By Christopher Alessi
TEHRAN--Despite the international sanctions that have choked off
much of Iran's foreign trade, many German companies have continued
to do business here--legally--in recent years.
Now those companies are likely to be among the first to benefit
from the country's expected reopening, after a U.S.-led deal in
July to ease the sanctions in exchange for curbs on Iran's nuclear
program.
As of last year, more than 75 German companies had operations in
Iran, according to the Tehran-based German-Iranian Chamber of
Industry and Commerce. Most of them were small, family-owned
businesses that make specialty products not directly covered by the
sanctions, often for the health-care, construction or automotive
markets.
Those companies--many of which are privately held--can typically
afford to keep a presence here in part because many have limited
ties to the U.S., whose sanctions on Iran are especially strict.
The U.S. often has relatively little leverage over such companies,
experts say.
By contrast, many of Germany's publicly listed multinational
companies, including engineering group Siemens AG, are listed in
the U.S. and have acknowledged they have little choice but to
comply with the U.S. restrictions.
"We never really left the country," said Mark Pace, the chief
executive and co-owner of Dentaurum GmbH, which has done business
in Iran for decades.
Mr. Pace added that while the sanctions don't bar the
dental-equipment company from selling in Iran, it has had to have
all of its financial transactions here approved by Germany's
Federal Office for Economic Affairs and Export Control to avoid
running afoul of U.S. and European antiterror laws.
That kind of red tape isn't the only reason that operating a
business in Iran isn't for the faint of heart. The obstacles,
experts say, include corruption, exchange-rate uncertainty and
aggressive competitors from Asian countries that don't enforce the
international sanctions.
For German companies, the biggest headache is just getting paid,
because the sanctions shut Iran out of the global financial-banking
system.
As a result, Dentaurum's sales to Iran have fallen almost 90%
over the past decade, Mr. Pace said in September, when he made his
first visit to the country as part of a delegation of German
business executives.
The difficulties have forced Dentaurum and its German peers to
look beyond chasing short-term profits. "With Iran, we have the
problem that we don't get [a lot of] money," Mr. Pace said.
That's partly because Iranian customers have to jump through
hoops just to pay their Western suppliers without violating
sanctions. They have to transfer cash in small installments through
a local foreign-exchange office or use banks from countries such as
Turkey that still have some relations with Iran, said Houman
Dolatshahi, head of Tehran-based Atieh Bahar Consulting, which
helps foreign companies navigate the Iranian market.
The United Arab Emirates is another conduit, experts say. Mr.
Pace said Dentaurum handles transactions through Dubai, which is
part of the U.A.E.
"It's more or less a miracle how the companies do it," said
Friedolin Strack, head of international markets at the Federation
of German Industries in Berlin. "We don't know any functioning
channels [that are] transparent or reliable."
Still, German executives say access to Iran's 80 million
potential consumers is worth the hassles. Iranians "are hungry for
our products. They want to have state-of-the-art technology," said
Michael Hack, director for automotive-business development at
Hilger u. Kern GmbH, a Mannheim-based supplier of pumps, valves and
other industrial equipment that has sold its products in Iran since
the 1980s.
For all its challenges, Iran does offer some business
advantages. They include a highly educated labor force of 27
million people, flat tax rates and a lightly regulated market for
foreign investment, said Mohammad Nikjoo, the head of mergers and
acquisitions at Iran's Amin Investment Bank.
Their persistence has provided German companies with an edge in
Iran.
"We want to work with [European Union] countries--especially
your country," Iranian industry minister Mohammad Reza Nematzadeh
told the visiting German executives in September. Mr. Nematzadeh
said 40% of Iran's technology and machinery has a German
connection.
The delegation's visit gave German companies a chance to talk
with Iranian distributors, who have been crucial to their business
here in recent years.
Hilger's Mr. Hack used the visit to court a new local
distributor, after the company's former distributor here vanished.
"We can't reach any of them anymore, so we quit the contract," he
said.
Mr. Hack said he is now completing negotiations with
Tehran-based Mahar Fan Abzar Co., and might even forgo Hilger's
standard prepayment requirement to seal a distribution deal. "We
could defer [payment] for the first round of goods," he said. "We
see big potential."
Hilger and other small privately held firms can improvise on
such terms in ways global corporations often can't, experts say.
Small companies "don't have time-consuming internal processes or
internal compliance controls," said Mr. Strack at the German
industrial federation. In addition, they are generally less worried
about U.S. reaction to their working in Iran, he added.
Public companies with strong exposure to the U.S. have hesitated
to jump back into Iran since the nuclear deal was announced in July
because the U.S. is expected to retain some terrorism- and
human-rights-related sanctions that would also apply to foreign
companies listed in the U.S.
German companies expect even those sanctions will eventually
end.
"No sanctions can last forever, and once they are lifted or
relaxed, then we are already there, while others have to look for
partners and start from the very beginning," said Dentaurum's Mr.
Pace. Without any shareholders to answer to, he said, it is "easy
for me to 'waste' resources on a theory that may also fail."
Write to Christopher Alessi at christopher.alessi@wsj.com
(END) Dow Jones Newswires
November 29, 2015 19:18 ET (00:18 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.