Future Business Opportunities in Iran

Francisco A. Laguna & Wojciech Kornacki

Under normal conditions, a country with a well-educated population, a large middle-class, 9% of proven world oil reserves, 18% of proven global gas reserves and an abundance of strategic minerals would be an excellent place to invest.  Unless, the country is Iran, which is currently subject, rightly, to complex and multi-faceted international financial and other sanctions that have reduced its economy by about 15 to 20%.  This may change soon, however, as Iran attempts to end its economic isolation.

According to a 2007 Goldman Sachs report, Iran’s energy sector, technology, and human capital could make it particularly attractive for foreign direct investment.  Now that there is a possibility that sanctions may be lifted, many national and private investors want to position themselves to benefit from the new and very attractive market when (and if) it opens.  Countries such as China, Russia, Turkey and various European countries are already preparing for the sanctions to be lifted.

Currently, the United States and Iran are engaged in extensive negotiations over Iran’s nuclear program. Depending on the outcome, certain sanctions could be lifted against Iran. This would open its oil, gas, technology, human resources, natural resources, automotive, airline, hospitality and tourism, and many other industries to foreign direct investment, and it would create billions of dollars’ worth of business opportunities in Iran and the world. Courtesy of http:// http://en.wikipedia.org

The expectation is that once sanctions are removed, new opportunities will create billions of dollars’ worth of business for local and international companies.  Essentially, Iran could be the “next big thing” (once the sanctions are lifted) after the opening of the markets in Central and Eastern Europe.  Some of its regional trading partners expect that their economies will also grow once the sanctions are removed.

Investors are already holding discussing Iran’s oil industry and auto industry.  Indeed, many international energy companies are very interested in Iran, including Royal Dutch Shell Plc, British Petroleum and Total SA.

Not all sanctions will be lifted overnight, and some sanctions may continue for years to come.  In addition to keeping an eye on the international sanction regime, a prudent investor should also consider the following Iranian industries, once the sanctions are removed.

Banking: New businesses and residents will require both domestic and international banking services.  The international banking community has started looking at the country’s potential.  It will be interesting to see which banks move in first.  Will the Swiss join?

Iran’s domestically developed drone capable of traveling almost 2,500 miles. Due to sanctions, Iran has been forced to develop its own technologies. Collaboration between international and domestic businesses partners is estimated to create millions of dollars’ worth of business, once the sanctions are lifted. Courtesy of http:// http://en.wikipedia.org

Construction / Real Estate:  Many Middle Eastern businesses are interested in Iran’s real estate market.  The lifting of sanctions is likely to result in the return of some of the Iranian diaspora as well as representatives of multinationals and other companies that will invest in the country.  This will create the need for housing and, as the economy progresses, more luxury condominiums and residences with Western amenities.

Consulting Services: International businesses are likely to begin working to pre-position themselves in a post-sanctions Iran.  To be successful in the country, businesses will need reliable consultants to assist them navigate cultural nuances, language barriers and business practices, including the practice of gift-giving.

Natural Resources and Minerals: After years of sanctions, Iran desperately needs billions of dollars to make its oil industry profitable again.  In 1974, Iran pumped 6 million barrels per day; today, it only pumps 2.8 million.

: Cube of Zoroaster. Iran’s rich culture spans over thousands of years.
This tower-like construction was in the 5th Century BC. Iran’s tourism and industry are likely to grow fast once the sanctions are removed. Courtesy of http:// http://en.wikipedia.org

Tourism and Hospitality: Before the Iranian Revolution, Tehran was touted as one of the most cosmopolitan cities in the region.  Years of isolation and religious extremism have crippled Iran’s tourism and hospitality sectors.  As Iran seeks to re-open itself to the world, it will have to modernize these sectors, and FDI is the perfect means of accomplishing this goal.  There is much work to be done, however, for these sectors to be viable contributors to the Iranian economy.  Currently, tourism in Iran accounts only for 2% of the entire GDP; in most countries, it is typically around 5%.

It will be interesting to see how the government will approach FDI in strategic sectors such as banking, minerals, natural gas and oil, as well as non-strategic sectors.  How will it allow such investments to be structured?  What ownership percentage will be permitted?  What about repatriation of capital / profits or termination of investments?  How will corruption manifest itself? Equally important, how will it treat different religious views and cultural morés?

