Iran Retail Market , Country Analysis 2015

COUNTRY ANALYSISIRAN

March 2014

MARKET OVERVIEWHistory

Iran has always been a country highly important for its strategic location, historical background and natural resources. The country has managed to build a resume of influential role in the economy of the Middle East region and consequently the world. However, this trend faced a down-fall post Islamic revolution in 1979. Iran went through a turbulent time in terms of its economy and politics not only in the local scale but also internationally. The declining status experienced a tip of improvement during 8 years of Mohammad Khatami presidency. It was indeed a time of recovery for Iran, but again the country got challenged internally and globally during the next president, Mahmood Ahmadinejad. The most recent yet important incident that can be referred to is the impact of the crippling sanctions by the US and the EU which toughened in 2012. This resulted the local economy of Iran to experience hardship in international trades, depreciation of Rial currency, a very high inflation rate and loss of jobs.

Nonetheless, with the reformist-backed cleric Hassan Rouhani winning presidential election in 2013, Iran engaged more actively in nuclear talks with the world to ease the sanctions. As a result of consecutive rounds of talks for nearly five months, Iran agrees to curb uranium enrichment in return for sanctions relief. This can surely be considered a pivot point in the economy of Iran to gain back a relatively strong position in the global politics which consequently enable economy toget on its feet and experience a good fortune.

Geographical Location

Geographically, Iran is located in West Asia and borders the Gulf of Oman, Persian Gulf, and Caspian Sea. Iran holds the world's fourth-largest proven oil reserves and the world's second-largest natural gas reserves. And the country is very rich in coal, leed, copper and chromium and many more valuable natural resources.

With an area of 1,648,000 square kilometers, Iran ranks eighteenth in size among the countries of the world. Iran shares its northern borders with three post-Soviet countries: Armenia, Azerbaijan, and Turkmenistan. These borders are more than 2,000 kilometers including nearly 650 kilometers of water along the southern shore of the Caspian Sea. Iran's western borders are with Turkey in the north and Iraq in the south. The Persian Gulf and Gulf of Oman littorals form the entire 1,770 kilometers southern border. To the east lies Afghanistan on the north and Pakistan on the south. The strategic location of Iran in the Middle East and Asia has always been of significance in terms of politics and global eye of the country.

The capital city of Iran, Tehran is located in northern part of the country with a population of nearly 15 million in the wider metropolitan area. Tehran is not only the largest city of Iran but also the largest city in Western Asia. Other major cities of Iran can be shortliste as below:

• Mashhad • Shiraz • Isfahan • Rasht • Tabriz • Kish Island • Kerman • Ahwaz • Oroomieh • Babol

Demographics

Iran has a population of nearly 80 million which ranks the country 19 in the world coming right after Turkey. With the median age at 27.8 years, it is quite noteworthy that almost one third of its population is young- ages between 14 to 50, which makes Iran a large young market in the eyes of any investor. Among Iran’s population, 25.7 million make up the labor force. Considering the literacy rate at 85%, Iranian women now account for almost 50% of the educated workforce of the country which is a unique figure while comparing Iran with other Muslim countries and most of the Middle Eastern states.

• Source: CIA, The World Factbook

Add ress : No . 17 , Navak S t . , A f r i ca B l vd .

15186-Tehran, Iran Phone: +98 21 89 337

Webs i t e : www . lavan . co

Ema i l : i n fo@ lavan . co

Political & Legal Structure

The politics of Iran take place in a framework of theocracy that is guided by an Islamist ideology headed by the supreme leader, now Ayatolah Khamenei. The constitution defines the political, economic, and social order of the Islamic Republic of Iran based on Shiite law. Iran has an elected president (with 4 year term), parliament (or Majlis), and an "Assembly of Experts" (which elects the Supreme Leader of Iran), and local councils.

As mentioned earlier, after the 1979 Islamic Revolution, the legal system of Iran was greatly altered and now it is based on Shi'a Islamic law or sharia while also many aspects of civil law have been retained, and it is integrated into a civil law legal system.

Economic Structure

The Islamic Republic of Iran is a transition economy that's being gradually transformed from a centrally planned economy to a free market and we can consider its current market type to be at “frontier” stage.

The recent political changes in Iran justify this progressive move. President Hassan Rouhani gets good marks for economic management, in addition to his opening to the West in the nuclear negotiations. Since his election in June, inflation is down, private investment is up and the currency has strengthened on the black market, according to Washington Post Journal.

Iranians foresee a future boom if sanctions are lifted and the nation fully joins the global economy. It is forecasted that Iran could see growth at 10 percent or more after 2015 if Rouhani can deliver a deal with the West. The new government has actively managed to plan for more favorable laws to motivate international trade with the ultimate goal for a prosperous economic future of Iran. Therefore, it is quite certain that with the international force being removed or at least eased, the tensile strength of Iran’s economy can bloom.

