Japan and Iran look to tighten economic ties

Published November 5th, 2000 - 02:00 GMT

Iranian President Mohammad Khatami brought a welcome gift for Japan on his historic visit to Tokyo, awarding first refusal on a vital oil concession, but he left a clear message that his country wants to do more business with Japan in return. The initial response from Japan has been to view the invitation with cautious optimism. 

 

"Iran has the potential to become a great market for Japanese companies," said Takashi Kudo of the international cooperation bureau of Keidanren, an association representing Japan's biggest businesses. "The key question is how much deregulation of industries and tax reform Iran can carry out," he said. 

 

At present Tehran imposes cumbersome requirements for foreign companies to send money out of Iran, discouraging Japanese companies from setting up operations in the Middle Eastern state, said a trade ministry official. 

 

Last year Japan's ambassador to Tehran criticized a seven-fold hike in taxes slapped on foreign business by Iran, and in particular on Japanese firms, saying that stiff taxes were discouraging foreign businesses from working and investing in the country. "Compared with other countries in Asia, Iran's investment environment seems poorer," said the ministry official, who declined to be named. 

 

In a speech delivered to Japanese business groups Wednesday, the reformist Khatami promised to take legislative measures to boost foreign investment in Iran, which ended abruptly after the 1979 Islamic revolution. "At present, we are trying hard to bring about appropriate, secure and equitable conditions conducive to the expansion of the volume of foreign investment," Khatami said. "And to that end, legislation of transparent, updated and comprehensive rules and regulations is on the agenda of the government and parliament." 

 

Khatami called on Japanese companies to expand their business in Iran, and stressed Tokyo's pivotal role in the west Asian economy. Roughly 30 Japanese companies have operations in Iran, but only three have direct investments, and they date from before 1979. 

 

Honda Motor Co. Ltd. has a 21 percent stake in a factory producing 20,000 Honda CD125 motorcycles a year. The factory was established in 1974 but a Honda spokeswoman said the company had no immediate expansion plans. "The Iranian market is one of the larger markets in the Middle East, and this year it had been very good," she said. "We try to match our production capacity to customers' needs, but at the moment we don't have any plan to increase our investment in Iran." 

 

Computer giant NEC Corp. has a communications equipment factory with a capital of $2.5 million. An NEC spokesman said the company has had a factory in Iran for more than 20 years, when demand for semiconductors in the region started growing. Under the name National Electrical Industrial Company, Matsushita Electric Industrial Co. has operated a household appliance factory since 1973. 

 

The trade ministry official said there had been no direct investment from Japan since the Iranian revolution, due mainly to restrictions on foreign investment. However, Iran is pursuing a gradual liberalization and opening-up to the world under Khatami. 

 

Taking a cue from the president's invitation, the Japanese government plans to send an economic mission to Iran next year, said an official at the foreign ministry. The Keidanren lobby sent a group of business leaders to Tehran in 1998 to persuade Iranian officials to make the country's business environment more friendly to foreigners.  

 

"Iran's government has plenty of money thanks to its oil revenue," Kudo said. "However, the country is still in need of much more infrastructure. That means there is an opportunity for Japanese companies to sell construction equipment," the Keidanren official added. "Iran can be an attractive market. It's the gateway to the Middle East, (from Japan's perspective) and the country's large population alone (of 61.1 million) makes Iran an attractive market for Japanese companies." 

 

Khatami's four-day visit to Japan last week, the first official one by an Iranian leader in 42 years, was crowned by Japan clinching exclusive negotiating rights to develop one of the biggest oil fields in the Middle East. 

 

Japanese oil firms won the right to hold talks with the National Iranian Oil Company to develop part of the Azadegan oil field in southwest Iran, which is said to have reserves of more than 26 billion barrels. Japan in return agreed to extend Iran a trade credit line worth three billion dollars over the next three years. — (AFP, Tokyo) 

 

© Agence France Presse 2000 

 

By Hiroshi Hiyama

© 2000 Mena Report (www.menareport.com)

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