German business looks to post-sanctions Iran boom | Business| Economy and finance news from a German perspective | DW | 19.05.2015
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German business looks to post-sanctions Iran boom

As western sanctions imposed on Iran look likely to be lifted soon, German firms are hoping to reinvigorate traditional business ties with the oil-rich country. But a new rival has emerged, making a re-start difficult.

After almost a decade of United Nations-backed sanctions imposed on Iran over its nuclear program, Iran's economy is in a shambles and urgently needs foreign investment. Especially the country's all-important oil, gas and petrochemicals industry needs a revamp - and so do smaller sectors such textiles, pharmaceuticals and car manufacturing.

As the Iran embargo looks likely to be lifted after negotiations between Western countries and Teheran on Iran's nuclear program seem set to achieve a settlement, German firms, in particular, are eager to breathe new life into their traditional business ties with the country.

Currently, German exports to Iran amount to about 2.4 billion euros ($2.6 billion) - less than half what they were ten years ago, when sanctions were imposed. According to the German Chambers of Industry and Commerce (DIHK), that figure could easily multiply to a sum in the double-digit billions once sanctions will be lifted.

At a conference in Frankfurt organized by the German Near and Middle East Association (NUMOV), about 250 German business leaders explored opportunities likely to open up in Iran in the near future. The one-day event on Tuesday, called "Doing Business in Iran," primarily dealt with the Iranian oil and gas industry, but also cast a light on the renewable energy and finance sectors.

Trade as well as investments sought

Speaking at the conference, Iran's ambassador to Germany, Ali Majedi, told participants that Germany used to be either the largest or second-largest trading partner for Iran. Now it had slipped into "position five or six," he said, but added: "We expect that after the sanctions are lifted, Germany will again be number one or two among Iran's trade partners."

The ambassador, however, made abundantly clear that his country wasn't only interested in buying German goods and services. "The Iranian side expects not only trade, but more investments by German companies, and the transfer of technology through joint ventures."

Notably, Iran's energy sector, which boasts a fifth of global natural gas reserves and is the world's fourth largest oil producer, was offering a "big potential for foreign investment," said Mohammad Peyvandi, Vize President of Iran's state-owned petrochemical firm NPC.

Mohammad Peyvandi

NPC's Peyvandi told the conference that Iran's oil industry needed technical services and a supply of spare parts to modernize.

'Made in Germany' still cherished

Peyvandi also noted that during the years of western sanctions, rival companies from China and other Asian countries had increased their market shares in the industry, which, however, didn't mean that Iranians were always "satisfied" with their services. "The Iranians are looking for the best possible quality, and they prefer made in Germany," he said.

Nevertheless, Chinese firms are hugely successful in Iran, and have proven adept at exploiting the absence of their western competitors. In 2012, for example, Chinese manufacturers of textile machines and equipment for the first time sold more to Iran than similar firms from Germany - and this even though there was not a single plant in the industry using Chinese machinery a decade ago.

Slow re-start

Martin Herrenknecht, owner of a German tunnel-boring machine manufacturer, expects tough competition from Asian rivals once his company re-enters the Iranian market after sanctions are lifted. The void left by western firms was "quickly occupied," he told DW, adding: "It won't be easy to push them out again."

Martin Herrenknecht

For a re-start of his business, Martin Herrenknecht banks on major infrastructure projects announced by Iran.

In the years before sanctions were imposed on Iran, Herrenknecht's firm sold equipment worth between 10 million euros ($11.5 million) and 15 million euros annually to Iran. He hopes to re-launch his Iranian business fairly quickly as he wants to benefit from Teheran's plans to build a new subway line in the country's capital, as well as a new high-speed train connection and improvements to the national water and sewage systems.

Herrenknecht believes, however, that reinvigorating traditional business ties with Teheran will be slow in coming, because existing impediments to banking services and project financing imposed during sanctions need to be overcome first. Even if sanctions are lifted quickly after a nuclear agreement expect to be signed on June 30, it will take up to a year to get Iran's banking sector up and running again, he said.

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