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Iran - An Emerging Market

05 Oct

Over the past year we have seen more and more construction projects across the Middle East either being shelved or put on hold and those that are continuing to progress have had workforces cut. 

In 2014 at the first Europe-Iran Forum in London, Sir Martin Sorrell CEO of WPP said “Iran is one of the last remaining places, short of Mars and the Moon, where there is significant opportunity”. It is a country that is home to vast amounts of natural resources and a population of around 81 million people many of whom are highly educated.

As of January this year the US and the EU agreed to lift certain economic sanctions against Iran. The European Union has agreed to remove its oil embargo and the majority of the financial restrictions it had previously imposed on the nation, releasing frozen assets worth $55 bn. This release will give Iran’s oil and gas industry the opportunity to make a recovery after the economic downturn of recent years.

With the focus of the Middle Eastern construction market turning their eyes towards Iran, the opportunities for new investment from other countries will begin to increase. One of the first to invest is Russia, which has agreed to lend $5bn to the Iranian government to back “promising projects” in the country, including the building of new railways, roads and marine ports.

Now that sanctions have been lifted, many countries will follow Russia’s example and seek to invest in Iran and the potential that lies there. On March the 9th, the UK’s Secretary of State for Business Sajid Javid announced plans to build relationships with Iran which will increase trade and investment.  There will be caution amongst the international community -particularly with the lifting of sanctions being so fresh - with Hassan Rouhani at the helm, Iran is going in the right direction and is making the necessary changes that will allow it to reintegrate into the world economy and financial markets. 

Iran presents a great opportunity for international construction companies, with many seeking to establish themselves and win tenders on a number of planned infrastructure projects. However, despite the interest in Iranian investment, while there are still some sanctions being imposed by the US on the country it could become difficult for ventures and partnerships by US companies to come to fruition. 

An excellent example of this is China, already one of Iran’s largest trading partners the Chinese government announced in January that the two countries agreed to increase trade to $600bn over the next 10 years. China sees Iran as a country that can play a crucial role in its “New Silk Road” initiative, given its access to extensive delivery routes between the Middle East and Eurasia. In February of this year, a cargo train travelled from China to Iran in an attempt to revive the Silk Road, and there are now new plans to extend the rail route through to Europe. 

With this in mind, rail will become a priority for Iran in the coming years in order to connect it with neighbouring countries and drive trade across China, Europe and the Middle East. In October 2015, Iran announced that it is going to invest $25bn over the next 10 years in the modernisation and expansion of its current network. Already this year the Italian and Iranian governments signed a memorandum of understanding covering some $5.6bn of work that Italy’s state-owned rail company, Ferrovie dello Stato (FS), will carry out for its Iranian counterpart, Iranian Islamic Republic Railways (RAI).

From a recruitment perspective, it will be interesting to see how Iran’s plans for its rail network will affect the market and whether they will be able to attract the right talent. With many large scale rail projects already being constructed across the Middle East, it may struggle to hire the talent required to make its infrastructure plans a reality.  

What are your thoughts on Iran as an emerging market? Let us know!

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