Germany, which has been aggressively pushing for closer economic ties with Iran following the lifting of international sanctions against the latter, wants to play a pivotal role in the modernizing and upgrading of Iran’s dilapidated infrastructure and transport system. Germany signed six memoranda of understanding (MoUs) aimed at boosting transport cooperation following a late October meeting between Abbas Akhoundi, Iran’s minister of roads and urban development, and Alexander Dobrindt, Germany’s minister of transport and digital infrastructure, who led a delegation of major German shipping, port and marine companies.
Iranian and German sources said that a German company is participating in a tender for completing two terminals at Chabahar Port in southeastern Iran, which was recently in the news because India is keen to develop it for strategic and trade reasons. German multinational Siemens is holding talks with Iran for developing suburb transport in Tehran and Tabriz, as well as the rail lines between Tehran and Tabriz.
The lifting of sanctions against Iran has led German business executives and the shipping industry to tap what they describe as “huge business potential.” Hamburg Port, for example, has been trying to identify areas and ways to establish and upgrade ties with that country’s port facilities.
Since the imposition of sanctions, Iran has struggled to have a normal trading relationship with the outside world. While the German industry has been euphoric – and this applies particularly to Hamburg, whose port prides itself as the “gateway to Asia” – the realities are different; indeed, access to Iran’s lucrative market is not an easy undertaking.
Strategically located at the crossroads between the Arabian Peninsula and Central Asia, with ports in the Caspian Sea and the Gulf region, Iran is interesting for shipping lines. Iran also offers opportunities for foreign investment in important sectors such as oil and gas, electricity production, air, sea and road infrastructure, telecommunications, etc.
Described as part of the “Axis of Evil” in 2002, Iran’s breakthrough came on January 16, 2016, when the first of the multiple layers of trade sanctions were removed, breaking the shackles that badly inhibited that country’s shipping and trade, and giving it access to huge sums of money that had been frozen under the sanctions regime.
However, experts at a special event in Hamburg a few months back told shippers and others that only part of the sanctions had been lifted on January 16. While the ban on imports of Iranian oil and gas products, and against the country’s ship-building and shipping sectors, had been lifted along with restrictions on bank remittances, the situation remains complex in the sector of so-called “dual use” goods, which can be used both for civilian and military purposes.
One of the first to take advantage of the lifting of sanctions was European aerospace company Airbus, which has bagged aircraft orders from Iran Air to replace its outdated A340 aircraft. The city of Hamburg, experts say, could flank trade with Iran by providing expertise in several areas, including modernization of Iran’s fleet of mercantile ships.
US companies are not, yet, permitted to have dealings with Iran, although their associate companies in Europe can do so. However, weapons and certain police equipment are still prohibited. Also prohibited are deals with companies that are controlled by Iran’s revolutionary guards or those that have supported Iran’s atomic programme.
Iran has been trying to recruit German companies to set up operations, particularly in the seven free trade zones in Iran for which the government has been dangling carrots in the form of incentives, including a 20-year tax holiday. Since Iran is keen to join the World Trade Organization, it has been trying to highlight the fact that many of its old agreements on trade and legal protection are in force. However, new companies to be established in Iran will be governed by certain religious laws and, as such, are required to have a Persian name or title, as Iranian legal experts have been saying during meetings with German companies. “Such a requirement can be a deterrent because many German companies are unsure what the implications would be on their business. I would suggest that companies do their homework before moving large-scale investments to Iran,” one German-Iranian told Asia Cargo News on the condition of anonymity.
Meanwhile, Iran is in a rush to catch up with the rest of the world by modernizing its infrastructure and its economy.
Hamburg and its port stand to benefit immensely from Iran’s opening. In 2014, German exports to Iran amounted to some €2.4 billion (approximately US$3.1 billion, in 2014 dollars), while imports from Iran were about €300 million, according to numbers from the German Statistics Bureau. Hamburg’s two-way trade with Iran amounted to roughly €214 million in the same year. International trade experts at Hamburg’s Chamber of Commerce are optimistic that German trade with Iran would double from its present level after all sanctions are lifted.
Some 353 companies based in Hamburg already have business connections with Iran. Despite sanctions, some of these companies maintained business ties with Iran even during the embargo period. Hamburg, which is by far the world’s leading trading hub for Iranian products, including carpets, has the largest concentration – about 20,000 – of Iranian nationals or people of Iranian origin in Germany; the city hopes to resume its once flourishing trade and shipping through the Iranian diaspora.
Another important German state interested in trade with Iran after the lifting of sanctions is Hesse, which recently sent a 40-member delegation led by Hesse minister for economics, energy and transport Tarek Al-Wazir to Iran. The trade volume between Hesse and Iran was around €212 million in 2015 (US$230 million), according to the state’s economics ministry.
“The reputation of products and services offered by Hesse is traditionally good in Iran,” Al-Wazir said. There is huge potential in the expansion of the processing industry, the transport infrastructure and in urban development.
During German minister for economic affairs and energy Sigmar Gabriel’s visit to Iran in early October, Gabriel’s second visit to Iran within 14 months, Iran’s oil minister had said that German banks were becoming a hindrance. “We have billions (of dollars) with which we could do good business with the Germans,” Bijan Namdar Zangeneh, the oil minister, was quoted as saying after his meeting with Gabriel in Tehran.
The money cannot be transferred due to problems with the banks. Iran’s minister told journalists that that “is bad for us, but also bad for the Germans.”
Germans say that although the sanctions against Iran were lifted in January, trade has not made much headway. A precluding factor is that part of the punitive measures – the so-called secondary sanctions – imposed by the United States are still in force. German and European banks are, consequently, dissuaded from financing Iran deals. In 2015, for example, Germany’s Commerzbank paid a hefty US$1.45 billion fine to US authorities because of violating American sanctions in deals with Iran. France’s large bank BNP Paris also had to pay a billion-dollar penalty.
Iran’s economy has not done badly, with the International Monetary Fund forecasting an average growth rate of 4% for the next five years. Official Iranian projections suggest a GDP growth rate of 5% for 2016.
Iran’s neighbour Turkey is also eyeing the opportunities unfolding in Iran; Turkey offers itself as an ideal transit point for German and other western companies wanting to enter Iran. Turkey trumpets its “manifold advantages,” particularly, for SMEs which can enjoy customs duty benefits. Turkish experts, who say that all the machinery and production tools in Iran are outdated, believe that German companies, with their past trade relationship with Iran, can look forward to a welcoming market with huge investment needs.
Some German companies are looking at using Turkey to tap Iran’s huge business potential. Since 2014, Turkey has a preferential trade agreement with Iran. This agreement eliminates many customs duties. German companies can save customs duty twice because Turkey, a member of the European Customs Union, exempts German products from customs duty on exports to Turkey. All products shipped from Turkey to Iran are treated as Turkish products and thus spared the customs duties.
By Manik Mehta
International Correspondent | Hamburg
