Amid the implementation of the Joint Plan of Actions between Iran and the so-called P5+1 (five permanent members of the UN Security Council and Germany) and the consequent sanctions relief, international companies that are interested in re-engaging the Iranian market are faced with an important reality: In the past decade, Iran’s business community has transformed from being one dominated by public companies to one where semi-state institutions (revolutionary and religious foundations, pension funds as well as military organizations) play the most significant role. In addition, in terms of type and volume of activity, the private sector has reached new heights, especially the companies that have successfully engaged in export business.

International observers have focused on the growth of semi-governmental organizations and have wrongly concluded that the Iranian economy is now dominated by the Islamic Revolutionary Guard Corps (IRGC). However, the IRGC-related companies are only one of many categories of institutions that operate in the gray zone between the public and private sectors, since they are not accountable to the government per se. Obviously, they cannot be considered private, because they are affiliated with state institutions such as the Supreme Leader’s Office, religious authorities or military entities. Such institutions have mainly increased their economic role during the absence of international companies in the Iranian market. However, now that the government is trying to attract international investors, the semi-state sector will continue to operate as an integral part of the business community.

Evidently, Iran’s genuine private sector is in a very challenging position. In many industries, lucrative opportunities have been available predominantly to the semi-state companies. Even if some contracts were won by the private sector, there were operational issues and obstacles, sometimes due to the non-competitive climate generated by the same semi-state entities. Though the new government is trying to provide a larger space for the operation of private entities, semi-state institutions will remain an inevitable player, especially in large projects. Essentially, all key players appreciate that the semi-state sector plays an important role and that the private sector has to deal and also partner with them on a regular basis. In such partnership scenarios, private sector firms benefit from the very extensive business network available to semi-state institutions, which can be considered an asset in the implementation of major projects. Private sector players also realize that such entities have an easier access to state privileges, from funding to the ability to import needed goods and services. On the other side, such partnerships help semi-state companies develop new capabilities in their portfolio. Consequently, there are a growing number of project-based partnerships between the semi-state sector and private businesses in the country.

Parallel to the growth of both semi-state and private sectors, the government’s role in the economy has shrunk and will shrink further as a consequence of privatization. The government will continue to control strategic sectors such as upstream oil and gas, but over time the role of government technocrats has reduced in the business elite.