7 – 9 May 2017Dubai World Trade Centre

Four reasons why Iran is the growth engine for the automotive market

www.automechanikaDubai.com

Iran. The next hub?

As part of a series of reports on the region’s automotive aftermarket, the team at Automechanika Dubai explores four key reasons why Iran’s automotive market is set to take off again and could soon become the next hub for the Middle East’s automotive industry, as we explain later.

1. Joint comprehensive plan of action

When Iran was said to have verifiably met its nuclear commitments, the Joint Comprehensive Plan of Action was implemented in January 2016. This means the United States and European Union have lifted their imposed nuclear-related trade sanctions and can once again conduct business with the country. Global auto giants are amongst one of the first and most significant sectors to be driving forward on re-entering the Iranian automotive market, mainly through joint ventures and other such partnerships.

2. Promising economic, demographic and geographic factors

Iran, the oldest country in the world with a land mass the size of Western Europe, is home to a 79 million (mn) strong population, 40 per cent of whom is in the 20 to 40 bracket and 30 per cent in the middle class category – a ready and exciting consumer base for car manufacturers to tap into. Bordering 15 countries, it is also an ideal gateway to a larger consumer base of more than 400 million.

The International Monetary Fund (IMF) predicts that Iran can now turn on its head what was a negative GDP during the sanction period, to a five per cent growth rate. The lifting of the sanctions has brought about a drop in inflation to about 16 per cent, from 30 per cent. These will all be contributing factors that encourage international players to once more invest in Iran’s automotive market.

3. Iran’s need for knowledge transfer

Aspirations are to increase automobile productivity in Iran to 3 million (mn) vehicles by 2025 from circa 1.4 million in 2015. Experts predict Iran will soon become the fifth fastest growing automotive market in the world. However, aged technology and methods characterise automotive production in Iran today and this needs to change if significant progress is to occur. With little government investment during the sanction period, there is now a need for lifecycle investment and to overhaul the industry to bring it to international standards. This poses huge opportunity for international auto giants who are willing to invest capital and expertise to reap the benefits of what could become the Middle East hub for the automotive market.

4. Major names are returning to the market

As soon as the sanctions were lifted, the major European car manufacturers in particular, were making moves to re-enter the market. PSA-Peugeot Citroen was the first global auto giant to re-enter the market through a partnership with Iran’s biggest car manufacturer, Iran Khodro Co. (IKCO).

As reported by Iran Daily immediately after the Joint Comprehensive Plan of Action was implemented, car manufacturers from at least six countries were already in talks to re-enter the market, namely, Austria, France, Germany, Italy, Japan and Turkey. Once commitments for international finance from the world’s auto giants is confirmed, the Iranian automotive market is likely to take off again at a rapid pace, paving the way for opportunity and development in the aftermarket and services sector.