Rouhani Government Unifies Iran’s Exchange Rates in Decisive Move to Stabilize Currency

In a decisive move intended to stop the further devaluation of the rial, the Rouhani government announced it would unify the official and free market dollar exchange rates, settling on an official rate of IRR 42,000.

First Vice President Eshagh Jahangiri made the announcement last night, declaring that trading dollars above the new rate would be a serious crime.  "Just like the smuggling of drugs, no one has the right to buy or sell [above the new rate]... If any other exchange rate is formed in the market, the judiciary and security forces will deal with it," he warned.

"There should not be such incidents in an economy that always has a surplus of foreign currency. Some say interference by foreign hands is disrupting the economic climate and some say domestic machinations are spurring these things in order to destabilize the climate in the country," added Jahangiri.

Earlier in the day, the Economic Commission of Iran’s parliament had summoned Minister of Economic Affairs Masoud Karbasian and Central Bank Governor Valiollah Seif for an emergency meeting regarding the careening value of the rial, which had reached a record low of IRR 60,000 to the dollar.

Speaking to reporters after the meeting, Karbasian continued the government line that the devaluation was not a reflection of the true state of the economy. Rather, he obliquely suggested that the “security agencies” ought to be summoned to explain the real cause for the fluctuations. His comments were an apparent reference to rumors that certain actors opposed to the Rouhani government, likely in the security establishment, were hoarding dollars in order to exacerbate speculation and undermine confidence in the government’s economic management.

However, in the face of this significant political pressure, the Rouhani administration made a bold move, instituting a policy that has eluded the country’s economic planners since the 1979 revolution. Rate unification has long been considered a necessary step to introduce more stability in Iran’s monetary policy and foster a better business environment for the country’s enterprises.

Iran's last major currency crisis of a similar scale took place in 2012. Then president Mahmoud Ahmadinejad similarly blamed psychological factors for the rout, arguing in a speech, "Are these currency fluctuations because of economic problems? The answer is no. Is this because of government policies? Never … It's due to psychological pressure. It's a psychological battle." His government similarly tried to unify rates at IRR 12,260. But sanctions made it difficult to generate sufficient supply of hard currency in Iran, and the unified rate collapsed after just a few months. 

During this most recent currency crisis, the rial had lost about one-third of its value against the dollar over the last Iranian new year, which ended on March 20. The devaluation accelerated beginning in December, and the rise in the free market price of the dollar tracked closely with that of gold. Both gold and the dollar have been typical “safe-haven” investments for Iranians wishing to hedge against inflation and general economic uncertainty. However, inflation had remained flat over the previous twelve months, and real estate prices were relatively stable, suggesting little change in the purchasing power of the rial. The net effect was a rampant devaluation more akin to a bubble, fueled by rising doubts among Iranians about the survival of nuclear deal.

Though clearly responding to the recent turmoil, the Rouhani government had already begun the groundwork necessary for such a unification. In March of last year, Catriona Purfield, a senior economist at the IMF, suggested that Iran could perhaps unify the rates earlier than expected, stating, “Half of imports have been put on the market rate and most of the goods are now at the flexible rate. Interbank FX market has been reestablished. Therefore all the elements are there, so an early move is possible.”

The new rate of IRR 42,000 is closer to the rate economists expect would be necessarily for unification. Economists Mohsen Bahmani-Oskooee and Sahar Bahrami looked at exchange rate data from 1979 to 2015. They concluded that had Iran’s rial been allowed to depreciate in accordance to changes in purchasing power parity, the exchange rate in 2015 would have been around IRR 47,000. The rial’s purchasing power has been relatively stable in the last few years and so this is likely a fair estimation of the current dollar rate in PPP terms.

Yet, despite the clear economic rationale behind the rate unification, it will remain to be seen whether the political gamble pays off for Rouhani. The official exchange rate presented a lucrative arbitrage opportunity for quasi-state actors, who could purchase dollars at the lower official rate then sell the hard currency on the black market. These entrenched interests will no-doubt see the unification as a direct challenge by Rouhani, and a further example of his administration's continued efforts to reign-in rent seeking in the economy.

But for the general public, such a confidence-inspiring move should serve as an indication that the Rouhani cabinet, despite the claims of infighting and mismanagement, remains capable of the kind of coordinated policymaking necessary to reform the economy.

Photo Credit: Vahid Salemi

Governor of Sweden’s Central Bank Visits Iran for Technical Dialogue

The governor of the Riksbank, Sweden’s central bank, will visit Iran on April 5-6 at the invitation of Iran’s central bank governor Valiollah Seif.

Stefan Ingves, the governor of the Riksbank will be leading a day of technical exchanges including a working dinner hosted by Sweden’s ambassador in Tehran, Helena Sångeland. The visit, which comes as political uncertainty around the nuclear deal reaches a fever pitch, underscores the long-standing commercial and economic relationship between Sweden and Iran. In February of 2017, Swedish Prime Minister Stefan Löfven visited Iran with an itinerary that included a visit to the Scania truck factory in Qazvin. 

For the Central Bank of Iran, the visit by one of Europe’s most seasoned central bankers is a valuable opportunity to draw on the Riksbank’s experience in central banking, financial stability, and monetary policy. Ingves has held the position of Riksbank governor since 2006 and navigated the country through the 2009 global financial crisis. He is also the chairman of the Basel Committee on Banking Supervision, which sets global standards for prudential regulation of banks. Iranian banks have been undertaking extensive reforms in order to better conform to so-called “Basel” standards.

A spokesperson for the Riksbank confirmed to Bourse & Bazaar that Ingves will give a presentation entitled “Central Banking and Financial Crisis: Lessons Learned.” The topic is of particular relevance as Iran seeks to manage systemic risk in its banking sector stemming from non-performing loans, a key driver of the 2009 crisis. Sweden was one of the fastest recovering countries in the aftermath of the last major global recession, earning praise as a “rockstar of the recovery” for its combination of intelligent fiscal and monetary measures. 

No doubt, Iran’s central bankers will listen to Ignves’ presentation attentively.

Photo Credit: Riksbank

First OECD Complaint Filed Against a European Company for its Activities in Iran

When companies consider the risks associated with doing business in Iran they largely focus on sanctions. Yet this approach misses the increasing normative and regulatory requirements that companies also manage the social and environmental impacts of their activities. While the importance of managing these risks holds for any country, it is particularly salient in the Iranian context due to the scrutiny and politicised climate surrounding investment in the Islamic Republic.

The filing of the first complaint against a European company under the OECD Guidelines for Multinational Enterprises (the OECD Guidelines) for its business activities in Iran is a warning for what might lie ahead. Without prejudging on the merits of the complaint, this case is important for any company looking at doing business in Iran because it highlights a type of regulatory policy businesses are mostly unaware of, and because of its implications on the broader political environment to continue an economic opening towards Iran.

The Complaint

On 13 September 2017, three civil society organisations filed a complaint with the Italian Government against Italtel Group S.p.A, a major Italian telecom company regarding its business activities in Iran.

The complainants argue that the technologies and services offered by Italtel to its Iranian partner, the Telecommunications Company of Iran (TCI), breach multiple provisions of the OECD Guidelines by contributing to internet censorship and other rights violations in Iran and help the Iranian authorities, including the Islamic Revolutionary Guard Corps, to suppress political dissent and civil liberties in the country and in cyberspace. The complainants are asking the Italian government whether the company’s actions are consistent with the Guidelines and more importantly are calling for an immediate moratorium on current negotiations and business engagements between Italtel and TCI until the alleged breaches to the Guidelines are addressed.

The OECD Guidelines 

The OECD Guidelines are recommendations addressed by Governments to multinational enterprises operating in or from one of the 48 adhering countries—that includes the 35 OECD countries and 13 additional countries ranging from Argentina to Kazakhstan to Ukraine. The Guidelines provide non-binding principles for responsible business conduct in areas such as employment and industrial relations, human rights, environment, information disclosure, combating bribery, consumer interests, human rights, science and technology, competition and taxation. Their impact has been felt the most extensively in the areas of human rights and labour relations.

The Guidelines, in line with the other key reference instruments on responsible business practices such as the United Nations Guiding Principles on business and human rights and the International Labour Organization’s Core Labour Standards, make clear that responsible business is not charity or philanthropy but about identifying, managing and remediating adverse impacts on social and environmental issues.

As the Guidelines are not legally binding, one might conclude they can easily be ignored. But the most unique feature of the Guidelines is that they require governments to set up “National Contact Points” whose role is to promote the Guidelines and, more importantly, to receive and handle complaints against alleged non-observance of the Guidelines. These complaints are not judicial cases in the classical sense. NCPs offer conciliation and mediation to facilitate consensual solutions to the alleged violation of the Guidelines. Again, it might be tempting to ignore NCPs due to their apparent lack of judicial standing. However, these cases increasingly lead to concrete consequences for companies found in non-compliance of the Guidelines.

As the OECD's own reports show, findings and recommendations of NCPs are increasingly being used by investors in their assessment of companies’ performances, including in decisions of divestment. Governments are increasingly looking at NCP findings and recommendations when and whether extending their support to companies. The most advanced example is probably Canada, which can withdraw its state support for companies in case of an established violation of the Guidelines or a failure to participate in good faith in the NCP process. More broadly, OECD export credit agencies have coordinated their policies to recommend that agencies take into account NCP statements when deciding whether to provide financial support. Individual NCP cases have also resulted in significant consequences for companies such as loss of future contracts.

NCPs have handled over 400 complaints, addressing impacts from business operations in over 100 countries and territories since 2000. Since 2011 there has been a steady increase in recourse to the NCPs, demonstrating growing confidence in the system. This, combined with the breadth of issues covered by the Guidelines and the relative ease of access to the NCP probably explain why civil society organizations decided to use the OECD system. The Italian case may well be a clear signal that NCPs will likely be increasingly used as a tool of strategic (quasi) litigation in the context of business activities in Iran.

Maybe Italtel activities do not amount to a breach of the Guidelines. Maybe they do, but unwillingly or unwittingly. The issues raised by the complaint are complex. Phone and ICT companies are increasingly forced to assess the balance between respecting basic human rights such as freedom of expression and privacy with government requests based on public security. Vodafone came under fire when it was forced to send out pro-government messages and shut down its network by the Egyptian government during the 2011 uprising. BlackBerry, when it was still a thing, faced a ban in India for refusing to provide access to customers' emails. Google left China after its servers were attacked to access information about activists and Apple recently opposed the US Government over users’ privacy.

In any case, it is fully in the interest of the company to use the opportunity of the NCP case to clarify the situation. NCPs focus on problem solving. It represents in the end a relatively easy way to reach a consensual and non-adversarial solution to its alleged challenges.

