A NEW DAWN for SWEDISH BUSINESS in IRAN Business Sweden a NEW DAWN for SWEDISH BUSINESS in IRAN

A NEW DAWN FOR SWEDISH BUSINESS IN IRAN Business Sweden A NEW DAWN FOR SWEDISH BUSINESS IN IRAN

Graphic design: Jonas Sahlström, Business Sweden Communications Infographics: Cia Otterström, Co-Design Photos: iStockphoto.com Photo of Ylva Berg: Anders Thessing Print: Vitt Grafiska, 2016 FOREWORD...... 5 SUMMARY...... 8 INTRODUCTION...... 12 GOVERNANCE FRAMEWORK...... 15 IRAN’S ECONOMY...... 18 TRADE AND INVESTMENT...... 22 ECONOMIC SECTORS...... 24 INVESTMENT OPPORTUNITIES...... 29 TRANSPORT...... 31 MINING...... 33 HEALTHCARE...... 37 ENERGY AND ENVIRONMENTAL TECHNOLOGY...... 39 ECONOMIC ZONES...... 43 BUSINESS CLIMATE...... 44 EXPORTS...... 47 SETTING UP A COMPANY...... 61 OPPORTUNITIES AND CHALLENGES FACING SWEDISH COMPANIES...... 63

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 3 4 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN FOREWORD

On 16 January 2016, the EU lifted most of its sanctions against Iran. Coupled with the limited easing by the US of its trade embargo, this move ended Iran’s international isolation and has paved the way for rapid modernisation. Many of the conditions required for economic prosperity are already in place. A commercial centre dating back thousands of years, Iran has a rich tradition of trade and business. Today’s large, young population is eager to improve its standard of living. Knowledge and education are prized assets. A substantial industrial base and acknowledged expertise in engineering sit alongside Iran’s strategic location and its abundance of natural resources in the form of oil, gas and minerals. At the same time, Iran is in many respects a conservative society YLVA BERG where openness is limited. Human rights abuses are rife. Influential President & CEO groups exercise control over key parts of the state-run economy. Corrup- Business Sweden tion is widespread and infrastructure underdeveloped. Women have a subordinate status in society in general – notably in the labour market – even though they account for a majority of university-level students. Oil exports will give Iran the necessary revenue to embark on over- hauling its infrastructure and modernising its economy. However, what are needed most are new trading partners and foreign investment – a fact that is widely appreciated in Iran. Only time will tell whether the country truly does open its economy to international trade and industry. This report by Business Sweden shows Iran’s special place in the world economy and highlights its ability to take a giant step forward in its economic development. As a result, a large market is now opening up for international businesses. Iran was an important export market for Swedish companies before the imposition of sanctions. Business Sweden hopes this report will help to rebuild and restore business relations between Swedish enterprises and their Iranian counterparts.

Ylva Berg President & CEO Business Sweden

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 5 CHECKLIST FOR SWEDISH BUSINESSES IN IRAN SWEDISH COMPANIES

Is the export in compliance with the company’s own statutes and EXPORT 1 guidelines for doing business in Iran? EXPORTS TO IRAN

Inspectorate of Strategic Products (ISP)

Potential areas of conflict with EU export controls and sanctions Scope of EU sanctions against Iran a. Classification b. Due diligence of of product business partner Scope of EU Defence material and export controls missile technology

Products subject to Dual-use products 2 sanctions Unauthorised business Sensitive products Are exports Are exports affected partners affected by EU by EU sanctions export controls? against Iran?

Office of Foreign Assets Control (OFAC)

Scope of US Possible areas of conflict with US sanctions against Iran Scope of US sanctions against Iran sanctions against Iran

US currency US territory and citizens (USD) US owners and interests 3 US content in exports US banks and financial Unauthorised business institutions Are exports affected by US partners sanctions against Iran?

Swedish Customs

Questions regarding exports Customs and Payments, financing Export declaration terms of trade and logistics 5 What product How can secure requirements apply payment for the export to the export? be guaranteed?

4 What terms of delivery What documents and mode of delivery are are required for the are appropriate for the export? export?

THE IRANIAN MARKET

6 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN SWEDISH COMPANIES

Is the venture in line with the compa- OR ESTABLISH ny’s own statutes and guidelines for A BUSINESS? ESTABLISH A 1 doing business in Iran? BUSINESS IN IRAN

What type of company is appropriate What is required to for establishing a business? 2 register the company?

How is the protection of intellectual property rights guaranteed?

Is the company entering into a contract COMPANY with the Iranian government regarding 3 an investment project?

PROJECT COMPANY

THE IRANIAN MARKET

Sources: Inspectorate of Strategic Products, Baker & McKenzie, Iranian legal experts, Business Sweden (2016). BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 7 SUMMARY

This report by Business Sweden, The international economic sanctions that A New Dawn for Swedish Business in targeted Iran’s nuclear energy programme Iran, sets out the political, economic during the last decade hit the economy hard. and legal parameters for Swedish Since 2006, Swedish companies have gradu- companies in the Iranian market. It ally scaled back their business operations or shows the steps Swedish companies else have left the country. In early 2016, the need to take to manage export activ- EU and the US partially lifted sanctions in ities in Iran and to establish business the wake of an international accord on Iran’s operations there. It also points up nuclear programme. If the Iranian govern- market opportunities and incentives ment opens up to international business, the provided by the Iranian government economy could see rapid growth over the next to foreign investors across multiple few years thanks to rising foreign investment sectors. and the resumption of oil exports. Potential Swedish exporters to Iran have a Iran has a long history as a political and number of obstacles in their path, however. cultural power in Central Asia. It stands today Companies interested in exporting to Iran as the world’s 28th largest economy, with a need to examine whether their trade is sub- young population of 80 million people, a ject to the EU’s export controls and the EU significant and relatively advanced industrial sanctions still in place against Iran. To ensure base, and sizeable assets in the form of oil, gas sanctions compliance, companies should clas- and minerals. sify their export products and establish more Since the revolution of 1979, Iran has closely the identity of their Iranian busi- been an Islamic republic and operates as a ness partners. Here, businesses can receive strong, centralised state in which ultimate assistance from the Swedish Inspectorate of political and religious power rests with the Strategic Products or consultants. US sanc- supreme leader. There is an ongoing tug-of- tions remain far-reaching and may also affect war within the state between various formal exports by Swedish companies. Questions that and informal centres of power, and this also businesses have regarding US sanctions are has a significant impact on the economy. The best referred to the US embassy in Stockholm dividing line politically is between conserv- or consultants. atives on one side and reformists, who have The next step is for Swedish companies to seen their influence grow in recent times, on address export-related issues such as customs the other. and terms of trade, payments, financing and

8 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN logistics. Iran is not a member of the World ful trade relations. This is a large and inter- Trade Organization (WTO) and is there- esting market that is now opening up to fore not bound by international trade agree- international commerce. However, the busi- ments. Iran’s foreign trade takes the form of ness climate is challenging and corruption a substantial exchange of goods with China, is rife. Considerable uncertainty surrounds onward export via the United Arab Emirates political and economic developments. Swed- (Dubai), and widespread smuggling. Iranian ish companies that aspire to be successful in customs lag behind in terms of technology, Iran need to have a presence on the ground, and many transactions take place in a legal a good understanding of the local market grey area. and access to substantial resources to but- Most Iranian banks are now linked to the tress their operations. They also need to take international payments system. The gov- a long-term approach to their business activi- ernments of France and Italy have facili- ties. Iran is not unlike other growth markets tated major commercial trade deals with Iran, in this regard. Swedish companies that grasp which has put additional pressure on Euro- the challenges appropriately will enjoy excel- pean banks (the counterparties in these trans- lent scope to take leadership positions in doing actions) to ensure that the payments system business with Iran. works effectively vis-à-vis Iran. It is only a mat- ter of time before it will do so. For Swedish companies that are unable to receive advance payments from their Iranian importers, the most appropriate method of payment is a letter of credit either confirmed by a Swedish bank or supplemented by a guarantee from the Swedish Export Credits Guarantee Board. Despite its dependence on oil, Iran’s economy is relatively diversified. This report has chosen to focus in detail on four sectors of particular interest to Swedish companies: transport, mining, healthcare, and energy and environmental technology. Over and above the export opportunities that exist in these sec- MAGNUS RUNNBECK POJA PANAH tors, the Iranian government offers a number Senior Analyst Project Manager Strategy & Business Tehran Office of interesting investment projects to foreign Development investors. Business Sweden has consulted Iranian legal experts in identifying and analysing these projects, of which 20 are described in note form in this report. To obtain an investment concession from the Iranian government, a foreign company needs to establish a presence in Iran as a private joint stock company or other corporate entity and must also create a special project company that is wound up on the project’s completion. CHERIF SAYED MAGNUS ALMÉN Sweden and Swedish companies enjoy a Vice President Trade Commissioner Head of Region Tehran Office good reputation in Iran and a history of fruit- Middle East & Africa

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 9 FACTS AND GEOGRAPHY

Gross domestic product (GDP) Name: Islamic Republic of Iran [ ] in USD billion, 2015 Surface area: 1,648,000 km2 (Sverige: 450,000 km2) Germany 3 371 Capital: Tehran (approximately 14 million inhabitants) Russia 1 236 Place in the world economy: 28 (Sweden: 24) Turkey 722 Population: 78.6 million inhabitants Sweden 484 Currency: Iranian rials (1 USD = approximately 30,000 IRR) Iran 397 Official religion: Shia Islam Official language: Persian (Farsi) United Arab Emirates 339 Time: Swedish time + 2.5 hours Pakistan 271 Working week: Saturday to Thursday. Friday is a holiday.

AZERBAIJAN ARMENIA TURKMENISTAN UZBEKISTAN

BAKU ASHGABAT TURKEY DUSHANBE TAJIKISTAN

TABRIZ

MASHHAD

ISLAMABAD SYRIA QOM TEHRAN KABUL

BAGHDAD ESFAHAN AFGHANISTAN

IRAQ PAKISTAN

A Swedish export market KUWAIT SHIRAZ Swedish companies have historically had a significant presence in Iran, BANDAR ABBAS with at most over 3,000 Swedes resident in the country and Swedish SAUDI ARABIA schools (1964–1979) in Tehran and the industrial city of Tabriz.

ABU DHABI UNITED RIYADH ARAB EMIRATES MUSCAT POPULATION GROUPS

15% 10%

OMAN 50%

25% Persians YEMEN Azerbaijanis Kurds SANA’A Other: Baloch, Turkmen, Arabs

10 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN Source: Business Sweden (2016). IRAN HAS BEEN “A COMMERCIAL CENTRE FOR THOUSANDS OF YEARS AND IS CHARACTERISED BY TRADE AND BUSINESS”

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 11 INTRODUCTION

BACKGROUND ment and the Assembly of Experts, which will Between 2006 and 2010 the UN Security appoint the successor to the current supreme Council adopted a number of resolutions leader, Ayatollah Khamenei. to impose increasingly tough economic Iran was previously an important export sanctions on Iran in response to the country’s market for Sweden in sectors including tel- nuclear energy programme, regarded as ecommunications, mining and transport. having been set up for military purposes. Subsequent to the imposition of interna- The US also tightened its pre-existing trade tional sanctions in 2006, a number of Swed- embargo on Iran. ish corporations left Iran or scaled back The list of unauthorised Iranian business their operations. The new paradigm offers partners grew, and in January 2012 the EU good opportunities for Swedish companies decided to block Iranian oil imports. Iranian to resume a leading position in the Iranian banks were shut out of the international pay- market. ments system, making all trade with Iran considerably more difficult. ABOUT THIS REPORT In 2013, the centrist Hassan Rouhani was Business Sweden is tasked by the Swedish elected as Iran’s new president. His regime government with promoting Swedish exports committed itself to resolving the conflict sur- and foreign investment in Sweden. This rounding the country’s nuclear energy pro- report is intended to give Swedish companies gramme and ending Iran’s isolation. On 14 a close understanding of the new conditions July 2015, the Joint Comprehensive Plan of that apply for doing business in Iran following Action (JCPOA) was signed between Iran and the partial lifting of EU and US sanctions. the five permanent members of the UN Secu- The report will also guide companies on rity Council – the United States, China, Rus- the steps they can take to navigate their way sia, France and the United Kingdom – along successfully in exporting to and establishing with Germany and the EU. themselves on the Iranian market. On 16 January 2016, the International Three questions recur in the report. First, Atomic Energy Agency (IAEA) declared that what are the hallmarks of the Iranian market Iran had fulfilled its obligations in accordance and how will it develop? Second, what are the with the agreement, prompting the EU and opportunities and challenges facing Swedish the US to lift a number of economic sanctions companies in doing business in Iran? Third, against Iran that day. On 26 February, the how can Swedish companies succeed in the reformists made gains in elections for parlia- Iranian market?

