PROSPECTS ABOUND

Iran 2013 | ECONOMY | VIP INTERVIEW

TBY talks to Dr. Behrouz Alishiri, Vice-Minister of Economic Affairs and Finance & President of the Organization for Investment, Economic, and Technical Assistance of Iran (OIETAI), on Iran's foreign investment outlook.

What strengths and prospects has OIETAI brought to the foreign investment climate of Iran?

Iran's economy has considerable innate advantages. There are high capacities in hydrocarbon resources such as oil, gas, and petrochemicals, substantial mining potential, and different climatic conditions, which results in a variety of agricultural outputs. In addition, sufficient economic infrastructure to establish industries, well-trained and expert human resources, and access to free water have led to the emergence of investment growth by non-governmental economic actors in the national economy. In the field of economic operations, and regarding the revision of Article 44 of the Constitution, the private and cooperative sectors have become the main actors in Iran's economy, and they are well prepared to become the desirable partners of foreign strategic investors. Iran's capital markets also attract investors in terms of commercial operations. The performance indices of Iran's capital markets have been witnessing considerable growth, which provides for profitable investment in this sector. In the field of new policies for the attraction of foreign investors and according to the law, we have provided new incentives. For example, extending financial prizes in the form of grants to foreign investment companies and advisory companies plays a significant role in attracting FDI. In addition to incentives listed in the Foreign Investment Promotion and Protection Act (FIPPA) as well as its implementing regulations, the preparation and finalization of bilateral and/or multilateral foreign investment promotion and protection agreements with other countries should create a confident atmosphere for foreign investors.

What is OIETAI doing to facilitate business for foreign investors and linking them to local partners?

One of the considerable measures taken to link potential foreign investors to their local partners is to facilitate procedures and administrative support for issuing the necessary permits for the economic activities of foreign investors in Iran. Currently, Foreign Investment Service Centers have been formed in all provinces and are chaired by governors. These centers supervise and assist all activities and requirements related to the business of a foreign investor. This is an opportunity for each province to handle requests in a “one-stop shop" format. In order to expedite this measure, we are aiming to provide a single-window investment system through networks connected nationwide in 2013 that can make this process faster and more transparent. The implementation of these measures will lead to a reduction in the time and fees borne by foreign investors. Moreover, improving the Iran Investment Opportunity (IIO) website has led to a virtual connection network between foreign and local investors. The introduction of more than 1,000 investment projects through this website has provided the easiest and most appropriate channel for dialogue and cooperation between national and international enterprises. In addition to this virtual network, OIETAI has provided an opportunity for direct negotiations between local investors and their potential foreign partners through convening national, regional, and international seminars. This measure has improved negotiation abilities as well as the economic bargaining power of the two parties. It also fosters trust between Iranian investors and their potential partners, and paves the way for bilateral agreements. In other words, we could say that the attraction of foreign investment, with the aim of transferring technology and improving the management of investors, has become part of the behavioral culture of our local partners. There is no limitation with regard to models of cooperation. According to FIPPA, especially Article 3, foreign investors are able to participate in all fields that the local private sector works in. Thus, foreign investors can participant in greenfield projects as well as expansion plans through different schemes of FDI or contractual arrangements, which differ depending on the nature of any given project. According to the law, different schemes such as M&As and NEM are also included. According to Article 214 of Iran's fifth Five-Year Development Plan (FYDP), there is an opportunity for local private sector investors to participate in developmental and infrastructure projects through public-private partnerships (PPPs). Therefore, the presence of foreign investors in these projects will be absolutely reasonable and operational.

“The rate of foreign investment growth has been definitively positive for the last five years."

In which sector do you see the biggest foreign investor appetite?

Naturally, pioneering sectors in every national economy will have the highest attraction for investors. Iran's economy is not an exception to this case. Therefore, the oil, gas, and petrochemical sectors, due to their high contribution to GDP and considerable financial return, are the focal center of interest for foreign investors. In these sectors, in addition to the presence of mega companies, we have to pave the way for the presence of SMEs in downstream industries by adopting an appropriate plan to complement the value chain. I also believe that the other real sectors of Iran's economy have sufficient attraction for foreign investors due to the high flexibility of demand. Among these sectors, industry and mining, agriculture, agro-industry, and tourism have considerable priorities. The numerous advantages of commercial and industrial free zones for economic activities, sufficient potential opportunities in the real sectors of the economy, and special financial services for foreign investors are also provided. However, I believe that, based on the new approaches mentioned in the fifth FYDP, we will witness the powerful and appropriate presence of local and foreign private sector investors in infrastructure—especially in the field of ICT—power plants, transportation, and housing in the near future.

What role do you see for foreign investors in the industrialization process?

