When Mahdi Yazdizadeh’s company tries to import new products, employees sometimes find themselves running from one Tehran office to the next, having to answer a stream of questions to get the needed approvals.
“The customs department doesn’t have advance guidelines so they just pass you from person X to person Y because they haven’t dealt with such things before,” said Yazdizadeh, director of corporate business development at Shekofa Manesh Co., a leading group in retail, such as garments, and franchisee in Iran.“You have to almost educate them.”
His words are a warning for companies such as France’s Alstom SA, Germany’s RWE AG and others that have expressed interest in investing in Iran once economic sanctions are removed following a historic nuclear accord.
Isolated from the global economy for the past decade and with a population of 80 million, Iran is a fertile ground for business. But international investors will have to cope with obstacles including government control of as much as 70 percent of the economy, a judicial system deemed unfavorable to foreigners, a dual exchange rate and a culture in which tough negotiations often go hand-in-hand with doing business.
“There are multiple state actors in Iran,” said Michel Makinsky, managing director of Ageromys International, a consulting firm in Paris that advises companies planning to work in Iran. “Add to this the Iranian culture of having to negotiate your way through, and this makes for a very complex market.”
Since signing the nuclear deal on July 14, Iran has hosted at least 15 trade delegations, including from Germany, Japan, France and Poland, to lay the groundwork for trade accords after sanctions are removed from the oil-rich economy. The removal of sanctions is expected as early as the first quarter of 2016.
Iranian President Hassan Rouhani, who’s seeking to deliver on his electoral promise to rekindle political ties with Western countries, says he welcomes the participation of foreign companies, to inject capital and technology. The principal channel: joint ventures with local companies. The idea is to ensure that Iranian jobs are created and also to make Iranian companies more competitive, said Mohsen Jalalpour, chairman of Iran’s Chamber of Commerce and Industries, in an interview in his Tehran office.
“Our advice to European countries is that if you want to have a sustainable presence in Iran, look at accompanying and investing alongside companies in the private sector,” he said, in a downtown office a stone’s throw from Iran’s oil ministry and some of the country’s biggest banks. The area is also home to the sprawling complex of buildings that once housed the U.S. Embassy.
The lifting of sanctions will eventually release as much as $30 billion of Iran’s foreign currency held abroad and allow it to ramp up oil exports. With oil prices down more than 50 percent in the past year, that still won’t be enough for Iran to meet its investment needs or reach its target of sustained 8 percent economic growth over the next five years, said Saeed Laylaz, an Iranian economist whose views are close to those of Rouhani’s government.
“I don’t expect an explosion in foreign investment,” he said. “It will be gradual and in leading sectors like oil, gas and petrochemicals where Iranians and Westerners already have experience working together.” Oil accounts for about 16.7 percent of economic output.