Foreign companies are keen to get into Iran, but it’s still not a breeze
As europe Europe and and Asia hunt for deals, most U.S. companies are sidelined “Without paying sufficient attention, one risks getting seriously in trouble”
On Jan. 24 and 25, executives from Airbus, Lufthansa, and Bombardier shared tea and pastries with representatives of the Iranian aviation industry at the Parsian Azadi Hotel, a 26- story tower at the base of the snow- capped mountains that loom over northern Tehran. A week earlier, French and Iranian pharmaceutical chiefs spent an evening at another hotel downtown nibbling on fruit and cupcakes while discussing health care. And on Jan. 25 well-heeled Iranians were treated to delights such as macaroons and chocolate truffles at the grand opening of a dealership for automaker Peugeot’s DS luxury line on upscale Andarzgoo Street. “Now that the sanctions have been lifted, we are very happy to be the first brand to enter the Iranian market,” Yves Bonnefont, DS Brand’s chief executive officer, said at the event.
Since Jan. 16, when sanctions against Iran because of its nuclear program were eased, Tehran has started to feel more like a business destination. The concourses of Imam Khomeini International Airport increasingly echo with the sounds of French, English, and German, and hotels are full of money managers and investment bankers looking to profit from a country with a $406 billion economy and a young, well-educated population of 77 million people. On Jan. 25, Iranian President Hassan Rouhani landed in Rome to kick off a European tour, where he was scheduled to meet with French and Italian leaders and corporate chieftains such as Fiat Chrysler CEO Sergio Marchionne and Total CEO Patrick Pouyanne. During the four-day trip, Rouhani reached business deals worth at least $22 billion with companies ranging from Italian oil and gas contractor Saipem to France’s Airbus.
Largely absent from the festivities: Americans. While Europeans and Asians seek deals, most U.S. companies will have to watch from the sidelines. The nuclear accord doesn’t repair a relationship ruptured by the 1979 seizure of the U.S. Embassy in Tehran, in which dozens of Americans were held hostage for 444 days. The U.S. has left in place a host of restrictions on commercial dealings with Iran because of its ballistic missile program and its support for some groups the U.S. links to terrorism. Some foreign subsidiaries of U.S. companies will be allowed to work in Iran, but executives back at headquarters will have to keep their American operations walled off from Iranian entities still sanctioned under U.S. law, according to Azadeh Meskarian, an attorney at Zaiwalla, a law firm in London that advises clients on sanctions. “There’s a lot of hype relating to Iran,” she says. “But without paying sufficient attention, one risks getting seriously in trouble.”
An exception to the continuing U.S. sanctions are Boeing and jet engine makers General Electric and United Technologies, which can now make deals. Although Boeing didn’t make it to the conference at the Azadi Hotel, the civilian aviation industry will be allowed to help Iran quickly revitalize its aging fleet, according to Bloomberg Intelligence. The average age of Iran Air’s 45 planes is 27 years—antiques by industry standards—reports Planespotters.net. Airbus got a jump on Boeing just as sanctions were lifted, with an agreement to sell Iran 114 new and used planes that will start being delivered as early as July, according to Abbas Akhoundi, the minister of roads and urban development. “There’s this pent-up demand that needs to be filled,” says Bloomberg Intelligence analyst Caitlin Webber. “Iran’s got a poor safety record due to the age of its fleet. They can’t get the spare parts they need.”
Beyond aerospace, most of the action is from European companies. Peugeot—which got about 13 percent of its sales from Iran before pulling out in 2012—is in talks with automaker Iran Khodro and others about a car manufacturing venture. And Germany’s Daimler on Jan. 18 announced a joint venture to build Mercedes-benz trucks in Iran and a second one to distribute smaller trucks from its Japan-based Fuso brand. “There is a huge demand for commercial vehicles,” Wolfgang Bernhard, the head of Daimler’s commercial vehicle unit, said in a statement. “We will quickly resume our business activities in the market.”
As European automakers jump back in, they’ll find a landscape changed by new competitors from China, which weren’t affected by the sanctions. Led by Chery Automobile, Lifan Industry, and Anhui Jianghuai Automobile, the Chinese are on track to boost their share of the Iranian market from about 1 percent in 2011 to about 9 percent this year, according to researcher IHS Automotive. At its glass-walled Tehran dealership,
Geely Automobile offers its Emgrand X7 SUV for about a third less than a similar offering from Toyota. And cars such as the MVM 110, a madein-iran version of Chery’s QQ hatchback, have become a common sight on the streets. The Chinese “have taken advantage of their investments in local production,” says IHS analyst Stephanie Vigier. “They suffer from an image of low quality, but their low prices make their offerings attractive.” Even the Europeans, though, may be cautious in their approach to Iran given that sanctions could be reimposed if the country violates the nuclear agreement. And there are plenty of political calculations to consider. Some U. S. lawmakers are pressing for fresh sanctions as punishment for recent missile tests, and Republican presidential aspirants Donald Trump and Texas Senator Ted Cruz have vowed to rip up the nuclear accord if elected. Says Parham Gohari, co-founder of Frontier Partners, which advises multinationals on doing business in Iran: “Anybody going into Iran needs to have a short-term exit strategy in mind.” �Golnar Motevalli, Ladane Nasseri, and Elisabeth Behrmann
The Chinese “have taken advantage of their investments in local production. They suffer from an image of low quality, but their low prices make their offerings attractive.” ——Stephanie Vigier, IHS The bottom line As sanctions against Iran ease, European and Asian companies are pouring in. Their American rivals face more restrictions.