ALACO DISPATCHES: Tehran opens for business

ALACO DISPATCHES: Tehran opens for business
Haggling in Berlan Avenue, Tehran.
By Renata Legierska of Alaco March 30, 2016

Tehran’s hotels are heaving with official delegations and private investors keen not to miss out on the opening up of the biggest new market since the collapse of the Soviet Union a quarter of a century ago. But amid all the speed dating, will both sides be able to find what they’re looking for?

Despite years of economic sanctions, Tehran is bustling. Business negotiations seem to be happening everywhere – from corporate boardrooms in northern Tehran’s high-rise towers, to vendor stalls in the city’s sprawling Grand Bazaar. Well into the night the capital’s main arteries are clogged with cars and motorcycles that meander daringly between lanes. But while Iran is seen by many as the new economic frontier, it’s no Wild West. The people I meet are cultured and savvy, and for anyone looking for signs of financial strain, Tehran will appear remarkably normal. On my first night in the city I go to dinner at an upscale Lebanese restaurant on the top floor of an office tower in northern Teheran, which has the look of a City of London venue.

The removal of nuclear-related sanctions in January opened Iran’s doors for business and prospectors are pouring in. Iran-focused investment funds are cropping up all over Europe and it’s easy to see why. Iran’s immense gas reserves, diversified economy, and young and well-educated population are a huge draw. The Tehran Stock Exchange has surged over 20% since the implementation of the nuclear deal on January 17 amid general economic optimism. Even those weary of the country’s policies in the region and the remote but real threat of snap-back sanctions are tantalised by the Iranian market's low valuations. The influx of business visitors, from both East and West, attests to that.

Iranians are certainly open and hungry for business, but that’s not to say investors will have an easy ride. Unlike post-Soviet Russia, Iran has functioning capitalist institutions and business owners are well aware of the value of their assets. Many companies are starved for cash, but even the most indebted firms are not keen to simply sell their assets: they’re interested in access to new technology that can help them grow.

Whether it’s merely paying lip service or really believing in it, in meeting after meeting directors of large enterprises express a sense of social responsibility for their workforce. Maybe it has been borne out of years of economic isolation, but managers seem to feel responsible and claim to be motivated by ensuring the welfare of their employees. It’s never easy to know what drives the person on the opposite side of the boardroom table, but perhaps there’s a lesson to be learned here. Iran has a large manufacturing sector, and with little investment its cars, textiles and agricultural products could be exported around the world. However, investors should bear in mind that they’re investing not only in a share of future profits, but in the building blocks of the Iranian economy. It’s lasting partnerships that the Iranians are after, so those expecting quick gains are likely to be disappointed.

Those looking for long-term investment opportunities would do well to first invest time in understanding the Iranians, their motivations and their limitations. They are open and welcoming, but also mistrustful of foreign influence. Many also live double lives: outwardly, they adhere to the strictures of Islam, but at home they organise parties, wear whatever they want and even drink alcohol. Everyone knows the rules and, it seems, everyone knows how to get around the rules.

Perhaps there are also lessons to be drawn from the political process that made Western re-engagement with Iran possible in the first place. President Barack Obama administration’s ‘smart’ negotiations tactic brought a deal that for many years seemed impossible. When it comes to doing business with the Iranians, cooperation and dialogue are likely to get one further than bullish bargaining.

Renata Legierska is Senior Associate at Alaco. Alaco Dispatches is the business intelligence consultancy's take on events and developments shaping the CIS region.

Opinion

Dismiss