NUTS & BOLTS

Iran 2017 | EXECUTIVE GUIDE | REVIEW: DOING BUSINESS

Despite high inflation, a private sector economically dwarfed by public firms, and stringent employee and consumer protections, never in 50 years has Iran's huge and promising market been more open for business.

Much ink has been spilt on the myriad opportunities that await the intrepid global investor with the partial reentry of Iran into the global economy in early 2016, and not without reason. As the UK Department for International Trade and Foreign and Commonwealth Office remind their constituents, the opening of Iran is the biggest new market to enter the global economy in well over a decade. Iran is a single market the population of which has quadrupled since 1960 to just over 80 million people. It is expanding its ports on the Indian Ocean, has a stable, representative government, and boasts some of the largest natural resources in the world. For these reasons, there is little wonder that journalists and capitalists alike are crooning with joy. Though Iranian firms have coped well under sanctions and learned to make due with much less, opportunities now abound for ambitious outsiders in infrastructure, retail, healthcare, water, mining, and airports and aviation. If the most optimistic prognoses are correct, before long it will be the domestic firms that need to consult various “doing business" reports to stay ahead of the curve.

To be sure, the transfer to a post-sanctions economy has been sticky at best. Capital markets have yet to release their munificence into the Persian environment for fear of American regulatory backlash. The truth is, it is not just “green light effect" that is holding investment back; the Americans still have a number of terrorism-related sanctions in place against state-backed firms and industries in the country, and many esteemed members of the Beltway seem all but ready at times to revive the sanctions regime without a moment's notice.
This attests more to geopolitical concerns, namely in Syria and Israel, and institutional dragging of the feet than anything, but they are issues that must be taken seriously all the same. Nonetheless, for those willing to risk the short-attention-spanned wrath of the Trump administration or the fossilized animosities at State, Commerce, and Treasury, the perks of doing business in Iran are many. Second in the region to Egypt's 96-million population, Iran is also the second-largest economy, after Saudi Arabia. Iran has a highly educated workforce, a government committed to welcoming foreign investment, and a huge appetite for iron and steel, chemicals and related products, transport vehicles, and machinery. The EU estimates it will quadruple its trade volume with Iran from USD8 billion today to more than USD30 by 2018. Though inflation has been running high, reaching 14% in 2015, the government is taking measures to tame it. Moreover, growth that year was 4.3%, and Tehran has targeted 8% growth through 2020, a figure that international estimates place more modestly at 5%, still nothing to scoff at.
That being said, for a country that has been on the fringe of international economic life for at least a generation, foreign entrants will find the state plays a rather strong role in the country's economic life. Regulations are known to be complex, and there are stringent employee and consumer protection laws. The state also owns and manages the country's largest firms, including the majority of oil and gas, mining, heavy industry, and insurance concerns. Overall, the private sector merely accounts for 20% of total GDP, which poses both an enormous challenge and an enormous opportunity for those with the wherewithal to work with the authorities and navigate the legal parameters of penetrating such a promising, but potentially somewhat obtuse, market.
Though oil and gas continue to dominate the national economy, Iran also has the world's seventh-largest mineral reserves and a significant manufacturing base that has grown hungry and lean in recent decades. Combined with its booming agricultural sector and huge consumer market, there is something for everyone, provided one has the chutzpa to hunker down.