Prospects for Iran as the Next Investor's Darling

Capital goes to where profits are to be made. Is this place one of them for foreign investors?

Even in these rather blah economic times, there lie opportunities...for those brave enough to take them on, I suppose. With the rest of the world economy becoming rather stagnant, where is the smart money supposed to go? How about a country with a population of 77 million that has been locked out of the international community for years on end due to sanctions? With normalized economic relations set to resume this week (with the major exception of the United States), Iran looks like the destination country of choice for any number of multinational corporations.

Starved of modern capital and consumer goods, Iran certainly will have some appetite for them:

With global growth moribund, multinational firms have been waiting with bated breath for the lifting of international sanctions against Iran for access to a country in desperate need to modernise. After nearly a decade of limited access to the outside world, many sectors of the Iranian economy need new equipment including the oil and gas industry, railways, and airlines. Plus there are 80 million Iranian consumers, many of them keen to buy cars and other goods.

Access is expected to begin opening up, now that the International Atomic Energy Agency has issued a report concluding that Iran has fulfilled its obligations under a nuclear deal reached last year with world powers.

Yes, oil prices are at near-historic lows, but still, Iran's energy sector needs to modernize rather quickly to keep up with the others. So, oil services companies certainly have Iran in their sights:

Nevertheless, with the country holding the world's fourth-largest oil reserves and currently pumping a million barrels per day less than it did before sanctions, the Iranian energy sector is still attractive for foreign firms and Tehran is looking for US$25 billion in investment in the oil and gas sectors. "The infrastructure and energy sectors offer the best opportunities for our firms", Italy's economic development ministry said recently.

Russia, which has maintained close relations with Iran, has a leg up on the competition and is willing to put money on the table to achieve its goal of boosting its annual trade turnover with Tehran from US$1.6 billion currently to US$10 billion. Russian President Vladimir Putin offered to open up a US$5 billion credit line to Iran during a visit to Tehran in November.

Aside from FDI by MNCs, portfolio investors will also get their chance to place funds in Iran's stock market. Actually, it is the fifth largest in the Middle East with a total capitalization on $90 billion, so it's nothing to sneeze at. By coincidence, Saudi Arabia opening up its stock market to international investors places them both in competition for foreign funds:

With a market cap of about $90 billion, Iran’s stock market is fifth-largest in the Middle East. The lifting of sanctions will allow the country to compete for investor attention with Saudi Arabia, which opened the region’s biggest stock market to direct foreign ownership seven months ago.

While investing on Tehran’s bourse is already legal for many international investors, financial sanctions placed on the banking system have made it almost impossible to transfer money in and out of the country. The majority of those sanctions are being removed after an international deal over Iran’s nuclear ambitions, allowing the nation’s banks to reconnect to the Swift system for international financial transactions...

Even so, dozens of Europeans and Americans living in Europe have been on organized investor tours to Iran over the past year, assessing the landscape and visiting some of the large, listed manufacturers. Many have already obtained the necessary trading codes and licenses to prepare for the removal of sanctions.

Note though that directly owning shares in some companies linked to the Revolutionary Guards is still not possible. Still, that opportunities have opened up is undeniable, but you do have to be quite brave to be one of the first (back?) in lest Iran regress, especially on building nuclear weapons.