Sunday, 18 November, 2018

Iran hopes for $50bn in investment as sanctions lifted

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By: Najmeh Bozorgmehr

Iran’s president promised a flood of investment as Iranians celebrated the lifting of sanctions that have left the country outside the global economy for more than a decade.

Hours after the landmark nuclear agreement came into force, giving Tehran access to tens of billions of dollars in unfrozen assets, Hassan Rouhani said he hoped that the country would attract up to $50bn worth of international investment and finance in the coming year.

“The government’s main policy after the nuclear deal is to attract foreign investment, expand non-oil exports and make optimum use of [unfrozen] foreign exchange reserves,” Mr Rouhani told parliament as he submitted his budget for the next Iranian year, which begins on March 20. “A stable and swift economic growth needs hefty foreign investment.”

The lifting of sanctions comes as oil prices are at historic lows and Mr Rouhani did not specify where the investment would come from. Iranian analysts say it is likely to include sectors such as oil, gas and transport.

The implementation of the nuclear agreement on Saturday was a historic moment in Iran, which has been reeling from a decade of international sanctions. Many of the oil and banking sanctions that hit the economy particularly hard since 2011 were lifted when UN inspectors confirmed that Tehran had dismantled significant elements of its nuclear programme. Some US sanctions remain in place, however.

President Barack Obama said on Sunday that the nuclear deal was a sign “of what is possible with strong American diplomacy”. But he added that the US would continue to enforce the non-nuclear sanctions that remain on Iran, including for issues such as support for terrorism and ballistic missiles. The US Treasury on Sunday imposed sanctions on 11 companies and individuals connected to Iran’s ballistic missile programme.

The nuclear deal’s implementation led to a flurry of announcements by Iranian officials and governments and companies around the world.

Pakistan on Sunday announced it would immediately renew a joint gas pipeline project with Tehran, while the EU announced that it would send a “technical assessment mission” to Iran next month to revive energy ties with the country, which was Opec’s second biggest crude producer before sanctions.

Germany’s foreign minister, Frank-Walter Steinmeier, hailed Iran’s compliance and the lifting of the sanctions as a “historic diplomatic success”, adding that it gave hope that other crises in the region, such as the conflict in Syria, could also be resolved.

Benjamin Netanyahu, the rightwing Israeli leader, warned that his country would “continue to monitor all of Iran’s international violations” of the nuclear agreement, and that it would “deal with” any threat from its regional arch-enemy.

Valiollah Seif, Iran’s Central Bank governor, said on Sunday that $32.6bn-worth of frozen assets would now be unlocked. The US state department also announced that Washington and Tehran had resolved a longstanding dispute over an arms deal dating back to the 1970s. Iran is to receive a long-delayed $400m payment plus $1.3bn in interest.

There is concern that the release of the funds into the economy could push up inflation, which was reduced from about 40 per cent two years ago to 13.7 per cent.

“The central bank will use the money to create stability in the currency market, generate jobs and expand exports,” Mr Seif told state television. “During the sanctions, we had very difficult time . . . and our banking system lagged behind [the world’s banking].”

He said it could take up to 10 days for Iranian banks to be reconnected to Swift — the Society for Worldwide Interbank Financial Telecommunication — which facilitates the bulk of the world’s cross-border payments.

But despite the lifting of sanctions and promising future of business in one of the world’s biggest untapped markets, there are no expectations of a swift economic recovery after a decade of populist policies and crippling sanctions.

Iran’s budget for the coming fiscal year predicts oil revenue will increase by just 17 per cent and will constitute only 25 per cent of total revenue; taxation will comprise 68 per cent, a rare ratio in Iran’s oil-dependent economy.

“Oil income comprised an average of 45 per cent of Iran’s annual budget until two years ago. The decrease this year is because oil prices are low and Iran cannot easily increase exports,” said Mansour Bitaraf, editor of the reformist Taadol newspaper. “To return to pre-sanctions levels of crude exports of 2.5m bpd will entail significant recovery operations and development of oilfields, which will surely take more than one year.”

The budget bill — which must be approved by early March — amounts to 2,670tn rials ($88.4bn), 13.1 per cent per cent higher in rial terms than this year’s budget. The lack of a significant increase in spending highlights expectations that income is unlikely to grow significantly, particularly with Brent crude is trading below $30 per barrel.

The bill also devaluates the rial by about 5 per cent to 29,970 rials to the US dollar.

“Today with the new windows opened . . . it is us who have to use this opportunity for a big jump in our economy,” Mr Rouhani told parliament. “The economy and improving people’s daily lives should be the first priority of all [officials].”

Financial Times

See also:

Sanctions on Iran lifted

Which US sanctions on Iran are canceled?

Rouhani hails ‘golden page’ in Iran’s history as sanctions lifted

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