Iran - how realistic are the opportunities?

Iran is 'hot'. I regularly read articles in the media about the potential of the country. A country with 80 million inhabitants that has come to a standstill for years as a result of the sanctions. If you consider that Iran is surrounded by 15 countries where also the necessary (re)building should take place, one might say that it is a gateway to 400 million consumers.

After years of having lived under sanctions, everything is in short supply. Mainly quality products and technological innovation are high on the wish list. To encourage development, the Iranian government has declared a number of sectors a priority. The cultivation of vegetables and horticulture is one of them. The plans are ambitious. As is made clear, among others, by this article in the Financial Tribune, the intention is to realize over 48,000 hectares of greenhouses in 10 years. Sufficient opportunities, one might say, but are these real opportunities?

To get a better understanding of the opportunities offered by Iran, we (2FX Treasury) have been there for a week on business. Together with our local partner, we also have visited a location where people are engaged in the development of greenhouse projects. We talked extensively with entrepreneurs and what is immediately obvious is the influence of the government. The location we visited was intended for greenhouses for mushrooms, tomatoes, fish farming and flowers. A somewhat illogical clustering. After some questioning we were told that the granted licenses were the final push. The government determines what needs to be cultivated and issues licenses on that basis.

Financing 

During our visit we also had discussions with several entrepreneurs about the financing of projects. All had the same message. Financing is difficult to obtain, is expensive and the required securities are high. Interest rates of up to 20 percent or even more are no exception. Without putting up a fair amount of privately owned property as security, the application stands no chance.

It is a well known secret that there is considerable pressure on the banks in Iran. Banks have a fair amount of bad loans on the balance sheet and liquidity is limited. The good news is that the sectors that have priority, can borrow on more favorable terms. From the conversations that we had, it appears that there is talk about interest rates of 6%. However, under condition that they are approved by the government.

Interesting to see is that this policy leads to a kind of sector-based real estate development. Land owners are trying to obtain greenhouse zoning on their land in order to get loans for development at more attractive rates. Not the product, but the loan is the driving force behind the construction.

With a potential market of 400 million consumers and a strong need for replacement and innovation, the Persian Gulf offers ample opportunities for Dutch entrepreneurs. The Iranians are eager to work with the Dutch / Europeans. We are known for our quality products and expertise.

However, doing business in Iran is not a ‘walk in the park’. One needs patience, a good strategy and a little guts. Locally, regulations and funding can be a bottleneck in getting projects off the ground. Funding under favorable conditions is available, but cooperation of the government here is important. Also a large number of projects, among others in the oil and gas industry, are offered under condition of government aid. This concerns a very capital intensive industry. Sooner or later choices will have to be made.

In Europe the biggest challenge is in meeting the sanction regulations and cooperation of the banks. There are banks that are willing to cooperate, but with a number of conditions attached. If you want to be successful in Iran, you will need a (banking) strategy.

On April 11, 2017 we, together with Fenedex organize a program about doing business in Iran. Our Iranian partner will also be present. Perhaps a good way for orientation on the opportunities in Iran and the associated challenges. More information can be found on our website en.2fxtreasury.com.