Maciej Wojtal (Should you invest in Iranian equities?)

  • 00:00:20 How Maciej got started with Amtelon Capital and why he chose Iran as a primary investment target?
  • 00:05:33 Why is Iran like Russia (and Eastern Europe ) in the 1990s? Is there a catalyst for Iran making it back to be connected with the rest of the world?
  • 00:14:25 A short story of sanctions against Iran.
  • 00:26:06 How Iranians and the regime in Iran differ? Why is the regime so successful in controlling power?
  • 00:32:32 What are great businesses to invest in Iran?
  • 00:48:11 How Iran avoided the ‘Dutch disease’ of big commodity exporters.
  • 00:56:08 Is Iran starting to be a new part of an ‘Axis power’? Will this hamper the participation of outside investors in the Iranian market?

Maciej Wojtal is the founder and CIO of Amtelon Capital which is focused on investing in Iranian equities. Maciej has worked with Citigroup and JP Morgan before running his own fund.

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Torsten Jacobi: Maciej, welcome to the Podcast. Thanks for coming on, really appreciate that.

Maciej Wojtal: Yes, thank you for having me here.

Torsten Jacobi: Hey, absolutely. You run something really interesting and you are the cofounder and the CIO of Amtalan Capital, which really focuses on investing primarily in equities in Iran, from what I understand. That sounds really cool, really unique. I have never heard about an investment fund out there that actually invests in Iran. How did that happen? How did you get started on why Iran? Why not something that’s a little more politically correct, so to speak?

Maciej Wojtal: Yes, well, it is super exciting. And when I speak to the local regulator in Iran, they tell us that we are their favorite foreign investor, foreign institutional investor, because we are the only one. There is really no other foreign institutional investor in Iran, so we are the only ones. So I decided to launch Amtalan Capital back in 2016, when JCPOA, the nuclear agreement, was implemented. And the reason why Iran and not something else was actually pretty simple. There was no other market. There’s still there is still no other market at this moment in the world with lower evaluations, a higher growth potential, both like a long term structural growth potential, as well as near term growth that will be coming from the reopening of the country or reintegration of the country with the rest of the world. And to be honest, this is potentially the last opportunity of this size. So the type of opportunity, I mean, is a transformational opportunity. So country going from one situation, because it’s not from one system to another, I don’t expect any political, you know, revolution or transformation there. But the economic situation will change, will change from a, you know, decades of sanctions, where the economy was basically cut off from the rest of the world to the economy that is slowly opening up, catching up with the rest of emerging markets, with everything good that happened in the rest of the emerging markets over the last two decades. And on top of that, no one is there. So Americans cannot touch it. So all the big funds out there have to wait until the primary US sanctions are lifted. So suddenly you get, you get to go to a new market like this of this size and invest before the big US funds go there. It doesn’t happen too often. And what I mean of this size, what I mean by this size is, you know, that’s another unique thing is that you may have some frontier markets that you can get excited about because of demographics, you know, growth potential, whatever. But usually they have no capital markets. You can go and launch startups, build a factory, a bank, whatever. And here you already have pretty well developed capital markets, stock market with 600 companies. Right now it’s around $250 billion market cap. Back in 2016, it was already $100 billion market cap. And right now several hundred million dollars turnover per day. And so, you know, big enough market to be attractive even for big investors. I mean, too big to ignore basically. And for us with a new fund, startup fund that wants to basically focus on this niche and do the initial fundraising and so on. Well, there was looked as an amazing setup with everything that we needed in place. So hence the decision. And, you know, the important thing is that I had no connections to Iran. So I actually had never met an Iranian in my life before my first visit to Tehran. So I had no bias. It wasn’t the case that, you know, my, I don’t know, half of my family was actually from Iran. So it was somehow convenient for me to focus on this market and maybe travel more, whatever. No, I was able to focus on any market out there. And Iran was just based on the risk reward that I saw there. Risk being obviously geopolitics, but it seemed to be at that time turning in, you know, with the more positive momentum and rewards coming from the lowest valuations in the world. And all this and all this growth potential look to me like, yeah, exactly like the best risk reward out there.

Torsten Jacobi: Yeah. So it’s either very gutsy or very crazy decision that you made a couple years back. I hope it’s the former. One thing that I heard you talk about on another show is that you compared Iran right now to a post 1990s Russia. Eastern Germany that is very low earnings to valuation ratios. You had, where, yeah, just the climate where everyone had this this appreciation of change, appreciation of the future. Entrepreneurship was strong and was really grassroots. I will be seeing now in the U.S. where you need to be a $3 billion. No, it’s something where we all fell. Then I was part of that in Eastern Germany, where we all fell. The future is kind of in our hands. I mean, they did this grassroots, massive collabs, grassroots entrepreneurship, as he describes it, what we are missing. And it really drove these in Eastern Europe really quickly into what a decent part of the European community where they are right now, rather than 10, 15 years. It happened really quickly. Why do you say Iran is at a similar precipice? And do you see any catalyst that it will very quickly, say the next 10 years, will be more like a normal Middle East country, which is, you know, the Middle Eastern countries all are, they have quite a bit of turmoil. At least some of them. We just talked about Syria and a couple of episodes ago. What do you think Iran is at a precipice?

