The Forum for Partners in Iran's Marketplace
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     

June 2018, No. 87


Economy

Attractiveness of Foreign Investment
in Iranian Economy


We need to change this approach in the world media; we should introduce the true face of Iran and promote tourism and investment in our country so that tourists and investors will come to see Iran and invest.


Vice president of Iran Chamber of Commerce, Industries, Mines and Agriculture (ICCIMA), says: “We need to facilitate economic and trade relations with our neighboring countries to the highest level, because we have access to the most affordable and cheapest markets. But, unfortunately, we currently have no bilateral free or preferential trade agreements with our neighbors. The only exception is Turkey where we have not done a good job either.”

Pedram Soltani stresses attracting foreign investment requires maintaining an economic outlook. “In order to attract foreign investment we need to remove security and political glasses from our eyes and put on economic glasses.”

Underlining the need for serious reforms in the economic structure and liberalization, he said: “Our membership in the World Trade Organization, conclusion of bilateral agreements on free and preferential trade and refraining from applying double taxation can make Iran more attractive to foreign investors.” Of course, he noted, handling any of these cases would take years, and during this time attractive opportunities for investment in Iran would be wasted. “Therefore, this process should not take too long, because the countries of the region are competing with us, and if similar investments are attracted in our neighboring countries, the attractiveness of investment in Iran would somewhat diminish.”

The private sector activist, pointing out that we spend billions of dollars annually to maintain our security and sometimes the security of our neighbors, noted: “If we improve our economic interrelations, we spend these billions of dollars on investment; in other words, instead of security borders we build economic borders.” 

Why is Afghanistan at the top of the record-breaking countries injecting money into Iranian industry, mining and trade sectors?

First, I must correct this figure. Afghanistan ranks first in terms of number of licenses but it is not the first in terms of total sum of licenses in the first 9 months of 1396 (March-November 2017) to foreign investors. According to the data, Germany is the first country to invest in Iran followed by Ireland and China. As for China, I must explain that the volume of China’s investment is due to an increase in capital generated by the investment of a foreign country in production and assembly of automobiles inside the country. China has taken this point into account otherwise no extra money has entered the country.

It was an investment that I think was made six or seven years ago, and it seems that it was very profitable to the foreign investor. What they did was to reinvest the profit instead of pulling out of Iran after receiving the required permit from the Investment Organization. Of course, this is a good thing, but there is no new investment in the country. In any case, Afghanistan is not among the first few countries investing in Iran and, of course, we do not expect a high amount of Afghan investment projects in Iran.

Naturally, countries that have a more mature financial and monetary market and own multinational corporations, and conduct their investments with professional systems, would usually invest higher amounts in other countries. A country like Afghanistan or Iran and other countries in our region are less likely to make high volume of foreign investment in a country. This very number of Afghan investment projects in Iran, first of all, shows that Afghans are more interested in investing in Iran than citizens of other countries. Secondly, it shows that their risk perception of investment in Iran is lower than that of citizens of other major investing countries in Iran, which means they feel the risk is lower.


Our membership in the World Trade Organization, conclusion of bilateral agreements on free and preferential trade and refraining from applying double taxation can make Iran more attractive to foreign investors.


It seems the reason for this is also an analogical perception, that is, they compare Iran with their own country, and it is natural that the risk of investment and overall credit risk of Iran are lower than Afghanistan. So with this outlook, an Afghan would think that Iran is a safer and better place to invest than Afghanistan; but a German, a Frenchman or a Chinese would not feel the same way. For the same reason their investment size is lower. Nevertheless, considering the size of their companies the volume of their investment in Iran is higher.

Another point that contributes to the multiplicity of Afghan investment projects in Iran is its neighborhood with our country, easy travel of Afghans to Iran and other concessions they get by investing in Iran, including long-term residence permit, while without investment they should acquire visa every time they travel. Therefore, investing is good for the Afghans who want to stay in Iran with their families. The same policy is adopted by Iranians in Europe, Canada, Australia, and other countries which welcome investment. In addition to the profit they make out of the investment, they also seek residence permits for their families in those countries. The Afghans too have been following a similar policy in Iran. Another point is that, because of Iran’s proximity to Afghanistan, these investors can take advantage of the higher investment security and more appropriate infrastructures for production in Iran, and manufacture products the Afghan market requires. 

Which sectors of the Iranian economy are more attractive to investors in Afghanistan?

Afghans are investing more in our small and medium industries. I do not remember any case where Afghans may have invested in large industries. As I have seen, Afghans are investing in producing consumer goods that may be more suitable for the Afghan market. For example, they make bags, shoes, some construction materials, some foodstuff or some agricultural investment in small amounts like several hundred thousand dollars to few million dollars. Afghans make these investments based on their expertise and experience. Some of them have done the job in Iran for long years either by working in business units with Iranian employers or through informal partnership with Iranian employers. Some of them have made their business formal and are engaged in production. Some of these Afghans have become partners of Iranian units and investors. For example, I know that Afghans have made investment in chemical industry and mining sector. 

How can we attract foreign investment?

In order to attract foreign investment, we should remove security and political glasses from our eyes and put on economic glasses; we should turn our interaction with our neighbors and with the world economy-oriented; we should speak to the world in economic language; we should adopt an interactive not defensive or security approach in our negotiations with the world. Of course, saying this is simple, but the paradigm shift that now dominates our relationship with the world is very difficult in practice and requires strong resolve and consensus; however, this change is imperative. If this paradigm shift occurs, the barriers in the way of attracting foreign investment will gradually be lifted; our relationship with the world monetary banking system will improve; our risk level will decrease; and negative propaganda against Iran will decline. It is very disturbing that the world media keep spreading negative news about Iran. There are some bottlenecks but a main part of the propaganda is exaggeration.

Since we do not have economic interaction with the world their approach too is not economic. They also engage in political work in any way, including using their mass media tools. We need to change this approach in the world media; we should introduce the true face of Iran and promote tourism and investment in our country so that tourists and investors will come to see Iran and invest. In addition, we need serious reforms in the economic structure and liberalization: the status of the rates of energy carriers must be determined; the fate of restricting investment regulations should be decided, and the government policy in determining in imposing prices should stop because foreign investors will not tolerate imposition of prices by the government. The banking system should also be reformed to reduce its risk and the international banks will work with us.

The inflation rate must be checked and the monetary and financial policies must be reformed as well. We have a huge job to accomplish to make Iran attractive to foreign investment. Our membership in the World Trade Organization, conclusion of bilateral agreements on free and preferential trade and refraining from applying double taxation can make Iran more attractive to foreign investors. Of course, handling any of these cases would take years, and during this time attractive opportunities for investment in Iran would be wasted. Therefore, this process should not take too long, because the countries of the region are competing with us, and if similar investments are attracted in our neighboring countries, the attractiveness of investment in Iran would somewhat diminish.”

Investment attraction in a regional country will lead to a cut in attractiveness of investment in neighboring countries.

 

Subscribe to
IRAN INTERNATIONAL

CURRENT ISSUE
   
  June 2018
No. 87