Responsible Economic Relations

The importance of the OECD Guidelines can also be felt at a very different level highlighted in a recent feature on Bourse & Bazaar. The feature discussed the question of whether Iran is a “good country” as essential for business leaders and governments as they try to justify market entry plans to board members, shareholders, and their national constituencies while critics of the Iran nuclear deal claims more forcefully than ever that investing in Iran will further enable the “bad behavior” of the Iranian state

This good/bad approach might seem simplistic but it reflects a very real dimension of the broader political environment surrounding companies and governments developing business and economic ties with Iran. They must be mindful of the heightened impact of negative headlines alleging that European businesses are harming people and the environment in the country just like irresponsible foreign investors risk compromising internal support in Iran for opening economic ties.

In this context, responsible business offers an additional tool to demonstrate that investments in Iran are “good” when they respect people and the environment. Reinforcing this perception, based on actual performances, will be crucial to strengthening broad acceptance of economic and business relations with Iran. Said differently, it is in the interest of investors, companies as well as governments in Europe and Iran to respect, support and implement concretely and convincingly the OECD Guidelines and more broadly responsible business practices in Iran.

Photo Credit: Wikicommons

Iran Financing at Austria's Oberbank 'On Hold' Because of Trump

A new report in Austria's Die Presse confirms that Oberbank, one of the first Western banks to sign a deal to provide project finance to Iran, has put projects “on hold” due to the uncertainties surrounding the Iran nuclear deal.

Oberbank, Austria’s seventh-largest bank despite its regional focus and limited exposure to the U.S. financial system, had signed an agreement to extend a EUR 1 billion line of credit to Iran in September of last year. The deal was announced to much fanfare as political uncertainty increased around the expectation that President Donald Trump would “decertify” the nuclear deal later that October—a step the American leader did subsequently take.

The finance deal, which was signed with the express support of Iran’s central bank as well as the Austrian government, was intended to support capital-intensive infrastructure and energy projects led by Austrian companies and was earmarked for projects of over two years in duration. While Oberbank has long provided trade finance in areas that are exempt from sanctions, such as food and pharmaceuticals, the provision of project finance was considered a significant boost to Iran’s engagement with the European financial system. Denmark’s Danske Bank signed a similar agreement shortly after their Austrian peers. 

However, in a presentation to shareholders by Oberbank CEO Franz Gasselsberger, the Iran project emerged as a rare blemish in an otherwise strong annual report. As Die Presse reports, Gasselsberger told those present that the financing of projects in Iran remains “on hold” because the current U.S. policy "complicates the business massively.” Moreover, the prospect that secondary sanctions could “snapback” on May 12 if Trump refuses to reissue key sanctions waivers was highlighted as something the bank’s leadership will need “take a close look at.”

Photo Credit: Wikicommons

The Iran Deal’s On Life Support: Time To Pull The Plug

This article was originally published in Lobelog. 

The saga of the Iran nuclear deal has taken another bizarre turn. Eli Lake, a longtime skeptic of the deal, yesterday published a much-discussed Bloomberg View piece in which he surprisingly argues that “to withdraw from the Iran deal now would be a mistake.” Lake’s piece reflects a new line of thinking that has emerged from the campaign to “fix” the Joint Comprehensive Plan of Action (JCPOA).

With the recent appointment of John Bolton as national security advisor and the prognostications of Israeli Prime Minister Bibi Netanyahu, it is now being taken largely for granted that Trump will withdraw from the Iran deal. But summarily nixing the deal on May 12, the date when Trump would need to once again waive U.S. secondary sanctions in order to remain in the deal, might pose a problem. The “fix not nix” strategy, which has been advanced since Trump’s de-certification of the agreement in October 2017, reflects a concern in Washington that if Trump abrogates the deal in a flourish of executive privilege, he will harm transatlantic relations and make the U.S. seem responsible for any subsequent escalation or blowback.

For some months, the date of May 12 has loomed over the U.S.-E3 negotiations to find a fix to the deal by giving Europe the chance to compel Iran into a package of add-ons and concessions. Time is running out, and Trump seems determined to kill the deal by his own small hands. Ever aware of the optics, Mark Dubowitz, CEO of the Foundation of Defense of Democracies (FDD), has suggested a “safe harbor” period which would extend to November 12, during which the sanctions re-imposed in May would not be enforced, thereby granting a greater window for negotiations on a “real fix.”

At first glance, this might look like a reasonable accommodation. But in truth, it is an effort to bait Iran into a harsh reaction that kills the deal. The failure to renew sanctions waivers on May 12, even if sanctions snapback is delayed, will trigger substantial political pressure for the Rouhani administration or other elements within Iran’s state to respond. Should that response be escalatory—and if it takes place within the window of time before the United States has actually redesignated entities and reimposed sanctions—it will look like the Iranians were the party that abrogated the deal first during a period of “extended negotiations.”

Unworkable Fix

There are four clear signs that the strategy to pursue a “fix,” even with more time, is unworkable. The first sign is that Trump has never independently articulated what an acceptable fix would look like. His antipathy for the Iran deal is clearly more emotional than rational, stemming from his view of the deal as a key achievement of the Obama administration. Even if a rational fix were to be devised, it would still be vulnerable to Trump’s sentiment that the deal should not be saved. It may even be the case that the JCPOA is the primary reason why Trump cares about Iran at all. With the deal off the table, the unlikely tag team of Saudi Crown Prince Mohammad bin Salman and Bibi Netanyahu may have less success weaponizing the White House against Iran.

Second, the elevation of Mike Pompeo to secretary of state and John Bolton to national security advisor only compounds the problem of Trump’s impulses as he has surrounded himself with individuals who have a nearly pathological obsession with Iran as an adversary. These new advisors may find the pretense to escalate even if the JCPOA were “fixed.” Iran can no longer rely on the nuclear deal alone to underpin a basic detente with the Americans and therefore needs to begin investing in other methods of counterbalancing.

Third, there has been reduced capacity for reasonable action among the bureaucracy. The Treasury Department’s Office of Foreign Assets Control (OFAC) has failed to issue a single new license for commercial activities in Iran to date. OFAC has a clear institutional interest in creating a robust but navigable regulatory environment. The Trump administration’s Iran posture has overriden this interest, even prior to snapback, which suggests that waiver renewal would be insufficient to ensure that Iran receives the expected economic benefit from the nuclear deal.

Finally, the “fix not nix” approach is just a tactic, not a complete strategy, and has been put forward as a policy option by advocacy groups and think tanks whose larger ambitions are to seek regime change in Iran. Even if a fix were to emerge, groups such as FDD and the American Enterprise Institute (AEI) will continue to push for a more confrontational policy with Iran, emboldened by the fact that they were able to secure concessions through the acquiescence of European governments, such as the new sanctions currently being considered.

The confluence of these factors has put the JCPOA into the intensive-care unit. This characterization might unnerve deal supporters, who insist that the deal remains strong, particularly with the continued verification by the IAEA that Iran remains in compliance with its commitments under the deal. But it is important not to misunderstand the origins of the Iran deal’s strength. Deal supporters ought to remember that “JCPOA” is just a particular instantiation of the larger idea that diplomatic engagement with Iran is the best way to achieve greater security and prosperity in the Middle East. Deal supporters must also realize that the strength of the Iran deal does not derive from the mechanisms of the deal itself, but rather from the pre-existing factors and forces that made the deal possible in the first place, such as the aspirations of Iran’s citizenry, the economic need for internationalization, and the longstanding deterrents and disincentives for proliferation activity.

The total subjugation of normalized relations between Iran and the West to the uncertainties of the JCPOA has created a quagmire. Pro-engagement stakeholders in the U.S., Europe, and Iran have spent nearly all of their energies in the last year seeking to preserve the deal. In the meantime, the underlying sources of strength in Europe-Iran ties have been neglected and underutilized. The general sense of trust between stakeholders on both sides has eroded as accusations of European appeasement have collided with accusations of Iranian intransigence.

With the Iran deal in the ICU, there is an argument to keep the deal on life support. Barbara Slavin has recently argued that coming shifts in American politics could offer a strong reason for Iranian patience in regards to the nuclear deal. But the waiting game is itself harmful, eroding confidence and leading to the whittling away of strategic options.

Pulling the Plug

It may be time for Iran to pull the plug on the JCPOA. It should consider reallocating efforts and resources toward new initiatives, programs, and agreements to shore up diplomatic and economic ties between Europe and Iran, as well as the wider international community, where Trump can’t directly interfere. This would create an opportunity to declare the deal dead at Trump’s hands because of what he has already done, rather than what he may do. It would give Iran and its European, Russian, and Chinese partners a chance to craft a new plan for engagement outside the moribund JCPOA that will no longer be beholden to sentiments in Washington and less exposed to craven lobbying from the leaders of Saudi Arabia and Israel.

In Iran’s domestic arena, such a step would also allow pro-engagement stakeholders, namely the Rouhani administration, to reassert their control over the diplomatic and economic agenda. In effect, Iran could preempt Trump’s decision and pull out of the JCPOA from a position of strength, doing so without violating the spirit or letter of the agreement, and transposing its commitments to a new set of multilateral engagements. There are several steps that would need to be taken to executive such a strategy.

First, Iran should use the dispute resolution mechanism outlined in the JCPOA to orchestrate its exit from the agreement but in a manner that does not trigger the snapback of UN or EU sanctions. As per the text of the agreement, Iran would present the U.S. failure to implement the deal as grounds to “cease performing its commitments under [the] JCPOA in whole or in part and/or notify the UN Security Council that it believes the issue constitutes significant non-performance.” The degree to which Iran opts to cease performing its commitments is critical. This is because an unresolved dispute triggers a UN Security Council “vote on a resolution to continue the sanctions lifting.” The goal for Iran must be to be to ensure that the Security Council does not vote to reimpose UN sanctions. In order to avoid this outcome, Iran should confirm to the IAEA that it intends to remain in full compliance with its commitments presently outlined in the JCPOA and ensure continued access for IAEA inspectors despite its formal withdrawal from the nuclear deal. At this stage, it will be easier to push the U.S. not to take measures to snapback UN sanctions within the UN Security Council than it will be to keep the U.S. committed to the JCPOA.

Second, Iran should strongly consider other mechanisms through which to formalize its avowed commitment to never seek nuclear weapons. Though currently a signatory to the Nuclear Non-Proliferation Treaty (NPT), as Seyed Hossein Mousavian has argued, it should also consider signing the Treaty on the Prohibition of Nuclear Weapons. Iranian officials, who have publicly praised the nuclear ban, will need to understand that their effective communication of intentions will be absolutely crucial at this stage in the strategy. After all, abrogation of the deal is currently assumed to lead to an Iranian “dash to the bomb.” Getting key stakeholders and advocacy groups to attest to the new circumstances of Iranian non-proliferation commitments will require proactive communication and transparency. If this can be done successfully, Iran could exit the agreement without punishment from the UN or EU.

