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Turkish business to profit from lift of Iran sanctions

Analysts say that Turkish trade with Iran could balloon dramatically once sanctions are lifted

28.07.2015
Turkish business to profit from lift of Iran sanctions

ANKARA

There are great opportunities for Turkish business in Iran, now that the accord with the world powers has begun the lifting of sanctions, economists told Anadolu Agency on Tuesday.

“A vast market will now be open to both Turkish exporters and Turkish investors,” forecast Renad Mansour, an Iran analyst with the Carnegie Endowment for International Peace in London.

“Trade could balloon dramatically. There will be openings in almost all sectors,” agreed Hassanan Hakimian, economist and director of the London Middle East Institute at SOAS, University of London.

Although competition with business from other countries will be tough, Mansour pointed out that Turkey will have the added advantage of the Preferential Trade Agreement, signed by the Justice and Development (AK) Party government in 2014, and which went into effect in January 2015. This agreement removes or reduces tariffs on hundreds of goods and services.

With that help, and the long experience of many Turkish companies working abroad, the $13.7 billion volume of trade with Turkey in 2014 could climb to $30 billion in two years, once the sanctions are lifted, according to a report published in June by the Turkey-Iran Business Council. 

 “There are opportunities for exports in energy, food, consumer durables, electronics, household goods, automobiles, and other technologies, just to name a few” Hakimian said. “And there are chances for investment in infrastructure and major projects. The banking sector will open up as well.”

Turkish business has the advantage of a border location on Iran, and this may provide opportunities for locating corporate headquarters close to Iran, or businesses may prefer to locate in Turkish major cities and to access Iran from there, Hakimian added.

To be sure, Turkish businesses may not find it easy to take market share in Iran, warned Svante Cornell, director of the Institute for Security and Development Policy in Stockholm.

“Iran is not an easy place to do business, and there is an element of xenophobia that may raise obstacles to Turkish businesses. But Turkish businesses are experienced and sturdy, and they will have a good chance,” Cornell explained.

New start for a growing economy

The sanctions have kept Iran, up until now, from performing at the same levels as other emerging markets, the World Bank points out in a note on Iran on its website.

Iran has a population of 81,824,270, about the same as Turkey, and more than any of the emerging economies of Eastern Europe. Thanks to its oil, Iranian gross domestic product is already substantial. At $437 billion, it is the 27th largest economy in the world, roughly similar to Argentina and Taiwan, and ahead of Austria or Thailand.

Of course, the sanctions won’t be lifted for some time. American and European sanctions will be lifted progressively, in phase with the International Atomic Energy Association verifications that the steps required in the accord on nuclear energy are being taken. Experts vary in estimates for how long it will take to lift the sanctions – the IAEA predicts six months, but other analysts say it may take up to a year and a half.

When they are finally lifted, Iran’s already growing economy will grow a lot faster.

In 2014, a temporary easing of sanctions caused the Iranian economy to rebound out of recession, the World Bank report said. Growth was estimated at 3 percent in 2014 compared with a contraction of 1.7 percent in 2013.

And the Iranian economy has a lot of positive structural factors, Mansour pointed out. About 65 percent of the population is under 35 years old, and literacy among 15- to 24-year-olds is 98 percent. Total adult literacy is 85 percent. About half of all Iranian households reportedly have internet access.

Further, nearly 80 percent of Iranian youth – male and female – attend secondary schools, according to UNICEF statistics.

What’s more, Mansour continued, the long period of slow development under sanctions has left infrastructure and services in relatively poor shape.

Developing Energy

Turkish businesses will be well-placed to fill these gaps, Hakimian said, starting with the energy sector.

According to the International Monetary Fund, Iranian oil revenue was less than half of its 2011-2012 levels even before oil prices dropped by 50 percent in 2015. The country currently produces 3.4 million barrels per day, according to the U.S. Energy Information Administration.

An official of that company said on Wednesday that Iran's oil production can reach its pre-sanctions level of 4 million barrels per day within six to twelve months if there is enough demand, he said.

But analyst say that, to reach that goal, Iranian oil infrastructure has to be ramped up, and that will requires several billion dollars’ worth of investment.

Turkey might be in a good position to make that kind of investment, as the country already has a deal in place for Iranian natural gas. Turkey already buys about 7 billion cubic meters of gas from Iran, which has the second-largest reserves of gas in the world, each year, although there have been issues about the price. Iran also seeks to join the Trans-Anatolian Natural Gas Pipeline (TANAP) project, expected to complete in 2018, which, in the future, may be able to carry Iranian gas to Europe. There is already a partnership between Iran and Turkey for energy, and increasing the scope of that partnership would provide considerable commercial opportunities for Turkey, and would improve stability in the region, according to a report by the Near East South Asia Center for Strategic Studies published in January.

Infrastructure, growing consumer product and technology sectors

“Apart from energy projects, there is an infrastructure gap in Iran that needs to be filled, and Turkey is a leader in the Middle East in these projects,” Hakimian pointed out.

Then, Iranian consumers are well-educated and knowledgeable, Mansour said. “They will be eager to take advantage of the greater selection of consumers goods that Turkish exporters can provide.”

A good example is Iran’s dairy market, worth  $2.1 billion in 2010, which  is projected to grow to as much as $18 billion by 2020, according to Euromonitor statistics. Then there is Iran’s market for tobacco: Iranians smoking are worth $2.6 billion, according to British-American Tobacco.

The production of automobiles is particularly important in Iran. Even under sanctions, Iran was the 18th largest producer of cars in the world. The industry provides great chances for Turkey’s auto component industry, itself one of the most developed in the world, Hakimian said.

As for technology, Iranians have had little access to the latest computers and software since sanctions were imposed. Some computers have been smuggled into the country in defiance of sanctions, but that activity accounted for only a fraction of demand. "Turkish IT producers have the advantage of easily creating channels of communication with Iranian distributors,” Mansour said.

Banking is yet another underdeveloped area in Iran, due to the sanctions. Turkey’s Halkbank has  been active in the country for some time, but other Turkish banks will be able to move in, offering the latest in banking technology and services, ahead of the competition, Mansour said.

Many international companies will be hesitant to invest in Iran, due to the country’s tarnished image, after years of conflict with the West over its nuclear program, Hakimian said. “But Turkey has maintained ties with Iran throughout the years of Iran’s isolation, and now Turkish companies won’t be afraid of risk in investing in the country. That fear of risk could deter companies from other countries.”

Companies around the world will have to wait for their chances in Iran, as sanctions are gradually removed. But Turkish companies, it is clear, will have a head start once the way is clear.

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