Our goal to attract FDI is not solely limited to the mobilization of funds, because this minimum goal can be achieved through other foreign financing methods. According to Article 2 of FIPPA, attracting foreign investors should follow certain criteria. Improving technology, upgrading the quality of local products, and increasing capital productivity are among our goals. We expect that the linkage between national and international capital can develop the productive capacity of local enterprises, increase employment opportunities, grant access to international markets through exports, and increase the technical and managerial capacity of local enterprises. Based on this approach, we consider foreign investors as the potential partners of local capital in the industrialization process of Iran. Based on the above model, we are working to provide concessionary advantages to those foreign investors who intend to transfer technology and establish R&D units along with their capital transfer to Iran. Thus, according to Article 111 of Iran's fifth FYDP, we are obliged to prepare new arrangements and incentives. We expect that this new strategy will be realized in 2013.

Earlier in 2012 you emphasized the realization of a free trade zone (FTZ) in the region that will include Iran's neighbors. How can such FTZs be implemented in the region, and what will be the positive spillovers for the Iranian economy?

It is assumed that by using special arrangements for industrial and commercial free zones, we can reduce the decision-making bureaucracy and provide more incentives, which can limit administrative fees and increase capital productivity. The results of an initial study indicate that Iran, Turkey, Iraq, Pakistan, Afghanistan, India, Syria, and a number of other ECO member countries in the region have the potential to establish economic and commercial special zones to improve the flow of commodities and capital. It is crystal clear that economic interests achieved by this bilateral or multilateral measure will benefit all parties.

What are the key factors that make Iran so attractive for investors?

The rate of foreign investment growth has been definitively positive for the last five years. This growing trend indicates that Iran can be an appropriate host for foreign investment in its economic atmosphere. The provision of suitable economic infrastructure, sustainable access to energy, strong potential economic partners in the market, high demand flexibility, and easy access to international markets have provided unique advantages for foreign investors. In addition to the above-mentioned economic advantages, the legal and regulatory conditions of foreign investor activity have provided a safe and low-risk atmosphere. We offer full coverage of non-commercial risks, a lack of limitation on the ratio of investment, and the acceptance of any contractual arrangements, which have improved the flexibility of negotiations between foreign investors and their local counterparts. Therefore, the easiest measure is to transparently and precisely introduce Iran as home to an economic atmosphere with diverse investment opportunities.

Since the government is putting emphasis on investing in the non-oil sectors of the economy, how is OIETAI trying to balance FDI among these sectors?

We are working hard to expand the network of the value chain in complementary and midstream industries. Currently, a number of expansion projects in this sector have a high internal rate of return (IRR). The volume of investment required in complementary industries is less than those upstream and it is also more profitable. Thus, this chain should be completed. We have to improve the attractiveness of other sectors by providing appropriate investment opportunities. Suitable financing structures for projects as well as the provision of financial and monetary targeted incentives and advantages can pave the way for the more appropriate participation of foreign investors in other sectors.

How are OIETAI and the government planning to diversify the attraction of capital from national and international private finance?

The mobilization of financial resources from the international markets is on our permanent agenda. These resources certainly contain various models of participation and lending instruments. There are different modes of financing such as pure finance, structured finance, issuing foreign exchange such as Islamic sukuks, various participation models in the form of FDI, and foreign portfolio investments (FPI), which can be utilized depending on the financial structure of any given project. What should be considered in this process is the liveliness of the local private sector. We also aim to channel existing liquidity in the country and organize more activities in the real sectors of the economy. Capacity building for the local private sector and improving the productivity of investment in Iran are prerequisites for the efficiency of foreign-sourced funds.

What do you project for FDI in Iran in the medium term?

Our mid-term target as well as the current year's goal is to preserve the country's rankings in the attraction of FDI. We are looking forward to attracting more contributions from international financial resources in our economic sectors. Considering the achievements made during the first six months of the Iranian year, statistics indicate a positive return. According to the existing data, the statistics of foreign investment approvals during the above-mentioned period indicated 80% growth compared to 2011. We are working to preserve and strengthen this growing trend. New approaches mentioned in the country's FYDP imply a promising future in terms of the linkage between national and international capital in our economy. Our goal is to pave the way for this win-win situation.

What is your message to the international community and foreign investors?

Iran has recently become one of the most influential countries in the international economic arena, and fulfilling our obligations to economic contracts has provided a positive and decisive record on an international scale. The above-mentioned roles and functions, reduction of economic inequality on an international scale, and efforts made to reduce poverty in less-developed countries have strengthened this historical background. Extending grants and developmental aid to these countries, either in the form of direct contracts or through international institutions such as the International Development Association (IDA), the OPEC Fund for International Development, and the Islamic Solidarity Fund for Development (ISFD), have improved the economic rankings of our country in the international economic arena. The high technical and engineering capacities of our country in power plants, dams, irrigation networks, and transportation have led to a flourishing national economy with the participation of the private sector in the international economy. The preservation of capital is an intra-national characteristic and it thrives where there is economic security as well as suitable profitability. I believe that Iran has a unique position to attract these capital resources. Based on the strategy of inviting foreign investors to participate in joint activities at the level of the national or international economy, we can seize this opportunity to introduce ourselves as rational partners for potential foreign investors. The outlook is positive and it provides prospects of a growing future at a regional scale.

© The Business Year - December 2012