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Iran Business Forecast Report Q2 2010

Published by: Business Monitor International

Published: Feb. 5, 2010 - 76 Pages


Table of Contents


Executive Summary
Economy On The Road To Recovery
Chapter 1: Political Outlook
Domestic Politics
A Continued Green Headache For Tehran
Recent opposition protests demonstrate that anti-government sentiment is still running high in Iran.
Table: Political Overview
Long-Term Political Outlook
Next 10 Years: Four Scenarios For Political Evolution
Iran faces numerous domestic and external challenges which will exert considerable pressure on the regime over the
coming decade.
Foreign Policy
Increasing Likelihood Of Fresh Sanctions
With no concrete progress on the Iranian nuclear issue over the past several months, the US’s patience appears to be
wearing thin and we expect Washington to push for harsher sanctions on the Islamic Republic in 2010.
Chapter 2: Economic Outlook
Economic Activity
More Upbeat Growth Outlook For FY2010/11
The Iranian economy has passed through the bottom of the economic cycle, though in line with our outlook for the global
economy as a whole, we expect the recovery to be relatively weak.
Table: ECONOMIC ACTIVITY
Monetary Policy
Inflation Heading Up; No Return To 2008 Levels
Having fallen to a multi-year low in Q409, we expect consumer price inflation to head higher through 2010, fed by rising
commodity prices and a steady recovery in the domestic economy.
Table: MONETARY POLICY
Investment Climate
The Impact Of Sanctions On The Oil And Gas Sector
Potential US sanctions on Iran’s gasoline imports are unlikely t o dent the flow appreciably.
Chapter 3: 10-Year Forecast
The Iranian Economy To 2019
Great Potential, But Low Expectations
The inability of Iran to fully exploit its enormous oil and gas wealth will keep real GDP growth rates in the 3-4% range over
the next 10 years.
Table: Lo ng-Term Macroeconomic Forecasts
Chapter 4: Special Report
Political Risk In The Next Decade
What To Expect In 2010-2019
Table: Countries Facing Major Leadership Succession In 2010-2019
Table: Countries At Risk Of Major Political Upheaval
Table: Countries At Risk Of Interst ate Conflict Or Heightened Bilateral Tension
Table: Cou ntries Facing Secess ionist Or Auto nomy Moveme nts , Insu rge ncies , Or Civil Wars
Table: Pivot al States
Chapter 5: Business Environment
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
TABLE: TOP EXPORT DESTINATIONS, US$MN
Operational Risk
Chapter 6: Key Sectors
Defence & Security
Table: Iran Government Defence Expenditure, 2006-2014
Metals
Table: Iran Metals Indust ry 2006-2014
Chapter 7: BMI Global Assumptions
Global Outlook
2010 Looking Rosier
TABLE: GLOBAL AND REGIONAL REAL GDP GROWTH
TABLE: developed market exch ange rates
Table: Emerging Market Exch ange Rates
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES
TABLE: EMERGING MARKETS

Abstract

A number of recent indicators suggest that the Iranian economy is beginning to pick up, aftersluggish expansion in 2009. However, our forecasts are not particularly bullish: we expect to seetrend real GDP growth over the next five years in the 3-4% range, much lower than the government’s8% target. International sanctions stemming from Iran’s nuclear programme will continueto rule out any significant uptick in foreign investment, and 2010 could see the US impose evenmore stringent measures on the Islamic Republic. We stand by our view that a further round ofUN-mandated sanctions is unlikely owing to resistance from China and Russia. Domestically, weexpect the government to continue to face sporadic, though increasingly violent protests.

O pposition protests in December demonstrate that anti-government sentiment is still running highin Iran; in response, we have recently lowered our short-term political risk rating for the country.If the government arrests leading opposition figures such as Mir-Hossein Mousavi, or if it carriesout its threat to execute protesters, a new wave of destabilising unrest could grip the country. Overthe next decade, Iran will face numerous domestic and external challenges, and the regime willcontinue to come under pressure. In this quarterly report, we outline a number of scenarios forfuture political evolution.

T he Iranian economy has passed through the bottom of the economic cycle, though in line withour outlook for the global economy as a whole, we expect the recovery to be relatively weak. Weforecast real GDP growth to rise to 3.4% in FY2010/11, and for it to average 3.5% per annum overthe course of our five-year forecast period (out to FY2014/15). Relatively stable prices (by Iranianstandards) will provide a platform for improved economic growth. Though we do expect consumerprice inflation to head steadily higher through 2010, we are not expecting a return to the very highrates of nearly 30% y-o-y witnessed in 2008.

T he business environment continues to be adversely affected by international sanctions. Indeed,Swiss-based commodities trader Glencore recently stopped supplying gasoline to Iran, havingapparently come under US pressure. Despite official claims that FDI inflows increased by 6% in2009, they remain pitifully low (just US$1.49bn in 2008), although inward investment from Asiais going some way towards filling the gap left by Western firms. Indeed, state-owned Chinesecompanies have recently signed major oil and gas deals with Tehran. The privatisation processcould speed up as the government looks to finance large future fiscal deficits; but, given the poorinvestment climate, private investors will continue to be deterred.

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