Iran’s Incentives Draw Turkish Investors: Increasing Cooperation within D-8

Tehran, Iran | July 31, 2009 by D-8 Secretariat

With natural gas 80 percent cheaper and electricity 75 percent cheaper than in Turkey, it is easy to see why Iran’s investment zones are receiving attention

Turkish neighboring Iran is slowly but surely opening up to the world, welcoming foreign investors with attractive incentives. Many Turkish companies are rediscovering Iran’s low costs and tax advantages, but some businesspeople fear the situation could develop into a transfer of investments from Turkey to Iran.

Vehicles with Turkish license plates, people speaking Turkish and investment zones and incentives being created solely for Turks are just a few of the signs indicating that Iran is drawing closer to its northwestern neighbor.

The changing face of Iran brings both opportunities and risks for Turkey. As the country slowly opens its doors up to the world, investment opportunities create a new market for Turkish companies. But Iran’s attempts to draw Turkish companies with attractive incentives may divert investments there, as some Turkish firms contemplate moving to Iran altogether.

A 30-hour road trip that passes through Tokat, Erzurum, Erzincan and Ağrı takes a Turkish traveler from Istanbul into Iran through the Gürbulak border gate.

The change in Iran can be observed in figures: since 2002, the country has drawn $35 billion in foreign investment, attracting it mainly through incentives and changes to the law. The government has put great emphasis on foreign investments in the oil, natural gas and petrochemical sectors, among others, insures those who receive foreign-capital licenses so that an investor whose plant is shut down in an extraordinary situation such as a war would be paid back the amount of its investment.

In Iran, the cost per worker stands at around $510. There is no tax on earning up to $440, while costs above this figure incur a 10 percent tax. Taxes taken from foreign companies are down to 20 percent, from around 60 percent just a few years ago. Depending on the investment area, tax exemptions of five to 10 years are in place. Machinery and equipment imports are also exempt of customs tax.

If an investment is made with an Iranian partner, banks can provide low-interest, long-term credit, which may reach up to 80 percent of the total investment.

Considering that natural gas is 80 percent cheaper and electricity is 75 percent cheaper than in Turkey, it is easy to see why Iran’s investment zones are receiving attention.

Industrial backbone

Tabriz, one of Iran’s key industrial cities, hosts more than 8,000 factories, along with the country’s first and only “Free Foreign Investor Zone,” which holds nearly 100 factories operated by companies from 23 countries. An organized industrial zone opened four years ago has been developing rapidly.

Turkish businesspeople have made 38 investments in the city, two of which were founded with 100 percent Turkish capital. Many cars with Ankara and Istanbul license plates are visible.

Mohammed Reza Zafarani, the managing director of Tabriz’s foreign investor zone, told daily Referans that Iran has close relations with both Central Asia and Turkey. “The union in language and religion opens new doors and opportunities,” Zafarani said. “We have created many advantages, cutting down costs for investors.”

In its first phase, the foreign investor zone was established on 267 hectares of land. Subsequently, 4,000 hectares have been added, with the investment zone growing 15-fold due to the rising interest. “In other industrial zones, average investments stands at $600,000, but here it is $2.8 million,” notes Zafarani, who said that zone businesses employ an average 65 workers, compared to 23 elsewhere, and have an average investment area of 11,000 square meters, compared to 4,000 square meters in other areas. “Energy consumption is also four times higher,” he added.

The zone is divided into three areas: The first for companies that export 85 percent or more of their products; the second for those that produce for the Iranian market; and the last for high-tech companies. Turkish companies are generally located in the first area.

Coming out of its shell

“Iran needs investments in tourism, energy, banking and telecommunications,” said Ali Osman Ulusoy, the president of the Foreign Economic Relations Board’s Iran Business Council. “We do not know much about Iran. But slowly, it is doing great things. They know much about trade. Consumption items are changing. Electricity and rents are very cheap. Iran is coming out of its shell.”

Earlier this month, Iranian Ambassador to Turkey Bahman Hosseinpour said that the trade volume between Iran and Turkey is currently at around $11 billion. Noting that Iran would welcome Turkish entrepreneurs in its market, he called on businessmen to hurry and invest in Iran. “Iran imports via the Persian Gulf. I believe a portion of Iran’s imports can come via Turkey,” Hosseinpour said, adding: “Our relations are based on a ‘win-win’ understanding. There is no loser. I think whatever we need in Iran, we can buy from Turkey.”

The Aegean Region Chamber of Industry (EBSO) Vice President İbrahim Gökçüoğlu said Turkey and Iran are the strongest economic powers in the region. “Iran needs Turkey to open up to the West, while Turkey needs Iran to open up to the East,” he said. “Looking at the economic potential of the two countries, their geographical proximity and neighborly relations, the trade volume between Turkey and Iran must be higher. Turkish companies plan to establish ties with their Iranian counterparts in the automotive, textile, leather, paper, glass, agriculture and chemical sectors,” Gökçuoğlu said.

According to D-8 Secretary General Dipo Alam, this is an inspiring news for the development of cooperation of the both member states of D-8. He said that in D-8 RoO and PTA agreement, as well as in the Protocol on the Common Preferential Tariff Scheme (PRETAS) and the Preferential Tariff Scheme for OIC (PTSOIC), and in economic cooperation of ECO, this sort of bilateral trade and investment is strongly encouraged. “And vice-versa, we hope that Iranian investor would also be interested to invest in Turkey, especially in Eastern part of the country where development has yet to catch up with its northern and western region,” he noted in his office on Friday.

Read Also

• Bangladeshi Minister Calls on Turkish Investors to Enter Bangladesh
• Iran seek special ties with Pakistan, Increasing Cooperation within D-8
• Land Transportation Pakistan-Iran-Turkey will Facilitate More Economic Cooperation
• Iran-Turkey on Trade Corridor
• Turkey Keen on Boosting Trade with Iran
• Turkey, Iran developed project to expand Energy Cooperation
• D-8 Gears Ahead on Industrial Cooperation
• Turkey, Iran Can Work Together in Industry, Tourism Sectors
• Secretary General: D-8, ECO, and OIC should Encourage Trade between Turkey and Iran
• Turkey, Iran Seeking to boost Trade to $30 Billion