French Business Hopes to Capitalize on Iran’s Potential

What do we really know about France’s three-day business trip to Tehran last month? The visit, organized by the largest network of French trade corporations, Medef, included 120 French companies, some of which sent high level representatives. “It was a very comprehensive delegation,” said Medhi Miremadi, president of the Franco-Iranian chamber of commerce, on the telephone from Tehran. “It seems Medef had to turn down some companies,” he said, adding that there was huge interest in the venture. “The atmosphere was warm and I think both parties were happy to meet,” he said.

In France, those with expert knowledge in the Iranian economy welcomed the initiative. “It was good timing for Medef,” said Thierry Coville from the Institute of International and Strategic Relations in Paris. “They reacted quickly after the November talks, which serves well the interests of French businesses.” French companies are eager to enter what is essentially an untapped market consisting of over 75 million consumers. And diplomatic sources confirm that France is to send a commercial attaché to Tehran shortly.

But in the US, the visit sparked controversy. President Obama said that companies making exploratory pitches “do so at their own peril”. If they violate the rules, he added, the US “will come down on them like a ton of bricks with respect to the sanctions [they] control.” Many believe this firm statement was aimed at deflecting criticism coming from congressional members from both parties opposing Obama's Iran strategy. Some think Obama was also being protective of the interests of American businesses (including aviation, oil and automobile companies) that want to get a competitive edge in Iran should sanctions be lifted. “Isn't it odd that American sanctions targeted the automobile industry where the French were so strong? This makes me think General Motors did some lobbying”, a business source told me. During his first visit to Washington, President Hollande had to distance himself from the trip, stating that he had warned the delegates that the sanctions were still in effect.

Medef International, the French trade corporation's international arm, which organises around 50 exploratory trips for French companies abroad each year, failed to return my calls enquiring about the trip. Nor did they publish a list of the companies that took part. The firms believed to have participated include, among others, Safran, Airbus, GDF-Suez, Renault, Alcatel, Alstom, Amundi, L'Oréal and French football team AJ Auxerre – which, I discovered, were received by the Ministry of Youth Affairs and Sports – also declined to comment. Peugeot claimed that Frédéric Saint-Geours, a member of the PSA Peugeot-Citroën board, did not participate in the trip as a Peugeot representative but as head of the French Union of metallurgy employers. 

Christophe de Margerie, Total's CEO, was the only one to speak up, defending the visit during a press conference. “When it becomes legal to work in Iran and contractual terms are satisfactory, I don't see why Total would deprive itself of the possibility to beat its Anglo-Saxon competitors in Iran,” he said, before adding: “We have the right to move, that's not illegal.”

Oil and Gas Opportunities
“Iran is a giant in terms of gas and oil reserves”, Francis Perrin, chairman of Stratégies et Politiques Energétiques magazine, told me. Like “several countries of the region, it is dependent on its hydrocarbon sector. A lifting of the sanctions could lead to a boom in its economy. But for the time being, Iran's oil and gas potential is largely unexploited, as the NIOC (the national Iranian oil company) doesn't have the capacity to do so.” According to Perrin, Iran needs to resort to American and European companies' know-how for some projects. They made it clear in Davos when Bijan Zanganeh, Iran’s oil minister, listed by name European and American companies that he would like to see coming back to the country. “American oil CEOs were present, and they didn't leave the room,” one oil expert told me. Zanganeh also announced the ministry was working on new models for oil contracts that would be more attractive to foreign companies. Total, who has always kept a bureau in Tehran, is believed to be well placed in the race should sanctions be lifted.

For the French, the second most attractive sector is the automobile sector. Renault has kept his staff in Iran and would be able to resume business quickly. “Peugeot will have some explaining to do. They pulled off quickly and gave few explanations to their partners”, a business source told me. The road is also open for electromechanical engineering firms like Alstom.

Some French companies that have not been affected by international sanctions are still present in Iran. There is, for example, the French multinational Danone, which produces bottled water in association with Iranian companies, or the BEL company, which produces cheese. French supermarkets Carrefour are present, trading via its Middle Eastern franchise partner, Majid Al Futtaim, under the Hyperstar banner rather than the Carrefour name.

In sectors where sanctions have been lifted temporarily, such as gold and precious metal trading, the petrochemical and auto sectors, those buying aeroplane parts, and medical and health-related initiatives, companies are still in a grey zone. “Sanctions have only been lifted for six months,” François Nicoullaud, who was France's ambassador to Tehran from 2001 to 2005, told me. “This means everything has to take place within this period. For car makers it's complicated to put together an operation that will be finished in six months' time. Banks have been allowed to open channels for these operations but they are hesitant – the operations present important risks if they cross the red line for the OFAC, the US department of the Treasury that monitors infractions.”

Concerns from Washington
Just how much business can be done in Iran at the moment remains uncertain and the discretion surrounding the trip can be explained by the pressure French companies have faced. In an article for Le Figaro, Georges Malbrunot revealed French companies' representatives had to attend a briefing at the American embassy in Paris prior to departure. And, on February 18th, three Republicans who serve on the House Armed Services Committee wrote to the US Defense Secretary to express their concern over the trip organized by Medef. They singled out Michelin (who has earned over $2.4 billion from contracts with the U.S. military since 2007), calling their participation in the trip to Tehran “greatly troubling” and urged the Secretary to make clear to the company that “any business with Iran would make further contracts with the Department of Defense impossible”.

French companies are likely to fear similar reactions and actions from lobbies such as UANI (United Against Nuclear Iran), who campaigned sucessfully to obtain anti-Iranian sanctions in the automotive sector in the 1990s and whose position doesn't seem to have changed much since. “You'd think it might be okay to sell cars to Iranians but we object to Western companies selling goods that can be used for military and terrorism aims," a UANI spokeperson told me on the phone.

For Miremadi, the reaction of the American government seemed strange. “I didn't get why they made such a stir. Did they think two days is long enough for a French company to sign a contract? Following the trip, General Electrics and Boeing asked permission to trade plane parts with Iran. The Iranian market is quite close to Europe, historically and geographically. Americans can't expect to do as well as the Europans. This might worry them,” he said.

He insisted Iran had little to do with what people imagined from a distance. “During the four years where the country faced severe sanctions it didn't stop functioning. It just slowed down. People are now hoping an easing of the sanctions will allow them to resume business. In a few years time, Iran could see a five per cent growth.” The last four years have also seen a wave of privatization happening in Iran, as oil refineries and power stations were privatized. For French businesses, Iran could be a destination to escape the crisis they face at home. With this trip, they demonstrated that business moves faster than diplomacy.

But Iran's poor ranking in Transparency International's Index of Corruption Perceptions – in 2013, the country ranked 144 out of 175 countries – could be a source of concern, especially now that the The Organisation for Economic Co-operation and Development (OECD) has criminalized bribery of foreign public officials in international business transactions. In January, Iran's intelligence minister said there was no need for the press to cover cases of corruption, saying it may discourage foreign investors. Christoph Wilcke, Transparency International's Middle East and North Africa regional director, told me: “Civil society in Iran, including the media, needs to have more freedom to be able to have a monitoring role. If it wants to open up, the country needs to welcome international organizations and to impose international reporting standards.”