Why Direct Foreign Investment Does Not Come to Iran?

According to the Secretariat of the Government Information Council, on January 5, the approved volume of foreign investment in the country during the post-JCPOA period (about the past year) was announced to be $11 billion and 802 million. Among these, an increase in foreign investment in existing investable enterprises was reported at $496 million. According to published statistics during this same period, 113 foreign investment licenses (new projects) and 44 licenses for increasing investment or changes in existing enterprises were issued. What this government report refers to is the approval of foreign investors' requests for investment by Iranian government officials. This new stage is one of the administrative stages of foreign investment in Iran, and if all conditions are met, one can hope that foreign capital will enter the implementation phase after various administrative stages. However, during this process, the investor may withdraw from the investment for any reason, so merely approving the foreign investment request does not mean that foreign capital will enter, and it remains to be seen how much of this investment will become operational. Recently, the Minister of Economy, Ali Tayebnia, stated in a special news dialogue program on Iran's state television that $11 billion worth of foreign investment projects have been approved, of which more than $1 billion has been attracted. In other words, only 9% of the approved foreign investment has been implemented, and there is still no sign of the operationalization of the remaining 90%. The question here is why, with the implementation of the JCPOA, a significant amount of capital is still not being attracted to Iran's economy. The importance of foreign investment in the current situation is that in recent years, especially during the sanctions, construction investment and particularly in Iranian industries have sharply decreased. For this reason, massive investments must be made to rebuild and modernize the country's economy. The high political and economic risk in Iran means that Iran's foreign trade has become slower and more expensive, and Iranian merchants and investors cannot take advantage of various international benefits and negotiate from a lower position with international parties. The Iranian consumer feels this high risk in the form of high prices, scarcity, or poor quality of goods and services. Nevertheless, domestic resources for investment are insufficient, and there are many constraints for investment through domestic resources in Iran. Part of these constraints relates to the decrease in financial resource inflows, while another part is related to inappropriate and rent-seeking allocations to expenditures such as donations to religious and political institutions and also wasted subsidies. A look at the government's budget this year and the failure to realize construction budgets is evidence of this claim. For this reason, the government is trying to encourage foreign investors to invest in Iran by offering various incentives. Direct foreign investment not only means financing a series of economic activities but also has other positive consequences. Increasing foreign investment in a country symbolizes an increase in 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, an increase in direct foreign 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 matter is one that can market its advantages well in the international arena. The barriers to the implementation of foreign investment in Iran are highlighted by the Minister of Economy, who correctly emphasizes the main barrier to attracting foreign investment to Iran, stating: 'To attract foreign investment, internal investment conditions must be provided.' He further states: 'He pointed out that improving the business environment is one of the 12 priorities of the Ministry of Economy and Finance, adding that Iran's business environment ranked 152nd in the world in 2013, which last year improved to 118, and... this year, Iran's global business environment ranking has dropped two places to 120, indicating that the speed of our actions has been slow.' Given the government's budget deficit, declining oil revenues, limited foreign exchange reserves, and the waste of capital in recent years, direct foreign investment could play an important role in the renovation and improvement of Iran's economy, which would increase employment and economic growth in Iran, making the Iranian market competitive and improving consumption. Therefore, nuclear sanctions were only one of the barriers to attracting foreign investment in Iran, and the JCPOA only solved part of the problems. Even before the JCPOA, Iran did not attract much investment, and capital flight to the southern Gulf countries is evidence of this claim. The external problem is only one of the issues in attracting investment, and of course, other risk factors, including regional tensions and internal problems, including economic and political issues, and especially internal tensions in interpreting and implementing laws, are more important barriers to attracting investment. Iranian laws can be interpreted very differently depending on which political faction is in power. The interpretation of the authoritarian faction is such that it effectively acts as a barrier to the activities of foreign enterprises, while the government team has a more moderate interpretation of the law. International enterprises must have a clear outlook on Iran's future for at least ten to twenty years, which is the investment return period. Such a perspective does not currently exist. Iran will witness a presidential election early next year, and which force comes to power will significantly affect Iran's economic interaction with foreign investors. The high political and economic risk in Iran means that Iran's foreign trade has become slower and more expensive, and Iranian merchants and investors cannot take advantage of various international benefits and negotiate from a lower position with international parties. The Iranian consumer feels this high risk in the form of high prices, scarcity, or poor quality of goods and services. In conclusion, given the government's budget deficit, declining oil revenues, limited foreign exchange reserves, and the waste of capital in recent years, direct foreign investment could play an important role in the renovation and improvement of Iran's economy, which would increase employment and economic growth in Iran, making the Iranian market competitive and improving consumption. However, considering international adventurism and political instability within, this opportunity should at least be considered lost under current conditions unless a fundamental transformation occurs. It seems that the fate of direct foreign investment in Iran, like many other matters, is tied to the developments in internal political affairs and the Iranian government's interactions with other countries in the world.