Iran, the new Cockaigne?
Companies rush for the conquest of 80 million Iranian consumers. A safe bet?
On the 16th of January 2016 Frederica Mogherini and Mohammad Javad Zarif, the respective heads of European and Iranian diplomacy announced that Iran has respected its commitment to the nuclear deal. Their declaration implies the immediate suspension of all economic sanctions towards Iran. From then on, Western companies have free access to Iranian markets and can invest billions of dollars.
This opening of markets makes a modernisation of the Iranian economy possible. Local companies were forced to buy in China or to accept second hand products sold on the black market. To illustrate the ´lack of resources, the Economist takes the example of airlines forced to extend the operational life of antiquated planes. With the opening of the markets Iran hopes to catch up by making big investments in the civil aviation sector. The first contract between IranAir and Airbus (118 planes, 12 of which are A 380 models) is only the starting point of a strategy which aims at challenging the huge airports in the Gulf region and their fleets of brand-new aircrafts.
Manufacturer in their starting-blocksFollowing the example of Airbus other French brands such as Total and SNCF have announced big contracts and partnerships at the occasion of Hassan Rohani’s visit in France in January. But the French are not the only ones to tackle the issue. Italy has gained ground as contracts have been signed between Iran and the oil companies ENI and Saras while the French-Italian aircraft manufacturer ATR has sold 20 turboprop aircrafts.
Japan has also entered the race. While Peugeot and Renault were negotiating with local manufacturers such as Khodro and SAIPA, the Iranian minister of economy and finance Ali Tayyibina invited Japanese manufacturers to come and invest on the spot, according to the Japanese newspaper Nikkei. A mean for Iran not to become dependent of Europe. Things went quickly and the signature of an investment deal facilitating market access for Japanese enterprises was announced in Japanese media two days later. According to the press, Suzuki was particularly keen to take root quickly.
Still too early for AmericaFor American companies, on the other hand, it’s still too early to invest since some restrictions which have been passed by the Congress are still in place. But even if things are not all rosy yet and decades of diplomatic conflict have separated the two countries President Rohani has explicitly included American companies in his political discourse.
The oil and gas sector is of course at the heart of the race for investments among the European giants. After years of starvation, Iran wants to have the lion’s share despite the morosity of the market. The Islamic Republic wants to increase its production up to 500 000 barrels per day in order to fuel its growth. The underground riches are meant to push Iran’s economy which however remains more independent from oil and gas than the economies of other exporting countries.
This is a relatively safe bet since the country has been among the world’s biggest producers for a long time and it already has the necessary infrastructure for exploitation. Iran just has to restart the machines and to rely on the large national companies which have been forced to reduce their production for years. The New York Times gives the example of NITC, one of the most importation Iranian oil companies.
Eldorado or straw fire?Despite the breathtaking contracts which have been announced some observers may question the real investment capacities of Iran. Of course the country can benefit from its new access to the capitals which have been blocked by the sanctions. But the amount between 35 and 120 billion dollars will be spent one day. Iran will have to re-launch its economic growth in order to stand up to its ambitious projects.
The opening of the markets will contribute to this but many economists go against the general excitement by pointing out that for now, the low prices for oil will prevent Teheran from making billions out of its resources for now. Furthermore, the lack of financial infrastructure and the already well-established Chinese concurrence are likely to be a cold shower in the mid-term for all too optimistic Western investors.
Crédits photo : DR