Foreign Direct Investment in Iran has been hindered by unfavorable or complex operating requirements and by international sanctions, although in the early 2000s the Iranian government liberalized investment regulations. In the early 2000s, foreign investors have concentrated their activity in a few sectors of the economy: the oil and gas industries, vehicle manufacture, copper mining, petrochemicals, foods, and pharmaceuticals. Iran absorbed 24.3 billion dollars of foreign investment from Iranian calendar year 1372 (1993) to 2007. Foreign transactions with Iran amounted to $150 billion between 2000 and 2007 worth of major contracts and both private and government lines of credit. Iran has $62 billion worth of assets held abroad (2007).
In the 1990s and early 2000s, some indirect oilfield development agreements were made with foreign firms. Buyback contracts in the oil sector, for instance, were arranged in which the contractor funded all the investments, and then received remuneration from the National Iranian Oil Company (NIOC) in the form of an allocated production share, then transferred operation of the field to NIOC after a set number of years, at which time the contract was completed.
Foreign investment hit a record $10.2 billion in the Iranian year to 2007 from $4.2 billion in 2005 and $2 million in 1994. Asian entrepreneurs headed by China made the largest investments in the Islamic state by investing in 40 out of 80 projects funded by foreigners. The largest amount of foreign investment was in the industrial sector, including food and beverage, tobacco, textiles, clothing, leather, chemical, steel and oil derivates. The figure exceeded $8.76 billion. Water, electricity and gas sector ranked second, attracting $874.83 million. In the third place, the real estate sector absorbed more than $406 million. Investments in service, telecommunication and transportation as well as mines reached $193 million, $14.3 million and $14.2 million respectively. Asian countries invested $7.666 billion in various projects followed by several multinational consortia. Investments by these multinational companies exceeded $1.39 billion (in four projects). Although European entrepreneurs were involved in 34 projects, they invested only in the range of $1.2 billion in the Islamic Republic. American countries also committed $12.329 million in the country; while investments by African states registered close to four million dollars. According to the American Enterprise Institute's estimates, 2007 promises to be an even richer year for investment in the Islamic Republic. Turning to Vision 2025, the plan has set an investment target of $3.7 trillion within two decades of which $1.3 trillion should be in the form of foreign investment.
Among developed nations, the most active investors have been Germans, Norwegian, British, French, Japanese, Russian, South Korean, Swedish, and Swiss companies. The Swedish Svedala Industri has played a major role in developing Iran’s copper mines since the late 1990s while Tata Steel of India has been investing in the steel sector. The Kia, Nissan, Peugeot, and Renault auto companies have licensing agreements with Iranian auto manufacturers. Nestlé of Switzerland and Coca-Cola and Pepsi-Cola of the United States have joint ventures with Iranian companies. Total, Statoil, Shell, Gasprom, and Lucky Goldstar of South Korea have been active in Iran’s natural gas industry. Iran’s constitution prohibits direct concession of petroleum rights to foreign investors. Alcatel of France, MTN Group of South Africa and Siemens of Germany gained major telecommunications contracts in 2004 and 2005, respectively.
Following months of dispute between the Parliament and Guardian Council, the Expediency Council ratified the final version of a new foreign investment law in Iran coined as the Foreign Investment Promotion and Protection Act (“FIPPA”) on 26 May 2002. Under FIPPA and similar to the previous foreign investment law, commercial risks are not covered but any expropriation or nationalization will be compensated by the government. In some cases, if an act of the government disrupts the business activity, the government will be under obligation to make payments for any loan installments that are due on behalf of the project company. The law also permits more options for repatriation of profits in hard currency combined with a broader definition of foreign investment. For the first time, project financing schemes such as buy back agreements and BOT projects (only under an operator status) are specifically covered under the foreign investment law. Under the FIPPA, any foreign natural or legal person – including Iranian expatriates -- importing capital in Iran will enjoy the benefits and privileges of this law as long as:
Currently there are three main routes that a foreign company can follow to establish a long-term presence in Iran.
Other Governments, Other Debts: The Interplay of Interest Rates and Taxes Creates an Interesting Backdrop for Trading the Muni-over-Bond and Muni-under-Note Spreads
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