Iran’s Tech Co-operation with China and Russia

Iran’s tech-savvy youth, who at 40% represent the country’s largest demographic bloc, want Apple products and other US technology. But what they often get are local applications and Russian or Chinese alternatives: Digikala replaces Amazon; Yooz and Rismoon are local search engines, and Snapp is the Iranian Uber.

And while the country values Chinese and Russian co-operation in tech and science, it now aspires to source better equipment and experience from Western countries. Post-sanctions, local tech startups and the country’s youth are hopeful this could become a reality, giving the country access to the tech, hardware, software, and educational resources necessary to build on and retain its human capital.

For startups, especially, unrestricted access to foreign technology is a matter of survival: In March 2016, about 1,000 jobs (not necessarily all from startups) were lost after the government removed several foreign online payment gateways from the Central Bank of Iran’s payment network. E-commerce and financial tech startups reliant on the gateways suddenly found themselves unable to process online payments.

But Iran’s bid to welcome Western companies to the sector and make it integral to the economy is being held back by, among other things, a lack of necessary infrastructure and restrictive government policies: While investment represents a selling point for the administration of President Hassan Rouhani, balancing access of local and foreign companies could be a challenge.

For if they are to reap the rewards of Iran’s tech sector, foreign companies must successfully navigate partnerships with government and semi-government entities. Should they be granted access to the market, they may find it difficult to compete with local companies backed by government exclusivity licences. By way of example, entering Iran’s telecommunications sector would likely involve a partnership with powerful local organisations such as Iran Electronic Development Company, whose shareholders include the charitable trust Mostazafan Foundation.

There are other barriers. In March 2016, Russia’s largest search engine, Yandex, was blocked from accessing the local market for failing to comply with Iranian policies and “values.” Months later, authorities revealed a new agreement and increased co-operation with Russia to combat the perceived Western monopoly over the internet. Local media also reported Yandex would operate as Yandex.ir, registered under the Islamic Republic of Iran Broadcasting agency. This serves as evidence that any foreign company will have to change the structure of their services as a precondition for operating in Iran.

Nevertheless, in the sixth iteration of its five-year development plan, released in 2016, the government revealed it was prioritising tech development until 2021. In line with this, but also because it has had no other choice, Iran has steadily increased tech co-operation with China and Russia. Post-sanctions, relations will continue to grow given China and Russia fit into Iran’s plans to broaden strategic ties in politics, commerce, the military, and energy.

But how long can Iran afford to maintain these partnerships, and its restrictive tech policies, at the expense of an increasingly disenfranchised tech-savvy youth? How long, too, can it partner with China and Russia while it attempts to create a welcoming business climate for Western tech companies?

For the time being, at least until structural reforms improve the business climate for Western tech companies, Iran will maintain these partnerships.

But said relations could raise global concern over the supply of hardware and equipment to Iran. Both China and Russia have the potential to help Iran develop its cyber capabilities. In turn, this could lead to further malicious cyberattacks and campaigns in the region – a scenario supported by the increasing number of hacker groups operating from inside the country.

And so, in a post-sanctions reality, it remains unclear to what extent Iran’s tech sector has benefitted from having greater access to the world. Whether it makes gains will largely depend on government policies. Additionally, the growing rift between conservatives who want to develop local industries and moderates seeking greater access to the global market will also delay growth.