Flemish officials and companies gear up for business with Iran

Summary

The lifting of international sanctions on Iran has opened a wealth of new trade opportunities, and Flemish officials and companies are ready to do business in the world’s largest untapped emerging market

A new era for trade

Spurred by the lifting of international sanctions on Iran, Flanders’ international trade agency has reopened its representation office in Tehran and will embark on a major economic mission later this year.

Minister-president Geert Bourgeois, whose portfolio also includes foreign policy, has hailed both developments. In a press statement, he called Iran “a country with huge potential in the Middle East. For our Flemish ports and companies, including the maritime sector, the opening of the Iranian market means new opportunities”.

Yes it does, agrees Kris Put from Flanders Investment & Trade (FIT), who just hired an Iranian to run the Tehran office. But he cautions that creating those new opportunities will take time.

Having spent nearly five years in Iran, he saw sanctions take their toll. “They became really strict in 2011, when governments banned more export goods and required specific approval for most others.” Most importantly, he points out, almost all bank transfers were frozen – and still are frozen. “This made trade nearly impossible. Even eligible companies didn’t bother trying.”

US pressure against doing any business with Iran was no encouragement. Thus much of Iran’s formal economy came to a standstill.

A long road

During these same years, despite a sanctions-induced brain drain, the Iranian population under the age of 35 ballooned to 70%. “They want jobs; they want to consume; they want a future,” says Put. “You can’t stop demographic development; that’s what the Iranian government is facing.”

That is Iran’s rationale for striking a deal with the international community, he explains. Sounds straightforward, but lifting sanctions, he says, is a three-phase process plagued by “buts”.

Iran’s currency reserves abroad are being released, but they won’t amount to much. “Maybe $30 billion [€27 billion] will be left after paying outstanding debts.”

It’s the world’s largest untapped emerging market, but there are huge question marks

- Kris Put of FIT

Iran is free to export oil and gas, but the sanctions-stunted industry desperately needs investments. Mutual investment and bank transfers are, in principal, permitted, but Western banks aren’t rushing in. “They’re negotiating with Iranian banks but want to make sure such activity really is legal and that they won’t get fined by the US,” Put explains.

Unlike the EU member states and other countries, the US has made scant changes to its sanctions. American companies and banks remain largely prohibited from doing business with Iran. And since the agreement provides for sanctions to be lifted only as Iran meets conditions over eight to 10 years, Put says, “changing US sanctions will probably take that long”.

Not a dream

Thus the FIT official doesn’t expect mind-blowing growth in Iran in the coming years. “Maybe it’ll reach 4 or 5%,” he says. “It’s the world’s largest untapped emerging market, yes, but there are huge question marks. The economy and infrastructure are broken; there’s no money to restart the flow of oil and gas, and oil is only $30 [€27] per barrel.”

Iran might not be a dream export destination, but the nation learned to make do with what it had. “Under sanctions, Iranians managed to do things on their own. They’re highly skilled and didn’t stand still culturally or in their attitude,” he explains.

According to Put, Iran won’t focus on importing finished products but will instead strive to become a major petrochemical hub in order to diversify, produce more products and be a crucial link in the product chain. “This, they hope, will create jobs for their masses of young people. They’ve seen how China succeeded, and they certainly won’t become another Saudi Arabia,” he says, pointing to the highly oil-based economy of the Arab nation.

This limited focus could pair well with what Flanders has to offer. “We’re strong in machinery, especially specific parts, so a potential project could be a joint venture in, say, bus production: Flanders exports parts and Iran assembles and finishes the buses on its own soil. This employs Iranians, creates income, spending and consumption and drives the economy.”

Trickle-down wealth

How many Flemish industries could work with Iran in this way? Enough to require a deep breath before listing them: “Construction, automotive, logistics, food, maritime, textile machines, agriculture – Iran has four climates at the same time, all kinds of soils, ample land and rain – and health care is huge,” Put says. “The FIT office continually receives inquiries for hospitals and medical equipment, which Flanders excels in.”

Flemish investors are likely to find fairly liberal legislation but also administrative hurdles and corruption, which makes finding local partners crucial – but not easy from afar. “Internet and phone connections are outdated, and forget video conferencing.” 

Flanders has always had good relations with Iran, and Iranians are very pro-Western

- Kris Put

All the more reason to go in person, as investors will likely be well received. “Flanders has always had good relations with Iran, and Iranians are very pro-Western. While they did not openly express joy at the lifting of sanctions, the atmosphere is positive,” confirms Put. “Daily life won’t change in the short run, but it will improve eventually. The question is how much wealth will trickle down.”

