Fall$ 08! ! ! ! ! Market Entry into Iran – ! ! ! A Historic Opportunity ! ! for Norwegian Firms? ! “The%Key%to%Success%is%Due%Diligence”% ! ! MSc. International Business, 2016 Authors: Anna Øverås Tiril Stillufdatter Karlsen ! ! ! Acknowledgements Completing this report would not have been possible without the generous help from Mr Aghili, who provided us with valuable information, and introduced us to great parts of the generous Iranian culture. We should also express our profound gratitude to Mr Gharesifard and Mr Arshid, who wanted to share their knowledge about the oil and gas industry in Norway and Iran, and who inspired us to further deepen our understanding of this field. Additionally, we wish to thank Mr Karlsson who shared his thoughts on our topic and introduced us to relevant sources of information. This report would not have existed without the great suggestions from Mr Sandvær and Ambassador Norheim, who inspired us to focus on an environmentally concerned matter in the beautiful country, Iran. List of Abbreviations Reports and Indices CPI Corruption Perception Index GCR Global Competitiveness Report GGGR Global Gender Gap Report HCR Human Capital Report WGI Worldwide Governance Indicators Others APG Associated petroleum gas ASEAN Association of South East Asian Nations CBI Central Bank of Iran CIS Commonwealth of Independent States EOR Enhanced Oil Recovery FATF Financial Action Task Force FIPPA Foreign Investment Promotion and Protection Act FLNG Floating Liquefied Natural Gas FTIZ Free Trade-Industrial Zones GHG Greenhouse Gas GCC Gulf Cooperation Countries GTL Gas to Liquids ICT Information Communication Technology ILO International Labour Organization IOC International Oil Company IPR Intellectual Property Right IPC Iranian Petroleum Contract IMF International Monetary Fund IRGC Iranian Revolutionary Guards Corps IAIIC Iranian Automotive Industry International Conference IOOC Iranian Offshore Oil Company JCPOA Joint Comprehensive Plan of Action JV Joint Venture LNG Liquefied Natural Gas LPG Liquefied Petroleum Gas MENA Middle East and North Africa MNE Multinational Enterprise MoU Memorandum of Understanding NCS Norwegian Continental Shelf NIGC National Iranian Gas Company NIGEC National Iranian Gas Export Company NIOC National Iranian Oil Company OPEC Organization of the Petroleum Exporting Countries UNFCCC UN Framework Convention on Climate Change UAE United Arab Emirates SEZ Special Economic Zones WEF World Economic Forum WIPO World Intellectual Property Organization List of Tables Table 1: Political stability, 2014 Table 2: Government Effectiveness, 2014 Table 3: Rule of Law, 2014 Table 4: World Justice Project, Rule of Law Index, 2014 Table 5: Logistics Performance Index Table 6: Networked Readiness Index, 2015 Table 7: Global Competitiveness Report, 2015, Higher education factors Table 8: Global Competitiveness Report, 2015, Labour Market Factors Table 9: Global Gender Gap Report, 2015 List of Figures Figure 1: Iran’s Complex Political System Figure 2: Political stability and absence of violence/terrorism, Iran (2004-2014) Figure 3: Control of Corruption, Iran (2004-2014) Figure 4: GDP Growth Rate, Iran (2002-2020) Figure 5: GDP current prices, Iran (2002-2020) Figure 6: The Price of U.S. Dollars in Iran’s Foreign Exchange Market (2014-2016) Figure 7: Inflation Average Consumer Prices, Iran (2002-2020) Figure 8: Annual University graduates, Iran (2014) Figure 9: Labour Force Participation Rate, Iran (2014) Figure 10: Total and Youth Unemployment Rates, Iran (2010-2020) Figure 11: Population Pyramid, Iran (2016) Figure 12: Total unemployment rate by gender, 15+ Iran (2010-2020) Figure 11: Youth unemployment rate by gender, Iran (2010-2020) List of Pictures Picture 1: Persian Gulf and Strait of Hormuz ! Table of Contents The Iranian Market: Does it Hold Opportunities or Challenges for Norwegian Firms? ......................... 2 Background Material ....................................................................................................... 2 Value Creation for the Norwegian Industry ........................................................................... 3 Part 1. Political Factors ....................................................................................................... 5 1.1 Political Atmosphere .................................................................................................. 5 1.1.1 Iran’s Power Centre .................................................................................................................... 5 1.1.2 Political Stability ......................................................................................................................... 9 1.1.3 Government Effectiveness ......................................................................................................... 12 1.1.4 Rule of Law .............................................................................................................................. 13 1.2 Degree of Openness .................................................................................................. 18 1.2.1 Willingness to Promote Foreign Investments ............................................................................. 18 1.2.2 Government Interventions in the Market ................................................................................... 20 1.2.3 Investor Confidence .................................................................................................................. 21 1.2.4 Taxation and Free Trade Agreements ........................................................................................ 22 Part 2. Economic factors ................................................................................................... 25 2.1 National Economy ................................................................................................... 25 2.1.1 GDP-Figures ............................................................................................................................ 25 2.1.2 Exchange Rate Markets ............................................................................................................. 27 2.1.3 Inflation .................................................................................................................................... 29 2.1.4 Interest Rate ............................................................................................................................. 30 2.2 Product Market ....................................................................................................... 32 2.2.1 Raw Material Quality and Prices ............................................................................................... 32 2.2.2 Infrastructure and ICT .............................................................................................................. 33 2.3 Labour Market ........................................................................................................ 36 2.3.1 Education ................................................................................................................................. 36 2.3.2 Human Capital Deployment ..................................................................................................... 38 2.3.3 Unemployment ......................................................................................................................... 40 2.3.4 Minimum Wage ....................................................................................................................... 44 2.3.5 Labour Unions .......................................................................................................................... 45 2.3.6 Labour Market Efficiency .......................................................................................................... 46 2.4 Capital Market ........................................................................................................ 47 2.4.1 Capital and Financial Markets ................................................................................................... 47 2.4.2 Access to Financing .................................................................................................................. 49 Part 3. Cultural Factors ..................................................................................................... 52 3.1 Religion ................................................................................................................ 52 3.2 Language and Communication .................................................................................... 53 3.3 Business Practices in Iran ........................................................................................... 55 3.4 Female Roles .......................................................................................................... 56 3.4.1 Female Labour Force Participation Rate .................................................................................... 57 3.5 Young and Well-Educated – No Relations to the Revolution ............................................... 59 Part 4. Geographical Factors .............................................................................................. 60 4.1 Resources and Available Projects ................................................................................. 60 4.2 Proximity to Markets ................................................................................................ 63 4.3 Environmental Goals ...............................................................................................