Third, on the basis of the continued commitment to preserving the core security benefits of the JCPOA, Iran should formally invite the European Union into a new set of multilateral and comprehensive consultations on political, economic, and security matters modeled on the periodic meetings of the Joint Commission. Importantly, these new consultations should not be led by the E3 governments of France, Germany, and the United Kingdom. Under the auspices of the European Union and the European External Action Service, which has been the most proactive stakeholder for the expansion of political and economic dialogue between Europe and Iran, Iran must engage the wider EU 27 to create a greater space for countries such as Austria, Denmark, Sweden, and the Netherlands, which have actually made greater relative strides in expanding political and commercial ties than the E3 in their respective bilateral contexts. Of course, such efforts should also include non-EU states such as Switzerland and Norway. Bringing these smaller European states into a formal multilateral dialogue would provide a much more durable forum for engagement than the over-reliance on the JCPOA has provided thus far. Of course, Iran should also continue to hedge by finding constructive ways to deepen its relationship with Russia and China, especially outside of the realm of security cooperation.

Fourth, Iran must continue its process of domestic reform necessary for both political and economic internationalization. Most importantly, it should continue its commitment to the Financial Action Task Force action plan regardless of the snapback of U.S. sanctions. This will ensure that critical reforms are made to the Iranian financial system that will build confidence in Iran’s intentions to solve some of the most stubborn barriers to the facilitation of trade and investment. Additionally, Iran should improve openness and transparency in the domestic political sphere by tackling corruption, expanding access to media and information, and better protecting dual-nationals from undo persecution.

These four steps constitute a bold rethinking of Iran’s path to a more productive, prosperous, and peaceful place in the international community. The strategy certainly introduces technical complexity that cannot be fully considered here. But any sober assessment of the current situation surrounding the JCPOA makes it clear that Iran will need to consider new ways to leverage its fundamental geopolitical significance and its ongoing multilateral engagement in order to derive from its international relations the essential domestic political and economic dividends that have for five years underpinned Iran’s tentative turn towards openness.

Without such an effort, Iran may find itself externally isolated at the hands of Trump’s throttling of the nuclear deal. The Iranian government would also struggle to live up its ambition to ameliorate the terms of the social contract with the electorate. Whichever strategy is taken, however, the integrity and scope of Iranian diplomacy is not something to be cynically certified by an erratic American president. To save diplomacy and to prove integrity in the international system, it may be time for Iran to kill the deal.

Photo Credit: Wikicommons

New IMF Report Calls for Iran to Access International Bond Markets

A new report from the International Monetary Fund (IMF) examining “selected issues” in Iran’s economy, including the expansion of non-oil exports and the role of women in the labor force, places special emphasis on the importance for Iran to develop the government securities market, which is a priority under the Sixth National Development Plan (NDP).

The report, authored by an IMF team in cooperation with the Iran Parliament Research Center, establishes that the “deficit and gross funding needs of the [central government] are set to rise as securitization of arrears and financial sector reform advance.” Iran’s gross financing requirements will rise from the current level of 4.5 percent of GDP to 15 percent of GDP by the end of the decade.

Countries at a similar stage of development as Iran are able to fund public investment via bond offerings in international markets. However, Iran remains largely isolated from international financial channels. Acknowledging this, the authors of the IMF report suggest that “fast development of the government securities market would help overcome Iran’s limited access to international capital markets and lower its recourse to monetary financing of the budget.”

This suggestion echoes the analysis of a 2015 Bourse & Bazaar piece by Seyed Ahmad Araghchi, now vice governor of the Central Bank of Iran. In the piece, Araghchi argues that “securitization offers the best and most efficient methods of financing the country’s projects in the post-sanctions era in the shortest period of time.”

The IMF team praises Iran for establishing a Debt Management Office (DMO) within the Ministry of Economic Affairs and Finance to coordinate the issuance of government debt, including Sukuk bonds and Islamic Treasury Bills.

However, Iran has yet to develop a clear Debt Management Strategy (DMS) to give greater clarity and confidence to creditors. The authors note that “although the annual budget laws provide a ceiling for types of securities to be issued, there is no pre-announced issuance calendar, debt statistics are not published, and the objectives of debt management are not clearly defined nor publicly disclosed.” Moreover, the DMO is currently developing much of its policy in isolation, whereas it ought to craft strategy in discussion with CBI and the Planning and Budget Office (PBO) “to ensure greater coordination between monetary and fiscal policies.”

These reforms will also be important for expanding the diversity of creditors. Data from the Iran Fara Bourse shows that 80 percent of bonds are held by asset management companies, most of which are owned by banks. Just 10 percent of bonds are held by foreign owners, and the remaining 10 percent is held by individuals and corporates.

Tellingly, the IMF authors consider it a “long-term” prospect for Iranian bonds to be included in international bond indices. Certainly, the political uncertainty surrounding the Iran nuclear deal and the remaining barriers to reintegration to international financial markets will make this difficult if not impossible in the near term. These factors are not however discussed directly in the report. 

Nonetheless, the authors suggest that Iranian bonds should be “traded on an international clearing house” and that the DMS should devise conditions where bond issuance is of a significant enough size and has enough primary dealers to ensure “liquidity and consistent bid/ask spreads” as well as transaction volume.

Overall, the IMF report offers a compelling example of the kind of technical dialogue Iran needs to ensure that its process of domestic financial reform meets internationals standards.

Photocredit: Wikicommons

Hold on Iran: Regime Change is Coming to Washington

With last week's announcement that John Bolton will soon be joining Mike Pompeo in the Trump administration, US adherence to the Iran nuclear deal looks doomed.

Both Bolton, who is to become national security adviser, and Pompeo, the new Secretary of State-designate, have forcefully opposed the Joint Comprehensive Plan of Action (JCPOA) and are likely to recommend that the US stop waiving nuclear-related sanctions when the next deadline arrives on May 12.

But officials in Tehran who may be arguing that Iran should also quit the JCPOA if the US does, should hold onto their centrifuges. The Trump administration is in trouble and the Republican majorities on which it depends in Congress are looking almost as endangered as the Iran nuclear deal.

Along with hundreds of thousands of other Americans, this writer took part on March 24 in a historic demonstration in Washington, D.C. against gun violence. The “March for our Lives” was focused on achieving common-sense laws that would make it much harder for people who should not have guns to get them. Assault-style weapons and large capacity magazines would also be banned for civilians. But the chief slogan at the rally had a much broader if unstated target, the Republican Party, which has aligned itself with the gun-loving National Rifle Association.

“Vote them out!” the marchers yelled, looking toward November midterm elections. The speakers, all teenage survivors of gun violence, vowed to register to vote upon turning 18 and to mobilize their peers to do the same.

A wave is coming in November that will likely shift the House of Representatives and possibly the Senate, too, to Democratic control. Even if only the House flips, the prospects for Trump’s removal rise. Special counsel Robert Mueller is assembling a mountain of evidence implicating the president for obstruction of justice at a minimum as well as possible coordination with Russia and other crimes. Meanwhile, former Trump paramours and alleged victims of sexual harassment are also bringing cases against him that could require him to testify and possibly perjure himself as Bill Clinton once did.

These threats to Trump are mounting at a time when his popularity remains stuck at about 40 percent. Younger voters are overwhelmingly turned off by him and by his party. According to a recent poll, 67 percent of voters aged 18-34 want to see the Senate switch to Democratic control. Another survey showed that liberals in this cohort outnumber conservatives by 57 to 12 percent. Without drastic change by Republicans, the party’s future looks bleak.

In terms of foreign policy, the US consensus among both Republicans and Democrats favors diplomacy over military action and rejects views put forward by unrelenting hawks such as Bolton. A veteran of three previous Republican administrations, Bolton strongly advocated for the Iraq war on what turned out to be false accusations that Iraq possessed weapons of mass destruction. He has also called for bombing both North Korea and Iran. But Americans are tired of the wars we are still in—in Afghanistan, Syria and Iraq as well as parts of North Africa. The last thing they want is another conflict in the Middle East.

Even if the Trump administration walks out of the Iran deal, it is not a foregone conclusion that it will seek to enforce renewed sanctions against foreign companies that continue to do business with Iran. Twenty years ago, Congress passed similar secondary sanctions—the Iran-Libya Sanctions Act—threatening penalties against foreign companies investing in Iran’s oil and gas sector. Europe cried foul and the sanctions were never implemented. That could well be the outcome in May.

For the past few months, Britain, France and Germany have been negotiating with Washington a package of sanctions on non-nuclear matters such as Iran’s missile program and regional interventions. The E3 should now put all of its diplomatic energy into a plan to combat a unilateral US abrogation of the JCPOA and to encourage Iran to stay within the agreement.

In its bullying attitude toward the rest of the world, the Trump administration is isolating the US and alienating a majority of Americans. This is an increasingly interconnected globe where cooperation, engagement, diplomacy and commerce are the keys to lifting all peoples.  The US president and his incoming advisers, in their “America first” and zero sum mentality, are out of step and on the wrong side of history.

Iranians, who have suffered a great deal at the hands of the United States and its allies as well as their own government, should be patient and stick with the JCPOA even if the US pulls out. Regime change is coming in Washington—probably sooner than in Tehran. And the outcome should benefit people in both countries.

Photo Credit: Wikicommons

The Iran Deal is Dead, Long Live the Iran Deal

This article was originally published in LobeLog. 

With the news that John Bolton will be Trump’s new national security advisor, the death of the Iran Deal is all but assured. Bolton has vocally advocated for war with Iran, which he sees not as an option of last resort but as the only appropriate course of action.

Add to Bolton’s hiring the impending arrival of Mike Pompeo as Trump’s new secretary of state and it is clear that the president will have no shortage of cheerleaders for his more destructive impulses. It is almost impossible to see how Trump would do anything other than fail to renew sanctions waivers and effectively withdraw from the Iran Deal on May 12.

The sudden ascendency of Bolton and Pompeo has also exposed how poorly the governments of France, Germany, and the United Kingdom have handled their negotiations with the Trump administration on a “fix” for the Iran deal. By seeking to appease Trump by extracting greater concessions from the Iranians on security matters clearly outside the bounds of the Joint Comprehensive Plan of Action (JCPOA), the Europeans have exposed their weakness, degraded trust with the Iranians, and wasted valuable time negotiating with administration officials who have since left their positions.

Even if by some miracle Trump were to once again waive sanctions in May, the politicization of the Iran deal is so complete that the waivers themselves will cease to have real meaning. The evidence is clear that the current posture of the Trump administration towards Iran, now turning towards an even more hostile stance, has been sufficient to dissuade the majority of possible trade and investment in Iran.

Moreover, Trump’s Treasury Department has failed to issue a single new license for commercial activities in Iran to date. Sanctions attorneys note that even applications that would have been “no-brainers” in the Obama years are currently being denied under Trump. The Office of Foreign Assets Control (OFAC) has long been staffed by pragmatic civil servants whose commitment to sanctions enforcement was based on the creation of a predictable and clear regulatory environment. Today, however, the letter of the regulations no longer suffices to determine the permissibility of commercial activities in Iran.

