The automobile industry is the biggest non-oil sector within the Iranian economy. For over two decades, this country has suffered due to tough economic, trade and oil sanctions, courtesy the West.
With outdated technology, enduring decades-old locally-assembled designs that still pass off as best-selling cars, the nation’s auto sector leaves much to be desired. The lack of capital investment due to sanctions imposed have also led to poor machinery being assembled and pitiable manufacturing facilities.
Iran’s recent nuclear agreement with the US and other powers does signify a new era of openness and OEMs are already jockeying for pole position. While the lifting of certain economic sanctions may happen by early 2016, investment is expected to return and the upside potential that Iran can offer could be realised after decades of stifled growth and innovation.
With European and US automakers essentially absent from the automotive market entirely, Chinese automakers have cashed in and how – Chinese brands account for 17 out of 30 vehicles sold – and they’re assembled locally.
French automakers have already indicated their interest in entering the market, with diplomatic delegations from Germany, Austria and Spain stepping up the ante to establish deeper economic relations.
Over half of the 80 million population is below the age of 30 and this new generation of Iranians may fuel the demand for new and fresh vehicles that are expected to be launched in the country. With approximately 200 vehicles per 1,000 inhabitants in 2011, Iran is well above China (113) but below other countries in the region, namely including Turkey (233), Saudi Arabia (336) or Lebanon (434).
But a number of obstacles still remain, such as political volatility, high unemployment, the eighth-highest inflation rate globally, and interest rates of 20% or higher. The heavy reliance on oil production and distribution, which comprises approximately 80% of export volumes, means the market will continue to be exposed to related fluctuations.
Given the variables that remain, industry advocates will need to assess the issues specific to Iran as they look to re-enter the market.
For the Indian automobile sector, this market has huge potential in terms of growing our own exports. There has been a gradual increase in the export of significant passenger vehicles as indicated in the accompanying table but we definitely have a lot of ground to cover.
More developed nations such as Japan, Korea and Germany have seen the automotive industry play a key role in the development of these economies; in fact, all these countries have significant auto exports. Hopefully, the Indian automotive industry is also poised to play a major part in the years to come and should look towards making inroads into the Iranian market.
The author is partner, Price Waterhouse (also an auto sector expert)