February 12 2018 0comment

Opportunities and challenges of the Iranian market for Basque companies.  

Iran, a country that so much is being talked about in recent weeks… because in this respect, we wrote with optimism of the opportunities that the lifting of the sanctions can open our companies, but with a point of nostalgia by the end of these visits to the country and its treasures without guided tour out groups and following flags or umbrella aloft, or waves of delegations of half of the world that are and will be arriving in the coming months.   

And all those who still have certain reservations and ask me if it is safe to visit the country, and especially being woman, say yes , and that cover part of the mane by being able to walk among the buildings of Isfahan trying to imagine the character of Jesse ben Benjamin (Noah Gordon, the Medico - The Physician ) ( ) to contemplate the same spot upon arrival, enter by the door of the Nations of Persepolis and look back to try to give me an idea of the grandeur of the spectacle to see reach those princes caravans from the East on camels, Egyptians with his flashy clothes, exotic Indians on their elephants which would come to pay homage for the last time to Dario III until Alexander the great reduced it to ashes, or walk through the gardens of the great poet Hafez in Shiraz , or the ruins and almost Martian lands of Kerman, accompanied by the warmth and kindness of the Iranians, is a very small price to pay.  

Now, let us focus on what many of you really is interested in, the potential and opportunities of the country for our business.   

Even though the agreement has been controversial and is still the subject of debate, what is true is that it represents an interesting challenge not only to Iran but also to East and middle and North Africa (MENA). The future development of the Iranian market and the potential opening to investors around the world should contribute to the economic development of the country and the region, and could even help to political tensions attenuate.  

Iran, is the third largest Middle East economy, an economy worth around of $400 billion, a population of 78 million, many of which are young, educated, with money and desire of spending. Example of them is that it is said that there are about 6.5 million of iPhone in circulation, despite Apple banned the sale of their products directly in Iran.   

“There is no even a single week in which not to speak with at least one or two foreign delegations,” said the Managing Director of an investment company of Teheran, and “everybody says they want to be the first in Iran,” he said.  

That it seems that it will be unlikely for the majority of Basque companies. What is true is that the new agreement still requires many steps until the approval of the sanctions by the us which will give advantage to European companies meters in the race for contracts in the market, and it is an advantage that we must know to take advantage of. That yes, if you define a legal framework clear nationwide, as they have done in other European countries.   

In many industries, the embargoes contributed to what amounts to 36 years of pent-up demand. The years of sanctions the European, and Basque have reduced exports of these Western companies, and has resulted in a high percentage of machinery Madein Chinato the industry, a lack of public investment in infrastructure, and a devaluation of the currency ; and the high tariffs on imported products the toward less competitive compared to the domestically.   

Although the sanctions and tariffs have led to that Iran has become a manufacturing country itself to meet the domestic demand in a country of more than 80 million inhabitant, it is expected that the level of industrialization of the economy further increase in sectors such as aviation, automotive, energy and consumption, among others.   

As the Iranian Transport and Urban Development Minister,  Abbas “Ajundi” said, the national airline of Iran has aircrafts with an average of 20 years old, and if the current situation continues, this figure will be more than 30 in the coming” ten years”, which would imply that “in such a situation, the majority of passenger planes won’t be able to fly”. Therefore, the authorities say they plan to spend US $ 20 billion in 400 new machines in the next decade, which is great news for companies as Airbus and Boeing and which we hope that will be a positive impact on companies located in Euskadi.   

In sectors such as automotive, it seems that large companies have already begun to sign important agreements quickly. Mercedes-Benz, Peugeot, Renault and they have announced plans to start selling to the market of automobiles from Iran, with which already have deep ties (Iran was the largest market outside France Peugeot until 2011). Iran has with a Park of more than 15 million units, but with high rates of aging. The increase in 61% of the automotive production in 2014, growth estimated by the IMF for the country by 4% in 2016 and a 5.5% by 2017, along with the growing demand for automobiles and components (due to the current offer companies low-cost chin as), is business opportunities for our automotive industry.   

According to the sources of an important Iranian, holding there is interest in promoting this industry and therefore count with the component manufacturers Basque, which, unlike other countries in the environment, manufactured products of excellent quality, value-added, technological development, and at competitive prices. There is also a great opportunity for the market of spare parts that are highly valued. Currently, Iran is ranked 18 worldwide as a producer of vehicles with figures exceeding the million units, where two companies, Saipa and Iran Khodro Group, represent approximately 94% of the national production. Even so, the automotive sector is a sector of great weight in the Basque economy, and Iran could open a small window of opportunity in the global portfolio of countries with which our companies have been decades now working.   

Iranian officials say that they intend to invest billions in the modernization of oil and gas facilities, specifically, Iran says that it needs $ 230 billion of dollars in improvements to its energy facilities. As mentioned previously, much of the machinery in the country is made in China. China – Iran trade was US $44 billion in 2014, but Chinese companies could soon be sharing its market to Western competitors, and we believe that the Basque companies of machine tool they are a great added value and competitive choice for Iranian companies.   

Remember headlines about research to some of our companies for the sale of products to the country. Indicator that demand for machine tools from abroad is already known for some time by the Basque companies. And the Elimination of sanctions will allow to export and to respond to such Iranian customers, in many cases already identified and even known by our companies. Without forgetting sector-related products providers oil & gas (tubes, pumps, etc.) ( ) where Basque companies have already proved to be very competitive, and even have productive implementations in destination.   

