In Boeing, Airbus Negotiations, Iran Air is Flying Solo

The recent announcement that US regulators have given their approval for the sale of Boeing and Airbus aircraft to Iran Air has been met with great enthusiasm. Officials at Iran Air have stated that they expect to receive the first Airbus airliners early next year. The news is remarkable on a number of levels, as the Boeing and Airbus agreements have been seen by many to be the linchpin deals that would finally help raise the comfort level of international banks to transact with Iran.

It is also noteworthy that Iran Air has negotiated the deals without the advisory of an international law firm. Despite the fact that most airlines rely on outside counsel to help navigate the aircraft acquisition process, and that international law firms are itching to increase their presence in Iran, Iran's national carrier has followed the approach of most Iranian state-owned enterprises and forgone outside legal counsel in the negotiation of these commercial agreements. Instead, the company relies on its in-house lawyers, as well as on legal experts at the Ministry of Roads and Urban Development, which oversees both Iran Air and the Civil Aviation Organization.

Iranian state enterprises avoid engaging outside lawyers due to concerns regarding security, political sensitivity, and perhaps most practically, an unwillingness to pay the fees associated with high-level international legal advice, which can often amount to millions of dollars. The few Iranian state enterprises that have regularly enlisted outside counsel are in the oil industry, where deeper pockets and an international marketplace necessitate a different approach. The National Iranian Oil Company has been advised by Eversheds and the National Iranian Tanker Company has worked with Stephenson Harwood. In both cases, briefs focused on sanctions-related arbitration.

By contrast, Iran Air’s counterparties in the negotiations, the airplane manufacturers, have a clear reliance on outside counsel. Airbus and Boeing are so large and deal with such a wide range of legal matters across so many jurisdictions, that they each rely on their won “preferred legal network” of law firms pre-approved to advise the firms. This way, internal legal teams can tap the support of particular firms that have the capabilities desirable for a given brief. Boeing works with firms such as Eversheds, Allen & Overy, and White & Case, among others. Airbus has worked with Clifford Chance, Willkie Farr & Gallagher, and DLA Piper, among others. Given the fact that Boeing and Airbus use many of the world’s top law firms, and given that partners often move from firm to firm, there have been instances where a conflict of interest has emerged between Boeing, Airbus, and their clients or counterparts. This may be one reason why Iran Air opts not to use foreign firms. As so many of the major firms have worked with Boeing and Airbus, it would be difficult to ensure that sensitive information could be kept confidential in the course of negotiations. On the other hand, having “backchannels” in complex negotiations can be an asset, but these usually work when there are longstanding relationships in place, which Iran Air does not have.

Encouragingly, the reputation of the Iran Air legal team is strong. Because state-owned firms rarely use outside counsel even within Iran, they invest in and empower capable lawyers to manage legal and contractual issues. The legal department at Iran Air is divided into two teams: local and foreign. Both teams are overseen by the Director General for Legal Affairs, whose mandate covers all airline transactions and commercial contracts, including acquisitions through purchase or lease, in addition to a whole host of other legal matters. In the Airbus and Boeing negotiations, the Iran Air legal team is supported by the Legal Bureau in the Department of Legal and Parliamentary Affairs of the Ministry of Roads and Urban Development, led by Deputy Minister Alireza Mahfouzi. This bureau has specific responsibility to supervise “the preparation and exchange of cost agreements and acquisition of financial and capital assets” for its affiliate organizations.

There is no doubt that significant legal talent is being devoted to the Iran Air acquisitions. Given the importance of these deals not only to the long-term commercial viability of Iran Air, but also to the public perception of the Rouhani administration. However, the size and complexity of the Airbus and Boeing deals, which involve not only two of the largest non-oil commercial agreements ever signed by an Iranian firm, but also the need to navigate the complexities of US and EU sanctions and trade regulations in a difficult political environment, raises questions about the decision not to use outside legal council. In some ways, the decision could be seen as emblematic of a wider challenge as Iran seeks to open its economy. Can the country afford to continue working by its own rules, or will it have to begin following the more typical practices of the global commercial environment, such as a reliance on external legal counsel? For the moment, it looks like the Airbus and Boeing deals are proceeding as planned. That is good news, because the Iranian people are expecting results. Nothing less will do.

Photo Credit: Iran Air

Limited Capital is Creating "Blocs" in Iran's Start-Up Ecosystem

Iran’s start-up ecosystem has continued to grow and develop since it burst onto the global tech scene in 2015. Incubators and start-up accelerators, including MAPS, Avatech, and DMOND Group have established a strong presence and helped instill best-practices that borrow from those of Silicon Valley. Some of the most prominent Iranian universities, including Shahid Beheshti, Islamic Azad University, University of Tehran and Sharif University have launched or are developing their own start-up incubators.

At the heart of the incubators and accelerators, a community has emerged that helps inspire new founders through events and outreach. Iran Startups and Roshdino host regular entrepreneurial meetings where start-up veterans share their expertise with local audiences, while Hamfekr Tehran coordinates weekly networking events hosted by a different start-up every week across various cities. The local community is not totally detached from the international scene, with Startup Grind having hostedsixteen events in Tehran, and Seedstars World—a start-up competition for emerging markets—holding its second Tehran-based event this month. Several conferences held outside of Iran, such as iBRIDGES series, were created specifically to link foreign investors with the Iranian start-up scene. Publications like Techrasa and Techly collect news on the start-up scene. An ecosystem is coming together with amazing speed.

Yet, despite the positive momentum and the energy and ingenuity of Iran’s start-up founders, the ecosystem is not immune to the larger challenges of the Iranian economy. Sanctions-related constraints and uncertainty around the corporate legal and policy framework for early stage investments obstruct local and foreign investors. This introduces risk above and beyond the inherent uncertainty when investing in a nascent sector where business plans are speculative and there have yet to be any IPOs or exits.

Nonetheless, capital has begun to follow into the eco-system, with a handful of adept foreign firms making early-stage investments. The largest activity has come from Pomegranate Investment, a Swedish fund that has raised EUR 60 million earmarked for investments in tech and consumer-focused sectors in Iran. Pomegranate has invested in Sarava Pars, a VC fund with investments in Avatech in addition to start-ups including Digikala (Iran’s answer to Amazon) and Café Bazaar (an Android marketplace).

Competing with Sarava is Rocket Internet, a publicly traded German company that replicates successful online businesses and adapts them to emerging markets. Rocket has four start-up ventures currently operating in Iran. Some of these are direct competitors with indigenous start-ups, such e-commerce site Bamilo and Snapp, a taxi app. The entry of Rocket into the Iranian market in 2013 had a positive effect in jump-starting local entrepreneurs by enticing them to move quickly with their own ventures to not only fill remaining market gaps but to also create competitive alternatives to the apps Rocket was launching.

Sarava and Rocket have played a major role in fostering and funding the start-up ecosystem in Iran, but the early dominance of these two players may become a liability as the Iranian ecosystem seeks the next level in its development.

While Sarava has gained an international reputation, based on its early success investing in Iran’s most promising ventures, its success has meant that it receives the lion’s share of attention from foreign investors looking for exposure to early-stage investments in Iran. Meanwhile, smaller and less established VC funds are overlooked and have yet to raise significant foreign capital. Even with Rocket’s track record, many treat Sarava as though it is the only game in town.

Subsequently, the concentration of capital and market share within the portfolios of the two biggest and competing players in Iran’s start-up scene has led to a situation that more or less prohibits collaboration among different ventures. While many investors are warned to heed domestic politics when looking to invest in Iran, the start-up ecosystem is rife with politics of its own. Many of the start-ups funded by Sarava and Rocket Internet compete directly for market share. This makes it difficult for non-competing ventures on either side to collaborate where synergies in technology development or marketing might be possible.

Given the impact on the ecosystem, founders are calling out for more options. “Iran’s start-up ecosystem is in need of foreign investors and many more venture capital players to generate a more diversified structure”, says Pedram Assadi, the founder and CEO of Chilivery, a food delivery platform. Assadi says more funding choices are needed “to prevent the creation of start-up blocs.”

Unless more sources of capital emerge, the start-up ecosystem in Iran risks becoming comprised of inward-looking blocs of isolated start-ups, which prioritize intra-network rather than inter-network collaboration. Moreover, the concentration of capital in two blocs also affects how ideas and expertise are shared. The pool of experienced local mentors advising Iran’s start-ups is inherently small, but it is further limited when those associated with the competing blocs are effectively precluded from working with start-ups outside their network. As a result, innovation is hampered even further.

Better access to capital will change incentives. Founders will benefit when new investors are forced to seek out innovative projects in their earliest stages rather than simply deciding to pour more capital into the saturated competing networks. Competition has its merits, but reducing the control of the blocs will open the door to collaboration among ventures and would stimulate overall growth. Innovation thrives when there is a surfeit of investors always seeking the next big thing, as the successes of Silicon Valley show.

But even in the face of the current challenges, Iran’s ambitious founders are not discouraged. Until the funding environment improves, the focus will remain on the product, and many new companies are bootstrapping or using crowd-funding platforms to fund development. Hady Moslehi is one of the co-founders of Ronak—a self-funded software start-up that recently launched a team-to-team messaging app called Nested, which placed third in this month’s Seedstars Tehran competition. He insists that the “most important issue remains how to build a product that users love.” If Iran’s founders can get that right, the investors will surely follow. 

Photo Credit: Avatech

What Iran's Café Culture Teaches Us About Its Consumer Culture

Café culture is most often associated with the intellectual awakening of Europe in the 19th century. As Duke University Professor Jakob Norberg writes in a 2007 essay, cafés and coffeehouses were a unique public space in Europe, deeply connected to the intellectual awakening of the middle class. The café emerged as both a liberating and secure social space, a place of “vivid intellectual culture” yet also “relaxed communication.” These same qualities have made cafés in Iran susceptible to crackdowns by the authorities. The forced closure of Tehran’s Café Prague in 2013 was seen as a “significant loss for Tehran's academic and cultural life.” In the words of a patron, the café, named to evoke the intellectual milieu of 19th century Europe, “wasn't just a café; it was like home, a safe haven for us to forget all our daily troubles and burdens."

This lamentation echoes the argument of political theorist Carl Schmitt, who suggested that “coffee is a symbol of… the bourgeois desire to enjoy undisturbed security.” German philosopher Jurgen Habermas believed that “the coffeehouse is a place where bourgeois individuals can enter into relationships with one another without the restrictions of family, civil society, or the state.” As Norberg explains, “The notion… resonates with us because it is still recognizable. We have coffee, we meet in cafés, we sit down for chats with friends and acquaintances; Habermas's depiction of the coffeehouse still corresponds to an everyday practice.”

As coffee houses reemerge in the more open social and economic landscape of the Rouhani administration, the vibrant conversation among young, energetic, and creative Iranians who frequent places like the popular Sam Café corresponds to Habermas’ view of coffeehouse. At first glance, the cafés seem to offer both a liberal enclave within a larger Islamic public space—offering intellectual security and unrestricted relationships otherwise in short supply —as well as a space to reinforce socioeconomic distinctions in ways that seem typically Western. However, this view ignores the fact that coffee’s place in Iranian society predates all meaningful Westernization. 

The history of coffeehouses in Iran dates back to the beginning of the 17th century, a time when coffee was more popular than tea. As relayed by social historian Rudi Matthee, coffeehouses were constructed on Esfahan’s famous Naqsh-e Jahan Square as early as 1603. The first coffeehouses in the United Kingdom were only established five decades later. The qhaveh-khaneh, literally the “coffeehouse,” was precisely the kind of open and intellectual space celebrated centuries later by the likes of Habermas and Schmitt. Matthee recounts the description of the French traveler Jean Chardin, who traveled Iran in the 1660's and 1670's:

These houses, which are big spacious and elevated halls, of various shapes, are generally the most beautiful places in the cities, since these are the locales where the people meet and seek entertainment. Several of them, especially those in the big cities, have a water basin in the middle. Around the rooms are platforms, which are about three feet high and approximately three to four feet wide, more or less according to the size of the location, and are made out of masonry or scaffolding, on which one sits in the Oriental manner. They open in the early morning and it is then, as well as in the evening, that they are most crowded… People engage in conversation, for it is there that news is communicated and where those interested in politics criticize the government in all freedom and without being fearful, since the government does not heed what the people say. Innocent games [...] resembling checkers, hopscotch, and chess, are played. In addition, mollas, dervishes, and poets take turns telling stories in verse or in prose. The narrations by the mollas and the dervishes are moral lessons, like our sermons, but it is not considered scandalous not to pay attention to them. No one is forced to give up his game or his conversation because of it. A molla will stand up, in the middle, or at one end of the qahveh-khaneh, and begin to preach in a loud voice, or a dervish enters all of a sudden, and chastises the assembled on the vanity of the world and its material goods. It often happens that two or three people talk at the same time, one on one side, the other on the opposite, and sometimes one will be a preacher and the other a storyteller.

The accounts of other travelers and scholars confirm Chardin’s description of the coffeehouses as a place of intellectual creativity and social mixing. Importantly, the coffeehouses were not confined to the imperial capital of Esfahan. Accounts speak of such establishments in Tabriz, Yazd, and Shiraz, among other cities. The coffee culture of Safavid Iran was highly developed, with characteristics that were both local and global, religious and secular. The later tendency to see café culture as a marker of Westernization, one shared today by morality authorities who often interfere with cafes and their patrons, may be tied to the role of the coffeehouse in the 20th century, when places such as Tehran’s Café Naderi became meeting places for intellectuals committed to ideological movements that originated in the West. In effect, café culture was conflated with the ideologies it was helping to foment, despite its much earlier and more local historical roots.

Today, coffee consumption in Iran is on the rise. The Customs Administration of the Islamic Republic of Iran reports that 8,000 metric tons of coffee are imported each year. Iran’s parallel import market probably means the true figure is higher. Working from the official figure, and assuming that each cup of coffee represents 7 grams, Iran’s total consumption equates to 1.1 billion cups of coffee each year (Italy, a country with 20 million fewer people, consumes a staggering 14 billion cups of coffee each year.) Importantly, just 10% of the coffee consumed in Iran is freshly ground, with the remainder being instant coffee. Nestle is the only major international brand with a significant market share, maintaining around 20% with its Nescafé instant line. The fragmented market and low overall volume reflects how tea continues to be the preferred form of caffeine consumption in Iran. However, consumption is expected to grow at the high rate of 11% CAGR until 2020, taking the value of the market to more than USD $200 million. Yet, unlocking the full commercial potential of this market is about much more than selling cups of coffee. The rise of coffee consumption will depend on the emergence of a coffee culture. New cafés are opening across Iran’s major cities. Establishments such as Tehran’s Sam Café and baristas such as Mehran Mirjani have recently garnered the attention of the global coffee community.

