Donald Trump’s Iran-baiting presidency may be about to end, but many of the investors who piled into the country following the 2015 nuclear deal remain cautious. However, a few are willing to test the boundaries under president-elect Joe Biden.

“In the near and medium term the opportunity is arguably bigger for financial investors than strategic investors,” Omid Gholamifar, CEO of Serkland Invest, tells fDi.

“Foreign industrial companies looking at Iran will probably be even more hesitant this time around. Many companies have been coming and going... and newcomers would want to see a clear path ahead rather than being forced to leave again.”

First time unlucky

In the wake of the Joint Comprehensive Plan of Action (JCPOA) signed by Iran and the P5+1 bloc (China, France, Russia, United Kingdom, United States – plus Germany) in 2015, a number of European companies rushed to announce projects in Iran.

Various heads of state used their political capital to facilitate trade and investment with the country including then Italian prime minister Matteo Renzi. Mr Renzi spearheaded a diplomatic and business mission to Tehran in April 2016, where Italy’s state investment bank CDP issued €4.8bn in trade and investment guarantees. China, South Korea, Austria, Denmark, Italy, France and Russia also issued state credit lines worth billions of dollars to support projects in Iran, encouraging many foreign companies to get involved.

“We believed in [investing in Iran],” says Stefano Falconio, head of business development at Carlo Maresca, an Italian company that joined trade missions with Mr Renzi. Carlo Maresca invested €8m in a solar park that came online in 2018, while also obtaining permits for another two 100MW plants.

However, the situation completely changed following the election of Mr Trump.

“Everyone [pledging government support] disappeared,” recalls Mr Falconio. “Since then we’ve seen it all – sanctions, troubles with earnings repatriation, forex risk, inflation. Now with Biden we hope the situation will normalise, but we won’t build the other two solar plants. What if in four years another Republican president turns the table upside down again? We will tread carefully in the future.”

Foreign investors, mostly from Europe and Asia, announced 91 projects worth $18.1bn between July 2015, when the JCPOA was signed, and May 2018, when Mr Trump announced the US withdrawal from the agreement, according to foreign investment monitor fDi Markets. Very few of the projects have come to fruition.

Hitting the lines

It may take time and more robust guarantees to encourage strategic investors to return to Iran but some frontier financial investors have already taken the plunge.

Swedish-based private equity Serkland Invest has been investing in Iranian consumer goods and pharmaceutical companies since launch in 2017.

“[Following Biden’s election], we have started reaching out to people to be on the radar of those interested in investing in Iran,” says Omid Gholamifar, founder and CEO, Serkland Invest.

“Most companies that want to be successful in Iran need to invest and produce here, which often requires multinationals to buy local companies to get a foothold in the market. [...] When things stabilise, a lot of local companies will be bought by international investors and private equity will facilitate that.”

An uphill road

The future of the JCPOA and US sanctions remains the elephant in the room and Mr Biden has hinted he will take a more moderate approach than his predecessor.

“The mechanics and sequencing of an American re-entry into the JCPOA remain to be determined, but it will not be harder than when the deal was originally struck, when taboos needed to be broken in Tehran and Washington,” Esfandyar Batmanghelidj, founder and publisher of Bourse & Bazaar, a media company that supports business diplomacy between Europe and Iran, says.

Rejigging the JCPOA may not be enough. Mr Biden will also have to reverse engineer the wide net of sanctions introduced by Mr Trump.

“[Mr Biden] would still have to make the case that revenues from the oil and gas sector are not used to fund the activities of the Revolutionary Guards,” Torbjorn Soltvedt, Middle East analyst at consultancy Verisk Maplecroft, says. In October, US Treasury secretary Steven Mnuchin claimed Iran’s oil sector financed “destabilising activities”.

Change in rhetoric

Nevertheless, the election of Mr Biden has already encouraged some investors.

“This is what we have been waiting for,” says Maciej Wojtal, chief investment officer of Amtelon Capital, an Amsterdam-based fund launched in 2017 to invest in Iranian listed companies.

“We have a long list of potential investors that never decided to pull the trigger not because of investment risks, but because of legal and sanctions risk. We expect that those risks will matter less and start disappearing,” he says, adding that the fund has performed strongly in euro terms despite the adverse circumstances.

The US sanctions regime under Mr Trump was marked by aggression and a malicious legal vagueness that meant the direct or indirect risks were too high for most non-US companies.

“We had no sanctions risks because we were investing in non-sanctioned sectors and companies,” says Kiyan Zandiyeh, chief investment officer at London-based frontier markets investors Sturgeon Capital, which launched an Iran fund in 2016 and moved it out of its structure in 2019.

“The risk was that services providers having US businesses may not want to work with us. If the situation gets better, which is really unclear at the moment, we will actively be looking to bring the fund back under our own management.”

A Persian saying goes: “You don’t put a wooden pot on the fire twice”.

Investors in Iran got burnt during the Trump presidency and Mr Biden will have to overhaul the sanctions regime for many to give the country another shot. However, the opportunities in the oil-rich country may be so great that a few are already willing to overlook the risks.