A new window of opportunity
As the first step towards implementing economic reforms in China, Deng Xiaoping held out the hand of friendship to the millions of Chinese migrants with considerable capital collected through years of economic activities in different countries.
As the first step towards implementing economic reforms in China, Deng Xiaoping held out the hand of friendship to the millions of Chinese migrants with considerable capital collected through years of economic activities in different countries. Hasan Rouhani has also talked of Open Door policy and invited foreign businesses to invest in the country. Similarly, Ali Larijani, the Parliament Spokesman, eyes to repatriate estimated funds of 800 billion dollars by attracting Iranian diaspora to return to the country. To this end, he has called on the heads of Tehran and Iran Chambers of Commerce to pave the ground for their return. However, they believe extending such an invitation requires firm determination from the government side. Dr. Yahya Al Eshagh optimistically believes such undertaking is possible; on the other hand, Mr. Gholamhossein Shafei thinks "a daunting task lies ahead but we can if we want to".
You have probably gone through Mr. Larijani's recent interview published in the year-end issue of "Tejarat-e-Farda". In the said interview, while highlighting the end of an unstable era in Iran's economy, the Spokesman of the Iranian Parliament called on Iran and Tehran Chambers of Commerce to attract overseas Iranian investors possessing an estimated capital of about 700 to 800 billion dollars. As the first question, has stability been restored to Iran's economy as claimed by Mr. Larijani?
Yahya Al Eshagh: In comparison to the turbulent economic conditions in the previous years, I believe investment environment has reached more stable footing and is further improving; however, realistically speaking, we are still far behind the desired situation where we can restore the confidence of investors. Therefore, in case I decide to invite them, I should surely indicate that the situation is improving. They know better when to flock back just like when they decided to leave.
How important is the issue of inviting foreign investors in?
Yahya Al Eshagh: Embarking on the economic reforms, Deng Xiaoping initially opened the doors to the Chinese diaspora and then foreign investors followed. I believe the first step is to create an enabling environment for the domestic investors to feel secure; then, Iranian diaspora can be invited to invest and subsequently, foreign investors are encouraged to follow in their footsteps. Therefore, I believe the time is opportune to repatriate Iranian diaspora's funds. Fortunately, apart from their strong financial resources, the Iranian diaspora would welcome the chance to contribute to Iran's advancement by sharing their knowledge given their bonds to their motherland. This is surely subject to the provision of proper conditions for their return.
Are there any requirements to encourage the Iranian emigrants to return to the country?
Yahya Al Eshagh: Of course! There are requirements some of which relate to the governing bodies while others concern economic stability and a clear economic path for the country as you rightly mentioned. In other words, there is a direct relation between funds and security. Where there is insecurity, funds fly away immediately. The first step to attract foreign investment is to create economic stability and later to improve economic security and business environment. This is when patriotism comes in and investors are motivated by the prospect of gaining high interests. In addition to stability, having a clear vision of the future is the key. Investors should be able to predict the future to some extent. They need to know how secure the environment is and what the policies and processes are. We should bear in mind that any economic decisions and actions require time, at least three to four years, to bear fruit. Admitting this, it is necessary to make stable decisions and policies. Fortunately, it seems the new government has taken this into account as different sectors including the economy are enjoying some degrees of stability and peace. This is an indication of the fact that the government's economic plans and policies are in the right path and have the potential to recover the economy. Since the government has succeeded to smooth down the constant fluctuation in foreign currency rates; take effective measures to curb the rising inflation rate to 25 percent from the current rate of 30 or 40 percent; control cash growth rate and regulate the banking system, a change for the better is underway. However, several issues have clouded the investors' judgment. For instance, currently the stock market has gone through a dramatic sudden decline in stock prices and investors expect to receive a clear message from the government. The government can help investors make firm decisions by releasing timely and vital information on its plans for different issues such as the intended amount of annual increase in energy carriers to match the global prices. There might be people eager to invest in energy-saving areas. A clear timetable on what is going to happen in five years can help such investments take place. To sum up, I would like to emphasize that those investing in economy deal with realities and do not act on what is advertised but on clear messages signaled from the economic and diplomatic system of the country. The more realistic, transparent and stable, the more foreign investment is directed inside the country.
Gholamhossein Shafei:Let's travel back in time and look at this issue from a different angle. The reasons behind the decision of the Iranian investors to take their funds out of the country are either economic, social, political or cultural. Some investors cannot afford taking risks so any fluctuations in market conditions push them to more peaceful markets. In the previous years, Iranian economy as well as the society and politics have been adversely affected by instability; therefore, the investors have decided to leave. On the other hand, the culture ruling over the society can also play an important role in absorbing or dispersing the investors. In the past, Iranian entrepreneurs and investors did not enjoy favorable social status in the society; at the same time, the business environment did not meet the standards for economic activities without which desired results cannot be achieved.
Mr. Larijani, the Parliament Spokesman, believes that the investment environment has improved. What do you think?
Gholamhossein Shafei:Significant changes have occurred recently. The political climate change has led to economic vibrancy. Unlike the previous government, the new government has committed itself to follow legal procedures and avoid previous mistakes. To this end, the implementation of Business Environment Improvement Act -passed by the previous government but never implemented - is once again on the top of the agenda for the new government. We are confident that the full implementation of the provisions shall contribute greatly to the economic situation sending a positive signal to investors. It should be noted that most of the Iranian diaspora maintain strong bonds with their homeland and in equal situations would never choose to invest outside the country. Upon establishing a sound business environment, their funds shall flood in. In terms of foreign investment, as rightly mentioned by Dr. Al Eshagh, security is the key and yet to prevail. Security for investment deals with boosting the foreign investors' confidence in the future of their economic activities which is vital to any investment activity unlike what other businesses may need. Even for investors and business people operating internally, many topics such as taxation rate and charges on economic activities as well as bank interest rates for the next year remain vague and unclear. In addition, making contradictory remarks and statements by different officials weakens the confidence of investors, an example of which is the immediate fluctuation of foreign currency rate after any interview given by the Governor of Central Bank or other senior officials. It is the ultimate wish of any official in the Chambers of Commerce to see each Iranian emigrant return to their homeland with dignity and respect. We are ready to help the process yet we emphasize that consensus among the governing bodies of the country is required to make this aspiration realized.
