British Business in Iran: Time To Set Sail
Since the singing of the Joint Plan of Action agreement between Iran and the P5+1 in November 2013, European businesses have intensified their efforts to identify commercial opportunities in Iran. Trade delegations and fact-finding missions have become common. Even the CEOs of the world's top energy giants are traveling to Iran to conduct high level negotiations.
Yet, as French, German, and Italian companies have begun to scour the landscape in Iran, British companies have been largely left behind. For years, the British Foreign and Commonwealth Office (FCO) has taken the strictest stance in Europe when it comes to commercial engagement of Iran. The standing advice has even been to avoid business that is currently permissible under general or specific exemptions from US, EU, and UN sanctions.
But in the last few weeks, there has been a shift. Perhaps recognizing that after two years of negotiations, a comprehensive nuclear agreement is just days away, the FCO has changed its tune. British businesses are now receiving advice to explore Iran opportunities —albeit responsibly and in accordance with standing sanctions regulations — in order to prepare for a Iran's reentry into the global economy. This marks the latest development in the slow, but continuing repair of long strained UK-Iran ties.
With the door having been opened, British companies risk losing a key business advantage to their competitors in other Western states such as France and Germany if they do not act quickly.
There is a general consensus among experts and observers that that a nuclear deal is in reach and will be formalized in due course. Though implementation timetables mean this means that sanctions relief will not arrive until the end of 2015, the economic landscape in Iran will shift considerably even prior to full sanctions rollback. Companies will need to assess commercial, legal, and political risks and opportunities in the coming months to prepare strategy for 2015 and beyond.
Iran is a unique country with both massive energy reserves and a large and dynamic consumer market. It therefore has immense potential to be a trading partner with Europe and the wider world. Prior to the 1979 Islamic Revolution, British businesses had a strong presence in the country. One reminder still seen on Iran's roads is the historic "people's car" of Iran, the Paykan, which is based on the British Hillman Hunter.
But since the revolution, and certainly since the imposition of broad sanctions on the country, British business have ceded ground to French, German, and Italian conglomerates. This is despite the fact that British expertise in engineering, consumer brands, financial and professional services, pharmaceuticals and healthcare products, and other goods and services would be highly exportable.
So what should British businesses do?
The short answer is to engage with Iranian counterparts at the first opportunity. There is no barrier to speaking about potential business opportunities that may emerge following sanctions relief. Business can even currently be conducted in sectors such as retail, healthcare, and agriculture, which are subject to more limited sanctions.
Having just returned from a weeklong visit to Tehran where we enjoyed excellent access to both the private sector and government, we conclude that productive conversations can be had with Iranian business leaders about future opportunities across sectors ranging from tourism to energy. The opportunities are clear and very attractive. The challenge is finding the right partner and devising the right market strategy.
Encouragingly, the attitude of the senior decision makers within government, across various ministries, was collaborative. The current administration has an outgoing and open attitude towards international investments and long-term partnerships between Iranian and Western businesses.
Therefore, if British companies want to deal with Iran they should start building relationships now (whilst also taking care not to fall foul of the sanctions legislation before it is lifted). Securing reliable legal counsel is a key part of market exploration.
Due diligence measures will also play a large role in creating an Iran strategy. British companies need to be prepared for the almost Darwinian process of weeding out the superfluous middlemen in order to identify those individuals with the background and capability to facilitate and execute a deal. For effective relationships to be formed, both sides will need to establish a level of mutual trust and understanding.
However, within large companies, this process will raise the alarms of compliance departments, who have long resisted engagements with Iran. Business development directors and executives with foresight will need to be able to tackle internal resistance as effectively as external challenges.
The hesitation on the part of British business is shortsighted, however, especially if a robust deal is agreed between the world powers and Iran. For the sake of needless conservatism, British companies risk losing a key business advantage to their competitors in other Western states such as France and Germany.
Is it too late for the British to compete in the Iran gold rush?
There seems to be a growing fear among business leaders in London that Britain will be left behind in the Iran gold rush. But what should not be forgotten is the scale of opportunities available in the Iranian market. Contrary to popular belief, there are more than enough opportunities for all to benefit from a post-sanctions Iran. However, this does not mean that taking a passive approach will be advantageous. Building relationships now will help reduce risk for a future market entry. The learning curve will be steep.
Finally, though the focus tends to be on Western companies interested in entering Iran, we should not disregard the many Iranian firms with serious products and services are preparing to engage global markets. The entrepreneurial class in Iran has global ambitions, and like their peers in markets around the world, London will be a natural base from which to devise international expansion. The gold rush therefore may work in two directions, and Britain should prepare to host.
Photo Credit: Timothy Clary, EPA