Iran Open For Business. The Challenges of Entering this Unknown Market (Part 1: the Landscape)

Matthew MacLachlan

20 Jan 2016

Last week saw international sanctions on Iran lifted after the international nuclear watchdog, the IAEA, confirmed it had complied with a deal designed to prevent it developing nuclear weapons. Lifting the sanctions will unfreeze billions of dollars of assets and allow Iran’s oil to be sold internationally. Is Iran now open for business?

N-11 Countries

Facts and figures Iran

Facts and figures Iran

Many economists have defined the next tier of developing countries as the ‘Next Eleven’ or N-11 countries.   Most of these countries are newly industrialising, developing countries with relatively large populations and are found mostly in Asia or Africa.  Interestingly, the N-11 list includes the Islamic Republic of Iran.

Islamic Republic of Iran

In economic jargon, Iran is currently defined as an upper income developing country and is defined as having strong development potential.

With a highly educated population and a pre-revolutionary history of impressive growth, Iran is no stranger to global business practices.  Its early involvement in the oil business and supporting infrastructure made Iran a good place to do business.

The Islamic Revolution of 1979, and its subsequent impact on the political, diplomatic and security worlds, fundamentally changed Iran’s future.  Iran’s economy was reorganised so that it was predominantly under the control of central government, with new policies that were not always advantageous to economic growth.

The long period of economic sanctions severely damaged the economy and the living standards of the Iranian population, and it remains to be seen how the economy will rebuild with a sudden influx of foreign trade and the price of oil being so low.

With such a gloomy picture, why does Iran qualify as a member of the N-11?  Several factors are involved.

1. Population

Iran has a population of over 77 million people.  Its population is young and much of its urban population is sophisticated, continuing to place a high value on secular education.

Although Iran is a long way from the days of the Shah, short skirts and nightclubs, it is also much more westernised than popular media portrays the country.  It surprisingly impresses many first time visitors as being Western orientated in its mindset as well, especially in the business world.

2. Economic Policy

The Iranian President, Hassan Rouhani, has a reputation as a political moderate and cautious reformer

Iran’s post revolutionary economic policy has included the goals of full employment and economic independence.  As the realities of a globalised economy have not escaped Iranian economists and bureaucrats, there is recognition for the need of economic reform within the country.

The Iranian President, Hassan Rouhani, has a reputation as a political moderate and cautious reformer.  As such, he may have a greater chance of finding a way forward to position Iran more favourably within the global market.

His personal efforts have led to the lifting of sanctions, convincing the US and the EU that he is serious about Iran’s nuclear programme and social reform.

3. Business Opportunities

Culturally Iran has always been a trading centre, welcoming innovation and expertise as well as products from abroad

Potential business opportunities abound in Iran.  In addition to the oil and gas sectors, Iran has a traditional agricultural base that has been a backbone of the economy.

Most other business sectors would benefit from modernisation and general exposure to outside economic influence, including banking and other financial services, infrastructure development, science and technology, IT and the opportunities for robust communication and global connectivity, medicine, retail and consumer goods.

Finally, Iran has some of the richest history and culture in the world – in many ways a living UNESCO World Heritage site – and would benefit from a potential travel and tourism boom that would make most nations very envious.

4. Economic Sanctions

Despite the impression given by Western politicians, the sanctions were not global.  Many countries continued to trade with Iran, notably China and Russia, demonstrating that there is an active potential market.

However, the sanctions have severely hit the middle classes – the entrepreneurial backbone of the country; and with oil at historically low prices, there is little capital to create internal businesses.

Investing and doing business in Iran is a risk, but one that could give huge returns.  Culturally Iran has always been a trading centre, welcoming innovation and expertise as well as products from abroad. Now is the time to be seriously considering this sizable market.

 



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