The re­cent deal to lift eco­nomic sanc­tions im­posed on Iran opens up an ex­cit­ing av­enue for in­vest­ment—if you’ve got nerves of steel, writes Ge­orge Hop­kin

Hong Kong Tatler - - Contents -

With eco­nomic sanc­tions to be lifted, Iran of­fers an ex­cit­ing av­enue for in­vest­ment— if you’ve got nerves of steel

anaf­sheh key­noush re­calls a time when in­ter­na­tional busi­nesses looked set to cash in on Ira­nian in­vest­ment op­por­tu­ni­ties. “Just af­ter the Iran-iraq war ended in 1988, there was a ru­mour Mcdon­ald’s was open­ing, so de­spite the pos­si­bil­ity that it was an im­i­ta­tion, I drove four fe­male rel­a­tives to be among the first cus­tomers,” says Key­noush, an in­ter­preter for four Ira­nian pres­i­dents, in­clud­ing the cur­rent mod­er­ate leader, Has­san Rouhani. “But pro­test­ers on mo­tor­cy­cles threat­ened to smash our car, as they had just smashed the win­dows of the new burger joint, if we tried to eat there.”

To­day, Iran is yet to get a Mcdon­ald’s fran­chise and the econ­omy is a shadow of its former self. In the nearly three decades since the end of that dev­as­tat­ing eight-year war, the con­ser­va­tive Is­lamic re­pub­lic has of­fered few op­por­tu­ni­ties to out­side in­vestors. And its nu­clear pro­gramme, be­lieved by many to be aimed at ac­quir­ing nu­clear weapons, led to the im­po­si­tion of crip­pling eco­nomic sanc­tions that kept po­ten­tial in­vestors’ hands tied. Any non-ira­ni­ans who man­aged to find a foothold faced over­whelm­ing com­pe­ti­tion from the busi­ness op­er­a­tions of the Is­lamic Rev­o­lu­tion­ary Guard Corps, be­lieved to con­trol about a third of the na­tion’s econ­omy.

But a deal signed in Vi­enna in July by Iran and the five per­ma­nent mem­ber of the United Na­tions Se­cu­rity Coun­cil—china, France, Rus­sia, the UK and the Us—plus Ger­many prom­ises to open a once-in-al­ife­time op­por­tu­nity for in­vestors, though only those with a strong stom­ach for risk. The pact—un­der which Tehran has agreed to scale back its nu­clear pro­gramme, and to al­low mon­i­tor­ing of it, in ex­change for the lift­ing of eco­nomic sanc­tions—has been de­scribed as a po­lit­i­cal mir­a­cle.

How­ever, Tehran has stressed it does not mean the global com­mu­nity can swoop in to buy up huge chunks of the econ­omy. “If for­eign com­pa­nies or coun­tries think they can take con­trol of a mar­ket of 80 mil­lion peo­ple, they are mis­taken, and we must not al­low it,” Rouhani said in Au­gust. “Our pol­icy is that you bring your in­vest­ment and tech­nol­ogy to the coun­try and part­ner with Ira­ni­ans, and then a part of the Ira­nian and re­gional mar­kets will be within reach of us both, and there will be em­ploy­ment for our youth.”

Pub­lic polling in­di­cates Ira­ni­ans ex­pect sig­nif­i­cant for­eign in­vest­ment and the at­ten­dant ben­e­fits to flow within a year, in­clud­ing bet­ter ac­cess to for­eign medicines and med­i­cal equip­ment, and tan­gi­ble im­prove­ments in liv­ing stan­dards.

Given its huge oil and gas re­serves, the na­tion’s en­ergy industry is ex­pected to dom­i­nate ini­tial ac­tiv­ity. The gov­ern­ment it­self plans to in­vest US$500 bil­lion in the oil sec­tor alone by 2025. “The oil mar­ket will never be the same,” says Keith Kohl, man­ag­ing editor of En­ergy & Cap­i­tal, which pub­lishes daily anal­y­sis and ad­vice on the global en­ergy industry. “Soon enough, per­haps within a cou­ple of months, the sanc­tions against Iran are go­ing to be lifted and the coun­try will be­gin a mas­sive ramp-up in oil pro­duc­tion.”