12 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN All the facts, observations, arguments and panies: transport, mining, healthcare, and conclusions in this report are based on mate- energy and environmental technology. With rial that is in the public domain and/or has the help of Iranian experts, Business Sweden been specially commissioned for the report. has produced a list of the government’s largest It is based on in-depth analysis as well as high-priority open investment projects, along 40 or so interviews carried out by Business with a list of interested parties and feasibility Sweden with individuals familiar with Ira- assessments. The section presents the main nian conditions and business life. The inter- features of 20 investment projects and a map views took place between December 2015 and of Iran’s Economic zones. March 2016 in Iran, the United Arab Emir- Business climate considers the conditions for ates (Dubai) and Sweden. Business Sweden enterprise and business in Iran from a com- has also participated in a partner-funded study parative international perspective. on Iran led by the Economist Intelligence Unit Exports presents five steps that Swedish (EIU). companies need to consider in their export The report contains a Foreword, Summary activities with Iran. The section sets out in and Introduction containing basic facts about simple terms how companies can manage and Iran. The Governance framework section sum- plan for export controls, sanctions, customs, marises Iran’s political, economic and reli- terms of trade, payments, financing and logis- gious institutions. It also describes the back- tics. The section was written by Business Swe- ground to the current paradigm whereby den’s export department in collaboration with power centres both collaborate and compete to the Inspectorate of Strategic Products, the control sections of Iranian trade and industry. Baker & McKenzie law firm and the Swedish Together these power centres have a key bear- Export Credits Guarantee Board. ing on conditions for doing business in Iran. The section on Setting up a company was This section was produced in collaboration produced with the aid of Iranian legal experts with the Centre for Middle Eastern Studies at and shows in three steps what Swedish com- Lund University. panies need to consider when establishing a The section on Iran’s economy gives an over- private company in Iran. It looks at the differ- all picture of current economic conditions, ent types of company format and the proce- the effects of international sanctions and the dure for registering a company. It highlights immediate economic future post-sanctions. the need to protect intellectual property rights The Trade and investment section shows the and gives a brief description of so-called pro- extent and composition of Iran’s trade with the ject companies, which are utilised in collab- outside world and notes how China replaced orations between private companies and the the EU as Iran’s most important trading part- Iranian government. ner during the sanctions era. Opportunities and challenges facing Swedish Economic sectors describes the balance companies gives an overall assessment of the between Iran’s industrial, service and agricul- conditions needed for Swedish companies to tural sectors. The section provides an over- succeed in the Iranian market. view of the telecommunications sector and its connection to Iran’s numerous startups – a little-known aspect of the Iranian economy. It also gives a general outline of the financial sector. Investment opportunities looks at the areas of the economy covered in this report that are of particular interest to Swedish com-

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 13 MULTIPLE SEATS OF POWER

Direct election Appointment Scrutiny of candidates

SUPREME LEADER

NATIONAL REVOLU- HEAD OF ARMED EXPEDIENCY SECURITY TIONARY JUDICIARY FORCES COUNCIL COUNCIL GUARD

PRESIDENT

ASSEMBLY OF PARLIAMENT EXPERTS

GOVERNMENT

GUARDIAN COUNCIL

VOTERS

Abolhassan Banisadr Mohammad Khatami Hassan Rouhani (1980-1981) (1997-2005) (2013- ) Ali Khamenei (1981-1989)

PRESIDENT 1980 1985 1990 1995 2000 2005 2010 2015

Akbar Hashemi Rafsanjani (1989-1997) Mohammad Ali-Rajai Mahmoud Ahmadinejad (1981) (2005-2013)

SUPREME LEADER 1980 1985 1990 1995 2000 2005 2010 2015

Ayatollah Ruhollah Khomeini Ayatollah Ali Khamenei (1979-1989) (1989- )

14 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN Sources: European Iran Research Group, Business Sweden (2016). GOVERNANCE FRAMEWORK

During the 20th century Iran developed from university degrees. Numerous Iranian and for- a loose-knit feudal society into a centralised eign companies saw their assets confiscated state characterised by rapid urbanisation. and nationalised. Following fierce infighting In 1926, the weakening Qajar dynasty was and purges within the coalition that toppled replaced by the Pahlavi dynasty and its first the shah, the Islamic Republic of Iran was king, Reza Shah, who ushered in a process born. The revolution replaced the ruling elite of national modernisation. Infrastructure, with a form of rule that extended state influ- industry, defence, the education system and ence even further. state bureaucracy developed rapidly in subse- The Iran-Iraq war of 1980–1988 was a quent decades, in part thanks to growing oil humanitarian and economic catastrophe, revenues. The shah’s son, Mohammad Reza from which Iran took many years to recover. Pahlavi, succeeded to the throne following the The war united the country against an exter- British and Russian invasion of Iran in 1941, nal enemy, but also triggered another exo- and consolidated his power with a coup d’état dus of refugees from Iran. The Revolutionary in 1953. Guard’s influence grew during and after the Dissatisfaction then grew as a result of the war (see the box on page 16). shah’s military rule and internal economic According to the 1979 constitution, Iran and social divisions. The shah’s pro-western is an Islamic republic governed by religious stance encountered resistance from signifi- principles and whose state religion is Shia cant segments of an Iranian society steeped Islam. Religion retains prominence in Iranian in religion. Overseas, too, support for the shah society, but Iran today differs in many respects was weak, not least as a result of the OPEC from how the country was during the revo- oil cartel raising oil prices several times from lution era. For one thing, the population has 1973 onwards. increased from just over 30 million to almost The uprising against the monarchy was led 80 million today. The revolutionary phase is by a disparate coalition of clerics, business- over and the average citizen now focuses on men and left-wing intellectuals. The shah and issues like work and pay, housing, education other leaders were forced into exile, and hun- and personal economic prospects. dreds of thousands of Iranians fled the coun- The revolutionary struggle between Islamic try, including many middle class people with forces on both left and right has evolved into

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 15 a political power struggle between conserva- tervailing interests. The division of power as tives and reformists. Falling living standards set out in the constitution allows each political in recent years have helped to forge a degree of institution to block and thwart the efforts and national consensus on the importance of pri- initiatives of others – a familiar pattern in Ira- oritising economic development. Neverthe- nian politics. less, considerable tensions stem from the gen- The supreme leader is Iran’s head of state, eration gap between a large young population and the power vested in him is vast if not abso- and a ruling class dominated by men in their lute. He is appointed by direct vote of the 60s and 70s. Women continue to have a sub- Assembly of Experts, which oversees how he ordinate role, despite predominating in higher exercises his office. The supreme leader’s pow- education. ers include appointing the supreme com- Political authority in Iran today is exer- manders of the Revolutionary Guard and the cised in a complex interplay between formal armed forces as well as the head of the judi- and informal centres of power. There is also cial system. He also appoints members of the a business dimension to this that can be baf- Expediency Council and six of the 12 members fling to outsiders. The government and gov- of the Guardian Council. He has a right of veto ernment-owned companies and charitable against the decisions of parliament but no leg- trusts wield a great deal of influence in the islative powers. The present supreme leader economy. is Ayatollah Ali Khamenei, who inherited the At the same time, however, the Iranian gov- role from the Islamic Republic’s founder, Aya- ernment is an oligopoly of sometimes coun- tollah Khomeini, on his death in 1989.

POWER STRUCTURE IN TRADE AND INDUSTRY The Iranian Revolutionary Guard Corps (IRGC) is an elite force of approximately 125,000 soldiers. It was created by Ayatollah Khomeini in 1979 with the aim of defend- ing the Islamic state against its enemies, and also because the new rulers did not rely on the regular military forces that had previously formed the shah’s most important power base. The soldiers of the guard were often ideologically motivated and had a strong fighting ethos. The Revolutionary Guard has been gradually expanded to include ground forces and its own air force and navy. It also has responsibility for Iran’s missile defence system. The Revolutionary Guard’s economic influence started with the work of reconstruc- tion after the war with Iraq. Its engineering units became the principal players in the construction industry. Returning members of the guard were given new posts in the administration and state-owned companies. The Revolutionary Guard’s growing business conglomerate gradually took control of parts of the oil industry, automotive industry, telecommunications sector and banking system. This trend was boosted in part by the EU and US sanctions, which meant less competition from foreign companies. The personal ties between the most senior members of the guard create an invisible power structure. The Revolutionary Guard is, however, not a homogenous group, but rather has business interests spreading in different directions. Its interests in trade and protected industries could be damaged if Iran opens up to the outside world. That said, its interests in competitive companies could benefit from opportunities for international expansion.

16 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN The president is elected for a four-year term Islamic law. It examines and approves candi- in general elections for which the voting age dates to the presidency, parliament and the is 18. The president has certain executive pow- Assembly of Experts. The Guardian Council is ers, appoints the government and supervises markedly conservative. its work, and decides which legislative propos- The Expediency Council has the task of als should be presented to parliament. The mediating in disputes between parliament Guardian Council scrutinises and approves and the Guardian Council, although it has presidential candidates. Over the years, both evolved to be primarily a powerful advisory conservatives and reformists have held the body to the supreme leader. presidency. The current incumbent is Hassan The National Security Council is headed Rouhani, a middle-ground politician who was by the president and its members include the elected in 2013. The government today con- most senior representatives of the Revolu- sists largely of technocrats, whose presence tionary Guard, the armed forces and the most and influence have helped professionalise the influential ministries. The security council workings of government. played an important role during Iran’s inter- The Iranian parliament has 290 members, national negotiations on its nuclear energy who are elected for four-year terms and enact programme. laws, ratify international agreements and approve the state budget. Parliament approves the president’s ministerial candidates by ballot and also has the power to remove individual ministers by a motion of censure. The Guard- ian Council must approve all parliamentary candidates and legislative proposals made by parliament. The party system is poorly developed. Various parties are permitted, but more important are their members’ connections to any one of the broad coalitions formed in conjunction with parliamentary elections. The Iranian parliament has been influenced by conservative thinking in recent years, but the most recent election, on 26 January 2016, saw a considerable reformist influx. The Assembly of Experts consists of 86 the- ologians who are elected in general elections for an eight-year term. The assembly appoints and oversees the supreme leader. The Guard- ian Council must approve all assembly candidates. The Guardian Council consists of 12 legal experts and jurists who are appointed for a six- year term. The supreme leader appoints half of its members, with the other half proposed by the head of the judiciary with the approval of parliament. The Guardian Council inter- prets the constitution and can reject legislation that it considers to be incompatible with

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 17 IRAN’S ECONOMY

Iran’s most influential companies are either inflation, reduced competitiveness and high state-owned or controlled by interests that unemployment. operate within the government sphere. State The decision by the EU and US to tighten influence is especially pronounced in the oil sanctions against Iran in January 2012 had an industry, which was nationalised in 1951 and extremely negative impact on an already weak- financed a significant portion of Iran’s eco- ened economy. The EU banned imports of Ira- nomic and military build-up during the 1960s nian oil and all foreign trade suffered from and 1970s. Oil revenues today account for just Iran’s exclusion from the international pay- over one third of the government budget. ments system. Goods shortages of goods and State influence over the economy intensi- high transaction costs – including financing fied when the revolution brought a wave of and smuggling expenses – pushed up prices. nationalisation of private assets. The Iran-Iraq Gross domestic product fell by 6.6 percent in war of 1980–1988 and the subsequent recon- 2012, while at the same time inflation rose struction effort provided further sustenance above 30 percent. In the space of just a few to government and quasi-government busi- years, many sections of the Iranian popula- ness interests, this time with the Revolution- tion experienced a dramatic reduction in their ary Guard as the principal player. purchasing power. Joblessness increased to Despite a certain degree of economic isola- 12 percent, while youth unemployment hit 25 tion from the outside world, Iran saw a consid- percent. erable increase in living standards during the Since 2013, the new president’s techno- 1990s. crat-dominated administration has imple- Rising oil export revenues helped to under- mented measures to bring down inflation and pin the expansive fiscal policies introduced in increase private consumption. The anti-in- the early years of the new millennium. Gov- flation measures have been fairly successful, ernment investment targeted lower income with the increase in consumer prices in 2015 groups in areas like healthcare and the regime falling to 14 percent. But economic activity has launched infrastructure programmes. How- remained subdued, while businesses and con- ever, cost control was poor and corruption sumers alike have awaited the outcome of the spread. The government’s privatisation pro- international negotiations on Iran’s nuclear gramme saw many companies acquired by energy programme and exchange rate move- interests closely tied to the state, reducing ments. public scrutiny of their operations. The result: Should the easing of sanctions be main- a mismanaged economy suffering from rising tained, most qualified observers expect