Maciej Wojtal: Yeah, look, so it is fair to compare it to Eastern Europe in the 90s. It’s not the same. It’s always different. But what I mean by that is that certain dynamics may be similar. So going from one system that is restricted in some way, in Eastern Europe, it was, you know, socialism slash communism, and this, people were entrepreneurial, but they were not free to really, to really, you know, do what they wanted to do. And then after 1989, all this unlocked. So in Eastern Europe after 1989, all this energy was unlocked, basically, and people started really wanted to work and they started chasing their dreams. And this, and you could see this entrepreneurial entrepreneurship in action. It was quite chaotic in the 90s. You know, I lived in the 90s in Poland, and it was chaos. I mean, there were, you know, institutions were not working properly. It was corrupt. Bureaucracy was a huge headache. It was absolutely a mess in many places. But it worked. And the pace of changes was amazing. So everything was very dynamic. So after 10 or 20 years, Poland changed completely. And the rest of Eastern Europe, it became much more stable, much more easy to forecast, but also hence much more institutionalized in every corner. But hence also the, you know, your expected return also much closer to the mean, let’s say, to whatever from, I don’t know, investing in real estate right now in Eastern Europe is similar to Western Europe, actually, in terms of your risk reward. So this is what I expect in Iran. A similar growth coming from people who are entrepreneurial and from foreign investment. Because look, the same, the same role as Eastern Europe played for Western Europe in the 90s, for Germany mainly, but also France, Italy, where Eastern Europe was basically a hub, a source of cheap labor, where it made total sense to locate your factories over there, take advantage of this cheap labor force, and then also be ready to benefit from the growing middle class that was showing up there like 10 or 20 years later. And suddenly it was, you know, it became an important consumer market. Same thing will happen in Iran. I mean, Iran, look, Iran is quite a big country. It’s 84 million people. They have the largest oil and gas reserves combined, oil and gas reserves in the world. Plenty of zinc and zinc and copper resources as well. But the most important resource is the population, is the Iranian population. It’s a well educated society with a median age of 30 years old, where I think it’s not, it’s unlike the rest of the Middle East. It’s not very similar to other Middle Eastern countries. It’s, you know, the sense of 5,000 years of history that they have is you can feel that. And this is what’s been important for them generation after generation, so this focus on education and so on. So you have very skilled labor force, which because of the sanctions, is right now cheaper than in Vietnam. So, you know, the average salary is probably around $200 in Iran. You can even hire computer scientists, so people who can code for, you know, 800 bucks, whereas, you know, even in usually Novgorod somewhere in the middle of Russia, it costs you $3,000, right, to hire someone. So, right now for you, if you’re a big, you know, European or Asian company corporation and want to, looking for a place to manufacture stuff, and then also to start promoting your brand because you will find, you know, you want to be present in the new consumer market, it’s a no brainer to go there. But also, you know, it’s not only that, it’s not only these 84 million people because Iran has very good links with other countries in the region. All the neighbors, so Iran plus all the neighboring countries, it’s 500, more than 500 million people. And countries like Iraq or Afghanistan, which is obviously in the news right now, they import most of their products from Iran, the products they consume from Iran, not only oil or gasoline, but, you know, food, cars, car parts, even cement, so things that are not that easy to import. So, companies that are based in Iran are well positioned to export in the whole region. So, this is another argument for big multinationals to go to Iran, as soon as, you know, geopolitics set up. So, this is one, another reason why I think that, you know, it could be similar to Eastern Europe. Of course, the differences are big as well because, you know, Eastern Europe, or at least, you know, Central Europe was on the path to NATO and then European Union quite quickly. So, nothing like this will happen in Iran. But what will, what might be similar, and I think will be similar, is that big investment, big FDI investment should come from European, major European companies, you know, which are already there. A lot of Swiss and German companies and French and Italian companies are already there, have been operating under the radar throughout the Trump administration, just not to get into trouble, but have been, you know, patiently waiting for, for an opportunity to scale up their, their operations. And we are in talk, we are in touch with them with, we’re speaking with all of them to understand what’s going on. And, and yes, and they’re all thinking about expanding their operations, same for big Japanese companies.

Torsten Jacobi: Well, when we, we just talked about sanctions, but only briefly, and I think this is, this is a huge catalyst, right? So maybe we, we, we roll up at this story of sanctions a little bit, right? So from what I know, this is very limited, the sanctions were put in place for the nuclear, uranium enrichment, that a lot of countries were concerned that there’s a nuclear weapon that Iran will build and use against Israel. I think that was the biggest concern, a really near term concern. And then it was an agreement reached, I think it was under the Obama administration that they stopped doing this. They only use it for civilian purposes for a couple of nuclear power plants. And then once they adhere to this, it would be, and that was, I think the story of the end of the Obama administration, that was basically catalyst for working with Iran with less sanctions, right? So there’s still sanctions in place with much less. And then Trump came around, a picture changed in Iran was that the big, big bogeyman, based on the analysis of that administration, that there was a lot of states funded terrorism. And we know that Iran does it through a proxies. And obviously what’s terrorism and what’s the freedom fight, it’s very difficult to say sometimes, right? So we do know that there is a gray line, a gray zone, that we see this in Taliban, with the Taliban in Afghanistan, who were friends, enemies. Now they are like an administration really, really don’t know what they are and who they are to an extent. So maybe you can help us understand what happened to these sanctions. Are they justified? And do you think they just going to go away very soon under the Biden administration, which would be obviously huge catalyst?

