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On the Myth of Magical Investment and the Reality of Change

February 24, 2016
Firouz Farzani
4 min read
On the Myth of Magical Investment and the Reality of Change

If you listened to Iran’s elite – both reformers and conservatives – you’d think foreign investment had magical powers.

On the conservative side, leaders have laid out a (in some cases grudging) welcome mat for foreign companies wanting to invest in Iran.

But only on condition that they don’t influence Iranian society — culturally, economically or politically.  The Supreme Leader has reiterated this over and over since the nuclear deal was signed.

Iran’s reformist politicians also apparently believe in the power of foreign investment to change things.

Right now, in the run-up to this month’s parliamentary elections, they’re telling reform-minded voters that foreign money and influence will not only bring jobs, but individual and social freedoms.

(If they’re talking to conservatives, of course, they don’t mention the toxic F-word, “freedom”.  Instead they argue that foreign investment will protect Iran from new sanctions.)

“Western governments whose private sector invests money in Iran,” they say, “won’t do anything to hurt that business.”

History shows this is simply not true – but more of that later.

Forgive an old cynic, but I don’t think there’s any magic in foreign investment.  Its power to bring freedom, democracy, social change or even jobs is very limited.

Let’s start with jobs.

Almost a million people are out of work in Iran.  Many of them are skilled and educated.

The Islamic Republic News Agency (IRNA) reported earlier this month that President Hassan Rouhani had said, “Ask anybody what the major problem in the country is, and the unanimous answer will be unemployment.”

He’s under huge pressure. Millions of Iranians voted for him in the belief that a nuclear deal and an end to sanctions would bring multinationals back to Iran, bringing with them a tsunami of jobs.

It’s a pipe dream.

In fact multinational companies will only get very limited access to the Iranian market.  A market, by the way, that is completely distorted by the Supreme Leader’s insistence on what he calls “the resistance economy”; ie  layers of rules and tariffs designed to protect domestic business and handicap foreign competition. Furthermore, the Iranian business environment is riddled with corruption from top to bottom.

Foreign companies who do venture into this difficult terrain will be looking for capital intensive opportunities in oil and gas or heavy industry.  They are not going to put money into labor intensive small and medium sized businesses that at present employ more almost two thirds of the Iranian work force.  And they are not going to create enough jobs for the 12% of Iranians currently unemployed.

Now we come to the question of social freedoms.

You only have to look at China to see that foreign investment and international trade don’t necessarily bring freedom of speech and social liberties.  Former UK Prime Minister Margaret Thatcher famously believed that if she opened up business with China, democracy would surely follow. History shows it was wishful thinking.

Foreign investment may bring a few jobs, but most of them will go to insiders with connections to Iran’s elite – the already-wealthy, the politically powerful and the Revolutionary Guards.

And if that elite believes that multinational business will protect against more sanctions in the future, they’re wrong.

Foreign policy often trumps economic expediency and private business interests. It did in Iran at the time of the Shah, when the US pulled out to the detriment of its own oil interests. The same thing happened in Iraq. The US invasion went ahead in spite of the fact that Saddam Hussein was happy to continue selling oil-for-food to the West.

I am not saying that foreign investment and stronger international business ties won’t have any effect at all.  The nuclear deal, cumbersomely referred to as the Joint Comprehensive Plan of Action, has opened a Pandora’s box.

Now the Supreme Leader has accepted the deal, he also has to accept that there will be more Western influence in Iran. It’s called “estehaleh” in Persian and it means transformation or metamorphosis .The question is: will the Leader fight estehaleh with, for example, a harsh crackdown on labour unions and other organizations representing Iranians who want change?

The movement for social change has to come from inside, powered not just by few activists and foreign money, but by a large and confident workforce backed by reformist Iranians abroad. This is the only way to push for better working conditions, transparency, freedom of speech and accountability.  It’s the key to transforming the sclerotic, corrupt, state-dominated Iranian business world from a cronyist kleptocracy into a vibrant meritocracy.

Now there’s a vision to send a chill down the Supreme Leader’s neck, foreign investment or no foreign investment.  And I’m warning you – he and the system will stop at nothing to keep it from coming true.


Related articles:

Iran’s Risky New Business Landscape

Open for Business? France Looks to Tehran

Iran Sanctions Have Cost the U.S. $175 Billion

Why Investors will Continue to Avoid Iran

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