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
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.