Overall, while the current revival of coffee in Iran is certainly a kind of re-exportation from the West (and in particular the so-called Third Wave coffee culture of Australia), it is not merely a Western phenomenon and should not be characterized as such. The implication is that companies seeking to engage in the coffee market in Iran (or the wider consumer market targeting young, urban millennials) must consider the full cultural significance of their product or service offering. Simply believing that Westernization is the most salient trend is a strategic error, particularly because of the increasing commercial importance of cultural identity.

In the past two decades, it has become clear that the world’s most successful consumer brands do more than promise effectiveness, enjoyment, or value. There is an increasing expectation for companies and their brands to address consumer demands for authenticity, creativity, and community—cultural offerings that elicit an emotional connection. Given the historical cultural significance of coffee, it is perhaps natural that one of the companies that ushered in this consumer expectation was Starbucks, whose trademark play on café culture captivated consumers. Stanley Hainsworth, Starbucks’ former VP for Global Creative explains in an interview with Fast Company:

When Howard Schultz first came to Starbucks, he wasn't the owner of the company. He joined a couple guys that had started the company. He went over to Milan and saw the coffee culture and espresso bars where people met in the morning. He saw how people caught up on the news while they sat or stood and drank their little cups of espresso. That inspired the vision he crafted from the beginning—to design a social environment where people not only came for great coffee, but also to connect to a certain culture.

The challenge for Schultz, Hainsworth and the team at Starbucks was to “create something for consumers that they don't even know they need yet.” As Hainsworth explains, consumers were looking for a new kind of place to congregate:

Howard was very wise in knowing that Starbucks was not the only company in the world to make great coffee. On the contrary, there are hundreds of other companies that can make great coffee. So what's the great differentiator? The answer is the distinction that most great brands create. There are other companies that make great running shoes or great toys or great detergent or soap, but what is the real differentiator that people keep coming back for? For Starbucks, it was creating a community, a "third place."

The lesson for the Iranian market is profound. Consumers now expect companies to show some cultural creativity at all stages of their experience—from advertising, to the retail experience, to the product itself. The ubiquity of the Apple iPhone in Iran is a strong indicator that this expectation has taken root. But perhaps most importantly, Iranians are looking for new “places” to congregate and connect.

The politicized nature of public space in Iran introduces both greater risk and greater reward for those companies willing to commit to converting “spaces into places”—but the immense popularity of sites like Palladium Mall (an upscale shopping center) or the Tabiat Bridge (a pedestrian overpass connecting two public parks in Tehran) underscores the potential. As a consequence, companies cannot simply import the branding, marketing, and product offering from Western markets. As is evident in the history of Iranian coffeehouses, what may seem like processes of Westernization are often more nuanced. The commercial imperative to create a culturally complete offering requires companies to fully commit to localization for the Iranian market.

Again, Starbucks offers some useful lessons. “Starbucks culture” was born in Seattle, Washington and encompasses everything from the “who the furniture was chosen for, what artwork would be on the walls, what music was going to be played, and how it would be played,” as Hainsworth explains. Starbucks faced an immense challenge in reinterpreting this culture for disparate markets such as China and India. As explained by Revathy Rajasekan in a case study in the IUP Journal of Brand Management, “Starbucks’ entry into tea-drinking India” hinged entirely on a dedicated effort to balance the forces of globalization with the requirements of localization. Despite an aggressive launch, Starbucks’ market entry had stalled until the right culture had been crafted for the Indian consumer. The same will be the case for all multinationals entering Iran.

It may seem incongruous to celebrate establishments like Sam Café and then claim that major corporations seeking to enter Iran ought to use the Starbucks approach to culture. By dint of its success, Starbucks is seen as a bogeyman for the kind of globalization that crushes local proprietors. But in a broadly underserved market like Iran, there is room for both independent businesses and major multinationals. It is worth remembering that Starbucks developed its identity and strategy from its original incarnation as a humble coffee roaster in Seattle. In this way, small businesses, with their inherent connections to local communities and the focused visions of their founders, offer a means to innovate cultural offerings. On the back of Starbucks’ success, which elevated consumer expectations, the “third wave” of independent coffee shops has emerged in the United States and worldwide. A similar sequence is emerging in Iran across cafés, restaurants, retail outlets, and boutique hotels. Often founded by individuals who have proven adept at melding the global and the local in an authentic cultural offering, these new “places” are signaling the larger potential for major multinationals. The revival of the coffeehouses of the past signals the emergence of new consumer expectations in Iran, providing a useful template for any future approach to the promising marketplace. 

Photo Credit: Sam Café

The Overlooked Potential of Iran's Women Entrepreneurs

Recently, President Rouhani halted the third round of public sector hiring that is based on nationwide entrance exams. He instructed his ministers to review the sex-based quotas that have been in place for years. These quotas, which severely restrict womens' access to employment, are not opaque state targets. Rather, they are openly announced on an annual basis. The registration information for the qualifying exams of the education ministry stated upfront that of the 3,703 available positions, only a maximum of 630 will be open to women, regardless of performance on the exam. In larger urban areas where more women may be either merely interested or, more possibly, economically forced to work to make ends meet, there are more restrictive quotas because the pool of male applicants is larger. For instance, when the Ministry of Education needed 190 new hires in Tehran, only six positions were given to women. The field of education is a sector that is female-intensive across countries because teaching is considered as an "appropriate” profession for women since it is conducive for work-home balance. 

With even the education sector shutting women out, other sectors are almost impossible for female candidates to penetrate. Thus, women hold only 10% of jobs in the public sector, which is the main employer of the country. During the Ahmadinejad presidency, a set of policies were introduced to presumably support working women to manage their dual roles as mothers and wives. In reality, however, these policies imposed a high cost to employers and created disincentives in the hiring of women. These extra costs were particularly heavy in the private sector,  where employers had to bear the expenses. Last year the government announced that since 2005, the actual number of women in the workforce has dropped from 3.96 million to 3.1 million. For any nation, a drop of close to one million workers is a sharp decline. It is especially so for a country with an already low existing base of female workers and a large population. This disproportionality translates into a high economic dependency ratio, i.e. the number of people in a family depending on one earner. Hence, families are increasingly vulnerable to potential economic shocks and policy changes. According to the International Labor Organisation (ILO), the labor force participation of Iranian women is a mere 17%. Iran ranks among the lowest in the world, even below Saudi Arabia– a fact that surprises even Iranians. 

There is, therefore, a growing consensus that the female labor force participation has reached alarming lows and that this fact is detrimental to the overall economic and societal health of the country. The issue is now being increasingly debated by economists and policy makers, and not just the women’s rights activists.  Another indicator is the urgent emphasis on creating economic opportunities for university educated women. It is for this reason that President Rouhani called for a review of the fairness of quotas. Despite affirmative action quotas for men, and the restriction of certain study streams to female students in some university, women still make up about 60% of university entrants (down from 64% before), solely based on scores in gender blind university entrance exams – the Konkur. Their share in the engineering and science fields--subject matters often dominated by men in Western education systems--is approximately 70%. According to UNESCO, Iran has one of the largest cohorts (in terms of actual numbers rather than just percentages) of female engineering and science students in the world.  

Despite the many obstacles, women’s entrepreneurship is a bright light in Iranian society. Market-relevant training, such as engineering and computers, and the dearth in actual opportunities have spawned an entrepreneurial streak in many Iranian women. According to a study by Bahramitash and Salehi, based on a survey of male and female-owned firms that closely follows a similar methodology of the World Bank’s Enterprise Surveys, about 9.6% (applying sample weights) have a female principal owner. Female ownership rises for large firms (50+ employees) to 13.9%. On average, these firms are slightly younger than their male peers (7.1 vs 7.8 years, respectively), which suggests that they are perhaps slightly more technologically advanced than the businesses of their male counterparts. For medium (10-49 workers) and small firms (up to 10 workers) female ownership is 8.2% and 10%, respectively. Bahramitash and Salehi further find that women entrepreneurs are in more dynamic sectors of the economy. Out of necessity, their superior educational accomplishments and ingenuity have resulted in more innovative business models and ventures.

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Iranian entrepreneurs have faced substantial obstacles in recent decades. Besides international sanctions, Iranian entrepreneurs must contend with policy uncertainties, limited access to telecoms (especially a slow and constricted Internet), credit constraints, non-competitive behavior in markets, difficulties in obtaining permits, corruption, and the high costs and uncertainties of the legal system. Women entrepreneurs face all of these challenges, and some more. According to the IFC's Women, Business, and Law Report (2016), Iranian women face differential treatment in 23 specific areas of the law. In the Bahramitash/Salehi study, too, women-owned firms (not just the women owners) responded more adversely to sanctions, slow internet, anti-competitive behavior, and policy uncertainty.

On a more positive note, Bahramitash and Salehi found that women-owned enterprises reported fewer problems related to corruption when obtaining permits and easier access to necessities such as finance.  This may be consistent with global trends that show that bribe takers are more reluctant to approach women for bribes, and that women have a better repayment track record as borrowers.

Iran is a bastion of opportunities. In the words of Sir Martin Sorrell, CEO of global communications firm WPP, “Iran is one of the world’s last remaining untapped opportunities of that scale, short of Mars and the Moon.” Women entrepreneurs should not be overlooked when foreign companies seek potential local partners. However, most trade delegations visiting Iran have made little effort to engage Iranian businesswomen.Too few foreign delegations have included women from their own countries in their midst. And, male delegations meet Iranian male counterparts, thereby widening the existing gender gap at home and in Iran. 

The chief of a recent international delegation that made the effort to meet with a group of women entrepreneurs, commented:

“I can truthfully say that I have never met such a group of dynamic and high ranking women entrepreneurs in one room before. Generally when we have such meetings with the private sector it is with men in the traditional fields and a few token women… so it is quite amazing that Iran has this caliber of women 'marching on.'  What was also interesting and possibly counter-intuitive is that when asked if they faced any barriers as women, most of them said they had no real issues in the business arena that related to gender discrimination.” 

This is what characterizes true entrepreneurs—seeing opportunities and not the numerous hurdles along the way. In short, Iranian women entrepreneurs are ready, savvy, willing, and able to contribute to the emerging economic possibilities coming to their country. Sidelining them robs everyone of opportunities.     

Iran's Business Leaders Must Do More to Protect the Environment

In today’s energized, almost-post-sanctions-era Iran, so much has become possible. But as growth takes place, and as increased capital flows into the country, we need to expect more from our business community as contributors to human development. 

Businesses are expected to make profits. That is how wealth and jobs are created.  That is how lives and livelihoods are transformed. But, along with profits, comes an expectation that the business community must act responsibly in terms of the social, environmental and economic improvement of the communities in which they make these profits. Most notably, businesses must focus on their responsibility to protect our environment.

Facing Grave Challenges

At present, our fragile, endangered planet faces many grave challenges. One of the greatest human development challenges we are witnessing in Iran is the threat of an increasingly hot and dry environment.  The environment is being degraded through our actions. Climate change, coupled with the poor environmental decisions of the past, is making Iran hotter and drier.  We see a country that is water-stressed, losing its forests, polluted by sand and dust storms, and energy inefficient. We see dramatically less biodiversity than even a decade ago. 

The government is trying to reverse environmental degradation, but without the overall level of success required. Due to the scale of the problems and the nature of the causes, these problems can only be successfully addressed when all stakeholders who have had a share in creating them commit to finding solutions. 

We all need to start acting sustainably. Governments need to do more.  Citizens need to do more. And yes, frankly, the United Nations must also do more. We need to speed up our responses. Fortunately, the governments of the world, including Iran, have agreed to implement the Sustainable Development Goals (SDGs) which came in to effect in January 2016. These goals strive to end poverty, protect the planet, and ensure prosperity and peace for all through partnerships. We all need to take the time to learn, understand and apply these goals. 

The United Nations is already working closely with the Iranian government to tackle many of the challenges identified through the SDGs. Encouragingly, Iranian authorities, along with most governments worldwide, are starting to frame a response to SDG targets. 

Now is the time for the Iranian business community to also become more involved and visible in sustaining our environment. I believe that the business community must get involved both directly and indirectly in order to protect our environment. This can come in two ways.  Direct and indirect.

Direct Efforts

Business efforts to reduce the environmental impact will increasingly become a matter of self-interest. Iran has committed, under its draft sixth Five-Year National Development Plan, to implement a low-carbon economy. Given this, plus the global commitments to which Iran has signed up to under the Paris Agreement, the Government will increasingly pass laws and policies which mandate emission reductions.  Businesses therefore have a profit incentive to anticipate the regulations which will inevitably be imposed by an Iranian Government increasingly needing to comply with its own international carbon-reduction obligations.

In line with this, businesses should be innovative. Innovation brings about new opportunities and thus benefits the company and the society. “Sustainable innovation” can include such elements as a reduction in water use for production and the encouragement of companies to incentivize their customers to use less water by recycling.

Next, businesses should switch to more cost-effective techniques for their infrastructure. For example, when operating a business, one of the biggest burdens can be the cost of energy.  Thus, in order to reduce these costs, the following steps can be taken:

1. Buy energy-efficient appliances and devices.

2. Switch off equipment when not in use.

3. Monitor your corporation’s energy usage by installing the necessary equipment (and act on what the numbers show)

4. Switch to using renewable sources of energy where possible (such as wind and solar).

But we also need to start with ourselves. And so, another step forward for businesses can be the engagement of employees and customers in sustainable behavior and actions. These actions entail raising awareness about a company's own “sustainable goals,” so that more people can become involved in supporting and helping to achieve those goals. It is the responsibility of every business to send the same message and encourage others to join these efforts.

Indirect Efforts

But there is another – indirect – way in which businesses can act to improve the environment.  This is through Corporate Social Responsibility (CSR). Across the planet, CSR is becoming recognized as a strategic management tool for guiding corporate decisions. The ethos of CSR should also filter down to operations.  In the end, and if done well, CSR will powerfully enhance a company’s corporate image in a world where, increasingly, if you are not visible, you are not relevant.

