The Forum for Partners in Iran's Marketplace
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     

January 2017, No. 82


Trade & Business

Iran-Germany Trade to Reach €5bn in 2017


Industrial giant Siemens AG and automaker Daimler will be among the first German firms to benefit from opportunities in Iran, but they are proceeding carefully and only after legal reviews.



“There’s a very large interest from the German side,” Gridl said. “All the German federal states have already sent delegations separate from this trip happening now.”


German firms have signed 10 business agreements with Iranian partners during the fifth session of Iran-Germany Economic Commission in Tehran early in October.

German Vice Chancellor and Economy Minister Sigmar Gabriel and his Iranian counterpart Ali Tayyebnia attended the session.

Several German Mittelstand firms, the small- to medium-sized companies that form the backbone of the economy, had signed deals with Iranian partners, including SMS group, a builder of steelmaking plants and INTRA industrial solutions.

Mitsubishi Germany signed a contract to modernize a gas-fired plant, while plant constructor Keller HCW wants to build a brickyard in Iran.

Both countries’ central banks have also agreed to a technical cooperation deal. There was no detail on the size of the agreed deals.

Industrial giant Siemens AG and automaker Daimler will be among the first German firms to benefit from opportunities in Iran, but they are proceeding carefully and only after legal reviews.

The German banking sector has been reluctant to underwrite business deals for fear of falling foul of remaining US sanctions imposed on Iran over non-nuclear issues. 

Reminder to US

Speaking at the opening of a 2-day economic forum at Iran Chamber of Commerce, Industries, Mines and Agriculture headquarters in Tehran (Oct. 3), Gabriel said Germany wanted to “remind the United States of the commitment to get to an effective dismantling of sanctions”.

“Germany wants to help Iran push ahead with reforms,” he said, adding that he believed the Islamic Republic was a reliable credit partner.

“Our aim is to support the current government with its path to opening up to the world.”

Meanwhile, head of ICCIMA, Gholamhossein Shafei said Iranians have always thought highly of German people. He added that his country is after improved economic, cultural and technologic relations with the European country. 

Balancing Act

As many as 37 business representatives from prominent German companies, including Siemens AG and Volkswagen, accompanied the minister on the flight to Iran and more joined him once the plane landed in Tehran.  

The purpose of the trip was to “position the German economy one year on from the nuclear agreement”, said Rudolf Gridl, who specializes in the Middle East and North Africa at the Economy Ministry. “We are very confident that contracts or letters of intent will be signed.”

Germany’s relations with Iran have changed dramatically in the past year. After years of Iran’s economic sanctions, negotiations between Iran and the five permanent members of the UN Security Council (Russia, China, the United States, France and Britain) plus Germany succeeded in a wide-reaching easing of sanctions in return for the country’s pledge to scale back its nuclear program and submit to international inspections.

Once the agreement was reached, Gabriel became the first EU minister to visit Iran and other German politicians have been quick to revive the previously good relations between the two countries.

“There’s a very large interest from the German side,” Gridl said. “All the German federal states have already sent delegations separate from this trip happening now.”

The main lingering problem is that the United States has only partly relaxed its sanctions. Iran can export oil and gas again, as well as access long-frozen assets, but a US embargo remains in place. That makes international banks and business, including some in Germany and France, hesitant to invest in Iran.

A dozen years of sanctions have resulted in Iran’s banks lagging behind international standards.

“The federal government tries to provide Iran technical help with regard to bringing its banking sector up to speed,” Gridl said.

There are high expectations, especially in the power, transport and health care industries. Many of Iran’s hospitals are dilapidated and require international knowhow. 

Bilateral Trade

Managing Director of Iran-Germany Chamber of Industry and Commerce Rene Harum said trade between the two countries is expected to reach €5 billion in 2017 and €10 billion in the coming years.

Speaking at the first meeting of the joint chamber in Tehran late in September, Harum said bilateral trade stood at €2.5 billion in 2015.  

He said Germany is willing to become Iran’s top trading partner, replacing China whose trade with Iran topped $22 billion in the last Iranian year (March 2015-16).

According to the Islamic Republic of Iran Customs Administration, trade between Iran and Germany stood at $2.13 billion in the last Iranian year, down 25% over the previous year.

IRICA’s latest stats show bilateral trade is already witnessing a rebound.

Iran exported 10,400 tons of non-oil goods, worth $87 million to Germany in the first four months of the current Iranian year (started March 20), registering a %1.4 increase compared with last year’s corresponding period.

Pistachios, carpet, caviar, saffron and dates were among the main exports.

More than 419,000 tons of goods valued at $671.3 million were imported from the European country during the same four-month period, indicating an 18% rise year-on-year. Imports mainly included industrial machinery, grain, pharmaceuticals and steel products. 

International Courtships

Gabriel’s visit, the second in 14 months, came as almost all Western countries step up efforts to re-establish trade ties with Iran after the nuclear deal signed on 14 July 2015. The deal, which obliges Iran to restrict its nuclear program, has led to removal of most international sanctions imposed amid fears that Tehran was planning to build atomic weapons.

However, remaining US sanctions and political concerns have so far put a dampener on Iran’s economic recovery, with European banks reluctant to provide loans as long as any sanctions remain in place.

Nonetheless, figures provided by the German Chambers of Industry and Commerce show that trade between Germany and Iran reached a volume of 1.5 billion euros ($1.69 billion) between January and July 2016. This represents an increase of 8 percent over the previous year, but is less than was hoped for.

The chamber expects exports to Iran to increase to 5 billion euros in the short-term and possibly double that figure in the long-term.

