Looking Across the Indian Ocean: Trade Relations and Business Opportunities as Iran Opens
Australia and Iran sit as major economic players at either end of the shared Indian Ocean. While early for bullishness, there is a sea-change in Iran’s openness to Australian and international business and investment.
The new Rouhani administration is prioritising a fundamental, business-oriented reform process for economic policy in Iran – and it has acted quickly.[i] These developments are an outstanding opportunity for Australian business and trade. Despite challenges to doing business with Iran, Australia and Iran have a well-founded, decades-long trade relationship. The new Iranian reform program prioritises addressing the concerns of investors and business looking at Iran: primarily the Iranian economy’s opacity and sanctions on certain economic activities. What should Australian business know about Iran-Australia trade and investment relations for 2014 and beyond if looking to invest? What are the opportunities and challenges for Australian business entering Iran?
Today Iran is Australia’s thirty-fourth trading partner, almost exclusively in merchandise and goods, where investment and services amount to statistically zero. However, for most of the period since 1968 Iran was Australia’s 9th largest worldwide and 1st trade partner in the Middle East. [ii], [iii], [iv] Despite long-standing trade and abounding business opportunities in many sectors, the breadth of current and future opportunities for Australian business is underappreciated.
Australia’s trade relations with Iran and much of the Middle East are still dominated by primary exports, particularly wheat.[v] Primary produce will continue to be a mainstay of trade with Iran but two ‘risks’ exist in the medium-term. Firstly, Australia and Canada (the two main wheat exporters to Iran) have not had to compete with the United States, another major wheat exporter since 1980, a situation which may change. Secondly, as Iran restructures its agricultural sector it will increasingly replace food imports with domestic product.[vi]
Nonetheless, Australian business will benefit from the other significant opportunities for business that exist now, if they act quickly. Iran is reopening commercially and holds expansive opportunity for Australian business in a range of sectors: minerals, gas, education, manufacturing, tourism, agriculture, among many others.[vii] Iran and the Arab Gulf states are seeking services expertise, but it remains to be seen whether Australian business will be able to fulfil that need before their European, American or East Asian competitors do.[viii]
Australia has the product and expertise demanded in the Iranian market. Iran’s young population and its new administration are earnestly business-oriented and Australian business is advantageously positioned to capitalise. Australian businesses have a good reputation in Iran. So for Australian business heading to Iran, what can it expect?
Iran has an underemployed but highly educated and skilled population of 77 milion of whom 60% are under 30 years old. Iran has neglected its enviable assortment of minerals and broad-based agricultural sector and its large manufacturing sector operates with outdated technology. Besides oil, mineral and gas deposits are barely tapped and are now the world’s largest LNG reserves above Russia. In all of these sectors Australia has expertise, products and experience to take to the Iranian market.
Iran is potentially an excellent destination for investment and business but it remains a more difficult market. The main concern of investing in and doing business with Iran is monopolies in major industries which means Australian and international businesses will immediately benefit from offering Iranian industry what they don’t already have instead of, at least at this stage, going into direct competition – Australian services expertise is low-hanging fruit.[ix], [x]
Iranian and Australian business have economic complementarity: our expertise in many sectors such as minerals and gas, education, water management, banking and ETM manufacturing offer what Iranian business seeks.[xi] The past decade was the exception to the rule of good Australian-Iranian trade ties.[xii] With new major liberalising economic reforms touted the new government is focused on inward and outward investment and business.[xiii] Australian business is especially well placed as it leads in sectors that a revitalised Iranian economy wants to learn from and will succeed in business and beat competitors if it acts on that now. [xiv]
With business complementarity and geographic accessibility across the shared Indian Ocean, Iran’s extensive opportunities are consistently underappreciated by Australian business and policymakers. The flight from Sydney to Tokyo takes 10 hours, 11 minutes; Perth to Dubai is just 20 minutes further and Tehran is under two hours from Dubai. As Iranian business reopens to the world and expands it is seeking expertise and products. Australian business is in an outstanding position to expand into the Iranian market where Australian expertise and products are seen as a fresh, new-world injection from friendly neighbours from just across the Indian Ocean.
William Bullock Jenkins is currently an Asian Studies honours candidate and Educational Designer for the Arabic and Persian Online Project at the Australian National University. He formerly worked with the Australia-Arab Chamber of Commerce and Industry (AACCI), ACCI Productivity Unit and the Senate Standing Committee on Foreign Affairs, Defence and Trade. He writes on Middle Eastern and Central Asian business, trade, economics, and politics.
[i] Khajehpour, Bijan. ‘Economic scorecard for Rouhani’s first 100 days.’ <http://www.al-monitor.com/pulse/originals/2013/12/rouhani-100-days-progress-scorecard.html>
[ii] DFAT. Iran Country Brief. <http://www.dfat.gov.au/geo/fs/iran.pdf>
[iii] Markovic, Nina, ‘It’s Complicated: a timeline of Australia-Iran Relations in a historical perspective.’ <http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BN/2012-2013/Aust-IranRelations>
[iv] Bookmiller, Robert J. ‘Engaging Iran: Australian and Canadian Relations with the Islamic Republic.’ <http://www.millersville.edu/government/files/Engaging_Iran1.pdf>, p. 28.
[v] Bookmiller, p. 15.
[vi] Akbarzadeh, Shahram. ‘Australia’s Relations with Iran.’ <http://asiainstitute.unimelb.edu.au/__data/assets/pdf_file/0012/885387/SA_PolicyPaper_No_1.pdf>
[vii] Barden, Sam. “Iran’s New Government and Australia’s Opportunity.” <http://www.businessspectator.com.au/article/2013/6/20/global-news/irans-new-government-and-australias-opportunity>
[viii] Khajehpour, Bijan. ‘International companies reconsider investment in Iran.’ <http://www.al-monitor.com/pulse/originals/2014/02/companies-investment-iran.html>
[ix] Khajehpour, Bijan. ‘Iran addresses legacy of rents in economy.’ <http://www.al-monitor.com/pulse/originals/2014/01/iran-legacy-rent-economy.html>
[x] Khajehpour. ‘International companies reconsider investment in Iran.’
[xi] Khajehpour, Bijan. ‘Can Iran’s private banks make a difference?’, < http://www.al-monitor.com/pulse/originals/2014/01/iran-private-banks.html>.
[xii] Bookmiller, p. 28.
[xiii] Al-Labbad, Mustafa. ‘Rouhani’s Cabinet Seeks New Balance in Iranian Policies.’ <http://www.al-monitor.com/pulse/politics/2013/08/iran-rouhani-new-government-direction.html>
[xiv] Jepsen, Laura. ‘Relations between Iran and UAE begin to improve.’ <http://globalriskinsights.com/2014/01/29/relations-between-iran-and-uae-begin-to-improve/>