Roadmap to reconnection: Iran-Europe Cooperation after the JCPOA
How can the JCPOA change the trade financing paradigm between Europe and Iran?
Farzad Amanpour During the sanctions period, Saman Bank decided to focus its activities in non-sanctioned areas, which were mainly concentrated on imports of food commodities and pharmaceuticals to Iran. As soon as JCPOA was implemented in January 2016, Saman Bank started developing its activities in new areas. We are currently successfully maintaining our position in short-term trade finance and seeking out medium- and long-term financing for customers who are in need of materials and equipment. This is particularly important for European companies, which aim to recover their market share in Iran, and we need European banks to provide them with supplementary financing tools.
Arash Onsori There have been great achievements in trade finance, but there is still a long way to go. To summarize the situation, more than 100 banks resumed corresponding banking relations with Iranian banks, but big European banks remain hesitant to connect with Iran. This is an important issue, as financing will be assisted through those banks, and their assistance will be needed in the coming years. Some of these banks' stakeholders are from the US and are afraid to be fined. Moreover, everyone is waiting to see what will happen with the presidential elections next year. Meanwhile, Iranian banks have started taking positive steps to comply with international rules and regulations. In the Bank of Industry and Mine, we are honoring these regulations and have established a compliance department to take care of this issue. Over the last three years of sanctions, we have conducted USD9-10 billion in trade financing with China and Europe. We will now become more active in international markets, so we need to comply with international rules and banking regulations.
What are the expectations of European companies from their banks in financing trade between both economies?
Catalin Sfrija Although Henkel is not directly involved in financial activities, we are obviously affected by financial mechanisms. We come from a period of sanctions in which business had to be localized to make sure we are not exposed to risk of business interruption. After the JCPOA, we need more awareness among financial institutions of the new regulations in place. We have heard of many new contracts signed with Iranian companies, but getting these contracts implemented is again a matter of money. Reaching that point of commitment makes me optimistic, but re-coupling such complex mechanisms of transparency and compliance will be a difficult exercise that might take years. I more than welcome financial institutions to provide support to European companies since Iran is now open for business.
Andreas Schmidt We run our business mostly by foreign financiers, from the bank perspective and the investor perspective. Bosch is an example of making efforts to find financing beyond borders with legal compliant workarounds. Since business took place regardless during the sanctions, we can find now more natural ways to deal with this issue. We have observed great efforts of all Iranian banks to reconnect with Europe, and they succeeded and overcame in many areas. Currently, we are in an in between; everything has started but not yet arrived. Meanwhile, the Iranian financial system must unify its exchange rate and decrease inflation. If these issues are solved in the coming months, it will be a big step for the economy of the country; banks will be confident to yield money beyond frontiers in a free capital exchange, and big European banks will not hesitate in financing business between Europe and Iran.
How do you assess the JCPOA's effect in increasing the cooperation between European and Iranian companies so far?
RenE Harun Although we have seen many German companies interested in getting involved in the Iranian market, the situation one year after the signature of the JCPOA is not what we expected. Companies should start bank interactions, for example in the automotive sector. Together, we must apply more pressure to European banks to increase the number of companies entering the market. European governments should continue helping out with that. Although there are the US elections this year and the Iranian elections in 2017, we should not wait such a long time; German banks must start working with Iranian banks, as the latter have expressed their readiness; now the steps should be from the European side.
Dr. Mohsen Nayebzadeh Siemens is one of the oldest foreign companies to enter Iran, starting operations in 1868 with the telegraph line. During the sanctions period, we continued operating and achieving projects of scale. We have a long history of partnerships with many local players across different sectors. We have a deep understanding of the market, so after the lifting of the sanctions we have many opportunities to participate in top priority projects. This is not a country to simply sell your products; Iranians work in partnerships, and their market is based on localization. We offer innovative solutions that increase the efficiency of the industry. In this sense, over the last months we have resumed partnerships with our previous partners and started looking for new partners in different areas. Our aim is to support the country by introducing new technologies to make Iran to play a more prominent role in the region. Overall, we strongly believe in cooperation between Europe and Iran, as we are a tangible example of offering innovative solutions that the country need in this new era.
What would be your advice for companies looking to enter the Iranian market?
