Investors Prepare To Unlock Market Potential

A partial lifting of sanctions and the possibility of a permanent agreement with the West, has drawn the interest of foreign construction companies that are keen to invest in Iran. Should a long-term agreement over Iran's nuclear programme be reached, we will see the opening of one of the biggest markets in the Middle East - with outdated infrastructure presenting numerous opportunities to investors. As such, recently confirmed interest from Korean companies presents a considerable upside to our construction industry forecast for the country.

Iran's construction industry has suffered from years of underinvestment, partly as a result of international sanctions which have been established to isolate the country from regional and global dynamics. The industry has grown by an estimated 0.6% - remarkably low growth considering the size of the country's economy and its population. Iran suffers from a severe shortage in the housing market and its transport and energy infrastructure are insufficient to cope with existing demand. In terms of industrial construction, we expect growth to be driven by the construction of refineries and petrochemicals plants as the country aims to increase its refining capacity.

In the context of a more optimistic outlook for Iran, now that a temporary agreement has been reached on the nuclear issue, the country has the potential to become one of the most attractive markets in the Middle East. The conciliatory approach of President Hassan Rouhani has led to more open and constructive negotiations over the country's nuclear programme and this has led to a partial lifting of sanctions that could herald a 'return to normal' scenario over the medium term. This was evidenced by the deal reached in January 2014 between Iran and the so-called P5+1 countries - China, France, Russia, the UK and the US plus Germany. The accord starts a six-month timetable to reach a final agreement on the nuclear programme.

Highly Volatile Growth
Iran Construction Industry Value (IRRbn) And Real Growth %

A partial lifting of sanctions and the possibility of a permanent agreement with the West, has drawn the interest of foreign construction companies that are keen to invest in Iran. Should a long-term agreement over Iran's nuclear programme be reached, we will see the opening of one of the biggest markets in the Middle East - with outdated infrastructure presenting numerous opportunities to investors. As such, recently confirmed interest from Korean companies presents a considerable upside to our construction industry forecast for the country.

Iran's construction industry has suffered from years of underinvestment, partly as a result of international sanctions which have been established to isolate the country from regional and global dynamics. The industry has grown by an estimated 0.6% - remarkably low growth considering the size of the country's economy and its population. Iran suffers from a severe shortage in the housing market and its transport and energy infrastructure are insufficient to cope with existing demand. In terms of industrial construction, we expect growth to be driven by the construction of refineries and petrochemicals plants as the country aims to increase its refining capacity.

Highly Volatile Growth
Iran Construction Industry Value (IRRbn) And Real Growth %

In the context of a more optimistic outlook for Iran, now that a temporary agreement has been reached on the nuclear issue, the country has the potential to become one of the most attractive markets in the Middle East. The conciliatory approach of President Hassan Rouhani has led to more open and constructive negotiations over the country's nuclear programme and this has led to a partial lifting of sanctions that could herald a 'return to normal' scenario over the medium term. This was evidenced by the deal reached in January 2014 between Iran and the so-called P5+1 countries - China, France, Russia, the UK and the US plus Germany. The accord starts a six-month timetable to reach a final agreement on the nuclear programme.

As such, Korean companies have started to prepare in order to reap the benefits from already having a presence in the market and being first in line to capitalise on any potential boom. It has been reported that GS Engineering & Construction has started surveying the Iranian market, looking for opportunities in gas infrastructure in particular. This does not come as a surprise since Iran has an estimated 18% of total global natural gas reserves. In addition, Iran was the fifth largest market for Korean companies before the sanctions, according to Korean local newspapers. Furthermore, Hyundai E&C and Daelim have operating offices in Tehran.

These companies' interests are being supported by government initiatives. On the one hand, South Korea's Trade-Investment Promotion Agency (KOTRA) has announced plans to expand economic cooperation with Iran. In addition, following an invitation by President Rohani to invest in Iran's oil and gas sector, a business delegation from South Korea will be sent to the country in late February.

Although we highlight the enormous potential of the construction industry in Iran - should a long-term agreement on the nuclear issue be reached - we anticipate that rewards will be accompanied by high risks. If successful, this could be one of Iran's defining moments, but the country's history with regards to foreign investment cannot be ignored. As such, we believe that foreign companies that enter partnerships with local players are more likely to benefit from potential opportunities.

Apart from Russian and Chinese investors who have maintained a strong presence in Iran - even when everyone else left - we expect to see other companies with an appetite for risk to start to gamble on Iran. With regards to regional players, we anticipate Omani and Qatari companies will show an interest in Iran, as well as Dubai-based Arabtec, which is currently undertaking a major expansion plan in the Middle East.

Read the full article

This article is tagged to:
Related sectors of this article: Infrastructure
Geography: Iran, South Korea
×

Enter your details to read the full article

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.