Jan 19, 2016

    Iran poised for boom, plans $14b Airbus deal


    A PURCHASE of more than 100 aircraft from Europe's Airbus may be one of Iran's first big deals in a trade and investment boom that could reshape the economy of the Middle East.

    "The legs of Iran's economy are now free of the chains of sanctions, and it's time to build and grow," President Hassan Rouhani tweeted on Sunday, a day after world powers lifted sanctions on Teheran in exchange for curbs on its nuclear programme.

    Hours earlier, his transport minister Abbas Akhoundi told the Tasnim news agency that Iran intended to buy 114 civil aircraft from Airbus - a deal that could be worth more than US$10 billion (S$14 billion) at catalogue prices.

    Airbus said on Saturday it had not yet had commercial talks with Iran, and businesses operating in the Islamic republic will continue to face big obstacles for the foreseeable future.

    Risks include indebted Iranian banks, a primitive legal system, corruption and an inflexible labour market.

    Many foreign companies will remain wary of investing in Iran because of concern that the sanctions could "snap back" if Teheran is later found not to be complying with the nuclear agreement.

    But the Airbus plan underlined Iran's potential.

    With about 80 million people and annual output of some US$400 billion, it is the biggest economy to rejoin the global trading system since the Soviet Union broke up more than two decades ago.

    The nuclear deal removed restrictions that stifled Iran's economy for most of this decade - on banking, money transfers, insurance, transport and procurement of technology.

    This will allow Iran to satisfy pent-up demand for goods and services that it had trouble obtaining at affordable prices under sanctions, from aircraft to factory machinery, medicines and some consumer goods such as cosmetics and branded clothing.

    Iran will immediately have more money to pay for imports as the government gains access to tens of billions of dollars of its assets that were frozen abroad by the sanctions.

    United States officials have estimated the amount of funds to be unblocked at more than US$100 billion.

    Iran's central bank has said the total is much smaller at US$29 billion but that would still cover several months of imports of goods and services.

    Iran will also gain financial strength from an increase in oil exports as it becomes able to sell freely once again - though ultra-low prices, and the need to repair ageing facilities, mean the rise in revenues may initially be small.

    Mr Rouhani told parliament on Sunday that Iran aimed to attract US$30 billion to US$50 billion of foreign capital in the next five years to boost annual economic growth, now near zero, to 8 per cent - a level achieved by Asia's "dragon" economies in their best years.

    "Iranian government policies in the post-sanctions era will focus on attracting foreign investment, expanding non-oil exports and making the best use of financial assets," he said.