Transcript: Iran market update
There are eight audio pieces in the 'Doing business in Iran' series. Read the individual audio transcripts by clicking below.
Chapter 1 – Introduction to NZTE in IranSadeq Hedayat (NZTE Country Manager Iran): Okay so it’s great to have you all here today. Thanks again for taking time to attend. This webinar will be presented by myself, Sadeq, and a local consultant Cyrus Razzaghi. Some of you probably already know me, I’m NZTE country manager for Iran since July 2016, that is when NZTE opened an office in Tehran. I also have Cyrus here with me, Cyrus is the owner and president of a leading boutique consultancy firm called Ara Enterprise. ARA has helped several foreign companies expand into the Iranian market.
Okay so here is a quick look at the topics that we will be covering today during this webinar. Cyrus will briefly talk about Iran’s current economy and political situation. I will touch on New Zealand and Iran latest trade statistics and we’ll then walk you through sector specific business opportunities for Kiwis interested in doing business in Iran. I will then talk about some of the major challenges facing New Zealand companies doing business in this market. Cyrus will give you some useful practical tips on how to succeed in Iran and we will then tell you how we see the future.
Chapter 2 – The Iran economy
Cyrus Razzaghi (President of ARA Enterprise): All right. Thank you Sadeq. And good afternoon everyone. My name is Cyrus Razzaghi from Ara Enterprise. I’m delighted to be with you today. I thought I would start the discussion today with a slide that depicts the realities of the Iranian business scene and market opportunities, and this has been the case for several years.
So on one hand you have a very untapped market, what we call one of the last major frontier markets, but then there are still banking sanctions and issues in terms of getting into the market. Wonderful natural resources and human capital, but the productivity is low, and transparency is an issue. And then the latest thing is that we have since January 2016 a landmark nuclear deal and companies, especially from Europe, are investing and coming to Iran but then you have the Trump’s White House, which is an obstacle. So there are always some positives and some issues and challenges. But I like to make the point that the positives outweigh the negatives and I will tell you why in a bit.
If people look to the next slide about the political situation in Iran we had a number of very interesting developments in the last few months. Earlier in 2017 there was a parliamentary election, basically the reformists and pragmatists took the majority and now the parliament, the legislative body, is in the hands of basically those who are pro-opening of the economy and reforms. More importantly back in May we had two very interesting elections simultaneously, the city council in the capital Tehran, for example, after 12 years again fell into the hands of reformists and pragmatists but more importantly we had the presidential elections that gave the current reformists and pragmatists’ president Rouhani a much bigger mandate and he had a smooth sailing in terms of having his cabinet approved and now in the last few weeks he has mended relations with the army, with the ROGC (Razavi Oil & Gas Company), with the leadership. So it looks like he has basically the support of all levels of power in Iran to push for his agenda, which mainly is about economic reforms, opening to the world and basically improving the economy.
His new economic team, I thought I’d just say a few words about them. For those of you who don’t know these faces they may not look like it but they are pretty good guys and they are all reformists-pragmatists with years of experience and strong backgrounds in terms of education. The guy second from left, Mr Azeri, he’s basically a superstar when it comes to international relations. He was instrumental in closing the nuclear deal and now his goal is basically to diffuse regional tensions, especially with Saudi Arabia and prepare the grounds for further foreign investment in Iran. The guy next to him, let’s say second from right, Nahavandian, for him there was a new position created. He’s the vice president in charge of economic affairs and he’s going to be the main interface for the Invest in Iran campaign.
The first guy on the left, Shariatmadari, is a very interesting guy. He was a commerce minister. He was the guy basically who brought e-customs Iran quotes, some interesting projects but more importantly he opened the doors for importation of liberalisation of commerce. And he is going to be championing basically the accession to the WTO.
And finally the oil minister, Zaganeh, who after the successful Total deal, which basically is a five billion deal landmark deal, the biggest after the nuclear deal, is going to be pushing for more energy deals with foreign partners.
