The home of one of the world's oldest civilizations, Iran is the only country with coastlines on both the Caspian Sea and the Indian Ocean. Iran is also a major regional power with the world's largest natural gas supply and fourth-largest proven oil reserves. Top logistics market experts, having identified the potential for overseas businesses to develop in Iran, claim that now – while foreign trade is still recovering – is an ideal time to enter the Iranian market and invest in Iran.
Last year, Iranian imports grew to USD 15 billion, up from USD 12 billion in the second quarter of 2016. Iranian imports averaged USD 21 billion from 1974 until 2016, with a record high of USD 75 billion in the fourth quarter of 2010 and a record low of USD 5 billion in the fourth quarter of 1974.
Imports rose thanks to improved international relations
Rising Iranian imports signal positive trade recovery. Last year, imports rose from USD 12 billion to USD 15 billion. Key imports include non-electrical machinery (17% of total imports), iron and steel (14%), chemicals and related products (11%), transport vehicles (9%), as well as electrical machinery, tools and appliances (7%). Iran's primary trade partners are the United Arab Emirates (31% of total imports) and China (17%). Others include South Korea, Turkey, and Germany. Experts forecast improved trade relations with Russia after the unprecedented alliance of Iran, Russia, and Syria to fight ISIS terrorism in the Middle East.
“Russia and China have joined Iran in a political partnership giving Russia access to an Iranian airport used to conduct military strikes against ISIS in Syria. This partnership has inspired closer ties between Iran and European countries as well. Europe no longer follows the American lead as closely and is interested in improving economic and political relations with Iran. Last year, on the 16th of January, the EU removed the nuclear-related sanctions against Iran. If American President Donald Trump imposes new sanctions on Iran, the EU is very unlikely to adhere,” says Mohammad Sadeghikhorabadi, Middle East Advisor at AsstrA Forwarding AG.
Mr. Sadeghikorabadi suggests that it is an ideal time to capitalize on Iran's strong domestic economy and recovering foreign trade relations. Products from abroad are currently in high demand in many industries.
“There are plenty of sectors where foreign investment can achieve significant returns, especially in heavy and light industry, metallurgy and energy,” says Mr. Sadeghikorabadi.
Strong industrial foundation
Iran has a strong, diversified economy and new, globally-accessible investment funds focused on Iran have already been created. After the removal of sanctions implemented by the United Nations Security Council (UNSC) between 2006 and 2010, international trade began to recover rapidly. When considering an investment in Iran or selecting Iran as a new export market, one may think that Iran's growing economic prosperity is thanks to its world-leading gas reserves, but this is a common misconception. The oil and gas industry accounts for only 10% of Iran’s GDP. The automotive, metallurgical, agricultural, and technology sectors would continue as the country’s primary economic drivers even if its oil and gas reserves were entirely depleted.
Currently, China and the United Arab Emirates are Iran’s main trade partners, followed by the EU. It is important to highlight that the EU used to be the Iran’s primary trading partner prior to the sanctions regime. The EU’s trade balance with Iran was EUR 5.2 billion in 2015, and the EU exported almost EUR 6.5 billion worth of goods to Iran in 2015. Machinery and transport equipment, chemicals and manufactured goods accounted for most of the export volume. Also, during 2015 the EU imported over EUR 1.2 billion worth of Iranian goods, most of them mineral fuels, chemicals, manufactured goods, and food.
Benefits of doing business in post-sanction Iran
AsstrA Associated Traffic AG experts have identified the 5 greatest benefits of expanding one's business to the Iranian market:
- First is a 20-year tax exemption on all business ventures started in a free trade zone.
- Second is the free flow of capital in and out of the country.
- Third is the strong rule of law along with protection for foreign investments.
- Fourth is the transfer of partially-manufactured goods out of the free trade zone without customs duties.
- And fifth is the elimination of customs duties payable on imports and exports to and from the free trade zone.
AsstrA has established an office in Iran and a network of trustworthy partners within the region. Mr. Sadeghikorabadi points out that AsstrA, in addition to delivering transport and logistics services, can offer cargo insurance and even assist with sales generation in Iran.
“Being on the ground in Iran allows us to manage customs clearance documentation, organize cargo consolidation, optimize routes, deliver cargo ‘door-to-door,’ and guarantee the smooth, safe arrival of our clients' products at their target destinations. We know how tricky it might be doing business in a new country, so we are prepared to advise on market entry and sales development where needed,” continues Mr. Sadeghikorabadi.
He says that supply chains are still recovering after the removal of sanctions only a year ago, with several routes and container lanes yet to be restored. As a result, European cargo turnover remains slow, but Asian exports to Iran are growing fast and generating optimism among overseas traders considering Iranian investments. The specific characteristics of Iran’s business climate lead to a demand for local experts to arrange foreign companies' Iranian processes and logistics “from the inside.”