Economy, Business And Markets

Persian Gulf Neighbors Flocking Back

Persian Gulf Neighbors Flocking Back Persian Gulf Neighbors Flocking Back

This summer Iran struck a nuclear deal with the US and other foreign powers. Now with sanctions on Tehran expected to ease, the United Arab Emirates-based firm RAK Ceramics is looking to boost output of the kitchen and bathroom tiles it sells in Iran and the wider region after it had to suspend its manufacturing line due to huge losses incurred.

Executives of one of the world’s largest manufacturers of tiles and sanitary ware by capacity are now betting the long wait on Iran is about to pay off, wrote the Wall Street Journal.

“We were a patient investor,” says Abdallah Massaad, RAK Ceramics’ chief executive.

RAK Ceramics is one of a handful of Arab- owned firms positioning themselves to profit from a post-sanctions neighbor.

In April, UAE-owned Etihad Airways launched a daily commercial service to Tehran. Dubai-owned Fly-Dubai has launched seven new routes to Iran this year after a bilateral aviation agreement was signed in January between the UAE and Iran.

Only on Tuesday, Dubai-based airline Emirates began its first non-stop flights to the northeast Iranian city of Mashhad, also increasing its air freight capacity to Iran.

Mashhad is Emirates’ second Iranian destination after the capital Tehran, which it has been serving since March 1990.

Emirates last carried more than 500,000 passengers and transported over 15,900 tons of cargo to and from Iran.

With the new service to Mashhad, Emirates SkyCargo, the freight division of Emirates, will provide more than 150 tons of capacity between Iran and the UAE each week.

“We anticipate that trade between the UAE and Iran to further flourish as a result of the launch of this new direct flight five times weekly service,” said Emirates’ vice president cargo commercial for the Middle East, (Persian) Gulf Cooperation Council and Iran, Khalid Mohd Al Hinai.

Dubai’s Jumeirah Group, operator of the ultraluxury Burj Al Arab hotel, is searching for properties in Iran. Officials at DP World, one of the world’s biggest shipping-container handlers, recently visited the Persian Gulf state to see the country’s ports and railroad infrastructure can be used to transport goods faster between China and Europe.

“I am not a politician, I am a businessman,” said Sultan Ahmed Bin Sulayem, chairman of Dubai government-owned DP World, and one of the most prominent Emirati businessmen. “What I look for is if there is an opportunity for our customers.”

Such developments could begin to shift the region’s center of economic gravity from Saudi Arabia, the world’s biggest oil producer, to Iran, home to an educated and burgeoning middle class.

The UAE, particularly the port of Dubai, has long been an important trade conduit for Iran in the region. Iran’s imports from the Persian Gulf region amounted to around $35 billion last year, the bulk of which were exports from the UAE that were imported via Dubai, according to figures from the Washington-based Institute of International Finance.

Globally, the UAE is one of Iran’s largest trade partners alongside India and China.

Bank of America Merrill Lynch predicts that with the end of sanctions Iran’s annual imports could soar to $200 billion from $80 billion in 2014. The UAE is among those countries best positioned to benefit from the trade flows, analysts at the bank said in a clients note.

Like the UAE, Oman, which has the closest political relationship with Iran of all the Persian Gulf States, is making headway to strengthen its economic ties. Ahead of the nuclear agreement, Iranian President Hassan Rouhani visited Oman in March and signed a 25-year deal to sell $60 billion worth of natural gas to the Arab state.

Access to cheap energy in Iran, as well as raw materials and labor, means the country is in a sweet spot for production of ceramics, said Massaad, the RAK chief executive.

In production of ceramics, Iran ranks fourth globally after China, Brazil and India in terms of capacity, a fact that spurred RAK Ceramics to acquire a 420,000-square-meter tract of land in the city of Isfahan and build a plant there in 2005, he said.

But one year later, sanctions were imposed on Iran, and RAK Ceramics cut annual production from 9 million square meters of tiles to 6 million. As financial sanctions tightened, manufacturing fell further and the company cut its roughly 480-strong Iranian workforce to around 70.

For the past six months, the facility has produced nothing and sales have come to a virtual standstill. In the first quarter, RAK reported an overall profit but noted losses of 15.4 million UAE dirhams ($4 million).

Now Massaad is preparing a staff team to go back to Iran. After sanctions ease, RAK plans to use Iran to export to Russia, Central Asia and Europe.

“We have an asset which is fully equipped, fully invested,” he said. “We don’t need to wait years to find land. We can produce in very short term in a market that will boom.”