RAOUL PAL: Maciej, it is good to get
you back on Real Vision. It has been a while since we have talked about Iran. Iran is
a place that I have been intrigued with ever since I went there back in 2011. I started
looking at it and realizing it was like, there is a big, vibrant economy that is not
connected to the outside world very effectively. It was one of these opportunities that felt like
Russia did in 1990, or the opening of China, where it is not a third world economy, it
is actually quite advanced but there is no investment capital into it really.
You are one
of the few people who invest in the market. What is your top-down thesis? Why did you
start investing in Iran? MACIEJ WOJTAL: Well, I got interested in 2016 when the
nuclear deal was signed, and I never looked at it before. I knew obviously, about Iran,
as in Persia and 1000s of years of history. I did trade many frontier markets from Vietnam,
to Kenya, to Philippines and so on. China, it sure is very early, but Iran was always something
that no one could touch so we did not do anything. In 2016, I got interested. I had never met an
Iranian in my life prior to my first trip there, actually, so I had no bias. I was absolutely,
okay, let us just see what is there. I realized that, okay, the stock market is– no, okay, the
stock market was later, but the top-down macro picture was amazing. You have this big country,
like right now, almost 84 million people, where the demographic structure is beautiful.
Median age, 30 years. You have probably 25 million people employed, two and a half million
unemployed, a couple of million students, and then kids up to 18 years old are another
This will become the next wave of employment coming into the market over the
next 20 years, 18 years. Then they are educated. You start reading about it, and you start
meeting people, and you sense that the level, the quality of people that you are meeting is
amazing. Look, on my first trip to Teheran, I did not know anyone there. I just scheduled a couple
of meetings with brokers and with local banks to open accounts for myself. Then I was going
by myself to the local restaurants. TripAdvisor, best restaurants in Teheran, and I was on my own.
Waiters were asking me where I was from, I said, from Poland. Then they started talking to me about
Polanski, Kieslowski, the Polish film directors, and one guy started chatting in Esperanto, because
it was a Polish Jew who invented Esperanto, so you guys in Poland probably know something. Then it
was his hobby. That is funny, but that just shows you the level of people that you are meeting. This
was great. Then the economy, I knew that they had the biggest combined oil and gas reserves in the
world, but that was only 15% of GDP.
It is not your typical frontier market that when it opens
up, they are going to start producing textile. No, they produce million cars per year. They have
advanced manufacturing of many different products, not all of them may be are advanced. The spare
parts for airplanes are big problems, so you want to avoid the domestic flights over there, but in
general, it looked as a big, diversified economy, that has been under sanctions one way or another,
basically, since 1979. They missed on everything good that happened in emerging markets since then.
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think it's something you can afford to be without. MACIEJ WOJTAL: one way or another, basically,
since 1979. They missed on everything good that happened in emerging markets since then.
Globalization, access to foreign financing, interest rates going down, and they have good
potential. Not only does commodity resources, but human resources definitely
that will allow them to catch up. For European companies, this is right now,
the best place to place their factories, to take advantage of very cheap and qualified
labor, salaries are lower than in Vietnam. After some time, this will become a very
important consumer market.
All this in 2016 plus the potential tailwind coming from the
nuclear deal signed by the Obama administration, and then the most exciting thing for me was
obviously the stock market because it does not happen too often that you go to a new country that
is opening up, and there is something to do for you as a portfolio investor. Normally, you can go
and build a factory, maybe like launch a startup. Here, you had 600 companies listed. Daily
liquidity of around $100 million at that time, and the lowest valuations in the world, and I mean
five times earnings, maybe four times earnings, no debt, no one has any debt. Those earnings are
growing, the market is super inefficient, because it is dominated by retail investors. There are no
It is less than half a percent of the market cap. On top of that, the country has
the worst PR in the world. It is truly mispriced. On my first trip, I opened a couple of brokerage
accounts for myself. I opened a bank account, then I transferred like 10,000 pounds just to
test if it is actually working. It has worked, so I decided to quit my job and launch a fund that
will give people access, Western investors, access to this market very early, before all the
big institutional investors are allowed to trade. RAOUL PAL: What most people do not
realize is actually, people– foreigners, not US, but Europeans are free to open up brokerage
accounts, and of doing it, and how to manage that. What was really interesting is my introduction is
I was invited by one of the Iranian investment, the Anglo-Iranian investment bank, [?], because I
had written about it saying, this is the world's cheapest market, and same conclusion as you
got, holy shit, the demographics are incredible. It is an amazing place. I met guy on a bus
in Iran, who is one of the smartest people I have ever met.
