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Features

Decline in Investment Across Iran After US Exit from the Nuclear Deal

April 27, 2019
Behnam Gholipour
5 min read
President Trump announced on May 8, 2018 that the US was withdrawing from the nuclear agreement with Iran and reimposing sanctions
President Trump announced on May 8, 2018 that the US was withdrawing from the nuclear agreement with Iran and reimposing sanctions

Immediately after President Trump’s announcement on May 8, 2018 that the US was withdrawing from the nuclear agreement with Iran and reimposing sanctions, hopes for the Iranian economy plummeted, and there was much speculation about what actual investment could realistically take place in the country in the future.

Now, based on official and published statistics and a poll conducted among business people and analysts, Iran's Parliament Research Center reports that the situation for investment in Iranian provinces following the US decision to leave the Joint Comprehensive Plan of Action (JCPOA), as the nuclear deal is officially known, has indeed become more critical and that the reimposition of sanctions has played a decisive role in this degradation [Persian link]. Crucially, the report finds that people working in business and business analysts and experts have very little confidence in authorities’ ability to keep the economy strong.

The 48-page report, entitled “Index of Investment Security in Iran,” outlines that, in summer 2018, the overall index of investment security in Iran was evaluated to have been 6.32 on a scale of 1 to 10, with 10 being the worst. The previous quarterly report, published in spring 2018, presents the index at 6.15, indicating a continuing decline.  

Integrating statistical data and findings of the poll reveals that in summer 2018, investment security indices were the worst in the provinces of Kohgiluyeh and Boyer-Ahmad, Tehran and Alborz. The most favorable conditions were in the provinces of Qom, Markazi and South Khorasan.

According to the individuals polled, the most damaging three factors affecting investment security in summer 2018 were “failure of provincial and local officials to act according to economic promises,” “failure of national authorities to act according to economic promises” and “influence-peddling and collusion in deals by government agencies.” And those polled believed the situation was getting worse. Looking at the assessment for spring 2018 reveals an assumption that “influence-peddling and collusion in deals by government agencies” was the third most damaging factor, but later in the year, this was seen as the most damaging factor affecting investment. 

The report also states that in spring 2018 “fraud or swindle in the marketplace” was the second worst damaging factor, but in summer 2018, it was considered the be the tenth most damaging issue.

Meanwhile, “disruption caused by foreign sanctions” was considered to be the least damaging factor to investment security in both winter 2017-2018 and the spring of 2018. But in summer 2018, it suddenly became much more toxic and damaging from the perspective of those working in business and with direct knowledge of Iran’s economy. According to the Parliament Research Center, considering the American withdrawal from the JCPOA, this outcome was predictable.

The following chart lists and ranks the 21 factors that, according to people working in business and business analysts and experts, have negatively affected investment security across Iranian provinces. 

In the table, “rank 1” is considered to be least harmful, and the risk factor is worse the higher the number — so those polled believed “failure of local authorities to keep to economic promises” had the most detrimental impact on the economy.

Factors harming investment security in Iran according to polls conducted with Iranian economic experts  (Source: Parliament Research Center)

Another section of the report reveals that, according to the business experts polled, while in winter of 2017-2018 the index for investment security was 6.46, in summer 2018 it reached 6.82, again indicating a worsening situation. These figures vary slightly from the Parliament Research Center’s findings, but both indicate a decline in investment. 

 

Investment Security in Iran by Business Type

The Parliament Research Center's report presents investment security in nine broad business categories, as shown in the following chart:

(Source: Parliament Research Center)

 

According to this table, people working in business and business analysts believe that “transportation and distribution” is the safest area for investment in Iran, while they view “industry and construction” as the most unreliable area.

Another part of the report shows that in summer 2018, for those working in agriculture, “stability in the prices of raw material” was dangerously volatile. For those in industry and construction, the most damaging factors were “failure of national authorities to keep economic promises,” “failure of local authorities to keep economic promises” and “Influence-peddling and collusion in deals by government agencies”.

The report also examines investment security in Iran using a set of other factors: “Performance of the government,” “stability of the overall economy,” “the culture of staying true to promises and honesty,” “transparent and sound bureaucracy,” “guarantees for property rights,” “stability and predictability of regulations and their implementation” and “protecting citizens’ life and property.”

The report analyzes the impact of each factor in each individual province. For instance, it shows that in summer 2018, “the culture of staying true to promises and honesty” was at its worst in the province of Kohgiluyeh and Boyer-Ahmad. The nationwide average score for this factor was 7.09 and, considering that 10 is the worst possible score, this number is very discouraging and alarming.

When it came to “protecting citizens’ life and property,” the report found that this protection was most rigorous in the provinces of Bushehr, South Khorasan and Semnan. It was worst in the provinces of Tehran, Alborz and Hamadan.  

In its conclusion, the report finds that the best provinces in terms of investment security in summer 2018 were Qom and Central and South Khorasan, while Kohgiluyeh and Boyer-Ahmad, Tehran and Alborz were considered to be the worst.

 

Related Coverage:

Can Iran Survive Record Inflation?, February 25, 2019

Iran’s Unemployment Crisis: Only 11 Million Full-time Jobs, January 23, 2019

Would Shaving Off Zeros from the National Currency Help the Iranian Economy?, January 15, 2019

Could a 20% Salary Increase Help State Employees?, December 5, 2018

Iran Rushing Toward 30 Percent Inflation, November 27, 2018

, October 30, 2018

The Humanitarian Cost of Sanctions on Parsian Bank, October 23, 2018

How did Countries Deal with Iran During Previous Sanctions?, August 7, 2018

Decoding Iran’s Politics: The 12-Point US Ultimatum, July 6, 2018

Expert Warns “Iran’s Economy is in a Death Spiral,” April 26, 2018

 

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