Maciej Wojtal: So there are many different types of sanctions. And those sanctions have been in place for quite a long time. I mean, you know, the first, the first event that influenced the relations between Iran and the US was obviously the Iranian Revolution, 1979. And the takeover of, of, of the US embassy and the American hostages. So, you know, it happened a long time ago. But it’s based on what I, what I managed to, to find out and understand. This is something that basically poisoned the relations for the, you know, decades to come. It’s, it’s, it’s actually amazing. But this, this, this one event was so strong that it fueled the, you know, the propaganda on both sides, meaning American politicians were using this argument to, you know, to portray Iran as the, as the bad actor always, and, and, and, and was very much in line, you know, with the recent history and, and with the sentiment in the US. Iran obviously did the opposite. I mean, the same thing, but towards the US in its own country. So, you know, death to America for the last 40 or 50 years. And, and, and, and this is the, the, the big Satan and the whole poll, maybe not the policy, but, you know, the philosophy of the country is very much centered around, you know, the active fight against, you know, the US. So it’s a problem because that when they sit down and want to talk, it’s just much more difficult because even if they want to make a deal quickly and smoothly and they agree on the principles, they have a lot of this sentiment that is a very, you know, long term and well established on both sides that they need to deal with. So I think this is actually the biggest issue in speaking to each other. Then at some point they also had, you know, more hard line leadership on both sides, right? So either, you know, on the US side, when Iran was getting into the axis of evil or any, you know, this type of philosophy, then in Iran, you had Ahmadinejad, who was, you know, basically talking about removing Israel from the map and, and firing missiles and, and he got, I think, the, the very heavy UN sanctions on the country where even Russia and China voted to impose, you know, sanctions on Iran. So, and that was, I think, you know, somewhere between 2009 and 2013. So what changed later, and then Obama actually initially increased sanctions on Iran before making a move offering to negotiate an offering to, to side the nuclear deal, which happened in 2015, was implemented 2016. And the nuclear deal said that UN sanctions were lifted, and US secondary sanctions were lifted. So what was left were US primary sanctions. Now, what that means is, so US primary sanctions basically say that Americans cannot touch Iran. They cannot invest there. They cannot do business with Iranians and so on. Nothing. And US secondary sanctions say that everyone else should not be doing, you know, either the same thing as Americans or, or to a less extent. So what happened was that the secondary sanctions were lifted. UN sanctions were lifted. So suddenly all non US persons were allowed to engage with Iran. And that was in 2016. That was, you know, where we got involved with Iran, why there was a lot of excitement in Europe, especially about, you know, business in Iran, because the legal obstacles were gone. Now, this, this obviously changed with the change of the US administration. But that was, but that was the situation then. And look, like the big, big opening, meaning when Americans could start to invest in the country in Iran, Iran could happen after primary sanctions were lifted. But this, this will be a longer time process. I mean, this will require a Congress approval. This will require, so Republicans will have to be, I think at least 10 Republicans will have to be on board. So it will not happen soon. And it would have to be combined with, with also, you know, other things that Iran would commit to. So not only the nuclear, the uranium enrichment that you mentioned. So, so yes, okay. So going back to Obama, Obama said, you stop uranium enrichment. And, and we, and we lift the secondary sanctions. And, well, pretty much this, this is what happened. Now, what Obama wanted in the long term. And then what Trump said was that, okay, but we want you to also stop doing other things, like meddling in the region. So stop sponsoring all the, all the militias, all the, all the groups across the region that are causing problems. And, and also stop working on your missiles on your ballistic systems. So when Iran hears that, they are saying, well, first of all, missiles, I think it’s a no go. They will, I think they will never agree to, to stop working on, on, on, on their, well, defense systems or missile systems, they say it’s only defense systems. Why? Well, they look after the revolution. So 79, where the country was, you know, still not well set up. Saddam Hussein, the leader of Iraq at that time, attacked Iran, using actually a lot of weapons that he got from Americans. And Iran didn’t have any missiles at that time. And they couldn’t defend against, you know, what, what, what, what Hussein was throwing, throwing at them. And at that time, Iran actually reached out for help, you know, Europe, the US, to the neighbors, and so on. And they didn’t get any help from anyone. And now they are using this argument. And I think it actually makes sense that, look, we have the right to protect ourselves. We experienced, you know, a serious eight year war that was devastating. No one helped us. So sorry, but we will not negotiate on that. And so this is one argument. And then when it comes to, you know, the, the groups working in the region, well, it’s more nuanced. I mean, obviously, the US will say, look, these are terrorists, and you’re just supporting terrorists. Iran will say, look, as you, as you pointed out, these are freedom fighters, or these are Shia minorities in a Sunni, Sunni region. And, you know, and they need help because they are a minority and, and everyone around them is aggressive. So we are just supporting our own. And this is, or we are supposed to supporting, you know, Palestine, or, or the minority in Lebanon, or, or Yemenis, or Shia minority in Nigeria, actually. So yes, this is, this is the philosophy. Then, you know, the US will say, which is a valid argument, look, they behave like terrorists. So, you know, their tactics are like terrorists. So, so that’s why, you know, they are terrorists. And, you know, and, and, and the argument, it’s, it’s not, it’s not easy to, to resolve. So, I think it will be, for Iran, it’s also part of their defense strategy. Let’s say that they are getting involved in the region before anything comes to Iran. Look, Iran is the most stable country in the region. Like really nothing, nothing happens there. Tehran, city of 10 million people, 10pm at night, you see women walking by themselves, nothing is happening. And it’s not because police is on every corner. No, it’s just, it’s just pretty safe. Okay, probably I stick to the better parts of Tehran. But still, okay, it’s a 10 million city, 10 million people city. So everything is happening in the city. And, and, you know, in the center, you just feel safe. And they say, Okay, that’s partly because we do, we are active in the region, and we don’t wait for the problems to come to us. So, well, these are, these are, this is what they’re discussing about. I don’t think that the Iranians would, that it will be easy to make Iranians just stop getting involved or stop working on their missiles. Unless there is like a really long term incentive, long term deal, where they would get a lot, they would benefit a lot from the only something like this would make them, you know, change their strategy, change their behavior.

