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Why Iran Is Hungry for Business with the U.S.


An easing of tensions with Tehran would bring foreign investment, allowing Iranian companies to scale up

Tehran—Nestled in rocky hills about 40 minutes from Tehran, Pardis Technology Park is supposed to be Iran's answer to Silicon Valley. But these days, Pardis is deserted and forlorn, with many buildings standing unfinished, their exposed girders rusting. Foreign companies are reluctant to invest in the Islamic Republic, and domestic outfits are cash-strapped.

Both foreigners and locals may find a new reason to move in. President Barack Obama has indicated a willingness to ease tensions with Tehran, and many Iranian businesspeople hope their leaders will engage with him. A relaxing of U.S. economic sanctions "would be a seismic shift," says Ramin Rabii, chairman of Turquoise Partners, a fund manager that invests in Iran.

Americans and other Western companies might benefit, too. Iran, after all, has 66 million people, good schools, and a diversified industrial base—with a pent-up appetite for computers, planes, aircraft parts, and knowhow for the crucial oil and gas industry. And many Iranians like the prospect of working with U.S. companies rather than the Europeans that have been the only game in recent years. "Iranian officials believe Americans are more straightforward in business deals," says Narsi Ghorban, managing director of Narkangan Gas to Liquid, a Tehran energy company. "They get what they want and give you your due."

If businesspeople do come to Tehran, a sprawling city built on steep hills that lead up to snow-capped mountains, they will find some conditions improved. Mobile telephones from other countries finally work, and several private hotels have sprung up. Since the 1979 revolution, social life has never been more liberal. Boys and girls hold hands in public, women show some hair outside their scarves, and checkpoints where police once searched cars for alcohol have all but disappeared. But there's still enough fear of the regime that many people decline to be interviewed.

While President Mahmoud Ahmadinejad continues to make belligerent noises about Israel and the West, others in Tehran have hinted that they're ready for a change. In a Mar. 21 speech, Supreme Leader Ali Khamenei trotted out standard anti-American rhetoric but also indicated a willingness to talk. And Ahmadinejad's probable opponent in the June presidential election, former Prime Minister Mir Hossein Moussavi, favors negotiations with the U.S. "Obama has prompted Iranians to have an open debate about the relationship they want to have with the U.S.," says Gary Sick, an Iran specialist at Columbia University in New York. "This is something that hasn't been seen in 30 years."

Most Iranian executives seem to be rooting for Moussavi. Although he is an old-guard leftist, businesspeople hope he would lead a reform-minded administration that could ease Iran's isolation. "Ahmadinejad has done serious damage to Iran's reputation and the reputation of Iranian business," says Mohammad Reza Behzadian, a former head of the Tehran Chamber of Commerce who runs Tondar Middle East, a trading company in Tehran.

There are, of course, countless stumbling blocks to improved ties. Iran continues to pursue a nuclear program opposed by the West. And Tehran is prone to antagonistic actions such as the Apr. 18 sentencing of Iranian-American journalist Roxana Saberi to eight years in prison on what seem to be trumped-up charges of spying for Washington. But there may be openings for cooperation and confidence-building on Afghanistan, where both Tehran and Washington deplore Taliban influence, and on Iraq, where Iran's help could ease a U.S. withdrawal.

Iran has much to gain. Facing pressure from Washington, major European banks have stopped doing business in the country. So Iranians must pay exorbitant rates for trade financing from second- and third-tier banks in Europe, the Middle East, and Asia. Some Iranians work around the restrictions by setting up subsidiaries in the United Arab Emirates and playing cat-and-mouse with American inspectors. But such solutions are expensive, adding billions of dollars to Iran's soaring import bill—$57billion for the year that ended in March. "It's a challenge finding banks that we can trust," says Parviz Aghili, CEO of Karafarin Bank in Tehran.

Sanctions also restrict the development of Iran's vital energy reserves. Tehran wants to boost oil production capacity by 25%, to 5 million barrels a day, but with little foreign help and aging fields in rapid decline, it's tough even to maintain current output. That's one reason Iranian oil officials are quick to say they want American help. "We don't have any problems with U.S. investment," says M.A. Khatibi Tabatabaei, Iran's representative on OPEC's board of governors.

Ahmadinejad's erratic policies make things worse. The populist President has spent freely on everything from loans to small businesses of questionable viability to imported food and cash handouts for the poor. And he has pressured banks to shovel out easy credit, leading to a real estate boom. But worried that oil earnings will start to peter out, the central bank has tightened up, starving factories of capital and prompting a sharp fall in property prices.

Oil Squeeze

Last year, when oil prices surged, the Iranian economy could shrug off its problems. With oil's steep decline and the global financial crunch, though, some fear social unrest. Many factories are months behind on salaries, says Ali Reza Mahjoub, a member of Parliament and head of Workers' House, a labor group. He estimates that unemployment, officially 12.5%, is really closer to 17%. As financing dries up, building is grinding to a halt, says developer Amir-Mohamad Mazaheri. "This is a very dangerous situation," he says, puffing on a cigarette in a new tower in North Tehran. "There will be 3-4 million construction workers looking to any activity to support themselves."

Businesses of all sizes are hurting. Mehdi Farahani makes shoes in a small workshop in central Tehran with his brother and cousin. The 32-year-old says business has fallen by two-thirds, spurring him to lay off half of his 20 workers. Over a lunch of deep-fried trout, rice, and Pepsi in a packed hole-in-the-wall restaurant, he blames the government for doing little to protect small businesses from cheap Chinese imports. "Life in Tehran is becoming very difficult," he says.

Even with sanctions in place, savvy foreigners have managed to make a mark in Iran—though it takes persistence. Renault (RENA.PA), for instance, has a $200million joint venture to build the Logan compact. But late payments from the Iranians and difficulties training enough suppliers to meet a requirement of 60% local content have slowed progress, Renault says. The venture, Renault Pars, has cut its output target for the Logan by 25%, to 150,000 cars per year. "You need a lot of time and energy," says Renault Pars chief Jean-Michel Kerebel. "What takes five hours in Europe could take five days here."


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