TEHRAN, Iran — Iranian President Hassan Rouhani has come under mounting criticism over what critics call his government’s inability to improve the economy and create jobs, despite having reached the nuclear deal and gotten sanctions lifted.
As Iran was negotiating over its nuclear program, Rouhani and his administration repeatedly stated that resolving the nuclear issue would pave the way for foreign investment, which in turn could play a crucial role in boosting the economy.
However, over a year after the signing of the Joint Comprehensive Plan of Action and more than six months after its formal implementation, the president and his economic team are under mounting pressure from opponents and the public alike, who feel that little has changed.
In an interview with Al-Monitor, former senior Iranian diplomat Mohsen Shaterzadeh stressed that despite the high number of foreign delegations that have visited Iran, no significant foreign investment has been realized. Shaterzadeh further told Al-Monitor that he believes potential foreign investment will be lost given the lengthy processes involved in realizing it. Offering a gloomy outlook, he added, “The stated Foreign Direct Investment [FDI] targets set by the government and parliament seem unachievable.”
In May, Rouhani announced that $3.4 billion in FDI had been attracted in the four months after the January 16 implementation of the nuclear deal, and that licenses had been issued for a further $3.5 billion worth of investment projects.
Of note, Minister of Economic Affairs and Finance Ali Tayebnia said in February that some $15 billion in FDI and $45 billion in foreign financing would be sought for the current Iranian year ending March 20, 2017. However, some officials have lowered expectations, saying that the projected annual FDI for the current Iranian year is only about $8 billion.
Al-Monitor’s attempts to obtain the latest FDI figures from the Organization for Investment, Economic and Technical Assistance, which oversees all foreign investment in Iran, were left unanswered.
United Nations report
According to the latest report from the United Nations Conference on Trade and Development, FDI inflows to Iran consistently declined while the country was negotiating over the future of its nuclear program. Indeed, annual FDI dropped from $4.662 billion in 2012 to $2 billion in 2015. The UN report has been widely used by Rouhani’s opponents to argue that the president’s eagerness to forge closer ties with the West has only resulted in a practical decline in foreign investment.
While the UN report indicates a slide of FDI in Iran until 2015, a more recent report by the Financial Times reveals that the removal of nuclear-related sanctions in fact made Iran a top destination for foreign investment in the Middle East in the first quarter of 2016. Indeed, Iran, which ranked 12 out of 14 regional nations from 2003 to 2015 in terms of FDI inflow, has now climbed to third place, straddling the UAE and Saudi Arabia, with a record high of 22 projects, the Financial Times report added.
Economist Mehrdad Emadi of UK-based Betamatrix consultancy told Al-Monitor, “There has been some success in attracting foreign investment in certain sectors such as automotive, oil and liquid gas, transport [railroad, highway and ports] and tourism.” Emadi further suggested that he would give a satisfactory grade to the Iranian government for its performance, adding that it has “a very distinct possibility” of excelling in a year or two — if endemic corruption and opacity are reduced.
While the Financial Times report indicates an increase in FDI inflows into Iran this year, the UN report paints a gloomier big picture in which global investment is expected to slow because of high political risks.
Indeed, despite the recent upward trend of FDI inflows to Iran, some say the amount of investment is still far away from the earlier forecasts in the government’s plans.
Claiming that less than 10% of the Rouhani administration’s investment goals have materialized in the first four months of the current Iranian year, Shaterzadeh said that “in terms of foreign investment in oil, energy, industry or even infrastructure projects, none of the investment targets will be fully achievable.”
Al-Monitor also spoke with Majid Tehrani, an organization development adviser in trade, transport and finance industries. Unlike other Iranian experts, who see obstacles to FDI as mainly rooted in technical or political issues, Tehrani believes that despite the potential the nuclear deal has created for attracting foreign investment, the view of foreign investment in the country’s political culture has not changed. He told Al-Monitor, “It is excessive to expect a radical change in the field [of foreign investment] as long as the concept is controversial for the top influential elites.”
Tehrani also stressed that “Iran has not made its strategic decision about FDI pragmatically. The elites have mixed the whole concept of foreign investment with ideological analysis such as economic liberalism and economic infiltration. Therefore, some elites support the idea of foreign investment while others are doubtful.”
This is while economists such as Emadi look at the challenge of attracting FDI as related to multiple barriers, such as the “significant presence of business entities owned by the security and intelligence forces, uneven treatment of tax payments and widespread corruption — including bribe-seeking by officials.”
Meanwhile, there are officials such as Shaterzadeh, who previously served as ambassador to Brazil, who believe that the country’s lack of access to US dollars in the global banking system, uncertainties about the outlook of US sanctions and investors' lack of trust in terms of the stability of the rules and regulations in Iran are among other major factors hindering foreign investment.
“Another important obstacle is the continued use of traditional methods of attracting foreign investment instead of proposing modern methods such as PPP [Public-Private Partnership],” Shaterzadeh told Al-Monitor.
Iran’s FDI outlook
Despite all the criticism of Rouhani, his government has been able to attract a significant amount of foreign investment compared with previous years and is taking new measures to encourage further investment of $250 billion in 12 outlined sectors.
Nonetheless, the truth is that it will take some time before ordinary Iranians will actually be able to see the impact of these new projects on their daily lives. Still, a close look at the amount of investment needed to achieve the economic growth envisioned in the country’s sixth five-year development plan indicates that putting all bets in the basket of FDI is not a wise decision.
With presidential elections upcoming both in the United States and Iran, which are increasing political uncertainties in both countries, it is fair to say that the Rouhani administration faces a tough road ahead in coming months in its fight against corruption as well as its plans for reform of the banking system and providing necessary guarantees to win the trust of foreign investors.