18 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN annual economic growth of 4–5 percent in In January 2016 the government presented the next five years and for inflation to stabi- a five-year economic plan for 2016–2021. lise at around 10 percent. The growth fore- The plan envisages the government achiev- casts reflect the belief that higher oil produc- ing its ambitious growth targets through an tion will deliver an economic fillip. The key improved business climate, a more compet- automotive and petrochemicals sectors would itive marketplace and increased trade with benefit directly from the easing of sanctions. neighbouring countries. Iran is bidding to A normalisation of foreign trade would also become the leading trade and logistics hub in reduce the cost of goods and financial trans- the region. The government aims to develop actions. the financial market, including the insurance Iran’s official growth target is higher – sector, and to offer foreign investment incen- approximately 8 percent a year over the next tives. The five-year plan also includes meas- five years. But the government’s own calcula- ures to develop the oil industry and expand tions suggest this will require USD 38–50 bil- rail transport. lion of foreign investment during the period. The agreement to ease sanctions means that the US and other countries will unfreeze up to USD 50 billion of Iranian assets. This capital injection would deliver a short-term economic boost, but it is unclear whether the amounts would represent a net addition and how the money would be made available.

ON TRACK FOR AN ECONOMIC BOOST Annual change in percent 30

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Economic growth Consumer prices

Note: The figures for the period 2016–2020 are forecasts. Sources: International Monetary Fund, Economist Intelligence Unit, Business Sweden (2016).

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 19 20 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 21 TRADE AND INVESTMENT

Oil dominates Iran’s economy and export down, reducing global demand for oil. China’s sector. In 2013, exports of crude oil accounted oil consumption increased by only 2 percent in for 68 percent of total export revenue, or 89 2015. Meanwhile, OPEC looks unlikely to seek percent if petrochemicals and other oil-related to raise oil prices by cutting output. products are included. Iran’s import sector is considerably more In 2011 the EU imported 600,000 barrels diversified than its exports (see diagram, page of oil a day from Iran – equivalent to one quar- 25). In 2013, foodstuffs accounted for one ter of the country’s oil exports – and was Iran’s third of imports. Machinery, electronic goods largest export market. In 2012 the EU began and measuring instruments accounted for an banning oil imports from Iran, a move that additional 25 percent. Imports from China primarily affected buyers in southern Europe have increased dramatically in recent years, such as Italy, Spain and Greece. That year also with imports from the EU decreasing by an saw Iran’s exclusion from the international equivalent amount. Iran’s official import data payments system, which seriously impeded does not paint the full picture, however, due the country’s exports. China, India, Turkey, to sanctions-era transit trade with the United Japan and South Korea continued to be impor- Arab Emirates (primarily Dubai) and wide- tant markets for Iranian oil, but they could not spread smuggling. compensate for the loss of the European mar- During the sanctions period, Chinese ket. Iran’s oil exports continued to fall until companies gained a firm foothold in Iran as 2015 and oil production also suffered amid a exporters and investors in areas such as oil, lack of investment in the domestic oil industry. steel industry, transport and construction. In The easing of EU and US sanctions will ena- January 2016, China and Iran signed a politi- ble Iran to resume oil exports without restric- cal agreement to expand bilateral trade to USD tions. Nevertheless, several factors continue 600 billion over a 10-year period. Russian to exert downward pressure on oil export rev- companies also have a number of interests in enue, notably a fall in the oil price from USD Iran, primarily in the oil industry. Other tar- 100 per barrel in 2012 to USD 40 per barrel gets for foreign investment include the auto- in early 2016. In Europe, the growth of renew- motive, mining, petrochemicals, food and able energy is at the expense of oil consump- pharmaceuticals sectors. tion, while the US has become almost self-sufficient in oil thanks to the shale oil industry.

Many growth markets have experienced a slow- +10%

22 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN

OIL-DEPENDENT ECONOMY WITH PROBLEMS Oil exports have fallen as a result of the sanctions

Export and import of goods, USD billion Oil production and oil exports, million barrels per day

150 5

100 3

2 50

0 0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Goods exports Goods imports Oil production Oil exports 1 barrel = 160 litres

China has succeeded the EU as Iran’s most important trading partner.

Iran’s goods exports, share of exports in percent Iran’s goods imports, share of imports in percent 30 50 29%

40 33% 20 30 28%

20 10

10 10%

2% 0 0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

EU China EU China United Arab Emirates

Note: Other important export markets for Iran in 2014 were India Note: Other important trading partners in 2014 were India, South Korea (12 percent), Turkey (10 percent), Japan (7 percent) and and Turkey, which each accounted for approximately 5 percent of Iran’s South Korea (5 percent). imports. In the same year the US accounted for only 0.2 percent of imports and Sweden for 0.3 percent. However, these figures must be treated with caution since many exporters use the United Arab Emira-

tes (Dubai) as a transit country for further export to Iran. +10%

Sources: International Monetary Fund, IHS Global Insight, Economist IntelligenceBUSINESS Unit, SWEDEN Business | Sweden A NEW (2016).DAWN FOR SWEDISH BUSINESS IN IRAN 23

ECONOMIC SECTORS

ECONOMIC PROFILE AND types, mainly mountains, steppe and desert. GEOGRAPHY Agriculture and parts of the forestry sector are The oil and gas sector dominates Iran’s concentrated in Iran’s northern and western economy. Behind it comes a significant manu- valleys. Production includes wheat, rice, sugar facturing industry – mainly in the automotive, beet, sugar cane, fruit, nuts, cotton, dairy petrochemical, steel and metal sectors and products and wool. food processing – and small-scale agriculture. Drought and inefficient water use creates The service sector is undeveloped and an alarming sensitivity to water shortages fragmented, with traditional crafts existing that are likely to worsen due to the anticipated alongside modern IT companies. upswing in industry and agriculture following In employment terms, agriculture accounts the end of sanctions. for 17 percent of the workforce, manufactur- Oil. Production of oil is concentrated to ing for 34 percent and services for 49 percent. three regions, the most important of which is State-owned and partly state-owned com- located in the south-west. The other oil-pro- panies have a strong position in many indus- ducing regions are in the north and near the tries. A large public sector, relatively high tax holy city of Qom. The south-western oil fields levels and a state-controlled banking sector are an extension of a geological formation that further extend the state’s economic influence. also includes oil fields in the Kurdish region Tehran, the capital, is Iran’s economic and of northern Iraq. In 2010, the oil industry cultural centre and key communications and employed 32 percent of Iranian workers. transport hub. Many businesses have their Construction. According to the Central head offices in Tehran, though other major Bank of Iran, 70 percent of Iranian house- cities such as Mashhad, Esfahan, Karaj and holders own their homes. The authorities esti- Tabriz are not without importance. The pace mate that there is a need for a further 750,000 of urbanisation is among the fastest world- homes. The current rate of new construction wide, with the UN predicting that Iran’s urban is 2,000 homes per day. The housing mar- population will rise from 69 percent in 2015 ket is one of the few sectors in Iran in which to 80 percent by 2030. state ownership is below 2 percent. The gov- Agriculture. Thirty percent of Iran’s total ernment prioritises infrastructure investment land area is estimated to be arable, of which and redeveloping old buildings. 12 percent is crops and 18 percent permanent Retail. Iran has the highest per capita num- pasture. Some 7 percent is covered by forest ber of retailers in the world. Retail is projected

and 63 percent takes the form of other land to generate revenue of USD 108 billion in 2016, +10%

24 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN

of which trade in perishables accounts for USD Car manufacturers Peugeot, Hyundai, Kia 44 billion. In 2010, the wholesale and retail and Toyota have stepped up their activities in sectors employed 16 percent of the workforce. Iran in recent years. European food companies Merchants and traders (bazaaris) hold a have a long-standing presence and French strong position in Iran, controlling the dis- dairy producer Danone has a production plant tribution of most consumer goods through in Iran. networks that include key importers and The government’s privatisation list includes wholesalers. 120 companies with a combined value of USD Iran’s 30 biggest corporations are found in 16.5 billion. These businesses operate in the the oil and gas, telecommunications, mining, petrochemicals, transport, energy production, automotive and financial sectors. The five larg- textile and construction industries. est are the Khalij Fars Petrochemical Com- pany, the Telecommunications Company of TELECOMMUNICATIONS Iran (TCI), the Mobile Telecommunications COMPANIES AND START-UPS Company of Iran (MCI), the Tamin Petroleum In the past, restricted investment opportu- and Petrochemical Investment Company, and nities meant that Iran’s telecommunications Mobarakeh Steel. market was of limited interest to outsiders. Chinese companies have a considerable Nevertheless, Iran in 2013 became the biggest presence, partly due to Western sanctions. mobile market in the Middle East and North European, Turkish and Arabic firms have Africa region, surpassing Egypt. expressed an interest in returning to the Ira- In 2013, 98 percent of all domestic house- nian market. holds had access to fixed or mobile telephone

THE PREDOMINANT EXPORT PRODUCT IS CRUDE OIL

Iran’s goods exports Iran’s goods imports 2013, product share in percent 2013, product share in percent

5% 3% 3% 6% 4% Crude oil Food 4% 30% 7% Plastics, chemical products Machines, electronics Oil products 5% Plastics, chemical products Metals, minerals Metals, minerals Other Textiles, leather products 14% 13% Wood, paper products Gold 68% Vehicles Other 14% 24%

Sources: The Observatory of Economic Complexity, Business Sweden (2016). +10%

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 25

communications. Just over 47 million peo- Internet infrastructure is still underdevel- ple had access to a mobile phone, equivalent to oped and many websites are censored. The penetration of 67 percent. In 2013, 10 million broadband market increased by 23 percent out of 22.1 million Iranian households had during 2014 and now has 4.5 million sub- access to a personal computer. scribers, a figure that is expected to rise to 9.9 Today, six mobile operators are present in million in 2019. the Iranian market, which is dominated by The Ministry of Information and Commu- Hamrahe Aval (59 percent) and MTN Irancell nications Technology oversees, regulates and (38 percent). Both companies have invested implements legislative changes in the ICT sec- considerably in expanding 3G and 4G ser- tor. Its primary role is to produce and imple- vices, thus supporting the widespread use of ment strategies for the national postal and tel- smartphones and demand for more advanced ecommunications systems. The ministry is computer services. MTN (South Africa) is also responsible for issuing import licences for currently the only major foreign investor in various communications equipment and for mobile communications in Iran. overseeing networks and frequencies.

THE BANKING SYSTEM The Iranian banking system consists of the Central Bank of Iran, eight state banks, 20 private banks and two Islamic banks (see list below). The banking system is undeveloped, fragmented and in great need of modernisation. The state, or interests within the state, has a direct or indirect influence on most of the banks. It is common for Iranian banks to have a broad business portfolio, which includes investments in companies and activities. The banks normally have large and costly office networks. Their operations are decentralised in the form of small local bank branches. The proportion of bad loans is estimated at 12 percent. Transparency is poor, which feeds uncertainty over stability in the system.

