Wednesday, April 19, 2006

The Islamic Regime Continues to Falter - Renault is Shaking its Head

- The last part of the article below that is highlighted in RED is very pertinent.

Developing countries such as Iran rely heavely on foreign investment for two reasons. The first reason is that these countries simply don't have the capital to invest in whatever industrial projects they wish to engage in. The second and more pertient reason with regard to Iran is that even if the developing country had the required capital, it generally won't have the technological know-how to proceed. Thus, developing countries rely on foreign investment, particularly from the West, in order to advance.

This is particularly true with regard to two recent economic success-stories: South Korea and China. Both countries have relied heavely on foreign investment in their industrial development. In South Korea, this was particularly the case with respect to its automobile manufacturing . Up until recently, the Korean car manufacturers relied heavily not only on direct foreign investment (Daewoo), but also on the purchase of Western services with regard to R&D and design. They relied on these services because they simply didn't have the knowledge or the experience. However, as the Korean economy grew and its companies became larger and larger, the country was able to stop outsourcing its R&D and design work. Thus, car manufacturers like Hyundai have started to to all of this work themselves. The same is true for China.

This is in direct contrast to Iran which has not achieved the same level of economic development. Iran still relies heavely on foreign know-how and it simply cannot perform the work itself without it. This is particularly true with regard to Iran's car industry. Even the Samand, which was largely touted as an entirely "Iranian car," was largely designed with the help of European design firms.

So what should the Iranian government be doing? Well, it should be doing everything in its power to attract foreign investment. When Western companies set up shop in Iran they hire Iranian workers and labourers. Later, they hire Iranian designers and engineers that are trained to think and question they way products are designed. This experience begins to increase the country's collective knowledge with regard to technological know-how. Once the country has used this foreign investment to increase its own knowledge base, it can go off on its own and use that knowledge to produce products that compete with Western products and, thus, furhter increase its economic strength.

So the Iranian government should be welcoming foreign investment with open arms. Instead, it signs a binding contract with Renault and continuously breaches its agreement! This isn't the first time that the regime has expressed second thoughts about its agreement with Renault. Is this how you attract foreign investment? If the Iranian government felt that the terms of the contract with the French firm were not fair, then it should have cuntinued to bargain. It can't sign a binding contract and then decide to do what it wants. No foreign company will be attracted to Iran if it feels that the agreements it enters into have no wieght or effect. They simply won't come!

The Islamic Regime has done this on a number of issues recently. The first was with regard to the services that were to be provided to the new airport in Tehran. The government signed a binding contract with a Turkish firm and then capitulated to the demands of the ARMY to breach the contract. The same result occurred with the Turkcell agreement where the government entered into a binding agreement with that firm, but then ignored its commitments and went to MTN.

The Islamic Regime may think that what it is doing is a service to the people of Iran. However, what they are really doing is a lot of damage because foreign companies will be thinking twice before they decide whether to do business in Iran. Furthermore, if they do decide to do business they will surely demand a higher price or less favourable contract terms in order to reflect the risk involved in doing business in Iran.

Such actions only harm the Iranian people.
Title: Iran suspends Renault car project (Update 2)
Source: Reuters

TEHRAN, April 18 (Reuters) - Iran has suspended a joint venture project to produce the L90 or Logan car with French automaker Renault in the Islamic republic, a government official said on Tuesday.

Analysts said the move would be a further blow to foreign investment in Iran, seen as crucial for creating jobs for the country's young population. It also comes at a time of increasing international tension over Iran's nuclear programme.

A dispute over exports of the no frills car appears to be at the heart of the dispute.

"Iran's industry and mines minister has ordered the suspension of the L90 project until Renault company considers this ministry's views regarding the project," said Mohammad Karimi, a spokesman for the ministry.

An official for the L90 project in Iran said that Renault had accepted that 60 percent of the car should be built inside Iran, the car's platform could be used to build other models and that the L90 would not enjoy a monopoly in its class of car in Iran.

But he said: "the main problem remains where Iran wants to have a share of this company's (Logan) exports".

Renault said it was working with Iran to find a solution to the dispute.

"The (Iranian) government wants to put the emphasis on exports, we are studying together all possible solutions," Renault spokesman Stephane Farhi told Reuters.

He said there was no timetable for the discussions.

Renault has said it had set up a joint venture with an Iranian partner to produce the L90 in Iran from 2006.

The L90 is better known as the "Logan", a car that Renault already produces in Romania and which forms a key part of its strategy to boost sales in emerging markets.

Saeed Leylaz, an analyst who has close links to people involved in the project, said the decision would send a bad signal to international investors.

"It is a very bad sign to the world community. It shows they can't trust us again," Leylaz said, adding that it will also have a major impact on the local car parts industry.

He said that the joint venture company had signed contracts worth about $800 million with local firms to supply parts. These contracts were now being threatened, he added.

Leylaz pointed to a previous dispute in which Iran threw out a Turkish operator of a project to run a new Iranian airport, saying it had already damaged Iran's international commercial reputation.

"In this case, we are losing our internal reputation because hundreds of suppliers are involved in this project," he said.

Original Article


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