Iran's in­vest­ment gold rush too slow to emerge?

Kuwait Times - - BUSINESS -

TEHRAN: When Iran signed its land­mark deal with world pow­ers in 2015, curb­ing its nu­clear pro­gram in ex­change for sanc­tions re­lief, many ex­pected an in­vest­ment gold rush. But de­spite thou­sands of busi­ness del­e­gates flood­ing into Tehran from all over Europe, Asia and be­yond, big deals have been slow to emerge. That makes the agree­ment with French en­ergy gi­ant To­tal-which will lead to a 20-year, $4.9 bil­lion project to de­velop an off­shore gas field in Iran-a po­ten­tial break­through for the coun­try.

Who has done deals so far?

Ma­jor in­vest­ments have been few and far be­tween. French car firm PSA was quick off the block, sign­ing a 400mil­lion-euro deal in June 2016 to build Peu­geot ve­hi­cles with Ira­nian car­maker Khosro, and a 300-mil­lion-euro agree­ment in Oc­to­ber to build Citroens with Iran's SAIPA. Ho­tel group Ac­cor says it is work­ing on 10 to 15 projects in Iran, hop­ing to cap­i­tal­ize on the tourism boom since the nu­clear deal.

The only other head­line deals have been for air­craft, but here the money has been go­ing in the other di­rec­tion, such as the bil­lions spent by Iran Air to buy 100 planes from Air­bus and 80 from Boe­ing. There has been a cav­al­cade of so-called pre­lim­i­nary or "ex­ploratory" deals by ma­jor firms in­clud­ing Re­nault, Hyundai and Shell, but so far none have trans­lated into ac­tual in­vest­ments. A UN trade re­port pub­lished in June said to­tal for­eign di­rect in­vest­ment into Iran last year was just $3.4 bil­lion-way be­low the $4.7 bil­lion it re­ceived in 2012 be­fore sanc­tions hit, and not even in the same uni­verse as the $50 bil­lion tar­get set by Pres­i­dent Has­san Rouhani when he signed the nu­clear deal.

What is hold­ing them back?

Two things: US sanc­tions and Iran's do­mes­tic eco­nomic mess. Al­though many in­ter­na­tional sanc­tions were lifted un­der the nu­clear deal, Wash­ing­ton main­tained many re­lated to hu­man rights, bal­lis­tic mis­sile tests and Iran's role in re­gional con­flicts. US law­mak­ers are in the process of tight­en­ing these sanc­tions, leav­ing many in­ter­na­tional firms wor­ried they could face mas­sive fines or be barred from work­ing in the United States, and Pres­i­dent Don­ald Trump has threat­ened to tear up the nu­clear deal en­tirely.

Firms face ma­jor com­pli­ance headaches try­ing to fig­ure out if their money might end up in the hands of sanc­tioned en­ti­ties such as the Revo­lu­tion­ary Guardsa tough task given their shad­owy in­volve­ment across much of the Ira­nian econ­omy. But even with­out the threat of sanc­tions, Iran re­mains a risky in­vest­ment prospect due to its per­va­sive cor­rup­tion and red tape, a bank­ing sec­tor crip­pled by toxic debt and a fluc­tu­at­ing cur­rency. All this has scared off many in­vestors, and cru­cially, the global banks needed to fi­nance long-term deals.

What comes next?

All eyes are on Wash­ing­ton, where Trump's ad­min­is­tra­tion is in the midst of a 90-day re­view on whether to stick by the nu­clear deal. The other sig­na­to­ries-Bri­tain, France, Ger­many, China and Russia-are de­ter­mined to keep the deal alive, which would make it hard for the US to en­force sanc­tions as it did in the past. But the US has un­par­al­leled pow­ers to fine for­eign firms. Many grimly re­call the $8.9 bil­lion fine meted out to French bank BNP Paribas just three years ago. Iran hopes To­tal deal will give con­fi­dence to other firms to move in, and that an in­ter­na­tional bank will sim­i­larly take the plunge, trig­ger­ing the long-awaited gold rush. But for now, it re­mains a wait­ing game. — AFP

TEHRAN: Ali Kar­dor (L), Man­ag­ing Direc­tor of the Na­tional Ira­nian Oil Com­pany (NIOC), Pa­trick Pouyanne (2-L), Chair­man and CEO of French en­ergy com­pany To­tal, Ez­za­tol­lah Ak­bari (2-R), Man­ag­ing Direc­tor of Petropars Group and CNPC In­ter­na­tional pres­i­dent Lyu Gongxun (R) sign an off­shore gas field agree­ment in Tehran yes­ter­day. — AFP

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