Post-sanctions Iran: Exploring the Iranian market via Cyprus

Cyprus/December 2015

There’s uniqueness in the Middle East when it comes to Iran: its abundance in natural resources, the densely inhabited territory and its openness to technological advancement, international developments and progress.

All of these aspects create a promising ground, supported further by recent resource–based evaluation rankings, which rate the country’s economy as the 20th strongest worldwide due to the noteworthy wealth created by the very existence of its natural resources –not only oil and natural gas, but also chromium, copper, coal, iron ore, lead, manganese, zinc and sulphur.

Nevertheless, the Iranian market’s uniqueness and promising potential had been considerably compromised from 2012 onwards due to numerous traders, bankers, international shipping agencies, and global insurance companies having withdrawn their investments from Iran following the oil embargo sanctions by the USA and the EU as well as EU’s decision on freezing assets of the Iranian Central Bank, its imposition of restrictions on co-operating with Iran on matters of foreign trade, financial services, energy and  technology, and the ban on insurance and re-insurance provisions by insurers within EU Member States towards organisations in Iran and/or of Iranian beneficiaries.

Yet, despite various difficulties the sanctions created for Iran, the diversified nature of its economy facilitated the country during these hard times. Iran is not solely dependent on the oil sector; the manufacturing industry appears powerful enough, with the automotive sector in particular being the first runner-up to the country’s petroleum industry. Currently, Iran is the largest card producer in the Middle East, while prior to the imposition of the economic sanctions it ranked 11th worldwide in the car production sector. Additionally, backing the country’s overall potential are also reports denoting Iran as owning 15% of the global proven gas reserves and 11% of the global proven oil reserves, accompanied by 11 Petrochemical complexes, as well as 3 major steel plants.

It is interesting to observe Iran introduce a brand new chapter after the July 14th 2015 nuclear agreement concluded with six world powers as new perspectives and opportunity windows are opening up, particularly in light of the expected lifting of the sanctions during the first quarter of 2016.

Parallel to this, the available demographics and statistical information continues confirming Iran’s population as a very well-educated one, with a workforce that includes many engineers and businessmen educated in Western countries. This fact along with the country’s natural wealth resources and its sophisticated manufacturing infrastructure capabilities encourage an optimistic anticipation of sound economic prosperity in Iran. Furthermore, financial analysts predict the annual growth rate of Iran’s USD 420 Billion economy to be between 2% and 5% during the first year of having the sanctions lifted, with the growth rate further increasing to a level of 7% to 8% in the following 18 months  thus resembling Asia’s so-called ‘Tiger Economies’.

Consequently, the question raised is how will foreign companies (and particularly small and medium-sized enterprises) access the potential of Iran and transform it into actual business and yield. It seems as if cross-investment relations between Iran and EU investors are not being established directly due to various financial, political and strategic concerns, with both sides currently exploring the availability of fitting and convenient gateways of securing their investments.

Cyprus as a bridge between EU and Iran  

Cyprus shares a long history of good relations with Iran, including bilateral agreements dating decades back. Worth noting among the more recent ones are the Agreements on Promoting and Protecting Investments, Merchant Shipping, Medical Science, Tourism, Education and Culture.

Additionally, in September 2014, The Chambers of Commerce of Iran and Cyprus proceeded to the signing of a Memorandum of Cooperation, thus offering a new momentum to the business connections of the two countries.

The memorandum was signed in Cyprus by the Presidents of the two chambers. Moreover, two landmark events of August 2015 aimed to boost trade and cooperation between the two countries were the establishment of The Cyprus-Iranian Business Association with 75 enterprises having signed up as members, as well as the signing of an Agreement on the Avoidance of Double Taxation and Fiscal Evasion, and Accompanying Protocol, based on the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention Framework.

Cyprus therefore, as an already established and now well-matured business centre and a low-tax jurisdiction actively protecting Foreign Direct Investments can act as a very suitable two-way gateway and financial hub for both EU and Iran companies.

Conclusively, as early investment into Iran could kick-start significant returns, our Eurofast Team can readily help and advise clients by providing information on business planning and opportunities in the country of Iran.

Mohamed Ezz
EUROFAST Cairo Office

Christiana Nicolaou
Eurofast Cyprus Office