By any conventional assessment, then, the Iran deal is dead. But what conventional analysis fails to recognize is that the Iran deal cannot be killed. The JCPOA is not merely an arms control agreement or a pact that sought to deliver sanctions relief. It is a historic acknowledgement of several undeniable truths about Iran and its place in the world.

The first truth is that Iran is a mighty geopolitical actor. Despite the recent claims of Saudi Crown Prince Mohammad bin Salman to the contrary, Iran does not need a large military force or diplomatic clout to carry weight in the international system. Accidents of geography (such as the keystone position between Europe, Russia, and China) and accidents of history (such as the legacy of the Iraq war) have only served to increase the strategic position of Iran in the Middle East and within the larger Eurasian landmass. The collapse of the Iran deal will do nothing to change these geopolitical realities, and the necessity for Europe, Russia, and China to continue to engage Iran may even be heightened should the United States return to a pronounced confrontational stance.

The second truth is that an increase in Iran’s international engagement is a reliable bet. Demographic and economic factors are necessarily pushing Iran towards greater diplomatic and economic outreach. Whereas a foreign policy of engagement was once the begrudging choice of a revolutionary government, today engagement is a political necessity driven by structural factors. The eighteenth largest economy in the world cannot grow larger in any manner other than through greater international trade and investment. Cognizant of this, Iranians overwhelmingly support greater engagement with the international community because they believe such trade and investment will improve their livelihoods.

Moreover, the Iranian people are now their own ambassadors to the world, linked to the international community in the digital domain. Although the nuclear deal may seem like the creation of the Rouhani administration, and in particular the brainchild of Javad Zarif, the impulse that drove Iran’s government to seek a win-win agreement at the negotiating table derives from the aspirations and ambitions of the Iranian people, whose resilience will outlast the collapse of this particular agreement. Washington may sow uncertainty, but in the inertia of these forces a kind of certitude will persist. These forces will outlast Trump, as they will outlast their opponents in Iran as well.

The third truth is that the United States has little leverage over Iran. The debate over the viability of the Iran deal in the face of a U.S. withdrawal overstates the importance of American policy as a strategic consideration for Iran. On one hand, the deal’s collapse, and the costly snapback of sanctions, precipitated by the U.S., would suggest that Trump retains great power to constrain Iran. But seen another way, the debate around the deal shows that the JCPOA is the sole mechanism through which the United States currently enjoys substantial leverage over Iran. The U.S. had so successfully isolated Iran in the sanctions period that the creation of the JCPOA represented a rare instance in which it increased its leverage. When Trump withdraws from the agreement, he will remove his only “free” means to seek changes in Iranian behavior. The remaining options, mostly military options, will come at a great toll to the United States.

Trump is old and has a few years left in his term. The forces that brought the JCPOA to fruition may have been interrupted by his erratic governance and distorted worldview, but those forces will certainly outlast him. The imminent demise of the Iran deal should not obscure the fundamental reality of what the JCPOA was—a reminder to the international community that it must deal with Iran and that dialogue can be fruitful if conducted on the basis of trust and mutual goals. Even if the JCPOA falls apart, the lesson cannot be dismissed.

There remain reasonable actors in Europe, Russia, China and the wider international community who understand that they will need to continue constructively dealing with Iran in many arenas. There are many more “Iran deals” to be struck, in politics and commerce, both big and small. For the many hundreds of potential deals Trump will scupper with his actions, thousands more wait to be concluded as a matter of political and economic necessity and through the endeavors of those who still believe in the promise of diplomacy.

Photo Credit: Wikicommons

Europe Should Strike a Tough Pose With Trump on the Iran Nuclear Deal

This article is re-published with permission from the European Council on Foreign Relations. Since the initial publication of this article, John Bolton has been named Trump's new national security advisor. 

France, the United Kingdom, and Germany (the ‘E3’) appear set to intensify ongoing talks with the US in an effort to convince Donald Trump to stick to the Iran nuclear deal. Trump has threatened to withdraw from the agreement in May unless certain preconditions were met. Europeans hope the ongoing discussions will be able to find a middle way to both safeguard the nuclear deal and address outstanding areas of concern with Iran, such as on missiles and regional issues. However, Trump’s recent nomination of Mike Pompeo as US secretary of state increases the risk that this approach will backfire on Europe.

European policymakers largely viewed Rex Tillerson as a voice of moderation within the White House and as someone who, together with secretary of defense James Mattis, influenced Trump towards a more pragmatic position on Iran. If Europe is serious about saving the nuclear deal, then the appointment of Pompeo, an Iran-hawk in Washington, should serve as an urgent prompt to rethink its current strategy.

Some in European policy circles hoped that Trump’s statement on the nuclear deal on 12 January this year was part of his maximalist negotiating tactics, and that if Europe showed some flexibility, the president would be climb down from these demands. But one of the reasons Trump cited when firing Tillerson was their disagreement over the Iran nuclear deal. This should indicate that the moderate voices in the White House have been unable to bridge gaps between Trump and Europe over the nuclear deal.

Trump, meanwhile, remarked on the “very similar thought process” he and Pompeo share on a number of issues. Pompeo has been especially outspoken on Iran: he opposed the nuclear deal, supported regime change, and downplayed the costs of war with Iran. With Pompeo now in charge of US diplomacy, Europeans are likely to face a tougher and non-accommodating negotiating posture from the Trump administration over the nuclear deal. This comes against a backdrop of rising regional tensions between Iran and Israel, in addition to repeated pledges from Trump to confront Iran, most recently in his Nowruz message marking the Iranian new year.

Trump’s deal-making during his term in office should create doubt as to whether he would actually implement a side framework agreement of the type that his administration is currently seeking to strike with Europe over Iran policy. On foreign policy matters, Trump has remained dangerously unpredictable, and threatened everything from trade war to nuclear war. The pattern of negotiations between his administration and the US Congress over immigration and healthcare suggests that, even if Trump’s counterparts make concessions to fulfil his demands, there is no guarantee that he will, in the end, accept it.

Europeans should therefore be clear-eyed about the chances of success of current talks with the United States. Based on recent precedent, Trump is likely to perceive Europe’s flexibility and accommodation over Iran policy as a weakness that he can exploit to raise the benchmarks of demands. Moreover, by threatening imminent withdrawal from the nuclear deal, Trump is increasingly pressuring the E3 to jump on board with his efforts to undermine the agreement. Republican lawmakers such as Senator Bob Corker have also adopted this stance and warned that, unless the E3 sign up to the side framework agreement that meets US demands, Trump is unlikely to extend sanctions waivers due in May.

Yet, in their attempt to save the nuclear agreement through reaching a broader understanding with the Trump administration on Iran policy, the E3 must ensure that Europe does not become complicit in hollowing out the nuclear agreement. So far, the International Atomic Energy Agency has repeatedly verified that Iran is fulfilling its nuclear-related obligations. However, Iran has firmly indicated it will take reciprocal action to match any US backtracking from the deal. A potential side agreement between the E3 and the US with respect to the nuclear deal therefore risks a tit-for-tat exchange between Tehran and Washington that could alter and muddy their respective commitments under the agreement and cumulatively cause it to unravel.

So, what should Europe do?

In light of Pompeo’s appointment, the E3 should harden their negotiating tactics on the nuclear deal in ways that match the mindset of the Trump administration. First, Europeans should take a unified and more assertive position in forthcoming talks with the US to underscore that they will not be party to, nor accept as permissible, violations of a multilateral and United Nations Security Council-enshrined agreement. The E3 should continue to outline that it will not, and indeed cannot, alter expiration dates of the terms in the nuclear deal (so-called “sunset provisions”) as Trump has demanded. If Trump wants to kill the deal, he must take full responsibility, and Europe should avoid guilt by association.

Second, Europe should continue to show openness to working with the US administration on a follow-up to the nuclear agreement with Iran once the current deal has reached a more mature stage of implementation. The E3 should also have a candid exchange with Iran on regional security and demonstrate to the Trump administration that a range of tools exists to address concerns related to Iran. But in return for this flexibility, Europeans should outline an expectation that Washington will adhere to its existing obligations under the multilateral agreement and minimize the unpredictability surrounding Trump’s waivers of sanctions.

The sequencing of European measures and flexibility will be important to strengthening the E3’s position. For example, the European Union should first receive firm assurances that Trump will waive nuclear-related sanctions in May before it even debates the tougher measures against Iran’s missiles program proposed by the US and reportedly supported by the E3 during a meeting with EU foreign ministers on Monday this week. The E3 should also consider how political and legislative measures within the US could better guarantee US commitments to the nuclear deal. This could entail extensions in the length of time between each waiver of US secondary sanctions related to Iran’s nuclear program (thereby easing the unpredictability surrounding Trump’s actions), and pressing for progress in the Airbus aviation deals with Iran explicitly permitted under the nuclear deal.

Third, Europeans should prepare for the worst-case scenario – namely, a US withdrawal from the agreement and snap-back sanctions in May – and minimise the damage that will ensue. Pompeo’s appointment should be a trigger for European policymakers and companies to step up contingency planning to salvage the deal even without the US. For Iran to continue implementing the restrictions on its nuclear program, there must be a degree of political and economic incentives. As outlined elsewhere, Europe could provide this package to Iran by using a range of political and technical tools that ring-fence companies from the enforcement of US secondary sanctions through legal carve-outs, sector-specific exemptions, political understandings, and reviving the EU Blocking Regulation.

In current talks with the US, Europe should privately stress its willingness to pursue alternative options to preserve the nuclear agreement. A significant benefit of outlining a contingency plan at this stage is the deterrence impact it may have on Trump’s decision to kill the deal through highlighting the isolation the US would face. In short, Europe should outline, as it has done on the issue of trade and the Paris climate accord, that it will work with like-minded coalitions to fill the gaps left by US withdrawal.

This strategy may not, in the end, alter the decision by Trump to execute his campaign promise to “dismantle” the “disastrous deal” with Iran. But this approach at least provides Europe with the political capital to try to salvage the agreement and thereby secure its own non-proliferation goals. If Iran’s nuclear program expands in respond to Trump’s withdrawal, other regional powers, such as Saudi Arabia, have warned that they will do the same. A firm European position in defense of the diplomatic accord may also reduce the growing risk of confrontation between Washington and Tehran in the Middle East, for which Europe will inevitably bear the cost. This approach also sets a precedent that Europe is a credible international partner, demonstrating political willingness to safeguard international norms at a time when global leadership is lacking. 

Photo Credit: EU

Iran Air Expands Routes Amid Uncertainty

Despite recent uncertainty surrounding the 2015 nuclear deal, Iran Air has been moving forward with its expansion efforts. The airline's CEO, Farzaneh Sharafbafi, attended last Friday's meeting of the JCPOA Joint Commission. Her presence indicated the significant political efforts being made to facilitate the acquisition of new aircraft which the airline needs to successfully maintain its growth.

