Economy, Business And Markets

Building on Strength of Iran Infrastructure

Building on Strength of Iran InfrastructureBuilding on Strength of Iran Infrastructure

Visitors to Tehran marvel at the strength of Tehran’s infrastructure: from spaghetti junctions that rival LA, to an extensive and expanding underground metro system, as well as German-inspired dedicated bus tracks.

But Tehran congestion remains a problem, as the main arteries have been strengthened but the veins of the city remain congealed, William B Jenkins, an associate and Iran specialist, recently wrote for Sydney-based international business consultancy Dearin & Associates.

While Iran has a great many capital-intensive infrastructure projects, the most impressive ones in recent years have been in and around the capital city, Tehran.  

Examples include Sadr Expressway–a major artery connecting Tehran from east-to-west and joining other major north-south highways in a city of 16 million, Niyayesh Tunnel–the world’s second longest urban tunnel, and Tehran Metro that includes 170 km of track and carries 3 million passengers daily.

Other urban centers have also benefited from Iran’s transport infrastructure building, as have major infrastructure projects in other parts of the country, which needs infrastructure to support a population of 80 million.

But two tiers exist in Iran’s infrastructure: one is the big-ticket projects across the country and especially in major cities. The other constitutes less attractive projects that suffer from a major infrastructure deficit.

While Iran excels in producing awe-inspiring infrastructure in the first tier, the second tier is often swept under the proverbial Persian carpet. This second tier not only exists in rural areas and between cities but also in less headline-grabbing urban settings that are in dire need of modernization.

Beyond transport, infrastructure is a huge sector in the Middle East’s second largest economy.

Iran is the world’s third largest builder of dams for energy and irrigation, but these have done little to alleviate the water management problems facing Iran’s agriculture.

Again, these suffer from the two-tiered approach of Iran’s infrastructure planners: massive and impressive makes the cut. This has led to a significant oversupply and underutilization of dams which, after oil and gas, make up the most-invested-in part of infrastructure in Iran and a major export.

More broadly, partly in anticipation of the nuclear agreement’s “Implementation Day” that happened on January 16 2016, over half of Iran’s infrastructure projects since 2014 had been put on hold. They are now ripe for partnering and investment, as these stalled projects come back on stream.

One of the main difficulties facing international firms wanting to engage the Iranian infrastructure sector is partnering. Since Iran has a mix of private, semi-private and public companies, and authorities active in the sector, it is important, particularly in the infrastructure sector, that international companies looking to the Iranian market conduct in-depth due diligence on potential partners.

While certain major infrastructure firms globally already have strong connections and records in Iran, particularly from East Asia and Europe, there remains much opportunity for new entrants.

Tehran Metro was largely constructed by Chinese company CRV, with Austrian input, as well as Iranian engineering. Siemen’s has just closed a major deal for railroad revitalization during President Hassan Rouhani’s European diplomatic blitz.

Modernization of “second-tier” infrastructure along with better integration and management of the country’s infrastructure as a whole offer myriad opportunities for international companies to find synergy with Iran’s indigenous construction capabilities.

As the economy grows and opens in the medium term, the need to expand port and airport facilities to support further demand and growth will propel a virtuous cycle of investment and development opportunities well into the future.

While construction and engineering is needed, that’s also where Iran’s main indigenous capabilities already lie. Therefore, savvy international companies looking at the sector may find the best opportunities in offering operations, systems and management experience and expertise to support infrastructure construction and network integration.

As with the Iranian market generally, the bottom line with Iranian infrastructure is that while it has strengths–and infrastructure is certainly one–and it is not an undeveloped market, there is room for improvement, modernization and better systems.

The new availability of western expertise in strategic planning and management systems will be a boon to the Iranian infrastructure sector that builds big but struggles to integrate it and manage projects in a sustainable national strategy.