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Stability key to Iran business

Klaus Ullrich
May 19, 2017

The presidential election in Iran will decide whether or not the country's economic 'opening-up' should continue, says VDMA expert Klaus Friedrich, who discussed current problems in doing business with Iran with DW.

Deutschland Iran Sachsen hofft nach Wegfall der Iran-Sanktionen auf gute Geschäfte
Image: picture-alliance/dpa/A. Burgi

Deutsche Welle: Since the nuclear agreement took effect, German-Iranian trade relations have been improving. German machine exports to Iran rose considerably last year. What are your hopes for the presidential elections in Iran?

Klaus Friedrich: We hope that the presidential elections in Iran will further stabilize the stable political situation there. We hope that the economic upturn, which is comparatively slow, will also then solidify and accelerate, for which political stability is indispensable.

What are currently impediments to bilateral trade?

The main problem is that there are too few bank connections between Iran and Germany. Very few financial institutions are currently prepared and ready to support business in Iran. For business policy reasons, and with regards to US interests, they keep their hands off it. So it comes to the fact that a couple of German companies, which would like to do business in Iran - legal business allowed under the sanctions regime - cannot find a bank that handles payment transactions. The same applies for credit financing and other financial services related to export transactions.

Are there any other problems?

The second problem is that we can't exactly estimate how much money Iran has. The government's financial situation remains unclear. But that might change or improve after the elections. Otherwise, the general compliance control around Iranian transactions is high by comparison. This was also the case before the sanctions.

Can you briefly explain the term "compliance" in this context given that it may not be familiar to everyone?

With any transaction worldwide, but particularly in business with Iran, you have to check whether or not there is an export restriction. This means that you need an authorization from the German Federal Export Office to be sure that your export export is not subject to a ban.The sanctions against Iran have only recently been relaxed, they are not completely gone. There are still sanctions in place and companies doing business in Iran are not spared the review. We understand this primarily as a matter of compliance.

The second part of the compliance controls are declarations. Most companies, such as forwarding agencies, shipping companies, suppliers, and also banks, require confirmation that export regulations are respected. Basically, every party needs to confirm this to everyone involved in the business deal. This bureaucratic effort is becoming more and more exhausting. But its caused by the businesses themselves because many of these declarations are superfluous and serve only as safeguards against personal liability.

What support are you expecting from politics? Could something change in this relationship?

This is difficult. Politics can't force the banks to go back into Iran. But you have to actually ask the question: If the private banking sector is no longer in a position to support legal and correct foreign business, can we continue to rely on bank financing for exports in the long run? Or do we, perhaps, need to look for alternatives that are more independent of United States interference in their company policy.

In many respects, Iran is a difficult potential partner: the situation of human rights is precarious. The archenemy of Iran, Israel, is Germany's close friend, and also the possible support of Syrian President Assad by Iran is not exactly helping Tehran's image - how do the German machine builders deal with it?

The questions you address are primarily of a political nature. So therefore it's for politicians to decide how to deal with a country like Iran. If they decide to maintain business relations, then it's not only legal, but also legitimate to do business with this country, and then every company has to decide for itself what to do. In Iran, there are more than 70 million people. These people also have a right to jobs, a functioning economy and a certain level of prosperity. And to help Iran achieve these goals, Germany's mechanical engineering industry is participating in these efforts.

Klaus Friedrich is an expert in Iranian affairs at the German Mechanical Engineering Industry Association (VDMA) - an industry group, which represents the interests of German machine and plant builders. Mr. Friedrich does not want his photo to be published on the Internet.

This interview was conducted by Klaus Ullrich.