He is an Italian count.
I said, what are you doing here? He was a relatively older gentleman. What are you doing
here? Because I was in Russia in the 1980s. Because I know this, what you are saying with the
small frontier markets, but this is actually a big frontier market that everybody– He said, well,
I saw they were launching this investment bank, so I reached out to them.
As their first
customer, I decided to ask them for a stake in the business. I said once, why would you want that?
Because, well, I quite like being a gatekeeper, I take tolls. If this is the only vehicle
allowing people in, I want a part of it. I said, so what did you actually do? He goes, oh, well, we
made a bunch of equity investments. He said, but they ran out. I did not even really look at it. I
said, so what were you doing? He said, yes, I did not really want a piece of an investment bank.
did not really want the equity portfolio. I wanted direct access, and I knew that they could get it
for me. I said, okay, what did you do? He said, I bought 40% of the second largest insurance
company in Iran, for a PE of three, because it had a dividend yield of 25%. He said, I
threw off so many cash. I said, what do you know about the insurance company? He goes, the
Iranian insurance market is nothing. He goes, I just knew it had the second biggest balance
sheet, and it was just going to throw off cash. I said, so what did you do with the cash? He goes,
well, I bought 40% of one of the sugar companies, just from the dividends and just the flow, and he
was paying PEs of three, four, five, six, seven. Literally things that nobody else has ever seen in
their careers, except early investors in Russia, and maybe very early investors in China.
I realized how big this opportunity was, that this was a long term, secular opportunity. Like
you, I was super bullish in 2016 with Obama signing the deal. Then it all went on hold.
What happened to you? It all goes on hold, you must be going, I just started a whole business
on this. What do I do? MACIEJ WOJTAL: Yes. Look, a lot of our peers– there were a couple of
other funds that were launching around that time and they all gave up basically. I know that people
are liquidating their position. We decided to stay because, well, we looked at it very long term.
I looked at it very long term. This is not a trade. This is a thing for the next decade, at
least, and we wanted to have exposure.
Also, there has been a lot of history of the local
market that you can study. You can see how share prices have behaved over the last 15, 20
years for different currency regimes and different inflation regimes and so on. It looked that when
you are buying up the right valuation, you should be fine, obviously with volatility. What hit us
in the first year was the currency dropped by 70% in our first year of operations. We managed
to lose only around 15 in Euro terms, because we figured out how to indirectly hedge
the portfolio, but we basically had to redo the whole strategy from scratch. I
was starting with basically what you were describing. I had this utility company that
was trading at four to five times earnings, paying most of its earnings as dividend.
We have had around 20% dividend yield. The best thing was that most of its contracts were
priced in Euros, so it was supposed to be also hedged in Euros, and no debt, a utility without
any debts. We had those companies that we just love, or some of these takeover targets. You
are buying a company that makes small trucks, has 60 or 70% of the whole Iranian market, and
it was valued at less than 100 million dollars. It just did not make sense.
When things changed,
when sanctions arrived, and then basically, when the currency started depreciating, we got rid
of everything that we liked from the portfolio, and we just focused on one simple thing.
We were building basic models of companies to understand who has the biggest
sensitivity of EPS to the dollar price. Most of the market cap of the Toronto Stock
Exchange is long the dollar basically. Very often, you just have dollar assets that just happened to
be listed in Teheran.
That is why when you look at the 15 years of history of the index, it has done
pretty well. The main index is since 2008, and the annual performance, average annual performance is
around 13% in dollars, that is the total return. That is probably around S&P or maybe even better,
with bigger volatility, obviously. Imagine if, when you are an exporter, the dollar rallies by
50%, your revenues go up by 50%, but your revenues go up much more because of operational leverage.
