Iran is the second largest economy in the Middle East and North Africa (MENA) region after Saudi Arabia and the second most-populated country after Egypt. Tehran, located in north-central Iran, is the capital and largest city with a population of more than 8 million.
Iran has the world’s third largest proven crude oil reserves and second largest natural gas reserves. The country’s economy consists of a large state-owned sector (including many energy companies) and smaller agricultural and services sectors, largely run by a number of government co-operatives and private operators. Economic growth is driven primarily by oil and gas exports, which form the bulk of government revenue.
In January 2016, nuclear-related sanctions against Iran were removed in observance of the Joint Comprehensive Plan of Action (JCPOA) reached between Iran and the P5+1 (the UN Security Council’s five permanent members plus Germany) in 2015. Along with the release of frozen assets held in international accounts, estimated at around US$100 billion, the JCPOA helped restore business connections between Iran and the West, particularly with EU countries.
The Iranian economy expanded by 12.5% YOY in the fiscal year ending 20 March 2017, according to the Central Bank of Iran. Growth was driven primarily by an increase in oil output and exports following the lifting of JCPOA related sanctions. Iran’s non-oil GDP growth stood at 3.3% in this period, reversing a dip of 3.1% in the previous year. Inflation rate came down from double digit to single digit at 9%, the first time in 26 years.
Owing to outstanding primary sanctions of the US, American people and companies are banned from engaging with Iran (with the obvious exception of Boeing plane sales). In July 2017, the Trump administration slapped new sanctions on Iran for its missile programme and weapons procurement, despite re-certifying that Iran had compiled with JCPOA. In contrast, Many European companies have started re-entering Iran in sectors spanning transport, oil and gas, banking and finance and retail.
Following years of limited access to external capital, the Iranian government is now keen to attract foreign direct investment (FDI). An annual FDI target of US$50 billion is set out in Iran’s Sixth Five-year Development Plan (2016-2021). It is further expected that Iran will create investment opportunities of US$1.5 trillion between 2016 and 2025 for local and international investors.
Iran offers attractive incentives to foreign investors such as tax holidays and import customs exemptions, Sectors including oil and gas, industry and mining, transport, agriculture, ICT, tourism and health are the main FDI promotion areas. In addition, trade-industrial free zones and special economic zones (SEZs), many of which are industry-specific, are scattered across the country with additional incentives in attracting FDI.
Iran’s cumulative FDI climbed 7.5% to US$48.5 billion in 2016, according to the UNCTAD’s World Investment Report 2017. FDI statistics from China’s Ministry of Commerce showed China’s FDI stock in Iran surged to US$3.33 billion in 2016 from US$715 million in 2010, with the bulk directed to the oil and gas sector.
Iran lies on the China-Central Asia-West Asia (CCAWA) Economic Corridor under the Belt and Road Initiative (BRI) and is expected to benefit from the BRI focus on infrastructure development and technology collaboration. In the visit of Chinese President Xi to Iran in January 2016, the two countries agreed to increase bilateral trade by more than tenfold to US$600 billion in the next decade, with co-operation areas including energy, trade and industry.
Located in Southern Asia and bordering the Persian Gulf, the Caspian Sea and the Gulf of Oman, Iran prides itself as a gateway to a regional market of more than 400 million people, spanning Afghanistan, Iraq, Turkey, Russia and the Central Asia countries. While the BRI is intended to enhance land and sea connectivity with countries along its key routes, the International North-South Transport Corridor (INSTC), jointly established by Iran, India, and Russia in 2000, aims to connect the Indian Ocean and Persian Gulf to the Caspian Sea via Iran, and onward to northern Europe via St. Petersburg in Russia. As a multi-modal transport corridor, INSTC will make Iran a key link in connecting the three founding members and 11 other state members.
China has emerged as Iran’s top trading partner, as Chinese firms have gradually displaced those from the US and EU in the wake of sanctions. In 2016, Iran-China trade stood at US$31.2 billion, and reached US$18.1 billion in the first half of 2017.
China is the largest crude oil export market of Iran in 2017, followed by India. In fact, some Chinese companies, notably China National Petroleum Corporation (CNPC) and the Sinopec Group, have won major oil exploration contracts in Iran, including the oil field projects in Yadavaran and North Azadegan.
Another recent example of Iran-China co-operation is found in the South Pars, the largest natural gas field in the world. Under a contract of US$4.8 billion signed by Iran’s Petropars and a consortium comprising CNPC and France’s Total, this offshore field is expected to start supplying gas to the Iranian market from 2021.
Iran’s other key trading partners include Turkey, Korea and the UAE. Most imports are subject to 10%-25% tariffs while certain raw materials and machinery are exempted. Iran is proposing FTAs or securing and upgrading preferential agreements with a number of countries including Malaysia, Pakistan, Turkey, India and the Eurasian Economic Union (EEU).
In 2017, Hong Kong's total exports to Iran went up by 71.5% YOY to US$231 million. Major export items included telecom equipment and parts (US$122 million, 52.8% of total, +226% YOY), medical and pharmaceutical products (US$14 million, 6.1% of total, -21.6% YOY), civil engineering and contractors’ plant and equipment (US$12 million, 5.1% of total, +10.8% YOY) and miscellaneous chemical products (US$10 million, 4.3% of total, +7.4% YOY).
Hong Kong's imports from Iran dropped by 30.4% YOY to US$178 million in the same period. Major import items included fruit and nuts (not including oil nuts), fresh or dried (US$149 million, 83.6% of total, -38.4% YOY) and spices (US$19 million, 10.7% of total, +165.8% YOY).
(If you are from a member state of the European Union ("EU") / European Economic Area ("EEA")), PLEASE tick here if you accept our use of your provided data for direct marketing purposes.
*For non-EU/EEA customers, please skip this box which is solely for EU/EEA customers as required by the relevant data protection law in the EU.
Thank you for subscribing our marketing intelligence.