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Overview of Iran’s Economy &Investment Opportunities in Iran
Hussein Nowruzi, Business Development
ConsultantEmail: [email protected]
January 2017
Golnar Shanehband, Market Analyst
Email: [email protected]
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Outline
Iran Economy at a Glance
Investment Opportunities
Incentives for Foreign Investment in Iran
18TH largest economy in the world
5Source : World bank; IMF, October 2015
*GDP per capita PP = $ 16.5 K
*GDP PPP = $ 1357 bn
Iran as the most promising economy in the MENA after the JCPOA
Iranian government in parallel to resolve the nuclear issue, mobilized all its energy and resources to do a better management of Iran’s economy
With all the hard work done, Iran’s economy has reached to a, relatively, stable condition: National currency (IRR/USD)▪ Annual change is 6% +
Inflation rate (9.5%, less than 10% after 26 years)
Iran’s economic growth rate20
1420
1520
1620
1720
1820
19
4.3
0.4
4.54.1 4.1 4.2
2.62.1
3.2 3.2 3.4 3.6
Iran MENA
6Source: IMF , 2016
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Diversified: Iran’s economy is much more than oil and gas
23% of gross value-added is from oil and gas Retail trade, real estate, construction, and professional
services together make up a larger share of the economy than oil and gas.
1995 2000 2005 2010 20140
102030405060708090
100
44 5367 75 77
56 4733 25 23
Sectoral contribution to Iran’s total gross value added(%)
other oil and gas 2014
Other; 28
Construction
Professional and
other services
Real estate
TransportRetail
Agriculture
Public sector10
9
86
28
555
Source: IHS Global Insight
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Education 1/3 of Iranian graduates have engineering-related
degrees Iran has as many engineering graduates each year as
the United States, almost a quarter million.
Mexico
Ukraine
Indonesia
South Korea
Japan
Iran
United States
Russia
China
India
0 200 400 600 800 1000 1200 1400 1600 1800114
130
140
148
168
234
238
454
757
1635
36% of Iran's graduating cohort in 2013received an engineering-related degree
Source: UNESCO Institute for Statistics
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A growing consuming class Aspiring consuming class: more than half of Iran's
households have income exceeding $20,000 As a proportion of the population, Iran has twice as
many households with annual income above $20,000 as China or India.
United States
Germany Turkey Iran Indonesia China India Brazil0102030405060708090
100
3 1 2 520
36 25 206 5 1438
5040 54
3541
69 59
50
27 22 193750
25 256 3 2 2 9
Household income distribution, 2015 (%)
<7.5 7.5-20 20-70 >70Income categories $ thousand, 2005 purchasing power paritySource: McKinsey Global Institute City scope
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A highly urbanised population 8 cities with more than 1 million
population Tehran’s gdp is larger than rio de
janeiro’s
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Entrepreneurial : A Centuries-Old Business Culture Lives On
There is no Amazon or Uber in Iran but that does not mean Iranians are digitally starved. On the contrary, local Iranian versions of all of these services have sprung up.
Entrepreneurs in Iran enjoy a status that is on a par with the United States and higher than in France.
Iranian entrepreneurs have developed local versions of global technology businesses
12Source: Griffon Capital, Iranian internal infrastructure and policy report, July 2014;
Takhfifan
Order Food online from the
best restaurants in Tehran
Reyhoon
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Strategic location for cross-border flows The pattern of Iran’s trade has changed
markedly. China today is the number-one partner,
accounting for almost 40 percent of all trade. Iran could become a hub for regional commerce Iran’s exports have fluctuated in recent years
but still amount to about one-third of GDP, on a par with Japan and Australia.
Cross-border flows for Iran have diminished but still account for more than 40 percent of GDP
Iran’s potential to revive the Silk Road
Iran is located at the nexus of east-west and north-south transit routes
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Investment Opportunities
Source: Organization for Investment, Economic and Technical Assistance of Iran (OIETAI)
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Oil and Gas status quo :
Iran’s one of the most important and leading sectors 136 billion barrel of proven reserves equal to the
10% of the world total proven petroleum reserves(4th largest oil reserves)
Production costs for Iran’s oil fields are among the lowest in the world
2nd gas reserves in the world with 940 trillion cubic feet in proven reserves
Gas will likely play a key role in Iran’s long-term development goals
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Oil and Gas Opportunities :
In the last decade Iran’s oil & gas sector has received little investment, Many projects are waiting to be re-initiated and the offshore natural gas fields in South Pars (Persian Gulf) is critical to meet increasing domestic consumption
Around 62% of natural gas reserves are located in fields which have not yet developed
Local and foreign private investment and ownership is allowed in down and mid streamPrivate sector investment without ownership in the up stream is also allowed through contractual arrangements specifically buyback method by receiving remuneration fee through entitlement to oil and gas from developed fieldsIran is not making full use of gas reserves, Iran total proven gas reserves are triple United States but Its annual production is less than one-fourth the output in the United States (the largest producer)
Petrochemical Vast natural gas resources provide low-cost feedstock (80% ethane )
Even with uncertainties in global growth and petrochemical prices, Iran is likely to remain a profitable producer
whilst other Middle East producers are facing NGL shortages, Iran’s supply is expected to increase as gas production from South Pars rises, sustaining its advantage for decades.
