by Esfandyar Batmanghelidj
As President Donald Trump threatens to de-certify Iran’s compliance with the JCPOA, the political environment around post-sanctions trade and investment has grown more contentious. Yet, at the same time, after extensive negotiations with leading multinational companies, Iran has witnessed landmark agreements signed across industries, with billions of dollars of investment committed and financing agreements inked. For those business leaders continuing to push ahead in Iran, and for the Iranian public to whom they are accountable, the question is what to make of such contradictions.
To examine this and other questions, Bourse & Bazaar partnered with IranPoll to conduct a unique survey focused on economic attitudes and business confidence in Iran. The survey was conducted in August 2017 and covered a representative sample of 700 Iranians.
Several of the questions centered on post-sanctions investment and the political importance of the JCPOA. But perhaps most notably, 70% of Iranians surveyed believe that multinational companies are “moving slower than they could” to trade and invest in Iran following the lifting of international sanctions. Of this group, a significant 76% of Iranians identified “pressure or fear of the United States” as the key reason, compared to just 16% would blamed Iran’s “weak business environment.”
It is certainly sensible for Iranians to blame Trump’s antipathy towards the nuclear deal as a primary reason for the slow pace of Iran’s post-sanctions economic recovery. But this view might unfairly discount the inherent difficulties of investing in Iran, a fact that the Obama administration highlighted when concerns over the slow pace of economic engagement first emerged in early 2016.
It seemed a reasonable assumption that the “experts” who are the business leaders or policymakers actually trying to make trade and investment happen might have a different, more nuanced view than the Iranian public. The barriers to trade and investment in Iran are very real. The country ranks 120 in the World Bank’s “Ease of Doing Business” rankings, having actually fallen three places in the last year.
Results of the “Expert” Survey
To investigate this assumption, IranPoll and Bourse & Bazaar administered an online survey that collected responses from just over 250 “experts,” sampled based on their active involvement in Iran trade and investment matters. Of these respondents, 79% held either a master’s degree or PhD, and 70% were professionals from European or Iranian private-sector enterprises. The remainder worked in state-owned enterprises, government agencies, or policy institutes. Importantly, 70% of respondents considered themselves to be either somewhat or well-informed about investing in Iran.
In an amazing example of statistical congruence, 70% of the expert respondents surveyed believe that multinational companies are “moving slower than they could” on trade and invest in Iran. Of this group, 76% blame “pressure or fear of the United States” for the slow movement, with just 17% blaming Iran’s challenging business environment. These proportions directly mirror the results seen in the survey of the Iranian public. How can it be that these experts, who know all too well that Iran is a difficult place to do business, are seemingly discounting those difficulties in the face of Trump’s rhetoric?
The answer may lie in the slow and steady progress that has been made in Iran trade and investment in the last year. Major contracts signed in 2017 include the first major post-sanctions investment in Iran’s oil sector, the first automotive investment majority owned by a foreign multinational, and the first equity stake taken by a global financial institution in an Iranian financial services firm, in addition to several major financing agreements and even more unheralded deals. This overall momentum, hidden to all but those watching Iran most closely, suggests that business leaders, as well as the regulators and policymakers with whom they work, have gained a sharper understanding of how to conduct business in the country. Although Iran’s economy remains rife with obstacles, business leaders are proving more adept navigators. For example, in the same survey, 74% of respondents said that they believe they know the right people to conduct business in Iran. As business leaders gain confidence in their own abilities and greater means to manage challenges within their control, the turmoil in Washington remains the key complication to trade and investment plans.
But if the business leaders are able to recognize American rhetoric as superficial, why exactly is it slowing the pace of trade and investment? This is likely because the rhetoric is impacting decision-making not for those closest to projects in Iran but for those stakeholders on whom they rely.
Commercial Agenda Advances
Reading the headlines on Iran, driven by Trump’s soundbites, it would be easy to believe that Iran is an untenable place to do business in the current political environment. Yet, the “country managers” who run business divisions in Iran for multinational companies have made considerable progress over the last year in pushing forward a commercial agenda. This contradiction may explain why 69% of respondents in the expert survey felt that international media outlets are not an accurate source of information about Iran’s “trade and investment environment.”
The slowdown occurs when the question of Iran crosses the desks of decisionmakers further from the point of contact. By dint of their progress, country managers increasingly need to draw on support from other parts of their multinational organizations and suppliers and partners in order to execute strategy. Most crucially, as a project reaches contract stage, it becomes imperative to find a financing solution. This requires the country manager to both bring his senior executives on board with the project plan and then seek engagement from a financial institution. When critical decisions reach this wider circle of stakeholders, headlines become far more salient. These stakeholders cannot draw on firsthand experience to bolster their confidence in an Iran-related commercial decision and rely instead on the incomplete picture painted in the international media. Understandably, they find it difficult to act decisively in the face of uncertainty, particular when personal or company reputations come into play.
In this way, Trump’s rhetoric is slowing the momentum of trade and investment prior to any snapback of sanctions. No doubt, Trump’s impending decision on decertification of Iran’s compliance with the JCPOA does make snapback a potential outcome. Tellingly, 68% of Iranian respondents and 63% of non-Iranian respondents in the expert survey considered snapback a likely or very likely outcome of decertification.
However, in this intervening period, during which there has been no instrumental change in US policy, the reported slowdown in trade and investment helps demonstrate a deficiency in how deal supporters are counteracting Trump’s message. The critical point is that Trump only has his message. Given the track record of his administration, he is unlikely to have a cohesive Iran policy at any stage, even if he decides to decertify.
Deal supporters in Washington ought to define the economic scope of sensible Iran policy more clearly and thereby support business confidence more actively. The imperative here follows directly from what it means to offer “sanctions relief.” As a policy tool, sanctions impose political ideology on economic structures. The act of sanctions “designations” makes a normative judgement about the objective composition of an economy, defining the acceptable level of commercial relations with certain economic actors. Consequently, crafting an effective post-sanctions policy requires its own congruence between ideology and structure.
In the case of Iran, the objective reality that trade and investment are incentivizing structural liberalization in Iran’s economy needs to be expressed and valued in ideological terms. Encouragingly, European stakeholders have become more assertive in presenting such a vision. Helga Schmid, secretary general of the European External Action Service, stated in a recent speech at the 4th Europe-Iran Forum, “We recognize that it is important that the benefits of the Iranian deal are felt directly by the Iranian people and Iranian businesses. This is necessary for the success of the deal, but it is also in the interest of the EU, its Member States and economic operators.”
Deal supporters in Washington should likewise be more confident in declaring that, where sanctions relief allows, companies ought to be free in engaging in trade and investment in Iran. Commerce not only helps preserve the nuclear deal but it can also help incentivize financial, industrial, and legal reforms, in a manner akin to how enterprise has helped successfully open economies in Eastern Europe, Latin America, and Southeast Asia. Of course, this amelioration will only take place in the medium to long term. But in the near term, a tactical insistence on stronger messaging around economic engagement is necessary to support those stakeholders whose work is so crucial to the quid-pro-quo of the deal and whose activities are fundamental to winning the hearts and minds of an Iranian public already so hopeful that engagement will deliver a brighter future.