Economy, Business And Markets

Investors Signal Return to Greenfield FDI in Iran

Investors Signal Return to Greenfield FDI in IranInvestors Signal Return to Greenfield FDI in Iran

With the loosening of international sanctions against Iran this year, hopes have been high for a resurgence in foreign direct investment.

Data from fDi Markets, a service that monitors cross-border greenfield investment, suggest a recovery is underway from recent very low levels of incoming FDI, wrote the Financial Times in an article published this week. Parts of it are presented below.

However, most of the planned investments are in the large-scale, capital-intensive sectors that have dominated greenfield investment in Iran since fDi Markets began collecting data in 2003. An expected diversification into financial services and other sectors has yet to materialize.

According to fDi Markets, a total of 147 individual greenfield projects have been announced by foreign companies in Iran since 2003, resulting in just over $28 billion of capital investment.

Most of the projects were in heavy industrial sectors such as metals, automotive and coal, oil and natural gas, all of which have seen a sharp fall-off in foreign investment in recent years.

The automotive industry attracted just one project between 2010 and 2015, after a previous average of two projects a year. There were just two projects in the metals sector between 2010 and 2015, after 18 projects between 2003 and 2009.

In the coal, oil and natural gas sectors, capital expenditure on new projects by foreign companies amounted to just $3.15 billion during 2010-15, after $8.87 billion in 2003-09.

Greenfield FDI almost hit rock bottom in 2013, when a total of three projects brought in capex of less than $80 million. With the victory of President Hassan Rouhani that year and progress toward last July’s nuclear agreement, which came into effect in January, FDI has made a tentative recovery to the levels of the late 2000s.

Data on investors’ intentions collated by fDi Markets suggest investment could be about to pick up further.

From January 2014 to February 2016, it recorded 16 so-called investor signals targeting Iran—early-stage indications that a company is planning to expand, generally looking one to two years ahead. The total amounts to more than in any previous two-year period.

Globally, just over 16% of such signals convert into actual projects. This suggests greenfield FDI to Iran this year is likely to surpass that of recent years in terms of both project numbers and capital investment, continuing a rebound that began in 2013.

Eight inward investment projects were tracked during 2015 with an accompanying capital investment not seen since 2010. The outcome of this month’s parliamentary elections may prove decisive in influencing potential investors.

Rouhani has set a target of attracting $50 billion in foreign investment during the coming year. If he secures a bigger majority in parliament, his chances of success will increase.