The volume of foreign investment in Iran has seen many ups and downs over the past few decades.
A new report by the Economic Studies Department of Tehran Chamber of Commerce shows the highest volume during the 20 years leading to the fiscal 2020-21 was registered in the fiscal 2012-13 with $4.5 billion. It started a downtrend from that year to reach its lowest level of $945 million during the period under review in the fiscal 2015-16.
Following the signing of the Joint Comprehensive Plan of Action in the fiscal 2015-16, foreign investment grew in the fiscal 2016-17, but after that, due to the US policies and talk of the country's withdrawal from JCPOA, the volume again began to decline and after the complete withdrawal of the US from the accord in the fiscal 2018-19, it decreased sharply in the fiscal 2019-20 to $1 billion.
In the fiscal 2020-21, the volume stood at $1.4 billion, registering a 39% increase compared to the fiscal 2019-20.
Most foreign investments in Iran have been in the form of direct investment, the report said, adding that investment in securities and stocks accounts for a small share of foreign investment.
In the fiscal 2020-21, foreign investment in securities and stocks stood at $165 million, 69% higher compared to the fiscal 2019-20 and accounted for about 12% of total foreign investment in Iran.
Gov’t Eases Residency Rules for Foreign Investors
The government is looking to encourage foreign investment and recently eased conditions for investors applying for residence permits by reducing the volume of minimum investment.
“Foreign investors henceforth will be eligible for five-year residence permits if they invest €90,000. This is while in the past foreigners needed to invest at least $250,000 to be able to get a residence permit,” says Abolfazl Koudei, the head of Foreign Investment Department at the Investment and Economic-Technical Assistance Organization of Iran.
"The proposal was put forward by the economy minister to help attract foreign investment. The rule also applies to executives and foreign technicians employed by overseas firms as well as their spouses and children," IBENA quoted Koudei as saying.
"Attracting investment mainly from neighboring countries is a key objective.”
Foreigners who have made long-term investments in the past can also benefit from the new rule, he said, adding that investors can refer to the organization's website at Investiniran.ir to submit their application forms.
Foreign direct investment in Iran declined by 10% in 2020 compared to the year before, according to the United Nations Conference on Trade and Development (UNCTAD).
According to the World Investment Report 2021, the UN agency put Iran’s FDI inflow at $1.34 billion in 2020, down 11% compared to $1.508 billion in 2019.
Iran saw FDI inflow of $3.37 billion and $5.01 billion in 2016 and 2017 after the landmark 2016 nuclear deal with world powers.
The nuclear agreement opened the way for foreign companies flocking to the Iranian market untapped after years of pent-up demand as a result of years of international sanctions related to its nuclear energy program and other issues.
However, the volume fell to $2.37 billion in 2018, mostly under the influence of the new economic sanctions imposed by the United States under ex-president, Donald Trump, who unilaterally withdrew from the 2015 agreement.
UNCTAD estimated the FDI inward stock of Iran in 2020 at $58.7 billion, and said its FDI outward stock was near $4.05 billion that year.
FDI stocks measure the total level of direct investment at a given point in time, usually the end of a quarter or of a year. The outward FDI stock is the value of the resident investors’ equity in and net loans to enterprises in foreign economies.
Inward FDI stock is the value of foreign investors’ equity in and net loans to enterprises of the reporting economy. FDI stocks are measured in USD and as a share of GDP.
Implications of FATF Blacklist
According to former president, Hassan Rouhani, Iran’s non-compliance with FATF (the Financial Action Task Force, the global anti-money laundering watchdog) norms has cut off Iranian banks’ ties with international monetary institutions and created unwanted problems in accessing forex income.
“When there is no banking interaction with the world, the result is lack of investment and capital. Mega economic projects cannot be implemented when there is no [foreign] investment,” he was quoted as saying by IRNA in July 2021.
In February 2020, FATF lifted the suspension of counter-measures on Iran and called on its members and all jurisdictions to apply effective counter-measures against Tehran.
FATF has asked Iran to pass four bills to get out of its blacklist. The previous Iranian administration approved and enacted amendments to the counter-terrorist financing and anti-money laundering rules.
But the government failed to get approval from the top legislative bodies for the two remaining bills, namely Palermo (convention against transnational organized crime) and terrorist financing conventions (CFT), despite the fact that the key bills were passed both by the government and parliament.
Observers say failure to comply with FATF norms has compounded the impact of the US economic blockade.
The FATF blacklist and its categorization of Iran as a “high-risk country” discouraged foreign investment and undermined banks’ role in investment.
Normally, banks are involved in big investment projects and funds are made available either by domestic and foreign lenders or the sovereign wealth fund.
Known officially as the National Development Fund of Iran, the sovereign fund holds a portion of oil and gas export.
