Iran opens up to the western world. The western world opens up to Iran.
Those of you who – like me – are interested in economic developments in the Middle East will remember 2015 as the year in which international sanctions on Iran were lifted. That followed Iran’s signing in July of the agreement with the “5 + 1” nations: the United States, Russia, China, France, the United Kingdom and Germany.
That agreement has been in force since January 2016.
This marks a genuine turning point in relations between the West and Iran, and is a development that I have long expected and which – after years of economic stagnation caused by sanctions – I view as promising great opportunities.
Take, for example, this statistic: in each of 2014 and 2015, Italy still managed to export more than one billion euros of goods to Iran, thanks largely to the machinery and equipment sector1. For that reason alone I believe the end of the embargo and Iran’s opening to international trade will bring further economic benefits.
But there is more to consider.
For example, of all of the countries in Europe, Italy is the one that enjoys the best relations with Iran. And because of that, we should maximize our strategic advantage.
What, then, should our goal be? I believe we must create the conditions that will allow us to capitalize on this advantage without wasting time. And, I am pleased to say, Italy has not wasted time – we immediately opened a channel of dialogue between the two countries’ business worlds.
And so, in a couple of months the first round of the Iran-Italy summit will be held in Tehran. It is being promoted by Ambrosetti – one of Italy’s leading strategy consultants – and will offer a platform for businesspeople and government representatives at the highest levels of the two nations – as well as others from Europe and the Middle East – to discuss key issues.
Strategic opportunities between the two nations will be central to the summit, and I expect to see companies and politicians build new commercial contacts.
We will also discuss issues related to key economic sectors, and the benefits that can be derived from sharing our knowledge.
In short, this summit represents an opportunity to build a community of prominent Italian and Iranian representatives in order to strengthen relations between the two countries and exploit new growth prospects. The initiative’s five-year time horizon runs from 2016 to 2020, and within this period it is estimated that Italy can look forward to increased exports of up to two billion euros.
This represents an excellent starting point, because – over the years – Italian firms have worked diligently to win the trust of Iranian institutions. This is one reason the ‘Made in Italy’ brand is so highly regarded in Iran, especially in the industrial sector (such as engineering, iron and steel), in the oil and petrochemicals sector, and in infrastructure and consumer goods.
Looking ahead, I hope that the opening of a market of more than 80 million potential consumers, of whom over 70 percent live in urban areas and more than 60 percent are younger than 30 and boast a medium-to-high level of education, will prove a valuable market for Italian fashion and lifestyle products – even for those targeting the highest end, such as our luxury goods firms.
I also expect to see benefits in online commerce, which in Iran is currently dominated by Turkish and Chinese companies. The embargo on Iran means they have grown by offering their customers Western-style products. But looking ahead, nimble Italian companies will be able to compete in this space and reap the benefits by collaborating with Iranian partners to their mutual benefit.
There are further opportunities too: take the energy sector, for example. Iran is the largest producer of electricity in the Middle East, and has the world’s fourth-biggest oil reserves and its second-largest natural gas reserves.
Those are important statistics, to which we should also add the tremendous potential for growth in renewable energy – particularly in wind and solar, with the Iranian government planning to invest over 10 billion dollars to boost renewables production by about five gigawatts by 2020.
Linked to this is the need to modernize Iran’s existing energy infrastructure, given that 90 percent of Iran’s energy production is derived from plants that use obsolete technology.
In addition to energy infrastructure requirements, discussions will also be held on upgrading Iran’s transport infrastructure – for which the country has a urgent and growing need. It is estimated that the railways alone will need $1.5 billion each year over the next six years, with the network set to expand from 10,000 kilometres to about 25,000 kilometres.
All of these are areas in which Italy can rightly boast of its hard-won experience, and from whose competent and competitive companies Iran can benefit.
That said, obstacles remain – and these must be tackled to fully exploit the potential brought by the end of sanctions.
I refer in particular to the removal of restrictions in Iran’s banking sector. This is an important issue, because the banking sector is a key element in strengthening bilateral trade.
To that end, this summit will highlight the need for Iran’s financial market to join the international scene after years of embargo.
Clearly, this will entail risks and opportunities for Iran’s banking and financial sector. On the one hand, we will see Iranian banks – most of which are run along traditional lines – start to modernize along innovative, digital paths; on the other hand, they will need to adapt to increased competition when international players, which are more technologically advanced, enter the market.
And Iranian banks will need to adapt, too, to international regulations. And on this last point, Iranian banks will have their work cut out for them: in the past two years the number of global regulatory changes is thought to have more than doubled.
Here again, the Italian banking industry can help Iran’s banks as they enter a more competitive period. After all, Italy’s banks gained vital experience when they had to evolve rapidly to cope with competitive and regulatory pressures, and they have done superbly exploiting the possibilities offered by technology.
In closing, I hope this brief talk has shown that this new period will bring numerous and wide-ranging opportunities.
And while there is much to do, my hope is that this first Italy-Iran summit will prove to be the starting point as we strengthen our political and commercial relations and, in so doing, allowing both of our nations to reap the rewards.
1 Source: data from the Ministry of Foreign Affairs (http://www.infomercatiesteri.it/scambi_commerciali.php?id_paesi=104)