Chronic Threats Against Foreign Direct Investment in Iran

Introduction: The latest report on foreign direct investment from the United Nations Conference on Trade and Development (UNCTAD) indicates that foreign direct investment in Iran decreased in the last calendar year, specifically in 2015. According to estimates from the UNCTAD, $2.05 billion in foreign direct investment was made in Iran during 2015, which represents a decrease of nearly 2.6% compared to the previous year. The impact of such a decline on economic growth and consequently on employment is undeniable. Meanwhile, the government’s information base announced on June 27 of last year that 'the volume of approved and ratified investments by the Organization for Investment and Economic and Technical Assistance of Iran under the Foreign Investment Promotion and Protection Act reached $3 billion in the first quarter of 1394 (2015). This figure shows a threefold increase compared to the total volume of investments from the previous year, while the unjust sanctions against the Iranian people have not yet been lifted and economic pressures on Iran continue.' The publication of such news stemmed from a kind of optimism. It cannot be denied that with the progress of nuclear negotiations, the enthusiasm of some government officials also intensified. For example, Valiollah Seif, the Governor of the Central Bank, optimistically stated: 'This period marks the beginning of a new era and the end of a specific period, which has, of course, created a special stability in the country's economy due to the efforts and planning of the negotiating team... The country's economy has a high capacity, and $200 to $300 billion in foreign investment can be attracted, and the arrival of various delegations indicates the high capacity for attracting foreign investment.' (IRNA, 4/5/1394). However, events showed that the reality is different. Economic growth within the current structure of Iran's economy is largely the result of government investment from oil revenues within the framework of construction projects. With the decrease in exports as well as the price and revenues from oil in the past year, this fundamental source of Iran's economic growth was limited. Additionally, despite the continuation of nuclear talks and optimism regarding their completion, resources and foreign currency reserves were not freed. Last year, Iran's non-oil foreign trade not only did not show significant expansion but also faced a decline. It was natural that, alongside the ongoing recession and widespread unemployment, consumption could not increase significantly. Thus, economic growth also declined; one of the reasons for this was the flight of domestic capital and the inability to attract foreign investment. The open doors of the eleventh government and the obstacles to attracting foreign investment: The eleventh government, aware of the internal constraints on investment in Iran, has rightly made significant efforts to attract foreign investment. Activating economic diplomacy and inviting and hosting dozens of delegations and hundreds of merchants, investors, and representatives of global enterprises to Iran were among these efforts. However, two points deserve attention. First, nuclear sanctions are only one of many obstacles to attracting foreign investment, and many internal factors still remain that not only prevent foreign direct investment but have also driven away domestic capital. The main factors include international tensions, high risk, political and economic instability, factional tensions in Iran, worsening business conditions, lack of transparency in the economy, corruption in management and bribery at various levels of governance, and finally, Iran's bureaucracy. The conflicts between Iran and Saudi Arabia and some Arab countries, as well as Iran's isolation among the member states of the Organization of Islamic Cooperation, the threats and propaganda maneuvers of the IRGC leaders all indicate that despite the signing of the JCPOA, regional and international tensions in Iran have not ended. Economic logic dictates that a country that feels unsuccessful in attracting foreign investment must first seek to resolve its internal problems related to that. This is why international investors and enterprises still show no willingness to expand cooperation with Iran. Despite some government officials and especially its leader claiming that the U.S. and Western countries have not yet lifted sanctions, it is no secret that the main obstacle to expanding cooperation with the West is not the remnants of sanctions but the continued high political and economic risk in Iran and other mentioned political-economic obstacles. A significant portion of these problems relates to the behavior of the government itself, and Western governments cannot be blamed for it. Secondly, a considerable portion of the levers for attracting or repelling investment is not in the hands of the government. Any government action for political and economic opening to international markets faces open threats from the IRGC leaders and the 'worried' advocates of the resistance economy. This duality of messages from the government and the 'worried' followers of the leader is one of the signs of high political and economic risk in Iran and terrifies foreign investors. It is natural that as long as this duality persists, political and economic risk will act as a disincentive for foreign investors. Political risk in Iran remains high because, due to the weakness of the government, the transfer of the presidency to the defeated faction of the government next year is not unlikely. The whispers of a one-term presidency for Rouhani indicate this possibility. Such a shift in power would mean a return to the past and an increase in tensions with other countries and a tendency towards political and economic isolation; therefore, the officials of the Islamic Republic should seek the internal political and economic obstacles to attracting foreign investment instead of blaming Western countries for the lack of economic relations expansion. Conclusion: Foreign direct investment is not only about financing a series of economic activities within the country but also has other positive implications. An increase in foreign investment in a country is both a result and a symbol of increased political and economic stability and the ability of a country to establish positive relations with other countries, which is part of that country's international trust capital. Furthermore, an increase in foreign direct investment can herald economic growth, employment, the influx of technology, knowledge, management innovation, and organization. It is due to these advantages that there is serious competition for attracting foreign investment in the world, and a country succeeds in this endeavor that can effectively market its advantages on the international stage while creating political and economic stability and solving other problems to encourage international investors to cooperate. Economic logic dictates that a country that feels unsuccessful in attracting foreign investment must first seek to resolve its internal problems related to that. The question, however, is whether the Iranian government has the interest or ability to pursue such an approach?