After Myanmar: Iran as a Promising Growth Market

♠ Posted by Emmanuel in ,, at 2/18/2016 10:11:00 AM

Whither Iran? With few large developing country markets remaining untapped, Iran's large population and energy-rich economy certainly hold attractions for multinationals. The last one of note, of course, was Myanmar. As multinationals ponder whether to enter this potential growth market, however, risks abound. The Economist Intelligence Unit (EIU) recently put out a report on the opportunities and hazards of investing in Iran. As you can see from the table above, political-economic governance remains a strong concern, yet this observation is almost expected.

Let us begin with situation of Iran opening up which should be generally familiar:
2 January 16th 2016 will forever be viewed as a watershed for Iran. On that day, the International Atomic Energy Agency (IAEA) judged that Iran was fully compliant with its internationally agreed nuclear obligations—a ruling that in effect restored the Islamic Republic to the global community of nations and removed a mass of international sanctions that had been piled on the country since 2006. Keen to make up for lost time, Iran’s president, Hassan Rowhani, has been urgently seeking to drum up new business. On January 23rd he hosted a summit for China’s president, Xi Jinping, in Tehran, at which the two sides agreed to boost bilateral trade to US$600bn within a decade. This was swiftly followed by a trip to Italy and France, where some €50bn (US$55bn) in contracts were signed.
That said, there are still plentiful caveats here. This momentary thawing of relations is always provisional, with leadership changes and their associated geopolitical manifestations remaining in a state of flux. Entrenched economic interests are also unlikely to easily relent on the rents they have accumulated during the sanctions era:
However, even with Iran’s doors thrown open, it would be wise for businesses to keep in mind the ancient Persian proverb: “He who wants a rose must respect the thorn”. Iran’s economy is unusual among the region’s oil exporters; it boasts the largest natural gas reserves in the world and the fourth-biggest oil reserves, and yet it has a diversified economy (including a significant manufacturing sector), all backed up by a large, youthful, well-educated and welcoming population. But the business climate is less welcoming. Vested interests still permeate almost every aspect of the economy, typically operate outside the parameters of international commercial law—especially those businesses connected to the Islamic Revolutionary Guards Corps—and will jealously guard the gains they accrued during a decade of sanctions. And the finger of blame for Iran’s tricky operating environment should not be pointed solely at Iran; an array of residual US sanctions can snare the more unwitting investor, and Iran’s economic momentum is still too dependent on the vagaries of the global oil market.
Still, it's the same story for MNCs with these "frontier" markets: no guts, no glory. The interesting thing with Iran is that it's hedged its FDI bets by approaching China. Which, of course, could care much less than Western nations about long as there's money to be made.