Torsten Jacobi: Yeah. Well, you know, but what’s, what’s very difficult from the outside, and you are an Iranian insider now, that’s why I’m asking, it’s, and I noticed from Eastern Germany, think about it, how difficult it was to see what is what the people on the ground, the actual people who live in that country, what is their opinion, and what is an oppressive government, tyrannic government opinion, right? So we see this in North Korea, we see this in Iran, we kind of assume this for China, maybe true or not, we assume this for Russia, maybe true or not. But we have trouble and I think the US is always very careful to make that distinction, even though it gets lost. We know it is, there’s people on the ground who have maybe very different incentives, very different goals, very different objectives, very different opinions, but they are not, they’re not allowed, they are not able to, to really create a voice in that country because of suppression, or maybe because they are too stupid, you know, you can say this about Eastern Europe, why did the revolution in 89 not happen in 96 or 49? That’s a very interesting discussion to have, I think. So what, when you, and you said that earlier, there isn’t a big political revolution that you see coming up, and I think the US was very supportive when there’s demonstrations and then they die down after two days because people lose their jobs, and you know, there’s a lot of ramifications from this. When you, when you get a sense of what people on the ground actually feel, even though they are not able to officially say that, and maybe that this event, but what do you think are the goals of the population? Do they differ from the administration? Is that something you can talk about?

Maciej Wojtal: Yes, so I think it’s, in Iran you have, it’s a, it’s a, it’s a quite diverse society. So you have, you know, different parts of population may, may think in a bit different way. So the wealthy parts of Tehran are, in terms of their mindset, in terms of their aspirations, ambitions, the lifestyle that they would like to have, it’s, it’s very much like, like Western Europe, like, like the Western world. The same goes in terms of how religious they are, their, what, what they need, what they want in terms of personal, you know, freedom, political freedom, and so on. On the other hand, when you go to smaller cities, people are much more conservative. You can even see this in the way, you know, they dress, the way, you know, what, what lifestyle they have, which is much more religious, much more dogmatic in terms of mindset. So, so yeah, so it’s, so it’s not the case that, you know, all Iranians think the same. There is no opposition in the country. For, you know, different reasons, I probably think it’s, it’s similar to China, which, which is a, you know, it’s a, it’s a, it’s a quite an efficient machine, right, that is working there, the system, and, and that’s it, and it’s just controlling everything. So I think it’s just similar, similar picture there. And so, but people, you know, at least over the last, you know, four years, when it was really tough, I mean, and it was really depressing, depressing because they had a lot of hope. It was amazing. It was so much hope like 2016, 17. And then Trump came over and, and, and this hope was crushed, right? So without getting into argument, whether, you know, what was justified was what not. Just what I, what I saw when I talked to people was that they’re optimism, you know, and, and, and hope that I could see 2016 was gone, completely gone. And, but still, you couldn’t sense that people suddenly thinking about, you know, revolution going out on the street and not, I don’t know, fighting with the government or who, or whoever, whoever, people were more always focused on evolution. So they won’t change. They want, like everywhere, usually want the system to change in one way or another, maybe in Iran, a bit more, but, but more for evolution than revolution. That’s, that there was always my, my sense, maybe, maybe it might change, but I’ve, this is what I’ve always experienced.

Torsten Jacobi: Yeah, I remember the days of 89, when, you know, people were on the streets, but it was all, I mean, it was 99, 99.9% peaceful, right? And then people were like, well, simply if you want to go to Western Germany for a couple of days, and they were like, okay, you can go, but you have to, like, go through this process, right? And then a week later, they said, oh, you can still go, but you can’t, you can only go to Berlin. And then a week later, they were like, okay, you can go wherever you want. And a week later, okay, now you get, the Western Germany would give you money when you come over, right? Just to visit Western Germany. It was a very interesting program. And this changed so quickly, like it was an evolution, but the evolution was every week, there was a different reaction to that pressure. So I feel like it always starts with an evolution, but the speed of the evolution looks to the outside of like a revolution, like nobody wants violence. So I think this is true for both sides.

Maciej Wojtal: So it’s a different pace in Iran, because I think it’s more driven by demographics than, than political events, you know, in Eastern Europe, things had a catalyst and it just started, started happening quickly. In Iran, this is actually a similarity with, with other Middle Eastern countries is that, you know, whatever philosophy was the dominant one back in 1979, and over the following, you know, two decades, it cannot be the same philosophy right now, because the majority of the population were born after the revolution, and they just cannot relate to the slogans to, you know, to this, to this original philosophy. So they, they have different aspirations. They have different worldview and mindset. And, and that’s why the system has to change, I think. Same thing in Saudi Arabia, right? People are just super young. They, they, they know what they want from the internet, basically. And so that’s why they, they, they, they also need to adjust. So it’s not because the system wants to adjust, it doesn’t have a choice. They need to adjust. So, but that’s why it’s also happening much slower, I think, over there.

Torsten Jacobi: Yeah, I fully agree with that. And I was just in Egypt for a couple of weeks. And I, you can see it in Egypt, too, right? To see this, this huge modern part of Egypt, which is propelled by young people. But I mean, it goes up to the 40s, I feel. And then you have this, this, this other part of Egypt, which kind of clashes with it, which is, you know, very comfortable Muslim values, traditional values, keeping you safe, keeping you in the right mind space, being close to God, which is really what I think the, the most popular philosophy to look at your own country for a long time. And now these young people are there. And they, they kind of, they both just want, I think they just want to be left alone, right? But making a cohesive policy out of this is almost impossible because they’re kind of at current philosophy, how we look at the world, they’re kind of opposite ends. We see this in Afghanistan right now, right? So we thought it’s going to be modern democracy, but oh, you know what, actually, what a good part of their country once is the opposite, which is no democracy and being close to God, being close to Islamic values, being close to Sharia. And that’s kind of a surprise, right? So the end of history didn’t arrive. Like Fukuyama said, it is the end of history. History is still going on, right? So there’s always something new. But talking about something new, I want you to give us an idea of what is really hot in Iran right now. So we know there’s a lot of state owned enterprises that are basically probably not your focus, but there must be other great businesses. And we heard of Bitcoin mining, but other businesses that are worth investing into where you think this is really going to rock it the next 10 years, with or without a big catalyst. Where would you, where do you actively research right now what kind of businesses?

