12/21/2015
Iran is a complicated opportunity for mining, business experts warn.
The JPCOA agreement signed in July between Iran and members of the international community hailed a wave of optimism for a number of industrial sectors, including mining, which saw the move as the opening up of a large new market. Sanctions may take longer than expected to be removed, however, and once lifted, there are still likely to be legal and operational challenges to doing business in the Middle Eastern state.
Doing business in a post-sanctions Iran will not be straightforward for the mining sector or any of its associated service industries and may take longer than many anticipate, delegates at the Post-Sanctions Iran International Business Conference in London heard this week.
Iran flag_Blondinrikard Fröberg
Iran could be a huge opportunity for the mining industry, but lifting sanctions and ensuring investor-friendly business conditions could take longer to implement than many have anticipated (source: Blondinrikard Froberg).
Speaking at the conference, Dr Hans-Jakob Schindler, a former special advisor to the German ambassador to Iran, sought to dispel the myth that the international community’s approval in July of the joint comprehensive plan of action (JPCOA) for Iran to wind down its nuclear activities had fired the starting gun on new business opportunities in the Middle Eastern state.
"People have talked about implementation [of JPCOA] happening quite quickly," Schindler said. He pointed out that the removal of sanctions was contingent on Iran eliminating some of its enriched uranium, reducing its stockpiles of the material and the number of centrifuges it operates. Such removal of nuclear capacity is not generally achieved rapidly, Schindler said.
As well as being a large potential new market for raw materials and mining equipment, Iran could also be a major supplier of industrial minerals. Recent reports from local news agencies suggest that the country hosts an estimated 60bn tonnes of mineral reserves and already has 7,000 exploration licences in issue.
The Iranian construction industry and the modernisation of the country’s steel and oil and gas sectors are also being eyed greedily by international operators, however attendees at today’s meeting heard that the terms for trading with Iran are likely to remain highly prescriptive for some time.
Owing to the bilateral sanctions in place between the US and Iran, companies with even tenuous US connections will also be prohibited from securing contracts in Iran until further notice, Schindler said. "If even one member of your board has a Green Card [which gives the right to permanent residency in the US], your company will not be able to work on a project in Iran," he warned.
Deals transacted in US dollars would also contravene current legal restrictions, Schindler added.
He also noted that while Iran is a stable country, it is in a geographically unenviable position, sandwiched between Afghanistan to the east – which is "not in very good shape", according to Schindler – and Iraq to the west – which is "not in a very comfortable position". This increases the security risk for companies looking to operate in the country.
A qualified opportunity
While acknowledging the many challenges facing businesses looking to access Iran, Chris Robertson, global chief economist at Russia-headquartered Renaissance Capital Partners, was more positive about the opportunities the lifting of Iranian sanctions represents.
"This is the biggest economy like this that’s going to up again, ever," he said. He admitted that much Iranian enterprise is currently government regulated and that the private sector is fairly nascent, however he said there was plenty of scope for manufacturers and service providers to take their products to what is likely to be a receptive new market.
Chris Parker, CEO of UK-registered Iran Business Hub, said that "over-caution" by financial institutions could scupper early efforts to establish businesses in Iran, but stressed that commercial ventures had to be pursued legally and properly.
"It’s a huge opportunity, we all know that. But we can’t get it wrong. The country can’t get it wrong," Parker stressed. "It will be a bumpy ride for the first six months at least."
Robertson agreed, saying that he did not see British banks being "very quick" to finance business ventures in Iran, however Chinese, Turkish and UAE-based banks are expected to be swifter moving.
Michael Tockuss, managing director of Germany-based Deutsche-Iranische Handelskammer eV (DIHKEV), said that nobody is expecting the world’s big banks to start doing business with Iran soon after sanctions are lifted, but some Iranian banks could soon start to operate within the EU.
Parker predicted that "the battle of Starbucks is about to happen in Iran", referring to the raft of global brands poised to pour themselves into the sector, although Daniel Khazeni-Rad, operator of Tehran-based Twitter feed, Bazaar Business, pointed out that US brands would be out of the running.
"Any mention of American brands operating in Tehran is just dead in the water," he told IM, pointing to recent failed efforts by US fast food chains KFC and Pizza Hut to establish restaurants in Iran.
German businesses already have a foothold in Iran, according to Tockuss, thanks to its consistent presence in the country throughout the sanction period, and to local respect for German engineering.
Logistics
Logistical capacity is crucial to enabling many companies to operate in Iran, particularly the mining industry, which relies on shipments of raw materials to and from mining sites as well as imports of machinery for mine plants.
Masab Janoudi, CEO of London-based Amiri Logistics, said that his company considered Iran to be a considerable opportunity for providers of transport capacity.
"We already have a presence there through agents – we have more logistics business there than most UK logistics operators and already do a lot of work in the Middle East," he told IM.
Janoudi said that bulk raw materials shipping was not currently a major business line for Amiri but that its operations in this area could expand if the Iranian opportunity required, however a larger and more lucrative business is shipping machinery and spare parts for engineering projects. Demand for this service could grow if mining takes off, he said.
Janoudi also said that existing port infrastructure was "quite good", although shipping turnarounds tended to take "a bit longer" there than in other places.
Sanctions remain a bottleneck for logistics, however. According to Nigel Kushner, director of the British-Iranian chamber of commerce, US-headquartered Tidewater Inc., which operates ports in Iran, remains on an asset-freeze blacklist even as sanctions look likely to be lifted, which complicates shipping to Iran.
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