The general trend of gross fixed capital formation at the 2016-17 constant prices has been declining over the decade ranging from the fiscal 2011-12 to 2021-22.
The average annual investment growth was at -6.9% during the 10 years under review.
The lowest investment volume was registered in the fiscal 2019-20 at 2,490 trillion rials ($7.79 billion), which is half the figure of fiscal 2011-12, the Economic Studies Department of Tehran Chamber of Commerce, Industries, Mines and Agriculture reported.
In the fiscal 2021-22, real investment amounted to 340 billion rials ($1.06 million), which marked zero growth compared with the fiscal 2020-21.
Given the 5% annual growth in investment from the fiscal 2022-23 onward, real investment would reach the 2011-12 figure after 14 years in the fiscal 2036-37.
With a 10% annual growth, real investment will reach the 2011-12 figure in the fiscal 2029-30, which appears to be optimistic.
Capital Depreciation
For the third year in a row, according to the Central Bank of Iran’s constant prices in the fiscal 2016-17, capital depreciation was nearly the same as the volume of new investment in the fiscal 2021-22.
The continuation of the decline or lack of investment would lead to capital depreciation outweighing new investment.
Investment in Construction, Machinery
The general trend of real investment in machinery and construction has been declining from the fiscal 2011-12 to 2021-22, such that investment in the construction sector (at constant prices in the fiscal 2016-17) decreased from 2,560 trillion rials ($8.01 billion) in the fiscal 2011-12 to 1,500 trillion rials ($4.69 billion) in 2021-22.
Investment in machinery dropped from 2,600 trillion rials ($8.14 billion) to 1,000 trillion rials ($3.13 billion) during the same period.
Notably, the decline in investment in machinery has been more intense than the decline in construction.
The lowest volume of investment made in machinery and construction over these years was registered in the fiscal 2019-20; despite the rebound in the following year (fiscal 2020-21), the amount of investment is significantly lower than what it was in the fiscal 2011-12.
Investment Growth
Growth in investment in the Iranian economy over the 10-year period was positive only in three years, namely in the fiscal 2014-15, 2020-21 and 2021-22 with 7.1%, 3.2% and 0.01%, respectively.
This is while growth in investment in machinery has been positive for five years while in construction it was positive only in two years of the decade under review.
The average annual growth in investment in machinery and construction was -9.1% and -5.2%, respectively.
The fiscal 2020-21 and 2021-22 registered high investment growth in machinery (12.5%), thanks to growth in the production of capital goods and imports, but the rate for construction was -7.1% in the fiscal 2021-22.
Investment Contribution to GDP Growth
Investment growth is one of the main drivers of economic growth in most developing countries. This comes as over the 10 years under review, the Iranian economy posted negative growth in investment.
Only in two years under review, namely fiscal 2014-15 and 2019-20, the simultaneous growth in investment in machinery and construction played a pivotal role in the country’s economic growth. The role of investment in economic growth was negative in the remaining years of the decade.
The 0.8 percentage point growth in machinery investment in the fiscal 2021-22 was offset by the -0.8 percentage point growth in construction investment. The impact of investment in economic growth was 0 percentage point in 2021-22.
Foreign Investment
The Economic Studies Department of Tehran Chamber of Commerce earlier released another report on foreign investment in Iran.
The survey shows the highest volume during the 20 years leading to fiscal 2020-21 was registered in the fiscal 2012-13 with $4.5 billion. It started a downtrend from that year to reach its lowest level during the period under review in the fiscal 2015-16 with $945 million.
Following the signing of the Joint Comprehensive Plan of Action (JCPOA) in the fiscal 2015-16, foreign investment grew in the fiscal 2016-17, but after that, due to the US policies and talk of the country's withdrawal from JCPOA, the volume began to decline. After the US withdrawal from the accord in the fiscal 2018-19, it decreased sharply in the fiscal 2019-20 to reach $1 billion.
In the fiscal 2020-21, the volume stood at $1.4 billion, registering a 39% increase compared to the fiscal 2019-20.
Most foreign investments in Iran have been in the form of direct investment, the report said, adding that investment in securities and stocks account for a small share of foreign investment.
In the fiscal 2020-21, foreign investment in securities and stocks stood at $165 million, which was 69% higher compared to the fiscal 2019-20 and accounted for about 12% of total foreign investment in Iran.
FDI Inflows Rose 6% to $1.42b in 2021: UNCTAD
Iran attracted an estimated $1.425 billion in foreign direct investment in 2021, according to the United Nations Conference on Trade and Development’s latest World Investment Report.
The FDI volume shows more than 6% rise compared to $1.342 billion in 2020.
UNCTAD put the volume of FDI inflows to Iran at $3.372 billion, $5.019 billion, $2.373 billion and $1.508 billion from 2016 to 2019.
The rise in FDI inflows came, as the wider South Asia region saw the volume decline from $70.957 billion in 2020 to $52.417 billion in 2021.
The report noted that the volume of FDI outflow increased from an estimated $78 million in 2020 to $82 million in 2021.
The volume of outflows from 2016 to 2019 reached $104 million, $76 million, $75 million and $85 million.
The volume of FDI inward stock, the value of foreign investors' equity in and net loans to enterprises resident in the reporting economy has been put at $60.136 billion in 2021, up from $28.953 billion in the preceding year, and $2.597 billion in 2000.
FDI outward stock rose from $411 million in 2000 to $1.713 billion in 2010 and $4.139 billion in 2021.
Implications of FATF Blacklist
According to former president, Hassan Rouhani, Iran’s non-compliance with FATF (the Financial Action Task Force, the global anti-money laundering watchdog) norms has cut off Iranian banks’ ties with international monetary institutions and created unwanted problems in accessing forex income.
“When there is no banking interaction with the world, the result is lack of investment and capital. Mega economic projects cannot be implemented when there is no [foreign] investment,” he was quoted as saying by IRNA in July 2021.
In February 2020, FATF lifted the suspension of counter-measures on Iran and called on its members and all jurisdictions to apply effective counter-measures against Tehran.
FATF has asked Iran to pass four bills to get out of its blacklist. The Rouhani administration approved and enacted amendments to the counter-terrorist financing and anti-money laundering rules.
But the government failed to get approval from the top legislative bodies for the two remaining bills, namely Palermo (convention against transnational organized crime) and terrorist financing conventions (CFT), despite the fact that the key bills were passed both by the government and parliament.
Observers say failure to comply with FATF norms has compounded the impact of the US economic blockade.
Rouhani said the FATF blacklist and the categorization of Iran as a “high-risk country” have discouraged foreign investment and in particular undermined banks’ role in investment.
“Normally, banks are involved in big investment projects. Funds are made available either by domestic and foreign lenders or sovereign wealth funds,” he said.
Known officially as the National Development Fund of Iran, the sovereign fund holds a portion of oil and gas export.
