More than $70 billion have been transferred to Canada in the past 1.5 years, a media report reads. This bitter piece of news has once again shed light on the issue of capital flight while an economy like Iran’s need to attract investors. Capital flight occurs in two main forms in Iran: one is the lack of investment and the other is the outflow of domestic capital. In Iran, capital flight is synonymous with a higher rate of capital depreciation than productive investment. That’s why Iran’s economic growth has not been favorable over the years, Hadi Haqshenas, an economic expert, said in an article for the Persian daily Ta'adol. A translation of the text follows:
According to the Statistical Center of Iran, the country’s economic growth rate has decreased by 2% with crude oil and 0.4% without oil in the first half of the current year [started March 21] compared with the same period of the last year. This is while its economy and business environment should have improved after overcoming the Covid-19 crisis {although the country is not yet completely done with it]. Iran’s economic growth is not at an acceptable level because the country not only fails to absorb investment, it is also losing it.
Iran’s economy needs to attract tens of billions of dollars. Such a high level of investment is necessary, especially in the oil, gas and petrochemical sector. But sanctions and Iran’s non-compliance with FATF do not promote foreign investments.
It might be interesting to know that, according to statistics, Afghanistan made the highest volume of investment in Iran last year. Students, who leave Iran for other countries like Canada, the US, Turkey and Germany, transfer a significant part of these funds.
According to another set of numbers, up to 80,000 people have entered the universities of these countries from 2010 to 2021. Factor in the money they have to pay for healthcare and education at different stages and you’ll come up with a whopping figure.
In addition, the purchase of properties by Iranians in Turkey, the UAE, Oman, Armenia and other neighboring countries also leads to more capital outflow. Therefore, capital flight from Iran has two aspects. First, Iran has not been successful in attracting foreign capital and second, the country’s domestic capital is also fleeing the country.
When Iranian students migrate, their families also withdraw their funds from the country. Such a trend will create a big vacuum in Iran in the long term. Many of these students later enter the labor market in western countries. They register companies, set up factories and start businesses. They carry billions of dollars of cash abroad.
Moreover, the migration of human capital is more critical than capital flight. Talented young people constitute a significant porction of the Iranian diaspora.
The fact that the investment rate in Iran was negative and the economic growth stood at 3% in the current fiscal year’s H1 [ended Sept. 22] shows that Iran is not tapping into its capacities in tourism, health, oil and gas and mining sectors.
The country needs investment to actualize these capacities. During the 2010s, economic growth was almost zero. The economy has great resources, no doubt about that, but the presence of a massive capital flight is undeniable when production does not lead to reinvestment and the investment rate becomes negative.
Investments are being made in the same aforementioned countries. Both people and officials need to be sensitive about developments related to capital flight from Iran.
