Iran

Tehran, Iran

It may have been viewed by the West as a pariah state for the last three decades but could Iran now be shaping up today into a hot opportunity for investors for the next decade.

At Grosvenor Square Hotel in London, a room, half the size of a football pitch is stacked with rows upon rows of chairs, not one empty seat is available, potential investors gathered at the first Europe-Iran Forum in London. The mood among investors was unmistakably upbeat as they assessed the investment opportunities in Iran while listening to the former British foreign secretary Jack Straw speech on Iran and meeting members of Iran's top business families.

Iran has undergone a major re-haul in the last18 months. It all started with the election of President Hassan Rouhani, which fostered an environment for a reconciliation with the West. That then led to temporary sanctions being lifted. "Iran is the last, large, untapped emerging market in the world," said Ramin Rabii, group chief executive of Turquoise Partners. Rabii’s company currently manages 90 percent of the foreign funds invested on the Tehran Stock Exchange.

"If you compare Turkey and Iran, they both have populations of around 80 million people," Mr Rabii said. "60% of the Istanbul Stock Exchange is owned by foreigners. In Iran, it is less than half of 1%."

However, the caveat for investors is that the Iranian market might still be premature. While sanctions were eased as a good will gesture during talks concerning Iran's nuclear programme, unless a conclusive deal is reached by November 24 those sanctions could just as easily be reinstated. In other words, roll over sanctions could still be on the cards.

Bearing this in mind then perhaps investors are jumping the gun considering investing in Iran. So might investing in Iran be premature for now?

"I don't think it's premature," said Toby Iles, regional editor for the Middle East and Africa at the Economist Intelligence Unit. "Businesses are drawing up plans for how they would re-engage with the Iranian market, contingent on an opening."

Even so, Iran is a long way from being truly open yet.

Many of the Iranian delegates attending the London conference didn't want to discuss matters with journalists. That seems rather odd as you would have thought that Iranian business executives would have taken the opportunity to showcase their companies to the world. One unnamed business executive said the the “risks were too high.”

Iran's internet is still slow and making payments is difficult because of financial restrictions imposed by international banks, which happens to be the biggest hindrance for Iranian business at the moment.

Resolving the banking problems will be a big step in the right direction for Iranian businesses. There was general optimism in the London forum that this problem will be overcome as Iran's relationship with the international community improves. "Overall, six months down from these interim agreements, little has happened that is visible to your average businessman in Iran," said Amir Ali Amiri who is a partner at ACL, a family conglomerate selling a wide range of goods, from Renault trucks to consumer electronics.

"Financial intermediaries around the globe self-opt out still for the fear of reprisals by the US Treasury. If those financial intermediaries on the whole do not partake in any scheme, allowed or not, it cannot happen," said Amiri.

That view was echoed by other Iranian business men,"We're seeing a surge in interest and we've hosted over 65 potential investors over the last nine months in Tehran” said Mr Rabii at Turquoise Partners. But he added that, "These visits are not translating into investment yet because of the issues with the sanctions and also the issues of getting money into the country."

For the general public in Iran things are stabilizing, they are not getting worse at the same pace according to Mr Rabii. "Within 12 months in office the new administration has been able to bring inflation down from 45% to 15%. I think that is nothing short of a miracle."

'Morale is very high.' "There is a lot of hope, since the election of Mr Rouhani's administration”,," Mr Amiri says. "There has been a ground change in dialogue surrounding Iran."

Mr Rabii agrees with Mr Amiri's assessment of the business community's morale in Iran. "I think it's cautious optimism”, he said.

So what we are seeing are companies, entrepreneurs and investors working on a contingency plan ahead of anticipated improving diplomatic relations.

Matthew Spivack, practice leader at emerging market advisory firm Frontier Strategy Group underscores the opportunities in Iran. "Iran is not just about oil”, he said. "FMCG (fast moving consumer goods) and healthcare companies prioritize Iran, because of very attractive demographics”, said Spivack.

Tehran's stock exchange lists 339 companies, according to its website, with a combined market capitalization of 104.21 billion US dollars. Iran is the second most populated region in the Middle East and North Africa region, according to the World Bank, with 77 million people, which is three times the regional average. Furthermore, the region is blessed with huge energy reserves. Iran has the fourth biggest oil reserves in the world as indicated by the US Energy Information Administration, and the second biggest natural gas reserves, second only to Russia.

Spivack believes that Iran's public sector could potentially attract a lot of foreign investment interest in the long term. The country's energy sector is ideally suited for heavy public investment. It is in need of upgrading following decades of international isolation. If diplomatic relations continue to improve and sanctions are permanently lifted Iran could start selling its oil and gas on the international market.

So if the politics could align and a deal could be reached on its nuclear program Iran may have a lot of potential for both investors and businesses alike.