He warns that in the con­text of the cur­rent global glut, a new oil stream com­ing on­line from Iran would de­press prices fur­ther and could be dev­as­tat­ing for in­vestors who don’t pre­pare now for a sus­tained pe­riod of low oil prices. How­ever, such con­di­tions will also bring their own in­vest­ment op­por­tu­ni­ties, he says. “The best com­pa­nies for en­ergy in­vestors will be the mid­stream play­ers that move, re­fine and store all of the oil be­ing pumped dur­ing this glut. If you think Iran is go­ing to keep all of its pro­duc­tion for its own use, you’re sorely mis­taken.”

Ac­cord­ing to en­ergy anal­y­sis group Platts, the world’s lead­ing mid­stream com­pany is the Rus­sian state-owned mo­nop­oly Transneft. How­ever, af­ter that comes a long list of Nyse-listed com­pa­nies, in­clud­ing En­ter­prise Prod­ucts Part­ners, Plains All Amer­i­can Pipe­line and Tran­scanada, giv­ing in­vestors plenty of op­tions and op­por­tu­ni­ties.

While the en­ergy sec­tor will at­tract the most in­ter­est, the ben­e­fits of the Vi­enna pact will flow through to other ar­eas as the econ­omy, un­shack­led from sanc­tions, picks up speed. Hadi Farnoud, co-founder of web­site­build­ing ser­vice Camva, has such con­fi­dence in the fu­ture of his na­tive Iran that he left a suc­cess­ful start-up in the UK to re­turn home.

“For the past two years, Iran’s start-up ecosys­tem has flour­ished,” says Farnoud, who also founded per­sian­preneur.com, a net­work­ing site that cel­e­brates the achieve­ments of Ira­ni­ans at home and abroad. The coun­try has a tra­di­tion of valu­ing self­em­ploy­ment, and many tech-savvy young­sters are start­ing their own com­pa­nies, he says. “E-com­merce is grow­ing at rocket speed, and tech­nol­ogy-in­fras­truc­ture im­prove­ments com­bined with a huge mid­dle-in­come pop­u­la­tion mean there are un­prece­dented op­por­tu­ni­ties. Iran is prob­a­bly the big­gest un­tapped mar­ket in the Mid­dle East.”

Iran’s big start-up suc­cess story is Digikala, which was launched in 2007 by broth­ers Hamid and Saeed Mo­ham­madi with just US$20,000 in cap­i­tal. To­day it dom­i­nates the na­tion’s e-com­merce sec­tor, ac­count­ing for about 85 per cent of the do­mes­tic on­line re­tail mar­ket. The broth­ers share own­er­ship of Digikala with Sar­ava Ven­ture Cap­i­tal, which—along with fel­low ven­ture cap­i­tal com­pany Karaya and an­gel in­vest­ment group Avaan­gels—pro­vides early-, mid- and growth­stage fund­ing to Ira­nian start-ups with a Sil­i­con Val­ley swag­ger.

In­ter­na­tional ven­ture cap­i­tal com­pa­nies such as Ger­many’s Rocket In­ter­net and Swe­den’s Pomegranate In­vest­ment are also mak­ing their move. Pomegranate is re­ported to have raised US$8.2 mil­lion for in­vest­ment in a port­fo­lio of Ira­nian tech com­pa­nies, in­clud­ing free on­line clas­si­fied ads site Shey­poor, and has plans for an IPO on Nas­daq Stock­holm.

Euro­pean in­vestors are at the fore­front of those help­ing to fund the bur­geon­ing tech­nol­ogy sec­tor and they are “re­ally in­ter­ested in start-ups,” says Farnoud. “I know Ira­nian start-ups [which re­ceived fund­ing] from Europe. The in­ter­est is there.” Since Euro­pean coun­tries lifted financial sanc­tions re­lated to mov­ing money to Iran, “it’s a lot eas­ier to in­vest in Ira­nian start-ups, and I ex­pect huge in­ter­est there.”

Tehran may yet get its first Mcdon­ald’s. In Septem­ber, the cor­po­rate web­site Aboutm­c­don­alds.com had a live page invit­ing peo­ple to com­plete a no-obli­ga­tion “In­ter­na­tional Fran­chis­ing Ap­pli­ca­tion for Iran.” Food for thought in what may be the world’s last great un­tapped mar­ket.

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