Foreign direct investment in Iran

Overview

Foreign direct investment in Iran (FDI) refers to investment by foreign individuals or companies in businesses operating in the country. Net FDI inflows to Iran are recorded in the World Bank's World Development Indicators, using data from the International Monetary Fund, UN Trade and Development, and official national sources. It has been hindered by unfavorable or complex operating requirements and by international sanctions. Foreign direct investment inflows to Iran are recorded in the World Bank's World Development Indicators, using data from the International Monetary Fund, UN Trade and Development, and official national sources. In 2024, net foreign direct investment inflows to Iran amounted to approximately US$1.45 billion, according to UN Trade and Development.

Sectors

As of 2007, Asian entrepreneurs made the largest investments in the Islamic state by investing in 40 out of 80 projects funded by foreigners. The largest amount of foreign investment was in the industrial sector, including food and beverage, tobacco, textiles, clothing, leather, chemical, steel and oil derivates. The figure exceeded US$8.76 billion. Water, electricity and gas sector ranked second, attracting $874.83 million. In the third place, the real estate sector absorbed more than $406 million. Investments in service, telecommunication, transportation and mines reached $193 million, $14.3 million and $14.2 million respectively. Asian countries invested $7.666 billion in various projects followed by several multinational consortia. Investments by these multinational companies exceeded $1.39 billion (in four projects). Although European entrepreneurs were involved in 34 projects, they invested only in the range of $1.2 billion in the Islamic Republic. American countries also committed $12.329 million in the country; while investments by African states registered close to $4 million.

Amounts

According to the United Nations Conference on Trade and Development (UNCTAD), foreign direct investment (FDI) in Iran hit a new record in 2010 and surpassed 3.6 billion dollars despite sanctions imposed on the Islamic Republic. The Government of Iran says planned FDI in 2011 was $4.3 billion and planned FDI will reach $8–10 billion in 2012–13. However, UNCTAD later reported that FDI inflow in Iran was $3.05 billion in 2013, while Iran's FDI in other countries (i.e. outflow FDI) was $380 million. Bushehr province and Khuzestan province enjoy the highest volume of foreign investment which mostly goes for oil and gas sectors. In 2012, the provinces of Fars, Gilan, Tehran, Kerman, Mazandaran and West Azerbaijan ranked first to sixth place in attracting foreign investment in the country. According to the government of Iran, Iran needs up to $300 billion in foreign direct investment to meet the objectives of its Five-Year Economic Development Plan (2010–2015), and reach eight percent economic growth rate. Turning to "Vision 2025", the plan has set an investment target of $3.7 trillion within two decades (2005–2025) of which $1.3 trillion should be in the form of foreign investment.

Companies

The Organization for Investment, Economic and Technical Assistance of Iran (OIETAI) is responsible for receiving and processing all foreign investment applications. OIETAI is also responsible for approving overseas Iranian investments. In other words, the organization is in charge of consolidating and implementing two-way foreign investment flows. According to Iranian President Rouhani cooperation with Iran is on the condition that foreign companies participate in joint investments, technology programs, and exporting from Iran. As at 2012, 400 foreign companies are directly investing in Iran. Among developed nations, the most active investors have been Germans, Norwegian, British, French, Japanese, Russian, South Korean, Swedish, and Swiss companies. The Swedish Svedala Industri has played a major role in developing Iran's copper mines since the late 1990s while Tata Steel of India has been investing in the steel sector. The Kia, Nissan, Peugeot, and Renault of France auto companies have licensing agreements with Iranian auto manufacturers. Danone of France, Nestlé of Switzerland and Coca-Cola and PepsiCo of the United States have joint ventures with Iranian companies. TotalEnergies, Equinor, Shell, Gazprom, and LG of South Korea have been active in Iran's natural gas industry. Iran's constitution prohibits direct concession of petroleum rights to foreign investors. Alcatel of France, MTN Group of South Africa and Siemens of Germany gained major telecommunications contracts in 2004 and 2005, respectively.

Front men

In 2015, The Economist and The Wall Street Journal reported that American companies (incl. Apple Inc. and Hewlett-Packard) are using local (Iranian) front men to seal deals in Iran. In the oil and banking business some "prime contracts" have already been signed while Iran is still under "international sanctions". Boeing, Microsoft, Siemens, BP, Chevron, Gazprom, Eni, Samsung, Renault. Peugeot, GM are also returning to Iran.