The Central Bank of Iran, 1960

State-owned merchant banks City Bank, 2010 Bank Melli Iran, 1928 Day Bank, 2010 Bank Sepah, 1925 EN Bank, 2001 Post Bank of Iran, 1996 Ghavamin Bank, 2012 Hekmat Iranian Bank, 2010 Specialised state banks and credit Iran Zamin Bank, 2010 institutions Karafarin Bank, 2001 Bank Maskan (housing), 1938 Middle East Bank, 2012 Bank of Industry and Mine, 1983 Parsian Bank, 2001 Cooperative Development Bank, 2009 Refah Bank, 1960 Export Development Bank of Iran, 1991 Saman Bank, 2002 Keshavarzi Bank (agriculture), 1933 Sarmayeh Bank, 2005 Sina Bank, 2009 Private banks Tejarat Bank, 1978 Ansar Bank, 2010 Tourism Bank, 2010 Ayandeh Bank, 2009 Bank Mellat, 1980 Islamic banks Bank Pasargad, 2005 Gharzolhasaneh Mehr Iran Bank, 2007 Bank Saderat Iran, 1952 Gharzolhasaneh Resalat Bank, 2012

26 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN Government plans to introduce wireless The Central Bank of Iran lists 30 major broadband services and to auction off new financial institutions in Iran, including state- wireless broadband licences to operators are owned merchant banks, specialised state expected to boost the number of 3G and 4G banks and credit institutions, private banks subscriptions and create further opportunities and Gharzolhasaneh (Islamic) banks. Iran is for foreign investors in Iran. a key player in Islamic financing founded on Many of Iran’s recently established and Shiite law and customs. fast-growing companies (start-ups) have links Domestic banking services are widely avail- to the IT and telecoms sector. In 2014, the able, but Iran remains largely a cash-based Economist identified and assessed the value economy. The Tehran Stock Exchange has of Iran’s three biggest start-ups: Digikala become an important source of capital and is (e-commerce), Aparat (video sharing) and Café one of the region’s top-performing stock mar- Bazaar (a marketplace for apps). Iran also has kets. a growing video game industry.

BANKING SECTOR The banking sector was particularly badly hit by economic sanctions, which isolated them from the international financial market and limited the activities of foreign companies in Iran. The country has nine state-owned banks, the largest being the Central Bank of Iran, whose responsibilities include monetary policy and the payments system.

THE LARGEST INTERNET USER IN THE MIDDLE EAST

Internet users in terms of number and share of the population 2015, million and percent

Sweden 95%

United 93% Arab Emirates

Turkey 60%

Iran 57%

Russia 70%

0 20 40 60 80 100 120

Sources: Internet World Stats, Business Sweden (2016).

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 27 WHAT IRAN’S “BUSINESS SECTOR REALLY NEEDS IS NEW TRADING PARTNERS AND FOREIGN INVEST-

MENT” +10%

28 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN

INVESTMENT OPPORTUNITIES

The Iranian government has a list of planned priorities in different sectors and project investments totalling USD 800 billion. Most implementation probabilities. are in infrastructure, are open to foreign Business Sweden identified open invest- investors and are based on collaboration ment projects in four sectors of particular between the state and private investors in the interest to Swedish companies: transport, form of public private partnerships. These mining, healthcare, and energy and environ- partnerships are set by the government and mental technology. This report shows four are: Build Operate Lease (BOL), Build Operate maps outlining 20 interesting investment pro- Transfer (BOT) and the less common Build jects in note form. A fifth map shows the loca- Operate Own (BOO). A foreign company that tions of Iran’s Free Trade-Industrial Zones wants to enter an agreement with the Iranian and Special Economic Zones, which offer government must set up a so-called project favourable conditions for investment and busi- company, which is then wound up when the ness activities. project completes (see page 62). Using local expertise, Business Sweden interviewed some 30 experts in Iran’s government ministries to assess the government’s

IRANIAN INTEREST IN FOREIGN INVESTMENT In 2002, parliament ratified the Foreign Investment Promotion and Protection Act (FIPPA), a piece of legislation designed to improve transparency, simplify the investment process and offer greater protection to foreign companies wishing to invest in Iran. The act seeks to offer equal treatment to foreign companies as to domestic enterprises, protecting firms against nationalisation and asset expropriation and also ring-fencing dividends, capital transfers and foreign loan repayments. A supplemen- tary government directive of 2010 entitles foreign investors to own 100 percent of the share capital of Iranian-registered companies. The Organization for Investment, Economic and Technical Assistance of Iran (OIETAI, Invest in Iran) is the public authority responsible for foreign investment in Iran. It reports to the Ministry of Finance and Economic Affairs and has a broad mandate to

process foreign investment applications and licences. +10%

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 29

TRANSPORT

Iran’s priorities:

- Expand the railway network - Integrate the transition between different modes of transport - Connect Iran to the international traffic system - Catch up with the other countries in the region

Investment projects:

Mehrabad: Road transport: Domestic Vehicles for freight terminal airport and passengers EUR 160 m EUR 23 bn

TABRIZ

MASHHAD

QOM TEHRAN

ESFAHAN

Bushehr-Shiraz: Motorways EUR 738 m Shiraz-Bushehr- Shahid Rajaee: Asalouyeh: Container Stretch of railway terminal port SHIRAZ BUSHEHR EUR 1,176 m EUR 243 m

ASALOUYEH BANDAR ABBAS

30 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN Sources: Iranian experts, Business Sweden (2016). TRANSPORT

Logistics and infrastructure. Iran’s transport The air transport network is relatively good. network offers relatively good national and Of the country’s 319 airports, 179 have tarmac international connections. The country’s runways and five (Tehran, Abadan, Esfahan, infrastructure currently meets national needs, Shiraz and Bandar Abbas) receive interna- based on Tehran as the central hub. However, tional flights, though only Tehran airport has an expansion of transport networks is in the a sufficiently long runway to receive the larg- pipeline as Iran seeks to connect with its est aircraft. neighbours and become a logistical nexus Southern Iran’s well-equipped and mod- where east meets west. ern ports serve as an attractive alternative for Road is the standard form of good trans- regional air shipments due to poor airport port, accounting for 75 percent of freight. The infrastructure in Pakistan and Afghanistan road network is approximately 200,000 km and long distances to China and Russia. Also, long, though half is dirt roads that are in poor most Central Asian countries have no coast. condition. Heavy traffic and a high accident Chabahar has recently been upgraded and will rate pose logistical challenges. be used for transhipment to Afghanistan and Iran’s 13,000 km of railways handle 25 per- Central Asia. Bandar Abbas is used as a hub cent of freight transport and are well main- primarily for trade with Russia and Europe, tained. Tehran has rail links with most of and handles more than 80 percent of Iran’s Iran’s major cities, its key ports and five of its container traffic. seven neighbouring countries. Construction of a new railway link from Iran enjoys a strategic position on the Per- Iran to Turkmenistan and Kazakhstan was sian Gulf and Straits of Hormuz, through completed in December 2014. A strategic part- which 20 percent of global oil shipments pass. nership between India, Iran and Russia aims The country has a series of ports in the Per- to introduce combined transport between the sian Gulf and Caspian Sea capable of handling countries, which would give Europe and Cen- import and export flows. tral Asia access to Asia and vice versa. Security shortcomings and an ageing air The Ministry of Transportation and Hous- fleet have hampered the development of the air ing estimates that railway expansion plans transport sector. Upgrades of the national air will require the purchase of 2,800 passenger fleet are planned and Iran signed an agreement carriages and 5,000 goods wagons. in early 2016 to take delivery of 118 Airbus pas- Automotive. The automotive industry is the senger aircraft, including 12 A380s. A similar second largest after oil and gas. Before sanc- deal with Boeing was made in June 2016. tions, Iran was the world’s 11th largest car pro-

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 31 ducer. Today, a workforce of 700,000 pro- The commercial vehicles market is also duces 1.2 million units a year, making Iran expected to see an upswing. The easing of the largest vehicle manufacturer in the Middle sanctions has fuelled strong demand for heavy East. Thirteen companies produce vehicles in goods vehicles and buses, and Scania and Iran, but two – Iran Khodro and Saipa – dom- Volvo are well placed to gain market share in inate with a combined market share of 94 per- this segment. cent in car manufacturing. Opportunities also exist for foreign compa- Both companies are in acute need of nies to collaborate with Iranian manufactur- investment, however, and international man- ers. Partnerships involving the exchange of ufacturers with a stable presence and histor- knowledge and technology, such as Peugeot’s ical contacts have an advantage. Peugeot of collaboration with Iran Khodro, are expected France is expected to take back market share to become more widespread. from competitors such as China’s Geely and In 2011, the merger of the Ministry of Lifan, which expanded in Iran during the Housing and Urban Development with the sanctions era. Ministry of Roads and Transportation created Automotive industry sales are forecast to the Ministry of Transportation and Housing – grow at the same rate as Iran’s middle class. a superministry responsible for overseeing the Local component manufacturers are unlikely construction industry, as well as Iran’s roads to have sufficient capacity to meet grow- and railways and international air and mari- ing demand, meaning that imports will be time transport links. required.

DOMESTIC BRANDS AND LOCAL PRODUCTION DOMINATE THE MARKET

Passenger car sales 2014, market share in percent

5% 3% 4% Peugeot 4% Saipa Iran Khodro 36% Renault 14% Hyundai Lifan, Chery, Geely, Jac Other

34%

Sources: Iran Vehicles Manufacturers Association, Business Sweden (2016). +10%

32 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN

MINING

With 5,000 active mines, Iran is one of the ers that have dominated the market during world’s most important mineral producers. the sanctions era. Opportunities exist to enter The country is ranked among the world’s ten into joint ventures and partnerships with Ira- most mineral-rich nations, with 68 different nian companies and to export to the Asian types of minerals, 37 billion tonnes of reserves market. Swedish firms can offer knowledge, and 57 billion tonnes of potential reserves. products and expertise that can help Iran’s Iran accounts for about 7 percent of the mining industry to develop and evolve. world’s mineral deposits, including the larg- Iran is the largest steel producer in the Mid- est zinc reserve, the ninth largest copper dle East and the 16th largest worldwide. Three reserve, the 10th largest uranium reserve and companies dominate this segment: Mobar- the 12th largest iron ore reserve. Other signifi- akeh Steel (47 percent of production), Khuz- cant reserves include aluminium, coal, metal- estan Steel (23 percent) and Esfahan Steel (20 lic minerals, sand and gravel, chemical miner- percent). Many other smaller producers are als and salt. dotted around the country. The government is expected to increase The authorities want to raise annual pro- investment in the mining industry with the duction capacity to 55 million tonnes and aim of diversifying the economy, creating job exports to 14 million tonnes by 2025. Cur- opportunities in rural areas and developing rent production capacity stands at 15 million Iran’s mineral processing capabilities. tonnes. However, overcapacity and low prices Despite Iran’s potential as a mineral pro- in the steel industry at global level are putting ducer, the mining industry is still relatively a brake on expansion plans. underdeveloped and accounts for only 0.6 per- The state-owned Iranian Mines and Min- cent of GDP. Short-term needs include financing Industries Development and Renova- ing, technical know-how and more effective tion Organisation (IMIDRO) is responsible machinery and plant. There is a major need for shaping and implementing Iran’s min- for foreign investment and expertise. ing policy for mineral prospecting, extrac- The government’s proposed five-year plan tion, construction and development. IMIDRO has earmarked USD 15 billion for the mining invests in foreign companies and promotes industry, primarily aimed at raising produc- foreign and private investment in the min- tion of steel, copper and aluminium. ing industry. Since the start of 2001, IMIDRO Swedish companies that establish a pres- has invested USD 17 billion in 69 mining pro- ence in the Iranian mining industry will be jects, with USD 9 billion of this channelled

competing with domestic and Asian produc- into 30 projects as of 2014. +10%

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 33

MINING

Iran’s priorities:

- Expand the mining industry - Increase the level of processing in the export of commodities - Upgrade technology and reduce environmental impact

Investment projects:

Sangan: Pellet production plant EUR 358 m

TABRIZ

MASHHAD

QOM TEHRAN SANGAN

Taft: ESFAHAN Copper mine EUR 403 m

Rafsanjan: Sarcheshmeh copper smelter TAFT EUR 740 m

SHIRAZ RAFSANJAN Sirjan: Gol Gohar SIRJAN steel works Lamerd: EUR 911 m Aluminium LAMERD smelter BANDAR ABBAS EUR 1,180 m

34 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN Sources: Iranian experts, Business Sweden (2016). Companies can apply for project licences from the Ministry of Industry, Mines and Trade. Where prospecting has proven successful, the ministry issues a certificate of discov- ery that is transferable to another party or can be used to apply for an extraction licence. The ministry issues extraction licences and sets extraction volumes. There are currently no restrictions on foreign companies or private individuals owning mineral rights.

