Does Foreign Direct Investment in Iran Have a Future?

According to the latest statistics released by UNCTAD (United Nations Conference on Trade and Development), Iran attracted $5 billion and 19 million in foreign direct investment last year. This was while the amount of foreign direct investment attracted the previous year was $3 billion and 372 million. Therefore, between the years 2016 and 2017, Iran's foreign investment attraction showed a growth of about 49 percent. Such a volume of foreign investment attraction was unprecedented compared to previous years. This was only possible due to the achievement of the JCPOA. In confirmation of this, UNCTAD's recent report states that it was the lifting of sanctions that made this volume of foreign investment attraction possible. However, Akbar Ghahramani, deputy director of the Foreign Investment Office, which is the responsible body for foreign investments in Iran, previously stated that approved foreign investment in 1396 (2017) reached over $10 billion and 600 million. This figure only includes approved investments, which is not surprising because these numbers only reflect an administrative process, meaning the approval of foreign investments that were on paper according to a government agreement. However, this does not mean that capital has entered Iran within the framework of various projects or that these projects have been operationalized. In confirmation of this low ratio of foreign direct investment attraction compared to approved investment, the proposed Minister of Economy, Ali Tayebnia, stated in a special news program on Iran's Channel Two that despite the approval of $11 billion in foreign investment projects during the post-JCPOA period, only $1 billion of this amount has been attracted. Therefore, it seems that foreign investment attraction has been much less than its approved amount. Several reasons explain this matter. First, the entry of capital into Iran is time-consuming, and investors later act to enter financial or physical capital based on the political and economic situation. The importance of attracting foreign direct investment for Iran is that foreign direct investment does not only mean financing a series of economic activities but also has other positive consequences. Increased foreign investment in a country symbolizes increased political and economic stability and also a country's ability to establish positive relations with other countries, which is part of that country's international trust capital. Furthermore, the increase in foreign direct investment can also mean the entry of technology, knowledge, management innovation, and organization. Due to these advantages, there is serious competition for attracting foreign investment globally, and a country that succeeds in this can effectively market its advantages internationally. Given the government's budget deficit, reduced oil revenues, frozen foreign reserves, and finally, the waste of capital in recent decades, foreign direct investment could play an important role in modernizing and improving Iran's economy, which would increase employment and economic prosperity in Iran, make the Iranian market competitive, and improve consumption. Iran's share of global foreign direct investment is not particularly significant. If we compare the amount of foreign investment attracted by Iran with the total foreign direct investment made globally in 2017, which was reported to be about $1,429 billion, Iran's share of this figure would be about 0.35 percent. Such a volume of foreign investment attraction is much less than Iran's needs. According to government officials, to improve the economy in Iran, about $50 billion must be attracted annually to achieve high and sustainable economic growth, reduce unemployment, and improve purchasing power and living standards. The chart below shows the ups and downs of foreign investment attraction in Iran compared to total global investment. The above chart shows that from 2002 to 2017, Iran never succeeded in attracting more than 0.06 percent of total global capital. The inability to attract foreign investment is the result of various political and economic factors. Another manifestation of this inability is the severe fluctuations in Iran's share of foreign direct investment attraction. Such severe fluctuations in Iran's ability to attract foreign investment indicate the instability of Iran's economic relations with the world and the simultaneous disarray in policymaking regarding foreign investment attraction. These fluctuations serve as indicators for risk management institutions globally in their decision-making processes regarding Iran's political and economic stability. With the implementation of the JCPOA and the suspension of sanctions, it seemed that Iran's economy could succeed in attracting foreign investment. However, with the increase in tensions between Tehran and Washington and the U.S. withdrawal from the JCPOA, a significant portion of the positive economic and commercial atmosphere of the post-JCPOA period was lost, and Iran's economy could not achieve tangible and widespread results from the post-JCPOA period. Therefore, Iran's economic relationship with the world did not remain as stable as expected. The lack of a clear outlook for the future has raised doubts about the dream of attracting investment unless there is a fundamental change in the factors related to attracting foreign direct investment, such as Iran's foreign policy.