Lifting of Iran sanctions brings hope to regional IT industry

  • Nuclear deal could mean new era for IT suppliers, distributors and channel partners in the Middle East, but caution is urged

The easing of sanctions against Iran could see the country become the fastest-growing ICT market in the Middle East, Turkey and Africa (META) over the next five years.

After a historic nuclear deal between Iran and six major world powers, the Dubai Computer Group (DCG) has hailed the development as positive, but urged members to wait for official guidelines on when they can resume trading with IT companies in Iran.

The deal, clinched last July but ratified in January 2016, followed more than a decade of negotiations. IT industry pundits in the Middle East hailed the agreement as a progressive step that could transform the Middle East.

For IT suppliers, distributors and channel partners, it could mean a new era.

While the deal will contribute to improved regional and international peace and security, lifting the trade embargo will also unfreeze billions of dollars of assets and enable Iran’s oil to be sold internationally.

Since the Joint Comprehensive Plan of Action (JCPOA) was announced last July between Iran and the P5 plus 1 group of super powers, global technology analyst IDC has said the lifting of various US, United Nations and European Union sanctions could shake-up the META ICT market.

IDC said the development will potentially see the country becoming the fastest-growing ICT market in META over the next five years.

“At present, the supply of consumer hardware to Iran is largely driven by re-exports from resellers and IT traders based in the UAE, but the easing of sanctions will enable suppliers to start building official supply ecosystems in Iran, ultimately leading to a decline in the importation of grey market goods,” said Jyoti Lalchandani, group vice-president and regional managing director of IDC META.

In its report Understanding the Iran opportunity: Where it stands as of October 2015, IDC said it expects demand for enterprise hardware in Iran to be fuelled by the public, telecommunications, energy, finance and manufacturing sectors.
Transform industries

“Once sanctions have been terminated, Iran can move forward in using ICT to transform industries across the country,” said Lalchandani. “The extent of these projects will depend largely on whether global oil prices rebound in the coming years. If they do, the increase in petrodollar revenues will help drive considerable transformation initiatives in the public sector, as well as significant modernisation efforts across the energy, manufacturing, telecommunications, finance, transportation and retail verticals.”

Meera Kaul, CEO at regional value-added IT distributor Optimus Technology and Telecoms, agreed, saying this is a big opportunity for the regional IT supply channel. With the sanctions lifted, the $420bn Iranian economy could open up for regional businesses, she said.

“This is not only a game-changer but also opens up access to educated and talented human resources from Iran,” Kaul added. “The opportunities are immense. Iranians are a major resident population of the UAE already and traditional ties to the UAE are extremely strong.

“There is no reason why Dubai shouldn’t be the largest benefactor of the demand of the Iranian economy.”

But Kaul urged Dubai-based IT suppliers to be cautious, pointing out that the guidelines, especially from the banks and other financial institutions, need to be seen before IT sales are targeted.

Hesham Tantawi, vice-president of IT distributor Asbis Middle East and board member of the DCG, said: “Until the ban imposed by banks operating in the UAE and other parts of the Middle East is lifted, it will be extremely difficult for anyone to do business with Iran-based IT partners.
Market shrinking

“We are not expecting much growth in the regional channel in the second half of 2016. This is because the market has been shrinking, compounded by declining PC sales, dropping oil prices, regional instability in some countries in the Middle East and currency volatility, especially in emerging economies in Africa.”

Tantawi said channel partners in the Middle East are developing business in their existing markets but are not cultivating new markets.

Shailendra Rughwani, president of the DCG, said the organisation had been monitoring the Iranian negotiations very closely. As soon as a deal was announcement, the trade body contacted all its members to urge caution.

“We are in contact with all our members and have already issued a statement advising them to wait until they receive official communication from the suppliers, relevant industry trade bodies and banks on when they can start supplying IT products and solutions to Iran,” said Rughwani.

“We will confirm with all our principal IT suppliers with whom we have a commitment, on when DCG members can start trading with companies in Iran. For now, we are urging our members to start preparing and be ready to move once the market opens.”
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Iain Stewart-Linnhe of Capital Club, a private city club whose members include UAE government officials and senior executives of the country’s private-sector industries, said that because Iran’s legal mechanisms remain immature compared to international markets, the onus is still on companies looking to do business with the country to show within all “reasonableness” that they have taken all measurable precautions and sought adequate advice.

“Companies should also prepare to lobby governments and institutions, such as the US Office of Foreign Assets Control, in order to demonstrate clear cases of purely legitimate commercial activity,” he said.

On a positive note, Stewart-Linnhe said that with the various risk factors taken into account, Iran offers many opportunities.

These included commercial interests in tourism and hotels, real estate, transport, automotive, aviation, pharmaceuticals and healthcare, oil and gas, foodstuffs, retail, financial services, agriculture, green energy, education and sport, he said.
Strong backdrop for growth

With a population of almost 80 million, Iran is the Middle East’s second most populous country after Egypt. Its young demography – 64% of the population is below the age of 35 – creates a strong backdrop for economic growth. The population is well educated, with more than 4 million university students, over half of them women.

Iran also has huge natural resources, with oil and gas reserves among the largest in the world. It is also estimated that Iran requires over $1tn in reinvestment, which will bring significant construction-related opportunities.

Ashish Punjabi, COO at Jacky’s Group, a company that specialises in consumer electronics and business-to-business IT, said the Iran agreement is a deal-changer for the entire Middle East, particularly the UAE in its role as a logistics and financial hub.

“When the official guidelines are issued after the lifting of the embargo, channel partners will be able to access a market of 80 million consumers,” said Punjabi. “We saw the same thing happen when the Russian markets first opened up when the USSR collapsed. There was a boom in Dubai that lasted nearly 10 years.”

Pundits say that given their well-established trade links, the UAE and Oman are likely to be the key early beneficiaries of the lifting of sanctions against Iran. Industry experts believe transport and logistics companies and the banking sectors in the two countries could see increased business from Iran.