Dubai poised to act as bridgehead for Iranian investment

When a Dubai-based financier tried to entice a US food manufacturer to set up a joint venture to produce and distribute products in Iran several months ago, the company stonewalled.

But when news broke last month that the nuclear powers had reached a framework agreement with Tehran on its nuclear programme, the producer of household name products immediately got back in touch.

"They were straight back to me, asking for proposals as soon as possible," the financier said.

The prospect of an opening in Iran is triggering a nascent gold rush for access to a market of 77m people with oil resources and pent-up demand - with European and US companies clamouring for access. Dubai hopes to establish itself as a bridgehead for them should diplomatic progress lead to an easing of sanctions and curbs on money transfers and trade.

The emirate has the infrastructure and relaxed lifestyle to attract multinationals seeking to enter Iran, as well as a large Iranian expatriate population and United Arab Emirates nationals who trace their family roots to Persia.

"Iran is on our doorstep - we have to be there, it could be a great game changer," said Marwan Shehadeh, group director for corporate development at Dubai-based Al-Futtaim Group, which represents retail brands such as Ikea and Marks and Spencer and handles auto sales for Toyota, Honda and Chrysler Jeep.

Mr Shehadeh said the race was on for global brands to secure distribution rights and local partners in Iran, where consumers have been starved of easy access to world-class names. He said Al-Futtaim was finding ways to get its brands into emerging retail spaces in Iran, where new mall operators have been approaching brand representatives.

Many in the region remain cautious, aware that hardliners in Tehran and Washington could still derail a deal. Tensions in Yemen, where the US has lined up with Saudi Arabia in a bombing campaign against Iran's rebel allies, could also threaten the nascent rapprochement.

But, despite the uncertainty, flights between Dubai and Tehran are packed as businessmen try to rekindle relationships or seek new contacts in oil services, industry, manufacturing and real estate.

"The space of permissible activities with Iran will gradually and noticeably increase over time but this will occur in phases and will not signify the end of all sanctions," said Farhad Alavi of Washington-based Akrivis Law Group. "That said, Iran is a large enough economy that any suspension or repeal [of sanctions] can have a tremendous impact."

Dubai grew as an entrepot in the early 20th century by acting as a tax-free hub for Persian trade and has been disproportionately hit by financial sanctions imposed by Washington. Trade with Iran fell from a peak of $10bn in 2009 to $6.8bn in 2012. By 2013, the latest year for which figures are available, it had recovered slightly to $7bn.

Hossein Haghighi of the Dubai-based Iranian Business Council said trade had remained constrained since then but added there was growing optimism that flows could bounce back if there was clarity on an end to financial sanctions as part of any permanent deal.<

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"People will be more aggressive in getting prepared as that optimism is there again," he said.

As technical details of a final agreement are prepared before a June 30 deadline, Iranian businessmen are calling for the negotiators to outline clear mechanisms for financing lines to be reopened. They said without explicit assurances, banks will be wary of reprisals if the political landscape changes in Tehran or Washington.

"The fear of reprisals is as strong as sanctions and those can only be allayed if there is some sort of certification process that provides corresponding banking permissions or trade facilitation," said Amir Ali Amiri of ACL, an Iran-focused investment firm.

But some local lenders, including Dubai Islamic Bank, have been tentatively contacting former clients to prepare for the ending of sanctions, according to businessmen in the emirate.

Dubai-based conglomerates are pushing ahead into Iran. Majid Al-Futtaim, Al-Futtaim's mall operating family competitor, owns the franchise for Carrefour in the region. In the early 2000s the company split its Iranian operations off from the main business and now runs highly successful supermarkets in the Islamic republic.

"There is huge potential for more supermarkets: the company could easily double size in five years," an insider said.

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