How to stop foreign business from fleeing Iran

How to stop foreign business from fleeing Iran

Baku, Azerbaijan, June 13

By Azer Ahmadbayli – Trend:

Pushed by the fear of being sanctioned, Japanese Mazda and South Korea's Hyundai have suspended their joint venture activities with the Iranian car makers, according to Iranian MP Vali Maleki.

Automobile industry is the backbone segment of Iranian economy and ranks the second in Iran’s industrial sector after oil and gas. Its share accounted for about 2.2-2.5 percent of total GDP.

Before 2011 (when the last sanctions were imposed), the share of auto industry in Iran was around 10 percent of the total GDP.

While Mazda and Hyundai have dealt with smaller car manufacturers, such as Bahman Group, and their presence in the Iranian market wasn’t so noticeable, French PSA Peugeot Citroen’s halting JV activities with the two major Iranian car makers, Iran Khodro and Saipa, can have a detrimental impact on the performance of the industry and the country’s entire economy.

Despite assurances of Iranian officials that the Chinese automakers will replace the European ones in Iran, the matter is that Chinese cars/spare parts are of lower quality, which will, like it or not, affect the purchasing power and revenues. As well, technology lines at Khodro and Saipa plants have long been tailored to the French-made cars, and it would be technically hard to adapt them to the Chinese standards.

Another challenge, which might be the most painful for the country, is possible retrenchment of employees involved in the industry – precisely as it was prior to signing of JCPOA (Joint Comprehensive Plan of Action), when thousands of workers lost their jobs.

Finally, fresh information from sources close to the industry says that to remain safe for the moment, Iran Khodro and Saipa need to raise car prices by 19.5 and 27.5 percent, respectively, which, in turn, can lessen buying power.

So, no sooner had Iranian auto industry begun to recover from the pre-JCPOA sanctions, than it is about to face a new painful fall.

Similar challenges lie ahead for Iran in the field of civil aviation.

Iran has to solve a matter of national importance directly linked to the security of its citizens – renewal of the country’s ageing air fleet – at any cost.

Following the implementation of the nuclear deal in January 2016, Iran entered into contracts with Airbus, Boeing and ATR for the purchase of more than 200 aircraft.

However, the US withdrawal from the deal and threat of new round of sanctions destroyed all the plans on purchasing commercial aircraft from the leading producers.

So far, under those contracts, the country has received 11 aircraft - eight from ATR and three from Airbus.

Now, the only real alternative for Tehran to turn the corner is the purchase of the Russian Sukhoi SuperJet-100, but…here again it is not as smooth as one would like it to be.

Negotiations with Sukhoi took place several times in parallel with the abovementioned companies, but it was clear from the beginning that Iran favors aircraft made by the Western manufacturers.

On June 3, Seyed Ahsan Alavi, an Iranian MP, called on the Government to avoid buying Sukhoi aircraft as “the Russian-made planes continue to take toll on its passengers, killing tens time by time.”

“Russian planes are not trustworthy and experience has proved this,” Alavi said.

This has been just fast-forward through the country’s problems in the car industry and civil aviation. Apart from that Iran can face a lot of other challenges – both political and economic.

After 1979, when Iran turned into a hostile state for the whole West, it learned to demonstrate a high class diplomacy ranging from skillful flexibility to toughness verging on the start of a war. What can be expected in the current circumstances?

For Tehran on one hand stands the preservation of the existing state order and the welfare of the Iranian people, while on the other hand acute confrontation and sanctions with unpredictable consequences loom large. The situation is on the razor's edge: it can lead to a wide road or may collapse.

Whether the scales tip one way or the other, will to a great extent depend on outcomes of the high-level historic summit between the North Korea and the USA over the denuclearization of the Korean Peninsula and related issues.

As it can be seen from outside, the main obstacle is a deep mistrust between Tehran and its opponents.

To overcome it, an unprecedented move needs to be taken – the restoration of diplomatic relations between the US and Iran without preconditions. As soon as a direct communication becomes possible, the parties would face-to-face discuss proposals on the whole stock of the accumulated concerns.

A solution can be achieved if the parties manage to temper their own ambitions. President Trump as well as the Iranian leaders showed themselves pragmatic enough to come to an agreement.

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