What are the main reasons behind the departure of investors from Iran in different periods?
Yahya Al Eshagh: Political, economic and social factors have encouraged the migration of investors out of Iran throughout the years; however, above all is the lack of confidence created by constant modification of regulations and procedures, unstable and hasty decisions, socio-political upheavals, radical political activities, intolerant political actions and finally fundamental U-turns in government approaches.
Which one do you think played a more important role: political or economic factors?
Yahya Al Eshagh: Rampant radicalism and political upheavals in the past years were among the main reasons behind the emigration of investors at each stage. In case of Iran's environment for investment, there has never been the question of profitability but the lack of confidence on the part of the investor. On the strong potential of Iran for any kind of investment, it is enough to review some of the indicators. Firstly, Iran ranks first in terms of human resource development in the region including the size of university graduates, educated and skilled population. Therefore, manpower is one of the areas with great potential for investment. Secondly, it has large reserves of oil, gas and mines and is geographically rich and geopolitically influential. The 15 countries neighboring Iran create a unique opportunity for cooperation among which Iraq as a historical market is of prime importance with the booming prospect within the next 10 to 15 years. The domestic capacity should also be taken into account.
One area ripe for investment is the oil sector with finalized projects worth 500 billion in the Fifth National Development Plan. Other sectors also enjoy the same situation. This means the profitability and ROI for these projects are already guaranteed. The 75-million strong population of Iran is thirsty for new technology and products and requires 50 to 60 billion dollars of imported goods and services annually. However, there are obstacles and problems in the economy of Iran that can be easily removed by the policy makers leading to significant improvements in the business environment. This is possible as the government could already tame the rising inflation rate.
Mr. Shafie believes sending any signals to foreign investors to enter the country is subject to the resolution of some national issues. What is your opinion?
Yahya Al Eshagh: I fully agree with him. To respond to Mr. Larijani's call, which is also well echoed in several speeches made by the President, we have to make certain proposals to the governing bodies (Judiciary, Government and Legislature). The importance of investment has to be highlighted in all parts of the ruling system; business environment needs to be revived as the current rank of 154 does not attract any investors in. The Iranian banking system stands one before the last among 180 countries. More than 50 per cent of bank loans are granted to large enterprises with least productivity while small and medium enterprises receive a small portion. At the same time, most pressure for payback is exerted on SMEs. Such a situation is detrimental to investment. There are certain prerequisites to the return of investors to Iran: consensus and determination among the governing bodies is required plus an attitude change which is inevitable. In between, the government has to indicate willingness to empower the private sector by giving up ownership. In addition, certain measures should be taken to reform the banking system and restore the market balance.
What are the factors encouraging the emigration of funds out of the country?
Gholamhossein Shafei:To complete what was said earlier by Dr. Al Eshagh, I would like to point out that there is an urgent need for a comprehensive roadmap or a coherent development strategy for economic activities particularly for production. Throughout the years, before and after the Islamic Revolution, all the ruling governments were idealists who considered themselves as strategists. They all drafted separate strategies that were later forgotten by the successors. Therefore, at the moment, no comprehensive economic development roadmap exists in the country. As the first step for their investment feasibility study, investors need to carefully review the long-term economic development plans of the concerned country. The absence of such vital information is enough to infuse the investors with the lack of confidence. To me, that is the first priority. Second is the need to practice more transparency in economic activities. Frequent occurrence of certain issues such as embezzlement clouds the judgment of investors. The next factor is the necessity to create a sound competition in economic arena. As rightly mentioned by Dr. Al Eshagh, no matter how strong and innovative, an ordinary firm cannot compete with a government-owned or quasi-governmental organization given their special advantages over others. Such an environment cannot be the host of funds and capital. As to the lack of confidence in the socio-political climate of the country, I would like to mention that the private sector is suffering such lack of confidence. Despite the Supreme Leader's instruction, Article 44 of the Constitution of the Islamic Republic of Iran has not been properly implemented and the private sector's activities have been hindered without a clear response. The economy of Iran is grappling with the lack of financial resources at the moment and the best solution is to invite the Iranian diaspora in. They are our fellow countrymen sharing the same interest in the progress of Iran; however, the country is not ready to receive them and as Mr. Al Eshagh rightly mentioned such undertaking requires national determination.
Do you consider the political climate mature enough to receive the overseas Iranian investors?
Gholamhossein Shafei: Political climate is favorable; however, national determination is required. It is not enough to simply extend invitation to those investors and expect them to return and make investments in Iran. Some socio-political issues need to be addressed beforehand. I fully agree with Dr. Al Eshagh that Iran enjoys unique potential for investment; however, further transparency and moderation in words and actions are needed in order to avoid controversy in the general climate of the country and at international level. Being in close contact with the Iranian diaspora, we are aware that Iranian children born abroad love their motherland dearly and wish to return and visit their historical country. Iranians in general share a strong bond with their homeland and upon the establishment of an enabling environment, they will all return as potential grounds in Iran are not comparable to any of countries they are currently residing in. Allow me to remain hopeful that the new government is the pioneer of such a change.