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Full of eastern promise

British construction firms need to cast aside notions of Iran as a hostile, fanatical backwater and and start taking advantage of its massive business opportunities says Nick Raynsford.

'USA is great evil' reads one slogan graffitied on a tall red brick wall. 'On that day when United States of America will praise us we should mourn, ' reads another.

Graffiti is probably the wrong term. Written in immaculate two feet-high Farsi and English on the wall of the former American embassy in the Iranian capital, Tehran, it is almost certainly officially approved propaganda.

The slogans are evidence of the tortured relationship Iran has had with the West in the 21 years since the 1979 Islamic revolution, which saw the pro-Western regime of the Shah replaced by the Ayatollah Khomeini's fanatically religious state.

And they probably confirm the idea held by most Britons of Iran as a hostile religious backwater whose people, whipped into a perpetual state of religious fervour by repressive and intolerant ayatollahs, spend their lives looking for western infidels to shoot.

But, according to construction minister Nick Raynsford, this perception could not be further from the truth.

'Everyone thinks Iran is dominated by Islam, ' he said. 'But that image is wrong. Tehran is one of the most secular-looking capitals in the Middle East. What I saw was very few minarets and mullahs and a lot of people enjoying themselves.'

Mr Raynsford has just returned from Iran after leading a construction industry trade mission to the country. The mission was the first ministerial visit to Iran since the 1979 revolution.

But while America remains the 'Great Satan' Britain's relationship with the country has improved dramatically in recent years. And Mr Raynsford believes that now is the time for British companies to take advantage of its potentially massive market.

'There was a degree of reservation both in business and diplomatic terms but we were definitely welcome, ' he said. 'America still has no communications with Iran but that did not inhibit us. In fact, it represents a clear window of opportunity for British firms before the US re-establishes links.'

With the minister in Tehran were some of the biggest names in UK construction, including Balfour Beatty, Amec and Kvaerner. And, Mr Raynsford said, they all came away with the same opinion.

'There was a unanimous view among the members of the British team that they should be doing more in Iran, ' he explained. 'They recognised that this is the right time.

'There is no question that it is an important market, ' said Mr Raynsford. 'Iran needs to be taken seriously. It is a very large market with substantial reserves of oil and gas. It is also strategically very significant sitting at a junction between the subcontinent, the Middle East and Central Asia. There are considerable opportunities in oil and gas, mining, metals, housing and infrastructure.'

Mr Raynsford added that, although Iran's own construction industry was well able to meet the country's needs, the Britain had a lot of specialist expertise the Iranians would like to tap.

'I think there are three strong elements that we can bring to Iran, ' he said. 'First, the ability to come with strong financial packages. Iran has substantial oil revenues. If UK companies come with strong financial packages, then they will do well.'

'Second, British firms have a high level of technical expertise, which can augment the local skills, particularly in oil and gas and major infrastructure. Third, there are considerable opportunities for joint ventures.'

This last point was highlighted at a meeting with the Iranian Chamber of Commerce at which more than 200 local businessmen turned up looking for possible joint venture partners from Britain.

Amec business development director Ian Thomas confirmed that Britain could not bring much to Iran in terms of straight construction.

He said: 'We are not into contracting in Iran.

We can't compete with local contractors. We are looking at the high-value, front-end stuff.'

This was echoed by Kvaerner Cementation managing director Stewart Keeble.

'The feeling was that they don't need a lot of help in general engineering. It is more the specialist stuff they want, ' he said.

'People were queuing up to throw tunnelling projects at us. They do have tunnelling skills but costs are so low that they want to know how they can do it better. For example, they are building the Tehran metro by hand.'

Britain's experience of privatisation of public utilities is also seen as a major attraction to Iranian officials.

'What became clear is that there is considerable scope for privatisation in a number of sectors, ' said Mr Raynsford.

But the minister warned that firms need to be aware of potential pitfalls when trying to set up business in Iran. And he identified tax and bureaucracy as the chief pitfalls.

'There is no doubt there are big obstacles, ' he said. 'It is a very centralised, bureaucratic regime, where it is unclear who are the decision-makers. That does not make it easy, especially for companies entering the market for the first time. Also there is a degree of suspicion. Finally, there is the practical issue of how Export Credits Guarantee Department cover is to be resumed. But we are well on the way to resolving these issues.'

The tax regime in Iran is a major disincentive to British firms looking at the country, a fact confirmed by Kvaerner's Stewart Keeble.

He said: 'Tax for expats can accumulate up to 84 per cent. All the embassies are lobbying to get that down.'

Mr Raynsford added: 'If Iran wants to attract foreign investment, it needs to address the tax issue.'

Mr Raynsford does not believe corruption is a major problem in Iran, although he does feel the system leaves itself open to exploitation by the unscrupulous.

'There is a lack of transparency about how contracts are awarded. In that situation there must be worries, but not major ones, ' he said.

Fact file Capital: Tehran.

Head of State: President Khatami.

Religion: 89 per cent Shi'a muslim.

Language: Farsi (English widely used in business).

Area: 1,633,000 sq km (UK: 245,000 sq km).

Population: 62 million.

Water: Plans to build numerous dams.

Power: With power consumption rising at 8 per cent annually, Iran is seeking foreign investment in the sector and plans to introduce privatisation.

Construction: In the public sector focus has been on reconstruction of industrial and housing. There are plans to build a highspeed rail link, crude oil pipelines and a number of hotels across the country.