AnalyticsUkraine’s piece of Iranian pie
The Ukrainian delegation is expected to visit Iran soon, for the first time after a ten-year break in relations. Against the background of lifting of sanctions, the Islamic Republic has become one of the most promising destinations for foreign investors. It is very important for Ukraine to be among the first to win a considerable share of the Iranian market and get a larger piece of the “investment pie.”
Ukraine is bridging the gap with Iran, the most attractive destination for investors today, after reaching a historic nuclear agreement with six world powers (USA, China, Great Britain, France, Russia, and Germany) in return for the lifting of the 30-year sanctions. The first visit of the Ukrainian delegation to Iran after a 10-year break in relations (since 2005 amid Iran’s complete isolation) can become a new milestone in developing economic relations between the two countries.
Iran’s attractiveness is hard to overestimate. With an 80-million population and the area comparable to that area of Western Europe, it enjoys the world’s second largest gas reserves and the fourth largest oil deposits. Iran has already declared its readiness to re-enter the global market, which will radically change the latter. All of this makes the Islamic Republic a valuable trading partner.
Western businesses are well aware that the pioneers at the forefront who will be able to win a significant share of the Iranian market, will get a larger part of the huge "investment pie." This is even despite the fact that sanctions against Iran will be withdrawn gradually, if the IAEA confirms that Iran has fulfilled all obligations. For example, the U.S. exporters have already become key suppliers of grain, while the European energy giants Total, Eni, and Saipem have begun preliminary talks with Iran to participate in the development of oil fields in the Persian Gulf. Volkswagen and Mercedes have announced their intentions to move the French car makers from the Iranian pedestal, while Coca-Cola plans a large-scale expansion in the promising market as early as in 2016.
The Ukrainian Government, which has been desperately looking for trading partners lately, is seriously considering the Iranian prospects amid general decline in exports. By the way, Ukraine’s exports to Iran amounted to $390 million in the six months of 2015, increasing by 30.5% in the second quarter. At the same time, Turkey, with its economy topping Iran, Saudi Arabia and the UAE, has imported the Ukrainian goods worth $1.7 billion in January-July. This gap may be formally due to Turkey’s GDP being twice as big as Iran’s, given comparable area and population. However, the nuclear agreement gives Iran enormous prospects. Complete lifting of sanctions will let Iran regain access to its previously frozen foreign assets, which may account to $50-120 billion, according to various estimates. In addition, the repatriation of the Iranian diaspora from around the world can further bring up to $20 billion.
Thus, Ukraine’s bet on the visit of its delegation to Tehran is justified, according to experts.
The Iranian interest
Iran's economy has been in stagnation, which intensified since 2010. Tehran feels the urgent need for agricultural production and capital investment in the key industrial sectors.
Experts estimate that the Islamic Republic requires $15 billion investment in its railways, $200 billion in the energy sector, and another $30 billion in tourism.
There are plenty of competitors for these attractive resources, but Ukraine seems to be able satisfy quite a large part of Iran’s structural needs.
"Close prospects of lifting of the sanctions against Iran have actualized the development of Ukrainian agricultural exports to Iran, as well as cooperation in the fuel and energy sector, mechanical engineering, especially in aircraft manufacturing and railway car making," said Ruslan Korzh, Deputy Minister of Economic Development and Trade of Ukraine.
A long-time supplier of products for Russia’s oil and gas infrastructure, Ukraine can now take an active part in the reconstruction of Iran’s energy potential. In particular, Turkey has already initiated a Persian pipeline project, to ensure exports of Iranian gas to Europe. Germany, Switzerland, Greece, Poland, and Austria are among the European countries, included in the project .
Given the Government's plans on reverse gas supplies, the future Iranian gas project can also heat the Ukrainian households. In addition, Iran is expected to deprive Russia of its leading position in oil and gas markets and significantly reduce the price of fuel, which, of course, will be beneficial to the Ukrainian consumers.
Iran has already presented 30 priority projects in the energy sector, able to attract many countries, including Ukraine, to participate in their implementation.
Another important area of Ukraine-Iran economic cooperation is the supply of agricultural products.
"The general desire [of Iran for Ukrainian grain supplies] is worth 3 million tonnes," said Oleksiy Pavlenko, Ukraine’s Minister of Agrarian Policy and Food.
Therefore, the Ministry’s officials have also been included in the Ukrainian delegation traveling to Iran.
Anyway, in the medium term, the Iranian economy will get a significant boost because of the need to diversify energy supplies. Those countries that are able to establish effective cooperation at the stage of the lifting of sanctions, will benefit from future economic growth, together with Iran. With its production structure meeting the needs of a post-sanctions Iran, Ukraine could take a significant share of this market, attractive to many.
Maxym Shevchenko (UNIAN)