Celebrating its 57th anniversary this year, Iran Air began flights from Tehran to Belgrade and Tbilisi on March 10 and is planning to start flights to Budapest, Malmö, and Saint Petersburg later this year. 

With visa restrictions being lifted in Serbia, further optimism points to India. In a joint statement by President Rouhani and Prime Minister Modi in February, Iran and India committed to the opening of e-visa facilities for their citizens. In 2016, neighboring Armenia and Georgia lifted visa requirements for Iranians, leading to the overall flight increases between the two countries and the addition of Tehran-Tbilisi flights to Iran Air’s schedule.

Although Iran Air does not publish passenger statistics and load factors on its routes, its performance can be estimated based on frequency increases on many of its European routes in the last year. Flights to Frankfurt, Gothenburg, Stockholm, and Vienna have all seen the addition of more weekly flights and higher capacities. The Tehran-Belgrade flights, have already sold out through the summer of this year. The airline has also begun codeshare flights on Lufthansa’s Tehran flights, and expanded its codeshare services with Turkish Airlines.

Iran Air's network has grown significantly since 2015, but remains much smaller than that of a decade ago. In 2002, the airline was serving 18 European destinations, compared to 13 destinations today. Iran Air’s Asian flights to Beijing, Bangkok, Kuala Lumpur, Seoul, and Tokyo, have not been in operation for a several years.

By re-establishing these routes, Iran Air could capitalize on a hub and spoke system used by most global airlines. Better geographically positioned in the Middle East than any other Persian Gulf carrier, Tehran could serve as a connecting point for passengers traveling to East Asia and Australia from Europe and North America.

With neighboring Qatar Airways, Emirates, and Etihad Airways experiencing financial difficulties due to political tensions, increased competition, and investments in struggling European airlines, now would be an ideal time for Iran Air to revitalize its own hub and spoke strategy in order to grab market share. 

However, despite the opening of new routes planned for this year, Iran Air faces an uphill battle in sustaining its growth. Because the airline's network remains limited, the success of newly launched routes is initially dependent on Iranian tourists. Economic pressures could see Iranian tourist figures fall. The Iranian departure tax may rise later this year and current proposals show increases from USD 15 to USD 45, which must be paid by all passengers departing Iran.

Furthermore, due to the existing sanctions on financial transactions, Iran Air tickets are not sold on various travel websites. Tickets are sold only through Iran Air offices or travel agents, making it difficult for those booking online from outside of Iran. This hinders growth for connecting passengers and makes competing airlines more attractive, which have already increased their Iran services. In the last two years alone, Iran Air has faced new competition from Air France, Austrian Airlines, British Airways, and KLM, all of which have resumed services or increased the number of seats on Iranian flights. 

Nonetheless, Iran Air has revitalized its domestic flights with the creation of a new regional service using newly acquired ATR aircraft. Iran Air is projecting a significant rise in revenue. At the height of economic pressure in 2013, the company’s revenue was approximately USD 330 million. The airline hopes to earn around USD 1 billion annually once its new fleet has been put into service over the next decade. Plans to begin flights to many intercontinental destinations depend on the arrival of new long-haul aircraft. 

The airline currently has fifteen Boeing 777-300ERs on order, most of which will be used for intercontinental flights. During a press conference in Paris, the airline’s CEO, Farzaneh Sharafbafi, confirmed that upon receipt of the Boeing aircraft, Iran Air would start or resume flights to Adelaide, Bangkok, Kuala Lumpur, and Sydney, further expanding its reach into Asia and Australia. On these planned routes, Iran Air faces little to no competition from Asian carriers. 

Sharafbafi reassured all that Boeing would remain committed to its landmark contract. She also said that there are no problems in financing the orders and that Boeing and Airbus jets would be delivered in late 2018 and 2019 respectively.

But while the licenses issued by the U.S. government allowing for the sale of Airbus, Boeing, or ATR aircraft remain valid, the Trump administration continues to threaten to pull out of the Iran nuclear deal. Ultimately, the growth of Iran Air significantly depends on American adherence to the deal and the delivery of the new aircraft. It remains to be seen whether Sharafbafi will have the opportunity to pursue Iran Air's ambitious reintegration in the global airline industry.

Photo Credit: Alireza Izadi

Zarubezhneft Signs Two Major Oil Contracts in Iran, Bucking Uncertainty

Russian news agency TASS is reporting that Zarubezhneft, a Russian state-owned oil company, has signed two major contracts with the National Iranian Oil Company (NIOC). 

The agreements will see Zarubezhneft exploit the Aban and Western Paydar oil fields in a consortium with Dana Energy, an private sector Iranian oil services company. 

While Zarubezhneft has yet to officially provide comment on the reports, a signing ceremony is expected to take place in Tehran. The value of the deals is expected to be around USD 700 million. 

Earlier this month, Russian Energy Minister Alexander Novak had announced that such a deal was imminent. 

The Aban and Western Paydar deals had been long-anticipated, with the initial memorandums allowing Zarubezhneft's study of the fields signed in 2016. Both projects lie close to Iran's border with Iraq. 

The Russian energy giant is evaluating four further fields: the Sepec, Jofeir and Darkhuain oil fields, as well as gas reserves in Kish.

Iranian oil Minister Bijan Zanganeh had expressed confidence that Iran would see further investment commitments in the oil sector prior to the Iranian new year, which begins next week. Zarubezhneft's move will be closely watched as Iran's oil and gas sector seeks to navigate considerably uncertainty, including political uncertainty around the Iran nuclear deal. 

It is unclear how Zarubezhneft's investment would be affected by possible snapback of U.S. secondary sanctions. But it is notable that it is a Russian state-owned enterprise is making this move in the uncertain environment. 

This is the second major energy deal signed in Iran since the lifting of international sanctions and follows Total's landmark USD 5 billion deal to develop Iran’s South Pars gas field in cooperation with China National Petroleum Company and Iranian firm Petropars. That deal was signed in July 2017. 

Photo Credit: Wikicommons

LaLiga and MTN Irancell Team Up to Bring Global Football to Iran

Spanish football league LaLiga held a three-day football clinic in Tehran in late February, welcoming 90 children for a day of coaching and friendly competition at the Olympic Football Complex.

LaLiga, Spain’s highest division, is one of the most-watched leagues in the world, and is home to rockstar teams Real Madrid and F.C. Barcelona. LaLiga executives believe theirs is the most followed foreign league in football-mad Iran, in part due to the broadcasting of Real Madrid and F.C. Barcelona matches on state television networks IRIB TV3 and IRIB Varzesh.

The decision to conduct a first-of-its-kind football clinic in Tehran reflects a strategy that LaLiga has adopted in growth markets around the world, including China and India. In Iran, the clinic initiative was spearheaded by Khais Rahmanie, an international business development executive with the Spanish league.

As Rahmanie explains, the clinics “are not just an opportunity to share knowledge and LaLiga’s winning methodology, but also to help our highly skilled coaches learn about the Iranian market and the skills and talents that are present.”

The clinic welcomed three world-class coaches. Luciano Santana Martel, a former youth coach at Deportivo de la Coruña and Francisco José García López and Carlos Casal López, international development coaches with LaLiga, traveled to Iran to run the training sessions.

But the star of the show was Gaizka Mendieta, a legend of Spanish side Valencia, who also played short spells at Barcelona and Lazio, an Italian club.

MTN Irancell, a leading telecommunications company, provided financial support for the event. The company boasts one of Iran’s most proactive and successful retail marketing strategies and is actively involved in Iranian football, both as a strategic partner for the Persian Gulf Pro League, Iran’s top division, and as a shirt sponsor for Persepolis and Esteghlal, two of the league’s most successful teams and greatest rivals. 

Irancell and LaLiga concluded a regional partnership for Iran in December 2017. At the time, LaLiga’s managing director, Javier Gomez commented that the agreement “amplifies further the global recognition of LaLiga brand all around the world and help us to connect and engage further with our millions of fans in Iran in very innovative way.” As part of the partnership, LaLiga matches, exclusive interviews with players, and documentaries about Spanish teams will be broadcasted through “Lenz Sport,” Irancell’s internet protocol television service.

LaLiga is currently planning more events Iran, with a further clinic to be held in April. But, just as in coaching, patience is the key for LaLiga’s market expansion. Rahmanie says, “We are taking our time to evaluate how to organize future events so we can bring the best possible experience for our fans in Iran.”

Photo Credit: LaLiga

To Transform the Fortunes of Iran’s Saffron Farmers, a Commitment to Technology and the Environment

Mohammad Qaempanah is a serial entrepreneur. His first business saw him act as a one-man internet service provider in his town, the connectivity from which he leveraged to start his next business, exporting saffron, a coveted spice with a heady aroma taken from the stigma of the crocus flower. Qaempanah exported the spice until sanctions made it impossible. He then opened a vegetarian restaurant in Mashhad with the aim of “educating people about the way in which their eating habits are linked to global warming.” Furthering his commitment to the environment, he then founded Iran’s first “nature school,” also in Mashhad, which offered programs to enable children from the city to experience and enjoy time in nature, learning about the environment. Having spurred something of a movement, there are today over 40 such schools around Iran.

Qaempanah, whose grandfather was a saffron farmer, has now turned his attention to agriculture in his hometown of Qaen, in the province of Khorasan, with a venture that combines his knowledge of saffron, his commitment to the environment, and his aptitude in technology. This latest venture, Keshmoon, has already won accolades. The company was recognized as the “Best Seed Stage Startup” at the recent Iran Web and Mobile Festival. Mohammad-Javad Jahromi, Iran’s young Minister of Communication and Information Technology, acknowledged the company in a subsequent tweet.

This early recognition reflects the scope of Keshmoon’s commercial ambition and its innovative vision for Iran’s agricultural sector. In Qaempanah’s words, Keshmoon combines an “ecommerce platform that serves consumers with an ‘agritech’ layer that serves suppliers.” In simpler terms, he explains, Keshmoon connects “carefully selected farmers engaged in sustainable agriculture with premium consumers.”

In founding the company alongside his brother, Hamza, and a friend, Siamak Khorrami, Qaempanah took inspiration from the increasingly popular model of direct trade coffee, where coffee roasters ethically source beans directly from growers, and also the popular ecommerce platform Etsy, which allows artists and craftsmen to sell their wares directly to consumers online. But while these platforms primarily reflect innovations in ecommerce, Keshmoon seeks to use technology to change the methods of agriculture itself.

Speaking about his vision, Qaempanah is careful to point out that his motivation in founding Keshmoon was “not to help farmers improve their economic situation.” Rather, his “foremost concern was water.” In his view, “unless the issue of water depletion is managed, it won’t matter what the farmers choose to grow, it will be impossible to cultivate anything.”

