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Impact of US and Iran elections

Last year, much attention has been paid to the elections in America and Iran. One of the big questions surely was whether changes to power would have an effect on the current JCPOA deal (the 'Iran deal'). Many companies have therefore planned a ‘rest break’ during this period after having oriented themselves well in 2016 on the possibilities of doing business with Iran.

How to proceed after the elections?
The elections in Iran in May were convincingly won by Iranian President Rohani who is now going for a second term of four years. A high turnout at the elections, that were also supported widespread, has clearly strengthened its position. A clear sign from the Iranian voters that one would like to see a continuation of the current policy.

From America, of course, we hear a different sound. President Trump has clearly stated that the JCPOA deal, from his perspective, needs to be adjusted. In practice, it appears that the agreements made in the JCPOA are reported each quarter to the US Congress, and Congress has confirmed that until now Iran meets the conditions.

President Rohani clearly focuses on Europe to further expand the trade relationship to do business with Western companies. The JCPOA clearly provides possibilities for this trade, the euro is still the currency used in money transfers with Iran.

What do the entrepreneurs do?
Following the boom period of 2016, where each European country organized several trade missions to Iran, there is now a more down to earth attitude. It has become evident that rapidly setting up a lucrative business in Iran is somewhat more complicated than one had thought. The number of entrepreneurs who have plans to do business in Iran is significantly less than last year. But it is also clear that companies who are still working on their relationships, do have a long-term vision and are prepared to invest money and time in these Iranian relations. This is essential for doing business in a country like Iran.

Little or no change has occurred in the banking sector. Major international banks are not active and the smaller banks are strictly following the guidelines they also had in 2016. Here we see little difference between the European countries. For the entrepreneur, Iran is still a country with great potential, but in practice, he will have to invest time and money in order to do business.

Very large international companies are regularly in the news with their investment plans for Iran (the French Total and Airbus, for example). These companies invest their own money and are not dependent on banks for funding; in their network of banking relationships, there always will be a party that can arrange money transfers to Iran.

What are the prospects now?
One of the major challenges for President Rohani will be combating the high unemployment. In his policy for the coming years, this topic will have a high priority. The agricultural sector will play an important role in creating more jobs. The partnership that is sought with European companies in this sector, is aimed at sharing knowledge and learning how to produce more efficiently.

A sector that unexpectedly grew very fast last year is tourism. This is also clearly visible around Tehran Airport, where currently many new hotels are under construction. All of these will need a supply of food and beverages for their customers.

With an average growth of 5.5% for this year and for next year, Iran is doing substantially better than Europe. The current middle class consists of about 30 million people, it is expected that this group will increase to 52 million by 2025. The official conversion rate of the Iranian Rial (IRR) is relatively stable in the last quarter, 1 Euro = 36,500 IRR. The expectation is that the difference in value of the IRR rate on the black market will decrease further in the near future. 

2FX Treasury, together with Fenedex, have compiled a presentation about doing business in Iran which will be held on July 11, 2017. Their Iranian partner will be present too. A good way to orientate yourself on the opportunities in Iran and the associated challenges.

Text: René Schilder, 2FX Treasury

For more information:
René Schilder
2FX Treasury
T: + 31 6 51 222 543

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