Airbus plan heralds Iran boom

after sanctions lifted

Irans transport minister Abbas Akhoondi said Iran intended to buy 114 civil aircraft
from Airbus-a deal that could be worth more than $10b
Published: 17:56 January 17, 2016
Reuters

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Dubai: A purchase of more than 100 aircraft from Europes Airbus may be one of Irans first big deals in a
trade and investment boom that could reshape the economy of the Middle East.
The legs of Irans economy are now free of the chains of sanctions, and its time to build and grow,
President Hassan Rouhani tweeted on Sunday, a day after world powers lifted sanctions on Tehran in
exchange for curbs on its nuclear programme.
Hours earlier, his transport minister Abbas Akhoondi told the Tasnim news agency that Iran intended to
buy 114 civil aircraft from Airbus a deal that could be worth more than $10 billion (Dh36.7 billion) at
catalogue prices.
Airbus said on Saturday it had not yet held commercial talks with Iran, and businesses operating in the
Islamic republic will continue to face big obstacles for the foreseeable future.
Risks include indebted Iranian banks, a primitive legal system, corruption and an inflexible labour market.
Many foreign companies will remain wary of investing in Iran because of concern that the sanctions could
snap back if Tehran is later found not to be complying with the nuclear agreement.
But the Airbus plan underlined Irans potential: with about 80 million people and annual output of some
$400 billion, it is the biggest economy to rejoin the global trading system since the Soviet Union broke up
over two decades ago.
The nuclear deal removed restrictions that stifled Irans economy for most of this decade on banking,
money transfers, insurance, trade, transport and procurement of technology.
This will allow Iran to satisfy pent-up demand for goods and services that it had trouble obtaining at
affordable prices under sanctions, from aircraft to factory machinery, medicines and some consumer
goods such as cosmetics and branded clothing.
Imports

Iran will immediately have more money to pay for imports, as the government gains access to tens of
billions of dollars of its assets that were frozen abroad by the sanctions.
US officials have estimated the amount of funds to be unblocked at over $100 billion. Irans central bank
has said the total is much smaller at $29 billion, but that would by itself still cover several months of
imports of goods and services.
Iran will also gain financial strength from an increase in oil exports, as it becomes able to sell freely into
the global market once again though ultra-low oil prices, and the need to repair ageing oil facilities,
mean the rise in revenues may initially be small.
Rouhani told parliament on Sunday that Iran aimed to attract $30-50 billion of foreign capital in the next
five years to boost annual economic growth, now near zero, to 8 per cent a level achieved by Asias
dragon economies in their best years.
Iranian government policies in the post-sanctions era will focus on attracting foreign investment,
expanding non-oil exports, and making the best use of financial assets, he said.
Growth
Many economists think the 8 per cent growth target is much too optimistic without difficult reforms to
business regulation and the labour market that could take years to push through, even if Rouhani can
sustain the political will for them.
But the lifting of sanctions does appear likely to trigger a surge of growth. Analysts estimate a third of
Iranian industry may have been idled by the sanctions; some of this will now start coming on line as Iran
seeks to regain export markets.
That could shift the balance of economic power in the Gulf.
Over the past decade, as Iran has laboured under sanctions, trade and investment flows have favoured
the Gulf Arab oil exporters, including Saudi Arabias $650 billion economy.
Growth in the Gulf states is now slowing as their state finances are damaged by low oil prices. Iran, with a
much more diverse economy that includes big non-oil sectors such as agriculture and car manufacturing,
could begin to catch up.
Irans trade with the European Union totalled 7.6 billion euros ($8.4 billion) in 2014. In 2011, before
banking sanctions hit, it was 27.8 billion euros a measure of the ground that may be recovered.
American companies
US companies look set to lag rivals from other countries in restoring trade with Iran, because Washington
will retain broad sanctions that predate the nuclear crisis and were imposed over other issues such as
terrorism and human rights abuses.

But US business with Iran may still increase, after the US. Treasury said on Saturday that it would permit
foreign subsidiaries of American companies to trade with Iran a channel that big multinationals may be
able to exploit.
A big foreign investment presence may take longer to rebuild than trade ties. Some firms may want to wait
until they see the stance of the next US president towards Iran; many will worry about reputational risk,
or exposure to legal action from shareholders or lobby groups, if they invest there.
Cautious
Some oil companies will rush back to Iran, and service sector and retail firms may invest because they do
not need to risk much capital, but other businesses will be cautious, the Eurasia consultancy predicted.
Even in manufacturing, however, the lure of Irans big consumer market may be hard to resist. Frances
PSA Peugeot Citroen has been trying to negotiate a return to manufacturing in Iran, from which it
withdrew in 2011; Renault
has also been looking at such a deal.
Germanys Daimler said last week that its commercial vehicle division aimed to return if sanctions were
lifted. We are currently in talks with potential Iranian partners, a spokeswoman for Daimler Commercial
Vehicles told Reuters.