Building on the Strength of Iran’s Infrastructure
If you have severe traffic in a major city and one of the main thoroughfares is particularly congested, what do you do? In Iran, they build another two-lane either-way highway flyover right on top. The double-decker Sadr Expressway, a major artery connecting Tehran from east-to-west and joining other major north-south highways in a city of 16 million, is no mean feat. It shows Iran’s impressive capabilities in infrastructure. Visitors to Tehran marvel at the strength of Tehran’s infrastructure: from spaghetti junctions that rival LA, to an extensive and expanding underground metro system, as well as German-inspired dedicated bus tracks. But Tehran congestion remains a problem as the main arteries have been strengthened but the veins of the city remain congealed.
While Iran has a great many capital-intensive infrastructure projects, the most impressive ones in recent years have been in and around the capital city, Tehran. Examples include Sadr Expressway, the Niyayesh Tunnel (the world’s second longest urban tunnel), and the Tehran Metro which includes 170km of track and carries 3 million passengers per day. Other urban centres have also benefitted from Iran’s transport infrastructure building as have major infrastructure projects in other parts of the country, which needs infrastructure to support a population of 80 million.
But two tiers exist in Iran’s infrastructure: one is the big-ticket projects across the country and especially in major cities. The other constitutes less attractive projects that suffer from a major infrastructure deficit. While Iran excels in producing awe-inspiring infrastructure in the first tier, the second tier is often swept under the proverbial Persian carpet. This second tier not only exists in rural areas and between cities but also in less headline-grabbing urban settings and is in dire need of modernisation.
Beyond transport, infrastructure is a huge sector in the Middle East’s second largest economy. Iran is the world’s third largest builder of dams for energy and irrigation, but these have done little to alleviate the water management problems facing Iran’s agriculture. Again, these suffer from the two-tiered approach of Iran’s infrastructure planners: massive and impressive makes the cut. This has led to a significant oversupply and underutilisation of dams which, after oil and gas, make up the most-invested-in part of infrastructure in Iran and a major export. More broadly, partly in anticipation of the JCPOA nuclear agreement’s ‘Implementation Day’ which happened on January 16 2016, over half of Iran’s infrastructure projects since 2014 had been put on hold. They are now ripe for partnering and investment as these stalled projects come back on-line.
One of the main difficulties facing international firms wanting to engage the Iranian infrastructure sector is partnering. Iran has a mix of private, semi-private and public companies, and authorities active in the sector. The most prominent in infrastructure is the semi-private Khatam al-Anbia construction company run by the Iranian Revolutionary Guard Corps (IRGC). Partnering with Khatam al-Anbia and other such semi-private companies will present problems for international companies, as primary sanctions (long-standing sanctions, not linked to the Nuclear Program and not removed by the recent agreement) continue to be in force and prohibit dealings with certain companies, particularly those linked to the IRGC. So, particularly in the infrastructure sector, it is important that international companies looking to the Iranian market conduct in-depth due diligence on potential partners.
While certain major infrastructure firms globally already have strong connections and records in Iran, particularly from East Asia and Europe, there remains much opportunity for new entrants. The Tehran Metro was largely constructed by Chinese company CRV, with Austrian input, as well as Iranian engineering. Siemen’s has just closed a major deal for railway revitalisation during President Rouhani’s European diplomatic blitz.
Modernisation of ‘second tier’ infrastructure along with better integration and management of the country’s infrastructure as a whole offer myriad opportunities for international companies to find synergy with Iran’s indigenous construction capabilities. As the economy grows and opens in the medium term, the need to expand port and airport facilities to support further demand and growth will propel a virtuous cycle of investment and development opportunities well into the future.
While construction and engineering is needed, that’s also where Iran’s main indigenous capabilities already lie. Therefore, savvy international companies looking at the sector may find the best opportunities in offering operations, systems, and management experience and expertise to support infrastructure construction and network integration. Australian business, as in other spheres, has in-demand products and experience to offer as well as a positive reputation with which to enter the market successfully. The management and planning of infrastructure is one where Australia excels compared to our own lagging construction, and where it will be on an at-least equal footing with Asian and European competitors which have established records and partnerships in the market.
As with the Iranian market generally, the bottom line with Iranian infrastructure is that while it has strengths – and infrastructure is certainly one – and it is not an undeveloped market, there is room for improvement, modernisation, and better systems. The new availability of Western expertise in strategic planning and management systems will be a boon to the Iranian infrastructure sector which builds big but struggles to integrate it and manage projects in a sustainable national strategy. With such opportunities, Iran’s modern variants of ancient caravansaries which revolutionised Middle Eastern and world trade may again come to be the centre of Middle Eastern commerce.
To find out more about Iran’s agribusiness sector, join our webinar, Spotlight on Iran: Highlighting emerging business opportunities on Tuesday 19 April, 2016 at 5.00pm AEST. Click here to register.