At first sight, German companies are back in Iran. Logos from well-known German brands, like Adidas, Miele or Mercedes, are visible across Tehran. Supermarket shelves are well stocked with Schauma shampoo, Persil laundry detergent, Nivea deodorants and a number of other consumer goods made in Germany. Siemens delivered its first turbines to Iran, and Daimler, Volkswagen, Bosch and many others have opened offices in the country’s capital.
However, this impression is misleading. Many German companies are still hesitant to get back into business with Iran two years after international sanctions against Tehran were lifted. There's a bit of a paradox there. German firms are eager to engage with the booming Iranian market, and Iranian companies want German-made machines and vehicles. A full 40 percent of all industrial equipment in use in Iran is made in Germany. Yet, hardly any deals are moving forward.
If German companies do not come, others will. Mojtaba Khosrowtaj, Iranian deputy economics minister
One of the main reasons is US President Donald Trump’s threats to terminate the nuclear agreement with Iran within the next four months unless improvements are made to the deal. But there are also the ongoing US sanctions — not covered by the nuclear pact — and trouble materializing planned shipments and targeted investments.
“Now is the time to return to Iran and establish joint ventures and subsidiaries," said Mojtaba Khosrowtaj, Iran’s deputy economics minister. "If German companies do not come, others will."
Part of the problem is that major German banks – those with business ties in the US – are shying away from financing Iran deals now that the US threatened to reinstate trade sanctions that were abolished when the nuclear agreement was signed in early 2016.
Savings banks, credit unions and Eihbank, a Hamburg-based lender that supports business between Iran and Europe, are providing loans. But these banks are quite small. And the credit insurer Euler Hermes is only insuring Iran policies for one year, which is not enough time for large orders.
“The banks are not doing their job,” Mr. Khosrowtaj said, pointing out that foreign trade during the sanctions was $120 billion — and now it's still $120 billion. If the banks funded more business deals in Iran, "we would see a sharp increase in trade,” the minister told Handelsblatt.
German auto companies like Volkswagen and Daimler — the manufacturer of Mercedes Benz cars — are also restrained, for the same reasons. However, lured by Iran's rapidly growing GPD, at least they are getting their feet wet. The carmakers are negotiating automobile and truck assembly there. Furthermore, Chemicals giant BASF is looking into major oil and petro-chemical projects in Iran, the second-largest oil producer in the Organization of Petroleum Exporting Countries, or OPEC.
Yet, foreign competitors are much further along. Swedish automaker Volvo, for example, already delivers truck assembly kits to Iran. French rivals Peugeot and Renault are having their cars assembled at two of Iran’s major car production lines: Iran Khodro and Saipa. The two French brands accounted for 453,000 of the 1.1 million vehicles produced in Iran in a nine-month period during 2017.
China has also long overtaken Germany as Iran’s largest supplier. South Korean companies, too, have become very involved in Iran. Political uncertainty across the Mediterranean Sea isn't deterring Italy either: Finance Minister Pier Carol Padoan last week signed a framework agreement giving €5 billion in loans to Italian companies doing business in Iran. Major banks in Denmark and Austria are negotiating business opportunities with Iran.
It would be very helpful if the German government were to finalize a framework agreement with Iran, as Italy and France have already done. Burkhard Dahmen, chairman of the German Near and Middle East Business Association
German players sees themselves at a disadvantage and want equal opportunities to access the market. “It would be very helpful if the German government were to finalize a framework agreement with Iran, as Italy and France have already done,” said Burkhard Dahmen, chairman of the German Near and Middle East Business Association.
Peter Reinartz of the cable manufacturer Leoni Kerpen also wants the German government to step in: “Make a clear commitment in the form of a bilateral agreement with Iran,” he urged.
Based on the size of Germany's EU neighbors, a German financing deal would have to be close to €10 billion. According to Mr. Reinartz, Iran should also help by making a much more active effort to unlock the $100 billion in assets still frozen by the US. This would open doors for German companies "without Chinese, French and Italian manufacturers further supplanting them."
We have the right to receive the promised benefits in return for our nuclear concessions. Mojtaba Khosrowtaj, Iran’s deputy economics minister.
When the international sanctions were lifted after the nuclear deal came into force, Iran saw an increase in oil exports. But US financial sanctions are still in place, banning business transactions in dollars and limiting US banks' activity in the country. This in turn can hurt European banks if they turn the other cheek: The French bank BNP Paribas paid $9 billion in fines and Germany’s Commerzbank paid $1 billion. It is no wonder that many foreign banks are reluctant.
But with one-third of Iranians living at the poverty line and high unemployment, the country is desperate to jump-start economic relations with banks. Last year, a million people entered the job market, but there were only new 850,000 jobs to fill.
“The people cannot continue to be punished, and it is time to finally bring in investments and create jobs,” Mr. Khosrowtaj, the cabinet member, said. “We have the right to receive the promised benefits in return for our nuclear concessions.”
Doing so means finding a new spirit for European-Iranian cooperation. All European countries, but especially the Germans, need to ask themselves one question: “Do they want to continue allowing the United States to impose decisions on them, or do they want to act independently?” the Iranian deputy economics minister rhetorically asked.
Matthias Brüggmann is a Handelsblatt correspondent. To contact the author:[email protected]