In the town of Qaen, where Qaempanah’s grandfather cultivated the particularly aromatic saffron that brought fame to the region, the qanats, a traditional system of underground channels which tap into the aquifer, have long been replaced by modern wells. Over the years, farmers drilled more wells to pump ever-increasing volumes of water, seeking to grow crops ill-suited to the arid climate. The water table has dropped precipitously. As Qaempanah relays, “wells that were once 15 meters deep now need to extend to 135 meters.”

Qaempanah believes that farmers are currently stuck in a self-defeating economic cycle. Presently, the use of more water enables higher yields and therefore higher earnings. Keshmoon was designed as a “technical infrastructure to change this cycle.” By incentivizing farmers to move towards the sustainable cultivation of saffron, which is naturally well-suited to Khorasan’s arid climate, farmers will be able to use less water, and yet enjoy greater earnings.

Gallery: The Farmers of Qaen

This has proven an attractive proposition to the farmers of Qaen, where Keshmoon has recruited its first cohort of 30 farmers. As Qaempanah recounts, the local saffron growers were “invited to a meeting in the town mosque, where we explained our approach, how we wanted to help, and asked them to go home and think about it.” Despite concerns that it might be hard to explain the technical aspects of the concept, the pitch worked. Today, farmers from neighboring villages and towns regularly stop by Keshmoon’s office in Qaen to learn more about the program they have heard about. The company has earned the trust of the local community. 

To gain acceptance to Keshmoon’s platform, farmers need to demonstrate competency growing saffron in the traditional manner. Keshmoon will introduce more stringent requirements in the near future, introducing guidelines consistent with sustainable farming. It will take about one year to “gain critical mass and give farmers the time to make adjustments to their planting,” says Qaempanah. He foresees Keshmoon partnering with universities and other institutions to help provide training to farmers unfamiliar with growing saffron in a sustainable manner in order to help them make the switch.

For farmers, the commercial appeal of Keshmoon is the higher price achieved for their crop by selling to consumers directly, rather than selling to local traders. One drawback is that using Keshmoon will require farmers to sell their harvest incrementally, as orders come in online. Some farmers have said that they prefer selling to the local buyers, who can purchase the whole harvest in one transaction. But the price advantage is substantial. Farmers on Keshmoon can expect to generate 20-40 percent more in earnings than those who sell locally in bulk.

Laudably, Keshmoon has been very transparent about pricing for the sake of both consumers and farmers and offers a detailed breakdown on their website. Generally speaking, farmers receive 70 percent of the saffron’s retail price, while around 12 percent is earmarked for quality control, packaging, and transport, and the remaining 18 percent goes towards Keshmoon’s overhead.

Once accepted to Keshmoon, farmers need to create their online profiles. In most cases, the Keshmoon team helps by taking photos and recording the farmer’s personal details, family history, and also explanations of how the saffron is farmed. These profiles can be seen on the Keshmoon website, where consumers can even send messages to specific farmers.

Qaempanah notes that some farmers, typically those who are younger or who have had more education, have been able to author their profiles themselves. In some cases, it was the farmers’ children, many of whom own smartphones, who took responsibility for telling the story of the family farm through words and pictures. There is immense potential for the farmers to develop both some technology literacy and also their personal brand, which can help them connect with consumers more proactively. Commercial considerations aside, there is something affecting about seeing the personal portraits of the farmers and families behind Iran’s most precious crop.

A Keshmoon Giftbox

A connection to the farmers and a beautiful presentation of the saffron, including a small booklet about its origins, has proven a hit among consumers. The company has been selling online for nine months, and boasts a few hundred clients, about one-quarter of whom whom make recurring purchases. Keshmoon’s models show that it will take about 20-40 clients in order to support each farmer. At the moment, the company has stopped accepting new farmers onto its platform until is grows the client-base further. A big boost will come when the company begins selling to Europe later this year. 

But while the Keshmoon story may begin with saffron, Qaempanah’s ambition is much greater. For the next few years, the Keshmoon team will focus on perfecting its “technical infrastructure,” combining ecommerce and agritech to open a new market for saffron. The big test will be in the marketing and branding. Qaempanah hopes to achieve a level of awareness such that “when people hear saffron, they think of Keshmoon.”

If this model can be developed successfully for saffron, the company plans to expand to other crops and bringing a similar model to other agricultural regions in Iran. Qaempanah imagines a situation where farmers from around the country can approach Keshmoon and receive recommendations for which crops to grow based both on analysis of the local environment and also Keshmoon’s data on which crops will sell most effectively on its marketplace. In this way, Keshmoon would serve to introduce efficiencies of scale typically reserved for large, corporatized farming. The economic and environmental impact for Iran, where the agricultural sector remains dominated by smallholder farmers, could be transformative.

But it is early days yet and the success of this grand masterplan will first depend on the successful collaboration between the saffron farmers of Qaen and the team at Keshmoon. Theirs is a collaboration that crosses talents and crosses generations—both a microcosm of the economic and environmental challenges facing Iran and a case study in the creative thinking and entrepreneurial spirit that may eventually solve those challenges.

Photo Credit: Keshmoon

Sweden's Serkland To Invest in Iran Plastics Packaging Leader Moheb

A Swedish investment company is “on course” to make a landmark investment in Moheb, the leading manufacturer of plastic and laminate tubes in Iran and the Middle East. The deal represents one of the first private equity investments made by foreign investor in a growth-stage Iranian company, outside the digital sector.

Serkland Invest, founded in 2016 and headquartered in Stockholm, is focused on investment opportunities in the Iranian consumer sector. The company is primarily backed by Scandinavian family investment offices, high net worth individuals and institutions. Serkland’s first investment in Iran was completed last summer, which saw the Swedish firm invest EUR 17.5 million in one of Iran’s leading pharmaceutical companies. 

This new deal, though representing a smaller investment, sees Serkland take a significant minority stake in Moheb. Founded in 1998, Moheb Packaging & Plastic Industrial Company a family-owned business headquartered in Tehran. The company has grown rapidly to meet the packaging needs of Iran’s FMCG manufacturers and produces plastic and laminate tubes for both foodstuffs and cosmetics. Moheb enjoys 75 percent market share in Iran.

Amir Hossein Alambeigi, co-founder and CEO of Moheb, noted that the Serkland investment would enable Moheb to solidify its “market leading position” and to “capitalize on substantial opportunities ahead, both locally and in the wider region.”

The investment will see Serkland take an approximately 40 percent stake in Moheb, and will receive two of five board seats. Mohsen Tavakol, a partner at Serkland, stated that the goal is to leverage the board positions to “instill corporate governance, strategic management, operational and financial best practices” in Moheb to help improve competitiveness and develop the company into an “international corporation.”

The deal is just one in Serkland’s reported “EUR 100 million pipeline of around two dozen Iranian consumer goods companies.” The company is aiming to make six acquisitions by the end of 2018. One pending deal would see Serkland invest alongside a multinational partner in a chocolate confectionary company.

While Serkland is not a private equity fund, its investments, like that in Moheb, provide an early template for private equity in Iran, where new capital is used to enable sales growth through expanded exports.

The executives involved expressed pride that the investment is taking place at a time of political uncertainty. Omid Gholamifar, CEO of Serkland, highlighted his company’s progress “at a time when many are hesitating.”

Bakhtiyar Alambeigi, co-founder and Chairman of Moheb, echoed this sentiment, stating, “Moheb is proud [to be] one of the first private companies in Iran to have been able to attract foreign investment… after the signing of the JCPOA.” Alambeigi hopes that the deal will “will help other companies in Iran to attract foreign investments” by creating a “success story” for the business community at large.

Photo Credit: Wikicommons

Can Blocking Regulations Help Europe Protect Its Iran Business From Trump?

In the last week, European business leaders and policymakers have grown more vocal about the possibility that the European Union would employ blocking regulations to protect European businesses from the reach of US secondary sanctions on Iran. These regulations would penalize European companies for complying with secondary sanctions, which may snapback if the Trump administration decides to withdraw from the Iran nuclear agreement.

Total CEO Patrick Pouyanné became the first high-profile European executive to publically call for such measures to be considered, disclosing that Total has been in discussions with French and European authorities about “means to protect investments already made in Iran, even in the case of the return of sanctions.”

Speaking at a conference in Paris last week, Denis Chaibi, head of the Iran Task Force of the European External Action Service, stated that the EU was “looking at a number of possibilities” regarding the regulations.” In his assessment, “it is not complicated to do it legally in that the legal instrument exists, but it doesn’t require a huge internal debate,”

These public statements come as European concerns grow regarding the Trump administration's ultimatum to “fix” the Joint Comprehensive Plan of Action. The critical deadline is May 12, when the United States will need to once again waive its secondary sanctions on Iran. Failure to do so would see secondary sanctions “snapback,” exposing European companies to extraterritorial penalties for their commercial activities in Iran.  

But even if the European Union finds the political will to reinstitute blocking regulations in the event of snapback, it is unclear whether they fully effective as a standalone measure to protect European trade and investment in Iran. Blocking regulations are a legal mechanism which seeks to mitigate the extraterritorial effects of sanctions under Public International Law (PIL), the body of law that governs relations between sovereign states and their unions, such as the European Union.

International trade attorney, Edward Borovikov, managing partner at the Brussels office of Dentons, a global law firm, notes that under international law “Sovereign states are expected to exercise moderation and restraint if their legal acts may affect vital economic and commercial interests of another state. But sometimes states violate the principle of restraint for their own national security considerations.” The snapback of secondary sanctions by the Trump administration would represent once such case. In such situations, “there is no efficient and universal legal avenue under PIL to challenge such non-compliance,” says Borovikov.

While the World Trade Organization (WTO), which was established under the authority of PIL, may seem a venue to challenge extraterritorial sanctions which restrict trade in goods and services, it is unlikely Europe would be able to successfully challenge the snapback of U.S. sanctions under the WTO’s legal authority.

Article XXI of the General Agreement on Tariffs and Trade (1994) declares that nothing in WTO rules will “prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests.” Borovikov explains that this exemption “means that member states can depart from WTO commitments on trade in goods and services” and points out that while there have been several attempts to bring to WTO adjudication disputes on the application of national security exemptions, “none of the cases ended with conclusive guidance.”

In 1996, the European Union began a dispute process against the United States with regard to extraterritorial sanctions against Cuba. This dispute reached the state of WTO consultations. But ultimately, the EU and US reached a political solution in which the US assured that its secondary sanctions would not be enforced upon European companies. The WTO case was suspended.  

The political solution was necessary for a simple reason. “Even if the WTO had found in the favor of the EU, deciding that the national security exemption did not apply, the United States was never going agree with a WTO’s interpretation of its national security requirements,” observes Borovikov. “The idea that the United States would comply with WTO recommendations in such a situation is hard to believe.”

