04192018Thu

Iran: Foreign Investors Must Beware

Iran Focus

London, 13 Jul - Investing in Iran may appear appealing at first glance, but the risks far outweigh the benefits.

Iran may be the largest emerging market in the world, and is the second-largest economy in the Middle East, behind Saudi Arabia. Iran has an estimated $1.35 trillion of purchasing-power parity, and has the region’s second-largest population. Iran’s market is diverse, with very profitable energy, consumer, mining and tech sectors. Additionally, foreign products are popular among Iranians.

Still, investors should be extremely cautious about doing business with Iran. Western firms may not want to fall behind their Asian counterparts, and Europe’s slow economic growth gives impetus for European companies to do business with Iran, but geopolitics, volatility, and the changing dynamics between the US and Iran should make investors cautious.

With Washington’s changing Iran policy, US pressure and sanctions on Tehran will probably continue to escalate. “The US may re-impose its sanctions bill that targets non-American companies doing business with Iran. If a company does business with both countries, its investments could be in peril,” writes Dr. Majid Rafizadeh, Harvard-educated Iranian-American political scientist, and leading expert on Iran and US foreign policy, in his article for Arab News.

At home, there are also concerns about the regime’s political stability. Iran’s young population is disenchanted with the government. Along with increasing regional pressure from a united front of Arab states and the US, this does not provide a secure environment for investors.

Supreme Leader Ali Khamenei and the Islamic Revolutionary Guard Corps (IRGC) control much of Iran’s economy, creating less competition and more bureaucracy. Given the legal trade frameworks and limited labor laws, foreign industries and companies may find it challenging to do business with Iran.

Another risk relates to UN Security Council (UNSC) sanctions. Although many sanctions were lifted via the nuclear deal, if Tehran is proven to be violating it, those sanctions may be re-imposed. “Some Iranian entities and individuals are still blacklisted, for reasons including violating UNSC resolutions and crimes against humanity. When doing business with Iran, it is difficult to know if these entities and individuals have stakes in those business deals,” Dr. Rafizadeh writes.

Legal issues that impact the credibility of investors and firms might follow. Countries who are negatively impacted by Tehran’s activities may decide not to deal with those investors who have dealings in Iran.

Most profits from foreign investment in Iran go to the regime, not the people, and will be used to advance its regional ambitions, while its repressed population is living in poverty.

 

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