Post-Sanctions Iran: Opportunities for Turkish Companies in the Retail Sector

Transcription

1 Post-Sanctions Iran: Opportunities for Turkish Companies in the Retail Sector Istanbul, 25 November 2015 Bijan Khajehpour

2 INTRODUCTION Iran and the P5+1 nuclear agreement; Once the so-called JCPOA is fully implemented, key sanctions will be removed; This presentation includes the following items: Key Market Indicators; Outlook for Sanctions Relief; Opportunities for Turkish retailers, shopping centers and FMCG companies? Strategic considerations of doing business in Iran.

3 IRAN S POWER STRUCTURE The Iranian power structure consists of parallel Islamic and democratic institutions with a lot of checks and balances. Most strategic decisions are made in councils where all factions exert influence. There is an ongoing bargaining process between networks of power. These two institutions will be subject to elections in February The balance of power may shift.

4 BUSINESS CLIMATE Political risk remains an important risk in Iran, but positive steps are taken in improving the business climate; Financial and administrative corruption is tackled to improve business climate. President Rouhani has declared corruption to be a national security threat ; Complexity of the political structure will make the fight very challenging; Government and private sector officials are proposing political and structural reforms.

5 SNAPSHOT OF THE ECONOMY Indicators 1394* ( to ) 1395* ( to ) GDP growth (real in Rial) 3.8% 4.5% GDP (nominal in US$ at median exchange rate) $368.7 bn $427.5 bn GDP per capital (nominal) $4,687 $5,355 GDP per capita (PPP) $15,572 $16,023 Inflation (Official) 16.5% 17.6% Oil and gas exports $56.0 bn $78.1 bn Non-petroleum exports (including services) $44.8 bn $48.3 bn Imports $68.4 bn $74.0 bn Trade Surplus $31.4 bn $40.3 bn Unemployment Official (Unofficial) 10.1% (16.0%) 9.7% (15.9%) Capital account deficit (in US$) -1.0 bn -1.0 bn Main source: Iran Economics Magazine, October 2015 (Eqtessad-e Iran), * Projected

6 GDP COMPOSITION Though the petroleum sector has a large hard currency contribution, Iran is more a service based economy. The highest growth sectors are industries and mining. Sectors Contributions to GDP (%) (2014 figures) 17 52, Oil Agriculture Industries and Mining Services

7 OUTLOOK FOR GDP GROWTH Iran needs to grow at a pace of 8% annual growth to create the jobs that the economy needs However, current structural issues won t allow fast-pace growth GDP Growth / / / / / / /

8 INFLATION TRENDS The government has achieved its own goals in reducing inflation and has reduced the annual inflation rate to around 15%. It will be very difficult to achieve the goal of single digit inflation. 40 Inflation / / / / / / /18

9 Current unemployment levels are partly caused by the country s young demography. 16 UNEMPLOYMENT TRENDS Unemployment will remain high in the foreseeable future, therefore, job creation will be the government s main priority. Unemployment / / / / / / /18

10 The government has managed to induce a sense of stability into the foreign exchange market. The plan is to reduce the gap between the two existing exchange rates as much as possible to a minimum EXCHANGE RATES Free Market Forex Chamber Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

11 OUTLOOK FOR SANCTIONS RELIEF - 1 After Implementation Day of the JCPOA (expected in Q1 of 2016), UN and EU nuclear related sanctions will be lifted, leading to a liberalization of: Financial services (export credit, guarantees or insurance); Import and transport of Iranian oil, petroleum products, gas and petrochemical products; Investment and equipment sales in the oil, gas and petrochemical sectors; Shipping sector services, metal industry and trade, insurance and re-insurance, financial transactions; In addition, the EU will remove the majority of the persons from the EU black lists.

