Swiss brands advised to risk Iranian market

Swiss exports to Iran could triple in a decade Keystone

Swiss companies eager to trade with Iran in the wake of a landmark nuclear deal are being told by advisers on both sides that the potential rewards outweigh the risks.

Iran is not an easy market, but with significant oil and gas reserves, a well-developed stock market and a population almost equal to that of Germany, it is an attractive prospect to many. Experts say Swiss high-tech firms in the service, industry and agriculture sectors could find a huge upside if the nuclear deal goes through.

The Swiss government estimates that Swiss exports to Iran, which were CHF610 million ($630 million) in 2014, could double or triple within a decade. Though that would still only amount to about 1% of Swiss exports, there’s much longer term potential in a domestic market of almost 80 million people – ten times the population of Switzerland.

One company preparing the ground for a possible expansion into Iran is V-ZUG Ltd.External link, a Swiss manufacturer that specialises in household appliances.

“We are of course looking at different business opportunities in different countries and Iran has been talked about [as] kind of a re-emerging market with huge potential”, Jean-Luc Bühler, an international sales manager for V-ZUG Ltd., told swissinfo.ch. “We are planning to first of all look at the market, look at the potentials; we are in contact already with potential Iranian partners.”

Iran’s promise

The Iranian economy is focused 45% on the service sector, 44.5% on industry and 10.5% on agriculture, according to Switzerland’s State Secretariat for Economic AffairsExternal link, or SECO. Swiss direct investment in Iran has significantly increased in the last few years and three Swiss-Iranian economic treaties already exist for investment protection, double taxation and aviation.

“Now is a good time to study the Iranian market … and to position yourself by making contacts,” Sonja Hürlimann, head of SECO’s Middle East and Africa section, told a luncheon forum organised by Switzerland Global Enterprise that drew about 350 business leaders in Zurich last week. “Other competitors are not sleeping.”

For now, the vast majority of international sanctions against Iran, including all of those adopted by the United Nations Security Council, remain in force.

The Swiss cabinet in August lifted sanctions against Iran that had already been suspended since January 2014, in line with the European Union. That did not create additional business opportunities for Swiss companies, and the cabinet has reserved the right to reintroduce the lifted measures should implementation of the nuclear deal fail.

Iran exports to Switzerland came to just CHF30 million last year, but the Islamic Republic holds 11% of the world’s oil reserves and 15% of the world’s proven gas resources, enough to alter Swiss reliance on North and West African crude oil and Dutch, Russian, Norwegian, German and Algerian gas.

“It’s not an easy market, we all know that, and a successful market entry has to be prepared”, said Daniel Küng, CEO of Switzerland Global EnterpriseExternal link, a private association partly financed by the government which helps clients develop new potential for international business. “We do hope this will be a starting point for a long journey together.”

Exciting but challenging

Iran is going to remain a challenging environment for business but “it doesn’t take a rocket scientist to figure out this is one of the big opportunities”, said Barthelemy Helg, an entrepreneur and founder of Swiss biotech AB2 Bio Ltd. It also has a surprisingly well-developed stock market in which more than 500 companies trade, he said. 

Other experts, such as Gholamerza Rafiei, an attorney in Iran, said Swiss companies send him daily requests for information about the market. The biggest possibilities, he said, are in areas such as foods, sanitary products, pharmaceuticals, cosmetics, insurance, banking and aviation.

Sharif Nezam-Mafi, who chairs the Iran-Switzerland Chamber of CommerceExternal link, described Iran as “set to rejoin the international community” but warned that the country still has “unbelievable rates” of corruption and nepotism throughout its vast bureaucracy.

Ali Amiri, an entrepreneur and founder of ACL Asset Management advises Swiss business community to be brave and take a bet on Iran despite the risks because the opportunities are so large. And Iran is “a walk in the park” compared with many other places, he said.

For example, Iran has 55 million cell phone subscribers, nearly the size of those in France or Britain, he said, while Iran’s GDP is about the same as Switzerland’s and its labor force is similar to France with labor costs as cheap as those in Vietnam.

Nuclear negotiations

The successful nuclear talks between Iran and the US and other major powers concluded 12 years of negotiations, including many late-night sessions held in Geneva and Lausanne. The Swiss also have represented the interestsExternal link of the United States in Iran for the past 35 years since the two countries broke off formal relations.

At the luncheon forum in Zurich, Switzerland’s ambassador to IranExternal link, Giulio Haas, called Iran a “pole of stability in a very, very unstable region” and urged Swiss business leaders to set aside any common stereotypes about the country that they might have.

“Iran seems still for a lot of people to be bearded elderly gentlemen with turbans. You see them, but not a lot of them”, said Haas, the go-between for official contact between the US and Iran.

“Iran is still at least in the eyes of the US the biggest state sponsor of terrorism … and this my dear friends we’re not going to change very soon,” he said. “From an economic standpoint Iran already is quite a well-developed market.”

If the nuclear deal gains final approval from Iran and the United States, he added, it probably would go into effect in the first quarter of 2016.

After the forum, Haas said he could offer no official comment on a cartoon he displayed during his presentation to showcase the stereotypes and extreme reactions to the nuclear deal. It depicted a pair of doves adorned with US and Iranian flags defecating while perched on the Israeli prime minister’s head. The Swiss foreign ministry said it regrets the use of the cartoon, which was done without its knowledge.

An unstoppable deal?

The new deal seeks to curb Iran’s nuclear programme in exchange for lifting United Nations-authorised sanctions imposed by the United States and European Union, which have seriously hampered Iran’s economic development.

President Barack Obama appears to have clinched the votes he needs to ensure that Republicans cannot block the deal in the US congress when a disapproval resolution comes up for an expected vote later this month.

US Secretary of State John Kerry, laying out the Obama administration’s case for the deal in a speechExternal link in Philadelphia on Wednesday, noted that most of the money Iran will receive under the sanctions relief will be “dwarfed by the country’s unmet economic needs”.

“Iran has a crippled infrastructure, energy infrastructure. It’s got to rebuild it to be able to pump oil. It has an agriculture sector that’s been starved for investment, massive pension obligations, significant foreign reserves that are already allocated to foreign-led projects, and a civilian population that is sitting there expecting that the lifting of sanctions is going to result in a tangible improvement in the quality of their lives”, he said.

“Make no mistake,” he added, “the important thing about this agreement is not what it will enable Iran to do, but what it will stop Iran from doing – and that is the building of a nuclear weapon.”

But even if the Congress were to pass such a resolution, it cannot halt the deal that Iran reached with the five permanent members of the 15-nation UN Security Council – the United Kingdom, China, France, Russia and the United States – plus Germany.

The Security Council unanimously endorsed the nuclear dealExternal link in July in a resolution to lift the international sanctions that have damaged Iran in 90 days.

Philippe Welti, a former Swiss diplomatExternal link who served as ambassador to Iran and India, predicts a major shift in regional powers.

“Once the sanctions will be lifted, this will unleash the whole potential of Iran’s economy and society,” he said. “This does not mean more peace or war in the region but … Iran could be the dominant regional power returning to the scene.”

Iran will become a stronger industrial economy and will be able to reach out to its neighborhood as a market”, he added. “Its capacity to project stability will increase.”