Germany has commercial and cultural ties with the Islamic Republic going back to the 19th century. 

Positive Step

The visit to Iran was a positive step on the road to expanding economic relations after years of sanctions, business representatives said.

After years of tough international sanctions it will take time to rebuild momentum in the relationship, Eric Schweitzer, President of the German Chambers of Commerce and Industry said. “Now some trust must be rebuilt,” he said, adding that Gabriel’s trip no doubt was helpful in achieving that goal.

Reinhold Festge, president of the German machine builders association VDMA, told Reuters that he came away with a positive impression after meeting with Iranian officials.

“In this respect, after this trip I am a little more reassured,” he said.

“We have earned billions from oil exports, with which we could do some good business with the Germans,” Iranian Oil Minister Bijan Namdar Zangeneh told the DPA news agency, saying that problems with bank transactions had slowed this process. “That is bad for us and also bad for Germany,” he said.

Gabriel said that despite existing financing problems, “German industry is very interested” in the rebuilding of economic relations and “so too are the Iranians.” 

Iran to Open Private Banks in Germany to Boost Trade Ties

At least two private Iranian banks will open branches in Munich. Germany has been looking to boost exports to Iran since nuclear program-related sanctions were lifted on Tehran last year.

Iran’s Middle East Bank and Sina Bank will open branches in the Bavarian city of Munich by the end of the year, Central Bank of Iran said, a development that could help boost German exports to the Islamic Republic.

Despite the lifting of international sanctions after implementation of last year’s nuclear deal, major European banks have refrained from working with Iran due to concern over US non-nuclear related sanctions. Iran has accused the United States of blocking the country’s economic integration with the world economy.

Lack of financing has upset the potential for major trade deals between Iran and Germany.

Ilse Aigner, Bavaria’s economy minister told the “Münchner Merkur” newspaper (Oct. 2) that the new Iranian bank branches would help German businesses realize greater exports to Iran.

“Business ties between Bavarian companies and Iran often fail today because of barriers in the payment process,” said Aigner, who was on her second trip to Iran this year to boost trade ties.

“That is why having branches of Iranian banks in Munich is particularly important for our businesses. Especially our small and medium-sized firms have enormous export prospects to Iran that they will be able to utilize more easily in the future,” she said.

Aigner pointed to German engineering, automotive, aerospace, environmental technology, pharmaceutical and medical technology companies as having an interest in exporting to Iran. She also said three banks would open in Munich, although the CBI confirmed only two.

Iran is also in talks with the German central bank and other banks to settle oil exports in euros instead of dollars.

Siemens said it will supply components for 50 diesel-electric locomotives to Iran. It did not disclose the value of the contract, but based on comparable deals, it could be in the low hundreds of millions of euros.

Germany was for decades a major trading partner of Tehran before the sanctions allowed China and several other nations to overtake it.

German exports to Iran jumped 15 percent in the first half of the year to 1.13 billion euros and could reach 4 billion euros in the full year, said Michael Tockuss, head of the Hamburg-based German-Iranian Chamber of Commerce. 

Siemens, MAPNA Sign Iranian Locomotive Contract

Siemens is to supply MAPNA with components for the assembly of 50 Safir diesel-electric locomotives at its factory in Karaj.

Siemens has signed a contract to support the modernization of the rail network and supply local industrial group MAPNA with components for the assembly of 50 Safir diesel-electric locomotives at its factory in Karaj.

The contract was signed on October 3 during an official visit to Iran by Germany’s Vice-Chancellor and Minister for Economic Affairs & Energy Sigmar Gabriel. It follows Siemens’ signing of a memorandum of understanding for cooperation with the Islamic Republic of Iran Railways on January 6.

‘As Iran seeks to modernize its railway infrastructure, Siemens is proud to support these ambitions’, said Siemens management board member Siegfried Russwurm. ‘We are pleased to work with our partners at RAI and MAPNA Group and look forward to contributing to the country’s sustainable economic development, of which rail is a key component.’

In 2008 Siemens and MAPNA signed a technology transfer agreement covering the production of 150 ER24PC IranRunner diesel locomotives, the first 30 of which were delivered from Germany. 

Germany Eyeing €3bn Investment in Iran

Iran said (Oct. 2) Germany is preparing to implement an action plan to invest €3 billion in different industries of the Islamic Republic.

Ali Majedi, Iran’s Ambassador to Germany, said the investments will be made through a consortium comprising six German banks.

Majedi emphasized that the related agreements for this will be signed during the visit to Tehran by the German Vice Chancellor and Economy Minister Sigmar Gabriel. 

He added that Iran and Germany have over the past months devised fast track economic cooperation plans and that those plans include the development of power plants and generation of electricity.

A recent agreement that Germany’s Siemens signed with Iran’s MAPNA Group to transfer the technology of gas-powered turbines is an example of such plans, the Iranian envoy said.

Others, he added, concern producing electric and diesel locomotives as well as train cars and providing the signaling systems for Tehran-Isfahan - and probably Tehran-Mashhad – tracks.

Majedi further emphasized that Germany’s Volkswagen plans to transfer the technology to Iran to produce two of its models – what he said will be part of the same fast track plans devised by the two countries.  

Iran and Germany used to be close trade partners but bilateral business dropped as a result of sanctions, declining to €2.4 billion ($2.6 billion) last year from around €8 billion in 2003-4, according to German figures.

 

Subscribe to
IRAN INTERNATIONAL

CURRENT ISSUE
   
  January 2017
No. 82