Iran - one year after sanctions relief | KPMG | NO

Iran - one year after sanctions relief

Iran - one year after sanctions relief

On January 16, 2017, one year will have passed since the West lifted its sanctions against Iran. KPMG's Corporate Intelligence team is on the ground in Iran to find out what has changed in a year and to work with clients across sectors.

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Contacts

Relatert innhold

Julie Leypoldt and Erik Arvnes

Julie Leypoldt and Erik Arvnes i Iran.

We expected a great influx of big oil and gas companies, one corporate
lawyer catering to international businesses told us. - That hasn't happened
yet. The reason is that the authorities have been slow to get the new Iranian petroleum contract (IPC) in place.

Up to now, it has tended to be the small and medium sized Western
companies that have ventured into the Iranian petroleum sector. These are
typically suppliers and producers of spare parts.

Iran has the third biggest reservoir of oil in the world and the largest gas reservoir in the world.

- The government is prioritizing knowledge transfer from Western
companies in the petroleum sector first, a strategic advisor on Iran market
entry explains. Pipelines for export to Europe are only possible through
Turkey, and in any case, the government wants to use cheap Iranian labor and gas to boost other domestic industries, as well as to meet internal demands from a growing population.

A taste for fish

Iran is experiencing great interest from other sectors. These include
renewable energy and fish farming. According to the Iranian press, Norwegian fish industry companies recently signed 13 agreements with
Iranian authorities to transfer equipment and technology to Iranian fish
farming companies.

- Remember that Iranians use numbers in a promiscuous way, our Iranian
contact, who helped to organize the Norwegian fish industry delegation to Iran in September, told us. As far as I know, he said, only three contracts were signed between Norwegian and Iranian fish farming companies. Norwegians should be aware that Iranians will not shy away from throwing figures around and spending hours on end at the negotiation table.

- You need to be patient when doing business in Iran, our contact laughed.

The number of signed contracts aside, a growing Iranian upper middle class is developing a taste for Norwegian salmon. The offer of 'Norwegian baked
salmon' on Teheran restaurant menus is relatively new (though the origin may not always be correct).

- Don't eat fish in Teheran in the summer, one of our new friends
advised us. Though Iranians love fish, the quality is not always good,
and the industry could greatly benefit from clean technologies to meet
increasing demand from Iranian consumers for high quality fish products.

Lost in transfers

The Norwegian government is clearly pushing for business with Iran. We
were present when the Norwegian foreign minister Børge Brende met with Iranian foreign minister Javad Zarif in June 2016, and Erna Solberg's head to head with President Rouhani in New York did not go unnoticed. The Norwegian Minister of Fisheries Per Sandberg recently rolled up his sleeves at a Teheran supermarket, distributing Norwegian salmon to amused Iranian shoppers and a 100 man strong Norwegian fish industry delegation.

Some big names appear to have jumped the transaction hurdle. According
to the Iranian press, an unidentified American bank recently managed to
finance a deal to deliver 100 commercial aircrafts from Boeing to Iran - with
the help of OFAC approval and an unidentified Japanese bank.  The deal
would be the biggest business transaction between the US and Iran since the Islamic revolution. It could also be a first sign that things are loosening up – also from an American perspective.

Back in Norway we see positive steps toward direct transactions with Iran and recently the Norwegian Export Credit Guarantee Agency's (GIEK) efforts
for Norwegian export credit guarantees to Iran puts further pressure on
Norwegian banks to allow direct transfers to Iran. 

Nevertheless, big Norwegian and European banks remain reluctant to open
up for direct transactions, and Norwegian companies we talk to worry about this issue. How can they pay their suppliers, and how can they know their
transactions with Iran will be safe?

Tehran Bazar

Is cash still king?

When we arrived at Teheran airport, both the cashier and fellow Iranian
travelers sniggered as we cashed in EUR 500 in tiny bills.
- They want to get rid of the small bills first, our trusted taxi driver and guide told us. Apparently, the best way to go about cash handling is to buy an Iranian bank card at the airport and put your money into that account, same as you can find in Norwegian supermarkets.

– Iranians never pay with cash, the driver says.

True enough, Iranians pay by card. Just as at home, waiters come to
your table with portable payment terminals. One limit though: foreign cards are not accepted. In fact, traveling to Iran, you should bring plenty of cash,
because once inside the country, that is all the money you have at your
disposal. Many are those who have had to rely on the kindness of a distant
acquaintance - having miscalculated the price of their stay in Iran.

