Events | Number 5, June 2004 | Investment in Iran

Investment in Iran

The following is a shortened version of the speech delivered by Dr Mohammad Khazaee, the Deputy Minister for Economic Affairs and Finance and president of OIETAI, at the 6th Iran Petrochemical Forum.

In the past six years, Iran’s economy has experienced profound and vast economic reforms and restructurings the extent and importance of which can be elaborated by the significance of the objectives achieved so far, some of which are: a comprehensive tax reform, which resulted in reduction of income tax rates from up to 65% to a flat 25%; introduction of many new tax holidays and the establishment of a central tax authority; dismantling almost all legal and governmental monopolies in the important areas such as telecommunications, power generation, transportation, heavy industries, banks and non-banking credit institutions, insurances, production of tea, tobacco, etc.; expediting the privatization process by reviewing all state-owned companies, slating those to be privatized and making a 2-year deadline (till the end of the 3rd Development Plan) for the process; unification of the foreign exchange rate and managing Iranmarket fluctuations within a variation of 2% despite many exogenous shocks; removal of all non-tariff trade barriers or replacing them with tariffs as well as initiation of rationalization of tariffs; simplification of import/export rules and regulations; enactment of Foreign Investment Promotion and Protection Act; establishment of Oil Stabilization Fund for curbing oil revenues fluctuations effects on financing government development plans as well as extending foreign exchange loans to private sector from the Fund resources; more discipline in budget planning especially by issuance of huge amount of public bonds (in the local and foreign markets) to finance part of government development projects; more freedom for the Central Bank; restructuring local capital market which resulted in great developments in Tehran Stock Exchange to be the second most profitable stock market in Asia… These are some of the important achievements made by the economic reforms and restructurings in recent years.

Economic figures best express these developments: GDP growth has increased from 2.2% in 1996 to 7.4% in 2002 while the unemployment rate has decreased from 16.6% to 11.2% during the same period. Inflation rate has decreased from 23.2% to 16% in the past year when the expectable inflationary effects of the unified foreign exchange regime was interpreted as the main reason for its still decreasing high value. In the external front, foreign trade volume has increased from 37.4 to 52 billion USD during the said period. Foreign exchange reserves have increased to 12.5 billion USD (excluding Oil Stabilization Fund) and simultaneously foreign debts have decreased from 17 to 9 billion USD.

I believe that many positive features make Iran an advantageous and competitive location for investment and doing business. A strategic geographical location at the heart of the Middle East connecting the South, West and Central Asia to Europe, empowered by many inter- and trans-regional trade, customs, tax and investment arrangements; being the biggest market in the region as regards GDP, and proximity to 300 million inhabitants in its neighboring countries; access to a large pool of trained and efficient manpower at very competitive costs; low utility and production costs originating from the low cost of energy, infrastructures and public services; abundant diversified natural resources ranging from oil and gas to metallic and non-metallic species reflecting the country’s accessibility to readily available raw materials; a four-season climatic endowment as a privilege to engage in all agricultural activities throughout the country and throughout all seasons; policy-made advantages such as reduced flat 25% tax rate on corporate income along with various tax exemptions; an updated flexible legal framework for admission of foreign investments empowered by some 50 bilateral and multilateral investment treaties (BITs/MITs) which are to couple soon; and finally the government’s commitment to the development of national economy and expansion of economic relations with countries all over the world, are just some of the advantages available for foreign investments in Iran. According to the Foreign Investments Promotion and Protection Act (FIPPA) all foreign real and/or legal persons as well as Iranians using capital with foreign origin, who under authorization from the Government, import their capital into Iran, can enjoy the protections and facilities extended by FIPPA.

The protections accorded to foreign investments against noncommercial risks under the Act include right of repatriation of the principal capital, dividend and capital gains in foreign exchange; guaranteed compensation in case of expropriation and nationalization pursuant to law; guaranteed compensation in case of business disruption made by any enactment of laws or regulations; guaranteed purchase of foreign investment products in case the government is the exclusive purchaser of the products or pays subsidies for them; and guaranteed equal treatments as with any Iranian national or enterprise.

It is worth mentioning that there is no limitation concerning the type of foreign capital or the designations of investments. Therefore, in addition to traditional direct investments (FDI), other investments in various forms of foreign financial facilities such as buyback arrangements, BOT schemes, project financing modalities, civil partnership (i.e. un-incorporated partnership) can also enjoy the coverage and support of the FIPPA. Besides, there is no minimum/maximum criteria for admission of foreign investments nor is there any restriction on foreign shareholding percentage, so far as foreign capital is going to be invested in the activities that are open to local private investors. It should be noted that even in the fields of activity that are reserved for the government (which are quite few and mainly limited to upstream oil and gas activities) foreign investors are free to invest within various forms of foreign financial facilities (such as buyback arrangements) and receive protections and support of the Act.

Investment licenses are issued within a maximum period of 45 days from the time an application is submitted. In addition, throughout the investment project lifetime foreign investors need to deal with just one government institution for their relevant affairs and requirements. The Organization for Investment, Economic and Technical Assistance of Iran (OIETAI) acts as a single window for information provision, matchmaking between the foreign and local investors, reception and process of investment application till the issuance of investment license. Overall, such facilities which are mostly initiated by the approval of FIPPA have made the country a very attractive target for many foreign investors. Therefore, during the last two years such investments experienced a 400% boom and became almost equal to what had been invested through the past decade.