Maciej Wojtal: So now there’s, you know, the good thing about Iran is, is that it’s a, you know, proper economy, well diversified economy. So all this oil and gas is just, you know, maybe 5% of GDP used to be 15, 15 before sanctions. And now it’s somewhere, I don’t know, in single digits somewhere. So the rest you have, you know, manufacturing services, most of, most of industries, most of sectors are there, because they, they didn’t have a choice. They had to develop all the different industries to become, you know, to do as much as possible self sufficient because of the sanctions. So, so, so that basically they could survive all the restrictions put on them. And it worked. And so and so this was one thing, but also they had enough scale, a scale of, you know, again, this 84 million people, but also the export markets that are around them, where Iranians, you know, have have traditional historical connections. Many of these countries speak the same language. So, so it was easy, easy for them to export. So what we are looking for is last four years. And I think right now it’s also a similar time that it’s, it’s worth looking at companies that are basically dollar assets that just happen to be listed in Tehran. So you have exporters or companies that sell domestically, but at prices that are benchmarked against some, some global prices. And whenever the local currency drops depreciates, you know, their revenue just jumps together with the dollar, their earnings accelerate even more because of operational leverage. They keep their costs in depreciated real and their revenue is in dollars. So all the, all the additional, you know, dollar appreciation, all this additional revenue goes straight to, you know, to operating profits. And so, so these are the companies that usually tend to benefit, show the acceleration of profits first when the currency depreciates. And so right now the currency started to depreciate again in the second half, which, which we expected to some extent because there’s a couple of factors. Usually after the presidential election, the currency depreciates a bit because they try to stabilize it before the election. Then you had lockdowns again. And lockdowns do have an impact because important sources of hard currency that goes into Iran are, is the regional trade. One, one, one source is the big trade, but this is affected by US sanctions. So whatever Iran was selling to China, Japan, you know, South Korea, European countries, and so on. So to China, they still sell, but, but it’s not that easy to, to get payment. And so the regional trade, which is not really affected by sanctions, so whatever goes to Iraq, Afghanistan, Turkey, Uzbek istan, whatever. And this is an important source of hard currency. So when you have lockdowns, then, you know, for a couple of weeks, border crossings are closed, then you don’t have enough dollars. And there are some imports, imports of some essential goods that just have to happen, whatever the price of the dollar, right? So, so, so very inelastic. So it will just, you know, the dollar could just jump when there is not enough supply. On paper, the central bank has quite big reserves, or foreign reserves. But in reality, they cannot access access them. So they, whatever they can access is just not enough. So, so, you know, at the end, they have to print money more than they would like to, which, you know, again, fuels inflation, which fuels the depreciation of the local currency. So we have this moment right now, when, again, you had some lockdowns, plus Afghanistan was off for some time. But it’s actually going back to normal very quickly from the Iranian point of view. So a week ago, the main border crossing for trade between Iran and Afghanistan was reopened. And now all three, I think, are open and working properly. Afghanistan reduced the customs, custom duties on the Iranian gasoline and oil imports. So, so this has has resumed as well. And, well, I was reading that actually the Taliban leadership was interrun six months ago, you know, before the takeover, basically, of the country. So potentially, you know, there was a deal done at that time that Iran would be very pragmatic, basically, with the relations with Afghanistan. And I think this is what’s happening. Same, same for Pakistan, same for, you know, Russia, China, and so on. So, so anyway, so what I wanted to say is that right now you have a couple of factors that affect the the currency. So the dollar is is moving higher. Given the exchange rate of the dollar versus real, and the expected future profits, profits of of the Iranian exporters, well, the share prices are way too low. So easy money right now is to buy by shares of the of the exporters of Iranian exporters. Now, what else is interesting, what is driven by macro and all the last four years were very much driven by macro, were the domestically oriented industries. So companies that were selling domestically were benefiting a lot from sanctions and currency depreciation, because their competitors were just priced out of the market. So when you had the big currency move, you know, even exporters from China were just too expensive. And, and everything, and because of sanctions, everything was getting more difficult. So making the payment, you know, arranging the logistics, and so on. So we saw local companies, even though the whole market was was not growing, was was was stable. The local producers were gaining market share so you could see growth there. And, and, and we were able, because there is so much data being reported by by the local listed companies, that we were able to track this on a monthly basis to understand the volumes per product line, and the unit prices, you know, at which they were selling, to understand, okay, so who is doing better and versus our expectations and so on. So these are, these are, they’re actually, you know, they’re, as you know, there