We are no longer in a position to choose pure profit. Our growth must be inclusive. Our development must be sustainable. And our environment must be safeguarded. These ideas were what drove former UN Secretary-General Kofi Annan to create the UN’s Global Compact in the year 2000. The Global Compact brings together business, governments, civil society and UN agencies to advance universal principles in the areas of environment, labor, human rights and anti-corruption. This initiative is the world's largest voluntary corporate citizenship pact. At present, over 4,100 companies from over one hundred countries participate. CSR is at the very center of our Global Compact. But there are hardly any Iranian companies represented in the Global Compact. The time has come for this to change.

CSR can contribute to overcoming human development challenges in all countries. Through CSR, companies can financially (or in-kind) support environmental causes and donate to organizations and charities that are working to overcome some of the challenges facing our planet. Irrespective of size, businesses can get involved and send a positive message to others to participate in CSR.

With this in mind, I urge business leaders in Iran to explore CSR and engage in partnerships to make growth more inclusive and more environmentally-sustainable. Living in Iran, I am encouraged by the number of private sector organizations, public corporations, and banks who wish to collaborate with entities – including those like the UN – to promote environmental initiatives and inclusive growth. Although I see encouraging signs within the private sector towards these goals, much more needs to be done.

Today, the world is demanding that companies behave responsibly vis-a-vis the environment. The spirit of “partnership” within the corporate community is at the heart of the SDGs. One goal in particular—Sustainable Development Goal 17—calls on all states to “Strengthen the means of implementation and revitalize the global partnership for sustainable development.”  This is a direct call-to-action for the private sector. In order to attain sustainable development we need more hands. Each and every citizen has a role to play.  

The UN stands ready to assist Iran's robust business community in promoting CSR.

Photo: Newsweek

New Contracts Offer Synergies Between Players in Iran's Power Industry

Iran’s power industry is one of the most strategic and advanced industries among the country’s diversified industrial-based economy. The industry is not only strongly positioned to play a crucial role in Iran’s overall economic growth and industrial exports post-sanctions, but it is also a strategic component of the country’s geoeconomical importance in the South Caucuses and Central Asia.

In this new era of possibilities and opportunities, the outlook for the industry’s rapid expansion and economic growth is promising. This expansion is supported by the country’s abundant fossil fuel resources, over 600 different equipment-manufacturing companies and contractors, and over four million specialized technicians with electrical engineering backgrounds. Additionally, Iran’s large reserves of copper, aluminum, zinc, polymer, and other major raw materials allow robust capabilities for the domestic manufacturing of turbines and electrical components.

Nevertheless, considerable inefficiencies affect all segments of Iran’s power industry value chain. These deficiencies will continue to create challenges for the sustainable development of the sector. While foreign investment, and its hype, have become the main focus for meeting development objectives, other critical factors should be taken into account as the country makes its way back to the global arena.

Investment Incentives and Barriers

To attract new sources of capital to efficiently and quickly develop the power sector (for which the utilization of Class F and H turbines with net efficiency levels of 56% and 61% respectively are required), the Ministry of Energy (MoE) has introduced Energy Conversion Agreement models (ECAs) within Build-Own-Operate (BOO) and Build-Operate-Transfer (BOT) frameworks. In an attempt to reduce bureaucracy and increase efficiency in the processing of investment applications, MoE established Iran’s Thermal Power Plants Holding Company (TPPH) in early 2016, assigning it with the overall responsibility of negotiating investment deals and issuing required permits and licenses.

The Iranian power ECAs are based on two major principles: 1) free feedstock gas supply and 2) guaranteed electricity off-take at competitive tariffs. Both of these components are offered over five-year periods. The MoE has reached an agreement with the Ministry of Petroleum for the supply of gas which is converted to electricity for consumption in domestic markets. As such, these agreements are considered Energy Conversion Agreements as opposed to conventional Power Purchase Agreements (PPAs) offered elsewhere. The gas supply agreement has not been immune from political clashes between the two ministries, however. Officials of the Oil Ministry contend that by giving the project owners the opportunity to export electricity, the free supply of gas to power plants could undermine Iran’s gas export capabilities when the ECA’s term comes to an end.

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ECA Model

• Fixed 5-year agreement with free supply of feedstock gas
• Guaranteed off-take agreement at pre-determined prices (which will be adjusted annually to protect investors against inflation and exchange rate fluctuations)
• Guaranteed (almost) free access to the grid for 20 years
• TPPH fixed financial modeling offering a 20% IRR
• After period of five years, the power plant can trade its electricity at the Energy Exchange market, or sell it to national or international off-takers at market prices

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In order to ensure investor confidence, Iran’s Ministry of Economy and Finance backs the ECA agreements with a sovereign guarantee for the FIPPA-registered equity capital and incurred interest, which in turn, facilitates the means for investors to acquire finance at a low interest rate from international banks. In light of these attractive terms—often described as “too good to be true”—many international power companies, particularly those from Germany, Turkey and South Korea, have already signed MOU's with TTPH for multi-thousand megawatt power projects across the country.

While the MoE has been successful in attracting foreign investment, it has been less successful in engaging the Iranian private sector—namely manufacturers and contractors active in electric engineering, consultancy, and power plant construction. The post-sanctions policy of creating a "resistance economy", endorsed by Supreme Leader Ayatollah Khamenei, puts a great emphasis on the importance of empowering and supporting Iranian companies in their post-sanctions reintegration into the international economy. Entities that worked diligently and successfully during the era of sanctions to ensure the generation and flow of electricity are specifically rewarded. The requirement for establishing partnerships with competent Iranian companies – a requirement also included in the Iranian Petroleum Contracts (IPCs) - should be incorporated in power sector development contracts as well.

Another major development barrier in Iran’s power market is that despite a massive installed capacity of 75,000MW, a large number of power plants operate using extremely inefficient single-cycle E-class turbines with a stagnant efficiency of 30-35%. This level of inefficiency is even higher when combined with the energy loss in the transmission and distribution systems caused by old, inefficient and depleted network utilities and technologies. Half of the electricity appliances and cables in the distribution system are over a quarter-century old and cannot withstand heavy loads during peak times. According to a report published by the Parliament Research Centre in July, 2015, the actual level of power loss in Iran’s power system (energy conversion and transmission and distribution networks), ranges between 19-22%, and increases to over 25% during summer peak times. In practice, this means that for every 1000 MWh electricity generated during the peak time, a staggering 250MWh is wasted.

Heavy state subsidies and underpriced natural gas supplied to power plants result in depleted efficiency in Iran's power grid. A low tariff structure has caused a trend of excessive and inefficient consumption pattern per capita and the resulting inability to recover costs has led the industry to accumulate significant debt. The situation has been recently exacerbated by the urgent requirement for capital investment in developing new capacities to meet an unprecedented growth in demand. This requirement is expected to increase even further in light of post-sanctions economic growth. The expanding structural deficit has been a daunting burden on both the government and the private sector. A yearly investment of USD $5-6 billion  has been required to meet the annual growth demand of 6% (or 5000 MW).

Iran as a Regional Energy Transit Hub

Iran’s power industry could play a critical role in enabling Iran to become a major regional electricity-dispatching hub, connecting the Caucuses and Central Asia with the Middle East. In addition to the realization of this project, the development of the larger alliance of the North-South corridor, which is being created among Russia, Azerbaijan and Iran, also has a strategic value for Iran. Unlike gas exports, which always face political barriers and fluctuations, electricity exports portend not only revenue, but also Iran's geo-economic relevance by creating economic and energy interdependency.

One of the major geopolitical objectives of the Iranian government is to ensure its regional ambitions by promoting energy diplomacy. While substantial progress has been made to date, (such as the synchronization of Iran's extensive national grid with all of its immediate neighbors, including Turkey, Iraq, Pakistan, Afghanistan, Armenia, Azerbaijan and Turkmenistan), this corridor requires substantial cross-border infrastructure development. The Iranian power industry, with the help of the private sector, should be at the forefront of this development. By allowing investors to solicit customers both domestically and regionally, these projects would also provide an attractive opportunity for investors to tap into regional markets for export of their generated electricity once their five-year power purchase agreement comes to an end. The ever-growing electricity demands of the Emirates, Oman and Kuwait offer a unique opportunity for power project developers in Iran.

The market knowledge and engineering know-how of Iranian companies, combined with the technological capabilities of foreign companies, will result in lucrative and substantial endeavors. As Iran re-engages with international markets, the most important policy for both government officials and Iranian power sector players is to grow sustainably, with a view to the long-term interests of the country.

Photo Credit: GE

4 Megatrends That Support Rising Tech Entrepreneurship in Iran

Before talking about the key megatrends supporting technology entrepreneurship in Iran, I'd like to introduce the “change formula:"

(V x D) + FS > R = C

In this formula, C = change; R = resistance (fear of change); V = vision (a picture of what future looks like); D = dissatisfaction (pain of being on a burning platform); and FS = first steps (courage to take the first steps).

The change formula shows us that change needs to come from within. But at the same time, entrepreneurs look to favorable trends which help change happen faster and more readily. To analyze key "megatrends" in Iran we at Iratel Ventures used modified versions of the National Innovative Capacity and National Innovation System frameworks. Each topic forms the basis of our continuous and improving research.

The 4 key trends shaping entrepreneurship capacity in Iran are:

1. Demographics (Culture, Education, Employment)
2. Economics (Reconstruction, Reformation, Innovation)
3. Communication Technology (Fixed, Mobile, Internet, Unified)
4. Capital (Flight, Infrastructure, Exploratory, Venture)

Of particular interest to us is how venture capital will scale tech entrepreneurship among Iranians. An important aspect of this consideration is that pure scientific and technological advances which do not lead to economic applications are not a sustainable option for venture capital.

1. Demographics (Culture, Education, Employment)

Firms in innovative countries are willing to invest heavily in R&D, and have moved beyond extensive use of technology licensing. Companies focus on building their own brands, controlling international distribution, and selling globally, all of which are complementary to innovation-based strategies. Organizationally, firms from innovator countries engage in extensive training of employees, delegate authority down the organization, and make greater use of incentive compensation.

This is the vision for the future. This is the culture we need to establish in Iranian companies. One that is universal and capable of attracting top talent, not just domestically but internationally.

Having said that, Iran has abundant potential talent with 60% of the youth under the age of 30. This represents an amazing workforce but also a challenge. We need to create 1m jobs annually to keep employment under control but are only generating 300k.

Source: World Economic Forum

This pool of talent is highly educated. According to the World Economic Forum, Iran has the third highest number of graduates in engineering, manufacturing and construction (in absolute and per capita numbers).

If they’re not provided the opportunity to work on what they’re good at, Iranians will seek opportunities overseas. This phenomenon of "brain drain" is exactly what happened during the last two decades. The good news is that many are ready to establish businesses here (if not already) and make a real contribution.

This is the result of many years of good work in education, culture building and wanting to improve our place in the world. We are at the crossroads. We need to use these gifts properly or risk losing the opportunity. These high levels of innovative assets (scientists, engineers, and to some extent research institutions) have so far been hampered by the business environment and the competitive landscape in our country and now is the time to change.

2. Economic (Reconstruction, Reformation, Innovation)

Many policy discussions assume the existence of a sharp tradeoff between goals such as health, environment, safety, and short-term economic growth. However, a healthy rate of innovation increases the likelihood that new technologies will emerge that substantially temper or even eliminate such tradeoffs.

One of the main characteristics of the post-revolution economy in Iran is that growth at any rate may not be the top priority. The macro environment is affected by how economic decisions are made and how different parts of the economy are optimized in light of factors beyond profit.

This coupled with the economic shock due to the revolution, put industrial R&D and innovation at the bottom of the economic agenda. The restructuring of universities and the subsequent war led to further widening of the gap between R&D and industry. The international sanctions and eight years of devastating war further eroded our economic powers and pushed the country to the brink of economic collapse where real per capita income dropped 61% from the high of 1976 to the low of 1988.

The post war period presented an opportunity for ambitious rebuilding. Although there were great advances in this period and infrastructure was the primary beneficiary, there was still a lot of debate hampering growth. Most of the activity came from the public capital, however, private capital was slowly gaining confidence.

During the reformation, we had many social and cultural initiatives, but little in the way of economic reforms. The country was facing internal as well as external pressures especially with record low oil revenues. A bright spot was that private financial institutions and banks were set up and the first steps in turning private capital into a real player were being taken.

Next came a period of further shocks and economic isolation marked by inward looking policies that focused on tax and subsidies, rather than growth. With little incentives to stay and international pressures, foreign investors left. However, private capital was booming in many consumer related industries and there was a big disconnect between public and private economies putting further social pressure on the country. The spring was being compressed even further.

In the new post-sanctions phase, the economy is at the top of an agenda marked by an outward looking vision to reconnect with global trade and to emphasize “knowledge based” companies. One can only hope for a bright future where economic policy will act as a tail-wind for innovation.

3. Communication Technology (Fixed, Mobile, Internet, Unified)

Communication technology has had a tremendous effect of shifting an inward looking local innovation to an outward global one.

In parallel with everything that was going on in our country, the world was entering the information age at great speeds, embracing a global many-to-many communication platform called the internet.

With the convergence and unification of voice, video and all other types of communication using smartphones, the possibilities of building bigger, more open and more useful services are multiplied by an order of magnitude. Given the right circumstances, these technologies will connect us to a global audience at the push of a command and make building of previously unimaginable businesses possible. Imagine you’d told someone 40 years ago that they’ll be able to communicate with 5m people simultaneously and get responses from them in real time!

Source: Nokia

Iran was no exception in adapting this tremendous communication technology. Iran was an early adopter of the GSM standard resulting in a jump to the digital world. By the late 90s, Iran was the largest country in the ME in terms of mobile phone volumes and by mid 2010s, Iran had he highest internet population and the second highest number of smartphones in the region.

The internet and communication evolution is only marching on, with an ever increasing number of things coming online, we will have a unified system gathering, analyzing, optimizing and automating many things we do in our daily lives.

4. Capital (Flight, Infrastructure, Exploratory, Venture)

The availability of venture capital reflects the importance of risk capital in translating basic research into commercializable innovation.

Venture Capital is considered as the main financial driver of entrepreneurship that can ignite innovative streams due to its high risk tolerance and expectation factor.

