Iran’s Economy Moves in Right Direction

A year after the Iran nuclear deal came into force, questions have been raised about the outcome of the deal for Iran’s economy.

In the wake of the Joint Comprehensive Plan of Action with world powers, as the deal is known, a fierce debate between rival Iranian factions is developing over people’s economic expectations of the deal as Iran gears up for the 2017 presidential election, reads an article published by online news portal Middle East Eye.

Excerpts of the article follow:

On the one hand, government officials, who finalized the negotiations, are presenting a positive image of the current economic situation to portray the JCPOA as an achievement.

The other side believes that by signing the nuclear deal, Iran gave up its nuclear achievements while the expected improvement in the economic situation has not been achieved.

The reality is that JCPOA, by lifting most of the sanctions imposed against Iran over its nuclear policy, has returned Iran’s economy to a “natural situation” where it was during the previous three decades.

The government intends to unify foreign exchange rates to send a clear message to foreign investors. It has prepared new contracts to increase investment in the oil industry and the first new oil contracts with international companies under the framework of Iran Petroleum Contract is expected to be signed by the yearend.

In the infrastructure sector, Iran has signed a contract for the acquisition of 118 new Airbus airliners and nearly 100 Boeing jets, which can breathe new life into the Iranian civil aviation industry.

Foreign investors and prestigious enterprises have gained US Treasury permission that has raised hopes for the continuation of JCPOA’s implementation.

  Oil, Inflation and Foreign Investment

The lifting of sanctions has enabled the Oil Ministry to return oil production to pre-sanctions levels.

According to the latest figures, Iran now produces 3.8 million barrels of oil per day and exports 2 million.

Traditional Iranian oil buyers have returned and there are also new customers. Iran has regained its position in the Organization of Petroleum Exporting Countries. The country has insisted that it will not join a plan to freeze crude production before raising output to the pre-sanctions level of around 4 million barrels per day.

 An emergency gathering of OPEC producers and non-members in Doha in April ended in stalemate after Saudi Arabia refused to accept a freeze deal because Iran had refused to join the talks. However, Riyadh significantly softened its stance on Iran in an informal meeting of OPEC members in Algiers last month after the country’s energy minister said Iran, Libya and Nigeria should be allowed to produce crude oil “at the maximum levels that make sense”.

Mohsen Qamsari, director of international affairs at the National Iranian Oil Company, says Iran’s insistence on this position in OPEC has been successful in regaining 80% of the market share it had in 2012, before sanctions were imposed.

Through fiscal policy and monetary discipline, inflation in Iran is now lower than at any time over the past quarter century. The Iranian inflation rate dropped to single-digits in June, fulfilling one of the promises of the Central Bank of Iran and President Hassan Rouhani.

When Rouhani took power in 2013, inflation was at 40.4%, especially in the food sector, and it was affecting people’s lives. But this June, it dropped to a single-digit rate (9.7%) for the first time in 25 years and fell further to 8% in August.

Foreign investment is an indicator directly related to economic stability and reflects the dynamics of an internationalized economy. In Iran, foreign direct investment has fluctuated over the past 20 years, according to United Nations Conference on Trade and Development and World Bank statistics.

In fact, after the removal of sanctions, Iran witnessed a sharp increase in foreign direct investment so that in the first months of 2016 right after JCPOA entered into force, the amount of FDI reached $4.5 billion.

  Stock Market, Foreign Visitors

After it was announced that investment contracts in line with the interests of domestic auto manufacturers such as Iran Khodro and SAIPA had been signed, the key index on Tehran Stock Exchange climbed and stirred up excitement among shareholders in March when the index reached a peak of 90,000 points compared to its pre-JCPOA 60,000.

In the wake of JCPOA, a large number of foreign business delegations, sometimes together with high-ranking political officials and sometimes independently, visited Iran. After meeting with Iranian authorities, they would then go to negotiate with the private sector.

After the JCPOA, nearly 150 high-ranking economic delegations from various countries arrived in the country.

Now the private sector, which had gradually shrunk over the last eight years as a result of the expansion of the government sector, has regained its place.

In 2013, at the beginning of the Rouhani administration, the economy experienced a negative growth rate of 6.8%. Because of a deep recession in different economic sectors, both production and exports in various sectors faced significant drops.

Three years later, as a result of government policies and the economic opening that followed JCPOA, economic growth climbed to 4.4% in the spring.

  Recession to Boom?

Some economic sectors have started to come out of recession, including key sectors like housing and industry.

According to the Central Bank of Iran’s statistics, housing transactions in Tehran rose by 30% in August compared to the same period of last year. As the head of the Union of Real Estate has declared, the first stage of coming out of a housing slowdown has begun.

There has also been an 8% rise in industrial production and exports in the past few months, especially after the economic openings resulting from the JCPOA.

Some $16 billion were put aside by the government to finance 7,500 small and medium companies to get the economy out of recession quicker.

While there has been disappointment that the benefits of JCPOA have not been felt as quickly as expected and many Iranians are still facing economic hardship, it is clear that the economy is moving in the right direction.