are many misconceptions about Iran in the West, right? In all areas, right, from misconceptions about the population, where, I don’t know, many people or newspapers or media are just trying to portrait Iran as country of terrorists who who hate, you know, Jews and Israel and so on, to, to, you know, good misconceptions about the economy of Iran that is just bleeding and and it’s just Venezuela or Zimbabwe and just fall apart and so on, which is obviously all far from from being true. You know, when it comes to population, it’s a very tolerant and open society. When you go there and someone speaks any, even as a tourist and someone speaks any English, he will approach you and just to have a chat with you, you have, you know, Catholic Christian churches, Orthodox churches, Jewish synagogues, Zoroastrian, you know, churches, temples, and everyone is doing his own thing in terms of religion. So, so it’s absolutely not true that they’re like intolerant. So it’s actually a very open society and same for the economy, where actually, because of the diversification of the economy, because of the fact that big part of the economy is focused on exports, then focus on exports, they end because of the fact that they just allowed the real to depreciate and didn’t fight, you know, to just defend it, you know, with, with, with any reserves they had. They, they helped it to, you know, the local companies to improve competitiveness and, and actually help the, the economy under tough sanctions under Trump. If interesting thing is that unemployment actually went down after under Trump, unemployment in Iran, because manufacturing companies had such, you know, great couple of years, I think there were two years that when they had like record profit growth, that they, they increased employment, you know, they started hiring people. So it was like counterintuitive. But going back to your question. So you, we are looking at a couple of manufacturers that are providing specialized machinery to the, to the domestic petrochemical and steel plants. There is a very big petrochemical and steel industry in Iran. You know, petrochemical industry is probably together with, with the Saudi petrochemical industry. These are the most profitable industries in the world, petrochemical industries. Well, obviously thanks to the cheap gas that they have. Also Iran makes more than a million cars per year. So the steel industry is big and all the related industries as well. And there are companies that provide some specialty, you know, parts machinery to these bigger plants, where those manufacturers have very strong pricing power because, well, because they are so small and specialized in the big picture for the, for the big manufacturers that they don’t really care that much about the pricing. And it’s also very difficult to import them. So, so they have a good pricing power. It’s, they don’t have a competition from the foreign competition. So, so we are looking at those. We’re looking at some local brands in, in the, in the cleaning products and in the companies that make just everyday equipment, household equipment. And they’re also well positioned to have strong brands, well positioned to, to grow their businesses. There is one interesting supermarket chain that is growing online delivery, exactly the same as you could find in, I don’t know, Okada in the UK or some other companies in, in Western world. So, so this is something where we see strong growth over the next couple of years over the next decade. I mean, my favorite company, if I could buy the whole company, we’re actually working on it. So one thing is, is, is, you know, being active on the, being an active manager on the stock market. But we’re looking also at a couple of companies that we would basically like to take over, like separate from the fund, just arrange an SPV and, and take advantage of the fact that I think over the next couple of quarters, there may be some opportunities that will not happen again, you know, a couple of years from now, because it will be still too early for the big players from the West to go on and get involved, because it will always take time to get a set, you know, to set yourself up to, you know, your presence in Iran compliant with all the regulations, sanctions and so on. You know, it will take, you know, 18 months or whatever. So, there will be a window where it will be, it should be possible with some sanctions, the key sanctions lifted, it should be possible to acquire some assets from sellers that don’t care. And just to give you an example, you know, there is a, for example, a holding company that, that holds brands, consumer staples, bad brands like personal hygiene products, they have around 20% of the market, well known brands and so on. So, this is the type of stuff when you have foreign investors that go to some new frontier market, they always go for these, these type of investments, first, right, brewery, you know, soap maker, whatever, right. So, it sounds like, it sounds like out of a Jim Rogers playbook. Exactly. Exactly. You would buy those companies on the heartbeat. So, even in frontier markets, they often trade at 20, 25 times earnings, even if the market trades at 10 or whatever, right. So, here we’re looking at one holding company that is also trading at the below the NAV. So, effectively, you can buy these assets at around, you know, let’s say five times earnings. And just to give you the order of magnitude, 20, they control 20% of the local market plus they export a bit. And, and it’s valued at $100 million. I mean, $100 million for 20% market share in a big country like this, profitable, super profitable, you’re buying this at five times earnings. Yeah. I’m pretty sure that Unilever will be happy to pay 10X, you know, in a couple of years. So, this is the type of stuff that it would be super excited about to, to just, to just take over, you know, in full.

