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A Success Story About Investing in Iran

Business & Markets Desk
Nestle now has a 93% share in Iran’s market for baby cereal and a 49% share for infant formula; it has created 900 direct and 2,000 indirect jobs; and exports from Iran to all Middle Eastern countries, except Saudi Arabia
Nestle is aspiring to become one of the 10 biggest food and nutrition companies in Iran by 2028.Nestle is aspiring to become one of the 10 biggest food and nutrition companies in Iran by 2028.

Global businesses started to reconsider their stance regarding the Iranian economy after Tehran signed the Joint Comprehensive Plan of Action with world powers on July 2015 and implemented it in January 2016.

Since then, foreign delegations have explored opportunities in the country’s largely untapped economy.

However, companies that had set up base earlier are now consolidating their foothold in Iran. One such company is Nestle that has footprints worldwide.

After 15 years of activity in Iran, the world’s largest food company recently decided to share its experiences of working in the country with the media.

“When it comes to Iran, this country is, I would say, a special market for us with considerable opportunities. We have here an 80 million population who have a lot of interest in premium-quality food. Iranians look for variety, which is what we can deliver,” Nestle’s Qazvin Factory Manager Faisal Haroon told Financial Tribune.

   $150m of Investments by 2018

Given the prevalent misconceptions in the global arena regarding the Iranian economy and its business environment, it is upon local officials and media to reflect the ground realities in Iran.

But the success stories of foreign businesses in Iran, which had established offices and production units before the sanctions were imposed, can serve as exemplars for potential investors who have their doubts regarding the Iranian market.

Nestle started production in Iran in 2001 and has two factories in the country: one in Qazvin where seven kinds of infant formula, eight kinds of baby cereal and Nesquick are manufactured and Nescafe is packaged, and another in the northern Mazandaran Province’s Polur where mineral water is produced. The company’s central office is in Tehran.

“By the end of 2018, Nestle will have invested around $150 million in different projects it has and will be carrying out in Iran, some $100 million of which have already gone into the Qazvin factory. Within the next one and a half years, we will be investing $15 million in an extension producing cooking aids and Nescafe. Another $15 million are going to be spent on our upgrading and renovation programs to maintain the standards of this factory over the next two years,” the Nestle manager said.     

The Qazvin factory, according to Haroon, has the same standards and technology as any other Nestle factory around the world.

   Figures of Success

A look at sales figures by Nestle’s Qazvin factory officials reveals that their investments have paid back quite considerably.

Nestle Iran has, over the years, engaged in activities ranging from sustainable production, social responsibility, environment preservation and shared value creation.

Despite handicaps in the way of production, which are more or less experienced across the world, the scope of success in such activities is high in the Iranian economic environment.  

“In 2016, our sales amounted to $150 million in the Iranian market, but that’s not where it ends. We are not producing for Iranians only but we export from Iran to all Middle Eastern countries, excluding Saudi Arabia. Our exports stood at between 4,000 and 5,000 tons of products worth $25 million last year,” he said.

“What is very important for us is local sourcing. We have tried to supply our raw materials from domestic sources over the years. In 2015 and 2016, we spent $20 million and $30 million on locally sourced raw materials respectively and our mission is to go for $40 million by 2020.”

  Sustainable Production

Over the past two to three years, Haroon said, the Qazvin factory has been working on a project called RISE. Before this project kicked off, the factory supplied its milk demand through imports from New Zealand.

“In the RISE project, we have partnered with six milk farms with about 35,000 cows. Milk, in these farms, is produced based on the standards and qualities Nestle demands: that is with low levels of aflatoxins and antibiotics,” he said.

“About 600 tons of milk are produced in these farms on a daily basis, 75 tons of which are purchased by the Nestle factory. The rest is bought by other firms, our rival companies included, that need high-quality milk. This is one example of how we create shared value in the business.”

The factory manager added that the RISE project is being carried out with the cooperation of Switzerland’s University of Bern and is aimed at producing not only premium quality but sustainable milk.

   Sizable Market Share

Alireza Sarabchi, the head of communications and marketing services at Nestle’s Qazvin factory, told us that Nestle Iran has created 900 direct and 2,000 indirect jobs.

“Nestle is a strong number one shareholder of the Iranian market in most of the products it manufactures. It has a 93% share in the market for baby cereal and a 49% share in infant formula for example,” he said.

Sarabchi noted that the company is aspiring to become one of the 10 biggest food and nutrition companies in Iran by 2028.

“We, as well as other companies, which depended wholly or partly on imports for production, incurred losses during the sanctions. Yet, I believe, the sanctions transformed us into stronger producers. We never laid off workers over the sanctions and it was mainly during that period when we tilted toward local sourcing,” he said.

  Promising Prospects

Foreign companies in Iran can dream big and fulfill them, as have other businesses in the country.

Hassan Rouhani has, since his first presidential term and especially after the nuclear agreement, taken measures to facilitate foreign direct investments in Iran.

Ahmad Jamali, director general of the Foreign Investment Office with the Organization for Investment and Economic and Technical Assistance of Iran, said that up until now, FDI in Iran has amounted to around $8 billion, Exim News reported on Dec. 16.

He added that over the last two years, foreign countries have shown much interest in investing in Iran.

   MoU With Iranian Nutrition Association

To expand its humanitarian activities in the country, Nestle Iran and the Iranian Nutrition Association signed a memorandum of understanding in November.

Based on the MoU, the two sides agreed to cooperate in promoting the culture for healthy nutrition, providing assistance in technological matters, transferring know-how in the field of nutrition and eliminating malnutrition in deprived regions of Iran.

Jalaleddin Mirzaye Razzaz, the head of the association, said 75-80% of patients in Iranian hospitals are suffering from non-communicable diseases like diabetes, hypertension and obesity, the cause of which is unhealthy lifestyle and bad nutrition.

“If nutrition is put right, we can lower NCD disease rates. Together with Nestle, we will be working to arrive at this goal,” he said.     

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