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Sehaty Foreign Exchange

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Executives find obstacles in Iran

By Guy Dinmore in Tehran
Financial Times (London)
June 27, 2000

Marmalade and cornflakes. Finding them in Iran, quipped the leader of a British trade delegation, is the main challenge facing the foreign investor.

But beneath the diplomatic bonhomie of an after-dinner speech by Sir Jeremy Hanley, chairman of the British-Iranian Chamber of Commerce, the tough message being delivered this week by visiting executives is that Iran may have great potential, but also a long way to go to attract significant amounts of foreign investment.

John Hill, chairman of British Arab Commercial Bank and co-head of the trade mission, said the delegation of 17 companies had so far found plenty of goodwill. "But we feel they are not totally aware they are operating in a global market and have to compete for foreign investment with many emerging countries," he said. There is a spirit of change in Iran but sooner rather than later they have to get their minds around a package of incentives."

As Sir Jeremy pointed out, the pressures on Iran to open up are unavoidable. About 50 per cent of the 62m-strong population is under 20 and the country needs to create 800,000 new jobs a year. Unemployment is more than 15 per cent.

Steve Kesler, executive director of Billiton, said the mining sector seemed to be reforming quicker than others but a constitutional ban exists on giving mineral concessions to foreign companies. Billiton is interested in Iran's copper and zinc but does not know if it could hold a majority stake in a joint venture, such as that it recently acquired in China.

"We are trying to make the government aware that the world has many investment opportunities," he said.

Foreign businessmen resident in Tehran voice common complaints. These include a punitive and inconsistent tax regime, difficulties with visas, lack of copyright protection, a rigid labour law that discriminates against employers, excessive bureaucracy and corruption.

Income tax is levied at more than 80 per cent and exit visas to leave the country are not granted unless payments are up to date. Iranian economists say trade and investment figures are unsurprisingly bad.

Last year, Iran attracted only $1.1bn (£720m) in direct foreign investment, down 10 per cent from 1998. Non-oil exports in the first two months of this year fell by a third.

Mr Hill describes British-Iranian trade as "bumbling along". Last year, two-way trade fell 25 per cent to £281m, putting Britain sixth on the ladder of Iran's trading partners within the European Union.

Iran's own place in the world league table is also slipping, its dependence on oil vulnerable to market changes. Recent statistics show Iran's world ranking, according to the United Nations Human Development Index, was 97th in 1998, down from 78th in 1995. Progress in life expectancy and literacy was offset by low incomes. Iran's own Welfare Organisation says 12m people live below the official poverty line.

The pro-reform administration of President Mohammad Khatami has launched an ambitious five-year plan to confront Iran's economic malaise. But analysts question whether his political opponents, with vested business interests, or his own leftwing supporters are ready to do away with extensive subsidies.


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