By Asa Fitch and Benoit Faucon 

After years shunning Iran, Western businesses are bursting through the country's doors.

France's Peugeot and Renault SA are building cars. The U.K.'s Vodafone Group PLC is teaming up with an Iranian firm to build up network infrastructure. Major oil companies including Royal Dutch Shell PLC have signed provisional agreements to develop energy resources. And infrastructure giants, including Germany's Siemens AG, have entered into agreements for large projects.

After Iran's nuclear accord with world powers lifted a range of sanctions, many foreign investors began to push into the promising market of 80 million people, setting off skirmishes among European and Asian companies eager to gain a step on more cautious American rivals.

Peugeot Middle East chief Jean-Christophe Quemard says his company's early entry has left American competitors in the dust. "This is our opportunity to accelerate," he said in February.

U.S. companies are at risk of losing lucrative deals to early movers into the Iranian market, analysts say. But as latecomers, the companies likely won't face a learning curve in dealing with the political risks and the bureaucratic difficulties in Iran.

Apple Inc. explored entering Iran after the Obama administration allowed the export of personal communications devices in 2013, according to people familiar with the matter. But the company decided against it because of banking and legal problems, these people said. Apple declined to comment.

U.S. companies usually need special permission from the Treasury Department to do business with the country. So though the Chicago-based Boeing Co. got the go-ahead to sell 80 craft worth $16.6 billion to Iran last year, the list of American firms with significant Iranian deals is a short one.

Further complicating matters for U.S. firms: President Donald Trump threatened to rip up Iran's nuclear deal during his campaign and he hit the country with new sanctions shortly after taking office. On Sunday, Iran imposed its own sanctions on 15 American companies, mainly defense firms.

The nuclear deal removed a range of U.S., European Union and United Nations sanctions in 2016 that had held back Iranian energy exports and put the brakes on foreign investment. In exchange, Tehran agreed to curbs on its nuclear program. But while food, medicine and agricultural products are exempted from U.S. restrictions, American products are available in Iran often only through foreign subsidiaries or third-party importers.

Two of the world's biggest auto makers, Ford Motor Co. and General Motors Co., have steered clear of Iran since the nuclear deal. A spokeswoman for Ford said the company was complying with U.S. law and didn't have any business with Iran. GM is focusing "on other markets, and other opportunities," said spokesman Tony Cervone.

Meanwhile, Peugeot, officially known as Groupe PSA SA, is aiming to hit annual production of 200,000 cars in Iran by next year in conjunction with its partner Iran Khodro, after the two signed a 400 million-euro (about $430 million) joint-venture agreement in June. Already, the pace of both Peugeot's and Renault's car sales in Iran has more than doubled. In February, Renualt sold 15,230 vehicles in Iran, up 175% from a year earlier.

On a recent visit in Tehran's biggest hotels, lobbies were full of foreigners huddling with prospective Iranian partners. A packed automotive conference in February drew top executives from Peugeot, Renault and Citroën. The same day, the Swedish prime minister was visiting a Scania truck factory west of the capital following its deal to supply Iran with 1,350 buses.

Iran has caught the attention of a broad spectrum of investors beyond autos, with foreign companies selling everything from gas-powered turbines to mining technologies in the country.

Government-approved foreign direct investment shot up to more than $11 billion last year, official figures show, from $1.26 billion in 2015. Pedram Soltani, the vice president of Iran's Chamber of Commerce, said more than 200 foreign business delegations have visited Iran since the nuclear deal took effect.

"We see what's happening in the U.S. and Mr. Trump's comments," says Ghadir Ghiafe, an Iranian steel-industry executive who is exploring partnerships with South American and European companies. "Our businessmen don't pay much attention to it."

Foreign firms still face daunting obstacles to do business in Iran. Iran placed 131st out of 176 countries for corruption in a ranking by Transparency International last year. It also has major economic problems, including high unemployment and a banking system saddled with bad loans. Large international banks remain reluctant to re-establish links with Iran despite the nuclear deal. That reluctance has made transfers of money into and out of Iran a challenge.

Some large multinationals -- including major oil companies and infrastructure giants -- are keeping a close eye on the U.S. and its new president, in case sanctions snap back into place. Shell, Total SA of France and OMV of Austria have signed memorandums of understanding for deals in Iran but have yet to finalize terms.

Last month, Total Chief Executive Patrick Pouyanne said the company would wait for clarity from the Trump administration before completing a $4.8 billion investment in the country's huge South Pars offshore gas field.

But many foreign firms are finding the country's growth hard to ignore.

The International Monetary Fund recently estimated the economy grew by 7.4% in the first half of the Iranian fiscal year that ended this month, rebounding from a decline in the previous year . Meanwhile, a surge in demand has pushed consumer spending in Tehran to $5,240 per capita in 2017, up by around 11% compared with 2016, according to the London-based Planet Retail.

The upshot is even if there is demand to buy American, much of Iran's market is left to European and Asian firms.

"The market is now more diverse with Chinese cars and we realize how important it is to have satisfied customers," says Mohsen Karimi, a sales manager at Iran Khodro, a domestic auto manufacturer that has a partnership with Peugeot. Khodro had sold out its stock of cars this past year, and was now behind delivery targets for advance sales, added Mr. Karimi.

Like many Tehran residents, Alireza Aniseh wanted his first car to stand out in a streetscape filled with boxy Iranian models. The 24-year-old says he is leaning toward buying a Toyota Corolla or Camry, but his dream is owning a Ford Focus.

"Who doesn't love American cars?" he says.

--Aresu Eqbali contributed to this article.

 

(END) Dow Jones Newswires

March 27, 2017 05:44 ET (09:44 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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