Domestic Economy

Business Environment Needs Overhaul to Attract FDI

Business Environment Needs Overhaul to Attract FDI Business Environment Needs Overhaul to Attract FDI

The European House – Ambrosetti held the first edition of Iran-Italy forum in Tehran on May 16-17.

The event brought together key Italian and Iranian corporate and institutional stakeholders, leading economists and well-known analysts to help forge an influential partnership between business leaders and policymakers to revitalize two-way relations.

Ambrosetti is planning to hold the conference on an annual basis to fortify bilateral political and economic ties.

The Persian daily Forsat-e Emrooz recently published an interview with Valerio De Molli, managing partner of the European group.

The full text follows:

In light of your international experience and having worked in different countries–some similar to Iran–and the fact that Ambrosetti holds as many as 300 events a year, what steps do you think Iran should take to attract foreign investment?

First off, I need to say that I was taken by surprise by the positive ambience in your country. We were playing host to three deputy ministers from different sectors and up to 200 representatives from companies, banks and factories during the forum.

The friendly atmosphere of the place and the tangible determination for collaboration there left a great impact on me. I should stress the point that we have worked everywhere in the world: from Latin America to the Far East to Indonesia to South Africa, but we have never seen such an atmosphere. But this won’t suffice and the conditions can improve.

In response to your question, I should say that legal rules and regulations must be re-written to make your presence felt on the international business front.

For instance, to resolve the problems associated with patent registration and brand protection, your country’s legal doctrine needs to be reviewed.

The necessity of overhauling investment rules has already been felt and the reform process has started with regard to some laws, but can you pinpoint a specific problem in this regard?

The question is that the culture of business should be promoted in your country. For example, an Italian entrepreneur, who has a business in Iran, says whenever he transfers €10,000 to his bank account in Iran he is only allowed to withdraw €7,000. Why? Because Iran charges high taxes. Of course, this does not amount to a good incentive for investors.

The other problem is the tariffs imposed on imports. Today Iran charges the highest tariffs on imports, which is against free trade and foreign investment. Your government believes that high tariffs would encourage investors to produce within the country whereas infrastructures and technology are not available here.

These tariffs and regulations were there before sanctions and some of them have undergone revisions and become more practical. Why have they turned to impediments to investment as we speak?

Right. That’s why Italian investors were not willing to put their money into Iran in the first place. The conditions need to change.

On the one hand, the Italian government has the responsibility to speed up Iran’s banking cooperation in the European Union. Two Italian deputy ministers were present in the forum. They took the responsibility of following through on this issue in Brussels. On the other hand, local banks need to bring about changes in their affairs as well.

Iranian economic players believe that foreign delegations visit Iran only to sell their goods. But foreign investment is what we are pursuing in our economy and we have been vocal about our approach during our meetings with representatives of other countries. Are foreign investors forced to import their products before they make any investment? Is this the only way?

The point I referred to is about making business environment more favorable by lowering tariffs. This would turn out positive for local people since they would have access to quality products but it’s not the only way.

There’s this common belief among Europeans that Iran sees their companies as a lemon which should be squeezed and not a partner who brings innovation and technology. I do not believe in the consumer market versus investment classification. Capital investment would be poured into a place where consumer market is available. Both should be available in a place, otherwise it would be a grueling task to absorb foreign investment.

According to World Bank ranking, Iran stands 112th in ease of doing business—not a favorable standing for a country which plans to absorb foreign capital—due to low productivity and huge bureaucracy.

So it is not logical to single out one reason as the only hurdle in the way of securing foreign resources. A batch of factors needs to be removed systematically to create a business-friendly environment.

Given the negotiations conducted during the forum, what future do you see for these meetings?

As the representative of the Italian group, I believe the Italians were very happy to have an opportunity to meet with Iranian entrepreneurs and the two sides gained a better understanding of each other.

As you know, we led 110 Italian business figures to Iran. The ministers of two important economic regions in Italy, which constitute 45% of Italy’s GDP, were accompanying us on this trip. Also, the deputy ministers of foreign and agriculture ministries were among the envoys.

I believe that food is one of the sectors which offers huge opportunities for investment. Iran has great potential in this field. You have raw products such as pistachio and dates, and Italy possesses an advanced technology in food processing. And I am sure there is a great opportunity for development in this field.

Iran’s strategy is to embrace technology from other countries. Despite the visits by 180 foreign delegation to Iran, these countries have yet to signal their readiness about transfer of technology. Is Italy ready to do so?

Of course. First of all, we need to consider the fact that the private sector is in charge of most economic affairs in Italy. They would go to places where business is lucrative. They invest and transfer their technologies like they have always done.

Sales of most of these companies are even higher in other countries than in Italy. We need to notice that Italy exports more than €35 billion of food annually, which is as much as 10% of Iran’s GDP.

What are your plans for the next five years? What is going to happen next year? Is there a precise timing for your plans?

Yes. A memorandum of understanding has been signed between Ambrosetti and Tehran Chamber of Commerce, Industries, Mines and Agriculture in this regard.

This year, we focused on three sectors: modern retailing, energy and banking. In-depth research was carried out on these three areas, the outcome of which was reflected in our position papers.

As for next year, we would get the help of other partners. This year, we enjoyed sponsors such as United Colors of Benetton, Olivetti and Iran Tourism Bank.

But we need to take into account that the forum is not just a two-day event. It is the process of preparing for the forum that is of utmost importance. Consulting delegations would meet up and compare notes four times before the event.

Therefore, it’s not clear whether we’ll weigh the same three sectors for the next year or go for other fields.