Western Firms Race for Slice of Iran Market
TEHRAN (Dispatches) -- On a May afternoon in Tehran, a Russian in a dark suit sits in the crowded lobby cafe of the Espinas Persian Gulf International Hotel with his Farsi translator, sipping coffee with potential Iranian partners while discussing the price of soy fiber. No sooner do they vacate their armchairs than another group of besuited businessmen takes their place, this time conversing in Italian and Farsi about industrial motors.
The Espinas, one of Tehran’s few luxury hotels, opened in 2009, just as successive rounds of sanctions over Iran’s nuclear program were drawing an ever-tighter noose around the economy. With the restrictions biting, the Espinas’s lobby, adorned with pink-granite columns and faux Achaemenid sculptures, emptied out.
Today, however, amid glimmers that sanctions will be lifted, finding a room at the Espinas isn’t easy, Bloomberg Markets magazine will report in its September issue.
"All the five-star hotels are full of Western companies looking to position themselves to do business -- and also Japanese and Chinese companies,” says Sarosh Zaiwalla, a London-based lawyer who specializes in sanctions regulation and who travels frequently to Tehran.
Iran has seen a huge surge in the number of Western business delegations, says Amir Cyrus Razzaghi, the head of Ara Enterprise Group, a consulting firm in Tehran that provides market research and business intelligence to clients.
In February, a group representing more than 100 French companies -- including engineering group Alstom SA (ALO), telecommunications company Orange SA (ORA) and carmaker Renault SA (RNO) -- visited Tehran, the largest foreign-trade mission the country had ever hosted. Groups from Canada, Europe and the U.S. have also come. Companies that were once active in Iran, such as French oil giant Total SA (FP) and Luxembourg-based ArcelorMittal (MT), the world’s largest steelmaker, have publicly expressed interest in returning.
Iran may be on the verge of opening for business, says Charles Robertson, chief economist at Renaissance Capital Ltd., a London-based investment firm.
"This is the last major opportunity out there in the world that can suddenly become accessible, almost overnight,” he says.
Robertson, who visited Tehran in February, compares Iran to Turkey in 2004, when that emerging market was poised for what turned out to be almost a decade of strong economic growth.
What’s raised investor expectations about doing business there is a diplomatic breakthrough that could clear the way for sanctions to be lifted. Brokered with Iran in November by the U.S., China, Germany, France, the U.K. and Russia, the deal eased some sanctions temporarily in exchange for Iran’s commitment to curtail uranium enrichment and allow greater oversight by the International Atomic Energy Agency.
The Joint Plan of Action, or JPA, released $4.2 billion in Iranian funds frozen in foreign banks and suspended sanctions on petrochemical exports, gold trading, the sale of goods and services in the automotive industry, and the supply of parts and maintenance needed to keep Iran’s civilian aircraft flying safely.
Iran has 76 million people, about the same number as Turkey. As recently as 2011, it produced twice as many cars as Turkey, according to the Paris-based International Organization of Motor Vehicle Manufacturers. It consumes more steel annually than either the UK or France, according to the World Steel Association. And the Tehran Stock Exchange, or TSE, has a market capitalization of about $135 billion, three times the value of the main stock market in Vietnam, with a population of 89 million.
While once-embargoed markets such as Myanmar and Libya lack developed financial markets and physical infrastructure, Iran has both, Robertson says -- presenting an opportunity that’s "just huge”.
"This is one of the most attractive markets in the world in terms of its long-term potential,” says Ramin Rabii, the managing director of Turquoise Partners Group, a Tehran-based investment firm.
Turquoise was set up in 2005 to provide an easy way for foreigners to invest in the TSE. Sanctions, however, put an end to that in 2010. Since the JPA was signed, Rabii says, he’s received half a dozen e-mails a week from investors looking for more information on the market.
Among those that have publicly expressed interest in Iran is Canadian transportation company Bombardier (BBD/B) Inc.
"Our role right now is to understand when sanctions could be lifted and how we could take advantage of a market we feel will be important for all of our products,” Pierre Beaudoin, Bombardier’s chief executive officer, said at a news conference after the company’s annual meeting on May 1.
Beaudoin’s bland statement belies the bounty of contracts that could await a company such as Bombardier if Iran opens up.
The Iranian government has said it’s looking to buy 400 passenger planes -- including regional jets and turboprops -- in the next 10 years to upgrade its aging fleet.
The Tehran government has also unveiled plans to spend $10 billion improving the capital’s public transport system during the next five years, including buying 2,300 metro-rail cars, which Bombardier also produces.
Companies based in Europe, many of which departed Iran only in the past four years as sanctions tightened, have been most conspicuous in jockeying to return -- leaving U.S. firms behind.
"There is a sense that they are getting lapped by the Europeans,” says Reza Marashi, research director of the Washington-based National Iranian American Council, which represents the interests of Americans of Iranian descent in the U.S. "The Europeans didn’t sanction themselves out of influence in Iran like we did.”
