Wealth

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

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.