A NEW SPARK

Iran 2017 | TELECOMS & IT | REVIEW

A potential opening up of the IT sector to foreign investment could see the sector grow in new directions in the coming years.

The 2012 sanctions imposed upon the Iranian economy led to stagnation in multiple sectors, but somewhat paradoxically contributed to an explosion of growth in Iran's technology sector. New technologies still arrived, but the sanctions prohibited major western firms from profiting off the market, effectively creating a vacuum waiting to be filled by creative Iranian firms. As a result, the past few years have seen a wave of digital innovation as young, technologically active Iranians have developed the domestic industry free of interference or competition from the firms that have attained platform monopolies in the rest of the world. With the sanctions lifted, the rest of the world is now looking to invest in what has become a booming market. At the same time, the Iranian government's efforts to privatize what has previously been state-owned telecoms markets should provide another avenue for investment and new competition. All told, the Iranian technology sector holds considerable promise for the years ahead.

The nature of the technology sector allowed it to handle the sanctions with more ease than other industries, which relied on the import of physical goods from the West. In a globalized world, it is impossible to fully prevent the transfer of information, and Iran was still able to remain up to date on new technologies. Thanks to a strong university system—more than 2 million Iranians are studying in STEM fields—the sector has no shortage of human capital, giving it a steady stream of talented, young professionals working to solve pressing problems. As a result of all this, the country saw a rise in domestic tech startups as young entrepreneurs took inspiration from Western startups to fill gaps in the Iranian economy with technological applications and platforms uniquely tailored to the Iranian population. Homegrown analogues to Uber and Amazon are just two examples of apps that have become popular, and the size of the Iranian economy has industry participants eager to continue to tap into the nation's potential—with a population of nearly 80 million, Iran is considered one of the most appealing underdeveloped markets in both the region and the world.

The growth in the startup industry can be seen in the expansion of ELECOMP, Iran's largest tech exhibition. Event organizers reported that the startup section of the exhibition has grown from 80 participants in 2014 to more than 400 in 2017. The protection afforded by the sanctions helped kick start the industry, but firms still ran into barriers due to the lack of capital and overall slowdown effects due to the wider economy contracting. Today, however, Iran sees an opportunity to introduce foreign capital into the industry to increase growth and reach without sacrificing the innovation that has helped it grow. Foreign firms, eager to tap into the immense potential of the market, have already begun to reach out and offer venture capital funding. Iran's government has welcomed these new arrivals, and the 2017-2021 five-year development plan passed in early 2017 calls for a rise in foreign investment. Net FDI has generally been less than USD4 billion annually since 2000, but the new development plan calls for up to USD30 billion of foreign financing annually plus USD15 billion of FDI.
Other regulatory changes designed at expanding and strengthening Iran's telecoms networks are similarly underway. Iran's mobile and internet penetration rates are strong—with more than 100 million connections and 45 million smartphones as of 2016, it is the largest mobile phone market in the region, but continued infrastructure improvements would still reap benefits. The market is entirely state controlled at the moment, but industry leaders expect the market to be opened shortly. Applications from leading European telecoms firms have already begun to arrive, a move that many expect to lead to a loosening of internet restriction practices. There are still questions on how European companies will weigh the demands of Iran's Islamic government, but one thing appears clear; the potential benefits of investment are large enough to make companies willing to deal with any issues that may arise.