Iran offers one of the last remaining frontiers for development for the hotels sector

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Summary: The strengths, weaknesses, opportunities and threats of investing in the emerging market of Iran, with particular focus on the hotels sector.

Hotels Development: Is Iran one of the final frontiers?

Much like following the collapse of the Soviet Union in the early nineties, the recent nuclear accord and easing of international trade sanctions on Iran open up a country and an economy that has been nearly forty years in the wilderness.

Open for business?

The demographics are encouraging:

  • a geographically large country of 80 million people with a primarily urban population and 10 cities of 1 million plus residents;
  • a young, well-educated and tech savvy workforce;
  • the world’s 4th and 2nd largest respective oil and gas reserves;
  • 17 UNESCO world heritage sites; and
  • pent up consumer demand and infrastructure investment needs resulting from its decades of economic isolation.

In the hotel sphere, there is a severe undersupply and those which do exist are well below Western standard. This undersupply is only going to become more apparent as the country opens up to international business and tourism - meaning there are significant first mover advantage opportunities for those willing to explore this new market.

But, like any emerging market, Iran is not for the faint hearted. The country’s long isolation has left it with significant ”doing business” challenges, such as:

  • outdated technology and infrastructure;
  • rigid bureaucracy and trade barriers;
  • a restrictive tax and labour code;
  • a banking sector that is below international standard;
  • a less than independent judiciary;
  • high levels of business and political corruption and significant business holdings; and
  • influence held by the military.

The country also does not rank highly in respective World Bank or Transparency International country ratings as to ease of doing business (118 of 189) or corruption (136 of 177). And there remains the “halo” impact of various remaining (particularly US) trade sanctions on the country that need to be thoroughly researched before undertaking any investment.

Succeeding in new situations

Those who are successful will be those who:

  • have the initiative to move early;
  • exercise patience and thorough due diligence on opportunities and investment partners;
  • are cognisant of and respectful of local business cultures and practices;
  • recruit, invest in and train local talent; and
  • have the commitment of their home office to invest sufficient resources in terms of talent, time, money and patience to see the project through.

Managing risks, unlocking opportunities

A further uncontrollable factor is the geopolitical. Sanctions could “snap back” as a result of Iran not complying with the nuclear accord, or complying but facing a more hostile and intransigent foreign political opposition (e.g. a US Republican presidency and congress).

Furthermore, the intergovernmental affairs between Middle East states are never what one would call stable and are even less so today. Finally, the conservative elements in Iran (mainly the influential religious clerics and military) who are heavily invested in the current political and commercial system, may not view the opening up of the country to be to their advantage and may try to reverse the process. Whilst the recent elections appear to show increasing public support for the reformist elements in Iran, the long term direction- whilst promising- is still far from certain.

But that is what makes emerging market opportunities like Iran so attractive and potentially lucrative for those prepared to do their homework and commit the resources to forging a successful business where others may be hesitant to tread.

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