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Iranian government

Foreign businesses stream into Iran as sanctions may end

Oren Dorell
USA TODAY
People visit the 20th Iran Oil, Gas and Petrochemical International Exhibition in Tehran May 6, 2015. About 600 major energy companies from 32 countries took part in the annual international event.

Visiting business delegations are streaming into Iran with an eye on lucrative new deals before a June 30 deadline for a sanctions-lifting nuclear agreement with six world powers.

Tehran saw "an explosion" of foreign business delegations in the weeks after the framework for a nuclear accord was announced in March. "Everyone is now waiting for the end of Round 2 in June," said Heinz-Joachim Heise, a Switzerland-based management recruiter who opened an office in Tehran last summer.

Multinational corporations, mostly from Europe and Asia, that did business in Iran before U.S. and international sanctions forced them out have started making plans to return. They include many well-known brands, such as German auto manufacturer Mercedes-Benz, French oil giant Total and U.S. electronics manufacturer Hewlett-Packard, according to news accounts.

Companies that haven't done business in Iran are not "knocking on my door wanting to open business here," Heise said.

U.S. sanctions date back to the Iranian revolution in 1979, but international sanctions were added or tightened in recent years as Iran expanded its nuclear program, which the West suspects has military aims but Iran says is for peaceful purposes.

Iran represents enormous potential to investors. It boasts an educated population of 81 million, comparable to Germany's, that is hungry for Western products. Its natural gas reserves rank second in the world, and its oil reserves rank fourth. Yet production in the energy sector, mining and manufacturing is far from fully developed.

Even so, most foreign companies are holding off on new operations, say several investment advisers to Western companies in Tehran.

Their caution is fueled by uncertainty that a deal to curb Iran's nuclear program in exchange for an end to most economic sanctions will actually materialize. Even if a nuclear deal is achieved, there are concerns that the United States would still prohibit most U.S. companies from doing business with Iran if it continues to violate human rights, develop ballistic missiles and support terrorist groups.

There's also apprehension about the Iranian government's outsized role in the economy through networks of pension funds and semi-state organizations that own shares in many firms.

Corruption, red tape and "legal ambiguity about ownership of companies" will remain, said Bijan Khajehpour of Atieh International, a consulting firm in Vienna that focuses on Iran.

"Even if all sanctions are lifted, there will still be blacklists of Iranian companies that Western companies should avoid," Khajehpour said. "Assets in the economy controlled by the semi-state organizations are gradually approaching the size of government."

The Iranian government "has a huge presence in the market," said Amir-Ali Amiri, founding partner of the Tehran-based investment firm ACL. "Quasi-government entities could cause legal tangles for a lot of (Western) companies" because the United States will continue to ban goods that could be used for military purposes.

That would impact sellers of trucks, copiers and computer printers — all sectors Amiri's companies represent — and even steel producers, whose railroad tracks might be used to deliver goods to a military facility.

People visit the 20th Iran Oil, Gas and Petrochemical International Exhibition in Tehran May 6, 2015.

Another problem: Western companies left Iran without delivering spare parts for machinery they sold before tighter sanctions were imposed in 2012, Heise said. "Iranian businesses will demand damage payments for machines that broke because they had no spare parts," and Iranian courts will probably back such claims, he said.

Andreas Schweitzer, managing partner at Swiss-Iranian investment firm Arjan Capital, has seen a lot of French, Spanish, German and Italian companies sending lawyers and accountants to learn how to remain in compliance with European and American legal requirements once doing business in Iran is permitted.

"The ramp-up period is not trivial," said Schweitzer, who started out in Iran in 2009 by developing wind farms and helps foreign investors do business there.

His clients are a handful of midsize companies, including one that sold a $15 million waste-to-energy plant to Iran, and companies selling digital gas meters. Schweitzer offers advice on Iranian negotiating culture.

"A signed contract for me is an expression of goodwill, but this is not the end of the negotiations," he said. "The Iranians love post-contract negotiations. Beside the deal, we all leave, and then they say, 'Oh, by the way, let's talk about this,' and we start all over again."

There are also political risks. Khajehpour's company was based in Tehran until he was arrested during the Iranian government's crackdown on a pro-democracy movement after elections in 2009. Khajehpour said he faced charges similar to those leveled against Jason Rezaian, TheWashington Post's Tehran bureau chief charged with spying.

"I was too close to foreign diplomats and foreign businesspeople in Iran," Khajehpour said. "I still have a legal problem." He was allowed to leave but cannot go back. Companies with Iranian or dual-citizen employees could risk similar situations at times of strife, he said.

Iranians wait at a bus station next to a billboard displaying a reproduction of the classic "Fish Magic" painting by Swiss-German painter Paul Klee (1879-1940) on a main road off north Tehran's Modares highway May 9, 2015. The display is a project of the Tehran municipality.

Khajehpour said he believes developing Iran's economy will lead to greater peace, political reform and moderation by its revolutionary government. "We live in a region where there's a lot of potential for conflict and misunderstanding and confrontation," he said. "The only thing that will reduce the tension and push the region to greater understanding is economic interaction and greater interdependence."

Some U.S. advocacy groups, such as United Against a Nuclear Iran, seek to publicize and shame Western companies from participating in Iran-oriented business forums. David Ibsen, the group's executive director, foresees an alternative to Khajehpour's argument that trade will moderate Iran's political behavior.

He worries the government will use its economic wealth to subsidize foreign militant groups and continue suppressing freedom at home. "If we can get guarantees they won't use additional funds to fund Hezbollah, the Basij domestic militias to increase domestic surveillance, internal police forces, Houthi rebels and other proxies, that would be great," Ibsen said. "It would be quite a departure from the past 30 years."

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