If sanctions are lifted, Iran will be an emerging economy.  It will not have the bargaining power of economies such as China that can exact concessions from investors.  The manner in which the government treats international investors will largely determine the success of a post-sanctions Iran.  Given the political and religious turmoil plaguing the larger region and the very real threat of terrorism, corporations will be cautious of investing financial and human resources for a deal that is overly burdensome with uncertain financial returns.

If you are interested in learning more about future business opportunities in Iran and how to increase your chances of harnessing them, contact TransLegal or call 703-566-9427.

Business Opportunities in Iraqi Kurdistan

Francisco A. Laguna & Wojciech Kornacki

Iraqi Kurdistan offers the security and numerous investment opportunities that are currently hard to find in other parts of Iraq or Central Asia. Since the fall of Saddam Hussein in 2003, the region has experienced dramatic economic growth and political stability that continue today, despite the violence in other parts of Iraq. Iraqi Kurdistan has become a magnet for foreign investors and foreign direct investment.

Background on Iraqi Kurdistan

Currently, Iraq is a federated state, and Iraqi Kurdistan is one of the federally recognized regions of Iraq. Iraqi Kurdistan is located in a strategic location between Turkey, Iran and Syria. It has enjoyed local autonomy for the last 45 years. Since the fall of Saddam Hussein, it has had a democratically elected Parliament and vibrant government institutions which are openly pro-Western. The population of Iraqi Kurdistan exceeds 5.2 million and estimated GDP per capita was ~ US$ 4,500 as of 2011.

“Autonomous Region Kurdistan en” by Maximilian Dörrbecker (Chumwa),derviative work by ilyacadiz – Autonome Region Kurdistan (Karte).png. Licensed under CC BY-SA 3.0 via Wikimedia Commons

In the last several years, Iraqi Kurdistan has been undergoing rapid development. The region has experienced an estimated 12 percent growth, one of the highest in the world.  Major trade partners for Iraqi Kurdistan are Turkey, the United Arab Emirates, the United States, and the European Union.

The capital of the Kurdistan Regional Government is Erbil – perhaps one of the oldest cities in the world.  According to the Kurdistan Regional Government’s official website, the Kurdistan Parliament has passed progressive investment and oil and gas laws which have contributed to economic growth and stability. The region has 2 international airports and approximately 12 major international airlines offer direct flights there.

Investment Opportunities

Iraqi Kurdistan appears to be one of the best places to invest in the region because of its current need for foreign direct investment, security and flexible and transparent investment laws. The Kurdish Regional Government allows for full repatriation of profits, investment with or without local partners, a 10-year exemption from corporate taxes, and a 5-year exemption from customs duties. Needless to say, this makes Iraqi Kurdistan much more investment-friendly than the rest of Iraq or the region.

Canyon in Rawanduz in northern Iraqi Kurdistan, offers some of the most beautiful scenery in Asia. While exports of natural resources are highly profitable for the Kurdish Regional Government, the tourism industry accounts for almost 20% of the region’s GDP. It is likely that this industry will also experience substantial growth as the interest in Iraqi Kurdistan continues to accelerate, and 2 international airports with multiple international airlines offer easy access the region. Courtesy of http:// http://en.wikipedia.org.

The Kurdistan Board of Investment makes it easy to identify foreign direct investment opportunities in the Kurdistan region. It lists numerous business opportunities in the areas of real estate, communication, transport, agriculture, education, banking and many others.

Current investment priorities are agriculture, tourism, and various industries that have been largely underdeveloped over the last several decades. In addition, with oil reserves estimated at 45 billion barrels, many international companies have been already heavily investing in the oil and gas industry.

The turning point for Iraqi Kurdistan came when Exxon became interested in its natural resources.  Several years ago, Exxon, the largest international oil company, signed major exploration contracts with the Kurdish Regional Government, and many other international companies followed in recent years, including Total, Gazprom and Chevron.

Sofi Mall, Erbil, Kurdistan. With its rapidly growing economy and international investment, Erbil and the rest of Iraqi Kurdistan are undergoing massive economic development. In fact, currently, Iraqi Kurdistan needs approximately $32 billion in investments. Courtesy of http:// http://en.wikipedia.org.

Currently, the Kurdish Regional Government continues to export oil to markets around the world, including the United States. Despite igniting a legal battle with the Iraqi Government, the highly profitable exports have not stopped.

