May 22, 2008 / 12:24 AM / 9 years ago

U.S. brands hang on in sanctions-hit Sudan, Iran

<p>Motorists drive past Coca-Cola signs along the main airport road in the Sudanese capital Khartoum, May 19, 2008. Driving through the traffic-choked streets of Khartoum and Tehran, you could forget that Sudan and Iran have been hit by years of U.S. Sanctions. Leaving Sudan's main airport, one of the first things you see is the ultimate symbol of American capitalism - the classic form of a Coca-Cola bottle printed on multi-coloured banners, next to a huge hoarding for rival Pepsi.Mohamed Nureldin Abdalla</p>

KHARTOUM/TEHRAN (Reuters) - Driving through the traffic-choked streets of Khartoum and Tehran, you could forget that Sudan and Iran have been hit by years of U.S. sanctions.

Leaving Sudan's main airport, one of the first things you see is the ultimate symbol of American capitalism -- the classic form of a Coca-Cola bottle printed on multi-colored banners, next to a huge hoarding for rival Pepsi.

Pop into Paytakht shopping centre in Iran's capital and you can snap up a new Dell laptop, choose from a range of Motorola handsets and compare them with the latest Apple iPhone.

These products are among prominent U.S. brands that have stayed on shop shelves in Sudan and Iran in the face of some of the toughest trade restrictions ever imposed.

Smugglers, like those who zip across the Strait of Hormuz in speedboats from Oman to Iran, and "grey-market" traders, who operate outside of the manufacturers' authorized trading channels, ship in western goods via Dubai and other hubs.

But their enterprise has been matched by a handful of mainstream U.S. corporations who have found their own way into both countries' huge markets, while staying within the law.

U.S. soft drinks giants Coca-Cola Co and PepsiCo Inc have both secured export licenses from the U.S. Treasury's Office of Foreign Assets Control (OFAC), using legislation that allows blacklisted states to buy U.S agricultural commodities, medicines and medical equipment.

Coca-Cola said the syrup on which the company's beverages are based qualified as an agricultural product. Pepsi said that its brands were produced in Sudan under "an OFAC license" and declined to comment on the Iranian arrangement.

Both companies export the base syrup to independent companies in Sudan and Iran which then produce the fizzy drinks in their own factories, selling them in bottles and cans identical to Coke and Pepsi's branded containers elsewhere.

Coca-Cola spokesman Dana Bolden said the primary motive for operating in Sudan and Iran was quality control.

"We want to ensure quality control and protect our trademarks with the independent bottler," he said.

Coke is not permitted to provide the local bottlers with any on-the-ground marketing support, has no investments in those bottlers, and no direct dealings with the governments.

He also said Coke is currently reinvesting all proceeds from its sales in Sudan to programs to benefit the country.

"We have committed more than $5 million over the next 3 years for programs aimed at building communities in Sudan."

CRITICISM

In Iran, analysts and shopkeepers say there is huge demand for western products despite decades of Islamic rule and anti-American "Great Satan" rhetoric, particularly from clerical leaders.

"The Iranian mentality is very close to the American mentality in (terms of) consumption," said Iranian political and economic analyst Saeed Laylaz. "The American style of life is very famous in Iran."

Laylaz estimated that goods worth more than $6 billion were smuggled into Iran each year, mostly from Dubai in the United Arab Emirates, and a "significant" proportion were U.S. products, including household appliances like refrigerators.

U.S. sanctions against Iran, imposed shortly after the 1979 Islamic revolution, have grown even tighter in response to Tehran's disputed nuclear plans. The United Nations Security Council has also imposed several rounds of sanctions.

The United States imposed economic sanctions on Sudan in 1997 over its human rights record and alleged sponsorship of terrorism. It slapped fresh unilateral sanctions on Africa's largest country in May 2007 over the conflict in Darfur, which President George W. Bush has called genocide.

Five years of violence in Darfur have claimed around 200,000 lives and displaced around 2.5 million, according to international experts. Khartoum rejects the term genocide and puts the death toll at 10,000.

Human rights campaigners have criticized foreign companies that do business in Sudan. Coca-Cola has also been slammed for its sponsorship of this year's Beijing Olympics, because of China's support for Sudan's government.

Coke says it believes the Games are a "force for good."

