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Lifting Iran's sanctions will boost GCC economies

UAE. Lifting of Iran sanctions in the future will significantly boost its economy and positively affect the neighbouring GCC economies, especially the UAE. According to speakers at a panel discussion organised by ICAEW’s Corporate Finance Faculty in the UAE, this is due to its solid trading infrastructure.

ICAEW members and guests gathered at Jumeirah Emirates Towers in Dubai recently to discuss the impact of lifting Iran’s sanctions. Panellists included Dr. Theodore Karasik, Geo-Strategic and Political Economic Analyst; Parham Gohar, Co-Founder and Partner at Frontier Partners; Ali Borhani, Founder and Chief Welding Officer at Incubeemea; and Sheila Shadmand, Partner-in-Charge at Jones Day. The discussion was moderated by Mo Farzadi, Partner at PwC.

Following an introduction by Matthew Benson, Transaction Advisory Services Partner at EY MENA, panellists and invited guests discussed the economic impacts of lifting Iran sanctions on the Islamic Republic and GCC countries.

Investors need to be aware that sanctions are not lifted yet nor expected to be until 2016 at the earliest. However, even if the deal is implemented, the US primary restrictions will still be in place, prohibiting US companies from doing business in Iran, since there is no specific or general licence from the American government that would allow otherwise.

As a result, it is critical for investors looking to do business in Iran to seek the necessary legal advice to understand what opportunities and risks may exist in a post-deal world. This should also include conducting due diligence on potential local partners – whether they are based in Iran or neighbouring countries – to ensure compliance with anti-money laundering laws. Doing business with sanctioned persons or companies could be subject to legal penalties, which can be in the range of US$ 250,000 per violation.

Iran’s economy is expected to grow rapidly over the coming years. This should help the Islamic Republic to become an attractive destination for foreign investors in the medium to long term. GCC economies, particularly the UAE, would be positively affected by sanctions relief and are expected to play significant roles in terms of the investment and trade flows to Iran.

According to Iran Vision 2025, the Islamic Republic is expected to attract somewhere in the region of US$1 trillion of investment between now and 2025. Investors would be wise to start assessing Iran from now to determine whether it is a ‘must have’ or a ‘nice to have’ market within their portfolios.

“Initially, the UAE could play a similar role to that which Hong Kong plays regarding China. It has the potential to become the gateway to the Iranian market thanks to its historical trade relations with Iran, world-class infrastructure and best-in-class logistics,” said Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA).

“Investor confidence would be boosted by the fact that the UAE has always been a trusted business partner. Although businesses will eventually go directly to Iran, without requiring any intermediary, this is unlikely to change the UAE’s position as a vital trade hub for the region.”

Oil and gas, mining, petrochemicals, infrastructure and manufacturing, will all be among the fast-growing sectors in Iran if sanctions are lifted.

Since Iran has been economically isolated in recent times, local business practices should be expected; however, this is unlikely to deter foreign investors from doing business there. Change and new transparency laws are unlikely to materialise in Iran without engagement between the government and the private sector as well as the active participation of multinational companies.

The event was attended by almost 100 ICAEW members and senior business representatives from the major global and regional financial organisations.

Photo Caption: Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA).

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