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Iran 18 months after Implementation Day
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September 23, 2017
Written by:
Afshin Ghassemi

Interview with Afshin Ghassemi, Head of GERMELA Iran

The Iran Deal has sparked much interest in investment opportunities in Iran. However, some observers find it difficult to actually assess the impact of the deal. So honestly, which consequences did the lifting of sanctions bring for business development in Iran?

 

Parts of the international business community seem somewhat disenchanted looking at the economic development of Iran after Implementation Day. To be honest, I find this surprising. Yes, the Iranian economy has not skyrocketed and reached double-digit growth rates overnight. And only a few sectors of the Iranian economy have grown extraordinarily yet, but people – in Iran as well as in the West – seem to forget the importance of time. After decades of international isolation, there was little trust in the market and few points of contact between Western and Iranian businesses. So, business relations had to be built pretty much from scratch. Taking these factors into consideration, the economic growth of 7.2 % in the Iranian calendar year 2016/17 is already pretty remarkable.

 

How is the atmosphere among German business in Iran?

 

As first German consultancy with an office in Tehran, we experienced a change of attitude among many businesses. At first, companies were merely on fact-finding missions in Iran. Our new clients are generally much better informed, they already know the market and have specific business targets. Midterm, this development will further reflect the growth rate in Iran and exacerbate German-Iranian exports that have already grown by 25 % last year. In addition, the availability of Hermes covers for Iran and simplified payments are significantly smoothening Iran-German trade already.

 

Market interest in business consulting has grown to such an extent, that we actually just moved to a more spacious office in Teheran. After years of investment backlog in several sectors, the need for Western products is still tremendous, specifically in infrastructure, renewable energies and petrochemicals.

 

What are the current challenges?

 

The main challenge for foreign investors is still financing. As long as Iran is not fully integrated into the international banking system and banks continue to be reluctant financing ventures in Iran, many international companies will continue to hesitate to enter the market.

 

The political will in Washington in order to smoothen Iranian bank operations is currently lacking. However, this should not obscure the fact that Iranian banks need to do their homework as well. Too often, international standards of accounting and controlling are not met by Iranian banks. There can be little doubt that further professionalization in the Iranian banking sector is necessary, and this professionalization needs to come from within.

 

Other key challenges include the often dubious ownership of Iranian companies and the apparent corruption. The recent elections gave the moderates under Rouhani a strong public mandate despite mediocre improvements in the quality of life of most Iranians.  The smashing defeat of the reactionary candidate Mr. Ebrahim Raisi leaves the hardliners in a position of unprecedented weakness. This will equip the Rouhani administration with more leverage for necessary economic reforms in order to make Iran even more attractive to foreign investors.

Egypt's Movable Securities Law of 2015

First, a new Egyptian law governing the taking of security over movable assets was passed in November 2015 (i.e. the law no. 115 of 2015). The new movable securities law introduced the principle of non-possessory collateral security. Its broad scope includes movable assets as well as intangible assets such as receivables, credit notes and intellectual property rights.

According to the respective Executive Regulations, issued in December 2016, the Egyptian Financial Supervisory Authority will establish an electronic online-based registration system for all pledges established under the new law to be registered and published.

However, the registration of a pledge agreement is not mandatory and a lack of registration will not render the pledge void. Still, registration of a pledge will grant the creditor a secured first rank security over the pledged asset. Furthermore, the pledged asset will be excluded from the debtor's insolvency estate thus providing even better security to the pledgee, provided the respective pledge under the new law has been perfected and registered before the commencement of the insolvency proceedings.

Pledges over Movable Assets and Receivables in Turkey

In January 2017 the new Turkish law on movable property pledges in commercial transactions (i.e. the law no. 6750) entered into force. The new legislation's principal aim is to facilitate small and medium sized enterprises' access to financing solutions that come with little interference with business operations as well as minimal financial burden with regard to commercial collateral.

The two most important changes in the legal framework for commercial pledges pertain to its scope:

While formerly only financial institutions, sales enterprises operating on credit and cooperatives could act as a pledgee and only the owner of a commercial enterprise was allowed to enter into a pledge agreement as a pledgor, the new law substantially widens the personal scope of commercial pledges. Under the new law pledge agreements are namely divided into two distinct groups with regards to the personal scope. First, where a financial institution accepts a pledge as collateral, merchants, small traders, farmers, producer organizations and self-employed persons may act as pledgee. Secondly, merchants and small traders may enter into pledge agreements with each other. This means, that commercial pledge agreements are no longer restricted to contractual relationships vis-à-vis financial institutions, but can be utilized in an extensively broader spectrum.

The second amendment to the scope of commercial pledges deals with the assets that are qualified as pledgeable. Formerly, pledge agreements were strictly limited to specific assets such as commercial titles and trade names as well as local equipment assets. Under the new legal regime the scope of pledgeable assets includes all of the pledgor's tangible and intangible assets.

Turkey will also establish a new Pledged Movable Property Registry that will be responsible for the receipt and validation of the respective written pledge agreement as well as for registration, monitoring and facilitating an increased transparency of commercial pledges.

Simplifying the UAE's Procedures for Pledges

 The United Arab Emirates (UAE) have created a new legal regime regarding the pledge of movables as security for a debt which entered into force in March 2017 (i.e. the law no. 20 of 2016). As opposed to the situation in most other middle eastern jurisdictions, the notion of disembodied pledges as well as pledges over movable and intangible assets is not entirely new to the Emirates' jurisdiction. Pledge agreements with such scope had been introduced to the UAE's law in 1993 by the Commercial Transactions Law (i.e. the law no. 18 of 1993) already. Still, the new law makes commercial pledges easier to handle by broadening the scope of admissible assets significantly and simplifying the procedures for pledges.

The scope of the new law covers any movable asset, tangible or intangible, existing or in the future.

Furthermore, the most important procedural step for creating a pledge over and asset will be registration of the pledge with the Security Registry. Once this registry is established – presumably on an electronic basis – no execution of an agreement before a notary public will be necessary anymore, as it was under the Commercial Transactions Law.


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