Economy, Business And Markets

Resurgent Iran: Last, Great Emerging Market

Resurgent Iran: Last, Great Emerging MarketResurgent Iran: Last, Great Emerging Market

Iran is one of the last remaining places, short of Mars and the Moon, where there is significant opportunity. So says Sir Martin Sorrell, CEO of the global advertising giant WPP and one of the world’s most widely followed analysts.

A country with a vast natural resource endowment and home to about 80 million people, many of them highly educated, Iran should rank among the world’s most exciting emerging markets, British economist, journalist and broadcaster Liam Halligan wrote in the Canadian daily The Telegram.

Now, with Iran able to sell oil on international markets, and preparations being made to reconnect to the crucial SWIFT international payments transfer network, outside commercial interest in the country is starting to grow.

Optimists are likely to be buoyed by Iranian elections last month that, were our media not so understandably fixated on “Trumpania” and early “Brexit” skirmishes, would have received much more attention. The notion of a western rapprochement with Tehran has been in play since mid-2013, when Hassan Rouhani replaced Mahmoud Ahmedinejad as president.

“Our country has never sought, nor seeks, anything other than peaceful technology,” Rouhani opined at Davos in early 2014, one of many early trips abroad.

“Iran is open for business,” he declared. “Over the next three decades, Iran could become a top 10 global economy.”

Iran’s spectacular resource endowment includes 160 billion barrels of proven oil reserves–the world’s third or fourth-largest haul, depending on how you count. Add to that, confirmed natural gas treasures of 33 trillion cubic meters–more than Russia on the most recent estimates–and you have the makings of an energy colossus.

With the removal of sanctions, Iranian oil exports could soon rise from 1.1 to 3 million barrels a day, the average level during the mid-1990s when sanctions were looser.

In 2012, just before Rouhani took office, Iranian GDP shrank by over 5%, the economy gripped by sanctions. Since then, growth has returned, with independent western analysts estimating a 1% expansion last year, rising to 4.5% in 2016 and 5.4% the year after, as sanctions fade.

Already, Iran is comfortably in the world’s 30 largest economies in dollar terms and among the top 20 when adjusted to local living standards.

Along with natural commodities, the country also boasts a largely literate, highly-skilled population—its numerous universities long-producing a steady stream of scientists and engineers.

Rouhani has repeatedly stated that he wants Iran to “join the rest of the global economy”, positioning it as “a major international investment destination”.

Following my visit, which took in Tehran Stock Exchange ($100 billion market capitalization), meetings with leading paper, glass and Internet providers and side-trips to the ancient cities of Qom and Kashan, I have a few observations.

The first is that, for all the opprobrium directed at Iran, the country is not short of smart, hospitable people. In addition, while Iran has a national debt of less than 10% of GDP and a population share with higher education exceeding 50% (above many western countries), wage levels are highly competitive.

It’s also clear that Iran is well-placed to regain its traditional role as a trading hub. Bigger than Peru and South Africa, and with a huge, often multilingual population, it’s a natural gateway to a broader 300 million-strong regional market.

In fact, as a natural transit region between Europe and China, Iran is very much part of “the New Silk Road”–an idea increasingly popular in the minds of large institutional investors.

For all Rouhani’s momentum, real economic reforms will be tough though. A decade of sanctions has created a lot of shadowy practices benefiting those less well-disposed toward legitimate business folk, from Iran or elsewhere. Those gains won’t be given up lightly.

It’s also worth saying that, even if Rouhani has a chance to deliver significant economic progress, it may be that Iran is less interested in partnering with the West, than with China, which is already its largest trading partner.