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| Post-sanctions Iran 'could be the best emerging market for years to come' | Post-sanctions Iran 'could be the best emerging market for years to come' |
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| Hamid Mohammadi is excited at the prospect of international sanctions on Iran being lifted once a nuclear agreement has been signed. But he’s not that excited. The CEO of the Islamic republic’s equivalent of Amazon is certainly looking forward to being re-connected to the outside world – vital for a fast-growing company at the cutting edge of digital innovation. Still, ending sanctions will not be a miracle cure for the country’s economic ills. | |
| Digikala, launched with three employees in 2007, will have 1,500 by the year’s end as its slick Farsi-language online shopping service expands. It symbolises the energy of a young generation of wired and entrepreneurial Iranians who have built a domestic market from scratch and prospered despite international isolation. It guarantees deliveries within four hours in Tehran and its site boasts a whopping 750,000 unique visitors a day. | Digikala, launched with three employees in 2007, will have 1,500 by the year’s end as its slick Farsi-language online shopping service expands. It symbolises the energy of a young generation of wired and entrepreneurial Iranians who have built a domestic market from scratch and prospered despite international isolation. It guarantees deliveries within four hours in Tehran and its site boasts a whopping 750,000 unique visitors a day. |
| Culturally, the company is a world away from the dour image Iran suffers from. Its recent iftar – the evening meal breaking the Ramadan fast – for staff and their families blended western corporate style with speeches, an MC and a live band; there was barely a beard and no turbans in sight. Headscarves were extremely loose, female fashion elegant. | Culturally, the company is a world away from the dour image Iran suffers from. Its recent iftar – the evening meal breaking the Ramadan fast – for staff and their families blended western corporate style with speeches, an MC and a live band; there was barely a beard and no turbans in sight. Headscarves were extremely loose, female fashion elegant. |
| Digikala is also an investor’s fantasy. “Yes, we have problems related to sanctions, like the lack of foreign investment,” Mohammadi explained at the company’s warehouse near the capital. “And Iranian banks and investors don’t see e-commerce as having a good future. We need access to technology and to partners. The Koreans and Chinese ignore the sanctions but when they are lifted we expect to see European and American brands.” | Digikala is also an investor’s fantasy. “Yes, we have problems related to sanctions, like the lack of foreign investment,” Mohammadi explained at the company’s warehouse near the capital. “And Iranian banks and investors don’t see e-commerce as having a good future. We need access to technology and to partners. The Koreans and Chinese ignore the sanctions but when they are lifted we expect to see European and American brands.” |
| Mohammadi’s view of the benefits to the most successful start-up in Iran is widely shared by fellow businessmen. “After sanctions the government’s behaviour will change,” he predicts. “There will be more discipline and more professional behaviour. There are many weird and useless rules here. If more foreign companies come then the general economic environment will be better.” | Mohammadi’s view of the benefits to the most successful start-up in Iran is widely shared by fellow businessmen. “After sanctions the government’s behaviour will change,” he predicts. “There will be more discipline and more professional behaviour. There are many weird and useless rules here. If more foreign companies come then the general economic environment will be better.” |
| Prospects for recovery occupy as much space in the Iranian media as the chances of reaching a deal in the P5 + 1 nuclear negotiations in Vienna, which are due to end by Tuesday. Things are already looking up. The economy rebounded out of recession and grew 2.8% in 2014, President Hassan Rouhani’s first year in office. The IMF predicts growth of 0.6% and 1.3% in 2015 and 2016 respectively. Inflation is down from 45% under the reckless and profligate Mahmoud Ahmadinejad to 15% today. | Prospects for recovery occupy as much space in the Iranian media as the chances of reaching a deal in the P5 + 1 nuclear negotiations in Vienna, which are due to end by Tuesday. Things are already looking up. The economy rebounded out of recession and grew 2.8% in 2014, President Hassan Rouhani’s first year in office. The IMF predicts growth of 0.6% and 1.3% in 2015 and 2016 respectively. Inflation is down from 45% under the reckless and profligate Mahmoud Ahmadinejad to 15% today. |
| Expectations are high in the energy sector – the source of 35% of government revenues. Oil exports have halved since 2012 though the deputy oil minister said on Sunday that they could almost double when sanctions are lifted. “We are like a pilot on the runway ready to take off,” a bullish Mansour Moazami told the Wall Street Journal. “This is how the whole country is right now.” | Expectations are high in the energy sector – the source of 35% of government revenues. Oil exports have halved since 2012 though the deputy oil minister said on Sunday that they could almost double when sanctions are lifted. “We are like a pilot on the runway ready to take off,” a bullish Mansour Moazami told the Wall Street Journal. “This is how the whole country is right now.” |
| Oil matters. But Iran’s economy is far more diverse than that of Saudi Arabia, its great rival in the region. It is the world’s largest exporter of cement, as well as pistachios, saffron and caviar. Shipping is another big earner. State-owned Iran Shipping Lines has been badly hit by sanctions and stands to benefit significantly when they go, analysts say. | Oil matters. But Iran’s economy is far more diverse than that of Saudi Arabia, its great rival in the region. It is the world’s largest exporter of cement, as well as pistachios, saffron and caviar. Shipping is another big earner. State-owned Iran Shipping Lines has been badly hit by sanctions and stands to benefit significantly when they go, analysts say. |
