by
Dr. Majid Rafizadeh
Investors
should be extremely cautious about doing business with Iran. Having assisted
numerous profitable international companies in the region, I would strongly
argue that at the moment, the risks of making long-term investments in Iran
outweigh the benefits.
I
totally understand why investors may find Iran appealing at first glance. It is
still known as the largest untapped emerging market in the world.
It is
the second-largest economy in the Middle East and North Africa after Saudi
Arabia.It has an estimated $1.35 trillion of purchasing-power parity, making it
the world’s 18th-largest economy.
It
has the region’s second-largest population after Egypt, and is the world’s 17th
most populous nation, with some 82 million people. Iran’s market appears to be
multidimensional, with very profitable energy, consumer, mining and tech
sectors. Foreign products — primarily American, followed by European then Asian
— are very popular among Iranians.
Western
firms may jump to invest in Iran because they do not want to fall behind their
Asian counterparts. The impetus for European companies may be Europe’s slow
economic growth. But due to geopolitics, volatility and the changing dynamics
between the US and the region, all these attractions should not delude
companies into investing.
The
first major risk is linked to Washington’s Iran policy. US pressure and
sanctions on Tehran will likely continue to escalate, affecting American and
non-American companies. 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. Quitting Iran’s market
would not be easy for those with long-term investments.
The
second danger concerns political stability. Most of the young population are
disenchanted with the ruling clerics. This, and increasing regional pressure
from a united front of Arab states and the US, do not provide a ripe
environment for investors to do business with Iran.
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.
Thirdly,
Supreme Leader Ali Khamenei and the Islamic Revolutionary Guard Corps (IRGC),
which controls much of Iran’s economy, are tightening their grip on the market.
This state-generated economy creates less competition and more bureaucracy.
Some foreign industries and companies will find it challenging and not
lucrative to do business with Iran, particularly given legal trade frameworks
and limited labor laws.
The
next risk relates to UN Security Council (UNSC) sanctions. If the nuclear deal
collapses or it is proved that Tehran is violating it, sanctions may be
re-imposed. Finally, 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.
This
can lead to legal issues and impact the credibility of investors and firms.
Similarly, countries in the region that are negatively impacted by Tehran’s
activities may decide not to deal with those foreign companies. In addition,
most profits go to the regime, not the people, so doing business with Iran
would empower the regime to further repress the population and advance its
regional hegemonic ambitions.
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