In­vest­ing in Iran

A chal­leng­ing yet highly re­ward­ing mar­ket, Iran has found it­self on the radar of sev­eral ma­jor re­gional and in­ter­na­tional play­ers. Ralph Nader, CEO of Am­ber Con­sult­ing, tells us more about the mar­ket sta­tus, the chal­lenges and the op­por­tu­ni­ties

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Ira­nian hos­pi­tal­ity ris­ing

Iran is steadily open­ing up to the world, fol­low­ing an eas­ing of eco­nomic sanc­tions from Europe and the USA. The tourism in­dus­try has been one of the first ben­e­fi­cia­ries of the re­duc­tion in sanc­tions. Ac­cord­ing to the World Travel and Tourism Coun­cil, vis­i­tor num­bers in­creased by five per­cent in 2015 to reach 5.2 mil­lion. In its well-known ‘Global Des­ti­na­tion Cities In­dex 2016’, Mastercard placed Tehran in the top 10 fastest-grow­ing cities in the world last year for ar­rivals. The coun­try is work­ing on be­com­ing more con­nected; de­vel­op­ments in­clude an agree­ment signed by Iran and the UK in 2016 for up to six flights daily be­tween the two coun­tries. Iran has also kicked off a com­pre­hen­sive tourism cam­paign, ti­tled ‘You are in­vited’, to high­light the coun­try’s hos­pi­tal­ity and in­creas­ing open­ness.

Dy­namic ho­tel scenery

The Ira­nian gov­ern­ment plans to wel­come 20 mil­lion vis­i­tors by 2025, a level of traf­fic well be­yond the cur­rent sup­ply of 1,000 ho­tels and 46,000 rooms. The num­ber of ap­pli­ca­tions and li­cense re­quests for ho­tel projects is rock­et­ing, with es­ti­mates sug­gest­ing that the sec­tor has to de­liver be­tween 20 and 25 new ho­tels on av­er­age per year for the next 10 - 12 years to ac­com­mo­date tar­geted de­mand. While open­ing new ho­tels from scratch can be lu­cra­tive, ren­o­vat­ing ex­ist­ing ones to align them with in­ter­na­tional stan­dards, or ac­quir­ing build­ings in de­vel­op­ment to shift them into ser­viced apart­ments/ ho­tels pro­vide ad­di­tional op­por­tu­ni­ties that in­vestors are se­ri­ously con­sid­er­ing.

In­ter­na­tional and re­gional in­vestors

With the bank­ing sec­tor in great need of liq­uid­ity, the coun­try can only grow by at­tract­ing for­eign in­vestors, es­pe­cially part­ners nearby. In­ter­na­tional hos­pi­tal­ity groups are hun­gry to avail them­selves of op­por­tu­ni­ties within this un­tapped mar­ket. Accorhotels was the first to en­ter the mar­ket in early 2015, with its ibis and Novo­tel brands. Span­ish Meliá Ho­tels will open the first five-star prop­erty in Sal­man Shahr in June. Hy­att and Kempin­ski, mean­while, have been ex­plor­ing op­por­tu­ni­ties since 2016, keen to se­cure a timely en­trance into the mar­ket. Mi­nor Ho­tel Group, a Thai­land­based large hos­pi­tal­ity group, with brands such as Anan­tara and Tivoli, have also dis­played in­ter­est in the Ira­nian mar­ket, while Mar­riott In­ter­na­tional is con­sid­er­ing the sanc­tion sit­u­a­tion ahead of fur­ther in­vest­ments. Gulf in­vestors are also show­ing an in­ter­est in Iran’s open­ings, driven by prox­im­ity and strong his­toric re­la­tion­ships that some, such as the UAE and Oman, have en­joyed. Rotana’s pipeline en­com­passes four prop­er­ties, in­clud­ing two in Tehran and two in Mashad, ex­pected to open by end of 2018. Hos­pi­tal­ity Man­age­ment Hold­ings (Coral and Ewa brands), an­other UAEbased op­er­a­tor, is also in ‘se­ri­ous talks’ with de­vel­op­ers in Iran.

These are the ob­sta­cles

While sev­eral ap­peal­ing fea­tures make Iran ‘the’ mar­ket to con­sider, ob­sta­cles to do­ing busi­ness re­main and should be taken into ac­count ahead of an in­vest­ment de­ci­sion:

1. Watch out for the sanc­tions: Even if nu­clear sanc­tions have been lifted, some hu­man-rights-re­lated and ter­ror­ism-sup­port

sanc­tions re­main in place, im­posed by the US. Not ev­ery­one re­al­izes that these af­fect not only Amer­i­can busi­nesses, but any global com­pany with busi­ness in the US. As ho­tel chains are, in essence, glob­al­ized, op­er­a­tors will have to en­sure that not a sin­gle Ira­nian Rial is chan­neled through their US bank or busi­ness unit.

2. Part­ner with a lo­cal fa­cil­i­ta­tor: Iran has a high level of bu­reau­cracy, rank­ing 120th out of 190 coun­tries in the World Bank’s most re­cent Ease of Do­ing Busi­ness sur­vey. To sum­marise, nav­i­gat­ing your way around the cor­ri­dors of pub­lic build­ings with the aim of set­ting up a busi­ness can be a chal­lenge. For any Gulf in­vestor, it is highly ad­vis­able to go through one of the many in­ter­me­di­ary lo­cal com­pa­nies that are emerg­ing al­most daily to fa­cil­i­tate mar­ket en­try.

3. Im­port your own stan­dards: Years of iso­la­tion may have im­pacted the Ira­ni­ans’ abil­ity to ac­cu­rately grasp what’s re­quired of a good ho­tel in to­day’s mar­ket. The ac­tual ho­tel rat­ing stan­dards are not in line with in­ter­na­tional stan­dards, as a visit to a ho­tel out­side of Tehran will show. The gov­ern­ment is try­ing to up­date and unify these stan­dards in or­der to at­tract up­com­ing in­vest­ments.

4. Pre­pare for cash pay­ments: Some­what sur­pris­ingly, tourists are un­able to use their Visas or Master­cards to make pay­ments on Ira­nian soil. Tourists have to trans­port wads of cash from their home coun­try, and then change it in an ex­change bureau when vis­it­ing the coun­try. Tourism pro­fes­sion­als should be pre­pared to deal with large amounts of cash and pro­vide pay­ment fa­cil­i­ta­tion fa­cil­i­ties to tourists trav­el­ing from coun­tries where plas­tic is the norm.

5. Think about fund repa­tri­a­tion: As Iran has only re­cently been linked to the in­ter­na­tional bank­ing sys­tem through SWIFT codes and is still putting the re­lated in­fras­truc­ture in place, tak­ing money out of the coun­try is prob­lem­atic. While some banks al­low in­ter­na­tional trans­fers, caps re­main in place. For ex­am­ple, Bank Melli has a ceil­ing of €2,000 per per­son per month.

Be the first mover

Though risky, the Ira­nian mar­ket is po­ten­tially highly re­ward­ing. The coun­try has started re­form­ing its in­vest­ment en­vi­ron­ment, and, with the re­cent elec­tion out­come, more progress could be made. While there is still a long way to go, early in­vestors will un­doubt­edly ben­e­fit from a first-move ad­van­tage.

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