| The single most urgent change business wants is the end to the ban on bank transfers under the international Swift system. “That has been the biggest blow,” said Rouzbeh Pirouz, chairman of Turquoise Partners. “But it’s not just that. Iranian companies have had difficulty trading and participating in global markets.” Yet interest from European countries has grown “exponentially” since the interim nuclear agreement was signed in Lausanne in April. Iran’s financial sector, food and beauty products are of special interest, he added. And French investors are looking closely at investment in hotels in the expectation of a leap forward in tourism. | The single most urgent change business wants is the end to the ban on bank transfers under the international Swift system. “That has been the biggest blow,” said Rouzbeh Pirouz, chairman of Turquoise Partners. “But it’s not just that. Iranian companies have had difficulty trading and participating in global markets.” Yet interest from European countries has grown “exponentially” since the interim nuclear agreement was signed in Lausanne in April. Iran’s financial sector, food and beauty products are of special interest, he added. And French investors are looking closely at investment in hotels in the expectation of a leap forward in tourism. |
| Hardliners who fret about the implications of a nuclear deal involving the US, the old “great Satan,” take comfort from the fact that Iran’s biggest trading partner is now China (25%), followed by Iraq, the UAE, Korea, Turkey and India. “A lot of western media propagate the myth that our economy will collapse if there is no agreement in Vienna,” argues Foad Ezzadi, an academic and “principalist” in the local political lexicon. “But sanctions will collapse if there is no deal because a lot of companies are waiting to get into the Iranian market.” | Hardliners who fret about the implications of a nuclear deal involving the US, the old “great Satan,” take comfort from the fact that Iran’s biggest trading partner is now China (25%), followed by Iraq, the UAE, Korea, Turkey and India. “A lot of western media propagate the myth that our economy will collapse if there is no agreement in Vienna,” argues Foad Ezzadi, an academic and “principalist” in the local political lexicon. “But sanctions will collapse if there is no deal because a lot of companies are waiting to get into the Iranian market.” |
| If there is an agreement, there will be plenty of business opportunities, but no bonanza for foreigners. “We are ready to use the potential of foreign investment,” said banker Majid Zamani. “But this is not Russia in the 1990s. Some people make it sound like a gold rush. There won’t be one because there is already a free market and free trade here. For people who want to add value Iran is the place to be. It could be the best emerging market for years to come.” | If there is an agreement, there will be plenty of business opportunities, but no bonanza for foreigners. “We are ready to use the potential of foreign investment,” said banker Majid Zamani. “But this is not Russia in the 1990s. Some people make it sound like a gold rush. There won’t be one because there is already a free market and free trade here. For people who want to add value Iran is the place to be. It could be the best emerging market for years to come.” |
| What is true for a growing giant like Digikala is true for traders in Tehran’s legendary and famously conservative bazaar. “I am optimistic about the future,” beamed Mostafa, surveying his little stationery shop in one of the labyrinth of alleys around the Masjid Shah (Shah mosque – still referred to thus despite having being renamed Masjid Khomeini long ago.) “If sanctions end people will be in a better mood and buy more. And if the dollar is reasonably stable we can buy the paper we import from Indonesia at a decent price.” | What is true for a growing giant like Digikala is true for traders in Tehran’s legendary and famously conservative bazaar. “I am optimistic about the future,” beamed Mostafa, surveying his little stationery shop in one of the labyrinth of alleys around the Masjid Shah (Shah mosque – still referred to thus despite having being renamed Masjid Khomeini long ago.) “If sanctions end people will be in a better mood and buy more. And if the dollar is reasonably stable we can buy the paper we import from Indonesia at a decent price.” |
| On all sides there is a recognition of the clear link between resolving the nuclear issue and economic prosperity. “In business we talk about win-win,” quipped Saeed Rahmani, founder of Sarava Pars venture capital and chairman of the Digikala board. “Countries are no different.” | On all sides there is a recognition of the clear link between resolving the nuclear issue and economic prosperity. “In business we talk about win-win,” quipped Saeed Rahmani, founder of Sarava Pars venture capital and chairman of the Digikala board. “Countries are no different.” |
| Yet many fear that hopes of improvement are too high: “There is probably an inflated view of the impact of a deal and of sanctions removal,” said Pirouz. “The buildup has been so long in coming and the anticipation so great that people have exaggerated expectations of what removal will achieve. The real question is whether this will be a Deng Xiaoping moment – whether the Iranian government will use this opportunity to really open up to the world and integrate into the global economy. If they are willing to take that leap it could potentially be a very exciting time.” | Yet many fear that hopes of improvement are too high: “There is probably an inflated view of the impact of a deal and of sanctions removal,” said Pirouz. “The buildup has been so long in coming and the anticipation so great that people have exaggerated expectations of what removal will achieve. The real question is whether this will be a Deng Xiaoping moment – whether the Iranian government will use this opportunity to really open up to the world and integrate into the global economy. If they are willing to take that leap it could potentially be a very exciting time.” |