If you would like to take the first step and learn about investment opportunities in Iraqi Kurdistan, contract TransLegal – your one source for comprehensive international commercial consulting services.

Business Opportunities in the Republic of Cuba

Francisco A. Laguna & Wojciech Kornacki

The Republic of Cuba (República de Cuba) has been undergoing dramatic changes since the December 2014 announcement by President Obama that the United States would seek to normalize diplomatic and trade relations with this largest Caribbean country. Once all the US trade embargos are lifted, Cuba will be a very lucrative market of 11.3 million individuals, full of unexplored business opportunities for countless US companies. As of February 2015, a bipartisan group of Senators has already introduced a bill to allow US companies to do business with Cuba.

Background on Cuba

Varadero Beach, Cuba. After over 50 years of comprehensive trade sanctions, Cuba is in need of massive foreign direct investment. Once all trade embargos are lifted, Cuba will become a very lucrative market of 11.3 million for many US companies. Cuba’s travel and hospitality industry is just one industry that will benefit from the new investment. Courtesy of http:// http://en.wikipedia.org

Cuba is slightly smaller than Pennsylvania. It is located 90 miles from Florida. In 2014, its population was estimated at slightly over 11.3 million. The population is fairly young, and highly educated. Almost 50 % of the population is between 25 to 54 years of age. Only 10 % of the population has access to the internet. Its political and economic center is its capital, Havana, with over 2 million inhabitants. While the Cuban population may be eager to enjoy Western products, it does not have the disposable income required to acquire them; however, opening trade with Cuba may soon change that. In addition to the ending of the US embargo, Cuba will have to make major changes in its domestic laws to fully benefit from the increased trade. One of the recent changes is the Cuban government move to allow individuals to open their own businesses.

Current US Embargo on Cuba

After the 1962 Cuban missile crisis, the US imposed a trade embargo on Cuba. Over time, the US passed a number of laws reinforcing the sanctions, including the Helms Burton Act and Cuban Democracy Act, which made specific references to improving human rights and democracy in Cuba.

As of today, the Cuba trade embargo is still in effect, however some changes have been made to improve the flow of information and goods. Travel restrictions have been eased under certain circumstances. The Department of Commerce has also amended its rules to allow the export of certain items to the Cuban private sector.

Currently, a group of legislators has introduced a bill called the Freedom to Export to Cuba Act of 2015 to remove US trade restrictions. The bill makes no references to human rights, and many business groups are expected to support it.

Business Intelligence on Cuba

Map of Cuba. Cuba is located 90 miles away from Florida. It is the largest of the Caribbean nations, with a population of over 11.3 million. Approximately 50 % of the population is below 54 years old. After 50 years of trade embargos, the door to business opportunities in Cuba for US businesses appears poised to open. Courtesy of http://en.wikipedia.org

The GDP of Cuba in 2011 amounted to $68.23 billion. Since the December 2014 announcement, Cuba’s business has begun to grow. Currently, there are approximately 250,000 entrepreneurs in Cuba who are eager to expand (and profit from) the Cuban economy. Due to low income, and high level of skill and education, many US businesses may be attracted by the Cuban workforce. To promote that interest, the Cuban government has been inviting numerous businesses to discuss different opportunities in Cuba.

Immediate and Long Term Business Opportunities

In all sectors, except perhaps education, Cuba needs major investment. Over 50 years of the US embargo have negatively affected the Cuban economy. Cuba’s target figure for foreign direct investment is $2.5 billion. Tourism, telecommunications and many other sectors of the Cuban economy may offer billions of dollars in business opportunities. Once the embargo is removed, Cuba will have to undertake major reforms, similar to those adopted by Poland or Czech Republic after the end of the Cold War.

During the US trade embargo, Cuba has been a major exporter of natural resources, cigars and food. Currently, Cuba seeks to diversify its economy and to benefit from the expected removal of all trade sanctions and the influx of foreign investment. Courtesy of http:// http://en.wikipedia.org

The change is coming and business opportunities with it. It is yet unclear what conditions the Cuban government will impose on foreign direct investment from the United States. Issues like tax incentives and repatriation of capital will affect US corporate and individual investors alike. Other countries, especially Spain, have already made significant investments in Cuba, especially in the tourism sector. In addition, as Cuba / US relations develop, it will be interesting to see how that affects the country’s relationship with Venezuela, currently Cuba’s largest trading partner and, more importantly, its source of oil.

TransLegal can answer your questions concerning investing in Cuba.

