The signing of the JCPoA was meant to lift sanctions from Iran and to allow Iran to join the global economy. The potential of making money in a market that had been effectively isolated for nearly three decades is enormous. Huge reserves of oil and gas result in low prices, low wages result in cheaper costs of manufacturing and a growing up-and-coming young market means a strong base to sell products and services.
Theoretically, this is a classic gold rush opportunity and the estimated 140 trade delegations which landed in Tehran over the past 9 months are a testament to the potential of Iran’s economy. But when it comes to putting this theory into practice, it looks like everybody is rushing to check out the gold mine that is the Iranian economy but most are holding back from committing to actually invest their money in Iran.
Last week, Iran’s Supreme Leader Ali Khamenei complained that “we haven’t seen anything tangible from these delegations visiting Iran…we are expecting to see some real improvements. Promises on paper have no value“. From his statement, one might believe that the fault lies with the trade delegations but it is not: The problem in Iran’s economy, a far as foreign investors are concerned is none other than Khamenei himself and the regime he represents.
What does Khamenei mean?
- Khamenei is only partially right: The Iranian media, supported in most cases by international media, has proudly reported that several billion dollar deals and dozens of MoU’s have been signed by governments such as Russia, Azerbaijan, India etc…and by companies such as Airbus, Peugeot, Bayer etc…Have none of these deals reached fruition or are these deals simply not big enough for Khamenei’s expectations?
- Khamenei’s statement was politically motivated: It’s no secret that although Khamenei gave the green light to negotiate a nuclear deal, he was never really happy about it since it meant that Iran would have to give up something on the way. Such a statement might have been meant to criticize President Hassan Rouhani’s government in a roundabout way as well as to appease hardliners, like him, who were against the deal in the first place.
- Khamenei is 100% correct: Trade delegations have landed in Tehran, deals are inked but money isn’t rolling in. This begs for a simple question: What’s wrong with Iran’s economy that’s causing the business people of these 140 trade delegation (approximately 4,000 people) to rush to Tehran but to procrastinate on fulfilling the deals? Obviously, they arrived in Tehran to make money but when it came time to transfer the cash, their fear of losing money kicked in.
The truth is probably a mix of all three possibilities: the number and size of deals falls below the expectations following the signing of the JCPoA, it was important for Khamenei to criticize the “dismal” results of the JCPoA and most of the world may be very interested in becoming rich from Iran’s untapped economy, but, and this is a big but, a sense of instability and insecurity in Iran is creating a hurdle for most potential investors.
Another interesting part of Khamenei’s statement is the last sentence: “promises on paper have no value”. No value? What about the “promises on paper” by Iran in the JCPoA? Khamenei will have to decide whether he stands by written promises or not.
The increasing dangers of doing business in Iran
On December 19th, we posted an article on the 7 dangers of doing business with Iran: these included 1) red tape and bureaucracy, 2) partnering with the IRGC, 3) paranoia of “infiltration”, 4) hardliner crackdowns, 5) preferential treatment for Russia, 6) possibility of snap-back sanctions and 7) regional conflict.
As one can see, all of these dangers are political in nature and are dependent on the behavior and the nature of the regime in Tehran. Since then, the issue of regional conflict has escalated from a war of words to rumbles of more proxy wars as Saudi Arabia is leading an anti-Iran coalition targeting Hezbollah, Assad and Tehran.
But since then, there have been some new developments and most of them originated from Khamenei or from hardliners and organizations close to Khamenei.
Take this statement by the Assembly of Experts meant for Rouhani: “We would like to ask the government to painstakingly pursue the implementation of the agreements leading to the removal of sanctions, and also to refrain from developing a customer market for foreigners and to prioritize true needs“. On the one hand, a green light to cash in on the JCPoA’s lifting of sanctions for the purpose of increasing foreign investments but on the other hand, a clear warning that Iran isn’t interested in simply opening up its consumer market to imports. Such a statement is a flashing warning sign for any companies who thought to take advantage of the untapped consumer market in Iran which has been effectively cutoff from global brands due to sanctions.
Then, there is the case of Khamenei banning 227 American brands from the Iranian economy. Obviously, this is totally in tune with Khamenei’s hatred for the “Great Satan” but in a world of global brands, this is another flashing warning sign to all Western brands. If Khamenei could ban 227 American brands in one shot, what will stop him from banning French or British or Swedish brands in the future?
Khamenei’s priorities dictate the economy
The one person who truly identifies the behavior and the nature of the regime is none other than Khamenei himself. A self-proclaimed revolutionary (“I’m not a diplomat; I’m a revolutionary“) his priorities have always been to uphold Islamic Revolutionary values over the welfare of the Iranian people. This is in stark contrast with Rouhani who took a swipe at Khamenei’s priorities by asking “what’s the use of saying I am a revolutionary … why don’t we seek people’s comfort and our country’s glory?“.
Back in 2013, we posted an article called “Dictator Khamenei’s priorities stifle Iranian’s election hopes“. Thankfully, we were wrong about the Iranians’ hopes since Rouhani was elected but Khamenei’s priorities resulted directly to an economy which suffered from 40% inflation, 80% devaluation of currency, 25% unemployment and $133 billion deficit by continuing to support Assad and Hezbollah and by increasing Iran’s nuclear program beyond the needs of electricity. Unfortunately, Khamenei’s priorities haven’t change over the past two and half years: The support to Assad is now estimated at $10 billion a year and to Hezbollah at $500 million a year. Rouhani, on the other hand, is placing the welfare of the Iranian economy at the center of his agenda, knowing that if it doesn’t get better in the near future, his chance for re-election are dim.
But Khamenei isn’t ready to let go yet: Although he is smart enough not to throw Rouhani out for fear of instigating a counter-revolution, he is doing all he can to maintain a hardline attitude for his regime and as long as he is in power, the chances of turning Iran into the economic powerhouse everyone wants it to be, are non-existent.