Saturday, October 28, 2017

Iran – A Rising Opportunity

Ever heard of a country with too many highly educated people? More than two-thirds of the 80 million population are under the age of 35, with literacy rate stands above 93% and 0.1% of the population living below the poverty line of 1.9$ per day. Rightfully so, when the country was cut-off from the World – it made the right choice, to invest in education: 20% of government spending and 5% of GDP goes to education. It bears a striking similarity to Lee Kuan Yew Master Plan of investing in education, one of his conscious decisions that engineered Singapore’s economic miracle.

With 10 percent of the world's proven oil reserves and 15 percent of its gas reserves, Iran remains a dormant energy superpower, largely due to isolation from global markets. With the lifting of trade sanctions in January 2016, few financial institutions are extending lines of credit, and FDI inflow has been timid, but not great as expected.

Since the mid-1990s, Iran has increased its economic cooperation with other developing countries in "south-south integration" including Syria, India, China, South Africa, Cuba and Venezuela. Iran's trade with India passed $13 billion in 2007, an 80% increase within a year – but there is a significant trade imbalance, with India accounting for 9.9% of Iranian exports but with little to negligible imports into Iran. China on the other hand, maintains a healthy trade balance, with significant imports and exports between the two countries. 

With aviation and transportation sectors badly needing rejig and many other sectors remaining outdated in terms of technology or capabilities – Iran presents a rising opportunity. China has been quick to realize the potential, and has connected Iran by Train link last year – starting in China’s eastern province of Zhejiang, the train link passes through Kazakhstan and Turkmenistan, into Iran. This will see the exchange of goods and services potentially reaching the threshold of 600$ Billion. 

India, is not far behind – helping Iran develop the strategic port of Chabahar. The location plays a vital role and is of great significance, merely 72 KM away from Pakistan’s Chinese funded deep sea port at Gwadar, Chabahar port not only provides access to Central Asia (with a marine distance of 353 nautical miles to Dubai and 843 nautical miles to Mumbai) but also is the only Iranian port with direct access to the Indian Ocean. The highly congested Bandar Abbas port is not a deep water port and cannot handle the 250,000 ton ocean-going cargo ships. At present, such ships dock in the United Arab Emirates (UAE) and the cargo is transferred to smaller 100,000 ton ships for onward shipment to Iran. This makes Iran dependent on the UAE for shipments and represents a loss of revenue, not to mention making UAE the biggest trading partner of Iran by volumes. Unlike Bandar Abbas, Chabahar has the ability to handle standard cargo ships.

Indian Government and Indian businesses can do much more – the majority of discourse around Indo-Iran relations revolves around Chabahar, and does not indicate the true economic potential. Iran has encouraging business opportunities in energy, infrastructure, healthcare, retail, airports and aviation, mining and water sectors. A program similar to UK’s trade department – which offers financial cover to companies interested to do business in Iran, would help Indian businesses set up shop in Iran. In July, French oil giant Total committed $1 billion for developing the country’s largest oil field, and car manufacturer Peugeot is stepping up its local presence, and produce over 200,000 cars in Iran. India should encourage automotive industries to explore marketing tie-ups with local entities to expand their market footprint.

There are challenges too, corruption is still a major hurdle, with Transparency International ranking Iran at 131 out of 175. After Modi’s visit, it did not take Tehran long to dissociate from the idea of exclusive Indian engagement in Chabahar Port, and voice out invitations to Pakistan and China to participate. Iranians are thorough when it comes to negotiations and in striking the right balance – one of the main reasons, they are able to hold onto their own, despite adverse international relations. While the moderate Rouhani and his government, though powerful, seem eager to open up to the world, internal political challenges exist. Khamanei and the very powerful Islamic Revolutionary Guard Corps that he controls, also have large interests in the country’s economy. 

There are reasons India should look beyond Oil, Saffron or Carpets from Iran and see the true potential. At present, India is not fully cognizant of Iran’s strategic importance. From the last decades of the 19th century to the mid-20th century, India and Iran have a shared history, from Parsis long standing contributions to Indian Economy and Culture; to one of three Kendriya Vidyalaya Schools outside India, in Tehran, running since 1930s – there is enough cultural understanding and people-to-people contact since ages. It is time India should change from remaining marginally engaged based on needs to an evolved partnership with Iran – India needs to rethink about its approach with Iran

-  Abhijith Jayanthi