, 5000ACTIVE MINES IN IRAN

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 35 HEALTHCARE

Iran’s priorities:

- Increase the number of hospital beds per capita - Increase availability to healthcare - Upgrade equipment and technology

Investment projects:

Mashad: X-ray centre EUR 22 m Tabriz: Dialysis centre EUR 7 m

TABRIZ

URMIA RASHT

MASHHAD

Urmia: TEHRAN Hospital 600 QOM beds EUR 90 m Rasht: Hospital 1,000 ESFAHAN beds EUR 150 m

Rasht: Cancer centre EUR 80 m SHIRAZ

BANDAR ABBAS

36 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN Sources: Iranian experts, Business Sweden (2016). HEALTHCARE

During the sanctions era, Iran’s standard of Iran has 900 hospitals – the largest number medical equipment and infrastructure fell of any Middle Eastern country – but a compar- behind other countries in the region – as seen atively low number of hospital beds (135,000) in a high rate of infant mortality. There is and doctors (73,000). The plan is to increase political will to produce basic medical prod- bed availability from 1.7 per 1,000 inhabitants ucts domestically, but the country remains to the regional average of 2.7 per 1,000 inhab- heavily reliant on imports of advanced medical itants and to upgrade between 50,000 and products, primarily from the EU and Asia. 70,000 old hospital beds to new ones. Together, cardiovascular disease, cancer, Doctor’s salaries rose sharply in 2014 as asthma and diabetes account for 76 percent of part of a strategy to raise physician numbers. deaths in Iran. Cardiovascular disease is the More than half of national healthcare expend- biggest killer: 90,000 people a year die from iture was publicly funded in 2015, with the a heart attack and 40,000 from a stroke. In remainder financed by fees and, to a lesser 2014, the country had an estimated 4.5 mil- extent, private insurance. lion diabetics. The Iranian Association of Dia- The country’s 550 or so public hospitals betes estimates that this number will have have long been in need of investment. Half are doubled by 2030 if no action is taken. Traffic more than 50 years old and need upgrading. accidents are another major cause of mortal- Deficits in hospital budgets have led to a short- ity: 30,000 people die on the roads every year. age of medicines and medical equipment. The Major health problems include drug abuse, country’s private hospitals – approximately which in recent years has spread into educated 350 in all – face economic challenges that have sections of society. Neighbouring Afghani- resulted in equipment shortages. stan, which produces 90 percent of the world’s Access to and the quality of healthcare is opium and heroin, is a major source. Iran below average for the region. The government serves as a transit state for Afghan narcot- and its agencies have launched a health over- ics that are smuggled into Turkey and on to haul plan to upgrade and develop healthcare in Europe. The authorities put the number of the next few years. The aim is to increase the drug users at 2.2 million, though up to 6 mil- number of hospital beds and healthcare pro- lion Iranians may suffer from drug-related fessionals, improve primary and elderly care, problems. The country is investing signifi- prevent lifestyle-related diseases, and reform cantly to combat drug use by setting up reha- state-funded health insurance programmes. bilitation clinics and offering anti-addiction The government regards foreign investors as a programmes. potential player in this modernisation process.

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 37 Responsibility for healthcare in Iran rests with a number of state authorities. The Minis- try of Health is in charge of running over 60 percent of Iran’s hospitals. Agencies reporting to the ministry are responsible for coordinat- ing, procuring and distributing equipment for public hospitals. They also have an oversight role when it comes to training and research programmes at the country’s 52 medical universities. The Department of Medical Equipment is the ministerial department responsible for the regulation, pricing and supervision of medical equipment imports. The private sector plays the leading role in medical equipment imports and distribution. Other ministries and organisations that provide healthcare services are the Ministry of Defence, the Social Security Organisation, the Iranian Blood Transfusion Service and L’Insti- tut Pasteur. A number of charity organisations also provide healthcare.

38 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN ENERGY AND ENVIRONMENTAL TECHNOLOGY

Oil and gas. In 2015, Iran was the world’s leum has estimated that Iran needs at least eighth largest producer of crude oil, with a USD 180 billion by way of investment in the global market share of just over 4 percent. sector over the next six years. In the same year the country was the world’s Electricity. Iran has historically kept elec- third largest producer of natural gas, after the tricity prices low by means of state subsidies, US and Russia. Iran comes second in terms while at the same trying, with little success, to of its share of world reserves of both oil (10 reduce energy use. In 2014, the government percent) and natural gas (17 percent). announced that electricity prices would rise Approximately 70 percent of Iran’s crude by 25 percent as a result of lower subsidies. A oil reserves are on land and the rest are in the gradual increase in electricity production is Persian Gulf and Caspian Sea. The country is expected to help enable Iran to meet rising now planning to invest in increasing its refin- domestic demand and continue to increase its ery capacity. electricity exports to Armenia, Pakistan, Tur- The majority of Iran’s gas reserves are unde- key, Iraq and Afghanistan. veloped, and currently the country consumes Renewable energy. The Ministry of Energy almost all of its gas domestically. South Pars, has introduced special incentives for wind Iran’s biggest natural gas field, accounts for 40 power development, and as a result Iran percent of national gas reserves and forms part now has a degree of capacity in that field. of a large gas field shared between Iran and The authorities are planning to expand wind Qatar. Other large gas fields in Iran are Kish, power on a massive scale. North Pars, Tabnak, Forouz and Kangan. Solar energy offers major potential but A major oil exporter, Iran exports only remains undeveloped. A number of biomass small amounts of natural gas to neighbour- and waste management research projects are ing countries. Given the extent of its oil and ongoing but do not contribute to energy pro- gas resources, Iran has the potential to be a duction. considerably bigger player in the global energy The authorities estimate that renewable market than it is today. The Ministry of Petro- energy requires investment of USD 110 billion

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 39 ENERGY AND ENVIRON- MENTAL TECHNOLOGY Iran’s priorities:

- Reduce oil consumption and environmental impact - Address the shortage of water - Develop wind power and solar energy - Develop hydroelectric power - Bring in more competence in environmental technology

Investment projects:

Tehran: Khaf: Water treatment Wind park 750 plant MW EUR 133 m EUR 1,300 m

TABRIZ

Shoush: MASHHAD Water treatment plant EUR 50 m TEHRAN QOM Yazd: Solar energy plant KHAF 100 MW EUR 200 m ESFAHAN

ANDIMESHK

YAZD

Andimeshk: SHIRAZ Bakhtiari dam and hydroelectric power station 750 MW EUR 2,000 m

BANDAR ABBAS

40 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN Sources: Iranian experts, Business Sweden (2016). over the next few years to raise efficiency and The three most important companies in bring production in line with demand. the oil industry are the National Iranian Oil Wind power capacity is 8,700 MW and Company (NIOC), the National Iranian Gas accounted for less than 0.5 percent of national Company (NIGC) and the National Iranian energy production in 2015. The Ministry of Petrochemical Company (NPC). All are state- Energy estimates hydroelectric power poten- owned. The NIOC is responsible for all oil and tial at just over 25,000 MW. The authorities natural gas projects that span production and are planning a number of new hydroelectric export. The National Iranian South Oil Com- dams that would increase capacity by more pany (NISOC), a subsidiary of NIOC, accounts than 6,000 MW. for 80 percent of oil production in the coun- The Supreme Energy Council (SEC), try and covers the provinces of Khuzestan, headed by the President of Iran, is responsi- Bushehr, Fars, Kohgiluyeh and Boyer-Ahmad. ble for overseeing Iran’s energy sector. SEC’s members include ministers from the Ministry of Petroleum and other ministries.

THE WORLD’S EIGHT LARGEST OIL PRODUCER

Oil production 2015, million barrels per day

USA Saudi Arabia Russia China Canada Iraq United Arab Emirates Iran Mexico Kuwait

0 5 10 15 Note: 1 barrel = 160 litres.

Sources: US Energy Information Administration, Business Sweden (2016).

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 41 ECONOMIC ZONES

Free Trade-Industrial Zones Special Economic Zones

MAKU

ARAS NAMIN

SALMAS ATRAK ANZALI MEHRAN AMIRABAD PORT IMAM KHOMEINI NOSHAHR PORT DOGHAROON SHAHREKORD AIRPORT SARAKHS TEHRAN SEMNAN WEST ISLAMABAD PAYAM AIRPORT DAMGHAN SALAFCHEGAN

LORESTAN

PETROCHEMICAL SEZ YAZD JAZMURIAN

ARVAND IMAM KHOMEINI SHIRAZ PORT RAFSANJAN

BUSHEHR PORT SIRJAN ARG-E-JADID KAZEROON SISTAN PARS PERSIAN GULF LAMERD MINERAL AND METAL SEZ

KISH QESHM SHAHID RAJAEE PORT

CHABAHAR

42 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN Sources: Iranian experts, Business Sweden (2016). ECONOMIC ZONES

To promote economic development, Iran has favourable treatment of international currency created eight Free Trade-Industrial Zones transactions. No visas or work permits are (FTIZs) and some 30 Special Economic Zones required for foreign citizens employed in com- (SEZs) in different parts of the country (see panies registered in the free zones. Employee map on opposite page). The free zones are salaries are exempt from income tax. Profits directly intended to attract foreign investment from the business may be freely taken out of and business activity, while the special zones the country. have been set up to promote either a specific The geographic locations of Iran’s invest- activity, often in manufacturing industry, or ment projects overlap to a degree with the regions in need of economic development. On country’s special economic zones. the whole, the conditions for production and trade are more generous in the free zones than in the special zones. The conditions applicable in the free zones are that all trade with foreign countries is exempt from Iranian import and export regulations after customs registration. There are no restrictions on foreign ownership. The free zones offer different kinds of tax relief and

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 43 BUSINESS CLIMATE

The Iranian market presents interesting ing among people with college degrees, is a opportunities for Swedish companies but considerable social and economic problem. also a very challenging business climate. Female participation in the labour force is very The government and government interests low and represents a vastly underexploited control large segments of trade and industry economic resource, especially considering that through state-owned companies and trusts. 60 percent of students at Iran’s universities Most Iranian companies lack experience of and colleges are women. international business. Corporate tax is 25 percent. At present, There is an awareness among Iran’s lead- Sweden has no double taxation agreement ership that widespread corruption is seri- with Iran. ously damaging the economy. The aim is to Income tax is progressive, with a maximum bring corruption down to a level comparable to marginal rate of 35 percent. VAT was raised countries that are attractive to foreign invest- from 7 to 9 percent in 2015. The taxation sys- ment, such as China. tem is complicated and tax morale low. Tax The aim is also to climb the international revenue amounts to no more than 9 percent of indices used to evaluate business climate, GDP (43 percent in Sweden). such as the World Bank’s Ease of Doing Busi- Iran’s infrastructure is quite well devel- ness, since these are a benchmark for foreign oped, but also in great need of investment. investors. By improving its business climate, The trade unions are weak and have no real Iran will be able to get closer to its goal of influence. In recent years, temporary positions becoming an important industrial centre and have been the most common form of employ- prominent regional economic player. ment by far. Temporary contracts are also Iranian customs duties are relatively high gaining ground in the public sector, where and designed to protect domestic industry as many jobs used to be for life. well as encourage foreign companies to set up A lack of competent management and manufacturing operations in Iran. The cus- international business contacts and weak toms system is a bottleneck for foreign trade. infrastructure are the prime challenges fac- Education standards are high. Compulsory ing Iranian startups. The government looks schooling lasts for eight years and is free of favourably on expansive new companies that charge. There is a surfeit of well-educated peo- create jobs, and offers incentives such as tax ple in the labour market, which is why many relief to innovative enterprises. young people go abroad to study and work. Iran has established eight Free Trade-In- Widespread youth unemployment, includ- dustrial Zones that offer especially favour-

44 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN able conditions to foreign investors. It has also established around 30 Special Economic Zones that also offer favourable conditions, although on a more limited scale (see page 43). Business Sweden has compiled the results from three renowned international indices to create a weighted business climate league table (see below). The table puts Iran in 94th place, while comparable countries such as Russia and Turkey rank 51st and 62nd respec- tively. Iran’s ranking is especially low in the Corruption Perceptions Index. The Economist Intelligence Unit’s business climate country rankings have Iran in 78th place.