Asked at a press conference about U.S. criticism of French businesses, including Total, that have held exploratory talks with Iran, Total CEO Christophe de Margerie said, "When it becomes legal to work in Iran and contractual terms are satisfactory, I don’t see why Total would deprive itself of the possibility to beat out its Anglo-Saxon competitors in Iran.”
The biggest prize for Western companies is likely to be Iran’s energy industry. The government plans $100 billion in oil and gas projects over the next four years.
Iran will need outside expertise to boost crude production significantly, says Robin Mills, head of consulting at Dubai-based Manaar Energy who traveled frequently to Iran as a Royal Dutch Shell Plc geologist in the 1990s.
Within weeks of the JPA announcement in November, Iranian Oil Minister Bijan Zanganeh met in Vienna with the chief executives of two oil and gas companies, Italy’s Eni SpA (ENI) and Austria’s OMV AG. In addition, Eni and Total have sent representatives to Tehran to discuss energy projects, says Akbar Nematollahi, the Ministry of Petroleum’s spokesman.
"Approximately every week, we have meetings with the delegations of these companies,” he says. "There have even been negotiations with some American companies. They are ready too.”
Nematollahi declined to name the U.S. firms.
In May, some 1,800 exhibitors crowded Tehran’s sprawling International Permanent Fairground for Iran’s annual International Oil, Gas, Refining and Petrochemical Exhibition. The petroleum ministry said 600 foreign companies attended, although many were small Chinese and South Korean firms.
Jerome Budin, an international manager at Rotork Controls Ltd. (ROR), an electric valve–making subsidiary of Rotork Plc, a company based in Bath, England, was among the few Europeans staffing an exhibitor’s booth. Budin says Rotork has attended the fair for 12 years and sold products to Iranian petroleum, water and power companies after securing the necessary licenses.
"It’s quite a big market for us,” Budin says. "Obviously, we are looking forward to an easing of the sanctions.”
Western auto companies are also revving their engines over Iran. In 2013, even though U.S. sanctions on the auto industry were still firmly in place, Iranians bought more than half a million new vehicles, according to the International Organization of Motor Vehicle Manufacturers; most of those were domestic models manufactured by Iran Khodro Co. and Saipa Automotive Manufacturing Group.
In January, Renault CEO Carlos Ghosn told Bloomberg Television that this figure could increase threefold if sanctions were fully lifted. The JPA temporarily removed sanctions on the auto industry, and Renault, Europe’s third-largest automaker, has resumed shipping kits that its Iranian partners, Iran Khodro and Pars Khodro, assemble into vehicles. Renault had abandoned the market in 2012 because of sanctions.
Fellow French automaker Peugeot SA had been Iran’s leading car supplier, with a 30% market share, before it too withdrew in 2012. In the spring, Peugeot executives traveled to Iran to talk about coming back, spokesman Pierre-Olivier Salmon says.
Today, however, amid glimmers that sanctions will be lifted, finding a room at the Espinas isn’t easy, Bloomberg Markets magazine will report in its September issue.
"All the five-star hotels are full of Western companies looking to position themselves to do business -- and also Japanese and Chinese companies,” says Sarosh Zaiwalla, a London-based lawyer who specializes in sanctions regulation and who travels frequently to Tehran.
Iran has seen a huge surge in the number of Western business delegations, says Amir Cyrus Razzaghi, the head of Ara Enterprise Group, a consulting firm in Tehran that provides market research and business intelligence to clients.
In February, a group representing more than 100 French companies -- including engineering group Alstom SA (ALO), telecommunications company Orange SA (ORA) and carmaker Renault SA (RNO) -- visited Tehran, the largest foreign-trade mission the country had ever hosted. Groups from Canada, Europe and the U.S. have also come. Companies that were once active in Iran, such as French oil giant Total SA (FP) and Luxembourg-based ArcelorMittal (MT), the world’s largest steelmaker, have publicly expressed interest in returning.
Iran may be on the verge of opening for business, says Charles Robertson, chief economist at Renaissance Capital Ltd., a London-based investment firm.
"This is the last major opportunity out there in the world that can suddenly become accessible, almost overnight,” he says.
Robertson, who visited Tehran in February, compares Iran to Turkey in 2004, when that emerging market was poised for what turned out to be almost a decade of strong economic growth.
What’s raised investor expectations about doing business there is a diplomatic breakthrough that could clear the way for sanctions to be lifted. Brokered with Iran in November by the U.S., China, Germany, France, the U.K. and Russia, the deal eased some sanctions temporarily in exchange for Iran’s commitment to curtail uranium enrichment and allow greater oversight by the International Atomic Energy Agency.
The Joint Plan of Action, or JPA, released $4.2 billion in Iranian funds frozen in foreign banks and suspended sanctions on petrochemical exports, gold trading, the sale of goods and services in the automotive industry, and the supply of parts and maintenance needed to keep Iran’s civilian aircraft flying safely.
