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”

Bloomberg Businessweek (North America) - - Conntents -

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.

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