We were looking for those companies that have pure export exposure, no problem with sanctions,
because some of them were hit by sanctions, but not all of them, and highly geared to the change
in the FX.
That worked. In the worst quarter, when the rial just went down by 50%, our
stock portfolio in local currency doubled. We were able to show after this quarter I think
plus one in Euros, which was super relieving. It actually works. There is obviously no magic in
it. The higher the dollar, the more competitive the exporters are. Some of them, if they are
state-owned, and sell to Japan or South Korea, they were hit by sanctions, so the volumes went
down, but many of them operate in the region, and the region is actually quite a big part of the
world. Iran, plus all the neighboring countries, is more than 500 million people. Iran is
really well connected. Iraq, Afghanistan, you have 80 million people there, not producing
much, but they consume, and they have to import most of the stuff they consume.
It very often
comes from Iran. Then you have Pakistan, Turkey, up to Uzbekistan, where people speak Farsi as well
as a second language. Iran is well connected many of those companies export in the region, those
products are usually not affected by sanctions. The lower the rial goes, the more competitive
they are. This was one thing that we learned how to hedge the portfolio basically.
Then what we understood was that the biggest impact in terms of where the sanctions
had the biggest impact on in which industries, of earnings or which companies was on a domestic
producers. Why? Because imports collapsed. Not only because of sanctions, then because of
rial plummeting, then even Chinese producers were no longer competitive.
Also, it was difficult to
find logistics, to make payments, insurance and so on and so on. What that meant, in many product
categories like consumer staples, for example, local demand went to local producers and the local
producers found themselves in a situation where the competitors are gone, basically. Even
though the market as a whole was not growing, those guys were gaining market share. We had a
couple of ideas which companies could benefit, and the great thing is actually that you get a
lot of data in Iran, so you can be really data driven. You have some hypothesis, and then you can
just check it, wait for the data, and confirm it with the data. We were building small positions,
and then waiting for monthly data. What type of data will you get? Obviously, you will get annual,
quarterly, in a similar format. These are not the same reporting standards, but similar enough.
Then you also get pretty granular monthly data, where you get sales updates broken down into main
product categories, and then into volumes and prices. Every month, we could see what are those
companies, what was happening to the volumes, what was happening to the prices, whether they
were able to raise them faster than inflation or not and adjust our portfolio accordingly.
It was an absolutely wild ride during the sanctions and currency depreciation, but the
system adjusts, those companies adjust to this environment.
RAOUL PAL: Now, we have still
got a relatively closed economy there. Do you think the Chinese government and the US
is going to reopen this? Are we coming into the big opportunity that you and I have been waiting
for in Iran? MACIEJ WOJTAL: That is the big hope, and I think so, yes. It is not only Biden. It is
also the Senate. You have the proper blue wave, which would make pushing
through legislation much easier. With Iran, everything is complex. Iran
is a complicated situation. RAOUL PAL: It has been for 2000 years. MACIEJ
WOJTAL: This will not change, I think, this will not change. There may still
be a couple of turns down there. Okay, you have the right administration in the US.
It is a huge change versus Trump, obviously. You are going to have election in Iran, the
presidential election is in June. We know that Rouhani cannot run because he already had two
terms, so there will be a new president. We do not know who might become the president, because they
have those very special rules around elections. It is supposed to be a democratic election, but
the candidates have to be approved by a special council and this council only announces its
decision around two weeks before the election. Then there is no time for campaigning.
really odd, but this is how it works there. What we know is that most likely, the new
president, potentially also the new cabinet, will not have such a strong relationship with
the ex-Obama negotiators, which are basically on Biden's team at the moment. It will
be interesting to see if they try to make something happen prior to the Iranian
election, but probably not a new deal. Because I would expect the US to want to secure something
strong and long term, so we need to have a new government in place. They may try actually
to perhaps influence the election somehow to maybe tilt it more towards the reformist types who
would want to have a deal. They could start with unlocking some funds that Iran has in countries
around the world, and that were never paid for the products that they offer. They have a half
a billion in South Korea, a couple of billion in Japan and so on. They are lying in local
banks that are just unable to send it over, or they could introduce some temporary
sanction waivers, for example, for oil sales. I would expect to see some positive moves from
the US towards Iran, but new deal or reactivation of JCPOA probably will have to wait for the new
RAOUL PAL: What is your sense, talking to Iranians, on the appetite for reformers
versus non reformers? Because that has always been the flip. Rouhani has been a reformer in general
and has been generally moderates, what do you think the feeling of the country is right now?