Catalin Sfrija From my experience, the local authorities are a reliable partner. I am extremely impressed by their level of support, commitment, and transparency. Their open and sincere attitude is supportive of companies that wish to do business here. Moreover, they are also the best source of proper information. My advice would be to shine some light onto the market and see what it has to offer, and you will probably be positively surprised. The fact the country was isolated made local competitiveness more intense. You will find here many companies that are extremely professional and competitive. All in all, I am optimistic about the prospects of the Iranian market; it will advance quickly. This is a country with a highly skilled and diversified workforce, which, based on my experience, cannot be found in other countries across the region. This is definitely an emerging market with great potential.
Farzad Amanpour European companies should be aware of the advantageous position taken by the Asian competitors that were actively working in Iran during sanctions time. While appreciating companies that have been operating during the sanction period, Iranians will positively value companies that resume their operations in the country soon, without waiting for a preferential business climate to enter the market.
Arash Onsori I would suggest European companies get involved in physical projects. Their partners will buy their machinery to launch production, which will bring further demand to your products. This is our experience in the Bank of Industry and Mine, as we know the projects and their needs. Furthermore, there will be tough competition among Asian and European suppliers; some Korean, Japanese, and Chinese companies are also looking to penetrate the Iranian market. They are well equipped and armed with finance. If European banks are able to bring the money they will have the chance to intervene in the market.
Andreas Schmidt Maybe one of the biggest differences between European business and emerging markets like Iran is that there is no valid data available to explore into the future. It is not possible to predict what will happen in the future; you have to trust your personal insights, and rely on micro and macro economical data to make your business plan with certain uncertainties.
Farzad Amanpour This is a consequence of the sanctions period. Everybody had short-term management and forecasting, so the culture of long-term view was put aside, and now it is slowly getting back to its previous situation. However, we still see European companies operating idly without considering the special conditions of this market. There is a real need of creating combined teams between European companies and local consultants in order to prepare smart business plans that comply with local and global requirements. Otherwise, a great deal of time and money will be lost in this process. We must work together to ensure this does not happen and relationships continue to grow.
What are the sectors that should be watched for investment?
Andreas Schmidt Infrastructure needs to be expanded and modernized. At the same time, there are obviously large opportunities in consumer goods and services. There are huge opportunities in all sectors, as we cannot consider any sector to be entirely self-sufficient or saturated.
Dr. Mohsen Nayebzadeh Currently the infrastructure is detrimental; roads and railroads are critical areas that must receive investment. The energy sector, including oil and gas, petrochemicals, electricity, and water desalination are also vital, as well as mining and pharmaceuticals. Another area of investment is renewable energy. Wind farms and solar electricity plants are receiving some subsidies to make them competitive in the physical market. These are the main areas of importance.
What is your outlook for the year ahead?
RenE Harun Our hope is that the trade finance issue gets solved. I expect a new wave of European companies coming to Iran next year. There are currently 90 German companies operating in Iran, and for the next year we expect to reach 180-200 German companies in the Iranian market.
Catalin Sfrija If financing comes as everyone expects, Iran will develop as the star emerging market of the next decade. I will not be surprised if in a year or two we will start witnessing high GDP growth rates and a higher appetite for consumption, making it an attractive place for long term investments; the more we promote Iran and doing business in the country, the more the confidence will grow on the international business arena. At the same time, it will trigger motivation for politicians to take their commitment to a higher level. By doing so, many positive steps can happen, and we will see consistent results.
Arash Onsori The Iranian economy is in stagnation, so we are in need of a sufficient amount of FDI. Regarding the banking system, which dates back from nearly a century, we have the knowledge, know-how, and experience to be recognized by international financial institutions. At the same time, Iranian capital market needs to be developed to have instruments capable of raising the necessary funds to the industries. Moreover, the unification of the exchange rate will decrease the risk of investment in the market. I believe these are the priorities of the Iranian economy.
Andreas Schmidt Regarding our joint business, I am optimistic because of the attitude of all of our partners in the market. Their sense of optimism is appreciable and will transform our business into the future. Regarding the banking issue, Iranian banks have the position of a goalkeeper or a defender of the economy; they should keep the promise to comply with international rules and take care of local demands. It is a huge chance for the Iranian banking system to prove that it is as good as the rest of the world. This can be a challenge but also a great basis to connect with Europe.
Dr. Mohsen Nayebzadeh Iranian society needs to feel the positive impact of the lifting of sanctions. Creating jobs for Iranians is a crucial topic. Achieving and increasing the level of oil and gas production is also on the agenda. I firmly believe that financing will be the international pull for foreign companies to enter the market. Iranian society has to be patient; it may take several months but the overall outlook is possible.