12 OUTLOOK FOR SANCTIONS RELIEF - 2 In the meantime, a number of sanctions will remain in place and need to be understood by international companies engaging Iran. These include: Continuation of certain US sanctions including primary sanctions and non-nuclear related sanctions The JCPOA has so-called snap back provisions Insurers, banks and others may continue to over-comply Some US state-level sanctions (such as prohibitions on pension fund investments in companies that engage Iran) will continue to be in place and may irritate non-us companies

13 SWOT ANALYSIS OF THE IRANIAN ECONOMY Strengths: - Resource-rich economy (oil, gas, minerals etc.) - Expanding through an export-led growth; - Diverse economic base; - Geo-strategic position; - Expected stability in economic and trade policies; Opportunities: - Utilizing Iran s enormous natural and human resources to create economic value; - Taking advantage of relatively low cost of entry and consolidation in the market; - Using domestic and/or international capital flows to reduce project risk (financing, partnerships etc.) - Partnering with Iranian companies to take advantage of the growing regional markets. Weaknesses: - Inflationary environment; - Underdeveloped economic infrastructure; - Distorted economic realities due to revolutionary policies such as subsidies; - Current transition due to subsidy reforms; - Ambiguities in the economic doctrine entitled Economy of Resistance. Threats: - Overconfidence in economic terms might slow down the process of change; - Negative short-term impact of lower oil prices; - Undesired side effects of economic reforms (such as inflationary impact of subsidy reforms).

14 SWOT ANALYSIS OF THE IRANIAN SOCIETY Strengths: Urbanized, wealthy society with a desire to connect to global trends, including technological advances; Growing middle class with greater purchasing power and interested in brands; Interested in a peaceful transition rather than a violent upheaval; Young, dynamic and ready to learn and endorse modern concepts. Opportunities: Weaknesses: Social tensions due to unjust distribution of wealth and subsidy reforms; Unemployment and underemployment; Social limitations, especially in dress code. Threats: Investing in the Iranian society s loyalty to brands; Investing in the long-term potential of Iran; Becoming pioneers in introducing new concepts and technologies to the market; Security issues emerging from the socioeconomic tensions in society; Sporadic hiccups due to the impatient nature of the younger generation; Sporadic unrest due to economic conditions; Spillover effects from regional tensions.

15 THE RETAIL LANDSCAPE The retail sector is dominated by small outlets; Total value of transactions in the retail sector is estimated to be $10 billion annually; According to official statistics, 75% of the FMCG retail trade goes through small outlets, independent supermarkets and cooperatives and 25% to modern supermarkets and department store chains. These are: Name No. of Stores Ownership Market share Hyperstar 6 Majid Alfuttain Hypermarket UAE and Carrefour 30 Hyper Me 7 Saman Andishan Emirates Private Stock Company 12 Shahrvand 30 Municipality of Tehran 28 Refah 200 Public Stock Company 15 Everest 20 Canbo Turkey 5 Others NA Various 10 Total 100 (%)

16 OPPORTUNITIES FOR TURKISH COMPANIES - 1 The overwhelming majority of Iran s retail business is still conducted through small retail outlets, but the trend is towards larger supermarkets and shopping centers; Key trends include: Emergence of modern shopping centers with brand shops; Modern supermarkets that offer retail and entertainment at the same time; Need for modern distribution solutions to cover the combination of traditional outlets and modern shopping centers; Over the next decade, Iran s middle class will grow and it will have a growing purchasing power to spend on FMCG brands and new products;

17 OPPORTUNITIES FOR TURKISH COMPANIES - 2 The cultural and geographical affinity between Turkey and Iran offers an opportunity for Turkish brands and companies to position themselves in this growing market; New distribution and retail solutions as well as brands that respond to the market demand will be well positioned; Franchising solutions for all types of brands (clothing, shoes, toys, gadgets etc.) will be heavily in demand, especially in new shopping centers; Partnering with an Iranian company and generating value add inside Iran will increase chances of capturing a larger market share; Turkish companies may also decide to team up with European brands to improve their chances in the Iranian market.

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19 HOW TO MANAGE RISKS Pursue Iran as a medium- to long-term prospect Have patience and do not start out too big Seek advice and plan in advance Avoid any affiliation with political Understand the impact of structural changes Develop targeted relationship building with stakeholders Respond to the core needs of Iran (job creation, transfer of knowledge and technology) Take into account Iranian pride Reduce your risks by taking on partners (both Iranian and non-iranian), but only after careful due diligence