Iran Foreign Direct Investment, it’s all about safety!
By Alireza Hojjatnia
When it comes to Foreign Direct Investment (FDI), it is always better to be safe than sorry. Iran is no different from rest of the world. A rise in a nation’s FDI is hand in hand with uplifting its investment security protocols. The safer the county is, the more investments will flow in. This bond has some measures to be taken under consideration, for each of which, higher scores show a better made bed for Foreign Direct Investment. Despite the endless efforts of Iranians to attract more investments to their country, comparing global investment security indicators demonstrates the ugly truth of nation’s failure to deliver what shall be promised to foreigners.
In a report published by Iran Chamber of Commerce Trade Commission the following indexes were benchmarked to identify whether Iran is welcoming Foreign Direct Investment enough or not:
- The Index of Economic Freedom by The Heritage Foundation;
- Freedom House Index;
- Governance Index by world bank;
- Political Risk Services (PRS);
- Economist Intelligence Unit (EIU) and
- Ease of doing business Index by world bank
The results, unfortunately, are disappointing!
Heritage Foundation index, based on ten (10) qualitative and quantitative components filed in four (4) categories of:
- Rule of Law (Property Rights and Freedom from Corruption);
- Limited Government (Fiscal Freedom and Government Size/Spending);
- Regulatory Efficiency (Business Freedom, Labor Freedom and Monetary Freedom) and
- Open Markets (Trade Freedom, Investment Freedom, Financial Freedom)
indicates that Iran, amid other nations, scored 50.5 out of 100 and placed 155th in a 186 sample society. This ranking puts the country in the category of completely restricted or suppressed.
The Freedom House Index answers are no better. Comparing Iran with rest of the world, on the basis of civil freedom and political rights, Iran scored 6 on the scale of 1 to 7 (1 being the best and 7 being the worst). A score of 6 means that the nation’s political and civil freedom will easily suffer from any probable economic or social turbulence which definitely affects the Foreign Direct Investment flow into economy. Grouping with Iran, countries like UAE, KSA, China, Russia and Qatar are also stamped as fully restricted whilst Brazil and India are amid pioneers of the free world.
Looking over the world bank Governance Indicators report with its six (6) factors of:
- Voice and Accountability
- Political Stability and Absence of Violence
- Government Effectiveness
- Regulatory Quality
- Rule of Law
- Control of Corruption
ranging from -2.5 to 2.5, Iran scores have always been negative during the recent years. The healthiest of above six for Iran dates back to 2015 for Control of Corruption and the worst has been the Voice and Accountability. The fight with corruption is at the frontline in Singapore, Finland, Norway and Sweden with points of more than positive 2 while Iran, Russia and Pakistan queued at end of the spectrum.
Eyeing the next benchmark by political risk services and considering its 17 elements of evaluation, on 2016 Iran scored 57 out of 100, far below the world average of 72! Showing signs of improvement, the country has still homework to do; yet the hopeful news is the fact that Iran stands higher than Russia, Venezuela and Pakistan in rankings.
Economist Intelligence Unit (EIU) also reviews risks with influence on foreign direct investments for 60 countries in terms of ten (10) risk agents (Security, Political Stability, Government Effectiveness, Regulatory Framework, Macro Economy Environment, Foreign Trades and FX Restrictions, Fiscal Policies, Work Force Market and Economic Infrastructures). According to their report, over the Q3 of 2015, Iran ranked C which indicates a higher than average risk factor for the nation mostly for the domestic and international policies of its administration. Iran rank in each of above mentioned agents varies from 31 to 60 that shows the nature of calling it a risky environment.
In economy, where there is no political stability, there will be no growing trends in foreign direct investments. It is as if Iran due to its uninterrupted changes in regulations and policies, has shown no solid grounds to even domestic investors, let alone foreign investmentors!
Moreover, having a high risk tolerance is a must for a development approach towards industry and entering global markets. There is no proper social, cultural and directorial grounds here in Iran to develop the risk taking perception and the reason lies in conservative oil revenues dependent political structure of the nation. That is why the low risk import based policies always find their way crawling back to Iran’s economy body.
In the end, this article is to provide a few solutions to overcome the current barriers keeping Iran behind its potentials for the future similar reports to be more promising.
- First things first. A couple of factors blocking Iran to improve in rankings caused by a lack of statistical information. Producing new sets of data which address the shortcomings is key to take the first step.
- Second, gathering data for international benchmarking purposes is mostly carried out by distribution of surveys. Due to the weak knowledge or lack of command on businesses, the risk of putting wrong data in will grow exponentially. Therefore, there must be teams responsible for taking out the anomalies and correcting data sets.
- Third, since one of the factors bringing down Iran’s global rank is the high level of economic corruption, the idea to establish powerful data banks along with a strong surveillance and supervisory schemes is the skeleton key to make a better face for the country.
- Fourth, accepting the fact that boresome bureaucratic manners is like an Achilles heel to Iran business environment will urge the policy makers to ease doing business and improve the international ranks in its respective field.
- Fifth, shortcomings of ownership right in Iran must be addressed sooner or later. For decades, it has been and still is the subject of controversies and unless policy makers amend the related regulations, it will continue to bring down Iran’s position.
- Finally, the sixth, bankruptcy law shall be subjected to serious amendments and the matter of debt settlement must be met accordingly before shaping any expectations for a better global rank in similar surveys and more Foreign Direct Investment for the nations.
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.
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