What do they want? MACIEJ WOJTAL: First of all, when it comes to politicians, I do not think that
the real difference is so strong that you have really reformist camps and really conservative
camps. They are all part of the same establishment with a bit different faces. At the end of the
day, everything is up to the Supreme Leader, every major decision. When it comes to the mood
on the street, people were super optimistic under Obama. Then they got tired.
During the last
election to Parliament, the turnout was really, really low, which was in strong contrast
to the presidential election before. People just got tired, because they believed in
the reformers camp, they believed in JCPOA, this did not deliver, so they did not vote again. They
said, it does not matter, really. That is why you have a very conservative parliament in Iran right
now. I think this could change if Biden– imagine, we know the rhetoric of Trump, very aggressive,
like people are almost expecting a war every week. Now, we imagine Biden going out smiling, saying,
look, if we play this right, we may have a deal at some point down the line. I think this would be a
huge change that would bring back the optimism and the faith that things could improve. RAOUL
PAL: What is the relationship– is there any relationship with– well, what is the relationship
between Saudi and Iran? Because that has always been a stumbling block for the region, and also,
Israel and Iran? Where are those right now? MACIEJ WOJTAL: Saudi and Iran is something ancient,
Because these are Shias and Sunnis. Same Muslim religion, but two camps, who are
still arguing who is the most important, Imam have some really fundamental differences when it
comes to religion. It is some detailed aspects. This is one thing, but another thing is that my
sense is that Iran used to be a superpower in the region, and perhaps some countries around in
the region would prefer that Iran stays in terms of the size of the economy as it is, so would
not want to see it grow and develop, hence, high tensions. My view is that okay, they may
want to see the status quo remain as it is, but there would not be appetite for a big
conflict in the region. Last year, there was maybe not a conflict, but it went towards a
military conflict maybe. When the tension rose and Iran, we do not know if it was
Iran, but people assume it was Iran, send the drones to fire at Saudi Aramco refinery,
and it shut it down, basically. That is most of Saudi's GDP, such an easy target.
This is just a
refinery. All the countries in the Gulf region, the really important targets are water
dissemination tanks, electricity power plants. They understand that the risk for each of those
countries is huge of having like an open conflict in the region. I do not think that there is a real
appetite to go to war for many of the Gulf states. Actually, the relationship improved. I read
about some diplomatic missions that went from UAE to Teheran, then Saudi started talking about
having a ceasefire in Yemen.
There was actually a progress after those tensions. Now, there seems
to be some problems with Qatar as well. I would not expect any problems like real problems over
there. With Israel, I do not know. Israel has been vocal and consistent about one thing, that they do
not want any other country to have nuclear weapons in the region. I believe that they could do
anything to make sure that this is the case. However, when you look at the relationship
between the populations, the biggest Jewish population in the region outside of Israel is in
Iran. RAOUL PAL: It is the oldest in the world, outside of Cochin in India. MACIEJ
WOJTAL: Yes, exactly. I visited many mosques, churches in Iran, in different cities in
Iran, Jewish synagogues, and there is no police in front of them.
Everyone is doing his thing. People
are tolerant and there is no problem with other religions. I do not think there is a problem, like
a fundamental difference in views of the world between the populations. It is the government's
thing. Also, going back to Saudi and Iran, Saudi has a very young population. It is
the same for Iran. The young generation, they do not really relate to the same values
or the same historical events as the older populations, which is visible, I think, in Iran
when it comes to how young people approach the revolutionary values versus the western values
and so on. It is the same in Saudis. This could make a shift. I am not saying that I would
expect some big changes, some massive changes to a different situation, but gradual
changes to adjust the systems to work well for the younger generation.
