Foreign Investment in Iran Longing for Actual Measures Taken
By Mahdi Goodarzi
Iran has been repeatedly introduced as having a bank-based economy and financing system. As the result of the current credit crunch, which largely originated from frozen assets and disproportionate volume of granted facilities, the growing need for funds has called for drastic changes in beliefs and mindsets towards foreign investment as well as the necessity of applying reforms to make that happen.
To answer questions like “is there any other mechanisms to finance companies and projects?” faced by private companies needing funding, it is wise to closely pay attention to the capital market potentials while keeping an eye on attracting and bringing in foreign players as well as employing their experiences when reaching for similar goals in the past; the second part most specifically seems to have remained unnoticed.
What we mean by the capital market is a modern market comprising of two related parts of “debt and equity markets” and “derivatives market”; while the former, which will also be accompanied by investment funds, bridges lenders and borrowers and helps allocate capital/ resources within the economy, the latter contributes largely to the management and balancing of the risks associated with their investments.
Moving towards an efficient capital market is a must in today’s developing world, a concept so widely known in international finance literature. If our capital market is going to play a crucial role in Iran’s financing system, it must get larger and deeper. Taking a brief look at the financing deals recently signed in the region’s countries will simply prove this condition to be true; in fact, their finance statistics tells us about Iran’s huge potential to take advantage of similar capacities.
Confessing to the necessity of taking into account political considerations, authorities in Iran’s financial markets must take serious measures to comply with international standards in order to pave grounds for linking with their foreign counterparts, whose materialization will require years of hard work and precise planning.
Running a financial market compliant with standards accepted by foreign parties offers us the opportunity for attracting the required financial resources; nevertheless, our developing economy has been more inclined towards short-term growth and results, turning it reluctant to make investments in this area whose payoff will be seen in the long run. Financial system infrastructure development/improvement does not occur overnight and requires the government’s intention and belief in the role of an effective capital market plus a significant commitment of resources as many experts have said. However, in case we are serious to bite this bullet and reach for the stars, we must start by transparency improvement, which itself demands a larger share by the capital market. In other words, we cannot constantly talk about absorbing foreign funds and cooperation with foreign parties to restructure our banking system for instance, but keep to enjoy the financial reporting structure, corporate governance and transparency at levels which are not at all in harmony with the international standards.
In addition to improving transparency levels, setting rules, regulations and strong standards backed by reliable enforcing guarantees can act as the first stones of building trust in the market; an issue which can be considered in the (under) formulation of the new Securities Market Act. Trust is a matter unanimously agreed upon by both domestic and foreign investors. Examining capital markets around the world demonstrates that timely release of reliable company information, as one of the requirements, will gradually earn investors’ trust and result in attracting financial resources, whose positive effects will benefit the entire national economy. Financial transparency is a critical issue both for individual and institutional foreign investors, which has been strongly stressed in many meetings and gatherings we have had with professional foreign investors.
The truth is that in case big players in the country respect a sufficient level of transparency and are also held accountable before their general shareholders, preparing economic plans for the government, investors and companies will be eased significantly. We must in deed embrace the fact now that markets can guide companies with more precision and more effectively than governments and the capital market supervisory body has the power to encourage competition among companies and eventually trigger the entrance of companies into global markets. Taking steps towards realizing such a concept, nonetheless, will not be possible without sufficient support for the capital market and strong belief in the role it plays in the financing system.
Attending international financial markets will call for reliable infrastructure, an issue in dire need of policy makers and politicians’ special attention while getting not too much involved with the mere enthusiasm and excitement and remaining largely focused on improving fundamentals. Currently, the country seems to have developed the taste for foreign investment; without its requirements met and improper management of its occurrence, however, we might wake some day after the dust is settled and realize that not much has happened neither in the capital market nor other financial institutions like banks and insurance companies and it has been only a phase.
Being all said, although the government has already been active in absorbing foreign funds in areas such as oil, gas and petrochemical, we are focused on the country’s private sector, which looks for foreign capital as well. Since this sector’s considerations to attract foreign investment differ from the government’s to a significant extent, having a capital market that holds a candle close to its international peers can act as an efficient player facilitating the process and this will only be possible through taking steps towards establishing conditions and meeting criteria in harmony with foreign investors’.
DISCLAIMER: This report has been prepared and issued by Agah Brokerage Firm on the basis of publicly available information, internally developed data and other sources believed to be reliable. The information contained herein is not guaranteed, does not purport to be comprehensive and is strictly for information purposes only. Agah does not assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions. Any expressions of opinions are subject to change without notice.
To contact reporters: Inter@agah.com