CHALLENGING BUSINESS CLIMATE REFLECTED IN INTERNATIONAL INDICES Weighted ranking and individual indices for 2016

Weighted Country Global Ease of xxxHuman Corruption ranking Competitiveness Doing Business xxDevelopment Perceptions Index Index xIndex Index

1 Singapore 2 1 9 8 2 USA 3 7 5 16 3 Norway 11 9 1 5 4 Denmark 12 3 10 1 5 Germany 4 15 6 10 6 New Zealand 16 2 7 4 7 Hong Kong 7 5 15 18 8 Sweden 9 8 12 3 9 Switzerland 1 26 3 7 10 United Kingdom 10 6 14 10

25 United Arab Emirates 17 31 40 23 51 Russia 45 51 57 119 62 Turkey 51 55 69 66 94 Iran 74 118 75 130

Note: The weighted rankings of several of Iran’s neighbouring countries are as follows: Azerbaijan (64), Turkmenistan (117) and Pakistan (154). The Corruption Perceptions Index is not taken into account in the weighted ranking but is presented separately.

Sources: World Economic Forum, World Bank, United Nations, Transparency International, Business Sweden (2016).

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 45 CHECKLIST FOR SWEDISH EXPORTS SWEDISH COMPANIES TO IRAN

Is the export in compliance with the company’s own statutes and guide lines for doing business in Iran? 1 EXPORTS TO IRAN

Inspectorate of Strategic Products (ISP)

Products subject to Dual-use products 2 sanctions Unauthorised business Sensitive products Are exports Are exports affected partners affected by EU by EU sanctions export controls? against Iran?

Office of Foreign Assets Control (OFAC)

Scope of US Possible areas of conflict with US sanctions against Iran Scope of US sanctions against Iran sanctions against Iran

Swedish Customs

Questions regarding exports Customs and Payments, financing and Export declaration terms of trade logistics 5 How can secure payment for What product requirements the export be guaranteed? apply to the export? What terms of delivery What documents are 4 and mode of delivery are required for the export? are appropriate for the export?

THE IRANIAN MARKET

Sources: Inspectorate of Strategic Products, Baker & McKenzie, Business Sweden (2016). 46 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN ESTABLISHED BUSINESS IN IRAN 1

EXPORTSWhich type of company is appropriate What is required to for establishing a business? 2 register the company?

This section presents a checklist that USA. The easing of US sanctions mostly describes and illustrates in five steps Howhow is the protectionconcerns of secondary immaterial sanctions, rights which impact guaranteed? Swedish companies can export to Iran. The non-American companies and on American first three steps require checking that the businesses outside US territory. US compa- export is compatible with the company’s own nies and citizens remained barred from doing guidelines, the EU’s export controls and the business with Iran, as does the use of the US EU and US economic sanctions that remained dollar. The easing of sanctions does, however, in place after 16 January 2016. The fourth step enable the foreign subsidiaries of US com- in theCOMPANY checklist shows how companies need to panies to do businessIs the with company Iran. This entering opens into a con- deal with customs and the terms of trade and up sectors3 that weretract previously with the Iranianclosed: stateoil, regarding payment, financing and logistics. The fifth gas, petrochemicals, shipping,an investment automotive project? step involves an obligatory export declaration, and financial services, including insurance. which is submitted to Swedish Customs. These foreign subsidiaries may also, with certain restrictions, use the US parent company’s EASING OF SANCTIONS globally integrated business support system to European Union. The easing of EU economic do business with Iran. sanctions has been comprehensive and means PROJECTIn some areas, such as civil aviation and trade with – and investment in – Iran in oil, COMPANYrelated services, American companies are now gas and petrochemicals, shipbuilding is now able to obtain a licence for specific business permitted, along with trade in gold, diamonds transactions with Iran. Certain luxury prod- and precious metals. ucts from Iran such as rugs, pistachio nuts The easing of sanctions also covers pay- and caviar may be imported into the US. The ments and insurance, which are crucial for US has removed around 400 names from its effective trade. European banks can estab- list of prohibited business partners in Iran. lish offices in Iran, and Iranian banks can Many state-owned companies are no longer on open branches in the EU. Iranian banks have the list, and nor is the Central Bank of Iran. access once again to the SWIFT international payments system (the Society for Worldwide Interbank Financial Telecommunication). In addition, 400 names have been removed from the EU list of prohibited business partners, including the Central Bank of Iran and a number of Iranian commercial banks.

BUSINESSBUSINESS SWEDEN SWEDEN | | A A NEW NEW FOOTING DAWN FOR FOR SWEDISH SWEDISH BUSINESS BUSINESS ININ IRAN 47IRAN 47 CHECKLIST FOR SWEDISH EU’s export controls. In the case of double-use EXPORTS TO IRAN products (that is, products intended for both civil and military purposes) and so-called sen- 1. COMPANY STATUTES AND sitive products, the company needs to apply for GUIDELINES an export licence from the ISP. The first steprequires the Swedish company to EU sanctions. The EU sanctions still in examine its own internal statutes and guide- place against Iran cover defence material and lines prior to engaging in exports and business missile technology, listed products subject to with Iran. These may be guidelines that apply sanctions, and prohibited business partners. at group level, for instance at a US parent There is a total export ban on products in the company. The company may also have entered first category. In the case of listed products into insurance agreements and investor subject to sanctions, the company must apply agreements that stipulate compliance with US for an export licence from the ISP. Since the regulations prohibiting business with Iran. easing of sanctions, the EU list of prohibited In some cases, the company may have business partners runs to about 200 names. taken an active decision not to do business with Iran. The EU sanctions still in place are 3. US SANCTIONS AGAINST IRAN subject to a complex set of regulations. The The third step requires the Swedish company US exercises so-called extraterritorial juris- to examine whether US sanctions against Iran diction, which means that in certain cases US have any bearing on its exports. legislation is considered to apply outside US US sanctions may have been eased, but territory. Furthermore, the US sanctions are they remain far-reaching. They apply to US not clearly defined. The company may there- territory and citizens, US owners and inter- fore conclude that there is a risk of it being in ests, and US banks and financial institutions. breach of EU or US sanctions even in the case Use of the US dollar in business transactions of business transactions that would appear to with Iran is in practice forbidden. The US con- be permissible. tent of a company’s exports to Iran may not exceed 10 percent of the export value. The US 2. EU EXPORT CONTROLS AND list of prohibited business partners in Iran SANCTIONS AGAINST IRAN includes around 200 names. The second step requires the company to exam- It is not the ISP’s role to answer questions ine whether its exports are affected by the on US sanctions. Questions should instead EU’s export controls or EU sanctions against be addressed to the US embassy in Stock- Iran. To do this, the company must classify holm or a consultancy. The US Office of For- the product/s concerned. The company is eign Assets Control (OFAC) administers and responsible for this classification but can enforces US sanctions. OFAC comes under seek help from a consultant or advice from the US Department of the Treasury, but also the Inspectorate of Strategic Products (ISP), has access to the US Department of Justice’s a government agency tasked with Swedish resources for investigating and controlling control and supervision of strategic products how companies comply with sanctions. within the framework of EU regulations. The company must also perform due diligence on 4. QUESTIONS ON EXPORT-RELATED its business partner. This means identifying ISSUES the Iranian end-user and other parties partici- The fourth step requires the company to deal pating in the export transaction. with customs and terms of trade and the EU Export control. All products to be payments, financing and logistics relating to exported outside the EU are covered by the their export transactions.

48 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN CUSTOMS AND TERMS OF TRADE – Ministry of Agriculture (the ministry responsible for requirements such as veteri- Iran is one of few non-members of the nary checks on imports of live animals and WTO and is thus outside the international animal products) trading system. The Iranian government has announced WTO membership as a high – Iranian Food and Drug Organisation (regis- priority, though no negotiations have begun. tration and, where relevant, import permits The import of goods into Iran requires for foodstuffs and cosmetics) extensive work in terms of documentation and – Ministry of Information and Communi- licensing. Much of Iran’s import legislation is cations Technology (permits for media available electronically, but this information imports) is not always up to date and is only partially – Institute of Standards and Industrial translated into English. Business Sweden’s Research of Iran (issuer of standards and contacts with Swedish companies and organ- product requirements) isations confirm the view that it can be difficult to know what regulations apply to imports The length of time needed for obtaining all of different goods. The customs authorities’ the permits necessary for imports varies monopoly on the control of import and export depending on what permits are required. flows and their duty-raising power also pro- Registration, application and issuance of a vide fertile ground for corruption, which is a commercial card and import permit takes serious problem at customs posts in Iran. approximately seven working days. A permit Import procedures. Companies that run a busi- for importing of foodstuffs or cosmetics can ness in Iran and wish to import goods must be take anything from two or three months up to registered with the Ministry of Industry, Mines six months. and Trade and the Iran Chamber of Commerce. Informal networks are often of great impor- For this, they require a permanent address in tance when doing business in Iran, and trade Iran. Once registration has been approved, the facilitation is no exception. Business Sweden importer will receive a licence – known as a recommends close collaboration with import- commercial card – issued by the Iran Chamber ers, customs agents and other partners in Iran of Commerce. A commercial card is required for to ensure that all permits and registrations are an import permit application. in place at the time of import. In some cases, Iranian companies lease out The Ministry of Industry, Mines and Trade their name and commercial card to other com- draws up an annual import list stating which panies or individuals wishing to import goods imports are authorised, non-authorised and from overseas but who are not registered and prohibited for that year. As a rule, compa- lack a commercial card. This practice is a grey nies possessing a commercial card can import area and is not recommended by Business authorised goods free from any restrictions Sweden. on volume. Imports of non-authorised goods Relevant ministries and government agen- require a licence from the relevant agency. cies for registration and permit issuance Goods classified as prohibited, such as alco- include: hol, pig meat and gaming devices, cannot be – Ministry of Economic Affairs and Finance imported. (registration for paying customs and taxes) Consignments with a value exceeding USD 20,000 must be inspected in respect of qual- – Islamic Republic of Iran’s Customs Admin- ity, price and quantity before shipment to Iran. istration This check is carried out by an inspector who – Ministry of Industry, Mines and Trade is in touch with the seller of the products in (applying for import permit) Sweden. The inspector and seller agree on

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 49 where the inspection is to take place, usually Iranian customs duties are relatively high, in the country of export. Once the inspection with the World Bank’s most recent estimate has been carried out, a certificate of inspection (2011) indicating average duty payable of 25 is issued, which is needed for import into Iran. percent. By comparison, the average amount Apart from the above inspection, the prod- of duty payable in the EU is about 5 percent. uct may have to undergo further inspections Recently, the Iranian authorities announced to ensure, for instance, compliance with Ira- unspecified plans to reduce duty on a large nian standards. Depending on the inspections number of goods. required, these are carried out by a consultant In the case of goods intended solely for pro- of choice or by a specially accredited company. cessing in Iran prior to re-export, the exporter It can often save time to perform such inspec- may use Free Trade-Industrial Zones or Spe- tions in Sweden rather than in Iran. cial Economic Zones instead of going through

50 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN the normal import procedure. Special Eco- for export or import declaration forms. The nomic Zones are not as favourable as the free ATA Carnet is used for temporary imports zones, but nevertheless offer the advantage of such as samples, professional equipment and lower customs and taxes (see a more detailed demonstration products for trade fairs. description on page 43). Documentation. Import documentation Iran is a signatory to the International Con- must be drawn up in English or Persian vention on the ATA Carnet, a document for (Farsi). The Iranian customs authority does temporary imports. A company can apply for not require legalisation of commercial doc- an ATA Carnet from its local chamber of com- uments (invoice or certificate of origin), but merce in Sweden. The ATA Carnet is a docu- the Iranian purchaser may do. Legalisation ment that accompanies the goods and makes is carried out by the consular department of crossing borders easier by obviating the need the Iranian embassy (in Stockholm) or by the

