Iran's economic growth would outperform most of the Middle East and North Africa countries in 2016 when sanctions fall, according to a Washington-based global banks association, Institute of International Finance.
Due to the slump in oil prices, 15 MENA countries would post a combined growth of 3% in 2015, down from the average of 4.5% from 2005 to 2014, the IIF said on Sunday.
Few countries would grow stronger in 2016, but Iran would stand out with an expected growth increase from 1.4% to nearly 6% next year, it said.
Iran’s GDP expanded 3% in 2014, after a 1.9% contraction in 2013 and a 6.6% contraction the year before.
According to the Statistical Center of Iran, the economy grew 1% in the first half of the current fiscal year (started March 21)–a 5.7% increase in the agricultural sector’s output and a 0.9% growth in the services sector, making up 9% and 50% of the economy respectively.
Industrial output, which accounts for 40.7% of gross domestic product, however, contracted 1.1%, as low consumer demand and financing shortages kept the sector depressed.
A landmark agreement was reached on July 14 between Iran and world powers, namely the US, UK, France, China, Russia and Germany, to settle a decade-long dispute over Iran's nuclear energy program. As part of the deal, western sanctions against Iran are being lifted in exchange for the country limiting its nuclear program.
According to Dr. Garbis Iradian, chief IIF economist for Middle East and Africa, Iran has already benefited from a partial lifting of sanctions following the nuclear agreement, Xinhua reported.
"Iran emerged as the region's second largest economy behind Saudi Arabia and ahead of the UAE," explained Iradian. "Iran has the most diversified economy in MENA, before the UAE."
The removal of sanctions on Iran and stronger global growth are needed to attract more foreign direct investment to the region, which fell last year for the sixth year in a row, said the secretary-general of the United Nations Conference on Trade and Development earlier in November.
Foreign direct investment to countries in West Asia fell 4% to $43 billion in 2014 from a year earlier, owing to regional conflicts and repercussions of the global financial crisis. West Asia’s share of global FDI was 3.5% last year
"Harvesting peace and economic inclusion of Iran are important levers for the recovery and rebooting of the Middle East as an exciting destination for investment,” added Mukhisa Kituyi.
Over 700,000 barrels of Iranian oil will enter global energy markets by the end of 2015, said Dr. Giyas Gokkent, senior economist Middle East and Africa, IIF, in Dubai. That would become the flip side of the coin for the oil-producing Arab states.
The IIF said the lifting of economic sanctions on Iran, combined with the return of foreign expertise in the energy sector and spare parts, would allow for a rebound in oil exports to pre-sanctions levels within six months.
Therefore, oil prices would remain low and probably fall further in 2016.
The price of the black gold fell from $110 a barrel in July 2014 to below $45 per barrel nowadays, amid the shale oil expansion in the United States and the expected reentry of Iran.
The IIF, founded in 1983, is a global association of financial institutions with close to 500 members from 70 countries and regions. Its members include most of the world's largest commercial banks and investment banks, a growing number of insurance companies and investment management firms.
Approximately half of the institute's members are European-based, while representation from leading financial institutions in emerging market countries is increasing steadily. In 2011, the IIF was the main negotiating partner of the EU government, acting on behalf of the private creditors of Greece, on its debt restructuring.
