Source: Business Monitor International

Executive Summary of The Iran Business Forecast Report, Q4 2009

• The fallout from June's disputed presidential elections and the government's heavy-handed response to the ensuing unrest has now begun to settle. Though the mass protests in Tehran (and elsewhere) were the largest demonstrations of public discontent in Iran since the Islamic Revolution thirty years ago, the government was in little danger of collapse, retaining as it did the loyalty of the security services. While stability is likely to persist, for now, recent events have nonetheless caused considerable damage to the regime. This damage could have a detrimental impact upon long-term political stability. The outlook for the economy is fairly gloomy too; we have lowered our GDP growth forecast for this year. Moreover, international sanctions will continue to preclude any significant uptick in foreign investment.
   

• June's events have damaged the government. Firstly, widespread perceptions that the election was rigged in favour of incumbent President Mahmoud Ahmadinejad have eroded the regime's legitimacy in the eyes of much of the population. Second, it has become increasingly apparent that there are serious fractures within the regime hierarchy itself, which poses significant risks to longterm political continuity. We have consequently lowered our long-term political risk ratings for the Islamic Republic. Despite Iran's internal crisis, its nuclear programme will remain the focus of the West's diplomatic attentions. With Tehran continuing to expand its uranium enrichment facilities, stronger international sanctions could be imminent.
   

• We have lowered our GDP growth forecast for FY2009/10, although we still expect the economy to avoid an outright contraction: we are pencilling in a sluggish 1.4% expansion this year. Thereafter, growth will pick up again: we forecast the economy to expand at an average rate of 3.2% over our five-year forecast period. Though we see oil production falling slightly, the slowdown will be primarily driven by weakness in the non-oil economy. Indeed, banking sector data indicates that loan growth has slowed sharply, and a number of leading indicators point to a possible contraction in the industrial sector.
   

• The business environment continues to be adversely affected by international sanctions. FDI inflows remain pitifully low, although inward investment from Asia is going some way towards filling the gap left by Western firms. Indeed, state-owned Chinese companies have recently signed major oil and gas deals with Tehran. In recent months, small stakes in three state-owned banks have been offered to the public. The privatisation process could speed up as the government looks to finance large future fiscal deficits. However, the recent stripping of telecoms licences from both the UAE's Etisalat and the Kuwaiti-based Zain Group highlights the ongoing difficulties faced by foreign investors.

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