In the years before the revolution and the first 10 years following the revolution, the country saw huge capital outflows and frozen assets due to political issues. During the infrastructure building phase, capital, mostly public, was being allocated to rebuilding efforts. Infrastructure investments in the major industries as well as newer ones (e.g. telecoms) was picking up. At the same time, the country’s private capital was still far from having any influence. Private capital had limited access to opportunity and was primarily locked in real estate and trade.

However, a period of economic reform began to unlock the potential in local industries. Privatization gathered pace and private financial institutions were set up and private capital started feeling more opportunistic. This helped shape the nucleus of the private capital which would take at least a decade to grow and become an important player. During the later reformation years, capital started exploring adjacent and relevant markets outside Iran. However, with the new rounds of sanctions this exploratory phase came to an abrupt halt and returns were diminished.

This growth opened the way for the emergence of a new trend, the rise of venture capital. Venture capital knows that the only way to build meaningful and sustainable returns is by building products and services that will go beyond the local constraints and have the potential to have a global footprint. Both public and private capital moved towards venture applications. Public capital was becoming more structured as seen in the establishment of a Sovereign Wealth Fund in Iran with local as well as global aspirations. Private capital had long been stuck in bank deposits. But lowered interest rates have begun to influence depositors to seek our investments that can contribute to economic production. 

Source: Stanford Business School

It is this kind of capital that can move fast, add value on an operational level and bring new ways of connecting with a global audience. This is the only way we can build an innovative platform for global Iranians. Once capital gets moving, its momentum will impact the other trends and positively compound their progress.

As direct beneficiaries of many (if not all) of these trends, it is our duty to be the change we want to see in our community. This is why we think that supporting entrepreneurship is the biggest contribution we can currently make. It allows us to take a long term view and patiently build a strong foundation towards an innovation driven economy for a more prosperous Iran. 

Banner Photo: World Economic Forum

Seeing FDI as Iran’s Biggest Communications Challenge

So much has been said about the outstanding opportunity that Iran presents for investors around the world.  The country has been described as the last great emerging market opportunity available to global investors. Throughout the prolonged period of international negotiations that led to the JCPOA, the headlines focused on the significant economic fundamentals of the country—a population of 80 million people, a highly educated and skilled workforce, huge natural resources, and relatively sophisticated banking and legal systems, just to mention a few. Iran should be an enticing prospect for international investors operating in a low-growth global environment.  Much has also been said about the need for Iran to attract the necessary FDI, technology, and expertise to re-invigorate an economy that has been left behind during a long period of international sanctions.  But there has been less focus on the specific challenges Iran faces now as it promotes itself for greater engagement by foreign companies and investors--notably the difficult job it has to improve perceptions about the country as an investment destination.         

Attracting FDI is Highly Competitive

Attracting serious FDI to a country is a highly competitive business, as so many emerging economies and developing countries now vie with one another to position themselves for investment.  For Iran, isolated for so many years under sanctions, the process of promoting itself for foreign investment is going to be a major task as it seeks to compete with every other emerging market economy in the world – many of whom have become adept at global marketing and commercial diplomacy.  Before launching a global advertising and media relations strategy, however, those in Iran mandated to promote FDI will need to understand what factors influence FDI decision makers. What drives a global corporation or a financial institution to invest in a country that has potential for growth, but presents significant risks?       

The Drivers of FDI Decision Making

The business of attracting FDI to a country is atwo-part "contact sport".  Firstly, it requires a strategic approach to understanding how investors behave when considering a destination for FDI.  Secondly, there must be government-level commitment to engage closely with those investment decision-makers and stakeholders as they start to shape their sentiments around a specific investment opportunity.  This requires an adequately-funded and serious communications strategy and engagement program at a national level.

In many years of working with countries and sovereign entities on FDI communications, I have learnt that a number of universal factors drive investment decisions.  They can be referred to as the "hard" and "soft" drivers of investment.

Hard Drivers of Investment

The hard investment drivers influencing corporate decision makers as they consider whether to invest in a new market are principally economic.  The first questions that need to be answered include what are the scope and nature of the potential business and what is the specific opportunity in our sector?  It is therefore highly important that potential investors have this information available to them.  For a country like Iran, isolated for so long and not used to making information available to international audiences, this will be a challenge.  I find that there is a dearth of good economic information readily available on the country for international audiences. This void will need to be addressed by both trade groups and the government, in due course.  Current levels of awareness about the specific investment opportunities in Iran are staggeringly low.  In the UK, for example, many people compare Iran to its neighbors such as Afghanistan or Pakistan, rather than to Turkey, a more analogous comparison. This fact reveals the state of current investor misperception and ignorance regarding the country.  When combined with the negative media coverage the country tends to receive from both the global and US-centric business media, a strongly negative view is created.  The case for investment in Iran is a difficult one to make in the boardrooms of Europe because the perception of risk is combined with a low level of awareness of the actual economic opportunity and business environment. 

Other hard drivers focus on the standard accepted processes of due diligence needed when considering a new market.  Key questions that need to be addressed in FDI communications are:  What are the corporate governance standards? Is the legal system reliable? What are the levels of transparency? What are the levels of corruption? How pro-business is the government?  Again, the country needs to be seriously proactive in dealing with each of these issues and addressing justifiable concerns. Global indices play an increasinglyvital role in shaping investor decisions. As Iran ranks markedly behind its regional neighbours in key areas, the country will need to decide how to engage with indices such as the Heritage Foundation’s Index of Economic Freedom (Iran ranked 171 in 2016), World Bank Group’s Doing Business Report (Iran ranked 118 in 2016), Transparency International’s Corruption Perceptions Index (Iran ranked 130 in 2015) and World Economic Forum’s Global Competitiveness Report (Iran ranked 74 in 2015-16). 

While these global rankings reflect Iran’s lack of engagement with the teams who compile them, they will collectively create a powerfully negative picture as investment decision makers assess potential opportunities in Iran.

Soft Drivers of Investment

The soft drivers of investment are centered around culture, not hard economic data or global rankings.  Interestingly, soft drivers have a huge influence on FDI decision making.  Therefore, government FDI communication has to shape both cultural and investment perceptions. Questions to be addressed include: Are women able to occupy senior roles in business? What are the career opportunities for women in the country? How strong is the infrastructure?  Are there decent hotels and transport and flight links? Will my senior staff want to be posted to the country? In short, what is the "likeability" factor of the country? It is imperative that the country’s investment communication addresses these softer considerations.  Because Iran has a positive narrative to highlight in this area, it must devote significant resources to building an effective campaign to addresses both hard and soft drivers. After all, decision makers are more likely to invest in a country they like.     

Perception Research

The first step in developing the FDI communications program will be to conduct perception research in key markets and sectors.  Perception research should be qualitative, and include in-depth interviews with investors, compliance managers, and regulatory bodies in key markets.  This is a key tool in establishing a true picture of how the country is perceived by potential investors and target companies.  Only then can an effective communications strategy and engagement program be developed and launched to change perceptions.    

A year after the signing of the JCPOA, there is much frustration both in Iran and in Europe about the slow pace of the resumption of trade and international banking with Iran.  Interested international investors are unlikely to commit to major investments until convinced that Iran is open for business.  During this lull, those charged with promoting FDI into Iran must work diligently to shape perceptions and build investor appetite.   

Photo Credit: SAIPA

How Think Tanks Influence the Debate on Iran

At the 3rd Iran Europe Forum in Zurich earlier this year, Iranian business leaders attending frequently asked: What is a think tank? 

The concept of the think tank originated in the United States with independent research institutes such as the Brookings Institution, which was founded in 1916 by a St. Louis businessman named Robert Brookings. Brookings established the institute with the goal of providing research in the fields of foreign policy, economics, and development. The actual term “think tank” was first applied in 1959 to the Center for Behavioral Sciences in Palo Alto, California. The term has since become a catch-all for thousands of organizations around the globe with a variety of agendas, funding streams and output. In some countries, think tanks are offshoots of the government and are managed by officials. The Institute for Political and International Studies in Tehran, which is affiliated with the Iranian Foreign Ministry, is one such example.  

In the United States, most think tanks are privately funded by foundations and individuals, and seek to influence U.S. policymakers by publishing reports, testifying on Capitol Hill, and holding public and private events. The State Department’s Policy Planning Staff lists about 60 think tanks, mostly in Washington but some abroad, that it finds “particularly useful” in helping the department shape U.S. foreign policy.

Many U.S. think tanks, including the Atlantic Council, the Brookings Institution and the Center for Strategic and International Studies, are bi-partisan and do not endorse political candidates. They strive for balance in their staffing, analyses and events. However, their scholars are not barred from taking positions on contentious issues and are encouraged to put forward their ideas.  Other organizations, such as the Heritage Foundation and the Center for American Progress, have clear leanings to the right or to the left of the political spectrum. These entities often act as lobby groups.

During the heated debate that took place last summer in Washington over the Iran nuclear deal, a number of think tanks and other organizations sought to influence the outcome. Many of the groups in support of the deal received small grants from the Ploughshares Fund, a non-profit based in San Francisco that seeks the elimination of nuclear weapons. Ploughshares was praised in the Journal of Philanthropy for its “creative and nimble thinking” in coordinating the successful campaign in support of the Joint Comprehensive Plan of Action (JCPOA). Among the groups that received funding from Ploughshares for their work on Iran were the Atlantic Council, the Arms Control Association, the Friends Committee on National Legislation (a lobby connected with the Quakers), and J-Street (a liberal Jewish-American group).

Groups on the conservative side of the political spectrum were much better funded. These organizations included the neo-conservative Foundation for Defense of Democracies and the powerful pro-Israeli government lobby, the American Israel Public Affairs Committee (AIPAC). In total, they spent an estimated $40 million on anti-JCPOA advertising directed at the U.S. Congress-- a staggeringly larger sum than that spent by the pro-deal camp. In the end, however, the effort failed to convince a sufficient number of Democrats that there was a better available alternative to the JCPOA. Indeed, the JCPOA never even came up for a vote in the U.S. Senate because opponents could not muster the 60 votes required to end the debate.

The Atlantic Council, which was founded in 1961 to promote U.S. ties with Europe, did not take a position on the JCPOA. However, a bipartisan Iran Task Force organized in February, 2010 under the leadership of then-Atlantic Council chairman (and later Defense Secretary) Chuck Hagel and former Ambassador to the European Union Stuart Eizenstat, did issue a statement in July, 2015. It gave qualified endorsement to the JCPOA while urging “special vigilance against any violation of its terms.” The Task Force also organized two private, bipartisan dinners in Washington in August, 2015 with Energy Secretary Ernie Moniz, a key member of the U.S. negotiating team. Similar events were held in New York in the fall with the Iranian ambassador to the United Nations, Gholamali Khoshroo, and with Iranian Foreign Minister Javad Zarif.

The Task Force, which has since evolved into a broader Future of Iran Initiative, seeks to increase the JCPOA’s chances for success and build on its model for conflict resolution. The Initiative also tries to promote a deeper understanding of Iran through reports and panel discussions such as a recent symposium on the implementation of the JCPOA that was addressed by two key administration officials – Deputy National Security adviser Ben Rhodes and John Smith, the acting head of the Treasury Department’s Office of Foreign Assets Control(OFAC).

In large part because the U.S. and Iran have lacked formal diplomatic relations since 1980, there is a dearth of expertise and knowledge about Iran in Washington foreign policy circles. Members of Congress, in particular, tend to view Iran through the lens of official Iranian anti-American and anti-Israel rhetoric. At the Atlantic Council, we strive to show Americans a more nuanced and realistic perspective on Iran by sponsoring events that feature individuals who have had first-hand, recent experience in Iran and who can speak to all aspects of the Islamic Republic. 

Among the events the Initiative has held this year were a discussion on sports diplomacy, showcasing visits to Iran by U.S. wrestlers, a panel on hi tech startups and the innovation economy in Iran, and a discussion on the ramifications of the Iran-Saudi rift on regional conflicts. The Initiative also put out a balanced report on Iran’s human rights policies and organized a discussion that included experts on other countries in the region, including Saudi Arabia. The Initiative has also hosted Iranian officials, including Valiollah Seif, the governor of the Central Bank of Iran, for private discussions about the Iranian economy and the impact of the JCPOA. For the remainder of this year, the Initiative is planning events on environmental challenges in Iran’s Hamoun wetlands, the experiences of U.S. Peace Corps volunteers in Iran, and the country’s contemporary art scene. The Initiative also publishes a blog, IranInsight, with articles in both English and Farsi.

While there are other think tanks in Washington that have held events on the nuclear deal or Iran’s regional role, the Initiative is unique in its wide-angle view of the country. We feel we are performing an important service by acting as a bridge between two cultures that have been divided for far too long.

Photo Credit: Atlantic Council

Why Hotel Development in Iran Has Investors Excited

The lifting of sanctions on Iran has opened range of investment opportunities in the hospitality sector. After more than 35 years of economic isolation, Iran has a strong need for investments in hospitality infrastructure and will provide a major opportunity in next few years.

Iran is an extremely attractive tourist destination. The country has a rich cultural heritage with 19 UNESCO listed sites. Its tourist attractions range from ancient Persian ruins to beaches on the Persian Gulf and Caspian Sea to ski resorts in the Alborz mountains.

According to the World Travel and Tourism Council (WTTC), Iran’s tourism industry contributed 6.1% of the country’s GDP in 2014. This proportion is expected to rise by an average annual growth rate of 5.5% through 2025. Visitors export generated IRR 24,903.4bn (1.1% of total exports) in 2014 and is forecasted to grow by 3.0% pa to IRR 34,604.1bn in 2025 (0.8% of total). Moreover, WTTC data shows that the country hosted around 5 million tourists in 2014. Taking into account the positive effect of lifting of economic sanctions on Iran, this flow of tourists is expected to increase steadily to reach 20 million by 2025.

Considering its young population, 60% of which is below the age of 30, relatively high GDP per capita, and a location Iran has a strong potential to become a leading tourism market globally.

Before the 1979 revolution, Tehran’s hotel market had one of the highest penetrations of international hotel operators in the region with IHG, Hyatt, Hilton and Starwood operating hotels in prime locations. Following the revolution, the industry witnessed decades of stagnation. The departure of international hotel operators had significant impact on the quality of hotel management, resulting in a generally low quality of service.