Burma (Myanmar) in a Post-Sanction Era: Sectors of Interest

Francisco A. Laguna & Jennie Linder Cunningham

After decades of isolation, Burma is beginning basic economic, industrial, legal and social developments.  The Asian Development Bank is “cautiously optimistic” about the growth and development of Burma, emphasizing the importance of lifting sanctions as the first of many steps – along with comprehensive and meaningful reforms. Growth rate potentials are estimated as high as 7-8% – but only as long as foreign direct investment (FDI) and domestic investment occur in all sectors in order to avoid the “resource curse” endemic to so many developing nations.

Downtown Yangon
Photo Credit: Modulo via Wikimedia Commons

The resource curse, defined as an over-reliance on one or a few key natural resources, is particularly apparent in nations with underdeveloped and / or unstable institutions and infrastructure. Burma’s economy has depended primarily on oil and gas resources, mining and lumber, all industries that have caused massive environmental degradation. These industries will continue to be major staples of the Burmese economy, but it is imperative that the economy and investments diversify beyond extractive practices if long-term change is to occur in the post-sanctions country. This will be important for investors interested in the long view and certainly for Burma itself.

Burma has a sizable, yet unskilled, workforce.  This makes investment in the manufacturing sector a challenge; however, the Burmese are eager to develop skills and are willing to work to obtain necessary training.  Another factor affecting FDI in the manufacturing sector is Burma’s power grid: it remains largely unreliable, with major business centers such as Rangoon and Mandalay receiving only around 4 – 5 hours of power per day, according to national news sources.  Generators are an option, but they require a fuel source, and depending on the size of the operation, they may be both impractical and cost-prohibitive.  Despite this issues, Belgian textiles and wood floor surfaces manufacturer Beaulieu International Group is reportedly negotiating to develop a factory in Burma.

Hand of Lord Buddha, Shwedagon Pagoda, Yangon
Photo Credit: YashiWong via Wikimedia Commons

Some initial FDI has focused on the agricultural / biotechnology sector.  In 2010, Burma ranked 14th in terms of world distribution of genetically modified (GM) crops, with 300,000 hectares being farmed with GM crops. The primary biotech crop is cotton, including insect-resistant Bt cotton, planted for the first time in 2010. These are impressive statistics, given that just under 16% of Burma’s land is considered arable, and only 2.1% is used for permanent crops.

The telecommunications and technology sectors are other areas poised for quick growth, given the proximity to China and the rest of Southeast Asia.  The market is ripe for expansion, especially because cell phone and internet use is still extremely low.  As of April 2013, only 4% of the population utilized mobile technology, and 2% had access to the internet. Again, considerable reform is needed in the legal system before the technology infrastructure can function to protect both consumers and private entities (the latter of which are still not allowed in the tech sector), but the government considers this infrastructure crucial to the new Burma and has even welcomed tech superstars like Google CEO Eric Schmidt in recent months Additionally, the government has expressed its goal of providing 3G coverage to at least half of its citizens by 2015.

Early projects in infrastructure and tourism are underway, including the HAGL Myanmar Centre in downtown Rangoon. Vietnam’s Hoang Ahn Gia Lai Group and the Burmese Ministry of Tourism signed a US$ 300 million contract to build the center in December 2012, shortly after the Ministry expressly encouraged FDI in the tourism sector. Construction began earlier this year, and the complex will include a five-star hotel, and multi-use space with offices, apartments, retail and restaurants. The government hopes to increase the number of hotels in order to meet tourist demands, and we can expect to see the tourism sector – which developed significantly over recent years with an influx of Chinese tourists – to continue to expand rapidly.  Indeed, anticipating increasing visitor numbers, Rangoon’s Sedona Hotel is building an US$80 million, 29-story new wing.

Hluttaw Complex (Parliament), Naypyidaw, Myanmar
Photo Credit: Peerapat Wimolrungkarat via Wikimedia Commons

It is always difficult to predict the trajectory of a country so recently re-entering the world stage. However, with conscientious investing in all areas of the Burmese economy, coupled with sweeping reforms, and a continued effort to strengthen institutions and infrastructure, there is hope that long-term FDI will flourish, and Burma can enter the second decade of the 21st century as a nation that is truly developing.

TransLegal has a correspondent office in Rangoon and is available to assist answer your questions concerning doing business in Myanmar, including the introduction of local partners.