Domestic Economy

Setting the Stage for Industrial Sector FDIs

Setting the Stage for  Industrial Sector FDIsSetting the Stage for  Industrial Sector FDIs

Iran has long been regarded as an untapped market by foreign investors that believe the country’s rich energy resources and mineral reserves offer a great opportunity for investment. Many foreign companies have been sizing up the country’s markets in recent years, waiting for the sanctions –imposed against Iran over its nuclear energy program — to be either lifted or eased.

But the question is which sectors of the economy are most suitable for absorbing foreign direct investments (FDI) and is Iran prepared for “opening up its economy to the world” as the government authorities have been promising.

  Strong Upstream, Downstream Diversifications

Member of the Iran chamber of commerce, industries and mines research center, Mehdi Rezaee believes the industries which have both strong upstream and downstream diversifications, such as petrochemical and mineral sectors, should be given priority while attracting FDIs, as growth in these sectors would help give a new momentum to other industries and act as a catalyst for the country’s economic development.

He warned that if the domestic industries are not prioritized for foreign investments, the country could end up attracting foreign investments that only benefit the investors but are not in line with the national development plans, noting that any investment in the domestic industries must be aimed at achieving the goals set out in the Fifth Five Year Economic Development Plan and the 2025 Vision Plan, Persian daily Ta’adol reported.

“Developing countries increasingly see FDI as a source of economic development and have liberalized their FDI regimes and pursue new policies to attract investment,” said Rezaee, noting that if Iran fails to implement proper policies to maximize the benefits of foreign presence in the domestic economy, it would be losing the game to other countries in the region with better policies.

  Attractive Industries for FDI

Former member of chamber of commerce, Mehdi Rasekh believes having abundant sources of raw material such as crude oil and natural gas gives Iran an edge in attracting foreign investment.

“Industries such as metals, food, minerals and petrochemical sectors have high value added and could yield high returns for the investors.”

Referring to the difficulties faced by foreign countries willing to invest in Iran due to economic sanctions, including international banking, he noted that Iran used to import the majority of its demand for industrial equipment and raw materials from countries such as Germany, France, Austria and Belgium before the imposition of sanctions, but is now forced to import the same from countries such as China and Taiwan.

  Contributing Factors

Experts believe sanctions are not the only restraint when it comes to attracting foreign investment, as the country lacks adequate business environment and economic infrastructure for robust international business activities.

Lack of transparency in government policies, corruption, high trade tariffs, and restrictions on foreign ownership, are some of the problems pointed out by experts as barriers to attracting FDIs.

Former head of the Confederation of Iranian Industry, Hossein Sassani cites two key factors in attracting foreign investment, the first one being the volume of investment in particular sectors within specific time spans and the second being the macroeconomic infrastructure.

Iran was ranked as the 130th economy in a ranking of 189 countries on the overall ease of doing business by the World Bank group in 2014. According to Sassani, bureaucracy and lack of transparency in the business environment is the main hindrance to the development of Iran’s economy and as long as such issues remain unresolved, lifting sanctions could do little to help.