I think this will
be happening. RAOUL PAL: In Saudi, MBS is focused internally now on trying to change– he needs
to create job opportunities for young people, because they have got the same baby boom
across all of the Middle East, essentially. The Islamic world essentially has a baby boom,
plus India and a couple of other countries. Saudi looks like it wants to rebuild its
economy. It does not feel like it really wants to create geopolitical tensions with Iran. I
think, as you say, if Israel can broker a deal that Iran does not get nuclear weapons but
can have nuclear energy, maybe that is okay. Maybe the region [?].
Where does Turkey play
into this as well? That is the other regional superpower. MACIEJ WOJTAL: Just one comment
about Israel anyways, I did get a picture most of foreign investment will be coming
actually, probably from the US and Israel, directly or indirectly, because they understand
that the opportunity of the local market. You were asking about Turkey? RAOUL PAL: As well,
Israel, yes. You think direct investment, I think the Israelis can use it as a country to
manufacture cheap products in as well, because the skill set is very high, and Israel is going great
guns right now. Yes, Turkey. How does Turkey fit into that? That is the other regional superpower.
It has always historically been Turkey, Saudi, and Iran, and I guess Israel. MACIEJ WOJTAL: Now
to some extent, Russia as well, which is [?] in the region. RAOUL PAL: India, China, and Russia,
but first, Turkey. How does Turkey plan for this? Because they historically have a trading
relationship, and lot of banking is done through Turkey.
MACIEJ WOJTAL: Yes, that is why many
Turkish banks are on the sanctions list. Look, Turkey and Iran are interesting, because they are
the same size in terms of the country, the same size in terms of population, but I would say the
opposite in terms of trade balance. Turkey is a large, diversified economy, but they have to
import all of its energy needs. Every month, whatever they do, they need to spend a couple
of billion dollars on getting energy into the country. Iran is similar size, and its economy,
the non-energy economy could be same size as Turkey, meaning six times larger than it is right
now. At the same time, they have those large oil and gas resources. In a situation without
any sanctions, they would be receiving a couple of billion dollars per month just from selling
oil. This is the natural connection between those countries. Iran could be supplying
energy to Turkey, like to the rest of Europe. I do not think that Turkey is perceived as a major
partner for Ira, inside Iran.
They do have common interests in certain regions, in Syria,
in the Kurdistan region, so north of Iraq, where the Kurdish minority goes from Turkey
to Iraq to Iran, and I guess none of those large countries would want to see a new country
showing up there, so they have to stop them. Now, those countries one way or another cooperate or
not cooperate, but that is it. I do not see any stronger connection between them.
PAL: India and Iran historically had strong ties in the past. Obviously, the
Mughal emperors of India were Persians. What is their relationship like? Because Iran
has all the oil and gas that India needs. It has a bunch of things that India can do
with. It seems like it is an obvious place. They both have these young populations, potential
high growth, slightly inflationary economies. What is the relationship like between India and
Iran right now? MACIEJ WOJTAL: The energy trade is dominated by sanctions right now. Iran, in
order to sell oil, they keep on selling oil, we just do not know how much because most of it is
smuggled basically. To actually entice someone to buy it from them, they need to offer discounts.
Maybe they are selling to India, for example, at a discount, and India may be buying, but also,
other countries were more eager to buy Iranian oil and potentially face some sanctions consequences,
when the oil was much more expensive so then this discount matters more, especially for countries
like India, where high oil prices always have an impact on their currency, on their current account
and then inflation and so on.
What they did, I remember that initially, when the sanctions
were introduced, Iran was able to sell to India, people selling to India, and was getting paid
in barter in any other product, like even rice, just not to use dollars or not to use the banking
system, basically. It was working fine. Then India was also building a port in south of Iran, just
to go around Pakistan and be able to ship products directly to Iran, and then to Afghanistan.
Then there, there was a lot of cooperation. Traditionally, India has been one of the
biggest trading partner of Iran. RAOUL PAL: I just think as it opens up, it is a huge
market. The other two interesting players, it is amazing. I do not know if you have read
the book, The Silk Road by Peter Frankopan, which basically takes the history of the world basically
from Iranian eyes, without being Iranian, but it is saying, okay, if the world centers around here,
what does it look like? It is fascinating.
