In a few weeks, London-based boutique investment bank First Frontier will be taking a group of European institutional investors to Tehran, Iran.
This is the firm’s first trip to Iran, a country that’s been off the U.S. investment horizon for decades, but that even to many European investors, is also largely unknown and off-the-charts. But Nicholas Banszky, chairman of First Frontier, hopes the Tehran trip will result in a long and fruitful involvement in Iran, which he believes represents tremendous investment potential.
“This is something we’re very committed to and we see it as a huge opportunity,” he said.
The progress of the negotiations that have taken place thus far between Iran and the U.S. have generated a great deal of excitement in the international investment community. Many U.S. investors are believing that if the sanctions against Iran may ease, it may open the door to foreign investment—which the country desperately needs, and in large quantities, too.
Over the course of the past few years, sanctions have hit Iran very hard indeed, taking a 40% toll on oil exports and cutting the country’s total exports by around 30%, said Charles Robertson, global chief economist and head of macro strategy at Renaissance Capital in London. Iran’s GDP fell by 6% and former Iranian president Mahmoud Ahmedinejad tried to compensate for all the country’s problems by printing money, which led to a real estate price hike, an over 100% rise in the Iranian stock market and a collapse of the currency. Iran fell far behind its peers, including countries like Turkey, and salaries in Iran plunged to the same levels as salaries in Vietnam, Robertson said.
Now, though, “the new reformist government has tightened monetary policy and stabilized the currency, which has brought inflation down to around 15% from 45%,” he said. “Growth has picked up and is supported by a big surge in investment.” Robertson believes that Iran is prime for foreign investment.
“There is no other country in the world that is in the top 30 global economies that has been as closed to global investors as Iran has and I doubt we’ll have this opportunity again,” he said.
For investors such as Alison Graham, founder and CIO of Voltan Capital Management, Iran is certainly of great interest. From a macroeconomic standpoint, it has all the classic underpinnings of a frontier market prime for growth, including a large and well-educated young population that want to work and want the kinds of consumer goods that they have not had access to thus far as a result of the sanctions. Iran also has a fairly large and liquid stock market and of course, it has oil.
Nevertheless, Graham has reservations.