Given the dead end presented by the WTO dispute avenue, the EU has sought legal mechanisms that rely on the legal authority of the union and its member states. The legal act is the 1996 EU Blocking Regulation. This regulation was established in response to US sanctions on Iran, Cuba, and Libya. The regulations prohibit EU entities and courts from complying with foreign legal acts, such as sanctions laws, listed in an annex. Borokivov explains that “in principle any new extraterritorial laws of any third country may be added to the Annex and indeed help EU persons to continue business with a sanctioned third country.” However, the past success of such regulations in enabling European companies to continue conducting business in these jurisdictions such as Iran was the result of political rather than legal influence.

Borovikov warns that these blocking regulations “cannot provide full protection from secondary sanctions because if the EU persons doing business in the US start economic activities in the Iran, they are at risk of being penalised under the US sanctions regime.” Even if the European Union seeks to penalize its companies for complying with US sanctions, “it is clear that a lot of EU companies would simply face a dilemma between doing business in the US or Iran and where to accept the penalty,” he says.

Given the fact that the US market both frequently offers more attractive economic opportunities and poses more severe penalties and consequences for non-compliance with US law, most companies are likely to wind down their Iran operations and pay any penalties that the EU or their national governments may levy under the blocking regulations.

However, the discussion about blocking regulations is nonetheless worthwhile. Borovikov notes that the prospect of such regulations has in the past played “an important role in bringing about an acceptable solution. The regulations are secondary to the political process between the US and EU and its member states that will hopefully lead to an understanding on Iran business.”

Ellie Geranmayeh of the European Council on Foreign Relations, echoes this assessment: "The threat of reviving the EU blocking regulation in itself can be a useful political tool for Europe to create a cost for the Trump administration and make it think twice about its actions." Moreover, while the blocking regulations may only be partially effective for major multinationals, they can "provide an avenue for smaller-medium sized companies in Europe and Asia that have little or no US exposure to continue conducting business in Iran in non-dollar currencies," says Geranmayeh. 

Multinational executives seem to agree. In a recent survey conducted by Bourse & Bazaar and commissioned by International Crisis Group, a substantial 54 percent of senior executives indicated that “assuming Iran remains committed to the nuclear deal,” blocking regulations, which would protect companies from U.S. penalties, would positively affect the “decision to invest in Iran.” 

Blocking regulations can serve an important role as part of the suite of political, legal, and commercial measures that can be employed by European governments to protect their businesses from the consequences of snapback. At a time when the economic quid-pro-quo that underpins the nuclear deal is under threat, each and every such measure ought to be considered. 

Photo Credit: WTO

Total CEO Pouyanné Considers Measures to Protect European Business in Iran

In a major interview given to French newspaper Le Monde looking at Total’s strong performance in 2017, CEO Patrick Pouyanné was asked about the “American threat” to the company’s “important gas project” in Iran. Pouyanné’s forthright response marks perhaps the first time that a major European executive has publicly called for a diplomatic intervention to protect commercial interests in Iran.

Total’s CEO explained that the South Pars project was “progressing well, without delay, and [Total] continues to work, even if the situation with the American Congress is rather vague.” He noted that even if the Americans “decide to exit the nuclear agreement and if secondary sanctions return in place,” it would pose a “real question” for the French energy giant.

However, echoing comments made to reporters on the sidelines of Davos, Pouyanné did not cast snapback as an automatic game-over for the South Pars project. Rather, he suggested that it was necessary to “clarify the horizon for European business working in Iran.”

He explains that Total has been in discussions with French and European authorities about “means to protect investments already made in Iran, even in the case of the return of sanctions.” Pouyanné points to the experience of European blocking statutes and sanctions waivers applied in the 1990s which proved sufficient to to protect Total’s gas projects at the time. Pouyanné concludes by noting that it is “up to European diplomats to consider these questions.”

The confidence of Pouyanné’s response stands in stark comparison to the general uncertainty that has gripped the business community and will be seen as an important signal. The landmark USD 3.8 billion South Pars project is seen as a bellwether for the larger project of Iran’s post-sanctions economic recovery.

However, Total is far from the only major European multinational engaged in the Iranian market. Pouyanne was one of select group of European CEOs invited to dine with Donald Trump at a special dinner held during the American President’s trip to the World Economic Forum in Davos. Other guests included Siemens CEO Joe Kaeser, ABB CEO Ulrich Spiesshofer and Volvo CEO Martin Lundstedt. Overall, nine of the fifteen companies represented at the dinner are currently active in Iran, and a further five have had a historical presence in the market. Pouyanné’s peers are likely to share his sentiments on the need to protect European interests in Iran and the wider global economy.

While the legal value of blocking statutes or sanctions waivers is questionable given the greater interconnectivity in global markets and greater reticence of the banking sector to engage Iran when compared to the 1990s, the political message behind such measures could be valuable, enabling companies to seek creative solutions to structure their Iran engagements in a way that avoids sanctions exposure.

In a recent survey conducted by Bourse & Bazaar and commissioned by International Crisis Group, a substantial 54 percent of senior executives indicated that “assuming Iran remains committed to the nuclear deal,” blocking statutes, which would protect companies from U.S. penalties, would positively affect the “decision to invest in Iran.”

Photo Credit: Total

In First Survey Since Iran Protests, Expressions of Solidarity as Economic Outlook Darkens

A timely new survey published by the University of Maryland’s Center for International and Security Studies (CISSM) offers the first insights into Iranian public sentiment following last month’s protests. The representative survey, conducted by research firm IranPoll between January 16 and January 24, was derived from telephone interviews of over 1,000 Iranians and covered a broad range of issues.

The results underscore the central role that economic frustration played in the recent mobilizations and illuminate a common thread of economic concern around domestic issues, such as corruption and mismanagement, and the perception of foreign interference, particularly around the implementation of the Joint Comprehensive Plan of Action (JCPOA).  

A clear 58 percent of respondents believe that Iranians economic conditions are worsening, the highest proportion since May 2015. In a refutation of the characterization of the protests as a political uprising, just 15 percent of respondents agreed with the sentiment that “Iran needs to undergo a fundamental political change.” Economic grievances elicited far greater sympathy. Moreover, respondents were generally satisfied with the response of authorities, with 66 percent responding that the police responded well to the unrest.

Looking to international affairs, public confidence in the JCPOA has plummeted, and Iranians are beginning to perceive the agreement in more absolutist terms. Iranians continue to blame the lack of economic progress on the hostile posture of the United States. A clear majority of respondents, 73 percent, believe that multinational companies are “moving slower than they could to invest in Iran.” Of these respondents, 82 percent attribute the slowdown to businesses encountering “pressure or fear of the United States,” a proportion that has risen from 75 percent in May of last year.

President Trump’s decertification of the Iran nuclear agreement in October of last year has no doubt compounded doubts about American intentions. Just 12 percent of Iranians express confidence that the United States will live up to its obligations under the agreement, down from 24 percent in May of 2017 and 45 percent when the deal was first agreed in September of 2015.

In December of last year the largest proportion of respondents, 51 percent, believed that the United States had “lifted the sanctions it agreed to lift in the JCPOA” but was “finding other ways to keep the negative effects of those sanctions.” In this latest survey, the attitudes have shifted. The majority of respondents, 60 percent, now believe that the United States “has not lifted all of the sanctions it agreed to lift in the JCPOA.” This shift in opinion may reflect Iranian perceptions regarding the postures of the Obama and Trump administrations towards the deal. On a scale out of ten, 69 percent of Iranians rated Trump’s Iran policy at zero, or “completely hostile.” This compares to 50 percent in December 2016, before Trump formally entered office and had the opportunity to put his rhetoric into action. 

Overall, while more than half of Iranians still approve of the JCPOA, support is wavering, now measures at just 55 percent approval, down from 67 percent in June of last year. The decline in approval for the deal is tied to the fact that Iranians have yet to see the promised economic benefits. A resounding 74 percent of respondents believe that living conditions have not improved “as a result of the JCPOA.”

Troublingly, these frustrations are making Iranians more comfortable with possible drastic political responses. When asked what Iran should do in the event the "United States decides to withdraw from the JCPOA agreement and reimpose sanctions on Iran, but other P5+1 countries remain committed to the agreement and do not reimpose sanctions," 52 percent of respondents suggests that the Iran should withdraw from the JCPOA. The inability for policymakers to demonstrate the value of the deal is opening political space and burnishing popular support for those factions in Iran who wish to see its demise. 

However, Iranians do not intend to lay blame for economic stagnation at the hands of outside forces alone and 87 percent of respondents believe that the Iranian government should take “steps to make Iran’s business environment more appealing to foreign businesses and investors.” Despite strong public support for such reforms, only 58 percent of Iranians report knowledge that the government is taking such steps.

Moreover, Iranians consider “domestic economic mismanagement and corruption” as having a greater negative impact on the economy than “foreign sanctions and pressures” with 63 percent of respondents highlighting the former as the primary concern. To this end, Iranians wish their government to prioritize efforts to alleviate poverty, stabilize food prices, and better manage the environment. In addition there is strong agreement that the government should not cut cash or fuel subsidies. A definitive 96 percent of Iranians want the government to do more to fight financial and bureaucratic corruption. Encouragingly, most Iranians remain optimistic about the future. When asked whether today’s children will be financially better or worse off than their parents, 49 percent respond that they will be better off, whereas 43 percent believe they will be worse off.

For the Rouhani administration and for Iran’s wider political establishment speak to the urgency of economic reforms. In recent statements, Rouhani has admonished his fellow politicians on the utmost importance of heeding the demands of the people, suggesting that the Islamic Revolution itself resulted from the inability of the Pahlavi monarchy to respond to the popular will. Such surveys offer a clear assessment for the administration of the challenges at hand. The question remains whether Iran’s various political factions can find sufficient common ground to find solutions.

Photo Credit: Tasnim

As Delays Mount in Iran, Executives and Employers Face Tough Career Choices

In multinational companies, the prospect of promotion is largely tied to the ability to meet targets and hit milestones with speed. Working on Iran-related projects in the present environment makes this difficult to do. When asked to evaluate the pace of trade and investment as part of a recent Bourse & Bazaar survey, commissioned by International Crisis Group, 83 percent of senior managers at multinational companies indicate that companies “are moving slower than they could” to engage in the Iranian market. These delays are not minor: 39 percent of executives report being delayed by six to twelve months, 16 percent report being delayed by one to two years, and 33 percent report delays of more than two years.

Some multinational executives are facing delays equivalent to the total time they have spent in the Iran job role; the majority of executives surveyed have been working on Iran for less than three years. As sanctions-relief neared, new teams and offices were established to handle Iran business, with companies often relocated executives to Iran. For these executives, who arrived in their job roles full of promise, the mounting delays have a personal and career impact. For employers, longer project timeframes make management and staffing more difficult.

