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September 2017, No. 85


Trade & Business

Despite US Sanctions

Iran Signs Its Biggest-Ever Car Deal with Franceís Renault


Iran is increasingly attracting foreign investors, despite restrictions imposed by the United States over its missile program and its military activities in the region.


The French carmaker Renault signed a multimillion-dollar deal in Tehran on August 7, agreeing to raise vehicle production in Iran just days after President Trump signed into law new sanctions against the country.

The roughly $780 million agreement to produce as many as 150,000 additional cars a year is the largest foreign auto deal in Iranís history. It was a victory for President Hassan Rouhani, who was sworn into office on August 5, after being re-elected this year promising to revitalize an economy hurt by sanctions.

Iran is increasingly attracting foreign investors, despite restrictions imposed by the United States over its missile program and its military activities in the region.

American restrictions stop most international banks from providing financing or credit to Iran, and the country is cut off from international payments systems for using debit and credit cards.

On August 2, President Trump signed into law new sanctions against Iran, Russia and North Korea. It is unclear if the Renault deal violates any unilateral US trade barriers still in place against business with Iran.

Still, the agreement to establish a joint venture with a government-run conglomerate is welcome news for Iran.

Renault has pledged to open two factories with Iranian partners.

Sanctions lawyers in the United States said Renaultís decision to proceed with the joint venture indicated it was confident that the nuclear deal would survive, despite the Trump administrationís threats to withdraw from it.

Farhad Alavi, managing partner of the Akrivis Law Group in Washington, said Renaultís decision also signaled that it had ďlikely undertaken a great deal of care to ensure that it is fully compliant.Ē

Another major French carmaker, Groupe PSA, which produces brands like Peugeot and CitroŽn, has stepped up its activities in Iran since the lifting of the sanctions last year, while the French energy giant Total signed a deal with Tehran last month to lead a natural gas project.

Renault said in a statement that the expansion would promote its brand in Iran. The carmaker sold an estimated 68,000 cars in Iran in the first six months of this year, more than doubling its sales compared with the period a year earlier. Renault said it now has about 10 percent of the Iranian market for autos.

Earlier in August, IDRO announced another joint venture, this time with Transmashholding, Russiaís largest rail equipment supplier, to develop Iranís dilapidated railway system. As part of the $2.5 billion deal, the Russian company will own 80 percent of the joint venture.

Western companies, including Renault and French rival PSA, returned to do business in Iran last year after an international deal to lift sanctions in return for curbs on Tehranís nuclear activities.

Renault will be the majority shareholder (60%) of the new joint venture company, formed with Iranian partners IDRO (Industrial Development & Renovation Organization of Iran) and Parto Negin Naseh, an importer of Renault products in Iran each taking 20%.

Negin Khodro has so far been Renaultís import arm in Iran, but following the deal, the company will take a share in local auto production as well.

The new joint venture company will include an engineering and purchasing center to support the development of local suppliers as well as a plant with an initial production capacity of 150,000 vehicles a year, supplementing Renaultís existing capacity of 200,000 vehicles a year in the country.

The first vehicles to be produced at the plant will be the new Symbol and new Duster cars, added Renault.

IDRO Director Mansour Moazzami, Renaultís Executive Vice President Thierry Bollore and Negin Khodro CEO Kourosh Morshed Solouk signed the deal at the Ministry of Industries, Mining, and Trade.

ďWe are happy to sign this agreement with IDRO and Parto Negin Naseh Company. In a rapidly expanding Iranian market, it was vital to implement plants, engineering and purchasing center,Ē said Thierry Bollore, Member of Groupe Renault Executive Committee and Chief Competitive Officer.

ďThis joint venture will enable an acceleration of our growth in this country,Ē he added.

Bollore said Renault does not consider Iran a mere sales market. He added that Iran is one of the most important strategic partners of Renault.

Moazzami announced that ď$780 million will be invested in the joint production and 150,000 people will be employed.Ē

In addition to IDRO and Renault officials, Minister of Industry, Mine and Trade, Mohammad Reza Nematzadeh was present at the event. 

Payman Kargar, former Renault Iran director and current chairman of the Middle East and India region of Nissan Group, also attended the signing ceremony. 

Models and Production Plant

Saveh, an industrial city 100 km south of Tehran, will be the new home of Renault vehicles. 

The new facility will initially produce 150,000 units this year and then an annual average of up to 300,000 vehicles, according to officials at the press conference. 

Moazzami said the first joint venture car between IDRO and the French automaker will be manufactured in 2018 at this site.

Based on the deal, Renaultís Kwid will be produced in Iran after much speculation. 

The Kwid was originally created for the growing Indian market, but Renault executives began hinting at its likely entry to Iran last year. 

Initially launched in India in 2015, the model has been hotly anticipated in the car community due to its low cost, which has been estimated to be in the region of 300 to 350 million rials ($8,000 to $9,370). 

Local Auto Parts Makers

Local auto parts makers will also be involved in the new Renault deal, with 15 firms already signing up to join the production venture. As sales ramp up, an additional 45 companies will join the project. 

Auto parts were rumored to be the sticking points, as the French carmaker was previously reluctant to deal with local parts makers. 

According to Bollore, Renault will set up an ďacademyĒ for training staff and engineers as per the latest production deal. 

The initial MoU was signed between Renault and IDRO in September 2016 in Paris. 

Renault has had a bumper year in the Iranian market, as the statistics released by the Ministry of Industry, Mine and Trade showed, by producing 42,686 cars in Iran in the first four months of the current fiscal (started March 21), with the French brand claiming a 10.4% share of the local auto market.

Following the new joint venture, Renault is set to expand its market in Iran. However, it is far behind Peugeot that had a 32.4% share of the domestic car market during the period. 

Iran Khodro (Peugeotís local partner) produces three Peugeot models, namely 206, 405 and 2008.

Overall, Peugeot manufactured 133,286 units of the three models that had a 63.5% share of IKCOís total output.

Both Renault and PSA reported last month strong first-half sales numbers from their formal return to the Iranian market.

Iranís overall car production is expected to reach two million cars a year by 2020, up from 1.2 million in 2016.

 

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  September 2017
No. 85