TEHRAN (ISNA)- Hotels in central Tehran have been booked out over the past few months by a steady influx of international business executives visiting Iran’s capital, despite negotiators constantly extending a key deadline that would lift economic sanctions on the oil-rich country.
Holding the world’s fourth largest oil reserves and the second largest stocks of natural gas, Iran is often thought of as simply another Middle Eastern “petrodollar” economy.
However, in reality Iran is perhaps the region’s most diverse economy with an established capital market, a well-developed industrial base and a large population that generates a significant demand for services such as telecommunications and banking.
According to emerging market investment house Renaissance Capital, its gross domestic product last year was around $437bn (£282bn), ranking it as the world’s 27th largest economy, ahead of nations such as Austria.
Despite economic sanctions, which prohibited most international companies from doing business with Iran and prevented Iranian firms from financial transactions overseas, the economy has survived because of the depth of Iran’s industrial base and high levels of education.
These characteristics, coupled with its population of over 80m, prompted Martin Sorrell, chief executive of advertising giant WPP, last year to describe Iran as one of the last major untapped frontiers for business.
As a final conclusion with the so-called G5+1 nations, US, Russia, China, France, Britain and Germany, draws near – another deadline looms on Monday –international business has begun to take seriously the opportunities that could soon open up. Although negotiators were unable to present a definitive agreement within the deadline set by the US Congress, businesses have already been gearing up to return to Iran.
“For the past several months there has been a lot of excitement about sanctions lifting,” said Reza Soltanzadeh, managing director of the Iran Industries Investment Company. “Companies from Europe, America and Asia have all been here recently to take a look.”
Iran Industries Investment Company is the country’s largest privately-owned fund manager operating on the Tehran Stock Exchange, where it manages a portfolio of around $350m through its securities subsidiary. Soltanzadeh expects about $1bn will flood on to Iran’s capital market, which is valued at around $120bn, within the first 18 months of sanctions being lifted.
He believes that most of this money will be directed towards high-value petrochemicals industries and metals industries in which Iran has a competitive advantage. Unlike its neighbors such as Saudi Arabia and the United Arab Emirates, Iran has a much larger domestic population, which can sustain larger-scale industrial development.
Unlike its neighbors in the Persian Gulf, which remain heavily dependent on the hydrocarbons sector, Iran has managed to develop a broad industrial base. Its car industry produces over 1m vehicles per year, despite the limitations to accessing new technologies and finance.
“Global investors are never going to see a country of this size and sophistication open up again” said Renaissance’s chief economist, Charles Robertson.”
He says Iran’s economy is comparable to Turkey in its potential but with the added benefit of vast oil reserves and lower average wages. His top tips for investment are retail, telecommunications and the internet, with the country far behind its neighbors in terms of access.
“The country just needs investment and foreign capital,” said Robertson.
Oil and gas will, of course, attract most interest. Oil majors such as Royal Dutch Shell have already sent delegations to Tehran as expectations of a final conclusion on sanctions have grown.
However, the most important area of the economy outside oil to be revitalized once sanctions are eventually lifted will be banking, Telegraph reported.