Iran has 76 million people, about the same number as Turkey. As recently as 2011, it produced twice as many cars as Turkey, according to the Paris-based International Organization of Motor Vehicle Manufacturers. It consumes more steel annually than either the UK or France, according to the World Steel Association. And the Tehran Stock Exchange, or TSE, has a market capitalization of about $135 billion, three times the value of the main stock market in Vietnam, with a population of 89 million.
While once-embargoed markets such as Myanmar and Libya lack developed financial markets and physical infrastructure, Iran has both, Robertson says -- presenting an opportunity that’s "just huge”.
"This is one of the most attractive markets in the world in terms of its long-term potential,” says Ramin Rabii, the managing director of Turquoise Partners Group, a Tehran-based investment firm.
Turquoise was set up in 2005 to provide an easy way for foreigners to invest in the TSE. Sanctions, however, put an end to that in 2010. Since the JPA was signed, Rabii says, he’s received half a dozen e-mails a week from investors looking for more information on the market.
Among those that have publicly expressed interest in Iran is Canadian transportation company Bombardier (BBD/B) Inc.
"Our role right now is to understand when sanctions could be lifted and how we could take advantage of a market we feel will be important for all of our products,” Pierre Beaudoin, Bombardier’s chief executive officer, said at a news conference after the company’s annual meeting on May 1.
Beaudoin’s bland statement belies the bounty of contracts that could await a company such as Bombardier if Iran opens up.
The Iranian government has said it’s looking to buy 400 passenger planes -- including regional jets and turboprops -- in the next 10 years to upgrade its aging fleet.
The Tehran government has also unveiled plans to spend $10 billion improving the capital’s public transport system during the next five years, including buying 2,300 metro-rail cars, which Bombardier also produces.
Companies based in Europe, many of which departed Iran only in the past four years as sanctions tightened, have been most conspicuous in jockeying to return -- leaving U.S. firms behind.
"There is a sense that they are getting lapped by the Europeans,” says Reza Marashi, research director of the Washington-based National Iranian American Council, which represents the interests of Americans of Iranian descent in the U.S. "The Europeans didn’t sanction themselves out of influence in Iran like we did.”
Asked at a press conference about U.S. criticism of French businesses, including Total, that have held exploratory talks with Iran, Total CEO Christophe de Margerie said, "When it becomes legal to work in Iran and contractual terms are satisfactory, I don’t see why Total would deprive itself of the possibility to beat out its Anglo-Saxon competitors in Iran.”
The biggest prize for Western companies is likely to be Iran’s energy industry. The government plans $100 billion in oil and gas projects over the next four years.
Iran will need outside expertise to boost crude production significantly, says Robin Mills, head of consulting at Dubai-based Manaar Energy who traveled frequently to Iran as a Royal Dutch Shell Plc geologist in the 1990s.
Within weeks of the JPA announcement in November, Iranian Oil Minister Bijan Zanganeh met in Vienna with the chief executives of two oil and gas companies, Italy’s Eni SpA (ENI) and Austria’s OMV AG. In addition, Eni and Total have sent representatives to Tehran to discuss energy projects, says Akbar Nematollahi, the Ministry of Petroleum’s spokesman.
"Approximately every week, we have meetings with the delegations of these companies,” he says. "There have even been negotiations with some American companies. They are ready too.”
Nematollahi declined to name the U.S. firms.
In May, some 1,800 exhibitors crowded Tehran’s sprawling International Permanent Fairground for Iran’s annual International Oil, Gas, Refining and Petrochemical Exhibition. The petroleum ministry said 600 foreign companies attended, although many were small Chinese and South Korean firms.
Jerome Budin, an international manager at Rotork Controls Ltd. (ROR), an electric valve–making subsidiary of Rotork Plc, a company based in Bath, England, was among the few Europeans staffing an exhibitor’s booth. Budin says Rotork has attended the fair for 12 years and sold products to Iranian petroleum, water and power companies after securing the necessary licenses.
"It’s quite a big market for us,” Budin says. "Obviously, we are looking forward to an easing of the sanctions.”
Western auto companies are also revving their engines over Iran. In 2013, even though U.S. sanctions on the auto industry were still firmly in place, Iranians bought more than half a million new vehicles, according to the International Organization of Motor Vehicle Manufacturers; most of those were domestic models manufactured by Iran Khodro Co. and Saipa Automotive Manufacturing Group.
In January, Renault CEO Carlos Ghosn told Bloomberg Television that this figure could increase threefold if sanctions were fully lifted. The JPA temporarily removed sanctions on the auto industry, and Renault, Europe’s third-largest automaker, has resumed shipping kits that its Iranian partners, Iran Khodro and Pars Khodro, assemble into vehicles. Renault had abandoned the market in 2012 because of sanctions.
Fellow French automaker Peugeot SA had been Iran’s leading car supplier, with a 30% market share, before it too withdrew in 2012. In the spring, Peugeot executives traveled to Iran to talk about coming back, spokesman Pierre-Olivier Salmon says.