With many ongoing mega projects, Iran's ethylene capacity will be doubled in 2020 (12.7 mt per annum)
developed infrastructure for exports and financial incentives under special economic zones at Mahshahr and Assaluyeh
To take advantage of the petrochemicals opportunity, foreign investment is needed to supplement local investment, increase utilization, and meet growing domestic demand with a broader product mix that includes end-use plastics and synthetic rubber.
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Mining Status quo:
Iran has deposits of more than 68 minerals that worth up to $700 billion.
The world 5th zinc reserves 7th reserves of copper Sarcheshme mine in Kerman province contains the world’s
second largest lode of copper ore. 9th reserves of Iron Significant reserves of lead, chromate, manganese, coal
and gold
20
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Mining Opportunities :
Almost 90% of all mines owned by the government and included in privatization program which provides a good opportunity for foreign investors contribution
The need for foreign investment and financing in steel and copper sector.Support of government for transfer of know-how and modern technology and equipment by the foreign investors.Possibility of 49% participation of IMIDRO (national specialized company in mining sector) with private investors in less developed regions
Most mines being located in the less developed areas variety of corporate and salary tax holidays and exemptions plus custom duties exemption are applied
Energy Status quo:
Iran ranks 8th(282 bn KWH) largest producer in the world 20th largest consumer of electricity in the world(231 bn
KWH) Iran is planning for at least 10% annual increase in the
installed capacity to meet the 7-9% annual demand growth
The huge domestic industrial and non industrial need for electricity and unique potential for exportation to neighboring countries 5 of which are currently receiving electricity supply from Iran
22
Source: OIETAI
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Energy Opportunities:
As a priority, the government is seeking to diversify, modernize, and expand its electric system. Creating efficient utilities will involve maximizing the throughput of electricity and gas, (for example by converting simple cycle to combined-cycle power plants)
Iran is also focusing on attracting investment in renewable energy
The production gap is encouraged to be filled with investments by local private and foreign investors in the context of IPPs
Existence of required regulatory framework for the issuance of government payment guarantee and coverage of contractual commitments of government agencies as parties of PPAs
Coverage of all political risks of the IPPs and its operation by the government in case of foreign investors contribution
Water supply can also be increased to reduce the strain on existing sources:-Desalination plants could be paired with power plants-More facilities are needed for wastewater treatment
Tourism & Hospitality Status quo:
Iran is ranked 10th on potential tourism attractions and 5th on ecotourism
19 world heritage sites recognized by UNESCO A target of 2% of international tourists per year hosted by
the country in 2025 in the context of Iran 20 year vision The estimates show that US$ 50 billion of investment is
required to increase the capacity and develop the tourism industry
24
Source: OIETAI
25
Tourism & Hospitality Opportunities:
by 2035 Iran could need as many as 60,000 new hotel rooms
Large investments is required for development of accommodation facilities, roadside service complexes both for the infrastructure investments and providing professional management and trained human resources.Based on new tax incentives enforced from March 2016, Duration of tax exemption for Hospital & Hotels is 5 – 13 years
50% tax exemption with no time limitation for tourism projects
Extending financial facilities from government resources for tourism projects in prioritized areas
Source: OIETAI
Transport In rail, Iran has ambitions to be a nexus both for
east-west and north-south travel and transport Iran’s transport sector accounts for
approximately 6 % of the economy. With a well-connected road network and low fuel
costs, trucking accounts for more than three-quarters of total freight volume
Iran’s seaports also need to expand and modernize. The port of Bandar Abbas, which handles about 75%
of cargo passing through Iran’s Persian Gulf ports, is doubling its capacity.
