In a context where global foreign investment increased by 10.9% in 2013, in particular in Europe (+25.2%) and in Latin America (+17.5%), FDI flows to developing economies reached a new high of US$759 billion. However macroeconomic fragility and policy uncertainties are driving investors to caution.
The flows of foreign investment in Iran remain very weak compared to the enormous potential that the country can offer. This is due to several factors: the state's supremacy in the economy, external political risk (American embargo, economic sanctions, nuclear issue) as well as internal (impoverishment of the population, social risks, inflation, crisis of the political regime), and heavy bureaucracy in all sectors.
Foreign investment was developed a little during the era of Khatami who offered an international opening to many foreign companies, notably French and Italian, which invested in oil and gas projects. However, the rate of investment in the country remains very associated to the political context and despite the current detente, it is very difficult to predict the global situation of Iran in the next following years.
The Geneva agreement, signed in 2013, has brought relief to a national economy asphyxiated by the sanctions and removed some obstacles to the FDI influx, already pushed by Chinese and Russian investment, particularly in the natural gas sector. In 2013 FDI reached USD 4.8 billion.
Information on the 2013 FDI influx in this region can be accessed in the Global Investment Trade Monitor published in January 2014 by the United Nations Conference on Trade and Development (UNCTAD).
|Foreign Direct Investment||2011||2012||2013|
|FDI Inward Flow (million USD)||4,277||4,662||3,050|
|FDI Stock (million USD)||33,230||37,891||40,941|
|Performance Index*, Ranking on 181 Economies||119||-||-|
|Potential Index**, Ranking on 177 Economies||28||-||-|
|Number of Greenfield Investments***||6||0||3|
|FDI Inwards (in % of GFCF****)||3.2||3.6||2.4|
|FDI Stock (in % of GDP)||6.3||6.9||7.4|
Source: UNCTAD - Last Available Data.
Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country's Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From the Ground Up. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.
Iran represents an important market (70 million inhabitants) with a young population eager of consuming foreign products. It is a solvent market with an enormous need of consumer goods, equipment and large infrastructure projects (electricity, water, accommodations, transport, etc). Production costs (work, energy, etc) are low.
Iran, because of its geographical location, is also an ideal base for exports in the region and its energy resources are very attractive to foreign investment.
The influence of the State in the economy is very important with numerous organizations linked to the state and disposing of funds and important budgets without coherent management. Corruption is wide-spread in the country.
Geopolitical tensions, particularly with Israel and domestic instability are also major risk elements.
In order to attract foreign investment as well as obtaining knowledge, buy-back systems have been established in which the revenues of the foreign investor partner can be repatriated in the means of goods and services produced by the project. In terms of investment, the Iranians offer privileges to investors who can provide long term strategies and transfer of technologies.
Any Comments About This Content? Report It to Us.
© Export Entreprises SA, All Rights Reserved.
Last Updates: October 2014