Since the lifting of sanctions, Iran’s government has demonstrated that it is eager to attract foreign investment to meet rising demand. In the last year, the number of business travelers in Iran has increased significantly, creating demand for branded hotels operated by international hotel chains.  Acording to research by Horwath HTL, a global hospitality industry consultancy, Iran currently boasts just 640 hotels with 96 located in Tehran, of which only 2 belong to an international brand. In comparison, Istanbul alone has 57 branded hotels.

Moreover, Tehran has only 13 properties that are classified as 4 or 5 stars. However, these do not meet international standards for the classifications. The lack of branded hotels and increasing demand from business travelers and tourists create a clear opportunity for international hotel chains to enter the market.

Aside from a joint Ibis and Novotel property recently opened by Accor in Tehran, there is nearly a complete lack of braded hotels in Iran, but this is set to change. Accor has plans to develop across the different segments in Iran’s major cities. Rotana group, based in the UAE, has already signed management agreements for four hotels in Iran – two in Tehran (opening in 2018) and two in Mashhad (opening in 2017). Similarly, the Spanish company Melia Hotels has announced its plans to open a 5 star hotel in a 130 meter tall tower on the Caspian Sea.

The early activity has focused on luxury and business travelers, but there are still more market segments to be covered. There is significant demand for modern mid-range hotels to cater to young Iranians travelling domestically as well as international tourists arriving on the growing numer of direct routes to Tehran opened by foreign airlines. Drivers for tourism include the appeal of cultural sites, but also the regional importance of pilgrimage sites for religous tourism and the regional appeal of Iran’s high quality of healthcare for medical tourists.

Foreign investors looking to capitalize on these opportunities have also been provided with a series of incentives by the Iranian Government. New hotels and tourism infrastructure in less developed areas will receive a 100% exemption on income tax if a license is issued by the Iranian Cultural Heritage, Handcrafts and Tourism Organisation (ICHTO). Hotels and tourism projects in developed towns and areas will also benefit from 50% income tax exemption.

Horwath HTL has prepared export finance opportunities for foreign and local investors to raise funds for the future hotel investments. In these scenarios, a European bank enables up to 80% of financing for the investments located in Tehran and maximum of 60% for investments in other regions. The financing is provided for 5 years considering the 0.5 % of CIRR interest rate for EUR (as of end of June 2016) and average annual real cost of credit (IRR) reaching the level of 4.27%.

Given that financing remains a key challenge for many projects in Iran, the favorable view taken by banks looking to hotel investments is promising. The hospitality sector will likely be one of the first to see international brands, European financial institutions, and local partners collaborate with the assistance of key advisors. Tourists in the country will hopefully experience the benefits of greater comfort and better service soon. 

Photo Credit: Accor

The Brexit Risk to the Iran Deal

This article originally appeared in LobeLog.

The United Kingdom has voted to leave the European Union in a historic “Brexit” vote. The myriad ramifications of the vote will only be fully understood in the coming years, but it is clear that Brexit is as much about the return of great power politics as it is about affairs in the European sphere. Ian Bremmer has declared Brexit the “the most significant political risk the world has experienced since the Cuban Missile Crisis.” It should be no surprise that the prognosis of the Iran deal, perhaps the most significant diplomatic achievement of this decade, will be impacted by the British decision to leave the EU.

The vote has certainly made a splash in Iran. Hamid Aboutalebi, Rouhani’s deputy chief of staff for political affairs, tweeted that “Brexit is a ‘historic opportunity’ for Iran” that must be taken advantage of. On the other side of Iran’s political aisle, Brigadier General Massoud Jazayeri has praised the Brexit vote, suggesting that it represents a rejection of American policies. Whatever the logic of these statements, political actors in Iran are clearly watching the Brexit fallout with interest.

But Iranians should be wary of seeing Brexit as a benign event. The uncertainty and volatility now gripping Europe may have a significant impact on the implementation of the Iran deal. Just as Iran was working to reenter the community of nations, relying on the central coordination of the European Union, the political and economic capacity for implementation is being diverted and eroded. 

Diverted Political Capacity

Although much of the debate around the progress in implementation of the nuclear deal has focused on the US-Iran relationship and the role of the U.S. State Department, the diplomatic framework for the implementation of the Joint Comprehensive Plan of Action (JCPOA) is firmly rooted within the structures of the European Union. Annex IV of JCPOA outlines the creation of a Joint Commission with the mandate to “review and consult to address issues arising from the implementation of sanctions lifting” among other non-proliferation-related responsibilities. Annex IV specifically names High Representative Federica Mogherini as the “Coordinator of the Joint Commission” for implementation of the Iran deal.

Mogherini in turn leads the European External Action Service (EEAS), the diplomatic service of the European Union, which has played the central organizational role in coordinating Iran’s negotiations with the world powers. She was a key figure during the nuclear negotiations and spoke alongside Iranian Foreign Minister Javad Zarif during the announcement that the P5+1 and Iran had reached a historic accord.

Within the EEAS, the Iran file has been held by Helga Schmid, recently promoted to secretary general of the service, in a move to give her more time to focus on the Iran deal. Below Schmid, an expert-level Iran Task Force was established in 2015. The task force, led by Portuguese diplomat Hugo Sobral is composed of seven members and works behind the scenes to iron out a wide range of issues related to implementation. Iran is unique in that it sits above most of the organizational hierarchy of the EEAS.  Iran is such a complex issue, and has become so central to EU diplomacy as one of the few success stories of recent years, that the mandate for implementation is handled at the most senior levels.

Whereas EU coordination has been an asset for the Iran deal, it is now a risk. First, the diplomatic fallout of Brexit could monopolize the agenda at EEAS, with the senior leadership diverted from their work on Iran. Second, the greater the seniority of the diplomats, the greater the exposure to Europe’s impending political machinations. David Cameron has announced his resignation, and Francois Hollande and Angela Merkel will likely have to fight to keep their parties in control. The European foreign ministers who are stewarding the Iran deal—Britain’s Hammond, Germany’s Frank-Walter, and France’s Ayrault—are at risk of losing their jobs.  Third, Brexit will clearly have an immense and detrimental impact on the political capacity of the EU. Already, surging populist politicians Marie Le Pen in France and Geert Wilders in the Netherlands have called for their own countries to pursue referendums on leaving the union. Whether those votes come to pass, the focus of the political establishment in Europe will turn inward, and the willpower and capacity to lead in the international arena will wane. 

Eroded Economic Means

There is no other coordinating body for the Iran deal outside the EU-led framework. The EU’s central role, linking the foreign policy interests of the UK, France, and Germany (the E3 states) enabled JCPOA to emerge from a consensus including the United States, China, and Russia. That consensus was crucial to the promise of sanctions relief, which is the most important aspect of the deal from the Iranian perspective. If Iran does not see an economic boon, the Iran deal is at risk of failing.

Troublingly, Brexit will negatively impact the ability of both the UK and Europe to deliver the economic benefits of the Iran deal. The primary barrier to increased trade and investment has been the hesitation of major banks to engage opportunities in Iran. Banks are concerned about the lingering impact of US sanctions. Iranian Foreign Minister Javad Zarif has leaned on Mogherini and EU leadership to compel the US to provide greater comfort to European banks about doing business with Iran. But they have made only limited progress thus far. Additionally, banks are generally more cautious than before the 2009 financial crisis, and Iran is seen as a high-risk market with only limited near-term upsides. Most financiers and investors were hesitant to put capital into Iran prior to Brexit, and they will be even more hesitant now, slowing the inflow of FDI. As early market activity has shown, Brexit is having a significant downward impact on emerging market assets. Already stumbling, emerging markets like Iran will become a less attractive opportunity if the volatility continues.

The secondary barrier is within the UK itself. Optimists might note that one of the key arguments of the Leave campaign was that freedom from the EU would enable the UK to pursue business opportunities in key emerging markets around the world. Although the focus has been on China and India, Iran would certainly fall into that category. 

Indeed, the UK has been trying to drum up trade with Iran for the past two years, but has had little to no success. In 2015, Chancellor Exchequer George Osborne was slated to lead a trade delegation to Iran, but this was cancelled largely due to political concerns from the UK’s regional allies. In May of this year, Sajid Javid, the business secretary, was meant to lead a business delegation only for it to be cancelled as the Brexit debate threw Cameron’s cabinet into disarray. The UK does have a formal “trade envoy” to Iran in Lord Norman Lamont, who has been a supporter of renewed Iran-UK ties for many years as the chairman of the British-Iranian Chamber of Commerce. But Lord Lamont has had limited success mustering British business, and the UK lags far behind France, Germany, and Italy in terms of promised FDI. Iranians find some hope in the fact that Lord Lamont supported Brexit and will thus retain or even gain political influence in the aftermath of the referendum. But faltering political will is not the only challenge facing British business with Iran.

At a structural level, the economic priorities of the UK will change. Although the Leave campaign touted an embrace of new global markets, the initial priority will be to shore up the British economy by ensuring continued access to the European Common Market. This will require that the UK negotiate a free-trade agreement with the EU-27. This process will be extremely complex and lengthy, and as the global law firm Baker & McKenzie notes, “there are concerns that the UK lacks the manpower and expertise required for such negotiations.” Michael Dougan, a professor at the University of Liverpool, has cautioned that, in terms of the push to emerging markets, “Logistically it is difficult to imagine that the UK has the internal diplomatic and civil-service capacity to negotiate more than one or two agreements at a time, let alone sixty or seventy.” The logistical challenge will also face the chief executives of major British and European companies, who will now need to focus their attentions on post-Brexit planning. They will have fewer resources to devote to developing opportunities in Iran, especially at the required senior levels. Practically speaking, Iran will not be a priority in the post-Brexit economic agenda.    

A Change in Mindset

The Brexit vote took place a little less than a year following the historic announcement of the Iran deal on July 14, 2015. What is perhaps most shocking for those of us who followed the Iran deal, and rejoiced in that announcement, is the different mindset affecting the political and economic landscape today. 

When the Iran deal was announced, it seemed a triumphant example of cooperation and vision where the national interests of seven different countries, representing the global community, eventually produced a single robust agreement. In many ways, Brexit is a rejection of the type of politics that brought us the Iran Deal.

This may be the final consequence, with the hardest impact to gauge. A single national referendum has shaken the collective faith in the project of formalizing consensus and cooperation in international relations. Iran is coming back into the community of nations. But with the potential demise of the EU, that community will seem less welcoming and less hopeful.

Photo Credit: The Independent

Where Iran Sanctions Relief Falls Short

This article originally appeared in LobeLog.

Over the last few weeks, the debate about supposed U.S. obstruction of sanctions relief has reached a fever pitch. Secretary of State Kerry has brushed off criticism from Europe and Iran, making it clear that the US stands by its obligations under JCPOA. He has stated that US sanctions are used “an excuse” to hide the fact that some European companies “don’t want to do business or they don’t see a good business deal.” Jarrett Blanc, deputy lead coordinator for Iran nuclear implementation echoed this sentiment when addressing an Iran business conference in Zurich, the first time the State Department has spoken at such a gathering. He noted that hesitations go beyond US sanctions and that “business decisions, not surprisingly, in fact take into account concerns well beyond sanctions.” These statements have raised concern among deal supporters in Europe, Iran, and the United States that the deal is at risk, especially if momentum doesn’t materialize before the prospect of a Clinton or Trump presidency.

However, the recent debate about obstruction of sanctions relief overlooks the fact that compliance with US regulations requires two steps: understanding the current status of US sanctions on Iran and ensuring that any transaction facilitated by a financial institution doesn’t contravene those sanctions. It is certainly true that the U.S. Treasury and its Office of Foreign Assets Control (OFAC) could do more to elucidate precisely how they will enforce the post-JCPOA Iran sanctions since European financial institutions, given a history of hefty fines, will not tolerate such a degree of confusion and ambiguity. However, even if the US regulations were crystal clear, determining whether a given transaction is compliant will remain difficult. This second dimension to compliance is what banks call “know your customer” or KYC, and it requires a high degree of due diligence to ensure that parties in a given transaction (even the simple transfer of funds from one account to another) do not fall afoul of the remaining US sanctions. Although progress is being made on the first step of compliance, with US regulators and European bankers and businessmen opening a dialogue, the second step remains a challenge with no clear solution.

In order to put banks at ease, the onus will be on Iranian companies to raise levels of transparency and accountability. Moving from a closed, inward-looking economy to one properly integrated into the global systems for finance and trade will require new business practices. This has been well noted in the numerous country reports written by major law firms such as Dentons, Eversheds, and Clyde & Co, as well as advisory companies such as McKinsey, Control Risks, Economist Intelligence Unit, and PwC.Iran understands the need for greater transparency, but the transition is only just beginning. Most Iranian business leaders considered a nuclear deal an unlikely occurrence until quite late in the negotiations. Few began serious preparations for “post-sanctions” business development until after Implementation Day. As a result, only a handful of Iranian companies in each sector can provide investors detailed and reliable materials on investment and partnership opportunities at the present time. Companies often lack clear and comprehensive websites, let alone detailed third-party due diligence reports or feasibility studies for the projects they are touting. As such, the majority of Iran’s investment opportunities are not “bankable”—that is to say an investor cannot have a high degree of confidence in the verifiability of the project at hand. If the investor cannot be sure of fundamental details, then the cautious banks will be even more hesitant to provide financing or simply facilitate the necessary transactions. They will not be able to ensure compliance, even if the US regulations and other relevant sanctions are crystal clear.

The Blind Spot

The majority of the major deals announced since Implementation Day, which have not progressed beyond Memoranda of Understanding, are between European MNCs and Iranian partners who have a historical working relationship. Companies like Airbus, Bosch, Daimler, Danieli, NovoNordisk, Scania, and Siemens are not new in the Iranian market, and therefore the sizeable investments promised can be made with the confidence built from an iterated relationship with the Iranian counterparty. New players are facing an interesting dilemma. They are making country visits to Tehran every week and are speaking with potential partners. But while the initial conversations are almost always positive, making clear the much touted investment opportunities, the mechanics of those deals remain difficult to pin down. Reluctant to lose the positive tempo of initial visits, European companies have attributed that hesitation to the ambiguity around US sanctions—Secretary Kerry’s comments are accurate. These new entrants certainly find it far easier to blame US sanctions than to explain the inadequacy of a potential Iranian partner’s provided information. It is also hard to blame the Iranian companies that have so little recourse and support in actually producing reports and documentation to the standards Europeans desire even in a so-called “emerging market.”

