Foreign direct investment (FDI) and foreign technical assistance form two key components of Iran’s ongoing economic structural reform efforts to improve the nation’s productivity and diversify the economy. In recent years, new legislation called the Foreign Investment Promotion and Protection Act (FIPPA) and a powerful state agency, the Organization for the Investment, Economic and Technical Assistance of Iran (OIETAI), have been put in place to encourage FDI and improve the investment picture for business.
Total foreign investments in the Iranian economy increased to $10.2 billion in 2007, up from $4.2 billion in 2005. More recent FDI data suggests that the attention paid by foreign investors in Iran increased sharply in the period after the full year statistics were collated. In 2008, the United Nations Conference on Trade and Development (UNCTAD) estimated that Iran attracted inbound FDI worth $1.6 billion, increasing to $3 billion in 2009. This impressive surge occurred in the midst of the global economic downturn, during which the global flow of FDI decreased by some 37%.
In the upcoming five years, Yahya Ale-es-hagh, the President of the Tehran Chamber of Commerce, Industries and Mining, says that Iran is looking to attract foreign investment worth $300 billion. International monitoring organizations, such as the EIU, also expect a huge increase in FDI flowing into Iran in the upcoming years due to the economic opportunities opening up in a diverse set of industries.
In order to attract investors to the megaprojects undertaken in Iran, the government is allowed by Parliament to issue foreign exchange participation bonds. In the 1389 (2Q 2010-1Q 2011) annual budget, the government was permitted to issue and launch €12 billion worth of foreign exchange participation bonds. These sharia-compliant bonds play an important role in attracting and securing inbound portfolio investment.
For both direct and portfolio investors, the FIPPA legislation offers many mechanisms to facilitate the flow of investment into Iran. It is no coincidence that FDI levels surged after its ratification in 2002. According to FIPPA, foreign investors are permitted to act in any sectors in which the local private sector is permitted, aside from those sensitive to national security. FIPPA-approved investments can be 100% foreign-owned, and the government is not allowed to discriminate against foreign investors. In fact, FIPPA legislation allows foreign investors access to the Central Bank’s foreign capital account even in times of national emergency. Also, foreign investors do not require further licenses to engage in import and export activities. Such is the open nature of the FIPPA regime that some local investors may feel it is a little too generous, as Dr. Behrouz Alishiri, President of OIETAI, explained to TBY.
A new by-law extending the protections offered by FIPPA was approved by the Iranian government in April 2010. Accordingly, obtaining a license is no longer mandatory before investing in the Tehran Stock Exchange. However, investors are still recommended to obtain one as the license guarantees access to the Central Bank’s hard currency reserves for the repatriation of funds. More importantly, investors no longer have to wait three years before selling their shares, a major step toward improving trading liquidity.
OIETAI is the state body responsible for the implementation of FIPPA and in assisting foreign investors through each stage of any investment. OIETAI service centers have been established in each province of Iran, and act as “one-stop shops” for both current investors and those looking to invest in Iran.
© The Business Year