Economy, Business And Markets

A Postcard From Iran

A Postcard From IranA Postcard From Iran

Tehran, the capital of Iran, is an amazing city.

Despite being an unknown city to many businesspeople, there is a real sense of vibrancy and modernity about it and an exciting feeling of it being open for business, reads an article in UK-based business publication Financial Director. Excerpts follow:

Since the lifting of international sanctions at the start of the year, hotels in Tehran have been booked out by a conveyor belt of international businesspeople visiting Iran to see it for themselves.

Dealings with the local people, client, hotel staff or others met were with a friendly attitude, hospitable, courteous and polite.  There was a real willingness to engage and no hostility whatsoever.  There was a clear warmness and a real willingness to do business.

But when thinking about Iran as a potential market, it’s important to go in with open eyes. This means being aware of some of the myths as well as being clear on the challenges.

With the world’s fourth largest oil reserves and the second largest stocks of natural gas, it’s easy to think of Iran as another Middle Eastern petrochemical economy. The reality is different.

Iran is perhaps the region’s most diverse economy with oil and gas accounting for 23% of the GDP compared to 45% in Saudi Arabia. It has an established capital market, a well-developed industrial base and a large population that generates a significant demand for telecoms and financial services.

A second myth is that Iran is not used to trading with the outside world.  Just before the start of the sanctions in 2008, Iran had over $40 billion of trade with Europe. At the peak of the sanctions in 2013, there was still over $8 billion of trade with the EU.

All that said, there are still significant challenges with doing business in Iran. There are still risks relating to the sanctions. Moreover, since state-controlled economies frequently create less competitive markets and a higher level of bureaucracy, a foreign company may find it more difficult to compete profitably in that market.

Many of the economic sectors are often directly or indirectly owned by the Iranian government and their legal trade frameworks and restricted labor laws could discourage businesses.

Notwithstanding all of this, Iran is starting again, as it has before, to offer compelling reasons to foreign businesses to interact there.

However, companies should do so with their eyes open, aware of the risks, having researched their potential customers, supply chain and explored whether to go it alone or in a local joint venture.