Iran can be an isolating assignment within large organizations. Companies are increasingly separating Iran from the management of the GCC in response to regional politics, sometimes placing the country among Turkey or Central Asian markets. But very often, Iran is treated as a kind of an island unto itself, meaning that country managers are even more dependent to demonstrate success within the business unit.

In the assessment of one aviation finance executive, who asked to remain anonymous due to the sensitivity of the issues discussed, delays in aircraft sales to Iran, like other commercial deals, see executives repeatedly hitting “roadblocks out of their control.” The frustrations inherent in working with Iran mean that many of these executives and advisors may opt “to move away from Iran for the benefit of their career path.” For example, business development executives may seek to shift focus to markets where they are more likely to hit their sales targets, “in order to get their bonuses.” Likewise, lawyers working on Iran projects are “often incentivized with success fees. If those fees seem unlikely to materialize, they will move on to other projects.”

When asked whether he is concerned about such attrition within his own team, the aircraft finance executive notes, “I have started thinking about it. If I lose a member of my legal team, or if there is a change in the sales team at one of our client companies, it makes the Iran project really complicated. For the replacements, a learning process starts all over again and in some cases expertise won’t be easy to replicate or replace.”

But in the view of Marc Mulder, who leads Wise&Miller, an executive search firm active in Iran, the importance of succession planning is already a central part of the recruitment strategies of both multinational and Iranian companies.

While nearly half of executives surveyed presently expect to work in Iran for less than five years, Mulder observes that this is “a perfectly normal level of churn for senior roles in such companies.” In fact, many companies are hiring with specific regard to managing employee turnover. For example, Mulder describes how “a company might hire an international CFO knowing that they will spend just three years in Iran. But in that period, they will be expected to train the local finance VP so that they can become the long-term CFO.”

Importantly, Iran remains an attractive destination for international managers. Mulder believes that for certain executives, Iran is appealing precisely because of the challenges it poses: “Candidates often move to Iran eagerly. They know it is a complex market, but they like the idea that they will be tested in the role. Working in an emerging market is exciting for them.”

In the current environment, the more difficult aspect of human resource management is not recruitment, but retention. The main risk in succession planning is low employee loyalty. Iranian executives are easily lured away by a salary bump and are even more concerned with career stagnation than their international peers. After all, Iranian employees are less at liberty to look for opportunities beyond the Iranian market. “Retention becomes a problem if the VP you just spent three years training moves away from the company after just one year as CFO. Then you really are starting from scratch,” notes Mulder.

To improve retention, companies are investing in human resources management. Mulder has observed strong interest among Iranian companies “for help in developing the soft management skills that keep people engaged within an organization, such as coaching and team-building. It is part of an effort to make people feel invested in the business.” If companies can develop these competencies, they will be able to better manage the delays, sufficiently encouraging and incentivizing their teams to push through roadblocks.

Overall, companies need to find ways to encourage and reward persistence. For the most experienced country managers, an opportunity to test these qualities of management is often what brought them to Iran in the first instance. These qualities are difficult to pass on, but it is clear that the employees they oversee will have no shortage of opportunities to test their persistence as they advance their careers in challenging Iran.

Photo Credit: Bourse & Bazaar

Iran's Entekhab Set to Acquire Dongbu Daewoo In a Tale of Unfinished Business

The headquarters of Dongbu Daewoo Electronics are located in a skyscraper on “Teheran-ro” (Tehran Street) in downtown Seoul, South Korea. The street is the address for so many of Korea’s leading industrial and technology companies that the area is called Tehran Valley, a nod to Silicon Valley. The street name dates back to 1977, when, in a gesture of friendship, Seoul’s city government proposed exchanging street names with Tehran, which counts Seoul Street among its main thoroughfares.

The connections to Iran run deeper for Dongbu Daewoo than for other companies which share the curious address. While their headquarters are currently located on Tehran Street, new owners may soon be calling from Tehran itself.

Iran’s Entekhab Industrial Group is reportedly poised to acquire majority ownership of Dongbu Daewoo, a manufacturer of appliances and consumer durables, beginning a new chapter in an already complicated saga.

Entekhab, Iran’s leading appliance manufacturer, first sought to buy Dongbu Daewoo in 2010. Daewoo’s then creditor, Woori Bank, had initially selected Entekhab’s bid of USD 513 million over an offer from Sweden’s Electrolux, a globally recognized appliance maker. But the deal would collapse a year later, reportedly over haggling on the final price and delays in Entekhab’s search for financing at a time when international sanctions were tightening. At the time of the failed bid, Daewoo disclosed that sales via Entekhab accounted for less than 5 percent of the Korean firm’s total sales. Some industry figures questioned the commercial logic of Entekhab’s move, especially at a time when Iranian ownership was an increasing liability.

Yet the door would remain open for Entekhab. Electrolux likewise failed in its subsequent effort to make the acquisition. By that point, Daewoo’s creditors had attempted to offload the company five times. Entekhab pursued legal action against Daewoo’s creditors after being passed over. Meanwhile, the Korean firm limped along with an injection of capital from financial investors.

Entekhab has been a committed suitor, and its commercial relationship with Daewoo persisted. The Iranian firm has a longstanding relationship with the Korean appliance maker whose products it has both imported and manufactured under license for decades. In May of last year, the companies signed an expanded supply contract.

Now Entekhab has a second chance to make the acquisition. Their patience may be rewarded. Reports suggest that the new deal could be worth just USD 188 million, considerably less than the 2010 bid. Given that Daewoo generated USD 1.4 billion in revenue in 2016, the company’s valuation points to considerable structural issues. Daewoo has a large international presence, with 80 percent of sales generated outside of South Korea, but its growth has lagged behind competitors such as Samsung and LG.

The deal is a rare one. Iranian companies are rarely on the buy-side of cross-border M&A. Entekhab’s move would be a landmark deal, and would follow a pattern by which industrial players from emerging markets have increasingly sought synergies and marketshare outside their home markets. Tellingly, if Entekhab succeeds in its latest acquisition effort, it will have beaten out a rival bid from Turkey’s Vestel.

Entekhab is a large enterprise by Iranian standards. Entekhab Industrial is a subsidiary of Entekhab Investment Development Group, which has interests in the steel, oil and gas, and petrochemical sectors. Underscoring its commitment to both consumer retail and partnerships with Korean firms, the group recently opened Iran’s first modern convenience store concept, CU Entekhab, in partnership with South Korea’s largest convenience store operator, BGF Retail.

Enthekhab Industrial boasts 5,000 employees, 12 manufacturing facilities, and over 200 retail outlets. The company holds the leading position in Iran’s valuable appliances market. In 2010, turnover was reported at USD 500 million. Entekhab would gain two things in the acquisition. First, it would acquire Daewoo's valuable technology and intellectual property. Second, it would inherit Daewoo's presence in 40 overseas markets, offering Entekhab new export growth potential for its Iranian-made goods. 

But perhaps above all else, the deal would see an Iranian company completing unfinished business. Such persistence ought to be celebrated. 

Photo Credit: Entekhab Group

Iran's E-Commerce and App Store Giants Continue March to Unicorn Valuations

Update: Said Rahmani, CEO of Sarava, has given an extensive interview (in Persian) to Shanbe- Startupmag providing further detail on these investments. 

In November, a government report detailing the first 100 days of President Rouhani’s second term, announced that Digikala, Iran’s leading e-commerce platform, had received a major new investment.

A section of the report tabulating recent foreign direct investment in Iran notes that an entity called International Internet Investment Coöperatief UA (IIIC) has made an investment of USD 100 million to acquire 21% of Noavaran Fan Avaze, the parent company of Digikala, which was founded by twin brothers Hamid and Saeed Mohammadi. Digikala did not respond to request for comment. 

The size of the investment is notable as it values Digikala at USD 500 million, making it by far Iran’s largest digital enterprise, and bringing the company to a new milestone on the path to becoming Iran’s first so-called “unicorn,” a tech company with a USD 1 billion valuation. The valuation is also near the USD 580 million price Amazon paid for Souq, the Arab world’s leading e-commerce platform, earlier this year.

دیجی‌کالا علاوه بر بسته‌های اهدایی شما، هزار و پانصد بسته‌ی اهدایی خود را به دست کودکان #نقطه_صفر_مرزی رساند. pic.twitter.com/VHMcMp3vmk

— دیجی‌کالا | Digikala (@Digikalacom) October 8, 2017

Famously, Digikala was valued at a widely reported figure of USD 150 million in 2014, an early indication of the immense potential for e-commerce in Iran’s large consumer market. The new valuation is consistent with the company’s growth. The company moved EUR 347 million (including VAT) worth of merchandise in the Iranian year 1395, representing a 81% growth in local currency terms over the previous year. Growth in gross merchandise value this year is expected to top 20%. But the timing of the investment is surprising, coming in a period of uncertainty when the pace of foreign investment has generally slowed.

The registered address for IIIC leads back to Private Equity Services, a Dutch company which provides domiciliary and corporate services to a wide range of investment companies. The use of a “Netherlands cooperative” structure is common for holding companies. The UA moniker denotes a cooperative with excluded liability, with at least two members.

IIIC was back in the headlines this week as Café Bazaar announced that the Dutch entity will make a EUR 38 million investment for a 10% stake in the company, which is Iran's leading app store.  

The use of the cooperative structure makes it difficult to know the identity of Digikala and Café Bazaar's new shareholders. The new beneficiary shareholders are unlikely to be Dutch, despite Iranian news reports emphasizing the fact. Locating an investment company in the Netherlands is advantageous from a tax perspective because of a “participation exemption” on capital gains. 

Corporate records indicate that IIIC has two subsidiary companies. The first is Regent Group Services, a Dutch company founded in 2016, as “a global E-Commerce and health sciences ecosystem platform.” The second is, Pulse & Pixel Group B.V., a Dutch company established in 2016 which shares its name with PPG, one of Iran’s leading digital media companies. According to public records, Farbod Sadeghian, a co-founder of PPG, is the corporate director of the Dutch entity. PPG signed an affiliation agreement with global communications giant WPP in 2016.

Tellingly, PPG, Café Bazaar, and Digikala share a common shareholder in Sarava, which owns 75% of PPG, 20% of Bazaar, and 61% of Digikala (as reported prior to the IIIC investments). A source familiar with the details of the Digikala and Café Bazaar deals confirmed to Bourse & Bazaar that IIIC is an international investment vehicle set up by Sarava itself and that the new investments follow a successful campaign which saw the company raise over USD 100 million in capital from foreign investors.  

Despite the discrete nature of the transaction and the further expansion of Sarava's dominance in the ecosystem, for Iran’s digital entrepreneurs, news of the investment should be welcome. Iran’s tech sector is still at an early stage in its development and is therefore vulnerable to any near-term reduction in the pool of available venture capital. That foreign investors remain committed to the market despite persistent uncertainty should give confidence to those working to create Iran's next Digikala or Café Bazaar. 

Photo Credit: Digikala