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Iran Business Forecast Report Q4 2008

Published by: Business Monitor International

Published: Jul. 28, 2008 - 53 Pages


Table of Contents


Executive Summary
International Sanctions Continue To Dominate
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Media Crackdown Stepped Up
With the Iranian government recently stepping up its efforts to control media freedom, we expect the press to remain
tightly controlled over the coming years, especially in the run-up to the 2009 presidential elections.
TABLE: IRAN POLITICAL OVERVIEW
Foreign Policy
Increasing Tensions But Diplomacy Remains Core Scenario
While we note that Iran’s recent missile tests highlight an increased risk of military conflict over the nuclear
enrichment programme, we still expect the issue to be solved through diplomatic means, given the US’s
commitment to economic sanctions and overstretched military forces.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Investment Climate
Significant Opportunities But Regulations Deter Investors
While Iran’s investment climate offers foreigners a range of opportunities, notably for portfolio investors looking
to take advantage of the recent gains in the Tehran Stock Exchange (TSE), there are still a number of problems.
Exchange Rate Policy
Facing Rial Pressure, But Depreciatory Trend Set To Continue
While there have been some extraordinary moves in the rial recently - as the central bank let the unit break its
long-held depreciatory trend in an attempt to curb inflationary pressures - we expect the currency to continue to
gradually depreciate against the dollar going forward, in order to keep non-oil exports competitive.
TABLE: IRAN - EXCHANGE RATE POLICY
Economic Activity
Slowdown To Continue As Sanctions Start To Bite
International sanctions are continuing to overshadow the Iranian economy, and while we expect economic growth
to hold up above 3.5% over the forecast period, there are now signs that the lack of foreign investment and capital
imports - notably in the oil sector - are starting to drag on Iran’s long-term growth potential.
TABLE: IRAN - ECONOMIC ACTIVITY
Chapter 3: 10-Year Forecast
The Iranian Economy To 2017
Sanctions To Weigh On Long-Term Growth
We are forecasting annual real GDP growth of 4.1% by 2012, and 3.3% by 2017, on the back of slowing oil
production growth, a long-term easing in oil prices and economic sanctions, although Iran’s youthful population
and oil wealth will ensure economic expansion holds up above 3.0%.
TABLE: IRAN 10-YEAR MACROECONOMIC FORECASTS
Chapter 4: Special Report
Mega-Urban Regions
TABLE: THE WORLD’S 30 LARGEST URBAN AGGLOMERATIONS
TABLE: THE WORLD’S RICHEST CITIES IN 2020 BY GDP
TABLE: THE WORLD’S FASTEST GROWING URBAN AREAS BY POPULATION
Chapter 5: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
Institutions
TABLE: BMI LEGAL FRAMEWORK RATINGS
Infrastructure
Market Orientation
TABLE: MIDDLE EAST & AFRICA, ANNUAL FDI INFLOWS
TABLE: BMI TRADE RATINGS
Operational Risk
Chapter 6: Key Sectors
Power
Executive Summary
Iran’s power consumption is expected to increase from an estimated 170twh in 2007 to 209twh by the end of the
forecast period in 2012, providing export potential rising from an estimated 36twh in 2007 to 89twh in 2012,
assuming 7.1% annual growth in generating capacity.
TABLE: IRAN POWER - HISTORIC DATA & FORECASTS
Infrastructure
Executive Summary
Despite the United Nation’s (UN) sanctions on Iran, foreign investments in the country have not plunged,
reflecting well on its business potential.
TABLE: CONSTRUCTION AND INDUSTRY DATA

Abstract

International Sanctions Continue To Dominate

International sanctions against Iran’s controversial nuclear enrichment programme are continuingto dominate the economy, political climate and business environment. Indeed the EuropeanUnion (EU) became the most recent international organisation to implement sanctions againstIran, adding to the three UN resolutions and two sets of US measures already in place. AlthoughIran and the US have employed more aggressive rhetoric in recent months, as speculation of anIsraeli attack has grown, we still believe the crisis will be solved through diplomatic channels, asboth sides have too much to lose in engaging in military conflict and are also unlikely to force theissue ahead of key presidential elections in both countries in the coming year.

On the domestic front, the government has recently stepped up its efforts to control media freedom,in order to curb increasing political discontent over rampant inflation and President MahmoudAhmadinejad’s imprudent economic policies. We therefore expect tighter press regulation in therun-up to the 009 presidential polls, as the authorities seek to protect their president and quashany public opposition. That said, we believe the question of Ahmadinejad’s re-election is currentlytoo close to call, given that there is little indication of who will stand against the president and noexact date set for the poll.

We retain our core scenario that the Iranian economy will hold up in the longer term, forecastingreal GDP growth to stay above 3.5% over the next five years, on the back of high oil prices andincreasing oil and gas production. That said, Iran’s state-dominated investment climate will continueto suffer from economic sanctions, a problem that will start to weigh on long-term growth.Furthermore, accelerating inflation remains a key economic risk, as the ongoing gains in globalfood costs and Ahmadinejad’s spending splurge are continuing to put upward pressure on prices.Indeed the inflationary situation came to a head in Q208 when the central bank let the rial breakits long-held depreciatory trend in an apparent attempt to curb rampant price rises. While the currencyis now back on its depreciatory crawl, the recent spike indicates that there are clear upsidepressures on the unit, which are unlikely to ease going forward.

The business environment continues to be adversely affected by the uncertain political backdropand international sanctions. Indeed, the oil and gas sector is suffering from a lack of foreign directinvestment (FDI) and capital imports, and although inward investment from Asia is going someway towards filling the gap left by Western firms, FDI inflows remain pitifully low. On top of this, asignificant amount of work in other areas of the business environment is desperately needed. Theprivatisation process is moving extremely slowly, while Iran looks set to face a summer of powershortages, a result of a lack of diversity in power-generation.

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