In World Economy News 25/01/2016
A decade ago, Foad Fanaei packed his belongings and left sanction-hit Iran in the hope that the family’s engineering firm would thrive in Qatar.
Starting up in the Gulf Arab state proved to be hard for a 27-year-old outsider who had to grapple with Qatar’s complex business laws and navigate the international financial constraints imposed over Iran’s nuclear program.
Since then Fanaei has endured years of financial losses but kept the business going in the hope that one day the nuclear-related sanctions would be lifted. Cherishing the same hope, his father continued to run a parent company in Iran.
Now that day has come, Fanaei believes his hard work is about to be rewarded.
“I came here with experience and new technology. I met with many companies but it was tough. We missed out on a lot of deals,” he explained. “Now, though, politics is in the past. It took a long time, but we are moving forward.”
Fanaei is blazing a trail that other Iranian businesses are likely to follow.
His company, Reign Engineering & Trading Co, has forged a partnership with Abu Dhabi-based construction firm AlJaber Group which is set to enter an agreement with industrial group Siemens to start manufacturing high-specification electricity-saving devices.
If the deal goes ahead, Fanaei, one of a handful of Iranian businessmen in Qatar, will be involved in the development of the largest electronics factory in the country and, together with the AlJaber Group, will bid on tenders for multi-million dollar government infrastructure projects.
The venture will not be directly affected by the easing of sanctions – it relies on local manufacturers – but the prospect of being able to transfer money in and out of Iran, travel more freely and sign contracts with Western companies – all curtailed under sanctions – Fanaei says, will allow him and other Iranians to thrive in the region.
“We invested heavily in Qatar and honestly we lost a lot of money, but we still had hope,” he said.
Arab firms too stand to benefit from Iran’s opening.
The likely surge in business between Iran and other countries in the Gulf will be just one part of the boom in business expected following the lifting of the nuclear-related sanctions on Jan. 18.
The deal with world powers that ended Iran’s international isolation, in exchange for restrictions on Tehran’s nuclear program, restored its access to tens of billions of dollars in frozen assets, reopened the country to foreign investment and allows it to sell oil again on world markets.
President Hassan Rouhani, who championed the deal, says Iran needs $30-$50 billion a year in foreign investment to meet its economic growth target of eight percent. He has ordered a sharp increase in oil output and, in a sign of the size of the business opportunities that are up for grabs, Iran has said it wants to buy more than 100 Western planes.
Some companies have moved quickly to gain or regain access to a country that is rich in natural resources and has a young, well educated population of about 80 million.
European and Asian firms have a head start as some U.S. sanctions remain, tying the hands of American companies.
But many international banks, businesses and investors are not rushing in because of the risk of falling foul of the residual U.S. sanctions and legal uncertainties.
Some are also concerned that a diplomatic incident could flare between Iran and the United States, undermining the nuclear deal, and that the U.S. presidential election this year might bring to power an opponent of the deal.
WAITING GAME
For some foreign companies, it has been a waiting game. They stayed in Iran when the sanctions hit and, like Fanaei in Qatar, put up with the bad times in the hope that the good times would eventually return.
Landi Renzo, an Italian producer of autogas and compressed natural gas kits for cars, saw annual revenues in Iran sink from about 35 million euros to about 3 million when sanctions hit, said Pierpaolo Marziali, the firm’s head of mergers and acquisitions.
There were no Western banks ready to offer guarantees and letters of credit, and the sharp decline of Iran’s currency under sanctions made matters worse.
“But we stayed the course and never stopped producing, albeit at minimal levels, and that’s put us in a strong position now since we have a kind of preferential channel. Our staff is regularly in Tehran and we’re looking forward to relaunching production,” Marziali said.
Another Italian company that stuck it out was SABAF, which makes components for household cooking appliances, although its annual sales in Iran fell from about 10 billion euros to around 3 million, Administrative Director Gianluca Beschi said.
“We’ve already started talks in the country and we hope to be able to boost our sales in 2016 to get back to pre-sanction times,” she said.
Italy hopes its trade with Iran will now surge and sees the best opportunities in oil and gas, cars and transport, and construction and furniture. But China, India, Russia and Brazil have kept or gained a foothold in Iran since sanctions were imposed, and Beijing is the top exporter to Tehran.
For some companies, the race has already begun.
Senior Iranian officials said on Sunday that Iran plans to buy more than 114 aircraft from European plane maker Airbus (AIR.PA) as soon as March, and is looking for other deals.
The trucks division of German automobile maker Daimler (DAIGn.DE) quickly signed letters of intent with joint venture partners in Iran and India’s state-run National Aluminium Co Ltd (NALCO) (NALU.NS) said it was sending experts to Iran to explore the possibility of setting up a $2-billion smelter complex.
Russia’s second-largest state-controlled bank, VTB (VTBR.MM), said it hoped to carry out its first banking operations with Iran within months. And a British investor, Dominic Bokor-Ingram, launched a joint venture fund with an Iranian investment fund on Jan. 19 – two decades after he took a suitcase of cash onto the floor of the Moscow stock exchange to buy up shares after the end of communist rule.
But many other banks and firms, ranging from international oil companies to small investors, are treading carefully because of legal uncertainties and making sure they will not face heavy fines by violating the residual U.S. sanctions.
LOOKING FOR OPPORTUNITIES
Small firms face similar concerns to bigger companies as they weigh up the risks and opportunities. Like their bigger counterparts, some had been preparing for years for the opening of Iran.
“I have friends in Iran who have been waiting for the sanctions to end so they can come and invest here,” Fanaei said in his office in Qatar.
Iranian businessmen have for decades been traveling to Gulf Arab states that provide access to Gulf waters and free-trade zones in cities such as Dubai, re-exporting goods and circumventing sanctions. Their number should now grow.
“Qatar is an ideal market for us. There is rapid growth ahead of the World Cup (to be hosted by Qatar in 2022). Local partners here appreciate Iran’s expertise in industry and technology,” Fanaei said.
Fanaei’s new business partner, Mohammed Sultan Al-Jaber, who is chairman of the AlJaber Group, said “political issues” such as a rift between Iran and Saudi Arabia would not impede Arab-Iran business partnerships.
“Iran has so many things that Qatar needs. Qatar used to import a lot of materials from Iran like cement, ceramics and soil. It was halted,” said Al-Jaber.
Looking ahead to more cooperation in the post-sanctions era, he said: “I see no reason why it won’t resume.”
