Post-sanctions Iran trade sputters into new era

Swiss President Johann Schneider-Ammann, center right, and Iranian counterpart Hassan Rouhani during a Swiss state visit to Iran in February Keystone

The potential for trade with Iran, as sanctions are lifted, is tremendous, according to former Swiss ambassador to Tehran Philippe Welti. So why aren’t more companies jumping at the opportunity?

Welti argues that it’s a diversified market with a solid industrial base in need of overhaul, and could also eventually prove to be the leaping off point for entry into Syria and Iraq.

“The region is in a big mess, but Iran is the only country that is not in chaos,” the President of the Economic Chamber Switzerland-Iran told swissinfo.ch. “Once other countries start to stabilize, the reconstruction of the region will come from Iran. Companies need to have a long term view of the region.”

“There is stability and order in Iran,” he added. “When it has reintegrated itself into the global community it will be able to demonstrate its natural influence in the region. It would not be too far-fetched to assume that the Persian Gulf could become Persian again.”

The opportunities offered by a country of 80 million people can be lucrative, according to Vincenzo Carrieri, chief executive of orthopaedic medical device company Epimedical, which has been present in Iran for a number of years and resumed activities when sanctions were lifted.

“Given the size of this market, Iran can be considered the Germany of the Middle East,” he told swissinfo.ch. The truth is that many of the sanctions are still in place, but if Iran is allowed to grow as an open market I would expect a very good growth rate for trade.”

Outstanding issues

But for Swiss firms, trade with Iran has so far fizzled, rather than exploded, into life since the United States and the European Union partially lifted sanctions on January 16. Swiss exports to Iran rose by just 2.5% in the first seven months of this year when compared to the same period in 2015, when sanctions were steadfastly in place. In the meantime, German trade with the Middle East state has lifted by 15%.

It is perhaps too early to read too much into such statistics – the reconstruction of Iran will take decades, while breaking into a new market takes time for eager companies. But there are clearly some outstanding issues.

These are fostered by continued uncertainty about the global political atmosphere surrounding the country. Banks, including Swiss institutions, are still loathe to risk potentially massive fines by engaging with Iran, which has led to a virtual black hole in handling payments. The US presidential elections are also just around the corner, with Donald Trump threatening to rip up the sanctions lifting deal if he wins the race.

Then there is the natural, almost obligatory, Swiss reserve about rushing into things too soon. Germany, Italy, France and Britain appeared to have stolen a march on Switzerland, having sent trade delegations to Iran at an earlier stage.

Quality counts

Big Swiss companies already present in Iran, such as ABB, Roche and Nestlé, are showing caution about raising their stake in the country. In general, these companies told swissinfo.ch that they are still assessing the situation while noting that some sanctions still apply in Iran.

Even German companies complain about conditions. “The development lags behind our expectations by far, because of the sanctions still in place,” Gregor Wolf, director of European and international affairs at the Federation of German Wholesale Foreign Trade and Services, told the Wall Street Journal. “Companies are afraid of US retaliation.”

Switzerland Global Enterprise (s-ge), the government agency that helps small and medium sized enterprises (SMEs) set up operations abroad, has had plenty of interest from Swiss companies – particularly in the fields of medical devices, engineering, food, machinery, tourism and software.

“We have seen a lot of enquiries since sanctions were lifted,” s-ge Iran specialist Suhail El Obeid told swissinfo.ch. “Companies are looking out for partners so that they can break into the market.” Most of these firms contacted by swissinfo.ch were unwilling to comment as they are in the midst of delicate planning.

But there are still some people who believe that the hurdles are surmountable. Financial infrastructure may be limited, but there are some options. Some banks in Dubai are prepared to facilitate transactions in and out of Iran and others can use alternative money transfer systems to move smaller amounts of money. In addition, the Swiss government export insurance scheme has been beefed up to cope with more potential bad deals.

“Domestic companies in Iran cannot meet the same level of quality as Swiss products,” said Carrieri. “Iran is a good market, but you need to establish strong relationships, build up step by step and have persistence. It is not a market where you bite and run.”

Iran: Open for business

Iranian ministers arrived at the World Economic Forum in Davos in January days after the United States and the European Union started lifting sanctions.

“Iran already has a strong economy that has proved its resilience during these long years of sanctions,” declared Mohammad Agha Nahavandian, Chief of Staff of the Presidency of Iran. “We are ready for any constructive proposal for many projects that have already been prioritised. Unfortunately because of undue sanctions the world economy has not benefited from this economic opportunity.”

Nahavandian said opportunities could be found in transport infrastructure projects, mining, ICT and the hospitality industry. He added that Iran was willing to sign up fully to World Trade Organisation rules.

“We have done a great deal of work in the last two years to improve the business environment,” he said. “The government is very serious about cutting red tape and facilitating trade. The message from the Iranian economy is that Iran has the capacity to be the most promising emerging economy in the coming decades.”