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FDI in Figures

Global foreign direct investment (FDI) flows in 2021 were USD 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty has put significant downward pressure on global FDI in 2022, and new investment project numbers, including greenfield announcements, international project finance (IPF) deals, and cross-border mergers and acquisitions, all shifted in reverse after the first quarter of 2022 to start declining. Cross-border M&A sales were 6% lower and IPF values more than 30% lower in 2022. The outlook for global FDI in 2023 appears weak, with a significant number of economies around the world expected to enter a recession. Negative or slow growth in many economies, further deteriorating financing conditions, investor uncertainty in the face of multiple crises and, especially in developing countries, increasing risks associated with debt levels will put significant downward pressure on FDI (UNCTAD Global Investment Trends Monitor, January 2023). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession.

According to UNCTAD's 2022 World Investment Report, FDI inflows amounted to USD 1.42 billion in 2021, up from USD 1.34 billion in 2020 despite the country's political and economic instability and the global economic crisis triggered by the Covid-19 pandemic. The total FDI stock was estimated at USD 60.13 billion in 2021. The flows of foreign investment in Iran have remained very weak in recent years, compared to the enormous potential that the country can offer. This is due to several factors: omnipresence of the state in the economy, external political risks (the American embargo, economic sanctions, nuclear issue), as well as internal issues (the impoverishment of the population, social risks, inflation, crisis of the political regime) and heavy bureaucracy in all sectors.

The investment rate in the country remains closely linked to the political situation and it is still very difficult to predict the overall situation in Iran in coming years, particularly against a backdrop of renewed geopolitical tensions and economic sanctions. FDI inflows had picked up rapidly following the nuclear agreement signed on 14 July 2015 between Iran and major international powers. However, the flow dropped after the unilateral withdrawal from the 2015 agreement by the Trump administration. After the previous U.S. President Donald Trump’s hawkish stance, President Joe Biden said the U.S. would join the nuclear deal if Iran returns to compliance with the agreement. Such a return to the deal would pave the way for the easing of sanctions on Iran, increase its trade volume with the rest of the world and encourage foreign direct investments into the country. However, a comeback to the deal may not be easy. Iranian authorities estimate the total loss of revenues related to the U.S. withdrawal from the deal at USD 150 billion (COFACE, 2022). Foreign Direct Investment in Iran is expected to reach 1.2 USD billion by the end of 2022, according to Trading Economics global macro models. Traditionally, Iran has attracted Chinese and Russian investments, especially in the gas sector.

 
Foreign Direct Investment 202020212022
FDI Inward Flow (million USD) 1,3421,4251,500
FDI Stock (million USD) 58,71160,13661,636
Number of Greenfield Investments* 000
Value of Greenfield Investments (million USD) 000

Source: UNCTAD, Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 
Country Comparison For the Protection of Investors Iran Middle East & North Africa Estados Unidos Alemanha
Index of Transaction Transparency* 7.0 6.4 7.0 5.0
Index of Manager’s Responsibility** 4.0 4.8 9.0 5.0
Index of Shareholders’ Power*** 1.0 4.7 9.0 5.0

Source: Doing Business, Latest available data

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Iran

Strong Points
Iran has a strategic regional position and benefits of great potentials which are, however, currently underexploited due to its isolation on the international scene.

Iran represents an important market (70 million inhabitants) with a young population eager to consume foreign products. It is a solvent market with an enormous need for consumer goods, equipment and large infrastructure projects (electricity, water, accommodations, transport, etc). Production costs (labour, energy, etc) are low.

Iran is the world’s second largest known natural gas reserves and fourth largest oil reserves, which will last over 100 years at current rates of extraction (according to the government).

Weak Points
Iran is prejudiced by its international isolation which has an undeniable impact on its economy.

The influence of the State on the economy is very important, with numerous organisations linked to the state and disposing of funds and important budgets without coherent management. Corruption is wide-spread in the country.

Geopolitical tensions, particularly with Israel and domestic instability are also major risk elements.

Government Measures to Motivate or Restrict FDI
A law on incentive and protection of foreign investment and another law simplifying taxation were both voted in 2002. In 2004, a modification of articles 43 and especially 44 of the Constitution authorized the government to privatize many sectors, which had been previously protected, such as banking, transport  and oil and gas industries in the downstream of the industry. Sixteen special economic zones as well as six free-trade zones have been also introduced in the Iranian territory.

In order to attract foreign investment and promote knowledge transfer, buy-back systems have been established in which the revenues of a foreign investor partner can be repatriated in the means of goods and services produced by the project. In terms of investment, the Iranians offer privileges to investors who can provide long term strategies and transfer of technologies.

After Iran agreed to limit its reserach on the nuclear, the 5 permanent members of the UN, together with Germany and the EU reached an agreement called the Joint Comprehensive plan of action in 2015, as a result of which most of the economic sanctions on Iran were raised. Nevertheless, President Trump stongly criticized the agreement from which the US withdrew in May 2018. Trump also threatened the companies pursuing business with Iran, saying that they will have to make a choice between the US and Iran. The EU announced on September 2018 that its members would set up a payment system to allow oil companies and businesses to continue trading with Iran in a bid to evade sanctions after the US withdrawal. The oppportunities for investment remain very uncertain and major companies already annouced they would leave Iran (Total, Siemens, Daimler ... ).

Bilateral investment conventions signed by Iran
The bilateral conventions signed by Iran may be found on the Investment policy hub website.

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