Jonathan Porter
Number of planned and announced projects is rising but Rouhani’s target looks ambitious
The snow capped peaks of the Alborz mountain range stand beyond buildings and rooftops on the city skyline in Tehran, Iran, on Wednesday, Nov. 25, 2015. Iran will encourage foreign partners and investment as sanctions are lifted and the country seeks to boost its economy after July's nuclear agreement with the world powers, President Hassan Rouhani said.
Iran has been labouring under some form of international boycott since the country’s revolution of 1979. With the loosening of international sanctions this year, hopes have been high for a resurgence in foreign direct investment.
However, most of the planned investments are in the large-scale, capital-intensive sectors that have dominated greenfield investment in Iran since fDi Markets began collecting data in 2003. An expected diversification into financial services and other sectors has yet to materialise.
Sanctions imposed by the UN were lifted in January along with many US and European ones. But as the FT reported this week, US sanctions that remain in place have made many international banks wary that they could face penalties if they expand their business in Iran. This could make it hard for many investors to raise the finance they need.
According to fDi Markets, a total of 147 individual greenfield projects have been announced by foreign companies in Iran since 2003, resulting in just over $28bn of capital investment.
Most of the projects were in heavy industrial sectors such as metals, automotive and coal, oil and natural gas, all of which have seen a sharp fall-off in foreign investment in recent years.
The automotive industry attracted just one project between 2010 and 2015, after a previous average of two projects a year. There were just two projects in the metals sector between 2010 and 2015, after 18 projects between 2003 and 2009.
In the coal, oil and natural gas sector, capital expenditure on new projects by foreign companies amounted to just $3.15bn during 2010-15, after $8.87bn in 2003-09.
Greenfield FDI almost hit rock bottom in 2013, when a total of three projects brought in capex of less than $80m. Presidential elections that year added to the uncertainty over Iran’s nuclear programme. With the victory of President Hassan Rouhani and progress towards last July’s nuclear agreement, which came into effect in January, FDI has made a tentative recovery to the levels of the late 2000s.
Data on investors’ intentions collated by fDi Markets suggest investment could be about to pick up further. From January 2014 to February 2016, it recorded 16 so-called investor signals targeting Iran — early-stage indications that a company is planning to expand, generally looking one to two years ahead. The total amounts to more than in any previous two-year period.
Globally, just over 16 per cent of such signals convert into actual projects. This suggests greenfield FDI to Iran this year is likely to surpass that of recent years in terms of both project numbers and capital investment, continuing a rebound that began in 2013.
Eight inward investment projects were tracked during 2015 with an accompanying capital investment not seen since 2010. The outcome of this month’s parliamentary elections may prove decisive in influencing potential investors.
Rouhani has set a target of attracting $50bn in foreign investment during the coming year. If he secures a bigger majority in parliament, his chances of success will increase. But Iran’s future as a truly emergent investment destination remains in the balance.
Jonathan Porter is a research analyst at fDi Intelligence, an FT data service
Source:FT
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