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IRAN: France Steps Up Its Investments in Iran

by Borzou Daragahi The New York Times
June 23rd, 2004

Undeterred by Iran's pariah status in the United States and by the shortcomings of the country's commercial climate, French companies have been increasing their presence in the country in the last few years.

New Peugeots and Citroëns flood crowded highways and streets. French business people dine in the capital's restaurants and work on Persian Gulf oil platforms. Air France resumed flights to Tehran this month after a seven-year hiatus. And the carmaker Renault is about to make the first large-scale, long-term direct investment in the country by a French company since the 1979 revolution that toppled the pro-American Shah Reza Pahlavi.

"The French are eager to come to Iran," said Bernard Hourcade, a Paris-based Iran scholar who acts as a consultant to French companies considering doing business here. "It is the only major place in the Middle East to invest because the other countries are more or less in a revolutionary or prerevolutionary situation."

Though companies from Germany and the United Arab Emirates have a bigger presence in Iran, France is catching up.

French exports to Iran have nearly doubled in five years, totaling 2 billion euros ($2.4 billion) in 2003, according to the economic mission of the French embassy in Tehran. And the number of French-connected companies registered with the embassy - some of which are joint ventures and some representative offices - has risen from a handful several years ago to more than 40.

Among the French exports are luxury goods, for Iran's increasingly affluent middle class. If even a fraction of Iran's 68 million people are "rather prosperous," one Western diplomat said, that could exceed the total population of all the smaller, wealthier gulf kingdoms combined.

The Iranian business of Société Générale, one of a handful of French banks with small offices in Tehran, has grown roughly 20 percent a year in the last five years, according to Jean-Michel Meunier, the bank's Tehran chief.

Alcatel, the French telecommunications giant, recently signed multimillion-dollar contracts to provide high-speed Internet service in Iran as well as communications for offshore oil and gas platforms.

PSA Peugeot Citroën, under a licensing agreement, sells kits for several models, including the Peugeot 206, a sports car that has become a status symbol in Tehran's chic sections.

The Total Group, one of the world's largest energy concerns, has long been involved in Iran, a country with 9 percent of the world's oil reserves and as much as 18 percent of its natural gas reserves. This year, it formed a $2 billion venture with the government-owned National Iranian Oil Corporation and Petronas of Malaysia called Pars LNG, which aims to produce eight million metric tons of liquefied natural gas a year, equal to about 15 percent of current world output.

Total executives in Paris would not comment on Middle East operations. A spokeswoman said the company employed 242 people on its Iran projects.

But Total's buyback agreements with Iran, under which it builds plants and then is paid back and sent on its way as its operations produce energy, means it never owns anything long term in Iran. Peugeot employs only 15 people to oversee the assembly of its cars by local employees of the government-owned factories. Alcatel sells and installs equipment. Société Générale's business here is also limited, consisting mostly of setting up transfers and repatriating funds.

Far more ambitious is Renault's plan to begin making its low-budget Logan series cars here in 2006, eventually bringing hundreds of Western experts to Iran. Renault says it will initially spend 300 million euros ($363 million), and some people close to the deal say the company could lay out $700 million over the next several years. The initial outlay alone nearly equals the total foreign investment in Iran by French companies in 2002, the last year for which statistics were available from the French economics mission, up from zero in 1994.

Under the agreement, Renault owns 51 percent of the joint venture, Renault Pars, with the Automotive Industry Development Company, a concern owned by the country's two main, government-controlled carmakers, the Saipa Group and the Iran Khodro Industrial Group.

The car is coming on line just as the Iranians begin halting production of the clunky, fuel-guzzling Paykan, a knockoff of the 1960's British Hillman Hunter that dominates the domestic market.

"The Renault investment will encourage other companies to come," the Western diplomat said, adding that the company would bring along many subcontractors.

Executives for Renault, which is 15 percent owned by the French government, were not made available for comment.

Iran is among several developing countries, including Romania, where Renault is bolstering its presence.

"Four-fifths of the world's population don't yet have access to a car: these markets therefore have the highest potential for growth," Louis Schweitzer, Renault's chief executive, says on the company's Web site. According to Peugeot, Iran has 1 car for every 21 inhabitants, compared with 1 for every 12 in neighboring Turkey, another developing Muslim country.

The country produced 600,000 new cars in the fiscal year that ended March 20, up from 430,000 in the previous year. This year, the country is slated to produce nearly 900,000 cars.

Despite such potential, many Western companies doing business in Iran do so clandestinely, worried they will cross the United States, which has imposed strict sanctions on Iran since 1996. At least one major French company in Iran with significant United States operations has not registered with the French embassy. The front door to its office in Iran says simply, "French company."

While American officials have not said anything publicly about Renault, they did complain about Total's recent deal and said they would look at possible actions under the Iran-Libya Sanctions Act of 1996.

"We do not encourage investment in Iran's petroleum sector," said Richard A. Boucher, a State Department spokesman, according to an Associated Press report in February. "We have laws that affect our attitudes toward these investments. And we will have to look at those laws appropriately."

State Department officials did not respond to repeated requests for comment. But trade experts said they did not think the act, which allows for the imposition of penalties on foreign companies for certain large investments in Iran, had ever been invoked.

"As to whether the U.S. has actually sanctioned any firms for prohibited investments in Iran, there is not much of a track record,'' said Donald A. Weadon Jr., a Washington lawyer specializing in foreign trade sanctions. "But companies are investigated, and pressure is brought to deter investment."

And, he said, other sanctions and embargos are being imposed.

According to Mr. Hourcade, the consultant, the companies are mostly worried that they will have trouble running their businesses without access to products - like software or spare parts - made by American companies, which are barred from doing business with Iran.

An executive of a multinational with a big United States business said his company decided to open an office here in part to keep an eye on its competitors and not be totally clueless about Iran should Washington lift sanctions.

"So many companies are here, but they're keeping a very low profile and you can't figure out what they're doing here," he said, asking his name and his company's not be used.

Iran's business climate also poses formidable challenges, including a byzantine regulatory system and unorthodox accounting practices that sometimes have left companies wondering whether they will be able to repatriate any profits.

The country has worked hard to draw foreign investment, with officials vowing to remove red tape and saying that foreign investors now can establish a company in Iran and own 100 percent of it.

Still, one person involved in the Renault Pars deal said that problems had already begun. Though the company is nominally French-controlled, he said, the Iranian manufacturers can override Renault's decisions.

Western business leaders here also complain of a lack of demographic and marketing data. Half of the country's cars, for example, are registered in Tehran. But Peugeot - whose business in Iran is its third largest non-European operation, behind China and Brazil - found that many of those living along the cool, rainy Caspian coastline register their cars in the relatively warm, dry capital, to increase resale values.

And though the Peugeot 206 is selling, said Jacques Manlay, the Tehran representative for Peugeot, no one is sure why and to whom. "All I know," he said, "is that it's a car for the young lady in the north of Tehran."





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