Iran Seeks Investment in Post-Sanctions World

By Isaac Greenwood

During his recent visit to the United States to attend the United Nations General Assembly, Iranian President Hassan Rouhani encouraged American private investment in the soon-to-be unrestricted Iranian economy.

Beyond just McDonald’s, which announced and opened its first retail chain in Tehran shortly after the Joint Comprehensive Plan of Action (JCPOA) was revealed this summer, Rouhani and the Iranian regime hope to encourage further foreign private investment in the budding economy.

The Iranian economy has seen high inflation and low growth since the adoption of successive sanctions in 1995 and 2002. Following International Atomic Energy Agency approval of Iranian compliance to this summer’s JCPOA, Iranian real GDP is predicted to grow by more than 6% in 2016. Rouhani, with the help of potential American investors, hopes to guide the economy to an ambitious 8% annual GDP growth. Whereas countries such as Spain, Japan, and China have announced billion-dollar trade and development deals with Iran over the past month, some global investors, especially in the United States, remain hesitant toward the stability and prospects of the economy.

Key tenants of his interview with NPR focus on the emerging well-educated workforce in Iran and their prospects to contribute to future economic growth. Iran, whose economy is 51.7% service-based, was harmed by the severe increase in oil supply over the past three years. While falling oil prices have lowered Iran’s crude exports from 3 million barrels per day down to just 1 million since 2011, the Rouhani administration and JCPOA have contributed to some stabilization in the Iranian rial and economy at-large. Another potential sector investors may flock to is mining, as Iran possesses ample amounts of zinc, copper, and gold which could become a $60 billion industry equal to oil.

However, some features of the Iranian economy are causes of concern for foreign investors. In particular, the government control of over 70% of the economy and a judicial system notoriously hostile to foreigners lead investors to be weary of entering all sectors of the market. Whereas energy is seen as a long-term and low risk investment, the Iranian government still actively calls for investment in infrastructure and telecommunication. However, many of these underdeveloped sectors are composed of companies run by the Iranian Revolutionary Guard Corps, a disincentive to foreign investment.

A recent International Monetary Fund report suggests that economic reforms, namely cutting public sector debt and restricting monetary policy, would allow Iran to benefit most from the sanctions relief next year. Iran has made progress in this manner by privatizing 30% of its economy over the past few years, but still has work to do before it is considered a safe investment opportunity. Ultimately, while Iran presents opportunities for long-term investment in known markets like energy or pharmaceuticals, riskier investments may support politically radical groups or fail to yield adequate returns. Based on these recent trends and only moderate foreign investment so far, it seems Iran will have years to wait before achieving its desired 8% growth.