Working with Iran

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With South Africa increasingly looking to broaden its political and economic reach beyond its own backyard, Pretoria is working to further boost ties with Iran.

Iran's Foreign Minister Manouchehr Mottaki is due in South Africa in late August to lead a delegation at the session of the South African-Iranian Joint Commission, the ninth such meeting in the past decade. Set up in 1996, Iran was the first country with which South Africa established such a body.

In late 2000, the Iranian parliament ratified a bilateral investment treaty with South Africa, setting out the terms of reciprocal promotion and protection of investments between the two countries. Though this move raised eyebrows, especially at a time when the US was pushing to limit trade contact with Iran, the treaty was just another step towards strengthening ties and laying foundations for the further expansion of business.

Announcing details of the commission meeting on August 16, South African Deputy Foreign Minister Aziz Pahad said that the meetings would focus on economic ties, which he said was increasing.

In the past, South Africa - like Iran today - suffered from international condemnation and trade restrictions. Some observers speculate that this may be one of the reasons that it has offered its services to help defuse the row over Tehran's nuclear programme. According to Pahad, the talks between the two foreign ministers, coming as they do just ahead of Tehran having to respond to the G5's proposals on its nuclear program, would serve as an opportunity to assess Iran's current position on the controversial issue.

That said, Pretoria's relationship with Tehran has come under scrutiny from the international community, with allegations that South Africa had offered to provide support to Iran's efforts to develop a nuclear energy capacity, which some fear could in turn spawn nuclear weaponry. South Africa has repeatedly denied that any proposals to either assist with Iran's enrichment of uranium or provide uranium oxide concentrate have ever been made.

One area that South Africa is seeking to address in its relations with Iran is the massive trade imbalance, heavily in favour of Tehran at a ratio of more than 15 to one. The fact that South Africa depends on Iran for more than 40% of its oil needs skews the figures somewhat, with imports from Iran amounting to $2.1bn in 2005, with just $114.5m worth of goods and services going the other way. With the jump in oil prices this year, the imbalance is set to rise even further to the advantage of Iran.

Meanwhile, South Africa is increasingly looking to buy into the Iranian market, with two of South Africa's leading firms taking the initiative. Petrochemicals group Sasol has a number of deals in Iran, with investments of $130m. This includes one of its subsidiaries, Arya Sasol Polymer Company, a 50-50 joint venture with Iran's National Petroleum Company. The venture's ethylene plant has an annual capacity of 1m tonnes, 600,000 tonnes is consumed by the domestic demand and the 400,000 tonnes surplus is exported.

Another big South African player that has entered the Iranian market is cellular phone operator Mobile Telephone Networks (MTN), which after long negotiations won a 49% stake in Irancell, the country's second mobile phone licence. The mobile phone network is due to commence operations at the end of August.

Other South African firms involved in the Iranian market are MINTEK and Bateman Engineering Standard Bank, and Klein Karoo Livestock Exports. Meanwhile, there are some 70 Iranian firms active in South Africa, with a large presence in the construction sector and porcelain production.

Pahad highlighted the increasing co-operation between the two countries, though he added a note of warning.

"There are many other signs that we could increase our economic relations with Iran but this depends a lot on finding stability in that area," he said.

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