Here, then, is the true blind spot of US sanctions relief for Iran. It’s not so much that banks feel uncomfortable with transactions, but actually that the third-party service providers banks and businesses rely on to provide an objective, verifiable, and bankable picture of a given opportunity, counterparty, or transaction are not able to operate. The same companies that have produced the initial flurry of reports about Iran—management consulting firms, accountancies, credit agencies, and law firms—are finding it very difficult to understand exactly how they can service Iranian clients in the current regulatory environment. These global companies have massive US operations and countless US persons working in an inherently polycentric corporate structure. They are in some ways the most multinational of all multinational corporations. These companies, which act in many respects as the architects of global standards for business practice and governance, are perhaps more hamstrung than the banks, which have relatively ring-fenced corporate structures.

This situation presents the fundamental challenge of unlocking post-sanctions Iran. The investment opportunities exist, and there is a real will to engage both in Europe and in Iran, but actionable information is in short supply. The “big four” accountancies are circling Iran, attending conferences, publishing reports, and sending non-US citizens on country visits. Despite the high levels of interest, however, work has been slow to start. It is time-consuming, costly, and logistically difficult to create a compliant Iran advisory practice within these major firms.

General License H was a much-touted development to the OFAC guidance update to US sanctions on Implementation Day. It authorized “U.S. persons, including employees and outside legal counsel and consultants to provide training, advice, and counseling on the new or revised operating policies and procedures, provided that these services are not provided to facilitate transactions in violation of U.S. law.” In short, US lawyers and consultants can now help US companies and the foreign subsidiaries of these companies get the basic architecture of their own compliant Iran strategy in place. However, the same US persons and the companies they advise, remain explicitly unable to “rely on [General License] H to “export U.S.-origin goods to Iran.” The trouble is that “U.S.-origin goods” encompasses a prohibition on “reexporting from a third country, directly or indirectly, any goods, technology, or services that have been exported from the United States.” Furthermore, beyond the initial permitted consultations, U.S. persons cannot partake in Iran-related “day-to-day operations” of a U.S.-owned or -controlled foreign entity engaging in activities with Iran, “including by approving, financing, facilitating, or guaranteeing any Iran-related transaction by the foreign entity.”

This language raises many important questions for a company whose primary service is advisory. Can the exchange of ideas and information have a national origin such that it would be defined as a service exported from the U.S.? What does “facilitation” mean in terms of consultancy or due diligence work, which will nearly always be insisted upon by one or all of the involved parties? What is the “red line” where the provision of training and advice to help devise a ring-fencing structure for a non-US subsidiary’s Iran business becomes “day-to-day” involvement in the new Iranian venture? Finally, if the advisor is a third party in a given transaction, is there a meaningful point at which the “exportation” of a service is “is intended specifically for Iran,” and thereby prohibited, or in fact intended and performed for the non-Iranian party?

What the US Should Do

We live in a global ideas economy, where some of the world’s most important companies do nothing more than ensure other firms are working in the most intelligent, strategic, and transparent ways. If Iran is going to become a responsible player in the global economy, it needs access to the free market for ideas. US sanctions policy must ensure that channels for the transfer of knowledge and expertise are left open and that the world’s leading advisory firms can take the lead in sifting through the Iranian opportunities, raising capacity in Iranian companies, and providing transparency for European banks and businesses. A new, expanded general license for advisory practices would eliminate the hassle and cost of setting up a proper Iran advisory practice and get the right expertise into the country at this crucial stage. There already exist broad exemptions for activities such as journalism, publishing, and conference organizing, which presuppose an open exchange of information. The spirit of these exemptions needs to be extended to a broader notion of knowledge transfer that allows for holistic compliance-focused advisory services to be provided to Iranian clients without the arbitrary prohibition of activities by US entities.

Policymakers would be hard pressed to find a way that a management consultant or tax expert trying to explain to an Iranian company how the world expects them to do business would contravene the purpose of US sanctions. On the contrary, policymakers might keep primary US sanctions in place until enough knowledge has been transferred to Iran to raise transparency and governance standards. This will enable US regulators to have a greater degree of confidence in the ability of private businesses to themselves judge the appropriateness of transactions at such time that the US is ready to consider a lifting of primary sanctions on Iran. To be clear, management consultants and other advisors are plainly not a panacea for Iran, but they can have a major influence in shaping the direction of intelligent commercial development. Consider the significant role played by McKinsey in formulating Saudi Arabia’s new Vision 2030 plan. Iran needs similar expertise and vision now.

The adage “trust but verify” was bandied by the Obama Administration to explain the methodology of JCPOA. The verification of the IAEA—a third party—was crucial to bringing the nuclear deal to fruition. Rather than complaining about banks and historical fines, we should realize that the economic implementation of sanctions relief under JCPOA will also require its own kind of third-party verification. Kerry is telling the banks to trust that sanctions relief is real, but he isn’t giving them the tools to verify that opportunities are actionable. This is where sanctions relief is falling short.

Marketing Iran: It's Time

I will be honest. When one of my close business friends invited me to visit Tehran last year, I was very excited but at the same time a bit scared. I remember spending days on google analyzing Iranian culture, reading about other people’s experiences in the country and just trying to get as much information as possible about this country that has this amazing history but at the same time seems isolated and misunderstood by the Western world.

My fears about Iran disappeared the moment I landed in Tehran.

Despite negative portrayals in the media media,  the truth is that there is nothing mysterious about Iran and its people. In my personal experience, Iranians are one of the friendliest and open-minded people in the world. Iran deserves a chance on the global scene, like it or not, the country is about to become one of the world’s most important players.

A lot has happened in the year since I first landed in Iran. This November 21-22, working with our wonderful partners from Mana Payam and Aujan Iran, we are organizing the Global Marketing Summit, Iran’s first ever business conference to feature two days of presentations by global marketing gurus.

Organizing this historical event in Iran has been the most incredible journey of my life. In the past five years my company, P World, has organized over 150 business events in 30 different countries. None of them compare to my excitement for the Global Marketing Summit in Tehran.

It is important to note that as an international company we faced serious backlash from some of the countries where we operate due to the fact that we are organizing events in Iran. The Iranian visas in my passport also resulted with me being questioned on numerous occasions by security guards at different airports about my trips to Iran and yes, at the beginning I was a bit nervous. At one point, we were receiving so many negative messages that we were seriously thinking of whether we were making a good decision by organizing an event in the country. You have to understand that we worked very hard to build a global brand and it was very important for me, as the company’s founder, that our reputation remains intact.

After several sleepless nights and very careful thinking I realized one thing. It is everyone’s responsibility, including mine as a foreigner, to help paint the real picture about Iran. It should be our responsibility to position Iran where it truly belongs and to showcase to the world the true possibilities in the country.  Iran is a country of amazing potential and intellectual richness, not the enemy that the Western world is afraid of. To create the right image for Iran and Iranian companies will require better strategies in marketing and communication. 

The reality is that as Iranian companies open up for international business, they must learn to adapt and follow the trends that the global superbrands are setting. As their customer base expands, they will have to be able to understand the needs of their new consumers and create marketing strategies that reflect the global marketing standards. The aim of our event is to help all Iranian marketers understand the new rules of the marketing game and to help them prepare for the new and exciting times. At the same time, international delegates must gain much needed insights about the Iranian marketing scene and the rules they have to follow if they want to successfully operate in Iran.

Today, as I am packing my bags to travel to Iran, I know that I made the right decision to host our event in the country.  

Iran’s time is coming and if you cannot accept this fact, then the loss is completely yours.

Photo Credit:  P World

Business Diplomacy Management: A Must-Have Skillset for Iran

As nuclear negotiations conclude and an opening to Iran’s market looms, Western companies with interests in investing in Iran need to prepare their entry strategies carefully. Beyond normal business considerations, Western companies may face challenges with obstacles emanating from outside of their direct sphere of control. To plan beyond “business as usual,” I propose that they consider applying the competencies of Business Diplomacy Management.

After so many years of strained international relations, foreign companies  need to understand that Iran comes with a history fraught with political tensions that may impede business as usual. A British and American backed coup forcefully removed the democratically elected Mossadegh in 1953 to reinstall the Pahlavi Shah, who was himself subsequently removed in the Islamic revolution in 1979. Since then relations between the new Islamic Republic of Iran and Western countries have been frosty. The recent JCPOA agreement must be understood within this context. 

What is Business Diplomacy?

Business diplomacy focuses on creating an environment suitable for business and reducing risk and uncertainty. It requires that Western companies understand the historical factors which influenced Iran’s economic, political-military, social and cultural forces as they all affect business in Iran today.

Diplomacy and business are not incompatible nor are they totally different. Professional boundaries between business and diplomacy have gradually become blurred especially after the end of the Cold War period. States are championing economic development and trade relations in today’s global economy which is increasingly interconnected and interdependent. Governments use economic and commercial diplomacy to represent their interests abroad and at home. However, companies are less aware that they need to develop their own diplomatic competencies in order to be successful abroad and to be less dependent on information and guidelines provided by their embassies.  

Charges d’affaires or economic and trade advisors at embassies routinely read local press, meet with economic decision-makers and write briefs. These briefs are eventually passed on to the private sector by way of the ambassador. Today, the role of these briefs is no longer as important as it once was as similar information can be gathered by local corporate agencies. Multinationals regularly employ agents with local knowledge not only to gather information, but also to act as facilitators in their dealings with local authorities.

Applied to Iran, western companies investing and planning to operate in Iran should anticipate that their managers will be asked to represent their company and communicate to government officials, business partners and non-business stakeholder groups what their company is intending to do in Iran, how the products and services will help Iran’s economy to grow and how their investment will contribute to improving Iranian society at large.

The function of business diplomacy management should be placed close to other core functions of a company investing in Iran. In addition to this, the diplomatic know-how should be a company-wide responsibility and that the business diplomacy function should be under direct supervision of the CEO.

Business Diplomacy Management: The “must have” skillset for foreign investors

The success of any foreign firm’s future investments in Iran will depend not only on commercial prowess but also on sufficient support from the Iranian government. Unlike many other comparable markets, success will also depend on how the foreign investor interacts with non-business counterparts. A foreign investor has to be able to look for commonality of interests while at the same time be able to agree to disagree without falling into the trap of carrying out disagreements through conflicts. In other words, investors moving to Iran need to acquire diplomatic skills to manage the many differences between Iranian and Western business and societal contexts.   

Iran’s non-business stakeholders can be very problematic for a foreign investor if the investor does not know how to respond to these non-business stakeholders in a competent and appropriate way. Business diplomacy management is for instance called for to constructively engage consumer groups, religious leaders, or powerful forces like the Revolutionary Guards who run their own businesses and are used to receive a share of Iranian companies’ profits while making the lives of local producers or retailers difficult.

As a consequence of the normalisation of economic and political relations, Iranian firms will face foreign investment and competition in their home markets while at the same time still being asked to pay a kind of licence or protection fee to the Revolutionary Guards. Hence they will be hard pressed to compete against foreign competitors and orient their business towards a more long term business venture.

Being faced by foreign competition and continuous quasi-tax costs, local firms might act very opportunistically and hence might not always be able to honour agreements with Western business partners. Non-execution of commercial agreements might follow generating a sense of insecurity on the side of the Western investor who cannot read the factors that might have led to non-traditional business practices by Iranian counterparts and who might decide to withdraw from Iran in case of broken promises or abrupt change of commitments.

The following skills and knowledge could be useful to a Western investor planning to invest in Iran:

1. Basic grasp of Iran’s history, specifically its modern economic history, and legal systems.

2. Cultural awareness, especially with regard to decision making and social norms.

3. Familiarity with the diplomatic process that led to resolution in the Iranian nuclear talks.

4. The ability to represent one’s own company in an Iranian context, with considerations for Iranian counterparts, the media, and informal pressure groups

5. Strategy, tactics, and procedures of negotiations with Iranians as well as recognition of Iranian negotiation behavior.

Implementing Business Diplomacy Management at Firm Level

Diplomatic know-how at the firm level of a Western investor has to be a strategic core competency as defined by Hamel and Prahalad:

 “A core competence represents the sum of learning across individual skill sets and individual organizational units. Thus a core competence is very unlikely to reside in its entirety in a single individual or small team.”

Diplomatic know-how should hence be seen as a company-wide responsibility shared by top management and the respective heads of business units. In order to realize this core competence, I suggest that global companies should create a business diplomacy management function consisting of the following elements namely:

• Business Diplomacy Office with a dedicated and specially trained staff answering directly to the CEO, or the most senior manager directly responsible for Iran.

• Business Diplomacy Liaison in Iran directly reporting to the top manager of the central Business Diplomacy Office at headquarters.

• Business Diplomacy Management Information System which contains information pertaining to Business Diplomacy (including the profiles of active non-business stakeholders at the global level and in potentially conflictual areas in Iran).

• Development of a business-related socio-political perspective (e.g., Iranian stakeholder analysis).

• Mandate to strengthen the overall organizational capacity in business diplomacy management at foreign owned Iran subsidiary.

Positioning the new Business Diplomacy Office under the direct supervision of the CEO should facilitate the gate keeping function of this new unit whose function is to scan the environment, interact with non-business stakeholders and engage in diplomatic missions under close direction of the CEO. Further strengthening of values and ethics linked to business diplomacy could be expected from CEOs who take an active interest in this strategically important function and accordingly support the new office’s operations through appropriate rewards and sanctions and corresponding internal communication campaigns.

Taking care of business diplomacy and ensuring competent application of business diplomacy management would greatly increase the chances of foreign investors to embark on a business venture in Iran that will be sustainable and fruitful for all parties involved in such a post-treaty undertaking.

Photo Credit: The New Yorker

Investing in Iran: A Reality Check

Since 2013 when moderate President Hassan Rouhani claimed victory in country’s presidential election, many investors have kept an eye on the Iranian market.

Following the July 14 nuclear agreement between Tehran and the world powers, Iran is expected to come out of a three decades-long economic isolation.

Iran which has the fourth largest oil reserves and the largest natural gas reserves, has long been a “dreamland” for many businesses. With the EU sanctions against the country expected to be lifted in the near future, and with the prospect of US sanctions being lifted sometime thereafter, many investors have rushed to Tehran to assess the conditions first hand. 

