29 Mar 2024
Tuesday 26 July 2016 - 13:13
Story Code : 224375

A year after Iran deal, oil flows but the moneys stuck

A jump in oil exports, business deals signed with global companies and inflation tamed: One year since Iranian negotiators gathered with the worlds top diplomats to unveil their nuclear accord and Irans economy is on the mend. Thats the good news for President Hassan Rouhani in the final year of his first term.

Not so welcome are the foreign banks deterred from lending by remaining U.S. sanctions, Congressional threats of new curbs, and the billions of dollars held in foreign accounts yet to reach Iran. Jobs are scarce.

On the whole, the economic consequences have been disappointing but there was over-optimism, says Robert Powell, Middle East and Africa regional manager at the Economist Intelligence Unit. Many in Iran probably expected too much, too soon.

Here are four charts to highlight Irans economic performance.
Oil is the bright spot
Oil sanctions were the weapon designed to force Iran to the negotiating table over its atomic program. Six months after they were lifted, Irans producing 3.8 million barrels a day, 2 million of which are exported. Holding out against efforts by some OPEC members to freeze bloc output and lift prices, it has regained 80 percent of market share held beforethe U.S. and European Union tightened crude sanctions in 2012,says Mohsen Ghamsari, National Iranian Oil Co.s director of international affairs.




Exports have arguably surpassed expectations, says Powell. Yet oils slumping value means revenue is expected to be less than half of what it was in 2011. Thats about $50 billion in 2016 against $119 billion five years ago, according to EIU estimates.
Life is more affordable -- if you have work
Helped by greater monetary and fiscal discipline, prices are rising slower than at any point in the past quarter-century. Inflation slowed into single digits in June,meeting the central banks stated goal and delivering on a Rouhani commitment.




The president has a clean bill of health on inflation though the same cant be said of another policy challenge -- tackling chronic youth unemployment, says Ellie Geranmayeh, Middle East and North Africa fellow at the European Council on Foreign Relations.

While authorities expect Irans economy to expand as much as 4.5 percent in the year to March, Rouhanis target of 8-percent annual expansion would require major changes, according to Powell. An expedited privatization program would break authorities stranglehold on the economy, he says, and offer investors transparent partners. Conservative rivals will likely stand in the way.

Executive air miles
Irans 80 million people are a mouth-watering prospect for major companies battling sluggish growth at home. So following the July accord, dozens of chief executives booked flights to Tehran. The deals have built up: a $27 billion order for118 Airbus Group SE planes and a contract with Boeing Co. worth $17.6 billion. Siemens AG in March signed a preliminary rail accord worth as much as $2.3 billion.

Foreign direct investment rose to $4.5 billion in the first quarter of this year, with 26 projects, the highest uptick in over a decade in Iran, according to fDi Intelligence, a division of the Financial Times Ltd. Thats still way below the governments hopes of drawing $30 billion to $50 billion in foreign financial resources a year.



Real inflows will happen when sentiment toward investing into the Iranian economy improves among global banks and institutional investors, says Payam Afzali, head of investment banking at Kian Capital in Tehran. When Irans risk is efficiently priced in international debt markets, we can expect a more fluid movement of capital.
Stocks get real
The value of the Tehran Stock Exchange has jumped as investment deals favoring local manufacturers such as car company Iran Khodro were announced. But the mood has since turned more subdued.



There was euphoria all the way to March and then a reality check. Whats happening today is in line with the fundamentals of the economy,says Reza Soltanzadeh, chief executive of Iran Industries Investment Co., of this years roller-coaster ride for Iranian stocks. The excitement that zillions of dollars will be coming, thats not reality.

Thebenchmark TEDPIX index slipped 2.8 percent in June. Commodities represent more than 50 percent of market capitalization, so falling oil and metal prices have hit stocks, says Florence Eid-Oakden, chief economist of Arabia Monitor.

 

This article was written by Ladane Nasseri and Matthew Martin for Bloomberg on July 26, 2016.
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