth. The Iranian government has made no secret that it will openly court foreign companies as it tries to play catch up with its neighbours.
At the centre of Iran’s future energy plans is the South Pars Gas Field that is shared with Qatar. This field, which was initially being exploited in partnership with European companies, has been developed slowly over the past five years since European divestment. With the potential lifting of sanctions, Iranians are now openly courting European investors and invited German energy companies to reinvest in the country’s oil and gas projects.
The aviation sector is also ripe for regeneration. Iran has more than 15 commercial and cargo airlines and over 300 airports serving both domestic and international destinations. But air disasters that have plagued the Iranian aviation sector are directly attributable to dilapidated fleets.
The lifting of sanctions would rejuvenate the aviation industry and provide a number of economic and social incentives: the creation of much-needed jobs for the local population; the re-appropriation of passenger volumes lost to regional and European carriers; and a boost to the domestic and international tourism sectors that would in turn create opportunities in the Iranian hospitality 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. Airbus and Boeing are reportedly already discussing potential sales with Iranian authorities.
Iranian demographics are also attractive to multinational retail and food and beverage businesses. While luxury goods and brand-name clothing are available in Iran, most of the items make their way to the country through the grey market as re-exports from its neighbours.
With the lifting of sanctions official retail outlets would tap into a large brand-conscious population. This would in turn lead to a boon for the construction and retail sectors as new shopping facilities would be constructed. The Spanish clothing and accessories retailer, Mango, has already entered the Iranian market with significant success and although it is unlikely American retail stores would be the first through the door, European companies have a more robust risk appetite and would be an early entrant into the sector.
There is of course many a slip between cup and lip and the nature and extent of any lifting of sanctions has yet to be determined. But as and when the ending of pariah status occurs, it will create a massive business dividend for those who dare to tread.
For those that do, the country presents its own unique set of challenges in the Middle East. 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 be the subject of sanctions will be a priority to avoid commercial, reputational and potential criminal risk.