Arab Business in Iran: Looking Beyond Regional Rivalry
With high disposable incomes furnished through oil rents, the GCC economies are geared towards the consumer. Famed for massive malls, expensive cars, luxury housing, and entertainments galore, perhaps no other group of countries around the world are as defined by such conspicuous consumption. To underscore the point, a recent report by Global Footprint Network, an environmental protection institute, suggests that if every person in the world consumed resources at the same level as Emiratis, we would need 5.4 planet earths to sustain humanity.
Created to answer this insatiable demand, the GCC region's most successful conglomerates are not in manufacturing or industry, but in consumer-focused sectors like food service, real estate, hospitality and leisure, luxury retail, and FMCG.
Given that Iran has a large consumer driven economy, with a middle class that will benefit from post-sanctions economic growth, GCC companies are actually very well positioned to transfer their knowhow to the Iranian marketplace. A recent study of which companies would most quickly benefit from an Iran deal was “loaded” with GCC companies, particularly those based in Dubai.
This fact complicates the political economy of regional relations in the Perisan Gulf region. Most analysis focuses on the increasing rivalry between Iran and the Gulf states, especially Saudi Arabia. However, the prospects for business tell another story, in which trade and investment can aid the development of a regional geopolitics based on mutual gain rather than mutual antagonism.
To illustrate this point, below are 5 leading companies from the GCC, which could make it big in Iran due to their consumer driven businesses.
It remains to be seen if opportunities in Iran will be enough to outweigh the rivalry in regional politics. But it wouldn't be the first time that commerce has overcome conflict.
- Majid Al Futtaim Group, Dubai, UAE- Retail Development
Revenue: USD $6.8 billion
A holding company specializing in large-scale retail and hospitality projects, MAF Group owns some of the iconic malls and hotels in the Middle East. While we might imagine an MAF backed five-star mall development in Iran one day, it is MAF’s longstanding role as the regional partner for French hypermarket chain Carrefour that has won them early success in Iran. With the first store opening in 2009, a subsequent $400 million dollar investment has seen hypermarkets open in Tehran, Shiraz, and Esfahan. The company boasts of plans to open 15 more locations, and aims to dominate the sector with a mix of hypermarkets and smaller supermarkets.
- Aujan Group Holding, Dubai, UAE- FMCG
Revenue: USD $200 million (Iran entities only)
Continuing the FMCG theme, another Arab success story in Iran can be seen in the experience of Aujan Holding Group, the regional partners for The Coca-Cola Company, which purchased 50% of the Aujan Industries subsidiary in 2011 for nearly USD $1 billion. A separate Iran-registered joint stock company, Aujan Industries Iranian Company, is the manufacturer and distributor of Rani and Coca-Cola beverages in Iran. Importantly, Coca-Cola’s tie-up with Aujan excluded the Iranian business. This leaves the door open to future capitalization and expansion, as Iran exhibits the second largest absolute value growth in MENA region soft drinks in the next few years.
- Olayan Group, Saudi Arabia- FMCG and Food Service
Revenue: Undisclosed
A diversified Saudi conglomerate, Olayan has operations in everything from business services to construction. But it is the group’s holdings in fast-moving consumer goods (FMCG) and food service that position it for an Iran market entry. In the area of consumer goods, Olayan has longstanding relationships with global giants such as Mondelez International, Nabisco, Kimberly Clark, and Colgate-Palmolive. These US-based multinationals have limited exposure to Iran’s market, and Olayan’s local supply chain could be adapted to ensure distribution to Iran. But perhaps more uniquely, Olayan is the regional franchisee of Burger King. The first firms to rollout globally recognized fast food and fast-causal chains in Iran will tap into a massive unmet demand, and Olayan is a company with the muscle to do so.
- RAK Ceramics, Ras al Kamiah, UAE- Ceramics
Revenue: USD $1 billion
It is a little known fact that the largest ceramics manufacturer in the world is located in one of the lesser-known Emirates. RAK Ceramics produces everything from toilet bowls to tableware in over 8000 designs. RAK Ceramics has a presence in Iran, but tough economic conditions and supply chain issues have depressed profits this year. The company has begun scaling back its Iran operation. RAK Ceramics boomed on the back of procurement in the GGC, as large-scale residential and hospitality developments mushroomed. In this way, the supplier’s success is connected to consumer demand. Similar construction volumes could be expected across Iran’s multiple metropolises in a post-sanctions environment. As a global leader, RAK Ceramics is certainly poised to benefit as this massive market on its doorstep becomes easier to engage.
- Damac, Dubai, UAE- Real Estate Development
Revenue: $556 million (Damac Properties only)
With over 100 buildings either complete or nearing completion, Damac has emerged as a leader in Dubai’s crowded real estate development market. Until now, groups like Damac have seen Iran as a source of high network individuals, eager to establish a residence in Dubai. But looking forward, economic growth and freer financing will make Iran the next big real estate story in the Middle East. As a private entity, Damac is likely to be less entangled in the political battles between Abu Dhabi and Dubai on the issue of engaging Iran. This differentiates it from Emaar, with its legacy as a formerly 100% government owned entity. Investors are taking note. The listed entity Damac Properties Dubai saw its stock rise over 8% immediately following the conclusion of the April JPOA framework agreement between Iran and the P5+1 powers.
Photo Credit: Koroush Complex
