new hope Return to Iran

German businesses would benefit from a nuclear deal between Iran and the West. Engineering firms especially would profit from the lifting of sanctions as Iran is in need of modern plants and equipment.
Dreaming of new business in Iran.

While negotiators from Iran and six major powers try to hammer out a long-term nuclear agreement in Vienna, Austria, Western companies are already preparing for a lifting of sanctions that would open up a large, lucrative market, especially for German engineering goods.

It’s not a done deal yet. The talks, aimed at preventing Tehran from developing nuclear weapons in exchange for relief from sanctions that have crippled Iran’s economy, the Middle East’s second biggest, have continued past the July 7 deadline and are now slated to last until the end of the week.

Officials said major sticking points remain in the talks between Iran and the United States, Britain, France, Germany, China and Russia. These include Iranian demands for a lifting of the United Nations arms embargo and ballistic missiles sanctions, the timing of any sanctions relief, and future Iranian nuclear research.

But jockeying for a slice of the Iranian market has already begun, and German firms look well poised to play a strong role in modernizing an industry that is still working with equipment from the 1970s.

Iran is hosting an economic conference in early September and local business leaders were adamant that as many German auto companies as possible should take part.

So MDRC, a Tehran-based institute that provides management training, contacted the chamber of industry and commerce in Darmstadt, which represents one of the biggest automotive industry networks in Germany, the Automotive-Cluster Rhein-Main-Neckar.

Most of the production plants are from the 1970s or even older. Alexander Haghani, Advisor, consultancy Germela

In secret talks, the Iranians told the Darmstadt business group that they wanted to rebuild their industry as soon as the West lifts its sanctions, and needed German engineering expertise to do so.

The invitation to the event is headlined “Market Opportunities for Auto Suppliers After the Embargo in Iran,” and will bring together 20 Iranian industrialists and 30 German exporters.

Delegations of that size are usually only seen accompanying state visits, and September’s meeting could indeed be of similar importance: Iran has vast oil reserves and a young, well-educated population as big as Germany’s at around 80 million.

There’s strong pent-up demand for Western products. Copies of U.S. chains like Starbucks (Raees Coffee), Pizza Hut (Pizza Hat) and McDonald’s (Mash Donald’s) already dominate their respective markets.

Handelsblatt has learned that the September conference will mainly consist of business meetings to sound out cooperation deals and agree common ventures.

The German government too is planning to deepen ties with Iran and Sigmar Gabriel, the German economy minister and vice-chancellor, plans to fly to Tehran later this month with business representatives — provided that the Vienna talks produce an agreement.

The sanctions have had a devastating impact on the Iranian economy. Trade with Western firms has collapsed and inflation has soared. In 2013, the rate was running at 35 percent. As a result, Iran has been unable to modernize its industrial centers.

 

Talks between Iran and six countries, including the United States and Germany, represented by foreign affairs minister, Frank-Walter Steinmeier, could end without a deal.

 

“Most of the production plants are from the 1970s or even older,” said Alexander Haghani, a consultant at Hamburg-based Germela, which advises customers on doing business in the Near and Middle East.

In terms of resources, Iran is one of the richest countries in the world and is expected to take steps as quickly as possible to upgrade its industry when sanctions are lifted.

“The German economy could profit immensely from this untapped potential,” said Ludovic Subran, chief economist at credit insurance company Euler Hermes. “Especially because demand will rise particularly strongly in sectors where German exporters are traditionally very strong.”

Talks aren’t confined to the auto sector. Handelsblatt has learned that drinks manufacturers are negotiating to issue licenses and invest in Iranian production plants. In tourism, hotel chains are looking at ways to upgrade the quality of Iranian hotels for tourists and business travelers.

Thomas Wülfing, a partner at the Hamburg-based law firm WZR, a business law firm with an office in Tehran, said he had been contacted by insurers, health companies and firms from various service sectors. “They all want to know how they can gain a foothold in Iran in future.”

U.S. and French firms are also readying themselves. The Wall Street Journal reported that IT giant Apple held talks with Iranian dealers last October with a view to selling its products via so-called premium resellers rather than through its own network of stores. Apple declined to comment.

IT group Dell and General Electric are also reported to have held preparatory talks. In April, a delegation of U.S. companies, largely from the aviation, oil and food industries, traveled to Iran to take a look at the country’s economy.

Analysts don’t expect U.S. multinationals to weigh in with major investments initially. Many are likely to watch the market to make sure it shows prolonged stability.

As soon as it’s possible we will be delighted to return to Iran. Patrick Pouyanné, CEO, French oil company Multi Total

France will try to get back to trade levels of 2004 when it exported goods worth some €4 billion, or $4.4 billion, to Iran. One of the most important investments could come from Peugeot-Citroën (PSA) which used to deliver car parts to Iran for assembly there. If the sanctions are lifted, PSA plans to found a joint venture with local manufacturer Iran Khodro to assemble modern cars locally. It’s unclear if they will be marketed under an Iranian brand or as Peugeot.

Patrick Pouyanné, the head of French oil company Multi Total, which was active in Iran until 2008, said: “As soon as it’s possible we will be delighted to return to Iran.” He added he was sure “that Total will be welcome.”

In gas production, France’s ENGIE, formerly GDF Suez, plans to invest in Iran, attracted by low production costs estimated at just €25 per barrel — half as much as in Angola.

But Germany’s advantage lies in its long-standing and close ties with Iran, said Mr. Subran at credit insurance company Euler Hermes.

China is a strong competitor, though. Iranian oil exports to China have been billed in yuan for some time. “As a result, many Iranian companies and financiers have large reserves in this currency and are forced to buy Chinese products,” Mr. Subran added.

In recent years, German firms have shunned trading with Iran even if their output wasn’t covered by sanctions. The hurdles were simply too high. After the European Union disconnected Iranian banks from the SWIFT international money transfer system, business deals had to be processed via non-EU banks, for example in Turkey. The high banking fees made many deals unviable.

“Difficulties in payment processing are the main reason for the collapse in exports,” said Mr. Wülfing at law firm WZR.

U.S. sanctions also had an indirect impact on German firms because if U.S. authorities learned of business deals between German and Iranian firms, they often took legal action against the U.S. subsidiaries of the German companies, said one entrepreneur.

As a result, German exporters grew wary of doing business with Iran because they had to fear losses in the far larger U.S. market.

But the Association of German Chambers of Commerce and Industry is optimistic that if a deal is reached in Vienna, Germany may get back to its original trade volume with Iran within five years.

 

Ozan Demircan is an editor with Handelsblatt's investigative reporting team in Frankfurt. To contact the author: [email protected]