Foreign Interest to Boost Infrastructure
Economy, Business And Markets

Foreign Interest to Boost Infrastructure

Business Monitor International expects the lifting of international sanctions—which is due to occur early this year-- to result in the diversification of Iran's competitive landscape in infrastructure growth. This is while Russian and Chinese companies have already built a strong presence in Iran, particularly as a result of decade-plus long western sanctions.
 "We have seen growing interest from a variety of international players in Iran, including South Korean companies such as GS Engineering & Construction which has started surveying the Iranian market," BMI predicts in its infrastructure report for Iran in 2016.   
The normalization of relations with Iran will be beneficial for Iranian construction companies as well as they will look to form partnerships with international firms and leverage from their expertise.
"We anticipate the opening up of the Iranian infrastructure market to have a positive effect for the wider region, incentivizing investment flows as well as the development of cross-country infrastructure projects such as railways and pipelines," the report adds.
The report emphasizes, however, that greater competitiveness in Iran's labor market will be required to support growth in the construction industry. Although Iran's labor force is highly educated by regional standards, high labor costs will continue to pose a structural barrier to investment.
A sanctions-free country in future, coupled with a recovery in the economy, should see a reverse flow of high-skilled immigrants going back to Iran. In terms of the size of the labor force, the country has a youthful population.
Iran's transport sector is catering to the needs of a population of 80 million and the business needs of an economy potentially worth USD 417 billion. BMI believes there are upside predictions for both these numbers and this will place a strain on transport infrastructure if it does not continue, or rather start, to expand and modernize.
"Years of underinvestment given Iran's relative isolation under international sanctions partly explain the outdated transport infrastructure and poor connectivity links. We expect investment to target the sector - particularly railways - in the post-sanctions era," BMI reports.
According to BMI, Iran has a total of 319 airports, of which 140 have paved runways. The country has yet to develop a significant tourism sector, with airports mainly used by business travelers. With Iran being the second largest OPEC oil producer and sitting on the world's second largest gas reserves, its airports cater to the needs of business associated with these two areas. Airports also serve the country's freight sector, although air transport makes only a small portion of total freight transported.
There are plans to expand Iran's main airports, with Iranian Airports Holding Company looking to attract an excess of $ 1 billion in investment into the aviation sector. A significant expansion project is the Imam Khomeini International Airport in south Tehran, which is to be tripled in capacity to 20 million passengers a year, before hitting its peak capacity of 90m passengers a year - a long-term target that appears more likely in a post-sanctions scenario.
BMI forecasts the number of cars on Iranian roads to grow in the long term, although lifting gasoline subsidies may place a downside risk on this forecast as some car owners tend to cut down on their fuel consumption.
Rapidly increasing car sales are placing a strain on the country's road infrastructure and the roads will need to be repaired more often, as they deal with greater loads and traffic. This trend will intensify as the auto sector - Iran's biggest non-oil industry - will benefit greatly from the lifting of international sanctions.
"Our autos team forecasts a 20% growth in car sales in calendar year 2016, partly as a result of some imports recommencing. In addition, the country's roads must take the brunt of most of the freight transported within its borders. Roads made up 70% of freight transport in 2014 and this is set to grow to 74% in 2018," the report suggests.
Unlike a number of other Middle Eastern nations, Iran has already developed a railway system and BMI highlights this subsector as a key beneficiary of investment in future. The network carries not only passengers but also freight - although this is limited.
For some time now, BMI has seen strong Chinese interest in investing in Iran's railroad sector. In October 2011, the Chinese government made an offer to build a passenger and freight rail line, aimed at allowing continuous rail transport of goods from China, through the Middle East to Europe. The line is expected to cost $2 billion, starting in Tehran and running to Khosravi on the Iraqi border.
In addition to Chinese investment, talks between New Delhi and Teheran were reported in June 2014 regarding a $ 5billion investment from India into Iran's railroad sector. Projects are intended to connect Iran's manufacturing and mining centers to the main ports in order to increase export competitiveness by extending the railroad network by 500km to 1,000km every year.
Port Facilities
Since the 1980-88 war with Iraq, Bandar Abbas has overtaken Khorramshahr as the country's major port, handling three quarters of the 20 million tons of cargo that pass through Iran's Persian Gulf ports each year. Smaller ports at Bushehr, Bandar Lengeh and Chahbahar have also assumed greater importance. In addition, the Caspian ports have benefited from Iran's attempts to develop its relations with the Central Asian republics, while modernization programs have been implemented at Bandar-e Anzali and Chahbahar.
According to the head of the Iranian Ports and Maritime Organization (PMO), Ata'ollah Sadr, the port of Anzali will increase its cargo-handling capacity from 8 million tons per year to 16 million tons. Amirabad, which is already Iran's largest Caspian Sea port, will go from a 5 million tons capacity to 10 million.
"Despite the various obstacles facing the Iranian construction sector, we do see scope for these projects to be realized," the PMO chief says.

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