WHAT A YEAR

Iran 2017 | DIPLOMACY | YEAR IN REVIEW

Iran is still finding its feet in the post-sanctions era, while foreign firms remain cautious amidst mixed messages from the US. But despite challenges, growth has returned to the republic.

Iran's economy expanded 6.4% in 2016, with a now unshackled oil and gas sector able to return to growth quickly the moment sanctions were lifted. The non-oil sector of the economy, in contrast, is expected to post moderate growth in the upcoming years as it continues to rejoin the global economy and reach fuller levels of foreign investment. The balance between curbing inflation and increasing liquidity to spur the economy will be a challenge moving forward, but the general mood is one of optimism for the future; the IMF's projections expect growth to stabilize at 4.5% over the medium term.

Iran's reentry into the global oil and gas community post sanctions could not have come at a more awkward time. Having seen exports of the good stuff drop by almost half under sanctions, and being sustained only by exports to Asian markets including India and China, Iran was keen to ramp up production as soon as able and by May 2016 was pumping more than 3.64 million bpd, its highest rate since 2011, and exporting 2.6 million bpd, at a time when OPEC was in discussions to cut production, which occurred later in November 2016. Iran, then, was allowed to continue ramping up production with a target of 4.7 million bpd by 2021, and briefly reached 3 million bpd of exports in February 2017, a figure that had not been seen in over 30 years.
Often overlooked is Iran's well-developed industrial matrix, with the automotive sector somewhat of a jewel in its crown. It is the country's second-largest industry following hydrocarbons and accounts for close to 4% of GDP, employs nearly 5% of the workforce, and makes up just under 20% of its industrial output. Annual production currently sits at under 1 million units, but the authorities hope to see that figure reach 3 million units by 2021, with one-third destined for export. A strengthening middle class, it is hoped, will snap up the remainder, including a mix of local and foreign brands—the government has issued certificates to foreign automakers allowing them to open sales offices in the country, while stating that local automakers will continue to represent at least 50% of production. The domestic market is currently dominated by two local brands, namely Iran Khordo and SAIPA, which as of 2015 held approximately 47.45% and 34.48% of the market, respectively. Potential partnerships and ventures with Renault, Citroën, and Kia have also hit headlines.
Elsewhere, Iran's vast mineral wealth has allowed the country to build a strong steel and pipes industry. The government is working to put the industry on track to become the globe's sixth-largest steel producer by 2025.
Petrochemicals have also not escaped attention, but the sector serves to highlight the level of investment Iran needs if it is to reach its potential. The National Petrochemical Company (NPC) is hoping the country can increase output of chemicals to USD70 billion over the next 20 years. To achieve this, the NPC says the country requires up to USD10 billion in industry investments. Some prospects are already on the horizon. Companies among the likes of BASF, Shell, and Total have held discussions with their Iranian counterparts in regards to creating joint venture companies. The American Chemical Society's magazine, Chemical & Energy News, reported in early 2016 that the NPC announced it is in discussions with BASF to build a major petrochemical facility in the country; the potential project could result in as much as USD4 billion in investments.
One major stumbling block for Iran is funding, with international banks, especially European institutions, still weary with some among their ranks still reeling from punitive US fines.
Today, the domestic banking sector is in flux, with the Iranian government working a series of reforms aimed at improving the long-term health and prosperity of the sector. Islamic lending, new electronic banking practices, and improved international relationships will be the commercial banking sector's main focuses, while the Central Bank of Iran will continue working to curb inflation while still increasing liquidity and overall health in the financial industry. Another sector to watch is agriculture, which remains the source of income for more than 30% of the population despite having declined in significance in recent decades. The government hopes to boost self-reliance moving forward, a move that could help it hedge against oil price fluctuations.
Despite not currently being high on the bucket list of many Western travelers, according to the World Travel and Tourism Council, Iran is expecting to see the tourism sector contribute a total of approximately USD31.5 billion to GDP in 2017. This is up from USD30.4 billion in 2016. In a decade, total contributions to GDP are expected to hit an all time high, reaching USD52.6 billion in 2027.