The other players in the region always have been
Russia and China. What are they up to? China is basically allowed to freely trade, because it
does not care about Swift, is that right? MACIEJ WOJTAL: They have banks in China that are on
sanctions list, because these are the banks that do all the sanctions activities, basically. They
cooperate with Iran. China is potentially huge for Iran. China is a plan B to the nuclear deal with
the US. China's approach is not that they want to have some alliance with Iran. No, they are very
friendly, business friendly with all the countries in the region. Also with Saudis. They need to
secure their energy supplies, and they want to pay for energy in something else than dollars.
do not control the dollars, which means that at some point, you could imagine a scenario
where they just cannot afford to buy what they require in terms of commodities.
They are taking advantage of Iranians' weaker negotiation position and try to persuade
Iran to sell oil and get paid in yuan, in Chinese currency. This is one thing, but China
is going further. Look, Iran is obviously on this One Belt, One Road initiative, and already, I
think two or three years ago, they opened up a train connection, it is a freight train connection
between Shanghai and Teheran so they can ship products very easily. Now, they also, and it was
announced last year without details yet that they are talking about a big decade long investment
program that China wants to do in Iran. They said that China wants to invest $400 billion
dollars in Iran's infrastructure, which, for Iran, is an amazing thing. They need it. Everything
that you spend on infrastructure in Iran will be productive.
It will fuel growth for the next
two decades. The Chinese want to build highways, ports, in order to help trade between Asia,
between China and Iran and the whole Middle East. $400 billion. It is a lot. Iran's GDP, it is hard
to calculate it when the currency is moving so fast and so dramatically, but it is, I do not
know, let us say it is 150 billion right now, anywhere between 100 and 200. 400 billion
is a lot of money. It is bigger than the cohesion funds in the EU that Eastern
Europe got from the Western Europe. It is bigger than Marshall Plan after the
Second World War, and most of it would be upfront, so they would spend much more at the
beginning than at the end of this 25-year long period. Also, obviously, Iran needs to pay for
it. They would pay in discounts on oil price. Which is great, because otherwise, this
oil will just stay in the ground.
They will not be able to sell it because of sanctions,
because of whatever. They can actually get it out of the ground with Chinese help, because
Chinese would also invest in the oil production. Okay, fine, they probably sell it at 30% discount
or whatever. This is how they pay for something that they really need. This is a tremendous
opportunity to be– RAOUL PAL: Is that going to go ahead? Where is the latest update
on that? Because that sounds fascinating. MACIEJ WOJTAL: A couple of months ago, like fourth
quarter last year, the foreign minister of Iran announced the deal as signed, but no details were
shown. We will see. You do not know. Actually, if this is the case, and this could really
go through, this makes Iran's position when talking to the US much stronger, because
they actually have a plan B for the first time in ages. RAOUL PAL: If they do accept Chinese
money, and they get some permission to open up, they are going to get Western capital
That is one hell of a story. If [?] capital. MACIEJ WOJTAL: Yes, that would
be best of both worlds. My feeling is that Iranians, their aspirations, they
feel closer to the European culture, and would like to get more European
investment, or Western investment. However, maybe this has changed after JCPOS, and after it
just did not work out, then there was a lot of hope. Then it was crushed, and it did not work
out. Maybe right now, it will be more about, okay, what is the better deal? They also, okay,
what Iranians are saying, is that okay, they are observing every country that makes a deal with
China, and many of those countries are not looking great, because they need to leverage a lot of high
debt to pay for the constructions that Chinese require from them, and then they have problems and
They also see that Chinese are potentially colonizing Africa again, and they would not
like to become a colony. There is this very strong sense of strong pride. RAOUL PAL: They also
brought their own workers into the country to do the work as well. In these African nations, this
huge pool of Chinese workers, the locals did not actually benefit. MACIEJ WOJTAL: It is not only
this. It is not only workers. It is also security forces.
They will not call it as the Chinese army,
but there will be Chinese people with guns on the ground. This is actually what was hotly really
debated in the parliament in Iran, that they do not want– it is a sovereign issue. They do not
want other troops in their country. Then I was having conversations, obviously, it is not the
same thing, but I was having conversations, just showing them in different perspective and
I was saying, look at the European countries, they compete with each other to have military
bases of the US or some other countries.