All of that sounds good except for one thing, that we have Trump’s White House and Mr Trump has found in Iran an easy target, an easy scapegoat. He cannot pick on China, there’s no realistic solution to the North Korean situation etcetera. He cannot you know further alienate the Europeans so he’s picking on Iran. The good news however is that after the departure of Mr Flynn and most recently Bannon, those hardliners that basically had a very confrontational approach to Iran, and in light of what’s happening with North Korea I think Mr Trump and his White House are learning to live with the nuclear deal. So far they have respected it and our prediction is that they will continue to do so because the alternative cannot be so good. So despite all the hype I believe that the nuclear deal will stick and survive.
That being said, a few words on the economy. President Rouhani in his first term four years ago inherited a mega mess. Inflation at over 40%, very volatile stock and foreign exchange markets, very little if any foreign investment in Iran and he managed to turn it around with some contractionary economic policies. He managed to bring down the inflation to less than 10% today. He managed to attract billions of dollars of foreign investment and you know stock market and foreign exchange markets are relatively quiet. They are going up still and volatile but not more than the inflation so overall he managed to turn things around. And according to many reports including the latest PwC report, even if the status quo remains the same, which I don’t believe it will because I think chances are that down the road in two three years Iran and US will basically have more dialogue in five years or more, but even if everything remains the same Iran will be among the top 17 economies above countries like South Korea, Italy, Canada, South Africa and even Australia. So overall the trends I think for the next four years is expected to be more expansionist policies from President Rouhani, opening and paving the way for more foreign investments and basically making sure that normal, you know everyday people, ordinary people can see the tangible results of this nuclear deal. Now with that let me turn you over to Sadeq who will talk about the New Zealand and Iran trade stats.
Chapter 3 – New Zealand and Iran trade relationship
Sadeq Hedayat (NZTE Country Manager Iran): Thank you very much Cyrus. Before going through New Zealand and Iran’s trade statistics it is known that the two countries currently enjoy good political and commercial relations. They have further strengthened their ties especially after the removal of UN sanctions in Iran in 2016. As you can see in this table in 2016 New Zealand exported over 105 million US dollars’ worth of products to Iran, which registered a 61% increase from the previous year. This hike was partially due to sanctions removal and easier access to the Iranian market. New Zealand’s total imports from Iran in 2016 was only about 3.4 million dollars, mostly dried fruit and carpets. Dairy products, specifically butter, have traditionally been New Zealand’s top export to Iran. In 2016 as you can see on the screen, dairy products constituted over 82% of New Zealand’s total exports to Iran. Followed by wool, fish and other products. Interestingly, the butter New Zealand sold to Iran in 2016 was over 78% of the total butter imported globally into the country. The respective figure for New Zealand wool was over 30% and this shows the importance of these two particular products.
A closer look at the New Zealand dairy products sold into Iran obviously shows that the majority of the sold items were butter, and that is unsalted lactic butter followed by some solid milk and cream, fertilised eggs and whey. If you look at the next top export item to Iran which is wool, the wool is mostly used for the production of world famous handmade Persian carpets and the third top export item is fish, which consists of mostly frozen Hoki and filet. Once you dig into others you will see a diverse range of products including electrical convertors, medical devices, roofing tiles, dairy and milking machinery and tractor parts, among other products. Export of these items grew by 28% from 2016, sorry 2015 and 145% from 2014. This clearly indicates that other than the obvious commodities there’s a niche market for New Zealand products including innovative and sophisticated items, and smaller New Zealand companies have already started selling a wider range of value added products to Iran.