Economic profile

Iran is a member of the World Bank's Multilateral Investment Guarantee Agency. Iran has more than 50 signed-bilateral investment treaties with other countries.

Investment readiness indicators

Because foreign direct investment in Iran is affected not only by market size but also by sanctions, currency volatility, regulation, infrastructure and capital-mobility constraints, some analysts use composite investment-readiness indicators to evaluate the operating environment. The Iran Investability Index is a monthly 0–100 investability index that combines six dimensions: domestic stability, external security and geopolitical risk, macroeconomic stability, economic and regulatory freedom, infrastructure and execution capacity, and trade and financial connectivity.

Natural resources

Iran is OPEC's second largest oil producer. It has approximately 9% of world oil reserves (some 94 billion barrels). It has the second largest reserves of natural gas in the world at some 812 trillion cubic feet. Iran is considered an energy superpower. Iran also possesses enormous mineral resources, including coal, copper, iron, zinc and gold. This has spawned a number of processing industries, particularly steel. Iran is already the third largest producer of copper in the world.

Competitive advantages

Iran has made the development of non-oil exports a priority. The country has the advantage of a broad domestic industrial base, technology an educated and motivated workforce, cheap labor and energy resources and geographical location, which gives it access to an estimated population of some 300 million people in Caspian markets, Persian Gulf states and countries further east. Iran has the consumer potential of Turkey, the oil reserves of Saudi Arabia, the natural gas reserves of Russia, and the mineral reserves of Australia. Iran's area roughly equals that of the United Kingdom, France, Spain, and Germany combined. Iran has a diverse climate which makes it suitable for a wide range of agricultural products.

Laws concerning foreign companies

Generally speaking, Iran has two types of laws concerning foreign companies. The first are laws that address issues concerning foreign companies directly such as the Foreign Investment Promotion and Protection Act (FIPPA) and the second are general laws of which certain articles or by-laws address foreign companies, for instance the Taxation Law and the Labor Law. Iran's environment is protected by strict laws and the Department of the Environment is in charge of evaluating the impact of the projects and their monitoring. General laws and regulations regarding foreign business in Iran could be regrouped under the following categories:

Contract work – A foreign company is allowed to be involved in contractual work in Iran. Such work may be performed either directly by the foreign company or through a registered branch in Iran. Branch offices in Iran do not have the separate legal status enjoyed by LLCs, and the parent company is responsible for the actions of the branch office. For legal and tax purposes, opening a representative office in Iran, by itself, is not considered foreign direct investment. Establishing and setting up a legal presence in the Iranian market requires a local advisor who can provide a step-by-step advisory service regarding incorporation, office rental, recruitment, staff, business contracts, customs, and the laws in general. CMS Cameron McKenna is among the first major international law firms to open office in Iran. Direct sales – Most foreign companies are involved in direct sales to Iranian customers through letters of credit and, occasionally on the basis of Usance. Investments – In accordance with the terms of the Foreign Investment Promotion and Protection Act (FIPPA), foreign companies may invest in newly established factories and industries. Foreign companies are allowed to own 100 per cent of the businesses.

Investment by natural persons of foreign nationality

In 2006, Iranian citizens abroad's net worth was $1.3 trillion. In 2000, the Iran Press Service reported that Iranian expatriates had invested between $200 and $400 billion in the United States, Europe, and China, but almost nothing in Iran. In Dubai, Iranian expatriates have invested an estimated $200 billion (2006). According to the Civil Code, foreign nationals will, subject to the existence of a treaty on reciprocity, enjoy the same rights and privileges of Iranians. The companies formed by such foreign nationals will be of Iranian nationality and subject to the same laws which regulate the activities of Iranian companies.

Foreign investment in the framework of the Commercial Code

The Iranian Commercial Code is divided into four parts:

merchant and trade activities, trade companies, negotiable instruments, contracts and bankruptcy. Foreign nationals can, in the framework of the Commercial Code and subject to the observance of the relevant procedures, form and register companies in Iran. Iran's Commercial Code does not differentiate between Iranian and foreign stock holders of Iranian companies. In other words, there is no restriction regarding the nationality of those who want to establish companies in Iran. In this context, foreign exchange restrictions are equally applied to Iranian and foreign investors. Such companies, however, do not enjoy the privileges set out in FIPPA (see below).