Open for business

ran is open for business – to an extent. Iranian President Hassan Rouhani and a triple-digit delegation embarked on a European road show this week, aiming to ink deals and woo investors just days after some crippling sanctions were lifted. The interest is not entirely one-sided, either. Iran offers a wealth of potential to Western deal-makers, from its youthful and educated population to its vast reserves of oil and natural gas. But doing business in Iran is not without some sizable challenges.

The Country

Iran is a demographic dream. It boasts a youthful population of nearly 80 million, according to estimates released last year by the United Nations, and its under-30 cohort is larger than Canada's entire population. By 2050, Iran will be home to more than 90 million people, according to a UN projection.

The most recent World Bank data pegs the adult literacy rate at 84 per cent.

The youth literacy rate, measuring those 15 to 24 years old, was 98 per cent in 2012.

Iranian youth are reportedly well versed in Western culture and brands.

25 per cent – Amount of college-educated Iranians who live in advanced economies outside Iran. Since the early 1980s, a lack of job opportunities has prompted many young Iranians to seek employment overseas. According to a International Monetary Fund report, Iran had the highest brain-drain rate in the world in 2014. With potential employment opportunities in the country on the horizon, Iran could see a reversal of this trend.

Despite high literacy rates for Iranian youth, the unemployment rate for that age bracket is especially high – at least by Western standards. The youth jobless rate stood at 25.7 per cent in the summer, an increase of 2.8 percentage points from a year earlier, according to figures from the Statistical Centre of Iran.

The unemployment rate for young women is far higher at 44.2 per cent.

12.6 per cent – Iran's urban inflation rate, according to December figures from the Statistical Centre of Iran. The country has grappled with high double-digit inflation rates for years, as sanctions led to a steep depreciation of the national currency and sapped the purchasing power of consumers. President Hassan Rouhani has sought to curb inflation. Iran's central bank is aiming to lower inflation to single digits by 2017, Bloomberg reported last July, citing a top official.

For a country emerging from years of economic isolation, Iran has a sizable middle and upper class. More than 35 per cent of its population was in the middle- and high-income brackets in 2011, according to a 2015 report from the Pew Research Center. While the middle-class cohort has shrunk, the relaxation of sanctions is expected to boost economic growth and subsequently improve the fortunes of Iranian families.

What Iran offers

The oil industry is the largest contributor to Iran's economy – and it was significantly hampered by sanctions. Now, Iran can resume exporting crude to the European Union, and the benefits for oil-importing countries are obvious: More crude means cheaper crude. Sanctions targeting foreign investment in Iran's oil sector have also been eased. European companies are wasting little time getting the deals flowing.

Upward of $145-billion (U.S.) in new investment is needed by 2020 to keep Iran's oil production capacity from dropping, the World Bank said last year in a report, citing Iranian officials.

Roughly €17-billion in deals between Italian firms and Iran were unveiled on Monday, targeting an array of infrastructure projects.

DEAL: Italian oil contractor Saipem SpA struck two memorandums of understanding this week, aimed at pipeline projects and upgrading refineries.

DEAL: Greece's largest refinery, Hellenic Petroleum SA, agreed last week to buy crude from state-owned National Iranian Oil Co.

Iran accounts for 8.21 per cent of the crude production of the Organization of Petroleum Exporting Countries, as of December figures. It trails Saudi Arabia, Iraq, the United Arab Emirates and Kuwait.

Iran wants to export 30 per cent of what it produces, President Hassan Rouhani told a business forum on Tuesday.

Because of sanctions, Iran's trade shifted in recent years from Europe toward Asia, and China in particular.

The top export destination for Iranian products in 2013 was China, accounting for $22.9-billion (U.S.) or 47 per cent of total exports that year, according to data compiled by the Massachusetts Institute of Technology. India and Japan followed in second and third positions, at 19 per cent and 13 per cent respectively.

Iran's exports are heavily weighted toward oil. In 2013, crude accounted for 68 per cent of the export market, or $33.1-billion, according to the MIT data, despite oil export volumes getting hammered by sanctions. Ethylene polymers were the second-greatest source of exports, accounting for 5.1 per cent of the overall value. Iron ore followed in third at 4.1 per cent.

Trade between the United States and Iran remains limited because of existing sanctions, but the U.S. does allow imports of Iranian luxury goods, including carpets and caviar.

Sanctions reduced Iranian exports by $17.1-billion from 2012 to 2014, the World Bank estimates.

What Iran needs

Iran needs serious upgrades across the board, perhaps nowhere more than its battered aviation sector. Iran's air fleet is both old and accident-prone, and relaxed sanctions will allow its airlines to join the 21st century. The country's vehicle industry, which saw production tumble in recent years, stands to benefit from a new era of international co-operation.

Iran says it plans to purchase more than 100 planes from French manufacturer Airbus SAS, a chief rival to U.S.-based Boeing Co.

Observers say Iran will need to buy several hundred jets in the coming years to revamp its fleet.

Foreign Affairs Minister Stéphane Dion said Tuesday that Canada will start easing some sanctions, including those on civilian aircraft sales, opening up sales opportunities for Bombardier Inc. "If Airbus is able to do it, why would Bombardier not be able to do it?" Mr. Dion said.

Iran's auto industry accounts for more than 10 per cent of gross domestic product, according to a 2015 World Bank report, which says the sector is "one of the main job-creating sectors" in the country. Auto production was recently hit by a double whammy of sanctions and a currency depreciation, which drove up prices for imported parts.

If international firms re-engage with the auto sector, the World Bank says production levels will climb to around pre-sanction levels "within the next two years."

DEAL: President Hassan Rouhani says deals could be struck with auto makers PSA Peugeot Citroën and Renault SA during the French portion of his European trip.

The biggest source of imported goods in 2013 was China, accounting for 29 per cent of the total $47.4-billion, according to Massachusetts Institute of Technology data. Cocoa beans were the most imported product at 6.7 per cent of the total value.

Iran could see a jump in foreign direct investment, following a recent slump. Foreign investment totalled $2.1-billion in 2014, according to United Nations data, down from $4.7-billion two years prior.

*Caution needed

Should Iran violate the terms of its nuclear deal, a "snap-back" mechanism exists to reinstate sanctions. For that reason, some companies may be hesitant to book long-term projects. Also, a number of U.S. sanctions remain in place, related to human-rights abuses and support of terrorism. Reports have shown that several firms – American and international – are wary of inadvertently breaking U.S. restrictions in the pursuit of profit. Then there's corruption. Transparency International ranked Iran 130 out of 168 countries on its 2015 Corruption Perceptions Index, released on Wednesday.