What Doing Business in Iran Is Like for German Firms

EghtesadOnline: Thomas Gehbauer is a head of project coordination for German medical equipment supplier Blue Ocean Force Millennium. He has been doing business in Iran for many years, likes and respects the country and its people.

News ID: ۷۸۱۰۳۸

14 January 2018

But as in many countries, “corruption, bureaucracy and slow procedures” are some of the barriers to doing business in Iran, Gehbauer told DW.

In addition, it can be difficult for German companies to do business there “because we only have smaller [German] regional banks that accept transactions from Iran—banks that don’t do any business with the US”, Gehbauer said.

“The bigger banks are afraid to get sued [if they process payments to or from Iran], because they also do business in the US. Doing business is not so easy if you can’t find a bank willing to process your financial transactions.”

As of 2015, according to Financial Tribune, Germany and Europe no longer apply economic sanctions against Iran, but the US does, and that’s why German banks shy away from the perceived “country risk” associated with Iran.

“I think we should be more independent of American policy than that. There is no legal restriction on German banks to accept transactions from Iranian banks,” he said.

No Problems Between Iran, Germany

Notwithstanding all that, Gehbauer said business ties between Iran and Germany are important to Iran’s development.

“’Made in Germany’ has a very good reputation in Iran. As a German, I’m always very well treated when I’m there. The problems are between Iran and the US, not between Iran and Germany,” he said.

As for the recent protests, Gehbauer thinks they’re due to increases in food prices and living expenses.

“I’m pretty sure that if we have a stable economy in Iran, the protests will be gone real soon,” he said.

He doesn’t think the protests will change anything in the long run.

In any event, he said, “I’m pretty sure the Iranians are smart enough to know what’s best for them in the future.”

The population in Iran is relatively young and its expectations for a near-term improvement in living standards may be “a little too high”, Gehbauer said.

“Iran needs more investment. In some sectors, like renewable energy, in addition to better equipment, Iran needs a transfer of know-how from Europe to improve its performance, because it has no history with the relevant technologies. But in other areas, such as medical care, all they need is more modern equipment—the Iranians have very well trained personnel in that sector.”

Their medical expertise may prove all too relevant. Tehran, an enormous city of around 12 million people, is in an area prone to earthquakes, and a lot of its buildings aren’t built to withstand really strong quakes. If and when a powerful earthquake hits the city, many buildings could collapse and the number of casualties could be enormous.

It’s the Economy

Other analysts agreed that the recent protests in Iran appear to have been motivated primarily by anger at the poor state of the economy and were sparked by the announcement of new austerity measures by the Iranian government.

“People on the streets of Tehran understand the frustration of young people in a country where the unemployment rate is 30% for the young and they’re highly educated. Iran has a very good education system, so a lot of people are underemployed as well,” said Eric Randolph, a correspondent for AFP based in Iran.

“There are no silver bullets; Iran faces a lot of structural problems.”

There was a year-on-year increase in foreign direct investment of 65% from 2015 to 2016, from $2 billion  in 2015 to $3.4 billion in 2016, after economic sanctions against Iran were lifted in the wake of the internationally negotiated deal in mid-2015 that limited Iran’s nuclear enrichment capacities. But that isn’t very much in relation to a population of 81.4 million people—it works out to about $41 per person.

Amir Alizadeh, the deputy managing director of German-Iranian Chamber of Commerce in Tehran, also told DW that he believed the main factor that led to the protests was the continuing economic recession.

In economic terms, Iran has had very difficult years recently, Alizadeh said, plagued as it was by stagflation, i.e. high inflation at the same time as recession.

“Inflation is currently running at about 10%. The manufacturing sector has been particularly hard hit by the recession,” he said.

Uneven Growth

Last year, on paper, there was an increase of 12% in Iran’s GDP, but that was due mostly to increased oil sales and prices, not to any improvement in the wider economy.

“Industry is not growing at that pace,” so it’s hard for people to experience the headline economic growth in a tangible way.

Echoing Gehbauer’s remarks, Alizadeh said there were plenty of European and German firms that would like to invest more in Iran, but many believe they cannot do so yet, because international banks based in the US are legally prevented by the US government from doing business in Iran, due to ongoing US economic sanctions against the country. This causes difficulties in arranging appropriate financing packages for foreign investors.

In addition, the Iranian government has “some homework to do” in Iran, including fighting corruption more effectively, making it easier to do business and liberalizing markets, Alizadeh said.

Germany is a very important economic partner for Iran, he added, because it was the locomotive of Iran’s industrialization in the late 19th and early 20th centuries, and has been a key partner historically for Iranian industry.

The reservoir of goodwill is deep, and the potential for future business is enormous. Alizadeh said Iranian companies are “really eager and willing” to work with German companies as partners.