Seeing FDI as Iran’s Biggest Communications Challenge
So much has been said about the outstanding opportunity that Iran presents for investors around the world. The country has been described as the last great emerging market opportunity available to global investors. Throughout the prolonged period of international negotiations that led to the JCPOA, the headlines focused on the significant economic fundamentals of the country—a population of 80 million people, a highly educated and skilled workforce, huge natural resources, and relatively sophisticated banking and legal systems, just to mention a few. Iran should be an enticing prospect for international investors operating in a low-growth global environment. Much has also been said about the need for Iran to attract the necessary FDI, technology, and expertise to re-invigorate an economy that has been left behind during a long period of international sanctions. But there has been less focus on the specific challenges Iran faces now as it promotes itself for greater engagement by foreign companies and investors--notably the difficult job it has to improve perceptions about the country as an investment destination.
Attracting FDI is Highly Competitive
Attracting serious FDI to a country is a highly competitive business, as so many emerging economies and developing countries now vie with one another to position themselves for investment. For Iran, isolated for so many years under sanctions, the process of promoting itself for foreign investment is going to be a major task as it seeks to compete with every other emerging market economy in the world – many of whom have become adept at global marketing and commercial diplomacy. Before launching a global advertising and media relations strategy, however, those in Iran mandated to promote FDI will need to understand what factors influence FDI decision makers. What drives a global corporation or a financial institution to invest in a country that has potential for growth, but presents significant risks?
The Drivers of FDI Decision Making
The business of attracting FDI to a country is atwo-part "contact sport". Firstly, it requires a strategic approach to understanding how investors behave when considering a destination for FDI. Secondly, there must be government-level commitment to engage closely with those investment decision-makers and stakeholders as they start to shape their sentiments around a specific investment opportunity. This requires an adequately-funded and serious communications strategy and engagement program at a national level.
In many years of working with countries and sovereign entities on FDI communications, I have learnt that a number of universal factors drive investment decisions. They can be referred to as the "hard" and "soft" drivers of investment.
Hard Drivers of Investment
The hard investment drivers influencing corporate decision makers as they consider whether to invest in a new market are principally economic. The first questions that need to be answered include what are the scope and nature of the potential business and what is the specific opportunity in our sector? It is therefore highly important that potential investors have this information available to them. For a country like Iran, isolated for so long and not used to making information available to international audiences, this will be a challenge. I find that there is a dearth of good economic information readily available on the country for international audiences. This void will need to be addressed by both trade groups and the government, in due course. Current levels of awareness about the specific investment opportunities in Iran are staggeringly low. In the UK, for example, many people compare Iran to its neighbors such as Afghanistan or Pakistan, rather than to Turkey, a more analogous comparison. This fact reveals the state of current investor misperception and ignorance regarding the country. When combined with the negative media coverage the country tends to receive from both the global and US-centric business media, a strongly negative view is created. The case for investment in Iran is a difficult one to make in the boardrooms of Europe because the perception of risk is combined with a low level of awareness of the actual economic opportunity and business environment.
Other hard drivers focus on the standard accepted processes of due diligence needed when considering a new market. Key questions that need to be addressed in FDI communications are: What are the corporate governance standards? Is the legal system reliable? What are the levels of transparency? What are the levels of corruption? How pro-business is the government? Again, the country needs to be seriously proactive in dealing with each of these issues and addressing justifiable concerns. Global indices play an increasinglyvital role in shaping investor decisions. As Iran ranks markedly behind its regional neighbours in key areas, the country will need to decide how to engage with indices such as the Heritage Foundation’s Index of Economic Freedom (Iran ranked 171 in 2016), World Bank Group’s Doing Business Report (Iran ranked 118 in 2016), Transparency International’s Corruption Perceptions Index (Iran ranked 130 in 2015) and World Economic Forum’s Global Competitiveness Report (Iran ranked 74 in 2015-16).
While these global rankings reflect Iran’s lack of engagement with the teams who compile them, they will collectively create a powerfully negative picture as investment decision makers assess potential opportunities in Iran.
Soft Drivers of Investment
The soft drivers of investment are centered around culture, not hard economic data or global rankings. Interestingly, soft drivers have a huge influence on FDI decision making. Therefore, government FDI communication has to shape both cultural and investment perceptions. Questions to be addressed include: Are women able to occupy senior roles in business? What are the career opportunities for women in the country? How strong is the infrastructure? Are there decent hotels and transport and flight links? Will my senior staff want to be posted to the country? In short, what is the "likeability" factor of the country? It is imperative that the country’s investment communication addresses these softer considerations. Because Iran has a positive narrative to highlight in this area, it must devote significant resources to building an effective campaign to addresses both hard and soft drivers. After all, decision makers are more likely to invest in a country they like.
The first step in developing the FDI communications program will be to conduct perception research in key markets and sectors. Perception research should be qualitative, and include in-depth interviews with investors, compliance managers, and regulatory bodies in key markets. This is a key tool in establishing a true picture of how the country is perceived by potential investors and target companies. Only then can an effective communications strategy and engagement program be developed and launched to change perceptions.
A year after the signing of the JCPOA, there is much frustration both in Iran and in Europe about the slow pace of the resumption of trade and international banking with Iran. Interested international investors are unlikely to commit to major investments until convinced that Iran is open for business. During this lull, those charged with promoting FDI into Iran must work diligently to shape perceptions and build investor appetite.
Photo Credit: SAIPA