It sounds really exciting. I mean, that sounds like a slam dunk. I’m seeing it from the outside and if there’s ever a catalyst coming up there, the one thing that I hear from you is really, I, I find that will counterintuitive, but maybe these, all these sanctions actually helped Iran. And here’s the argument is most countries that export a lot of commodities, they sooner or later fall into the Dutch disease. So, there isn’t much you can do about it. And you see this in Africa a lot, because the economies are so small, it literally takes one oil field to destroy the value of their currency, currency appreciates, which you think, oh, the good thing. Well, it is, if you are getting money from that oil field, but if you are an entrepreneur and in the services sector, not part of that, of that commodities extraction, you’re in trouble because local labor compared to the US dollar is extremely expensive. That happened in most African countries because they found commodities to a certain extent. Angola is the best example. And Nigeria, it basically destroys your own economy. It seems like the sanctions and the inability to export has helped Iran to stay competitive, because what you’re saying seems extremely competitive. Well, educated labor force for $200, $500 a month is incredible, right? So, this is a great deal that you will hard press to find even anywhere in the world. So, maybe all these sanctions, as terrible as we feel they are, and it’s probably the hampered economic growth, they put the whole country on a different track than it would be if it was just on the gas extraction. Well, definitely. But that happened a long time ago, right? I mean, not because of Trump’s sanctions. So, maybe there was a risk some time ago, but I don’t know, wouldn’t be able to tell that Iran would end up with an economy similar to Iraq, for example, where it’s 90% or more, it’s just oil, right? And nothing. Saudi Arabia. Yeah, I think I’m sorry, Arabia, where literally nobody has to work and nobody does work. So, it seems like they want to change it, but it’s just impossible that right now it’s too late. They try to take away some of the social handouts and then they got scared that people might just revolt, right? And go on three of the streets and threaten the royalty, right? So, they backed away. So, look, but it’s also a different tradition, different culture in Iran. You know, these are Persians. I mean, they were building the first highways so that caravans could go faster, right? So, I guess it’s in their blood. Plus, you know, the location of Iran. I mean, this is another, look, this is another catalyst. So, Belt and Road Initiative, you know, the Chinese big project to connect, you know, the Chinese cities with Western Europe. This is a real thing. And Iran is exactly, you know, on this path. And potentially, it’s one of the key, yes, I would say it’s one of the key elements to it. So, you’ll really have a train, a freight train that goes from Shanghai or Xi An, I think, in China to Tehran. And it cuts the time and cost quite significantly versus the sea route. Especially right now, when you don’t have, you know, all the problems with the containers and the ships that you have right now and the inflation of the shipping cost. So, Iran is important for China from that perspective. It’s also important for China because it’s one of the sources of energy, of long term energy supplies for China, which they need. And they’re, you know, they think very long term, so they want to secure those. It’s not only Iran. They’re speaking about the same thing with Saudi Arabia and so on. But this is what they need. So, and what Iran needs, Iran needs money. Iran needs investment. Iran is underinvested. And they’re invested in so many areas. So, pretty much whatever money you invest in Iran, it will be a productive investment, most likely, right? Because there is stuff that is needed. If you build infrastructure, it will fuel growth for the next generation, right? So, it’s a very productive investment. So, it’s not like, you know, Japan in the 90s. So, they signed this long term partnership where China said, look, we’re going to invest $400 billion over the next 25 years. And a big part of it will be invested, will be front loaded. So, invest more at the beginning. We will invest in your oil and gas infrastructure. So, we will help you produce more oil. And we’ll build highways, airports, ports. And also, we will help you upgrade your petrochemical industry, if I remember correctly. So, I mean, the details are quite vague and they never published it. So, we will see obviously. But, and Iran will have to pay for it. But, they will pay in discounts, in big discounts on oil that they will sell to China. So, when you look at it from Iran perspective, look, Iran’s GDP, I mean, it’s always difficult to calculate it because you don’t know which exchange rate to take, I mean, from which period. But let’s say it’s $200 billion. So, they are getting, you know, $400 billion over 25 years. So, it’s like 8% GDP per year. But it’s actually front loaded part of it. Directed into the areas where investment is really needed. So, it will be very productive, helping to grow for the next 25 years. And all they have to do is they actually have to dig up more oil, with which Chinese will help them, and just sell it at a 30% discount. So, what’s the alternative? Well, the alternative is that this oil will just remain underground because with sanctions they wouldn’t be able to sell it and to extract it, probably. And they would be getting no money. So, it actually looks, you know, this is a bigger deal than Eastern Europe got from the European Union Cohesion Funds. It’s actually bigger than Marshall Plan. So, it’s a huge thing for Iran. And so, they still haven’t published the details, which is obviously an argument that maybe it will not happen. But on the other hand, it makes sense. It makes a commercial sense. So, it’s not based on some friendship that they want to show that Iran is close with China and against the US or whatever. Something that can easily change. But it’s just based on common interest and it makes a commercial sense. That’s why I’m quite optimistic about that. So, and this is actually a pretty good alternative for Iran when it comes to JCPOA negotiations. So, Iran can actually say, well, to some extent that, look, we don’t have to do it. We could go together with China. But Iran understands that, you know, their position versus China is stronger if they also have JCPOA signed with the West, right? So, they actually need both. But anyway, so this is one of the catalysts that could happen to Iran as well over the next two decades. Yeah. One thing that comes to mind too is a bit like we, you know, Jim Rogers was so bullish on China in the 90s. So, I thought every book was basically put your money in China, put your money in China. And he was right, but he was also wrong in the sense of for the outside investor who expected an open equity marketplace, you know, where equities would rise up without state intervention. It didn’t happen that way. So, as an outsider to start a company in China or to be active as an investor on the ground, it’s still hard. It was always hard since the 90s. Investing in equities was very, it didn’t go where the GDP growth went, which clearly he was right on that, right? So, there was no doubt about it. But making money of this forecast was hard. And I feel if something could happen with Iran, China and Russia, you know, they already play these war games together. And it’s always against Taiwan or it’s against some, it’s against Vietnam, some someone out there. I feel like there is an obviously that’s a downside. You doesn’t have to materialize, but there’s this access developing against, you know, the U.S. or against Europe. And while the investments would still grow and Iran will undoubtedly grow, it’s hard to really profit from this because a company, it’s difficult to sell at equities, but difficult to get the money out. It’s maybe the equity, the shareholders are being defrauded by the government, right? So, the money is going somewhere else, it’s going into the actual stakeholders, it’s going. So, I always feel that is this, we think of it a public marketplace and equity marketplace as something that works with our rules that the EV has established, and it sooner or later grows the equity. But I don’t think that really happened in China and also Russia. That’s the problem with all these big oil companies where we never know who’s actually controlling them or where does the money go. Do you think that