Back in Business
Though its time under sanctions put the economy under serious strain, Iran was always able to avoid major catastrophe. The country’s incredibly diverse industrial sector had much to do in keeping the economy afloat. While the economy still maintains a critical dependence on the hydrocarbon industry, Iran holds potential in nearly every sector, from massive deposits of rare minerals to the highest quality handmade products, and has a rapidly growing e-commerce sector. Now that sanctions have ended, both foreign and international investments are starting to bring the country’s industries to the next level, with a Made in Iran label that is well regarded throughout the world.
Iran is one of the most mineral-rich countries in the world; in fact, according to Hannam and Partners bank, Iran lays claim to approximately 7% of all of the world’s minerals, including significant deposits of iron and chromite, some of the largest amounts of copper, and the most zinc reserves of any country. The potential for developing Iran’s mining industry is massive, with only a small fraction of the country’s 1.6 million sqkm having been explored.
According to Iran Mines and Mining Industries Development and Renovation Organization (IMIDRO), Iran holds 68 different types of minerals within its territory, with just 250,000sqkm of the country under exploration. The government hopes this number will increase significantly before the end of 2017. According to IMIDRO, the country has more than 57 billion tons of potential mining reserves, of which 3 billion tons is iron ore.
TBY recently sat down for an exclusive interview with the Chairman of IMIDRO, Mehdi Karbasian, who is also the Deputy Minister of Industry, Mine, and Trade. Karbasian revealed the scale of investments needed to catapult the industry to its full potential. “We believe we need USD50 billion in investment in the mining sector over the next five years,” Karbasian told TBY. “Some USD13 billion of that is going to be invested in steel and the rest will be spent in other fields, such as aluminum, copper, gold, zinc, and nickel.” IMIDRO has Iran on target to produce some 55 million tons of steel by 2025, 14 million tons of which will be destined for export.
Iran’s vast mineral wealth has allowed the country to build a strong steel and pipes industry. The government is working to put the industry on track to become the globe’s sixth-largest steel producer by 2025. Like many of the country’s ambitious goals, this will require a great deal of effort to achieve. Industry experts suggest that in order to achieve 55 million tons of crude output, some 160 million tons of iron ore need to be mined annually. For Iran, this means an annual increase of close to 100 million tons. Though Iran has been successful in building up its investment portfolio, achieving such output will require a serious level of investment in manufacturing and mining capabilities.
Iran’s automotive industry plays a significant role in the country’s economy—it is the country’s second-largest industry following hydrocarbons. It accounts for over close to 4% of the country’s GDP, employs nearly 5% of the workforce, and makes up just under 20% of its industrial output. Though annual production sits at just under 1 million vehicles, levels fell considerably when sanctions were imposed back in 2012.
Now, a year after the lifting of sanctions, the sector is hoping to regain its prominence. The government has plans to raise production levels to 3 million units by 2021, 1 million of which will be destined for export. With a growing domestic middle class, the industry should see promising demand for the remaining 2 million cars. Iranian automakers seeking a bigger market for exports means the country can expect interest from international automakers to enter the Iranian market.
With the auto industry representing such an important segment of the economy, the government has already started taking steps to ensure local manufactures are protected to an extent. The government had previously announced that local automakers will continue to claim at least 50% of production. New partnerships, however, have already started to develop. Local manufactures have started to establish connections with French automakers Peugeot, Citroën, and Renault. The government has issued certificates to foreign automakers allowing them to open sales offices in the country. While the certificates left open the number of units foreign manufactures could sell to the Iranian market and the number of years they can remain, the agreements stipulate car sales must be accompanied by a 10-year warranty.
Iran’s standard export markets include Egypt, Iraq, Pakistan, Venezuela, Azerbaijan, Ghana, Senegal, and Algeria, among others. The government is also working to considerably increase the country’s spare parts manufacturing industry, exporting USD6 billion worth of spare parts, and increasing revenue of domestic sales to USD25 billion.
The domestic market is dominated by two local brands, namely Iran Khordo and SAIPA, which as of 2015 held approximately 47.45% and 34.48% of the market, respectively. TBY recently sat down with the managing director of SAPIA, Mehdi Jamali, and discussed the prospects for the company in the JCPOA era. The automaker saw a 57% increase in production YoY in 2016 and has been steadily increasing its market share. In 2016, the company manufactured 600,000 cars; it has plans to drastically boost that number to 1 million units by 2020.
To achieve this, SAIPA is currently in a joint venture with several foreign automakers, such as French Citroën. SAIPA shares a 50-50 JV with Citroën, producing three of the French brand’s products at a factory in Kashan. “To assist with this increased production, we are going to have joint ventures with several companies such as Renault, Citroën, and Kia,” Jamali said. “Under these joint ventures 30% of the products will be dedicated to exports. By 2020, 50% of our cars will be produced domestically by us and 50% will be jointly produced with those partner companies.”
Another industry the government is working to strengthen is chemicals. The National Petrochemical Company (NPC) is hoping the country can increase its output of chemicals to USD70 billion over the next 20 years. To achieve this, the NPC says the country requires up to USD10 billion in industry investments. Some prospects are already on the horizon. Companies among the likes of BASF, Shell, and Total have held discussions with their Iranian counterparts in regards to creating joint venture companies. The American Chemical Society’s magazine, Chemical & Energy News, reported in early 2016 that the NPC announced it is in discussions with BASF to build a major petrochemical facility in the country; the potential project could elicit as much as USD4 billion in investments.
Though international investments are moving forward, the reluctance of banks to finance projects in the country remains a serious issue. Within the country, however, demand for chemicals for a wide range of products is growing fast, and local companies are even in the midst of international expansion plans, looking at key markets in Africa and around the Mediterranean.
The New Era: A Roundtable Discussion on Defining the Future of Saudi Arabia
The Angolan Development Roundtable
Panama Sustainability Forum
You may also be interested in...
Victaulic Vortex™, an environmentally friendly fire protection solution for data centers and beyond