Caution may be best strategy in Iran

02 April 2015

As excitement in the Middle East and global business community grows over the possibility of a nuclear deal with Iran, others are urging caution

If a nuclear deal is reached and sanctions on Iran are lifted, a market of 79 million people with a nominal GDP estimated by the IMF at over $400bn would be opened up to international companies.

Many companies are anticipating huge profits from developing Iran’s infrastructure and oil and gas facilities and importing or manufacturing consumer goods, above all cars.

Trade delegations from France and other countries in Europe, the Middle East and Asia, beginning in December 2013, have prepared the ground for massive deals. Iran is doing everything to encourage this interest and kick-start its failing economy.

A boost in trade is also expected for traditional partners in the UAE and Oman.

But others are showing more caution towards the market. They expect a multitude of firms to rush into investing Iran, and not all of them will make a profit.

Not only will sanctions take time to be dismantled, but many more reforms will need to be undertaken by the Iranian government after nearly a decade of isolation from global markets.

An Iranian source suggested that the framework for foreign investment reforms is already being prepared. Foreign companies can currently invest in free zones or form a joint venture with a local partner.

Finding the right partners to invest with is a major challenge, according to a diplomatic source. Regime structure and business relationships in Iran are opaque, and those unfamiliar with the market could run into trouble.

The best strategy for businesses may be to hold back, research the market and find the right partners. They could then enter the Iranian market on their own terms in a few years when the excitement over a nuclear deal has died down, but there are still profits to be made.

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.