Posted by meb at July 27th, 2009

Neighboring Iran is slowly but surely opening up to the world, welcoming foreign investors with attractive incentives. Many Turkish companies are rediscovering Iran’s low costs and tax advantages, but some businesspeople fear the situation could develop into a transfer of investments from Turkey to Iran

Vehicles with Turkish license plates, people speaking Turkish and investment zones and incentives being created solely for Turks are just a few of the signs indicating that Iran is drawing closer to its northwestern neighbor.

The changing face of Iran brings both opportunities and risks for Turkey. As the country slowly opens its doors up to the world, investment opportunities create a new market for Turkish companies. But Iran’s attempts to draw Turkish companies with attractive incentives may divert investments there, as some Turkish firms contemplate moving to Iran altogether.

A 30-hour road trip that passes through Tokat, Erzurum, Erzincan and Ağrı takes a Turkish traveler from Istanbul into Iran through the Gürbulak border gate.

The change in Iran can be observed in figures: since 2002, the country has drawn $35 billion in foreign investment, attracting it mainly through incentives and changes to the law. The government has put great emphasis on foreign investments in the oil, natural gas and petrochemical sectors, among others, insures those who receive foreign-capital licenses so that an investor whose plant is shut down in an extraordinary situation such as a war would be paid back the amount of its investment.

In Iran, the cost per worker stands at around $510. There is no tax on earning up to $440, while costs above this figure incur a 10 percent tax. Taxes taken from foreign companies are down to 20 percent, from around 60 percent just a few years ago. Depending on the investment area, tax exemptions of five to 10 years are in place. Machinery and equipment imports are also exempt of customs tax.

If an investment is made with an Iranian partner, banks can provide low-interest, long-term credit, which may reach up to 80 percent of the total investment.

Considering that natural gas is 80 percent cheaper and electricity is 75 percent cheaper than in Turkey, it is easy to see why Iran’s investment zones are receiving attention.

Industrial backbone

Tabriz, one of Iran’s key industrial cities, hosts more than 8,000 factories, along with the country’s first and only “Free Foreign Investor Zone,” which holds nearly 100 factories operated by companies from 23 countries. An organized industrial zone opened four years ago has been developing rapidly.

Turkish businesspeople have made 38 investments in the city, two of which were founded with 100 percent Turkish capital. Many cars with Ankara and Istanbul license plates are visible.

Mohammed Reza Zafarani, the managing director of Tabriz’s foreign investor zone, told daily Referans that Iran has close relations with both Central Asia and Turkey. “The union in language and religion opens new doors and opportunities,” Zafarani said. “We have created many advantages, cutting down costs for investors.”

In its first phase, the foreign investor zone was established on 267 hectares of land. Subsequently, 4,000 hectares have been added, with the investment zone growing 15-fold due to the rising interest. “In other industrial zones, average investments stands at $600,000, but here it is $2.8 million,” notes Zafarani, who said that zone businesses employ an average 65 workers, compared to 23 elsewhere, and have an average investment area of 11,000 square meters, compared to 4,000 square meters in other areas. “Energy consumption is also four times higher,” he added.

The zone is divided into three areas: The first for companies that export 85 percent or more of their products; the second for those that produce for the Iranian market; and the last for high-tech companies. Turkish companies are generally located in the first area.

Coming out of its shell

“Iran needs investments in tourism, energy, banking and telecommunications,” said Ali Osman Ulusoy, the president of the Foreign Economic Relations Board’s Iran Business Council. “We do not know much about Iran. But slowly, it is doing great things. They know much about trade. Consumption items are changing. Electricity and rents are very cheap. Iran is coming out of its shell.”

Ahmet Ortatepe, the president of the Productive Industrialists and Businessmen’s Association, or ÜSİAD, was not so positive about the change. “In fact, Iran is a danger for Turkey,” said Ortatepe, who recently went to Tabriz as the head of a delegation of 50 businesspeople. “If things go like this, Turkey will not be able to keep its small- and medium-sized enterprises. Recently, we held talks with executives of a bankrupt company that produced zippers in Turkey. They wanted to sell their $300,000 facility here and go to Iran.”

Still, there are disadvantages for foreign investors in Iran, too. Yavuz Erdoğan, the owner of the Turkish firm Plasmod, is currently owed $100,000 by Iranian businesspeople. “Due to the [political] events of the past month, cash flows stopped,” he said. “Iranian businessmen generally say they cannot make money due to the situation and do not wish to pay.”
source: Hurriyet daily news

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