Japanese Companies Taking Cautious Steps Into Iran

With last year’s historic nuclear deal lifting some western sanctions on Iran, Japanese companies are tiptoeing back to the Middle Eastern country, torn between the lure of business opportunities and high geopolitical risks.

About 30 Japanese businesses took part in the Tehran International Industry Exhibition, which opened on Wednesday in the Iranian capital. More than 700 foreign companies—many of them Chinese and German—have exhibits at the show, according to the Japan External Trade Organization.

That is up twofold from last year, underscoring rising competition among international businesses for a slice of the under-cultivated market, Nikkei Asia Review—a publication of the world’s largest financial newspaper, the Tokyo-based Nikkei—reported.

“Iran has one of the world’s biggest resource reserves and there are many development projects,” said a Toyo Engineering staffer attending the event. “We want to broadcast our return to this market,” the staffer said with enthusiasm.

 The company is considering licensing agreements with Iranian partners on fertilizer plants and other facilities.

Meanwhile, JFE Engineering is conducting a feasibility study on waste-to-energy power plants. The JFE Holdings unit will soon launch another study on sewage treatment facilities in Tehran. The roughly 10 billion yen ($96.5 million) project will involve building the facilities by around 2020. It may be expanded to include a plant for turning sewage into industrial water.

With only a little over 20% of Iranians having access to sewage systems, nearly 200 projects are in the works.

Development consultancy Padeco kicked off in mid-September a feasibility study on subway service in Iran. The Tokyo company forecasts demand for 1,500 or so subway cars over the next decade.

By touting the reliability and safety of Japanese products, the company aims to go on the offensive against Chinese competition, which built up a presence in the market during the period when sanctions were in full force.

Japanese companies face many challenges in coming back to Iran. The biggest of them is difficulty settling accounts in dollars.

“Even though there is demand and potential, we need to proceed cautiously,” says Hisanori Kanou, JFE Engineering’s president.

Japanese companies stand to lose out if they sit idle. Still, deciding to move ahead with projects despite uncertainty will not be easy.

According to Islamic Republic of Iran Customs Administration, during the last Iranian year (March 2015-16), Iran exported $38 million to the East Asian country, registering a 10% rise over the previous year.

Last year’s imports from the country stood at $301 million, which indicates a 25% rise over the preceding year.

The latest trade data show that more than 942,200 tons of non-oil goods, valued at $474.7 million were exported to Japan during the first four months of the current Iranian year (started March 20), recording a rise of more than 42 times compared with last year’s corresponding period, thanks to an increase in the shipments of gas condensates.

Carpets, pistachios, vegetable seeds and figs have also been among the main exports.

Moreover, Iran imported 13,200 tons of goods, worth $115 million from the East Asian country during the period, which indicates a 40% hike compared with the similar period of a year before. Industrial machinery, auto parts, medical equipment and pharmaceuticals were among the main imports.