It is a different perspective. RAOUL PAL: Finally, Russia.
How does Russia fit into this as well? Because that is another key player in all of this.
MACIEJ WOJTAL: Yes, absolutely. There is that the cooperation could be in weapons, for example,
sales. Iran needs to buy weapons. Russia wants to sell it. The UN embargo is already gone, so
they should be able to make use of this, which obviously the US will not like it, no one will
like it, but neither of these countries will care, I guess. Then Russia is helping to sell Iranian
Russia is selling its own oil, but I guess how they do it is they buy Iranian oil, they use
Iranian oil and just sell more of their own oil outside in foreign markets. RAOUL PAL: Russia has
mainly dedollarized so there is very limited the US can do about Russia, I guess. MACIEJ WOJTAL:
Well, commodity trading is still dollarized. The Russia discovered what Iran discovered many
decades ago, after Russia was put on sanctions, different types of sanctions, and it was
difficult to export certain products to Russia. They started producing them themselves. Suddenly,
many industries are going through a renaissance, like agricultural, for example. I was meeting some
Russians in Moscow, and they were complaining that okay, for some time, we could not get a
really good cheese, French cheese in Moscow, that was a problem.
Then they started
producing their own really, really good cheese with apples or many different products. They
became more self-sufficient. Maybe this is the reason why the Iranian economy is so diversified,
and not relying on oil and gas entirely, because they did not have a choice. They had to
develop all those different industries throughout the years. Right now, it
is a completely different model than the Russian model, for example, but still the
GDP relies on commodity sales. RAOUL PAL: You mentioned before about the potential use
of crypto, we were talking off camera, potential use of crypto, we have seen potentially
crypto mining starting in Iran, and then using the crypto rails with stablecoins and stuff
to get around the Swift thing. What are you seeing or hearing in that regard? MACIEJ WOJTAL:
This is an obvious, obvious way to go. Because the main problem for Iranian companies is
that they are disconnected from Swift for Iranian banks. This is blocking everything, even
if companies are allowed– foreign companies are allowed to do business in Iran, then they cannot
get paid, basically.
Their Iranian partner has the monies, is ready to pay for the service product,
whatever, but is just unable to make the transfer. This is such a common problem that requires a
solution. What seems to be the best solution is crypto because it does not require
Swift. You can make transactions using Bitcoin or stablecoins actually for paying
for settlement transactions, something that is less volatile than Bitcoin is better. That
is why it is still bitcoins are becoming popular. It is actually happening, not on a
large scale. At least I have not heard about it, but what I did see is that smaller companies,
individuals, and then also smaller companies are trading Bitcoin, paying with Bitcoin,
or stablecoins, transferring money.
Iranian families that want to help their families in
Iran, an Iranian diaspora who wants to help their families in Iran, they transfer crypto. Companies
are getting paid in crypto. Iranians, initially, there was no regulation around it. No
one really knew how to treat crypto. Those countries very often have this instinct
to regulate things, that they want to control. Initially, they banned crypto, but they changed
the legislation, they actually legalized mining. Before, mining was not regulated.
Now, obviously, it was great for the miners, because they were taking advantage of
highly subsidized electricity rates. I think Bitcoin mining at some point was the most
profitable in Iran because the electricity rates were the lowest in the world because of the
subsidies, which obviously does not make sense in the long term. It was actually wise that they
regulated it. They said, okay, you can do mining, no problem, but you need to pay some higher
electricity rates without the subsidies. Look, when you think about it, this is
like them printing their own hard currency, which they can use to pay to anyone that can then
convert it to whatever fiat currency he wants. You can use such crypto pairs and crypto to fiat
crosses that never touched the dollar.
You can go through crypto exchanges that are not located in
the US, and then you are not violating sanctions. Obviously, it is all, I guess, traceable and so
on, but it is not a problem because you are not doing anything wrong. You have this activity that
you are allowed from the sanctions perspective to do in Iran. You are investing or trading
or whatever with them, and this is just the alternative payment method that you are using. It
is not only for Iran. Obviously, all the countries that have problems with sanctions like Russia,
Venezuela, China, to some extent maybe as well, they could be using crypto to pay each other.