"I think that Coca-Cola should make a point of doing everything in its power to deny Coca-Cola products to Khartoum. And the same should be true of all foreign companies investing in Khartoum," said Eric Reeves, a U.S. academic and member of actress Mia Farrow's Dream for Darfur pressure group which targets sponsors of the Beijing Olympics.

Adam Sterling, director of the Sudan Divestment Task Force, which urges investors to withdraw funds from some businesses in Sudan, said his campaign did not target Coke or Pepsi because they did not fit with the campaign's main focus -- companies involved in oil, power production, mining and the military.

"The other reason is that we don't feel that these are companies that are investing in Khartoum at the expense of the people of Sudan," Sterling said.

Neither Coke nor Pepsi gave figures for sales in Sudan and Iran but in the three months to end-March 2008, Coke's Africa division recorded net operating revenues of $314 million, just over 4 per cent of the quarterly total.

PepsiCo's Middle East, Asia and Africa (MEAA) division accounted for 12 pct of its sales of $39.47 billion last year and 7 pct of its $7.92 billion operating profit, according to its annual report. Pepsi International accounted for 26 pct of total 2007 revenue.

Both Coke and Pepsi are looking to emerging markets because growth at home is slowing.

"My guess is they believe those emerging markets will aid in their growth down the road," said Gary Bradshaw, a portfolio manager with Dallas-based Hodges Capital Management, which owns shares in Coke and Pepsi. "And those companies don't have anything against the people or anything. They obviously want to grow their business."

"MADE IN THE USA"

Latest figures show OFAC issued 100 licenses to companies exporting agricultural commodities, medicines and medical equipment to Iran and Sudan from September to December 2007. Over the same period, 10 licenses were refused.

An OFAC spokesman said he could not name applicants or comment on specific applications.

Another U.S. brand with a big presence in Sudan is the Colorado-based Western Union, the world's largest payment transfer company. Its black-and-yellow signs are visible in shopping malls and on roads throughout Khartoum.

The company, which has 17 agents in Sudan, said it complied with OFAC guidance on regulations for operating in Sudan and had implemented its own regulations as well.

"Funds cannot be sent to or received by any persons, agents, private enterprises, charitable organizations or other establishments linked directly or indirectly in any connection whatsoever to any governmental authorities of Sudan," said Kristin Kelly, media relations manager for Western Union in Sudan, in an e-mailed response to Reuters.

Western Union does not offer services in Iran.

Sudan, which produces around 500,000 barrels of oil a day, says the sanctions have minimal fiscal impact because it has no direct trade ties with the United States.

The largely cash economy has enjoyed real growth rates averaging 7 percent over the past 10 years, thanks in some part to Chinese and Asian funds. The official forecast for 2008 is 8 percent, the same as the previous year.

Iran, the world's fourth-largest crude oil producer, has reaped windfall gains in recent years from the high oil price and says its economy grows by more than 6 percent annually.

Iran also says the sanctions have no impact but economists say those imposed since 2006 are making Western companies more wary of investing, although it remains a magnet for oil majors.

Neither have sanctions dampened an enthusiasm for U.S. popular culture, which is king among young Iranians thanks to the Internet and illegal satellite television.

In one grocery stall in Tehran's Paytakht shopping centre, the shelves are full of products "made in the U.S.A.," including French's mustard, Heinz ketchup and Hershey's syrup.

Omid, the 30-year-old owner of an Apple store who declined to give his last name, said he had a U.S. partner who ordered computers and other goods and then shipped them to Dubai.

"We're repackaging (the shipment) and sending it here ... it is a problem but not that hard."

Sports shop owner Ali Ebrahimi, 45, said he faced no major problems getting Wilson tennis rackets, K2 skis or Nike shoes.

"When you say made in America, it is the best thing you could offer to (Iranian customers)."

Not that the trade is all one way. Check the small print of sanctions legislation and you will find exemptions for some imports into the U.S. from blacklisted countries, chief among them carpets from Iran and gum arabic from Sudan.

Gum arabic is, among other things, a key ingredient in paints, adhesives, and a couple of very well-known soft drinks, including some produced by Coca-Cola and Pepsi.

Additional reporting by Zahra Hosseinian in Tehran, Martinne Geller in New York

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