Chapter 4 – Opportunities in Iran
Okay now so this takes us to the next topic regarding market opportunities for Kiwis. As you can see on the screen, New Zealand sector specific opportunities and sweet spots are identified based on three criteria. The size of the Iranian market, New Zealand’s capabilities, and capacity, as well as New Zealand companies’ interest in Iran. Based on this criteria the first priority sector to identify for Kiwis in Iran is food including dairy, meat and fish. In the dairy industry, other than the obvious butter, there are certain niche opportunities for New Zealand dairy ingredients specifically whey and milk protein concentrates. These proteins are used for sport nutrition as the largest consumer of powder products in Iran. Sports nutrition has a current value of about six million dollars in the market, which is rapidly growing. The country enjoys a very young population, over 30 million Iranians are between 15 and 35 years old who consider going to the gym as an essential daily activity. Other ingredients of interest to the market are skim milk powder and infant milk formula base, which are used by local infant milk formula producers.
To give you an idea of the market size in 2016, 15.2 million tonnes of infant milk formula worth over 183 million US dollars was sold by local producers. Next item is meat. As some of you probably may already know Iran used to be a major importer of meat from New Zealand back in the 80s and thanks to the ongoing efforts by the New Zealand government New Zealand signed a new veterinary agreement with Iran in February 2017. Further to this arrangement after almost two decades New Zealand sold 100 tonnes of frozen lamb into Iran in 2017. This is expected to pave the way for New Zealand meat companies to penetrate into the market. Export of New Zealand frozen lamb meat in the first instance, it seems commercially more viable than other sort of meat and once New Zealand meat exporters dip their toe into the market and the remaining regulatory issues are sorted out, there is expected to be a bigger market for New Zealand’s fresh chilled especially gas-flushed lamb meat. And it’s good to know that due to New Zealand’s counter-seasonal production capability and capacity, as well as Iran’s peak season in March each year just before the Iranian New Year, New Zealand will have a chance of sending meat to Iran during the late November-March period each year. Though official lamb meat import figures are not available we estimate that Iran’s global frozen lamb meat import is only about 1500 tonnes per years, mainly due to limited global suppliers dealing with Iran. However about 15 thousand tonnes of fresh chilled lamb meat is imported into Iran annually and New Zealand could also definitely have a piece of the cake.
Next there’s fish. As noted before New Zealand is already selling frozen fish, mostly Hoki to Iran, which can be found in local supermarkets. Hoki’s number one competitor in the market is the Chinese tilapia fish but Iran is gradually showing interest in New Zealand canned fish as well, which is another opportunity for Kiwis. It is notable that Iran’s huge consumer market and untapped food services sector growing modern grocery retailing in the past five to six years in particular, all of those provide suitable business opportunities for New Zealand suppliers of other types of products such as coffee, even chocolate etcetera. To give you an idea, coffee had a retail value of close to 100 million dollars in Iran in 2016.
Other niche opportunities for Kiwis with the potential to turn into sweet spots are cosmetics. Iran is Middle East’s second largest cosmetics market. The market potential, to give you an idea, skin care retail value in 2016 was over 216 million US dollars.
Then of course there is aviation. After the removal of sanctions Iran has started transforming its aviation industry with multibillion dollar orders for 300 new aircraft purchase from Airbus, ATR and Boeing. Cyrus will also touch on this later on. These purchases along with Iran’s continual efforts to modernise its aviation industry provides suitable business opportunities for Kiwis pursuing this market. Some of these areas are pilot training, maintenance, air navigation systems, airport operation and so on. New Zealand suppliers of small planes and even helicopters would also be able to target other industries such as tourism, oil and gas, and health. Other niche sectors are wood, especially processed wood used for building facades; IT including software solutions and applications; pharmaceuticals including food and dietary supplements; construction technology, especially earthquake resistance products; agricultural machinery such as articulated tractors; and renewable energy, geo-thermal in particular. The key is to identify and hit these sweet spots and NZTE stands ready and willing to help companies with them, however prior to doing that Kiwis need to be aware of and tackle the challenges of doing business in Iran, which takes me to the next topic.
Chapter 5 – Market challenges
Chapter 6 – Tips for doing business in Iran
Chapter 7 – Future outlook for business in Iran
Chapter 8 – Questions and answers