Economy, Domestic Economy

Foreign Investors Moving in

Foreign Investors Moving inForeign Investors Moving in

Western sanctions against Iran had barely been lifted when Chinese President Xi Jinping touched down in Tehran on Jan. 22. He struck several deals and pledged to strengthen "strategic partnership" with the Middle Eastern country.

A couple of days later, Iranian President Hassan Rouhani jetted off to Italy and France. While in Europe, he sealed a number of big business deals.

The Iranian government is sending the business community a message: We're back. And foreign governments and companies are already competing for opportunities in the energy-rich country, which is also one of the Middle East's most populous markets, wrote the Japanese business journal Nikkei Asia Review in a recent article.

"We firmly announce that investment in Iran enjoys enough guarantee," Rouhani said in Paris on Jan. 27, speaking to French businesspeople.

The next day, French automaker PSA Peugeot Citroen announced it would reenter the Iranian market. It plans to set up a joint venture with Iran Khodro, a local carmaker, and invest €400 million ($453 million) in the new company. The goal is to produce 200,000 cars annually.

France-based Airbus, meanwhile, signed a contract to supply Iran Air with 118 planes, including the A380 superjumbo jet. The arrangement is worth about $27 billion.

In Rome, Saipem, Italy's leading engineering company, agreed to start talks on upgrading Iranian oil refineries. And Italian state railroad company Ferrovie dello Stato signed a memorandum of understanding to cooperate in building train lines in Iran.

> Spreading the Wealth

The US and European Union officially lifted international sanctions on Jan. 16. This was their end of the bargain over Iran's nuclear program, including uranium enrichment. Tehran agreed to place time-bound curbs on the program.

As a result, Iran gained access to about $100 billion in overseas assets. Suddenly, the country has found itself with tremendous buying power. And companies in Europe have been quick to step forward as sellers.

During Rouhani's recent visit to the continent, Iran concluded €15 billion worth of contracts in France and up to €17 billion worth of deals in Italy, according to Thomson Reuters.

Lest they miss out, German companies have jumped into the fray as well. Daimler on Jan. 18 signed letters of intent with automakers Iran Khodro Diesel and Mammut Group to set up a joint venture that will assemble Mercedes-Benz trucks and powertrains in Iran. Production is expected to start by the end of the year.

German Foreign Minister Frank-Walter Steinmeier met with Rouhani in Tehran on Feb. 3.

"Major German companies are willing to enter Iran's market to invest and establish joint ventures," the Iranian president's office quoted Steinmeier as saying.

The minister urged Rouhani to visit Germany as well.

But the Europeans have to contend with rivals from farther afield. While the Chinese president was in the country, China and Iran signed 17 agreements on economic and technological cooperation. This includes Chinese financial assistance for the development of a high-speed railroad in Iran.

Xi said China would deepen its relationship with Iran through comprehensive cooperation. Chinese companies have a headstart: They entered the market while their European and Japanese counterparts were staying out due to the sanctions. Beijing aims to build on this foothold, securing natural resources from Iran and helping it to develop infrastructure.

After meeting with Xi, Rouhani expressed his intention to expand trade with China to an astronomical $600 billion in the next 10 years. A planned high-speed railroad would run about 900 km between Tehran and the northeastern city of Mashhad, Iran's second-largest municipality.

China sees the project as part of its "One Belt, One Road" initiative to create a trade corridor all the way to Europe.

Iran and China also agreed to work together on nuclear power. Last year, the Atomic Energy Organization of Iran said China had agreed to build two nuclear power plants in the southern part of the country.

"Geographically," Rouhani said, "Iran has got the capacity to become a hub for China's economic activities in the Middle East and Central Asia and Caucasus."

> Asian Interests

For China—as well as Japan and South Korea—cozying up to Iran makes sense from an energy perspective. All three Asian countries are big consumers of crude oil and they want to diversify their supply sources.

Tokyo and Seoul are taking their own steps to connect with Tehran.

On Feb. 5, Japan and Iran signed an investment pact. The arrangement is designed to make it easier for Japanese companies to invest in Iran by protecting them and their assets, and by improving regulatory transparency.

Fumio Kishida, Japan's foreign minister, said Iran has great economic potential and hoped that the deal would strengthen economic ties between the two countries.

On top of the pact, Japan and Iran are creating a framework to support investors. Nippon Export and Investment Insurance and the Japan Bank for International Cooperation will provide a total of $10 billion worth of loans, and the funds will be guaranteed by the Iranian government.

Japan hopes this will help its companies better compete for contracts.

Not to be outdone, South Korea intends to hold a ministerial-level economic meeting with Iran by the end of February.

Seoul plans to send about 130 delegates, including the trade minister and business leaders, to Iran. President Park Geun-hye is considering visiting the country herself.

South Korea's POSCO is to export its proprietary Finex iron-making technology to Iranian steelmaker PKP, which aims to start building a blast furnace as early as 2017.

The facility, in the southeastern Iranian port city of Chabahar, is to have a production capacity of 1.6 million tons a year. The total investment is estimated at about $1.6 billion.

POSCO is considering taking a stake in the steel mill operation, according to a source. The two companies plan to sign a preliminary agreement in March.

Iran's gross domestic product is about $400 billion. The International Monetary Fund forecasts the country's economy will grow 4.3% this year. Its population of about 80 million is expanding by more than 1% a year, underscoring its potential as a consumer market.

But Iran needs funds and technology from other countries to rebuild its sanctions-battered economy. And it is natural for Iran to look to Europe and Asia rather than the US: Tehran and Washington severed ties after the Islamic Revolution of 1979 and, despite signs of a thaw, America maintains some of its own sanctions.

With its energy resources and millions of consumers, Iran does not lack for potential partners, be it in business or diplomacy.