Iran offered to sell state assets to foreigners, said it would cut the government’s role in the economy and pledged a tight monetary policy as it sought to attract billions of dollars of investment from abroad after over a decade of isolation.
At a business conference in Vienna this week, the first such event since last week’s deal between Tehran and world powers on its nuclear program, top Iranian officials outlined an economic policy package designed to win foreign investment.
The package was strikingly pro-market – many of the policies would not have been out of place in a center-right European government. If implemented, they could move Iran’s economy well beyond the tight restrictions and heavy state involvement that followed its 1979 Islamic Revolution.
“The government, the parliament are trying to remove all the obstacles for free investment and for reducing interference of government in private investment,” said Minister of Industry, Mines and Trade Mohammad Reza Nematzadeh.
With a young, well-educated population of just under 80 million and some of the world’s largest energy reserves, Iran looks likely to provide huge investment opportunities. Officials at the conference said Tehran had identified nearly 50 oil and gas projects worth $185 billion that it hoped to sign by 2020.
Under the nuclear deal, sanctions that have stifled Iran’s economy are to be lifted when the International Atomic Energy Agency verifies that Iran is honoring its side of the bargain.
Nematzadeh said Iran expected verification in under three months, and that it believed it could rejoin the SWIFT global electronic payments system — a key step to enable inflows of foreign money — three months after sanctions were repealed.
Foreigners will then be welcome to enter Iran’s economy through joint ventures — including those in the banking sector — and direct investment, such as participation in tenders to buy stakes in state companies, he said.
The national oil company will be off-limits to investors but petrochemical and refining firms may be partly sold off, and parliament has given permission for the sale of assets or projects such as hospitals, schools and highways, he added.
Over the past decade, the government has sold off stakes in state companies worth tens of billions of dollars. But its privatization program has not been fully effective because most of the stakes have gone to state-linked bodies such as pension funds and foundations.
Iranian bankers believe that if foreign investors are allowed to enter the Islamic Republic, they will end up buying assets from the cash-strapped funds and foundations, completing the privatization process.
During the sanctions years, the government often favored state firms over private ones on the grounds of economic survival. Nematzadeh said this was ending, and parliament had agreed that all firms would be treated equally for tax purposes.
For privatized companies to succeed, however, they may need to reduce staff. This might put them in conflict with Iran’s strict labor rules, a legacy of the revolution; a complex, unpredictable legal system adds to risks for foreign companies.
Iranian officials at the conference did not describe in detail any plans for labor or legal reforms, which would be politically sensitive and could cost President Hassan Rouhani some of the public support he has won with the nuclear deal.
But they did outline plans for a conservative monetary and fiscal policy which could reassure investors. One of the big economic risks that Iran will face after sanctions are lifted is how to keep the economy stable as money flows back into the country and growth accelerates.
Parts of the business community in Iran are pressing for interest rate cuts to help them compete in foreign markets, and currency depreciation to aid exporters. Such steps could boost inflation which authorities have only recently wrestled down to around 16 percent from above 40 percent two years ago.
Deputy central bank governor Akbar Komijani said authorities would continue to cut inflation, lowering it to a single-digit rate by the end of the next Iranian year that will start around March 21.
He also said Iran needed to achieve single-digit inflation before interest rates could be cut below 20 percent – implying no major monetary easing any time soon.
Iranian officials impressed some foreign businessmen at the conference by talking more openly and frankly about the economy than they did during the sanctions years, when officials felt that disclosing information could weaken Iran’s ability to defend itself against the sanctions.
Nematzadeh gave relatively specific figures for Iran’s foreign reserves on Friday, saying the central bank had between $115 billion and $125 billion, the sovereign wealth fund $20-25 billion, and Iranian government firms and organizations an additional $5-10 billion.
Much of this money has been frozen in overseas accounts by the sanctions; Komijani said blocked funds totaled about $29 billion.
But he said that instead of immediately bringing the money back to Iran when sanctions were lifted, the central bank would keep some of it in accounts abroad until it was needed to fund domestic investment projects.
Such a step could strengthen foreign investor confidence by suggesting Tehran is confident the nuclear deal will stick.