GERMANY-IRAN: Expanding Economic Ties

By IPS Correspondents Reprint | | Print |

Ramesh Jaura

BONN, Oct 5 2000 (IPS) - Germany and Iran are quietly expanding economic and financial relations, building on President Mohammad Khatami’s visit to Berlin in July.

President Khatami was elected in 1997 and has since then shown a keen interest in opening up doors to western Europe after years of tensions following the 1979 Islamic revolution.

His visits to France and Italy last year also underlined that interest.

The trip – the first by an Iranian leader since that of Muhammed Reza, the last Shah of Iran in 1967 – was important to Iran, hoping a rapprochement with Germany and the EU will lead to better relations with the United States which broke off relations with Iran in 1979 over the occupation of its embassy in Teheran.

The German Economic Affairs Minister, Werner Mueller, who headed a 34-member delegation of industry and banking representatives to Tehran this week said Iran had “big ambitions” to strengthen economic ties with Germany.

Mueller said he was optimistic that a German-Iranian agreement to protect investments, in the Gulf state, would be signed early next year and the German-Iranian trade commission would meet next March for the first time in 10 years.

Once an agreement for protection of German investments is in place, the German government would be in a position to grant Hermes export credit guarantees to German companies.

The so-called Hermes guarantees are a major tool to promote exports.

Presently, the German government has limited Hermes insurances to just one billion marks (480 million US dollars). But with 190 million marks this limit was all but used up.

“German business hopes that Economic Affairs Minister Mueller’s visit to Tehran will provide the psychological shot in the arm required to get German-Iranian business relationships out of the sloth of recent years and back to what they were once,” says Rainer Hermann of the reputed German newspaper ‘Frankfurt Allgemeine Zeitung (FAZ).

According to German newspaper reports, Tehran now has projects on the drawing board that should prove attractive to German companies.

These include petrochemicals, infrastructure and transport, electricity and water, shipbuilding and mining.

German-Iranian trade reached its nadir last year, with German companies shipping goods worth only 2.2 billion marks (one billion US dollars) to Tehran.

While this served to maintain Germany’s position as a leading supplier of goods, the amount was smaller that during the eight- year Iran-Iraq war.

“Only the built-in dynamics of past transactions provided some stability to business volume,” says Hermann.

The trend this year, however, is definitely upward, though nobody expects a repeat of 1992, when Germany delivered goods worth eight billion marks (some four billion dollars) to Iran.

The president of the Federation of German Industry (BDI), Hans Olaf Henkel, has identified a new business opportunity opened up for German businesses as a result of the high petroleum price.

According to Henkel, the increased revenue from oil had widened the Iranian government’s scope for investment. German firms now had the opportunity to regain the share of the Iranian market that they had lost after relations worsened.

“Without wanting to adopt a euphoric tone, I see strong opportunities that we may well be able to capitalise on as early as next year,” said Henkel.

He pointed out that the German government’s decision to raise the export-guarantee platform for Iran under the Hermes scheme to one billion marks would mean that sufficient funds would be available to secure a strong increase in exports to the country.

He said owing to the weak euro, the Iranian government would find that German products would be highly competitive in price, compared with products from Japan and the dollar-zone.

“Our industry can supply pretty well everything that the Iranian government is likely to need, whether it be in power plants, waste-management technology, construction, or in automotive vehicles,” Henkel said.

In fact, German exports to Iran already saw a strong rise in the first half of 2000. At a total volume of 1.2 billion marks, they were up 25 percent on the total in the first-half of 1999. Imports rose by as much as 43 percent to 552 million marks, though Germany uses hardly any Iranian oil.

According to analysts, the German Economic Affairs Minister’s Tehran visit took place in an atmosphere where Iran’s isolation is slowly coming to an end.

Iran recently received a loan from the World Bank for sewage disposal in Teheran, the first credit in years.

But Iran has yet to achieve a breakthrough on international financial markets as underlined by renowned Moody’s recent less- than-satisfactory risk rating of the country.

There is a lively debate in Iran, however, whether Iran has an Asian alternative to Europe, whether it can orient itself more to Asia, should Europe fail to exploit its opportunities in the Islamic Republic.

According to reports, Korea is discreetly active, countries such as Malaysia are gaining ground and Iran increasingly draws technology from Russia and China.