there’s a huge risk of in Iran? And you obviously are ready to take that risk, but how do you make sure you’re not, you’re losing your pair, even do the economy grow, right? But the equity investment today will never really return any profits, the cash that you get out and your bank account. Yeah, okay. So, first of all, Iran is not Russia, meaning the structure of the economy is different. Russia, much more reliant on commodities and on this state owned, huge state owned companies. I had a couple of wealthy Russians on an investor trip in Tehran, and well, they were super excited because we were stuck in the traffic, you know, in this taxi Tehran, and they were looking around to like, wow, it’s like Moscow from 20 years ago or from 30 years ago. Also, you know, the city is similar size, the traffic is as bad, you know. But then I told them, we were talking about the economy, and I said that look, probably half of the country, half of the economy is controlled by the state one way or another. So state linked entities. In Iran, it’s revolutionary guards, plus some state owned entities, religious foundations, you know, different entities in different countries, but it’s roughly half of the economy. And these Russians just looked at me and okay, so they screwed up. I mean, why only half? I mean, it’s like, from the Russian perspective, it’s only half, right? Because in Russia, it’s, I don’t know, 80, 90%, right? And then when you read about it, it’s actually the average for the emerging economies, you know, from India, Brazil, even to South Korea, if you look atables that some sort of, I don’t know, also linked entities, it’s usually around 40, 50%. So this is pretty much in line. So there is much more private business that has nothing to do with commodities. So this is the big difference. And it’s, and it’s also visible on the stock market. The stock market has 50 different industries listed, with the biggest one being, I don’t know, petrochemicals, probably with something must be like 25% of the market cut, and then lowers some mining, some banks, some telecoms. But you have everything, pretty much everything that you, that you see in other markets. So you have different exposures, so exposures to different parts of the economy. So there’s always something in the bull market, like fundamentally, right, where, where things are improving. So, so, so this gives you the opportunity to, to find businesses where the, the, the, the majority owners have similar, you know, aligned interests with, with minority shareholders. Yes. So, so that’s the main difference with, with, with these countries, then you could say, okay, that if foreign investors don’t go there, then there will be not enough money and these equities will stay cheap forever, for example. Well, I’m not sure. So I don’t, I don’t, I actually wouldn’t worry about that. I mean, it can stay at four times, five times earnings. If they stay for a longer time at those, at those valuations, I’m happy to wait. Okay, I’ll wait. I’ll be collecting at that time, you know, with, with those valuations, I’ll be collecting 20% dividend use. So I wouldn’t be, and also last year, when you had a bull market in the local equity equities, you had four or five million, you know, retail investors coming to the market and, and obviously just driving higher. So there is, you know, capital in a lot of retail capital as well. But also, you know, so think about the last four years. So under Trump, you had pretty tough situations. So the currency dropped by 85% under Trump. And yet the stock market, the index returned, well, roughly doubled, so around 100% in dollar terms. So even in those, you know, really, this bad situation with super unstable economy, geopolitics were basically people were talking about some military conflict every quarter, right? Or, or, or if not, then new sanctions were coming in. You had, you had a very good performance of the stock market. I think it was the best equity stock market in the world in 2019. The, yes, 2020 was also decent. Yeah, so, so, so, so it’s, it’s, it’s, and the stock market at the end of the day, it’s, it’s driven by, by earnings growth. So, so this is the question you need to answer, right? Will earnings grow there? Or will they, will they just become stagnant there or just go down? Look, another point that you made is that, you know, those sanctions actually helped the economy as a whole, because it had to diversify, it had to, it had to adjust to unstable conditions, which is, I think, I think it’s pretty good because local companies are like the opposite of the Western companies. Western companies are, you know, organized just in time, right? But be super efficient, maximize, you know, your margin and, and, and work, work, you know, just to deliver, deliver goods just in time. So in Iran, they are organized just in case, right? Because people understand that they don’t know the future and the future, they expect the future to be volatile. So they really have to be built to survive, right? So this is, this is a good thing now, but it will be also a source of additional profits, I think, in the future, because now, now think about the economy that is, that is opening up. When you have, when you have opening up of the economy, Iran starts selling more oil. They will get at least $50 billion per year from oil revenue. $50 billion sold, sold the problems in Iran, meaning budget deficit, the trade balance, financing of imports. With this, with this amount, everything is pretty much sold. So what happens? Inflation stabilizes, because the inflation now, and mainly because of, of the currency depreciation. Before Trump, inflation was single digit. It actually touched seven or eight percent at some point, but it was around 10% for quite a long time. And there is no reason why it shouldn’t go back there. So when you have stable prices, local companies, local consumers as well, but local companies would be able to, to forecast things to, to maybe make long term plans, long term investment plans. So they will start to invest. Also, interest rates should go down. When inflation goes back to 10%, you know, why, why, and there is no problem with budget deficit. Why interest rate, you know, due to maturity on, on the local bills should be 22%. I mean, it will be lower. So, so with lower interest rate, lower financing costs and better stability in the macro stability, companies will start to invest. Plus, they will also be able to allow themselves to maybe keep, I don’t know, lower inventories, not plan for war, but just plan for normal, you know, business as usual conditions, which should help improve their margins. Exporters will actually be able to to export without looking, trying to disguise their, their products as non Iranians. So just maybe smuggling them through Oman or Pakistan or whatever, this costs money, everything costs money, and offering discounts to entice the buyers. So, and this hurts them, their margins. So, so this will help with the margins plus volumes will go higher because many exporters are just selling below their capacity. So you have with economy that, that is, you know, reintegrating with the rest of the world, a lot of good things will happen, including the, which will affect profits, which will affect investment, which will affect GDP growth. And also, with, you know, lower interest rates, this is another argument why those valuations will just not stay at, you know, where they are now, which we see, you know, we find companies that are trading at forward three to four times earnings, right? And, and, and with those kind of valuations, investment risks are really, really manageable. I mean, you don’t have to worry about this. Yeah, it sounds really fascinating. Just so, so we know that as a disclaimer, anyone can invest at what point in your fund, what’s the minimum, and yeah, it excludes anyone who is a US person, right? Everyone else, anyone else can invest? Yes. So everyone who is not a US person and anyone who could who can invest at least 100,000 euros. So this is our regular regulatory minimum, because we are classified as alternative investment fund, and we can only offer the fund to professional investors who are defined in the Netherlands. This is where we are based as anyone who can invest 100,000 euros. Okay. Well, that was fascinating. That was very enlightening. Mashe, thank you so much for your time. That was awesome. What a great insight into your lot. Great. Thank you, Thurston. Talk to you soon. Thank you, Mashe. Thanks. Take care. Bye.

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