Australian trade delegation unlocking Iran’s trade potential

A high-profile Australian trade delegation to Iran has underlined the opportunities and perils of doing business in the controversial Middle East nation.

While the lifting of sanctions on Iran earlier this year promises to bring 80 million people into the global economy — opening up an attractive new market for Australian companies — problems still plague the Iranian finance and banking sectors while the prospect of further political instability remains a key concern.

The lifting of sanctions ends a decade of isolation, but Iran’s image remains tarred by its human rights record, use of capital punishment, violations of political and media freedoms, and its poor performance in terms of global corruption rankings.

Iran’s emergence from the imposition of punitive sanctions aimed at curbing its nuclear program provides it with an opportunity to pursue genuine economic transformation, further market liberalisation and greater foreign investment.

This was the backdrop to last week’s visit by Trade Minister Steven Ciobo — a trip he framed as an attempt to ride the new wave of interest in Iran and carve out a platform for Australian businesses in gaining access to the market.

Iran stands as the second largest economy in the Middle East with a GDP of about $US393 billion. It boasts huge oil and gas reserves, a youthful and well educated population, a diversified economy dominated by services, industry and agriculture and a modest government debt to GDP ratio of about 16 per cent.

Leading a delegation of about 20 senior representatives from a range of companies across the education, agriculture, resources, health and water-management sectors, Mr Ciobo was upbeat about the opportunities in Iran, but also realistic about the risks.

“Having completed the delegation, it’s clear there are a lot of opportunities in Iran. Opportunity, though, is not without risk. There are risks around access to banking and finance, risks in relation to counterparties and fundamental risks in relation to political uncertainty,” Mr Ciobo told The Australian.

The business delegation was made up of a range of companies including Woodside, Cochlear, Qantas, WorleyParsons, Blackmores, LiveCorp, Meat & Livestock Australia, GrainCorp, Rubicon Water as well as Sydney and Melbourne Universities. Mr Ciobo said he was hoping to seize an early mover advantage for Australian businesses, which he said were in competition with those from Britain and the US in gaining a slice of the market.

He used the trip to finalise a series of agreements to boost trade, facilitate technology transfers and provide financial support to Australian firms looking for deals in Iran. He also reopened the Austrade embassy, attended a session of the Iranian Chamber of Commerce and met with the ministers for trade, energy and science.

He said his impression was that Iran was actively courting foreign investment and was considering legislating safeguards to help build confidence among firms looking to do business in the country.

“It was interesting that in two ministerial bilaterals, including in the meeting with my counterpart (Mohammad Reza Nematzadeh), Iranian government officials went to great lengths to highlight that they were seeking foreign investment, that they were focused on providing a low sovereign risk environment and spoke of legislative protections for foreign investment into Iran,” Mr Ciobo said.

Natural health firm Blackmores was the only company to secure a deal on the trip, finalising a distribution agreement with an Iranian company to have 10 of their products hitting Iranian shelves over the next year.

Other businesses were more tight-lipped about their commercial endeavours, but the presence of oil and gas giant Woodside as well as Qantas was noted with keen interest by Austrade and embassy officials.

Woodside has worked hard in recent years to build its international presence as it looks to address investor concerns about the lack of growth options in its portfolio.

Woodside’s look at Iran comes just two years after it scrapped a $US2.6 billion deal to buy into the Leviathan gas field off the coast of Israel.

The participation of Qantas comes at a key moment as Iran and Australia engage in talks for an extension of air services, while Tehran has moved to upgrade its own ageing passenger fleet.

In January, Iran announced its intent to purchase 118 jets from Europe’s Airbus at a price of $US27 billion while another agreement is also on the table for Iran Air to buy 80 Boeing passenger aeroplanes from the US worth an estimated $US17.6bn.

The Australian Ambassador to Iran, Ian Biggs, raised the prospect of Australia and Iran extending bilateral air services at an aviation summit last month in Tehran and noted that Qantas already used Iranian airspace for its flights to Europe.

“The talks involve a couple of airlines and there are hopes that an agreement could eventually lead to direct flights being established between the states,” he said.

Mr Ciobo has also flagged the prospect of progress on this front, telling The Australian that one of the elements of broader and deeper economic ties “could possibly include liberalised air services” although he noted it was still “very early days”.

The Box Hill Institute, a Victorian provider of TAFE courses and vocational training, was also present on the trade mission with the executive general manager of business development, Stewart Humphreys-Grey, saying he was looking to partner with an Iranian university with a skills focus.

“We see Iran as a high potential market. It’s a large, highly educated population and they are seeking skilled workers,” he said.

“The Australian VET system is very well graded, right through the Middle East including in Saudi Arabia, Dubai, Bahrain and Iran,” he said.

Ben Adamson, managing director of Refrigeration Engineering International, which specialises in tank cooling solutions for the oil and gas sector, told The Australianthat Iran was his largest market in 2009-10 but that business was disrupted by nuclear sanctions.

“We had a couple of large contracts at the time of the sanctions,” he said.

“We were cut off. A lot of the European companies that were here in that situation were allowed to finish what they were doing. But ours was defined as having potential dual use for nuclear so we were told to stop.”

“We maintained our contacts with people in Iran, particularly with our agent. And then late last year when it appeared that sanctions were likely to come off soon we started to come back to build the business up again.”

Matt Ryan, the general manager of Rubicon Water, another of member of the business delegation, argued the Iranian water management market could be worth “hundreds of millions” given the need for the Islamic Republic to more efficiently manage its water resources. Rubicon Water specialises in what it calls “total channel control” which allows it to regulate water irrigation channels through an advanced distribution system with Mr Ryan saying he would “talk to his colleagues about the opportunities” in Iran.

During his visit, Mr Ciobo secured a number of agreements aimed at providing a broad architecture of support to Australian businesses hoping to enter the market or rebuild a commercial foothold following the easing of sanctions.

These agreements included a memorandum of understanding between Australia’s Export Finance and Insurance Corporation and the Export Guarantee Fund of Iran to help businesses navigate their way through sanctions that still apply to Iran’s finance and banking sectors.

Mr Ciobo said one of the biggest challenges in dealing with Iran remained the very limited access to banking facilities, which he said made it difficult to do basic things like pay invoices or receive payment for goods and services supplied to the market.

He said the MOU between EFIC and EGFI would look to “mitigate commercial risks as much as possible” although he stressed it would not provide businesses with a direct line of credit.

A broader “trade and investment” MOU signed by Mr Ciobo and Iranian Trade Minister Mohammad Reza Nematzadeh is geared towards the promotion of commercial opportunities in the agriculture, water management, resources, health and education sectors.

A third MOU was also signed to open up commercial opportunities for Australian companies willing to assist Iran in the more efficient use of its water resources through the sharing of technology.

The visit by Mr Ciobo was the first by an Australian trade minister since 2002 and builds on a diplomatic relationship dating back to 1968 when Australia first opened its embassy in Tehran.

It follows the visit of Foreign Minister Julie Bishop to Tehran in April 2015 and that of Iranian Foreign Minister Mohammad Javad Zarif to Australia in March this year, with both sides now engaged in a careful recalibration of bilateral ties.

Mr Ciobo, who visited the Grand Bazaar, came face-to-face with the heart of Iran’s consumer culture.

“On at least half a dozen occasions, people were genuinely enthused about Australia and making positive remarks,” he said.

This article was written by Joe Kelly for The Australian on October 03, 2016.