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 51 legal office at the Swedish Ministry for For- Some of the major European banks have eign Affairs. Legalisation is a formality that had to pay fines running into billions for sanc- may be necessary for a document to have legal tions violations relating to the use of US dol- force in another country. This means in prac- lars. European banks also run the risk of hav- tice that the document is signed using an offi- ing their US dollar handling licences revoked. cial stamp. Penalties for European companies can also Invoice content. Invoices must have a min- include the freezing of assets, a ban on doing imum of five copies. They must be written business with US businesses, and a US travel in English and contain all relevant details, ban. including the name and address of the seller Risks. A Swedish company wishing to and buyer, package labelling, order num- export to Iran should be aware of the cor- ber and type, a detailed product description, rect procedures for ensuring timely payment unit price and total for each product type, from the Iranian customer. Delayed payment and terms of payment and delivery. Invoices or non-payment can be costly. It is therefore must state the net price because the Iranian essential that the company determines what authorities do not permit deductions of dis- risks it can and cannot accept – and makes counts on gross amounts. Furthermore, the that assessment at an early stage. invoice must also specify the name of the Ira- The main risks are political and commer- nian bank and the registration number of the cial risk and product risk. import transaction at the bank, or else the let- Political risk is linked to the purchaser’s ter of credit number if payment is made on country, in this case Iran. Governments of presentation of a letter of credit. countries experiencing economic difficulty and political unrest can take measures that PAYMENTS, FINANCING quickly change the terms of business. Such AND LOGISTICS actions may, for example, delay or prevent pay- Crucial to the development of Iran’s trade with ment transfers (known as transfer risk). the outside world following the easing of sanc- Commercial risk is dependent on who the tions is whether or not the country will open buyer is and what collateral the buyer may up to international financial transactions. be willing to provide. The risk of the buyer This is essential for effective export financing becoming bankrupt or insolvent or failing to and payments. Iranian banks are now once pay is known as commercial risk. again able to join the international payments Product risk can arise when a product has system but need a counterpart in the form of been specially manufactured and the buyer a foreign bank that is willing to manage the breaks the contract or goes into insolvency transaction. A climate of “wait and see” took during the period of manufacture. It can then hold immediately after sanctions were eased, be difficult to sell the product to another client but many European banks including several without considerable extra cost. Swedish banks are now preparing to manage Most US trade sanctions against Iran are export transactions with Iran. However, the still in place. This means that companies, speed has been unexpectedly slow. including foreign enterprises, are prohib- By the same token, the export transaction ited from doing business with Iran in US dol- guarantee system also needs to start operat- lars since these transactions go through the ing. In Sweden’s case, this extends to guaran- US financial system. Business Sweden rec- tees by the Swedish Export Credits Guarantee ommends that all contracts should use euros Board (EKN) as these play a key role in assist- (EUR) as currency. ing Swedish export transactions in emerging Advance payment. Paying in advance is the markets. best option for the exporter. However, it is not

52 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN unusual for the foreign client to demand an An L/C is always unconfirmed in its origi- advance payment guarantee from the export- nal form. This means that the “opening bank” er’s bank as a counterclaim. An advance pay- – the buyer’s bank in Iran – guarantees payment guarantee is made before or in conjunc- ment. The risk on the buyer’s side is therefore tion with the advance payment and guarantees covered. However, countries, including Iran, that the seller will pay back all or part of the may suffer from economic and political prob- advance sum if delivery is not made as agreed. lems that can make it difficult for the open- Demanding payment in advance from an Ira- ing bank to fulfil its obligations to the seller. nian client may well meet with difficulty and It may, for example, be difficult to obtain per- little success. mission to transfer convertible currency out Letter of credit (L/C). This is the safest pay- of the country. To protect against this risk, the ment method after advance payment. A letter exporter should insist that a Swedish bank of credit is an undertaking by the buyer’s bank confirms the L/C (that is, that the Swedish in Iran to pay the exporter a certain amount bank guarantees the payment liability of the once the exporter has fulfilled the conditions Iranian bank). L/Cs were a commonly used of the letter of credit. form of payment in Iran prior to sanctions.

SWEDEN’S EXPORT CREDIT SYSTEM

EXPORTER IMPORTER 1 Contract of sale

Issuing of loan 3 2 Loan agreement BANK EKN guarantee 4 EKN

SWEDISH EXPORT Financing 5 CREDIT CORPORATION

1. The exporter signs a contract of sale with an importer (buyer). Payment is made to the exporter at the time of delivery. 2. The importer would like financing, but in this case it is not the exporter who provides a loan (supplier credit). Instead it is a bank which provides financing directly to the importer (buyer credit). 3. The issuing of the loan is made directly to the exporter. 4. The bank now has a credit risk on the borrower and can apply to the Swedish Export Credits Gua- rantee Board (EKN) for a loss on claim guarantee for the lender. The guarantee covers the risk of the overseas borrower failing to pay the claim according to contract. 5. The bank also has the ability to finance the loan via the Swedish Export Credit Corporation (SEK).

Source: Business Sweden (2016).

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 53 THE LETTER OF CREDIT – HOW IT WORKS

1 Purchase agreement SELLER BUYER

4 2 6 Payment Notification Application Payment for letter 5 of credit Document Document

Opening of 3 letter of credit Document

Payment

SELLER’S BANK = BUYER’S BANK =

ADVISING BANK OPENING BANK +10%

54 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN Source: Business Sweden (2016).

Export credit guarantee. The Swedish gov- 2. Having a letter of credit confirmed by a ernment has tasked EKN with promoting Swedish bank also makes it easier to offer Swedish exports by insuring export compa- credit to the company’s clients and to obtain nies and banks against the risk of non-pay- refinancing from the bank. The letter of ment in export transactions. With the eas- credit is drawn up in the form of a usance ing of sanctions against Iran in January 2016, letter of credit (L/C with deferred payment) EKN began issuing guarantees once more for with a specified maturity date. The exporter exports to Iran. can discount the letter of credit to the bank to obtain refinancing. Three types of EKN guarantee can be used for business transactions with Iran: In the case of larger deals and long-term 1. An unconfirmed letter of credit under financing, buyer credit is often used. This which the exporter, instead of asking for involves one or more banks arranging a loan confirmation from a Swedish bank, applies agreement with the buyer in conjunction for an EKN guarantee to cover the risk with delivery. The bank financing the export associated with Iran and the Iranian bank. contract can apply to EKN for a loss on claim 2. If the letter of credit has been confirmed guarantee for the lender. The guarantee covers by a Swedish bank, EKN can share the risk the risk of non-payment of the claim under with the confirming bank. the contract on the part of the bank’s foreign borrower. The bank can access export finance 3. Payment on open credit, whereby the from the Swedish Export Credit Corporation exporter applies for an EKN guarantee (SEK). The money is disbursed directly to to cover the risk of non-payment by the the exporter at the time of delivery, making Iranian buyer. The EKN guarantee also it a cash transaction from the exporter’s covers the risk of non-payment associated perspective. with Iran as a state. Some Iranian banks are still subject to Financing. Financing is often a crucial aspect sanctions. To guarantee a safe procedure, it is of export transactions. It is also an important advisable to contact the company’s Swedish sales argument and can represent a competi- bank, EKN, and, where necessary, SEK, at an tive advantage for the exporter. Supplier credit early stage. is the most common form of credit, above all Delivery terms. The contractual delivery in the case of short credit periods, and involves terms regulate the distribution of costs and the supplier extending a loan to the buyer. the risks to which the goods are exposed dur- The exporter’s ability to provide supplier ing transportation. The most widely accepted credit hinges on his ability to refinance the set of delivery terms in this area at interna- transaction. tional level are Incoterms 2010, produced by the International Chamber of Commerce Business Sweden recommends one of these (ICC). Further information about Incoterms is two structures when offering supplier credit available in Business Sweden’s online export to Iran: guide – Exportguiden – and on ICC’s website. 1. Having an EKN guarantee as security It is important that the company considers makes it easier to arrange bank financing, the delivery terms carefully when entering into enabling the company to offer its clients a complex international business agreement, financing on competitive terms. The com- and that it combines them with payment terms pany assigns the claim and rights under that will be effective in the given context. the EKN guarantee to the finance provider In the case of letters of credit, it is para- to obtain refinancing. mount that the exporter has access to the doc-

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 55 uments required for fulfilling the terms of the against the use of DDP since this could make letter of credit. Freight documents are nor- it hard to find a carrier and lead to a drawn-out mally included in the documentation required and difficult clearance process. under a letter of credit. Since the carrier hands Business Sweden recommends Carriage over the freight documents to the freight Paid To (CPT), or Cost and Freight (CFR) for payer, it is important that the exporter orders sea transport. and pays for the transport if the terms of pay- Shipment to Iran. A relatively high ratio of ment are a letter of credit. Terms of carriage goods transported to Iran is destined for the such as Ex Works (EXW), Free Carrier (FCA), Tehran area, either for final delivery or to pass Free On Board (FOB) and Free Alongside Ship through a terminal there. It is common for the (FAS) should therefore be avoided where a let- recipient to take over the shipment from the ter of credit is used. terminal in Iran, especially in the case of more Risk and transport insurance. The party bear- unusual final delivery locations. Transporta- ing the risk of damage or loss of goods dur- tion to the Tehran area is primarily by road – ing transport can arrange insurance to cover both as full loads and groupage consignments the risk to the goods during transport. Busi- – or else by air. ness Sweden recommends that all compa- Air transport to Iran is handled by Ira- nies insure goods during transport if they nian air carriers through services from Stock- bear the risk for the goods under the delivery holm and Gothenburg. The main alternative terms. Risk and transport insurance is nor- is via Turkey using other carriers. There may mally arranged with the company’s insurance be comprehensive restrictions on dimensions partner or with the carrier or, in some cases, and weight depending on the type of aircraft, with an independent insurance agent. Certain and goods classified as hazardous will gener- delivery terms – Cost, Insurance and Freight ally not be accepted. (CIF) and Carriage and Insurance Paid (CIP) – Several major shipping companies call at stipulate that the exporter, who does not bear the port city of Bandar Abbas in southern the risks of transportation, must still arrange Iran. This freight solution is especially suited insurance on behalf of the recipient. to very large volumes of goods and for deliv- In Business Sweden’s experience, many eries aimed at that part of the country and for Swedish insurance companies do not cur- goods shipped directly from Asia. Full Con- rently provide transport insurance for exports tainer Load (FCL) and conventional sea trans- to Iran. Business Sweden recommends con- port are the primary alternatives, but Less tacting the relevant insurance company at an Than Container Load (LCL) are also consoli- early stage. If insurance cannot be arranged, dated in European continental ports. A direct neither CIF nor CIP can be used as terms of consolidation service from Sweden is now delivery. The use of delivery terms in which available as well. If delivery is to northern the exporter bears the risk of loss or damage Iran, the exporter should bear in mind that to the goods during transportation, such as the transfer from the port can take time, and Delivered at Place (DAP), Delivered at Termi- this needs to be reflected in the planned deliv- nal (DAT) and Delivered Duty Paid (DDP), is ery schedule. also unsuitable as the exporter may be una- Groupage and LCL operators by road and ble to arrange insurance. If the recipient bears sea do not generally accept hazardous goods. the transport risks, he can insure the goods A company wanting to transport goods that during shipment in the destination country. are hazardous, atypically sized or have other DDP consignments are not accepted by special requirements should carefully discuss most of the carriers involved in transport conditions with the carrier at an early stage. to and from Iran. Business Sweden advises Carriers place strict requirements on all doc-

56 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN umentation being in order and on all the relevant information being provided in good time. In the case of express shipments, the company must check that the courier company covers Iran. This is not always the case, especially where the courier company has a US connection.

5. EXPORT DECLARATION The fifth steprequires a Swedish company exporting goods to Iran to fill in an export declaration and submit it electronically to the Swedish Customs data system Tulldatasys- temet (TDS). A description of the details to be included in the export declaration can be found in the Swedish Customs’ declaration guide Tulldeklarationshandledningen . In most cases, the export declaration must include the prior notification about the export. The responsibility for ensuring that the prior notification reaches Swedish Customs can be transferred to another party such as a carrier, but this will require a power of attorney from the exporter. The time required by the Customs Office of Export to approve (clear) an export declaration containing details of prior notification varies according to the mode of transport. In the case of container freight, the export declaration must be submitted 24 hours before the goods are loaded on the vessel. The deadline is two hours for rail transport, one hour for road transport, and 30 minutes before departure for air transport.

