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The Risk Watch Column
DR ALAN WARING
Many people are pondering the outcome of the huge turmoil in Iran following the recent presidential elections. From nearly 40 years’ Iran experience, I have learned of the near futility of making predictions. Always expect the unexpected in Iran. This article focuses instead on a risk analysis of the growing ties between Iran and Cyprus.
Positive and Upside Risk Factors
• Tourism
Iranian tourists have been coming to Cyprus since at least the 1980s. In recent years, around 6,000 Iranians have been visiting Cyprus every year. However, following the bi-lateral cultural & trade agreement between Cyprus and Iran early in 2009, the Cyprus Tourism Minister Mr Paschalides announced plans to boost the annual number to 20,000. Although no timescale has been quoted, a 5-8 year period seems reasonable.
Cypriot tour companies are also promoting tourism from Cyprus to Iran. However, at present it is an elite and specialist market for the more adventurous tourist. For this to blossom will require some of the more absurdly false perceptions about Iran to be nailed – for example, that Iranians live in tents, ride camels and are illiterate. Tehran is a bustling modern city with urban expressways, swish office blocks and sophisticated, articulate people. Remember that the population of Tehran alone is more than 20 times the entire population of the island of Cyprus.
• Property and Investment
As part of the bilateral cultural & trade agreement, it was announced that special visas and resident permits in Cyprus would be created for wealthier Iranians who wished to buy a property in Cyprus (for at least €300,000) and who could prove more than a minimum level of regular income coming from Iran. Although not entirely new, this scheme will encourage more Iranians to consider the potential investment opportunity.
A number of Iranian property companies, some collaborating with Cypriot developers, have offices in Tehran and advertise aggressively via satellite TV and the Internet. Cypriot developers and agents now also advertise in Farsi (Persian) in Cyprus.
• High Net Worth Individuals
In a population of some 70 million, Iran boasts a large number of high net worth individuals who have very high disposable incomes and liquid capital. The potential for expenditure and investment in Cyprus by them is clearly attractive for the Cypriot business community. Some have been active in Cyprus for some years and others have been examining the potential, particularly but not exclusively in the property sector.
• Cultural and Psychological Affinities
Iran is a long way from Cyprus yet there are longstanding connections and affinities between the two countries. Few people in Cyprus perhaps realise that Cyprus was at various times part of the ancient Persian Empires. When we eat our karposi or torshi or drink doog irani, we are implicitly acknowledging that history through language. We even revere Artemis in common, if for rather different reasons.
When Iranians visit Cyprus for the first time, it is commonplace to hear them say how like Iran it is and how much they feel at home. The south of Iran in particular shares much in common with the environment and climate of the coastal areas of Cyprus. Iranians are usually gregarious, talkative and socially well-adjusted just like Cypriots. They have a good commercial and business sense, just like Cypriots.
• Motivation
Like Cypriots, Iranians are adventurous and like to travel. There is a huge Iranian diaspora including the USA, UK, most other European countries, Australia and UAE. Some 4million Iranians who left Iran after 1979 and their descendants live in Greater Los Angeles. Dubai and Bahrein have long been other destinations as they are so close to Iran but recently their attraction has lessened owing to the recession and its effects on the jobs market and property prices there.
Iranians are always looking for a safe and secure place in which to buy and to live. I know of one Iranian entrepreneur who spent 18 months travelling the world with a set of criteria, with safety and security at the top of the list. He now lives in Cyprus.
• Language and Education
Whereas few Iranians are likely to speak Greek, Iran is a highly educated society in which English proficiency is widespread and certainly among those likely to visit as tourists or to buy property here.
• Personal Safety & Security
The reputation of Cyprus as a particularly safe and secure environment is as attractive to Iranians as it is to many other nationalities. They want to holiday or live in a place where the risks of robbery, burglary, violence and drugs are low. This is still, thankfully, the case with Cyprus.
Negative and Downside Risk Factors
• Scale and Security of Investment
Several Iranian businessmen have told me that investment opportunities in Cyprus are too small. For example, one who has been visiting Cyprus for years and likes the place for holidays told me that thus far the value of every investment project that has been proposed to him has been far too tame. Whereas he is used to making investments of €25m upwards, Cypriot principals are talking in terms of €5-10m. These are simply too small to be attractive to the corporate or high net worth investor likely to come from Iran. Some of his colleagues make investments in €billions.
Wealthy returnee Cypriot businessmen from the UK make similar comments about scale of investment opportunities. There is thus a need to make investment opportunities more attractive to the larger investor. Perhaps the recently announced initiative by the Ministry of Finance and the Cyprus Investment Promotion Agency has a role here.
• Title Deeds and Property Fraud
The Title Deeds scandal and instances of property fraud in Cyprus are becoming more widely known. In some cases, Iranians themselves have been victims so their bad experiences carry weight. There are now advisory services in Iran providing potential property buyers going to Cyprus with briefings on the benefits and pitfalls and how to avoid them. The need to hire an independent reputable lawyer in Cyprus is emphasised.
Tehran sources directly connected with the Cyprus property market report that they are deeply concerned at the potential damage to their reputation that any hint of fraud or Title Deeds shenanigans at the Cyprus end could cause them. The recently announced plan by the Interior Minister to overhaul the Title Deeds system, even if implemented, may still not be enough to convince nervous foreign investors.
• Cost of Living
Price inflation in Iran is currently about 16% and some foodstuffs are reported to have doubled in price recently. Inflation has been fuelled by Mr Ahmadinejad’s injection of some US$30bn into the economy over the past year. Property prices have been high in Tehran for 10 years, except when oil prices fell dramatically. They have now bounced back. A 1-bedroom apartment in a modest suburb in north-west Tehran will cost around €100,000. Only the coupon system of government subsidies keeps a large part of the population from poverty.
All of this puts pressure on the middle classes who provide most of the tourists to Cyprus so the rate of growth may falter. Cost increases in Cyprus add to the problem. The swathe of high net worth individuals in Iran, however, are unlikely to be affected by rising inflation against static income from regular employment.
• Likely Numbers
In the past, large numbers of Iranians left Iran to seek a better life abroad. The under-30 age group makes up 60% of the population i.e. 42 million but it is unlikely that Cyprus will see a large influx of new refugees or armies of additional affluent property buyers. The big difference now is that many of the young in Iran are digging in and resisting rather than going into exile. Those with sufficient money are not too concerned about the political situation in Iran and come and go with relative ease.
The Cyprus Tourism Minister’s quoted eventual target of 20,000 Iranians visiting Cyprus is probably reasonable, compared to some of the more fantastic figures bandied about in Cyprus. For example, some were suggesting that Iranian tourists were going to plug the 2009 shortfall in tourist numbers to Cyprus of some 750,000 (i.e. a 30% drop in the normal total of 2.6m). Clearly, although welcome, Iranian tourist numbers are never going to save Cyprus’s bacon.
Conclusion
There are real and significant opportunities for increased bi-lateral trade between Iran and Cyprus. However, expectations must be realistic and there are some downside risks still to be addressed.
Dr Alan Waring, international risk management consultant with wide ranging experience of Iran. Contact [email protected].
©2009 Alan Waring
