The presidential elections in Iran could signal a boom for Australian companies in providing services, technology and creating joint venture partnerships in Iran as the country’s crippled economy opens to international co-operation.
Hassan Rouhani is the surprise new president-elect of Iran. He was not the choice of the Supreme Leader, Ayatollah Khamenei. His choice came a distant third with only 11 per cent of the vote. Rouhani, however, was the choice of the Iranian people, albeit in a very limited lineup, and he was chosen because Iranians want their economy fixed and international sanctions removed - which means that the nuclear standoff with the West has to be resolved. So far the noises both from within Iran and around the world suggest this is imminently achievable.
So why would Australian companies want to work with Iran? Well for starters, LNG. Iran has just overtaken Russia with the world’s largest reserves of natural gas. Australia is by 2017 expected to be the biggest exporter of LNG in the world, yet the global gas market remains largely underdeveloped in terms of coordination, pricing, technology and distribution. Rather than compete for market share and technology implementation, Australia and Iran would do well to collaborate; Australia swapping intellectual property and technology for shared development of Iran’s gas complex. It would be hard to find more easily accessible gas with a 'natural grid' of distribution than in Iran.
Far from a country wanting to flame sectarian violence, namely between Sunnis and Shiaa, Iran in fact has a history of collaboration and cooperation. Under the presidency of Mahmoud Ahmadinejad this might seem a ridiculous statement, I agree. Yet not withstanding Ahmadinejad, Iran was a founding member of OPEC, it is a founding member of the Gas Exporting Countries Forum and a founding member of the 10-country Economic Co-operation Organisation. These are all organisations based on collaboration in trade and economic cooperation, rather than military cooperation. It could be argued that it is in Iran’s DNA to successfully resolve the nuclear standoff and crippling economic sanctions.
Like Australia, Iran is rich in resources – yet the Iranian mining industry remains underdeveloped even though Iran is ranked as one of the most important mineral producers in the world. The Australian mining sector is highly developed, and the JV opportunity is huge for cross-pollination of investment as well as extraction efficiency gains in iron ore, copper, gold, coking coal and, of course, oil and gas – to name a few. Iran has, and is setting up more, international free trade zones for foreign investment, development and trade in oil and gas, coking coal, transport and pipeline infrastructure development. Iran enjoys geographically a natural grid for resource distribution that is without peer in the region and probably the world. Yet it remains underfunded and underdeveloped. Savvy Australian companies can capitalise on these opportunities with the provision of technology and best practice infrastructure development, with pipelines and rail transport to name a few.
Australia is experienced in delivering large-scale administrative, health, educational and government service sector projects. Designing, implementing and delivering such things as an ERP (Enterprise Resource Program) as a cost effective management tool for universities, businesses, the government sector and the private sector would be a value add to the Iranian economy. Australian companies can effectively export their IP. Iran is not short of highly qualified and educated people. They just lack experience in managing a modern market economy which trades freely. While on the topic of IP and services, financial services as an export from Australia would also be a welcomed addition to the Iranian economy.
How high is the risk for Australian companies in Iran? Many see Africa as the last frontier, where resource exploitation is unmatched anywhere in the world and where GDP growth rates are higher than average. Yet many of these countries have been democracies, if you can call them that, for a nanosecond and in reality offer little or no stability or security. Iran, while not a democracy, is at least stable and secure in the face of heavy international pressure. And opportunities which lie in Iran are nothing new. BP started life as the Anglo Iranian oil company before Iran nationalised their oil fields in the early 1950s.
Iranian people, consumers – but not politicians – want normalisation and inclusion. They have clearly stated this through the polling booths with the selection of a presidential candidate who wants positive relations with the West. They know that such relations will mean opportunity for service providers and JV partnerships in Iran.
Australian companies, when they actually look at the risk, will realise that the opportunity for new relationships, the access to new markets and the ability to deploy some world class IP into Iran and its global market networks will be very rewarding, to say the least.
Sam Barden is a Director of SBI Markets, an international commodity trading and advisory company which advises governments and private firms on deal financing and facilitation. www.sbimarkets.