Foreign Investors

For those investors interested in high-risk markets, Iran has never been a no-go land. These investors have kept their presence in the Iranian market, although without much publicity.

But a wider pool of emerging markets investors began to keep a close eye on Iran as signs emerged in 2013 that a nuclear deal between Iran and the P5+1 group of countries could in fact be possible.

Since then, many Iranian companies have played host to foreign businessmen. Some of these foreigners have simply visited the country to have a better assessment of the situation on the ground while others have taken the opportunity to sign MOUs or even contracts with their Iranian counterparts.

With an end for sanctions in sight, some say the surprisingly developed Tehran Stock Exchange could be the first market to attract foreign investors. It may offer the most attractive vehicle for investment. 

Tehran Stock Exchange

The 48-year-old Tehran Stock Exchange (TSE), Iran’s primary exchange, features over 300 listed companies classified into nearly 40 industries. The TSE is considered the most diversified market in the region.  

Since 1979, the TSE -- which trades a range of shares, funds and financial instruments, including Sukuk and Islamic funds -- has sustained periods of growth in trading and market capitalization. 

The TSE was viewed as a “phenomenon” by some in 2013. From 2009 to September 2013, the TSE Price Index (TEPIX) witnessed growth of more than 500%. This growth was achieved despite the lagging Iranian economy.

However, the TSE Overall Index declined 21 percent in 2014. Experts had anticipated such a correction following the sharp increase in prior years, which was largely attributable to inflation hitting the price of listed equities. 

Is Iran Worth the Risk?

With an estimated gross domestic product of $406.3 billion, according to the World Bank, Iran has the potential to rank among the top 20 economies in the world. The country boasts a large middle class and has made progress in dismantling subsidies to get its macroeconomic incentives in order.

The country also has a strong, but often overlooked, industrial base. Iran is the 3rd producer of cement and 14th producer of steel in the world. It is also the largest producer of cars in the Middle East.

However, just like any other country in the world, there is a level of risk involved for investment in Iran. Great amount of government involvement in market, high inflation rate (14.2% by end of July) compared to international norms and a complicated legal system are among the risks businessmen and investors have to keep in mind before entering the market.

Tough labour rules, lack of overall transparency and the absence of a single rate foreign exchange rate could also be considered among the risks attached to investment in Iran.

Reforms

Despite all the shortcomings, the government and other state institutions like parliament have been trying to pave the way for foreign investors. The government has offered to sell state assets to foreigners as a step to cut the government's role in the economy and pledged a tight monetary policy.

Following the nuclear agreement, Iranian officials have also introduced packages which have been described as “strikingly pro-market” by experts.

The Central Bank of Iran has also introduced a bill, allowing foreign banks to open branches in Iran without having a local partner and has pledged to unify the foreign currency in the next Iranian year (starting March 21).

Iran’s Securities and Exchange Organization (SEO) which serves as the country’s financial supervisory authority, has also sought to build a trading platform that conforms to international standards. Under its new structure, Tehran’s exchange has been equipped with online trading, an arbitration board to fast-track disputes, enhanced investor protection, digital signature, surveillance mechanisms as well as post-trade systems. 

Positive Outlook

But the preparation for post-sanction era has not only been limited to government institutions. Leading private brokerage companies such as Mofid Securities have also taken major steps in that direction. These companies have expanded the range of materials published for their foreign customers. New English-language reports, analysis and data about market trends and investment methods are more widely available. 

Back in 2007, when Goldman Sachs named Iran among the list of “Next 11” most promising emerging markets, many investors wished for a day when investment in Iran would be possible. That day is finally here. In its recent report, World Bank has also forecasted a jump to 5% GDP growth for Iran in 2016 if the sanctions are removed.

With the positive consensus around the outlook for Iran’s economy, long term growth seems likely. But in the medium term, trading Iranian stocks could provide substantial gains, if only because of volatility alone. 

Photo Credit: The Business Year

Notes on Navigating Tehran's Urban and Cultural Spaces

Visit the US State Department travel page on Iran and you are presented with a rather worrying image; a mere visit to the country is warned against. Only recently has the UK removed similar warnings.

But the 35-year long political mistrust between the West and Iran is sharply contradicted by lived experiences of foreign tourists and professionals who have been traveling to the country Iran. Following the nuclear deal, we may soon witness an unprecedented growth in their numbers, whether tourists or business travelers.

There is the potential of détente between Tehran and world powers. A changing cultural conversation on Iran— conciliatory dialogues are now a mainstay on major networks like CNN— is presenting a major challenge to worn out representations of the country as a dangerous and undesired place to be avoided. 

Tehran is a safe destination for expatriates. In fact, Tehran may provide a more welcoming and more comfortable urban space than many other Middle Eastern cities, some of which are well-trod destinations for Western expats.

Many of Tehran’s desirable urban features— accessible pedestrian paths, numerous public parks, a strong public transit system— are not present in other Middle Eastern capitals. Though crossing the street is a skill to be learned, you can feel safe in the well-designed pedestrian pathways and overhead bridges, or find a quiet space in one of the many public parks of the city, away from the noisy motorcycle engines and frequent honking of stressed drivers.

Then, there is the city’s nearly comprehensive and affordable public transit system. For about ten cents, you can ride the metro from the city’s south all the way to the famous northern square of Tajrish. It is true that the city’s buses are generally not well maintained; you can find broken seats and floors in need of repairs. But it is probably not an exaggeration to say that on a bus passes the station every minute on the rapid transit bus routes. 

Where busses don’t go, there are shared taxis (called khatis) that run specific routes for 30-60 US cents and you get to meet interesting people who share the ride with you. At night (or even during the day), you can call one of the numerous taxi service companies located on every few street corners for a private taxi. A ride across the city can cost as little as 5 US dollars and you can always expect your drivers to keep you entertained talking about a variety of subjects with an all-knowing sense of confidence, including their favorite topic, politics. And if they’re having a bad day you’ll certainly be lectured about the terrible state of the economy. 

However, what makes Tehran particularly accommodating is the diversity of ideas and lifestyles. The diversities of opinion do not always find public expression, but are nonetheless part and parcel of communal life. In public and especially private spaces it becomes clear that there are plenty of interpretations of politics and religion that that conflict with the state’s official reading or the reading often assumed in the West. 

Moreover there is a lot to do for people of different tastes: entrepreneurs, artists, musicians, novelists, social critics, and poets can all find their niche. State practices do create an environment in which freedom of expression and association is pursued cautiously. Yet, Tehran’s creatives and professionals are able to associate and speak in many ways and venues, expressing themselves through the slight seams the Ministry of Culture and Islamic Guidance has left unwoven on its gradually shrinking curtain of censorship.

In short, the religious and irreligious, apolitical and radical, rule-oriented and free spirited can all find their comfort zones in Tehran. It is an increasingly cosmopolitan city. As with life in any metropolis Tehran has its stresses, but these are negotiated by uplifting episodes, exciting happenings, and intriguing company.

As such, the real challenge for Western expatriates will likely not be encountering Tehran as an urban space, but negotiating Iran’s professional culture. In the West (and the United States in particular, where I’ve spent much of my time), professional culture is very much task-and-role based; you are given a task that falls within the purview of your responsibilities and are supposed to complete it irrespective of your relationships with others.

In Iran, relationships really matter. Whether you’re seeking an appliance repair from a landlord, trying to get the attention of colleagues for a new idea you have, or seeking to beat competition to a contract, such interactions will depend on relationship dynamics perhaps more than in Western countries. 

Surely, relationships are also important when it comes to who is hired, appointed, granted a contract, or favored in business relationships in the United States and Europe. However, the relationship-based economy runs deeper in Iranian society and specifically in the realm of business. This is not to say that Tehran is necessarily filled with a collective of nepotists with an indifference to merit and their professional duties. But business has its own culture that needs accommodating. The difference in work culture does not necessarily make one side better or worse. They simply remind us of what different cultures value and how each culture goes about carrying out business.

Iranians prioritize the cultivation of a reciprocal, respectful, and congenial relationship before things can get done. For some expatriates, this can be an exciting challenge, while for others it may prove difficult. As Iran’s markets will likely open up to significant foreign interventions in the upcoming years and an inflow of outside expertise, an understanding of its work culture for newly arrived expatriates can prove invaluable for successful economic outcomes.

Photo: Mohammad Ettefagh

Iran’s Risks and Rewards: Could You Be a Successful First-Mover?

If you are in politics or business, in the Middle East or beyond, you probably have an opinion about the recent nuclear deal between Iran and the P5+1 and how it is all going to play out. You have probably heard people loudly question how crucial the agreement is, and have likely heard them disagree – ferociously at times – on its consequences for politics and security the Middle East. 

When it comes to the business implications, though, the debate falls quiet. 

Businesspeople of all stripes describe Iran to me as “our game-changer,” “the wild card” and “a strategic priority.” It would not be an overstatement to say that Iran’s potential re-opening compares to the collapse of the Soviet Union and the emergence of Myanmar (Burma). That said, a series of factors, including demographics, resource base and geography - not to mention diplomacy - make this opening feel a bit different.

Risk is never too far from any conversation about Iran; a justifiable dose of caution permeates many executives’ decisions about how and when to approach the Iranian market. The reasons are several: the experience of banks (particularly European) over the past few years at the hands of regulators (mainly American), all under the close watch of regulators and lobbyists. Round out the list with generous helpings of political risk, legal complexities and corruption concerns, and you can see why amid all of the enthusiasm, not everyone is rushing headlong into market entry just yet.

I thought of the two Irans—one of massive commercial opportunity and the other of massive business risk—while reading a recent article in the Harvard Business Review entitled "How to Live With Risks." The article reported on a  study by Matt Shinkman of CEB, an organization with 10,000 member companies. 

Executives cited in the study said risk managers and auditors prioritized value protection—financial reporting, legal controls and compliance concerns—when seeking to minimize potential threats. In other words, risk management was aimed solely at risk prevention—an exercise in trying to stop bad things from happening. 

The article’s research went on, however, to show that mishandling strategic risks—rather than botching tactical risk prevention—does more damage to the long-term value of a company. While 86% of lost market value was attributable to a mishandling of strategic risk, auditors only spend 6% of their time addressing strategic issues. 

The lesson is clear. While the risk managers' role is to protect value, they can and should also create value for their companies through pro-active opportunity risk management. They can help to seize opportunities by managing strategic risks and turning them into genuine value for companies, their employees and their stakeholders. 

Iran presents most companies with risks that would qualify as strategic. Why else would we be calling Iran “our game-changer,” “the wild card” and “a strategic priority?” Getting Iran wrong sounds like more than just a missed chance. 

So it is fair to assume that risk management teams are going to be involved in any well-considered decision about how and when to do business in Iran. The question is: How and when will these teams be involved in your market entry strategy? Will risk managers be asked to look for bush fires, or will they be charged with scanning the horizon for the full complement of challenges and opportunities? If risk management helps build an Iran strategy from the outset, then both internal and external stakeholders can be assured that not only have preventive measure been taken, but that broader issues are under control as well.

Consider a company that has been searching for – and has finally found – a business partner in Iran. The partner meets all the commercial criteria; the terms and conditions have been served up for signature. But wait: has anyone checked whether this partner meets the company's risk, compliance and ethical standards? Fire-fighting risk management is brought in at the last moment. What happens if the partner falls short? Time and money have both been thrown away; an awkward conversation with an eager Iranian partner awaits. Oh, and will there be a chance to start again? 

We see this all the time – new opportunities are vetted far too late in the decision-making process and surface uncomfortable concerns that destroy entire strategies. 

Proactive risk management prevents this from happening. If business development and risk management work together on partner selection and due diligence, for example, companies create internal alignment on issues of risk. The company’s strategy – and reputation – is under better stewardship, internal resources are not wasted, and deals proceed more smoothly.

In other words, don’t vet mature opportunities, when it’s already too late. Vet your entire pipeline of opportunities at a level sensible to their stage of development.

There’s more. Can an understanding of the day-to-day risks to doing business influence whom you hire in a new market and how you train them? Can monitoring changes in a government’s foreign policy and international relations allow you to anticipate moves like deregulation, and move faster than your competitors? This is where risk management turns into opportunity enhancer. And this is what will make first movers successful. 

Today, it’s Iran. Yesterday it was somewhere else, and so it will be tomorrow. The principles of risk management remain the same no matter what the market. But Iran is not just any new market, and there aren’t that many Irans left, which makes the stakes feel that much higher.

Photo Credit: Scania Oghab Afshan

The Rise of Social Entrepreneurship in Iran

The mainstream Western media often fails to present a balanced and positive view on Iran, an emerging market filled with young and visionary social entrepreneurs ("socents") who are actively pursuing innovative and sustainable ways to improve their society and alleviate economic, environmental, and social issues. Emboldened by the recent nuclear agreement reached between Iran and the P5+1 powers, many entrepreneurs are exploring the potential to find solutions to various social challenges by identifying pragmatic tools and resources, which has culminated in creation of startups and social entrepreneurship firms throughout the country. A fast and rising social venture startup scene is hard at work behind the headlines.  

Iranian social entrepreneurs are as driven and savvy as their counterparts in San Francisco, New York, London, and Bangalore. They are constantly seeking and implementing innovative solutions, tools, and processes that achieve measurable sustainable impact, while addressing Iran’s pressing social, economic, or environmental challenges. Take Iran’s water problems, for example. According to recent statistics, seventy percent of Iran’s groundwater resources have been depleted. Therefore, groundwater shortages and deteriorating water quality would most likely lead to a national environmental crisis. Certainly, the government alone will not be able to solve such a herculean challenge.

From January to March 2015, we carried out a survey in partnership with George Mason University to map out a preliminary landscape of social entrepreneurship in Iran. Since we were both based in the U.S., we invited trusted and knowledgeable local partners in Iran to distribute the survey in Persian and English within their constituencies. Relying on random snowball sampling, we encouraged our local partners to distribute the survey to their own contacts, thereby linking us to their own personal or professional networks of budding Iranian social entrepreneurs throughout the country. In April 2015, we conducted structured and semi-structured interviews during a research trip to Iran. One of the most fascinating highlights of this trip for us was Azadeh’s participation in a workshop on social entrepreneurship in Iran. Overall, more than 100 entrepreneurs from around the country responded to our survey. Our findings suggest that this sector is growing rapidly and needs urgent support, nurturing, and scaling. Some of our most important findings are highlighted below: 

Iran has an estimated social entrepreneurship market of 50,000 to 75,000 active participants.