26Source: OIETAI
Infrastructure/Urban Solutions The government is eager to
upgrade its urban infrastructure
Companies in master planning, engineering, water and waste management and other sectors of urban solutions are in high demand
The government has been taking steps to reduce its subsidies for fuel and electricity
27Source: OIETAI
Retail/ Fast-Moving Consumer Goods (FMCG) Domestic brands dominate a high-consumption market Imports account for just 8 percent of all sales in fast
moving consumer goods, compared to more than 40 percent in India, Malaysia, Mexico, and Russia.
Iran has above-average retail sales per capita
28
Automotive Total vehicle penetration in Iran is relatively
high (at 200 cars per thousand people, compared
with a peer average of 138) Iran has the potential to become a regional
automotive manufacturing hub for global brands that could meet the needs of neighboring countries To achieve this aspiration, automakers will need
to attract significant investment to upgrade production
29
Pharmaceutical Iran has advanced scientific capabilities including
in stem-cell research and biotechnology Iran reportedly ranked fourth globally in stem-cell
research in 2015 and first in the region for production of biotechnology
Demand for many types of drugs is likely to increase in line with Iran’s demographics and disease burden Iran’s population will age over the next 20 years, with
individuals aged 50 to 64 growing from 12 percent of the population to 22 percent;
aged 65 and older will grow from 5 percent to 12 percent
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ICT Almost 1.5 mobile subscriptions for every person, mobile
penetration in Iran is more than 50 percent higher than in China, Mexico, and Turkey
MCI Hamrah-e-Aval, the 14th-largest post-paid telecommunications operator by number of subscribers in the world and the largest in the Middle East and South Asia
The penetration of fixed broadband has been growing rapidly and market is open for competition with hundreds of Internet service providers
Tehran has several advantages as a potential IT outsourcing hub (strengths include a large pool of engineering talent and low labor costs.)
The Iranian government has prioritized development of ICT as part of its five-year plan and has promoted several technology parks. include the Pardis Technology Park in Tehran, which houses more than
120 companies with more than 2,000 employees31
Iran ICT Key Facts
3G & 4G Rapid rollout of 3G and 4Gin the next 18 months country wide
57% Internet connectivityIn country
30m Mobile internet usersUnprecedented 3x growth
Highest Proportion of engineersPer capital in the world
Largest Number of engineersAfter Russia and the USA
WorldRecord
For number of researchArticles in 2005-2015
12 AcceleratorsAround the country
22 Technology ParksIn different cities
1.6% Share of the world’s market share
In science and technology
30% Iran’s e-commerce sector growing
By over 30% a year
Steel
The government has ambitions to triple steel production
Iran is an outlier in its use of direct reduced iron as the primary method of production only 4 % of global crude steel production
uses direct reduced iron which Iran has a share of 20%
It has a lower level of impurities compared to most types of scrap; however, its higher silica content affects productivity.
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Cement Iran Cement competitive advantages:
Large production capacity distributed in the country
Low production cost Large and increasing domestic market size
Investment opportunities: Developing of Export Infrastructures& logistics Introducing New Products to the Market
(Concrete pavements, dry mortar, architectural construction elements ,…)
Energy saving projects ( WHRS,…) Entering new export markets
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36
Investment Facilities in Free Trade Zones
A 20 years tax exemption No visa for the entrance of foreigners Custom exemption for raw materials
and industrial machineries of producing units
Easy registration of Companies Easy circumstances for re-export and
transit of commodities Possibility of exporting products to the
mainland Long-term lease of the land for the
foreigners Suitable rates for the energy
consumption
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Investment Facilities In Industrial Parks
Preparation of suitable land for industrial projects in accordance with technical, engineering and new constructions methods
No need for permissions from various agencies and organizations
Be exempted from the municipalities Easy and fast access to facilities such as roads, water,
electricity… Use of software services from technology and business
centers such as technical, engineering and management consulting
Free of Charge services to take the construction permit and finish license
Reduced investment costs due to the organized common services
Rent/ purchase of ready-built Sites Payment of exploitation costs by cash and installment Reduction in price of land and facilities exploiting based on
project execution duration, job creation and productivity
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Incentives for Foreign Investment in Iran
Source: Organization for Investment, Economic and Technical Assistance of Iran (OIETAI)
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More information…Including: Introducing Iran macroeconomic
performance investment climate Areas of Opportunities The Regulatory Framework Visas & Work Permit and procedures to
obtain required permissions and licenses for doing business in Iran
Organization for Investment, Economic and Technical Assistance of Iran (OIETAI)
www.investiniran.irwww.iio.ir
IRAN INVESTMENT GUIDE