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 57 IRANIANS IN THE WORLD

SWEDEN NORWAY

CANADA

UNITED KINGDOM GERMANY NETHERLANDS AUSTRIA FRANCE SPAIN USA

POPULATION OF IRANIAN ORIGIN 500,000–1,000,000 100,000–200,000 50,000–100,000 10,000–50,000

58 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN IRANIANS IN THE WORLD

Azerbaijan Armenia Turkmenistan WHERE PERSIAN (FARSI) Tajikistan IS SPOKEN Spoken by approximately GERMANY Iraq 110 million people Afghanistan Iran

Pakistan

IRAN United Arab Emirates

MALAYSIA

There are approximately 3–4 million Iranians living outside Iran’s borders today. The driving forces behind this diaspora have mainly been education and job opportunities, but the revolution of 1979 resulted in hundreds of thousands of Iranians leaving the country for political reasons. Many people of Iranian origin live in countries near Iran, including Turkey and the United Arab Emirates. Iranians who moved to the United States have mostly settled in California (Los AUSTRALIA Angeles) and New York. In 2015 there were 70,000 people living in Sweden who had been born in Iran. Many Iranians abroad are well educated and have positions in universities and in trade and industry. Approximately 60,000 Iranians study abroad each year

BUSINESS SWEDEN | A NEW DAWN FORSource: SWEDISH Business BUSINESS Sweden IN IRAN 59 (2016). CHECKLIST FOR SWEDISH COMPANY SETTING UP A COMPANY IN IRAN

Is the venture in line with the company’s own statutes and guidelines for doing business in Iran? ESTABLISH A 1 BUSINESS IN IRAN

What type of company is appropriate What is required to for establishing a business? 2 register the company?

How is the protection of intellectual property rights guaranteed?

Is the company entering into a COMPANY contract with the Iranian government 3 regarding an investment project?

PROJECT COMPANY

THE IRANIAN MARKET Sources: Iranian legal experts, Business Sweden (2016). +10%

60 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN

SETTING UP A COMPANY

Swedish companies are able to operate in the CHECKLIST FOR SETTING UP A Iranian market with the aid of three permitted COMPANY IN IRAN types of intermediaries and representatives: brokers, commission agents and commercial 1. COMPANY’S OWN STATUTES AND agents. The latter have a broad mandate to GUIDELINES represent the company in its negotiations and The first steprequires the Swedish company agreements. Swedish companies can also to examine its own internal statutes and choose to establish a local branch in Iran or guidelines for establishing a company in Iran. to enter into a joint venture with an Iranian Just as with export transactions (see page 48), partner. If, however, a Swedish business is group-level guidelines, such as those of a US looking for a longer-term commitment as an parent company, or external parameters may exporter to or investor in Iran, there are good exist that do not permit an envisaged business reasons to operate as a private company in Iran. operation in Iran. This section gives a checklist that illustrates in three steps how a Swedish company can set 2. ESTABLISHING A COMPANY up a company in Iran. The first step is to check IN IRAN that establishing such a business is compatible The second step involves the Swedish company with the company’s own guidelines. The sec- examining the conditions for establishing a ond step is to ensure that the type of company private company in Iran and then following created is appropriate for conducting the activ- the prescribed procedure. ities planned in Iran. The third step is relevant As of 2010, foreign companies are permit- only if the company is to enter into an agree- ted to own 100 percent of an Iranian subsidi- ment with the Iranian government regard- ary. Iranian legislation recognises the following an investment project in Iran. If this is the ing categories of company: private joint stock case, the company needs to create a special company, public joint stock company, general project company that will be wound up once partnership company, proportional liability the investment has been made. company, mixed partnership company, limited Business Sweden recommends that com- liability company, and partnership company. panies considering establishing a company in Iranian legal advisers have, on behalf of Busi-

Iran take legal advice. ness Sweden, identified two types of limited +10%

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 61

company – private joint stock company and Separately, the company must consider limited liability company – as the most suita- the need to protect its intangible assets. Iran ble for Swedish businesses wishing to estab- is a member of the World Intellectual Prop- lish a private company in Iran. A private joint erty Organization (WIPO) and a signatory to stock company must have at least three part- several international conventions on intellec- ners. Shares can be traded freely without tual property rights. The chances of obtaining requiring the consent of fellow partners. protection for intellectual property rights are good. Despite this, infringements of foreign Registering a company is an eight-step trademarks in the Iranian market are com- process. Several of these steps can be taken in monplace. parallel: 1. Obtain criminal record clearance (5 days) 3. ESTABLISHING A PROJECT COMPANY IN IRAN 2. Reserve a unique company name, handle A possible third step is for the Swedish registration, and payment of registration company to create a time-limited company in fee (3 days) Iran. Iran’s Budget Act of 2012-2013 stipulated 3. Notify the Official Gazette of the new that a new type of entity – a project company company’s formation (1 day) – must be used in any collaboration between a 4. Notify the State Tax Affairs Organization of private company and the Iranian government, the company’s business (1 day) such as investing in and operating infra- 5. Register for VAT (2 days) structure. A project company is an obligatory 6. Open a ledger account (1 day) company form for many of the investment projects mentioned in this report in note form 7. Pay stamp duty (1 day) on the maps in the Investment opportunities 8. Enrol employees in the social security section. A project company must be wound up programme at the Ministry of Labour and on completion of the investment. obtain a workplace number (1 day)

Registration is done electronically via the Registrar of Companies and Industrial Ownership. Some documents must also be submitted in person, however. All documentation relating to registration must be translated into Persian (Farsi).

62 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN OPPORTUNITIES AND CHALLENGES FACING SWEDISH COMPANIES

Iran has put behind it a decade of tightening sion-makers and is appreciated in political cir- economic sanctions. Iranian consumers and cles and many areas of the administration and companies are showing strong demand for in trade and industry. By the same token, leav- European and US products and business ing Iran in the wake of sanctions was quite an collaboration as an alternative to dealing with upheaval for many Swedish companies, as it the Chinese companies that dominate the was for other European corporations. consumer and producer markets. If Iran normalises economic relations with Sweden and Swedish companies enjoy a the outside world, the country will enjoy the solid reputation in Iran. Swedish companies right conditions for rapid economic growth have a long history of active involvement in in the next few years, primarily in the form of the Iranian market. Currently, Swedish busi- an upswing in the oil sector. This will have a nesses operate in sectors such as telecommu- knock-on effect on other industries and help to nications, transport, mining and power sup- forge business opportunities in areas of inter- ply. Swedish products are seen to be reliable est to Swedish companies. There are, however, and of good quality, albeit not superior to sim- reasons to view the development of the market ilar European products. German goods, how- with caution, as there are too with the ability of ever, are seen to offer especially high quality. the Iranian state and potential Iranian partners One reason why Swedish companies enjoy to honour financial obligations. The country’s a good reputation is that they are seen as pur- international isolation and long-term economic suing a long-term business approach and have mismanagement has seriously damaged the helped to build the Iranian economy without economy and industrial fabric. In the short participating in Iran’s internal struggle for term, Iran must be allowed to join the interna- political dominance. This is an important and tional payments system for it to become widely positive factor in relations with Iranian deci- accessible to foreign companies and investors.

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 63 The entry or return of Swedish companies is to have references available and to maintain a hampered by the fact that much of the Iranian local presence to monitor and develop relation- market and its various segments are unknown ships with Iranian partners. Poor knowledge and poorly analysed. Reliable statistics and of the Iranian market and undeveloped net- market data are a scarce commodity in Iran. works will make the challenge even greater. The influence wielded by state-owned compa- Swedish companies are advised to start busi- nies and state interests over trade and indus- ness partnerships with short-term contracts try is responsible for a lack of market transpar- that can be terminated quickly. It is best to ency. The absence over many years of foreign limit the scope of a venture initially in order to competence in corporate services such as law, gain an opportunity for feedback and evalua- accounting and other forms of business sup- tion of the Iranian partner. port is a further impediment to market insight. Business negotiations with Iranian coun- Swedish companies enjoy a consistently terparts can be testing and require care- high profile in corporate social responsibility ful advance preparation and follow-up docu- (CSR). The Iranian government has welcomed mentation. Business Sweden recommends this, seeing an opportunity for the presence that Swedish companies ensure access to of foreign companies to help roll back corrup- legal advice at local level. Business trips and tion in the business sector. That said, the com- exchanges between Swedish and other Euro- mercial environment is very challenging. Cor- pean companies will provide Swedish busi- ruption is on a par with other Central Asian nesses over time with a greater understanding countries, though Iran’s social institutions are of Iranian commercial relationships. stronger than in many parts of the region. The The sanctions still in place also pose chal- civil law system works relatively well. Iran is lenges that Swedish companies must confront also emerging from a period in which smug- in their exports to Iran. The EU has lifted the gling was a necessity for national survival. sanctions connected to Iran’s nuclear energy Corruption increased as a result of sanctions programme, but the arms embargo remains in but can also be suppressed if Iran can adapt to place, as do sanctions relating to human rights the international business community. infringements. The classification of export For Swedish companies to succeed in Iran, products can often be very technical. This is they need to be on the ground in the country where Swedish companies can use assistance with a good understanding of the local mar- from consultants or contact the ISP for advice. ket, have access to investment capital, and In most cases, it is essential to attach specifi- take a long-term business approach. Iran has cations, brochures, datasheets and suchlike so a relationship economy in which business is that the classification can be made. based on relationships and mutual trust. In Checking out an Iranian business partner this respect, the country does not differ from can be a complex process. Persons named on many other emerging markets. The ability of the EU and US lists may not hold shares in or, Swedish companies to finance their business in the case of the US list, be stakeholders of an arrangements is also a critical factor and, in Iranian business partner. The US sanctions many cases, a competitive advantage. kick in automatically in cases of shareholdings At the same time, the difficulties associ- of 50 percent or more, though smaller shares ated with doing business in Iran should not be may also be penalised in some cases. exaggerated. As in many other emerging econ- A further hurdle is the ban on US content omies, the challenge for Swedish companies in export products to Iran exceeding 10 per- is to find suitable partners, distributors and cent of the export value – a constraint that suppliers. This is where trade fairs and other applies to all companies regardless of national- meeting places can be of help. It is important ity. This can make it difficult to know where to

64 | BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN draw the line, a problem that companies can- nies doing business in Iran. Business Swe- not always solve alone. den will act as Sweden’s front desk to avoid the US dollars should not be used when doing use of intermediaries as far as possible when business with Iran. This can complicate pay- Swedish companies deal with potential Ira- ments in certain areas where the US dollar is nian partners, distributors, clients and suppli- used as standard, such as sea freight. ers, as well as with professional service provid- If Iran is in breach of its international ers. Business Sweden will seek to improve the undertakings, the EU and US can re-imple- conditions for business relationships between ment sanctions. It is unclear how such a snap- Sweden and Iran, including visa regulations, back process would work and what conse- which are complicated and time-consuming quences it would have for companies doing for Swedish companies. business with Iran. The EU has stated that Business Sweden will also be part of the sup- business transactions conducted in accord- port package provided by official Swedish chan- ance with current regulations should still nels for Swedish business in Iran. In a state-run be seen to be valid in the case of a snapback. economy like Iran’s, political gestures made by However, it is important for Swedish compa- foreign powers carry weight for private com- nies to bear in mind that any reimposition merce. Countries such as France, Germany of sanctions might affect their contract with and Italy have sent large business delegations to an Iranian business partner and they should Iran. Sweden’s Nordic neighbours are also very therefore ensure they are in a position to settle much at the forefront in their commercial con- any transaction quickly. Developments in Iran tacts with Iran. Such initiatives do not neces- suggest that the country’s undertakings will sarily result in a business contract right away, be fulfilled in accordance with the JCPOA. but they underscore the political interest in However, the political situation in the US is developing deeper bilateral business relations uncertain, and a new administration may take – something that is highly valued in Iran. Busi- a harder line in its relations with Iran. ness Sweden’s ambition is that Swedish compa- Business Sweden opened an office in nies will take a leading role in the new business Tehran in September 2016. Its initial focus relations now being forged with Iran. will be on developing a consultancy business and offering a network for Swedish compa-

SWEDEN’S FOURTH LARGEST EXPORT MARKET IN THE MIDDLE EAST Sweden’s goods exports by country, SEK rbillion

20 Turkey Saudi Arabia

15 United Arab Emirates

13.2 Iran

10 10.5

6.8 5 2.5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Sources: Statistics Sweden, Business Sweden (2016).

BUSINESS SWEDEN | A NEW DAWN FOR SWEDISH BUSINESS IN IRAN 65

BUSINESS SWEDEN Box 240, SE-101 24 Stockholm, Sweden World Trade Center, Klarabergsviadukten 70 T +46 8 588 660 00 F +46 8 588 661 90 [email protected] www.business-sweden.se