What could be the global risk factors that can influence FDI project success in Iran?

Question

With the current events of political shift towards Iran and lifting the trade embargo, many western organisations are looking to establish market share in Iran through projects. What could be the global risk factors that can influence project success in Iran?

Answer

With sanctions lifted, Iran opens up as a large and fairly prosperous market, with many opportunities for foreign firms seeking to market consumer products. However, any form of Foreign Direct Investment (FDI) aimed at establishing a presence would come with risks; some of which are presented here. Perhaps the largest risk is that negotiations falter, and sanctions return. This could spell disaster for an ongoing project. Another risk would be the uncertain reaction that investment would incite, both from consumers and the state. With the government having been so opposed to ‘western’ influence, a sudden influx of western companies and products could elicit an unfavourable reaction – such as heavy regulations. Such a change could alter the viability of any investment. Meanwhile, as a distinct and unfamiliar culture, consumer reactions to products, branding and marketing would be uncertain, making sales forecasting difficult. A further concern is the financial performance of the country. The Iranian Rial has performed consistently badly against foreign currencies over recent years, and has experienced high inflation (TradingEconomics, 2016) - this make investment less attractive. On the other hand, Iran has proven to be one of the most secure countries in the region, and its economy is backed by huge oil and gas reserves.

References

TradingEconomics, 2016, Iranian Rial (online), available [http://www.tradingeconomics.com/iran/currency] accessed 03/06/16