News ID: 122516
Published: 0703 GMT July 15, 2015

Multinational companies rush for joint ventures

Multinational companies rush for joint ventures

Iran and six world powers reached an agreement on Tuesday to lift sanctions against the Islamic Republic, and while US and Iranian leaders have heralded the deal as a victory, there is also a third winner, i.e. corporations across the globe, waiting for Iran to open up its doors to huge joint ventures.

 

Iran holds the world's fourth-largest proven crude reserves and the second-largest natural gas reserves, according to the US Energy Information Administration, so energy firms will be some of the clear beneficiaries of the deal. Most of those gains may not go to American companies, however, as they weigh the political costs of doing business with Tehran—especially considering the skepticism from Congress.

 

Aviation industry

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The historic nuclear deal also gives the aviation giants Boeing Co. and Airbus Group SE a rare opportunity to reshape a civilian aviation industry.

Once the accord is implemented, the republic will be able to start replacing hundreds of jumbo jets. The investment could total at least $20 billion.

“There’s no doubt there is huge potential, especially for Airbus and Boeing, to sell a large number of planes,” said Adam Pilarski, an economist and senior vice president with Avitas Inc., a Reston, Virginia-based aerospace consultant.

The thaw could give the world’s two biggest plane makers, along with aircraft lessors, sales possibilities similar to those in Russia when its markets opened two decades ago. They are vying to serve the demand for travel that will come with greater consumer spending. 

 Iran Air, the nation’s flag carrier, was once the region’s leading airline with two Concordes on order, a deal canceled in 1980 after the revolution. Emirates Airline, based just across the Persian Gulf in Dubai, plays that role these days as the largest operator of Boeing’s 777-300ER and Airbus’s A380 superjumbo jets.

 

Banking system

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While the energy industry may be the most obvious beneficiary of an Iran deal, banks will also stand to benefit, experts told CNBC.

"All of the major banking institutions in the industrial world will try to finance and facilitate increased trade with Iran," Christopher Whalen, senior managing director at Kroll Bond Rating Agency, told CNBC.

"It's a big country. Iranians are consumers of everything. You can anticipate anything from industrial equipment to consumer products will definitely be bought, and will definitely be financed."

But American banks aren't the only ones that stand to benefit from a reduction of Iranian sanctions, Whalen said, explaining that they'll compete against European and Asian banks for the business.

If sanctions on Iran's use of SWIFT (the financial messaging system that transmits and tracks international transactions) are lifted, then new financial sector opportunities could also open, experts say.

 

Other industries

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Telecommunications firms may also be early winners, Blaise Misztal, director of national security at the Bipartisan Policy Center, said.

Other industries could also benefit from the Iran deal.

General Electric, which does business in Iran through its health-care division, could also consider expanding in the country. "We look forward to reviewing the details of the agreement reached and will watch the regulatory landscape that may unfold," the company said in a statement.

 

PSA future in Iran’s market

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PSA Peugeot Citroen told Reuters that it's in advanced talks on an Iranian car-making venture with Iran Khodro and expects rapid progress. The political deal struck in Vienna "should clear the way for significant progress in our discussions," Peugeot's Africa and Middle East chief, Jean-Christophe Quemard, said in an emailed statement Tuesday.

The French company is targeting 400,000 car sales in Iran and has already signed a distribution agreement to sell its luxury DS brand.

“We are ready to invest. We can provide cash and technology to build modern cars in Iran for the local market,” Jean-Christophe Quemard told the FT.

 

Production base

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Longer term, Peugeot is even looking to turn Iran into a production base, exporting cars to the rest of the Middle East and Africa. “There is room for exports from Iran as well . . . we have big plans,” he said.

Quemard said that they were pursuing a “new business model” from what they had before the sanctions, where they simply sold kit cars to Iran Khodro, which assembled and sold them locally.

The group now wants 50-50 joint ventures and is willing to spend money to build new factories and new platforms as well as hand over technology to partners in return for a greater share of the upside.

“This model will be much more profitable in the long term as we can capture more value,” said Quemard. “In the short term, however, we will have to reinvest most of the profit back into the market.”

PSA has already signed a non-binding agreement with Iran Khodro to build cars together should sanctions be lifted, with Quemard saying that he wanted to build small cars in the so-called B segment, which includes vehicles such as the Peugeot 208, and the compact C-segment, which includes the Peugeot 301.

The company, which sold nearly half a million cars a year in Iran before sanctions, forced it to pull out in 2012.

 

French FM to visit Tehran

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French Foreign Minister Laurent Fabius said he will pay a visit to Iran upon an invitation by his Iranian counterpart Mohammad Javad Zarif.

Referring to the invitation he said he had received from Zarif, Fabius told French radio on Wednesday that, “I told him (Zarif) I would go to Iran, so I will go to Iran.”

He did not, however, specify when the trip would take place.

Fabius also pointed to the significance of business cooperation between Tehran and Paris.

“Trade is very important. It fosters growth. It’s important for the Iranians, it’s important for us,” he said.

 

German delegation

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Meanwhile, Germany sees a big rise in trade with Iran, preparing the first high-profile foreign delegation for visit to Tehran this week.

Economy Minister Sigmar Gabriel will arrive at the head of a large political and trade delegation on Sunday for a two-day visit which will also take him to the central Iranian city of Isfahan.

The 60-strong delegation will include representatives of big German industrial companies such as Linde and Siemens, Amir-Hossein Zamaninia, Iran's deputy oil minister for commerce and international affairs, said.

Gabriel, who is also Germany’s vice chancellor, will meet with President Hassan Rouhani, Minister of Petroleum Bijan Zanganeh as well as Iranian ministers of trade and energy and the central bank governor.

"We expect to see a big increase in trade, especially in German sales of capital goods," the Deutsche Welle website quoted Michael Tockuss, chief executive at the German-Iranian Chamber of Commerce, as saying.

According to the German Foreign Ministry, bilateral trade grew by 27 percent to €2.7 billion ($3 billion) in 2014 because of the sanctions relief. With the conclusion of nuclear talks on Tuesday, conservative estimates foresee bilateral trade expanding to €6 or €7 billion in 2016 assuming sanctions are dropped quickly, DW said.

Tockuss said trade volume could easily rise to double-digit billions in the longer term given the size of the two countries’ economies. Germany had a GDP of €3.27 trillion in 2014 in terms of purchasing power parity versus Iran's $1.18 trillion.

German companies have been exploring opportunities in Iran for months amid expectations that the sanctions would be lifted.

   
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