RAOUL PAL: My final question is what is the probability that we get the outcome that you
and I have been looking for over the next five years, that Iran is able to open
up a bit more again? MACIEJ WOJTAL: Look, I am optimistic.
I have been. I am
looking at this long term. I think we are going to get it over the next five years, but
actually something else is more important. You can make a bet that is very asymmetrical. You
do not have to bet on the probability that yes, I am super convinced, so I am going to go and invest
in the country. No.
The valuations of local assets do not price the good scenario at all. You had
four years of Trump, the currency went down by 85%. Well, can it depreciate further? Of course,
but unless there is some shock, I would not expect a big drop of the magnitude that we have seen.
Companies are operating under really difficult environment. When there is sanctions with no
access to some export markets, with no access, obviously, to international finance, with no
access to parts or inputs that they require in some industries, and they survived. Not
only they survive, they are actually managed to grow their earnings, to grow their businesses.
Those companies are super resilient. Think about inventories, working capital many times
bigger than your usual Western company, so very inefficient, you could say, but this helps
them to survive every scenario and still have high margins and so on. When I look at the country
and see what– and those companies– what they actually managed to achieve under such test in
a scenario, under sanctions of the most powerful economy in the world and then I think, okay, so
what happens if this opens up? RAOUL PAL: Best performing stock markets in dollar terms over the
last five years with all of [?].
MACIEJ WOJTAL: Exactly. What might happen when this opens
up? You are buying those companies right now, after the recent correction in the market, you
are buying at between four times and six times forward next year earnings, with no debt, no
nothing and the currency already depreciated. You do not really have to be correct in terms
of the probability of the nuclear being signed, not to lose money. It shows you that you can
make money even under sanctions. It is a very asymmetrical, there is a lot of optionality.
RAOUL PAL: Having seen Russia go through this, which is the great example or even
Poland. Poland, I think, went up 1200%. I think Russia did more. All of these markets
as they open, the opportunity to make money, if they open, is gigantic. Iran has already been
one of the best performing markets over the last five years.
It has been volatile, but if you
get any change, you have probably got a 15x at least opportunity over 10 years. It is
enormous. MACIEJ WOJTAL: There will be a bubble. It is a big market. All the emerging market
funds will want to have a piece of it. We have a lot of passive money going in, a lot of active
money, a lot of hedge funds money, but look, the market in Poland opened up at three times
earnings. First year, nothing was going on. Then people saw, okay, it is actually a normal country,
we can put some money into it, and it went up from three times earnings to 30 times earnings.
Why not? Plus earnings went up a bit, 1200%. Same in China.
When they announced,
the mainland, that it would open up, it was still under Tiananmen sanctions. Before it
actually opened up, but it was already announced, it went up three times. Then after it opened
up, an additional four times. Same in Russia. It was the same story. It has not even started
in Iran. The valuations are low. You have all those positive scenarios, negative scenarios
It went through, actually in a pretty good shape. Yes, I am quite excited.
Whether this is with Chinese or with the US, I think there will be a deal but maybe there
would be more deals than one. RAOUL PAL: I am fascinated by the story. You have written articles
for me, for Global Macro Investor, you have been on Real Vision, and I just want people to keep
it on their radar screens. Because trust me, you do not get many of these in your lifetime. When
it happens, it is a monster of an opportunity. That is why I firmly keep [?], people read up
to me and people say, why Iran? I said, you will understand when it opens, is you go from a
small economy of $150 billion to a trillion dollar economy pretty fast. That is life changing. MACIEJ
WOJTAL: Absolutely. That is a savior.
RAOUL PAL: Brilliant, my friend. Thank you ever so much for
catching us up on all of this. Super interesting as ever. MACIEJ WOJTAL: Great. Thank you. It was
a pleasure. RAOUL PAL: Okay, and good luck. Let us see what happens. MACIEJ WOJTAL: Yes, thanks. Take
care. NICK CORREA: I hope you enjoyed this special episode of the Interview, the premier business and
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