One fish farming company we talked to, having recently set up land-based sea pens in Iran, is waiting for final approval of direct transactions from its bank connection in Denmark this week.

– We have to pay our suppliers for a big delivery of pipes. That's not
the kind of money you can carry with you in a suitcase.

Iranian consumers want the best

Far from the image of a downtrodden city, Teheran appears modern and
thriving, at least the northern part.
- Women who want to demonstrate that they are very Muslim wear black and heavier clothing, our 27 year old female taxi driver explains. – But most of us only wear a thin scarf loosely hung over our hair.

Indeed, at offices, restaurants and shops, we meet working women, always with an elegant scarf covering parts of their hair. – One salary is no longer enough in Teheran, our driver explains. Women work so that their families can afford to live in the fast growing city of Teheran.

"Star," as she calls herself, has well-groomed gel nails, the latest iPhone, and is active on social media (those that are allowed). - Iranian consumers want the best, the Iranian corporate lawyer states. - As a testament to that, there are more Maserati's here than in Dubai.

"Star" is not an exception to this, as she scrutinizes her image in the elevator mirror, complaining that her makeup is smudged. 

Still a way to go

Our female business representative doesn't want a boyfriend or husband.  She wants to be free to go where she wants.  She studied in a south Asian country but overstayed her visa.
- When I get my passport back in six months, I hope I can move to Europe. Like many young people in Iran, she is eager to seek opportunities abroad. 

Of course we hope that the country will change, the Iranian corporate
lawyer tells us. However, he does not think that the revolutionary elements,
people who have political influence, money and guns, will sit back and let
Western oriented companies take a dominant position, to the detriment of the former. – I hope, but I don't think it's realistic. 

Not only sanction risks

All Norwegian companies that are serious about doing business in Iran are familiar with the sanction risks posed by the Iranian Revolutionary Guard Corps (the "IRGC" or Sepāh) and affiliated companies such as Katam al-Anabia.  Fewer are aware that there are other groupings that businesses should avoid.

Albeit not currently sanctioned, such institutions, which continue to represent revolutionary Iran, are vastly present on the real estate market and across industries. Due to the share size and power of these organizations, unknowingly entering into business relations with them may constitute important operational risks, including risks of getting entangled in bribery or corrupt dealings.

Operational risks aside, sanction risks continue to be the focal point of our due diligences. As experience shows, and as our contacts continue to stress, it is difficult for state-owned entities not to have any indirect overlapping business with the IRGC, in particular in the petroleum and maritime sectors. Norwegian businesses are unsure how to assess their exposure in such cases. Does such indirect overlapping necessarily entail a no-go?

As one sanctions expert told us during our stay: - Such links are not necessarily a reason for imposing fines on foreign companies. If one wanted to sanction companies because of occasional overlaps, then no single company would be safe in Iran. 

Local knowledge is key

Iran is a country of contrasts, and its many hues often go undetected by foreigners.

Though corruption is rife and part of everyday business in Iran, it is possible for Norwegian companies to avoid this pitfall. In Iran you can find every kind of businessman, from the most corrupt to the most honorable.

– You just need to know who you're dealing with, our contact states. For that, doing your due diligence is a must. 

KPMG Corporate Intelligence

KPMG Corporate Intelligence delivers strategic market entry advice to
Norwegian and multinationals wanting to do business in Iran. We have delivered a significant volume of integrity due diligence reports to help Norwegian companies engage with the right partners in Iran over the last year, ranging from oil and gas, renewable energy, seafood, the sciences, to banking. Our local sources are carefully selected and well placed to obtain the information you need about your prospective business partners.

The Corporate Intelligence practice is now offering a full suite of market entry advice, including how best to secure transactions between Europe
and Iran.

Please contact us if you want to discuss your challenges or simply to discuss market opportunities.

Exciting event 16th 2017! Iran One Year after Sanctions Relief

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Relevant links

Entering Iran - Know your Business Partners (pdf)

Article written by: 

Julie Leypoldt, Manager in Advisory, Forensic Services
julie.leypoldt@kpmg.no
+47 4063 9707

Erik Arvnes, Director in Advisory, Forensic Services
erik.arvnes@kpmg.no
+47 4063 9341

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