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article imageOp-Ed: Iran's auto industry will gain from easing of sanctions

By Ken Hanly     Nov 27, 2013 in Technology
Tehran - Sasan Ghorbani is organizing an Iranian auto industry conference for next weekend, with interest suddenly much greater following the Geneva agreement. The agreement will ease trade restrictions and enable Iran to buy more auto parts abroad.
Ghorbani is head of the Iranian auto-parts manufacturers association. Ghorbani said that he did not know the sanctions would be lifted just days ahead of the conference he planned.
Before the Islamic revolution and after the US helped overthrow the democratically elected Mossadegh regime, business relations between the US and Iran were very good during the reign of the Shah: In toasting the shah, President Jimmy Carter called the former Persia an “island of stability in one of the more troubled areas of the world.” As recently as 1978, Harvard Business School ran a campus out of Iran’s capital, a Tom Friedman-worthy experiment that now survives on Facebook (FB). Israel, for long an ally of the shah, plied his kingdom with military and medical technology and dispatched troops to aid in earthquake relief. "
Iran has long been isolated with little western investment especially from the US. Jim O'Neill of Goldman Sachs asset management, who first used the BRIC's term, includes Iran among his list of promising Next-11 (PDF) frontier markets. He notes that the country is young and Iranian people very much desire western goods. Once the sanctions are eased there is a reasonably high growth environment. Already in the auto sector Iran has a large auto industry.
After oil and gas, the Iranian automotive industry is the second most active in the country adding almost 10 per cent to GDP. The industry first developed under the regime of the Shah, but after the Islamic revolution in 1979 went into decline only to begin growing very quickly since 2000 to pass the one million production mark in the 2007-2008 year compared to just 200 thousand under the Shah. In 2009 Iran was fifth in the world in rate of car production growth after China, Taiwan, Romania. and India.
There are many joint ventures between Iranian and foreign carmakers: These automakers are in joint venture with several popular international automakers such as Peugeot, Citroen (France), Volkswagen (Germany), Nissan (Japan), Toyota (Japan), Kia Motors (South Korea), Proton (Malaysia), Chery (China) and many other established producers of light and heavy vehicles such as Renault (France), BMW, Mercedes Benz (Germany), Daewoo and Hyundai (South Korea) have emerged since 1991. Sanctions impacted the auto sector severely particularly with respect to spare parts. However, this has also helped Iran to develop its own auto parts manufacturing sector. In 2012 auto production dropped as much as 40 percent, caused not just by the sanctions but by removal of government subsidies. However, there is now renewed interest in the area especially by outside investors. Among those who will attend the auto conference are:" Renault SA (RNO) and Italy’s Pininfarina SpA (PINF), according to the event’s website. " The US claims the deal will bring Iran benefits worth $7 billion over the six months duration of the deal. This includes $1.5 billion in revenue from the suspension of sanctions on industries including the auto and petrochemical industry.
Iran still has numerous economic problems but many such as Ghorbani are optimistic: “Eventually we are looking for partnership with international companies for joint investments to build inside Iran. [ Investors] are after new markets, and I think Iran’s market is a virgin territory and has enough potential for investment.” Peugeot sold many cars in Iran before the sanctions: "PSA Peugeot Citroen (UG), Europe’s second-largest carmaker, sold 458,000 vehicles in Iran in 2011 before the trade sanctions, making it the second-biggest market after France. Chief Financial Officer Jean-Baptiste de Chatillon said last year that the sanctions had cut 10 million euros ($13.5 million) a month from operating profit." Not only Iranians will profit from the easing of sanctions but so will western investors, a fact that may encourage further negotiations and easing of tensions.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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