A new dawn for Swedish Business in Iran
This report by Business Sweden, A New Dawn for Swedish Business in Iran, sets out the political, economic and legal parameters for Swedish companies in the Iranian market. It shows the steps Swedish companies need to take to manage export activities in Iran and to establish business operations there. It also points up market opportunities and incentives provided by the Iranian government to foreign investors across multiple sectors
Iran has a long history as a political and cultural power in Central Asia. It stands today as the world’s 28th largest economy, with a young population of 80 million people, a significant and relatively advanced industrial base, and sizeable assets in the form of oil, gas and minerals.
Since the revolution of 1979, Iran has been an Islamic republic and operates as a strong, centralised state in which ultimate political and religious power rests with the supreme leader. There is an ongoing tug-ofwar within the state between various formal and informal centres of power, and this also has a significant impact on the economy. The dividing line politically is between conservatives on one side and reformists, who have seen their influence grow in recent times, on the other. The international economic sanctions that targeted Iran’s nuclear energy programme during the last decade hit the economy hard. Since 2006, Swedish companies have gradually scaled back their business operations or else have left the country. In early 2016, the EU and the US partially lifted sanctions in the wake of an international accord on Iran’s nuclear programme. If the Iranian government opens up to international business, the economy could see rapid growth over the next few years thanks to rising foreign investment and the resumption of oil exports.
Potential Swedish exporters to Iran have a number of obstacles in their path, however. Companies interested in exporting to Iran need to examine whether their trade is subject to the EU’s export controls and the EU sanctions still in place against Iran. To ensure sanctions compliance, companies should classify their export products and establish more closely the identity of their Iranian business partners. Here, businesses can receive assistance from the Swedish Inspectorate of Strategic Products or consultants. US sanctions remain far-reaching and may also affect exports by Swedish companies. Questions that businesses have regarding US sanctions are best referred to the US embassy in Stockholm or consultants.
The next step is for Swedish companies to address export-related issues such as customs and terms of trade, payments, financing and logistics. Iran is not a member of the World Trade Organization (WTO) and is therefore not bound by international trade agreements. Iran’s foreign trade takes the form of a substantial exchange of goods with China, onward export via the United Arab Emirates (Dubai), and widespread smuggling. Iranian customs lag behind in terms of technology, and many transactions take place in a legal grey area.
Most Iranian banks are now linked to the international payments system. The governments of France and Italy have facilitated major commercial trade deals with Iran, which has put additional pressure on European banks (the counterparties in these transactions) to ensure that the payments system works effectively vis-à-vis Iran. It is only a matter of time before it will do so. For Swedish companies that are unable to receive advance payments from their Iranian importers, the most appropriate method of payment is a letter of credit either confirmed by a Swedish bank or supplemented by a guarantee from the Swedish Export Credits Guarantee Board.
Despite its dependence on oil, Iran’s economy is relatively diversified. This report has chosen to focus in detail on four sectors of particular interest to Swedish companies: transport, mining, healthcare, and energy and environmental technology. Over and above the export opportunities that exist in these sectors, the Iranian government offers a number of interesting investment projects to foreign investors.
Business Sweden has consulted Iranian legal experts in identifying and analysing these projects, of which 20 are described in note form in this report. To obtain an investment concession from the Iranian government, a foreign company needs to establish a presence in Iran as a private joint stock company or other corporate entity and must also create a special project company that is wound up on the project’s completion.
Sweden and Swedish companies enjoy a good reputation in Iran and a history of fruitful trade relations. This is a large and interesting market that is now opening up to international commerce. However, the business climate is challenging and corruption is rife. Considerable uncertainty surrounds political and economic developments. Swedish companies that aspire to be successful in Iran need to have a presence on the ground, a good understanding of the local market and access to substantial resources to buttress their operations. They also need to take a long-term approach to their business activities. Iran is not unlike other growth markets in this regard. Swedish companies that grasp the challenges appropriately will enjoy excellent scope to take leadership positions in doing business with Iran.