A senior Iranian banker in Tehran reminisced in late May about the close pre-1979 US/Iranian relationship when US business was Iran’s leading trade and investment partner followed by Germany and Japan. Today, China has over 20,000 representatives and technicians resident in Iran and overwhelmingly holds that lead position followed by Russia and Turkey. Chinese/Iranian two-way trade was $50 billion in 2013 while EU, Japanese and US trade was negligible in comparison. According to the banker, the label “Made in USA” is still associated in Iran with quality, innovation and after-sales response, which businesses could count on for long term planning. The Chinese are viewed as too opportunistic and lack the quality products and services that Iran needs to address its safety, environmental, technology and health issues.
Iran’s economy today reminds one of Turkey’s economy two decades ago except that Iran sits on the world’s largest natural gas and 4th largest oil reserves. It has a much more educated population than Turkey with particular strengths in engineering and science and strong English speaking skills. Women last year represented over half of Iran’s 700,000 university graduates and are playing an increasingly important role in the economy.
Iran is facing many challenges. Economic mismanagement, environmental degradation, the legacy offensive rhetoric towards the West by Ahmadinejad and a less than transparent nuclear program over the past decade lead the list. The economy has been seriously affected by the sanctions, inflation is officially 30% and the currency has depreciated by over 40% in the past two years. The sanctions have hit the general public and the independent private business sector hard but ironically they have enhanced the monopoly positions of the old guard represented by state corporations and businesses favored by the Iranian Revolutionary Guards who control the borders for smuggling. The old guard offers a limited number of patronage jobs to loyal followers and its companies are not well managed.
The dilemma which the Supreme Leader faces is the need for new quality jobs for the post Iran-Iraq War generation who are well educated, connected to the outside world through social networks, do not think like their more conservative parents and are looking to become more engaged in the global world. New private enterprise is producing much-needed quality jobs for Iran and the global economy. This new young generation sees US companies like Apple, Google and Facebook as role models.
How are sanctions helping US business today? The Iranian sanctions have played an important but not the only role in getting the Rouhani Government, elected one year ago, to negotiate seriously with the P5+1 on the Iranian nuclear program. Substantial new trade and investment opportunities are opening up in such industries as oil & gas, mining, medical, agriculture, technology, transport vehicles, infrastructure, environment, energy efficiency, consulting and consumer products. For instance, in aviation, Iran needs to purchase 30 new aircraft immediately and is likely to purchase 40 new aircraft per year for the next ten years. European and Asian businessmen, frequent visitors to Iran, are now assessing these opportunities but American businessmen are noticeable by their absence.
The potential is there for a game-changing economic turn-around and the new Rouhani-led government has many professionals in critical roles who have been through higher education programs in the US and Europe. Iran is already 70% urbanized and the cluster effect is underway. As an example, there are 31 technology incubators with many linked to Iran’s universities. Last month an American-led group of technology entrepreneurs and investors spent 10 days visiting five Iranian cities and were surprised to find the high quality and experience in young Iranian start-up technology companies. Iranians feel they can play an important role in the knowledge economy.
Despite the tension between the technocrats in the new Rouhani government and the old guard associated with the previous Ahmadinejad government, Iran is one of the most stable governments in the Middle East. It has wide direct regional influence in countries like Afghanistan, Pakistan, Iraq, Syria and Lebanon and indirect influence in many others. At the same time it is caught in an unwinnable war in Syria and deeply involved in dysfunctional Iraq. But it could replace Turkey, which is backtracking on the rule of law, as an example of an Islamic democracy with a pro-business focus and a growing economy.
European companies, particularly German and French, were able to establish strong business relationships in Iran until sanctions were tightened by the EU, US and UN several years ago. However, with the prospect of a P5+1/Iranian agreement on the nuclear program, European companies have been reestablishing their Iranian commercial contacts in preparation for a possible agreement. US companies have essentially stayed away from Iran in part due to the confusion on what contact with Iranian business is permitted by US businesses under the US sanctions. US businesses now risk being left behind their European and Japanese competitors in this new potentially fast-growing market as Iran reenters the global economy. The “Made in USA” label helps but US businesses will be looking at a more competitive Iranian market than the one it dominated four decades ago. Now is the time for US business to prepare for a possible successful conclusion of the P5+1/ Iranian nuclear negotiations.
– Arthur Sculley