Iranian food and pharmaceutical companies weathered the sanctions well and have some cash for local ventures. Others would benefit from coming to Flanders. “The petrochemical sector could establish distribution offices and ultimately build storage facilities in Antwerp or Zeebrugge. Logically, this could become its European hub.”

In the coming years, Put believes, trade between Flanders and Iran could reach pre-sanctions levels. 

A window of opportunity

Flanders is not starting from scratch. FIT’s Tehran office had actually been active before falling dormant last autumn. Now that it’s been kick-started, it’s also expanding, and expectations for the FIT mission planned for later this year are high.

“Some say we’re going too late because Tehran is flooded by missions now, but I think it’s just right. By then, bank transfers will kick in, and oil and gas will be flowing, whereas now doing business is very difficult,” Put says. “The mission will be multi-sectoral; companies not going are already networking with those that are, and lawyers and consultants are offering their services. It’s only February, so there’s potential for a huge mission.”

For companies entirely new to Iran, he says, it’s too early to jump in, “but two kinds of Flemish companies are going in now – very large companies and companies that were active before sanctions”.

An example of the latter is Transuniverse Forwarding, based in Wondelgem, a district of Ghent. The company started in Iran in 1983 and expanded its way back to Belgium, where it has 100 employees. It transports cargo all over the continent and beyond.

Kevin Van Ongeval, who oversees the company’s operations in the Middle East, worked in Iran for eight years and continues to travel there a few times a year. “For us, the lifting of sanctions is good; it will mostly affect volume. Under sanctions, we sent two or three groupage trucks a week. This week we already sent 12. Imagine all the other forwarding companies, especially maritime. Their volume will definitely increase.”

New staff, new sales

Last November, anticipating the lifting of sanctions, Transuniverse hired new staff to deal with Iranian administration and hosted a Doing Business in Iran seminar (pictured). It was attended by 150 of its customers, the East Flanders Chamber of Commerce, the Brussels Chamber of Commerce, KBC Bank, the Bar Baran Iran international shipping company and the Iranian ambassador to Belgium.

At the time, about 40 of the company’s 5,000 customers shipped to Iran. “Now those 40 have become 60 or 70,” says Van Ongeval. “But remember, the embargoes haven’t really ended yet. It’s still not easy to export to Iran.” 

The big difference for us will be what Iranian companies can do

- Ludo Zaidi

FAM sales manager Ludo Zaidi agrees. Founded in 1980 in Kontich, south of Antwerp, and currently with 90 employees, FAM was also active under sanctions. It designs and manufactures high-capacity slicing and dicing machines for the food processing industry – 80% for export.

“We’re fortunate to have an agent with offices in Iran and Germany, so most of our machines are invoiced to his German company,” explains Zaidi. “Other customers pay via Dubai. Direct payments are still difficult, if not impossible.”

Nevertheless, he says, “Our sales increased over the seven years we’ve been in the Iranian market, and we expect more business now. Last year I went to Tehran once or twice; this year I’ll go four times.”

“Optimistic”

FAM’s biggest competitor is American, which the sanctions prohibited from operating in Iran, so the company has a real competitive advantage. “Iran’s climate drives a huge fruit and vegetable production sector, so the big difference for us will be what Iranian companies can do,” says Zaidi. “Our customers there will export again, so we’ll sell our machines to Iranian companies that export to other Gulf states and beyond. Our Iran agent says people are optimistic.”

So is Zaidi. “In 2015, we sold eight machines in Iran. This year we’ve already sold three.” He’ll try to add to that in May when he attends the 23rd International Agricultural Trade Fair in Tehran.

There’s a lot of talk about Iran’s potential in the Middle East, but Put doesn’t buy it. “I very much doubt it’s a way into the Middle East. It’s more a hub for nearby former CIS countries  [Commonwealth of Independent States] and Central Asia,” Zaidi explains.

“Many Afghans speak Farsi; the cultural and linguistic ties go in that direction. So will trade. Sending goods to Asia will be faster through Iran than through Turkey or Georgia.”

Photo: attendees at the Iran-focused seminar Transuniverse recently organised
© Transuniverse Forwarding

Flanders Investment & Trade

Flanders Investment & Trade (Fit) is the Flemish government agency for international enterprise. It represents the region to the world’s investors.
In and out - Fit assists Flemish companies in their business ventures abroad, and helps foreign companies set up shop in the region.
Export Lion - Each year, Fit awards an “Export Lion” to two Flemish companies with exceptional export achievements.
Merger - Fit was born from the merger of the former Flanders Foreign Investment Office and Export Vlaanderen.
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