SPECIAL REPORT: OPPORTUNITIES IN IRAN
With good demographics and potential opportunities for FDI in a range of sectors, Iran is poised to make the most of further relaxing of economic sanctions.
Since the Islamic revolution in 1979, Iran has been subject to numerous economic and political sanctions by the West and the United Nations. Sanctions were relaxed in late 2013, following an agreement with the P5+1 group of world powers (the United States, Russia, China, United Kingdom and France—plus Germany) regarding the country’s nuclear development program. Expectations are running high that sanctions will be
further relaxed, permitting capital flows and investment in Iran, when the current deal expires in July.
This anticipation—despite a warning in February from US president Obama that that the American government would come down “like a ton of bricks” on anyone who violates sanctions—has sparked a tidal wave of interest in Iran.
In recent months, large trade delegations from France and Germany have visited
Iran. Chinese and Russian investors have long been active in Iran, and there are significant opportunities in the energy, engineering, consumer, automotive, tourism,
pharmaceutical and telecommunication sectors. A range of companies, including Bayer, Total, Orange and Renault, have recently sent senior representatives to Iran to develop relationships.
Iran’s $549 billion economy, despite decades of economic isolation, is the world’s 21st-largest—about as large as Sweden. The country’s 75 million people have a GDP per capita on a par with Bulgaria’s and South Africa’s, and 20% more than China’s. Thanks to a post-revolution baby boom, Iran is in the midst of a demographic “sweet spot,” with about 25% of the population under 15 years of age and two-thirds under 30. According to the US Energy Information Administration, Iran has the world’s fourth-largest proven oil reserves and more proven gas reserves than any other country, except Russia.
The Iranian economy is fertile for investment. The country’s energy sector is in dire need of development, particularly in advanced drilling techniques and other technologies that aren’t available domestically. It is creating attractive investment terms for its enormous energy fields and has already said it hopes to see participation in the sector from ENI, Statoil, BP, ExxonMobil, and a range of other global producers.
Few Western consumer brands—aside from electronics and Coca-Cola—are available in Iran. Decades of pent-up consumer demand will likely result in a massive spending boom, once Iranians have access to a wider range of Western goods. Automakers are also eagerly anticipating the opening of Iran. In 2011—before sanctions were once again tightened and prior to the late-2013 loosening of restrictions—French carmaker Peugeot sold close to half a million cars in Iran. Today the vast bulk of Iran’s automobiles are well over five years old, and few options are available to consumers.
Prolonged underinvestment in infrastructure spells significant opportunities for engineering and construction companies. There is no high-end office space in all of Teheran—a city of 14 million people. The country’s housing stock is old and in dire need of upgrading. Tourism is another largely undeveloped sector: Iran offers extraordinary architecture, skiing and beaches. There are no international hotel chains in Iran, and the homegrown options fall far short of international standards.
Finally, owing to sanctions, the country’s financial services sector has no contact with the rest of the world. Iran’s banks provide only basic retail services. Its $170 billion stock market—nearly as big as Turkey’s—has scarcely any foreign investment. No global financial institution has a presence in the country.
For now, the opportunities in Iran remain strictly off limits. Potential investors from the West can do little more than wait. But as anticipation builds that sanctions will be lifted, the jostling to be first in the door will intensify.
|
KEY FIGURES |
2010 |
2011 |
2012 |
|
GDP |
$496.2 billion |
N/A |
N/A |
|
Real GDP Growth |
5.9% |
2% |
0.4% (estimate) |
|
Government Debt (% of GDP) |
N/A |
N/A |
10.4% (estimate) |
|
Government Deficit (% of GDP) |
N/A |
N/A |
-0.3% |
|
FDI Inflows |
$3.6 billion |
$4.2 billion |
N/A |
Source: GFMag.com Country Economic Reports