83% of Iranian social entrepreneurs are currently engaged in an initiative, organization, or start-up with a social, economic, or environmental objective.

60% believe in the use of technology toward finding more effective solutions to their modern day challenges.

More than 50% of survey participants is actually pursuing the process of building and running a socent as part of their daily job.

Women who are heavily under-represented in our surveys have the highest participation rates in social enterprise startup events, weekends, and trainings.

The sector, although nascent and evolving, also faces obstacles that were highlighted in our survey in relation to the ecosystem; in particular, government red-tape, lack of regulation in favor of social enterprises, unavailability of foundations grants, impact investors, loans for social entrepreneurs, the unavailability of exchange programs, and opportunities to connect to regional and international social entrepreneurship knowledge networks.

Although some of the above-mentioned hurdles are not unique to Iran, the rise of social entrepreneurship has actually occurred surprisingly late in Iran compared to the rest of the region. In the aftermath of the Arab Spring, the UAE, Egypt, Jordan, and Lebanon have experienced a rise in number and quality of social enterprises. Many Middle Eastern social entrepreneurs’ ventures have scaled across the region and Northern Africa, receiving support from institutional donors, impact investors, and international foundations as well as organizations such as Ashoka, Echoing Green, and the Unreasonable Institute. Due to the international sanction regime and visa restrictions imposed on Iranians, many social entrepreneurs have not benefited from such outside support and opportunities for cross-pollination, and have rarely had a chance to access fellowships or exchange programs, or grant support. This puts them in an even more disadvantageous situation.

Yet, despite these obstacles, we found that exciting and socially innovative initiatives are emerging in the country, and entrepreneurs are adapting successful models in social entrepreneurship to the local and national conditions and needs. We present several of these initiatives in Iran that are led by visionary socents.

Tehran Hub is a nonpolitical and non affiliated organization combining a comprehensive co-working space, incubator and accelerator program and is about to get launched in partnership with Amirkabir University and Samsung. The director, Alireza Omidvar, has also served as a catalyst in drafting and preparing new national legislation submitted through Tehran Mayor’s office under the title of CSR Program for Municipalities, to officially recognize social enterprises as separate legal entities along side traditional charitable/nonprofit organization and for profit businesses, which is a unique undertaking. The Hub is targeting young social entrepreneurs in the country, and focuses using technology and social innovation to address pressing social, economic and environmental problems in the country, while building a resilient ecosystem for social entrepreneurship.

Other fantastic initiatives that we have learned about in our interactions with socents in Iran are those social entrepreneurs who are using technology and online platforms to solve social problems. For example Ladybug has boosted the participation of Iranian women in the technology and start-up world through content building, community, and educational programs.

Dastadast, supports indigenous artisans in Iran with business and capacity building solutions, and offers them an ecommerce platform to improve their livelihoods. The co-founder, Mrs. Faezeh Derakhshani, emphasizes the need for more education, access to international experiences, and knowledge platforms to boost the capabilities of Iran’s social entrepreneurs instead of emulating foreign models blindly. She states, “Many Iranian entrepreneurs develop their ideas” for example at social startup weekends, “and present them as social enterprises, but these initiatives are essentially duplicates of other initiatives, or not at all socially innovative or solving a social problem within a community.“ With regards to the use of technology and social innovation, she expresses the need for more sharing and learning about other successful social-tech models and educating the youth about the use and purpose of technology “not just to launch a website, but actually using technology in the design of a socially beneficial solution, take for example the use of solar energy providing electrification in remote rural areas.”

One of our favorite organizations is the Roozbeh Charity, based in Zanjan province, which focuses on the education and promotion of waste reduction and waste separation among citizens. The charity has a unique grassoots mobilizing and hybrid model aiming to prevent environmental pollution through waste collection, and has led to a considerable number of new jobs as well as an important source of revenue for the organization.

Mr. Najafi, who is a member of the board, believes that considerable attention is paid to social entrepreneurship at bootcamps, startup weekends, and other type of events and higher education institutions, and that “its revealing of a rising sense of consciousness within Iranian society that centers on community interests and no longer based on individualism.”

Overall, driven and passionate social entrepreneurs who have found creative solutions for their country’s social problems lead all of these organizations. The potential for (impact) investors, as well as the Iranian diaspora, to support these initiatives either through donations, or other resources, such as mentoring as well as connecting to transnational networks is unprecedented. Since Iran and the P5+1 recently reached a nuclear deal, the opportunity to collaborate with the Iranian social entrepreneurship community and empowering them to carve an effective, resilient, and strong ecosystem for social entrepreneurship has become a lucrative reality for Western and Iranian diaspora investors.

Photo Credit: Roozbeh Charity

A Wealth of Talent: Domestic and International Markets for Iranian Art

Throughout the last decade, the global market for contemporary Iranian art has witnessed an extraordinary surge in activity and sales. According to an analysis by Roman Kräussl of the Centre for Financial Studies at Goethe University, drawing on data from the Blouin Art Sales Index (BASI), between 2000 and 2012, there were 3,500 significant sales of paintings across 59 global auction houses. Of these, 650 – comprising roughly 20% of the total – were of paintings by Iranian artists. Buyers in hotspots for contemporary Middle Eastern art such as London, Dubai, and Doha have been snapping up works by Iranian masters and emerging artists alike, amid the sound of the pounding gavel and the sensation of sweaty palms. Christie’s in Dubai and Sotheby’s in London remain the dominant auction houses in the market.

It is not simply international sales, however, that characterize Iran’s art market; domestic auctions have seen record prices in recent years. The June 2015 Tehran Auction saw the sale of 126 pieces, and generated over USD 7 million in sales. As such, the average sale price for this year has been roughly USD 55,000, slightly higher than the average price enjoyed by paintings from the MENA outside Iran. Looking to the BASI dataset for the years 2000-2012, 70% of Middle Eastern paintings sold at auctions were at prices below USD 50,000.

According to collector and Salman Matinfar, Director of Tehran’s Ab Anbar (lit. “Waterhouse”) art space, works by contemporary Iranian artists are currently selling for more inside the country, than in international markets, as higher domestic demand has raised prices. Matinfar believes that this demand is a result of two phenomena: first, some buyers are treating art as an alternative investment. A young businessperson quoted in the Financial Times report on the Tehran Auction noted how, “over the past 15 years, the value of real estate has risen by 25 times and gold by 45 times but art has gone up by 250 times.” He added that while “Iran’s art market is still small and traditional investors do not yet consider it a triple A asset … there is big room for growth”.

Second, and perhaps more commonly, Matinfar identifies a clear phenomenon where many of Iran’s nouveaux-riche have been investing as a means to “buy” entry into cultural and artistic circles, and gain credibility for themselves beyond their reputations as savvy entrepreneurs and businesspeople. The Tehran Auction, which has seen sales grow tenfold in the past three years, has caused controversy as observers have been debating whether the buyers are true patrons of Iran’s art economy, or simply speculators in a marketplace.

The concerns over patronage may be premature, though, as the overall market remains relatively small. While the international market for Iranian art enjoys a higher level of diversification and distribution as a whole, there are still more “serious” collectors of Iranian art (i.e. those buying works valued above USD 50,000) inside Iran than worldwide; but the key movers are few. According to artists and collectors, there are approximately 10-15 well-known collectors in Iran who dominate the market. The small number of serious collectors contributes to volatility.

As such, growth in secondary art sales, such as the growth seen in the Tehran Auction, is a step in the right direction towards the development of a larger secondary market for Iranian art, and, concomitantly, greater stability in terms of prices and demand. This year’s positive Tehran Auction gave many collectors, gallery owners, and artists cause for optimism.

While the growing secondary market may mean decreased volatility inside Iran, other developments have raised concerns. At the May 2015 Christie’s auction of modern and contemporary Iranian, Arab, and Turkish art in Dubai, works by Monir Farmanfarmaian and Rokni Haerizadeh set records. However, many noted that in comparison to previous years, and in relation to Arab artists, Iranian artists on the whole underperformed. Though some may take this “slump” at face value, others have pointed towards the rise in Arab nationalism among collectors and patrons in the Persian Gulf, and a preference on their part to invest in Arab artists, as opposed to Iranian ones. Perhaps the political forces that are contributing to optimism and growth in Iran’s domestic art market are also be causing shifts in how collectors treat Iranian artists in the context of Middle Eastern art.

Regardless of these shifts, one thing is certain: Iranian art is increasingly popular both at home and abroad; and, the recent nuclear deal reached between Iran and P5+1 countries will likely boost growth.

For example, according to Christie's Middle East Director Michael Jeha, Tehran will soon witness an influx of American buyers longing to lay their hands on hitherto inaccessible works of art. While this has yet to be witnessed, what one can expect to see in the States, for instance, is an increase in the availability of Iranian art, as well as an augmented presence of Iranian artists, who have long been unable to attend artist talks and conferences – and even their own exhibition openings – as a result of decades-long strained Iran-US relations.

Where prices for Iranian art are concerned, it would be natural to assume that they would surge worldwide as a result of increased demand. However, many dealers and gallery owners have been able to justify higher prices for works by domestic Iranian artists as a result of relative scarcity and the difficulty in sourcing pieces. Post-sanctions, a greater supply of art might actually temper rising prices. Opinions vary on the matter, and it is difficult to predict precisely what will happen in the international market for Iranian art. Yet, it is hard not to be optimistic. Given the wealth of talents on offer, Iranian artists will no doubt soon enjoy greater fortunes on—as the Persian idiom goes— “the other side of the water.”

Photo: Christie's

The Iran Deal in Wider Europe: The Case of Poland

The story of Iran’s anticipated economic windfall following the JCPOA Iran Deal has centered on trade and investment from three countries: Germany, France, and Italy. German Vice Chancellor Sigmar Gabriel’s recent visit to Iran will soon be followed by visits from France’s Foreign Minister Laurent Fabius and Italy’s EU High Representative Frederica Mogherini.

These visits bring with them the promise of political support for boosted trade and investment ties potentially worth billions of dollars. A recent research note from the macroeconomic team at Deutsche Bank made an upbeat assessment on the back of Gabriel’s visit:

If German exports to Iran were to rise towards their previous peak, this would correspond to an increase of EUR 2 bn. The increase could even come to EUR 4.5 bn if Iran's export share were to rise back to 0.6%. In the latter scenario, German GDP growth could be stimulated by an increase of, say, a maximum of 1/4% – spread over several years.

But while business reporting and research notes have focused on the prospects in Iran for Europe’s largest economic actors, other opportunities have gone less noticed.

Consider Poland, Europe’s 10th largest economy. This September a Polish economic trade mission led by Economic Minister Janusz Piechociński will travel to Iran. This is one of several such visits in recent years. In May, a delegation of around 100 business people traveled to Iran with Polish Deputy Foreign Minister Katarzyna Kacperczyk. The upcoming economic mission is part of a newly established “Go Iran” program devised by the Economic Ministry. Around 50 major Polish companies are expected to participate.

The visit is likely to be well-received in Iran. Poland and Iran have historically enjoyed friendly ties. In fact, they have the longest consecutive diplomatic relations between any two countries, and on March 1, 2015, celebrated their 540th anniversary of relations. Ties were strengthened through various episodes in history, including during the Second World War when over 120,000 Polish émigrés sought refuge in the ancient city of Esfahan. Some of them remained long after the war, even marrying locals. Polish tourists continue to travel to Iran in significant numbers, which itself presents a market opportunity. 

Despite this shared history and cultural affinity, however, overall trade has remained meager, especially under the pressures of sanctions. Last year, Polish exports to Iran amounted to just EUR 34.9 million, while imports to Poland were valued at EUR 22.4 million. These figures are just a tiny fraction of the EUR 2 billion in exports achieved by Germany in 2013.

However, Poland and Iran should and could have much larger economic cooperation in the near future. Over the past thirty five years, many issues have limited the potential of trade between the two countries, namely the economic influence of the Soviet Union, the USSR's subsequent collapse, and Poland seeking collaboration with Western Europe and private-sector led initiatives for its growth. But with the new geopolitical realities heralded by the JCPOA agreement, new Polish-Iranian economic opportunities could come online. 

In many corporations, Poland and Iran are actually part of the same operational region. This is both true when considering companies with EMEA (Europe, Middle East, Africa) divisions, and also, more specifically, for companies with CEBAME (Central Europe, Balkans, Middle East) divisions.

The countries in Central Europe and the Middle East share similar levels of development and industrialization.

Polish and Iranian officials typically mark out three sectors for collaboration when speaking of economic opportunities: agribusiness, machinery and transportation, and oil and gas. 

In the area of agricultural and food and beverage exports, Iran is an attractive market with huge demand.  Poland’s agricultural sector is currently undergoing a “golden age” with agri-food exports rising to USD 27 billion in 2014. Polish food brands are already familiar to many Iranians, with E. Wedel chocolates and Pudliski sauces present on Iranian shelves.

Piechociński, the Economic Minister, reacted to the July 14 JCPOA agreement by noting that the deal could be a huge opportunity for Polish agribusiness particularly in the export of poultry and beef.

But heavy industry, transportation, and oil and gas are also sectors that could see activity. Piechociński marked out the “great opportunity to sell several thousand [train] carriages, several thousand trams, subway cars.” Machinery and transportation equipment amount to 37.8% of Polish exports, valued at around USD 60 billion. 

In terms of oil and gas, Iran’s value as an engery supplier was first mooted in 2008, when the Polish gad firm PGNiG signed a tentative agreement for the import of Iranian gas. At the time, Poland was seeking to wean itself off reliance from expensive and politically risky Russian supply. Sanctions ended the scope for collaboration, but prior to the July agreement,  PGNiG announced it was interested in picking up its operations in Iran again, with plans to open an office for to scope possible joint ventures.

The case of Poland reminds us that post-JCPOA economic opportunities will not be limited to major economies like Germany, France, and Italy. Smaller European countries may enjoy special advantages in being able to focus high-level political and economic resources behind trade and investment development plans. Iran clearly has many "suitors" as senior political and business delegations are expected in Iran. The question remains whether the Iranian authorities and business community will be able to coordinate activities on their end to make sure economic opportunities can be realized. 

Photo Credit: Meghdad Madadi, Tasnim News Agency