Other areas of interest would be the infrastructure and energy. Already exist in their plans the major engineering projects and projects in the energy sector. And, although short-term investment looks like it will go to projects of oil gas and nuclear, the diversification strategies of countries towards new sources of energy now they are defining and implementing gradually offering an interesting market to Basque companies in the sector of renewable energies. And for the interest that generate renewable energy, to this, last sector have dedicated you a special post: blowing trade winds in Iran for Basque renewable energy companies?  

And not forgetting the projects of modernization of railway infrastructure. Iran is a large country, with a surface of more than 1.6 million square kilometers, and that its rail network represents less than 11 per cent of transport in general, and which serves 33 million people per year in a country of about 80 million habit before. Iran has pointed to a plan to invest in the modernization and expansion of its rail network as said a few months ago the General Director of the railway network of the Islamic Republic of Iran Mohsen Poursaeed-Aqaei. And in this sense the country is trying to attract investors with a series of incentives in its attempt to become a center of regional transport through the establishment of a rail corridor that connects the Persian Gulf and the Indian subcontinent with Asia Central and more beyond. As I Express Poursaeed-Aqaei ”have defined the railway projects requiring investments of around of”$ 25 billion for which we have developed incentive packages to attract national and foreign investment, 

The international North-South transport corridor  between the India, Russia, Iran, Europe and Central Asia for the transport of goods by boat, rail and road will be linked to the Silk Road, and authorities say that the plans of Iran include increasing the length of the railway lines of 25,000 kilometers in 2025 from the current figure of less than 15,000 km. According to the Minister of industry, mines and trade Mohammadreza Netmatzadeh, Iran needs $1.5 billion in annual investment in the sector over the next six years. In this sector, Euskadi featuring leaders and cutting-edge companies that also should act as trucks and offer benefits to many Basque SMEs of its value chain (suppliers, business management and maintenance, ) etc. ) in all the projects that could be achieved in the country. With regard to the tourism sector or infrastructure services sector, few there are large international hotel chains and investment in the sector is going to be very important. And although our companies are not known for this type of integrated projects that we have companies in the sector that should not miss the opportunity to create alliances and agreements with chains or international architecture firms that are they take care of carrying out projects numbers.   

Iran already has a large and prosperous stock market, with more than 400 listed companies and a market capitalization of more than $100 billion. And although at first we created otherwise, many are the competent and well-run companies in Iran, representing a diverse mix of industries and sectors. Rohani admitted that Tehran needs to attract between 30,000 and 50,000 million dollars in foreign direct investment over the next five years. Investing in Iran not only means investing in oil; manufacturing, the transportation sector, and even consumer goods are also key factors of growth.   

Cosmetics, food and textile,are among other, some consumer goods that Basque companies have long exported and that Iranian consumers already recognize and value. And even if companies do not is or projects of great impact on our balance of trade, this does not mean that the Iranians or may be out of vital importance for some of our SMEs and projects.   

We have analyzed the main sectors and identified a wide and varied range of opportunities, and although other countries such as France and Italy are already sharing the cake, I think our companies should go to the country without fear and with conviction, since in many fields we have with big companies. or specialize in specific processes; or products of high added value and technological contribution that insurance will be the most competitive choice against other companies with which already also already we have been watching the faces in many other markets.   

But not everything is the color of the roses from the gardens of Ghamsar,and Basque companies once there still will face to major challenges, our contacts in the country, but above all our experience we are warned that:   

  • Firstly, the establishment of a clear legal framework that would define and ensure potential transactions between our companies and Iran.  
  • “The bureaucracy is still cumbersome, as well as high levels of political interference,” we continue commenting from Tehran.  
  • Although the sanctions which has raised EU include which affected financial and banking transactions (“foreign banks will be enabled to lend support for trade with Iran projects”), insurance and reinsurance (“Insurance companies of the West can return to make shipments”), and the SWIFT system (“Iranian banks will once again connect to SWIFT, a global system of financial transactions), the importance of financial institutions that ensure that to carry out transactions with Iran is vital. And, as reported the own Rohani so it seems: “in few hours have elapsed since the announcement, have opened more than a thousand letters of credit at several banks foreigners”. Anyway, hope that they have actually finished the times of calls reporting new delays of payments by having to get foreign currency on the black market at a cost that sometimes multiplied by two official ratio, not open letters credit or make postings, or follow that track transactions that took weeks to arrive after a journey of transfers by counts in United Arab Emirates, Turkey or even Asian countries, in short, is not the financial system braking the commercial efforts of companies.   
  • The foreign securities involve special risks, with the addition of the currency fluctuations or economic and political uncertainties in the country.  
  • And, they also warn that the conflict could break out among young educated Iranians or wanting to open up to the world and the powerful clerics who run the country creating new tensions or even a difficult politic-economic framework for Western companies. 

Even so, hope to be able to say that Basque companies that clear will, those who will remain, and enchanted also will be the Iranians to have our businesses as commercial, technological, investment or project partners. Inshallah.  

You can follow us on Twitter @globalikbg , Idoia Iturbe – International Consulting