The “J Curve” justifies this progression as it is a model used as micro as for industry segments as well as macro assessment of economy rise of a country. It refers to the correlation between stability and openness which are all related to political and economic factors impacting a country and here it is another indication of Iran going forward on the curve to become more stable and yet prosperous.

Business Environment

Facing a booming economy bringing more opportunities for local and global businesses. There are certain fields more attractive than others at this stage, out of which “retailing” seems to be the top priority. Despite the fact that retail prices are predicted to continue to increase over the forecast period, total sales are forecast to grow at a healthy rate. Sales growth will be fuelled by factors like Iran’s young population and still relatively high disposable incomes. The emergence of any multinational retailers would further drive growth. On the other hand, growth will continue to be inhibited by the government’s policies regarding foreign investment and privatization, as well as ease of international sanctions.

The retail industry in Iran is largely in the hands of independent retailers (who operate through the bazaar networks) and foreign involvement is minimal. Demand for consumer goods has traditionally been largely met by imports, but domestic output has risen strongly in recent years. Foreign companies tend not to operate independent establishments but are increasingly entering into agreements with domestic partners for production under license.

Considering the two main index for evaluating the attractiveness of a country which are risk and market potential, Iran proves a competitive position shown in the figure below ranking on the countries “on the radar” for potential investment.

Stab

ility

Openness

Add ress : No . 17 , Navak S t . , A f r i ca B l vd .

15186-Tehran, Iran Phone: +98 21 89 337

Webs i t e : www . lavan . co

Ema i l : i n fo@ lavan . co

This is evident in the global ranking of the GRDI (Global Retail Development Index) grading the top 30 developing countries for retail investment based on several macroeconomic and retail-specific variables The study is unique because it not only identifies the markets that are most successful today, but also focuses on those that offer the most potential. It is too early to determine the position of Iran in the GRDI annual ranking in 2013, but it is forecasted to be among top 30 countries in 2014 with the assumption of current thriving local and global changes in progress to fructify. This projection is also contingent on the laws changing in a way to favor more of international trade rather than isolation. Meanwhile major businesses are already working on solutions to overcome the current challenges and get closer to this prosperous market.

According to The World Factbook, Purchasing Power Parity of Iran is $1.02 Trillion with a global rank of 17. This number is much higher than the regional average, suggesting a higher standard of living than its neighboring economies.

Despite the image of a hurting economy and crippling economic sanctions, Iran is reportedly experiencing an unprecedented boom in the sales of luxury products. The affluent segment tends to pay up to $360,000 for high-end vehicles. According to a local newspaper, “Hafte-Sobh”, almost 563 different Porsche models were sold in 2012 which worth a total $50 million before a hefty 100-percent import tax.

Considering the PPP getting higher for the upper class of the Iranian community, the nouveau riche segment is indeed enjoying the new situation. They, who once upon a time suffered from a lack of access to the latest playthings due to the country's isolation, are living out an affluent lifestyle spending large money on luxury brands such as Cartier, Rolex, Maserati, Porsche, Dior and Gucci.

Add ress : No . 17 , Navak S t . , A f r i ca B l vd .

15186-Tehran, Iran Phone: +98 21 89 337

Webs i t e : www . lavan . co

Ema i l : i n fo@ lavan . co

Add ress : No . 17 , Navak S t . , A f r i ca B l vd .

15186-Tehran, Iran Phone: +98 21 89 337

Webs i t e : www . lavan . co

Ema i l : i n fo@ lavan . co

COMPANY PROFILE

Founded in 1990, FARASSOO International Group has been successfully operating in the field of consumer electronics, information technology, health care and retailing in the middle east and east Asia. The company has continuously delivered unique and high-quality products and services up to the present day. With more than 23 years of experience in business intelligence, retailing, distribution, customer service, sales and marketing in various field of industries mainly in Iran and UAE, FARASSOO group has managed to develop a strong portfolio in its regions of operation. The list of companies within the group that are specialized in certain industries, regions and/or segments are listed below:

Group Structure

Manufacturing & Supply• Farassoo Ind. 12,000 SQM Manufacturing Facility

• FHC Corporation (Hong Kong) LLC. Shipping and Sourcing

• FCT Shenzhen Co. Inspection, Shipping and Sourcing

Middle East Marketing & Logistics• Farin FZCo. 1000 SQM Warehousing Facility

• Espeero Pearl P.J.S. 5000 SQM Warehousing, Transportation and Distribution

• Lavan Marketing & Advertising Specialized in Marketing planning, Retail Marketing, Branding, Marketing Communications and Advertising

Retailing• Lavan Pearl P.J.S The only 3C (Computer, Consumer Electronics, Communication) chain store in Iran with more than 50 stores across country.

• Innova Co. L.L.C. Master Franchise Retail development in GCC