Iran's Wishful Thinking As Sanctions Take Hold

Citing the latest figures released by the United Nations Conference on Trade and Development (UNCTAD), Iran has claimed sixth place in the world based on inward foreign-direct-investment (FDI) performance for the year 2009. Iran's real position, in terms of inward FDI in 2009, stands somewhere between 71st -- according to the "CIA World Factbook" -- and 101st, according to UNCTAD's own "World Investment Report." The latter puts Iran just behind Georgia and just ahead of Bolivia.

Ahamdienjad speech disrupted by unemployment chants
People of Khorramshahr, a south western city of Iran, disrupted Mahmoud Ahmadinejad's speech with chants of "Unemployment! Unemployment!" (May 2010)

Although the latest UNCTAD figures refer only to Iran's "relative performance" in 2009 in comparison with 2008 rather than the country's actual world ranking based on total inward FDI, the data it contains are based on self-reporting by member countries and are therefore difficult to verify. Iran's critics could easily be silenced by the release of the names of foreign investors in Iran and the amounts of their investments in 2009. But it is unlikely Tehran would ever be reckless enough to adopt such transparency.

How could a country with 10 percent of the world's known oil reserves (No. 3 after Saudi Arabia and Canada) and 15 percent of natural-gas reserves (No. 2 after Russia) rank 101st in terms of foreign direct investment?

Falling Behind

Since the Islamic regime took power in Iran 30 years ago, the country has never been a desirable destination for FDI. It certainly never stood a chance of placing inside the top 10 in the world, despite its world-class energy resources. Iran is unattractive primarily because of its constitutional structure and the unfavorable investment climate that has resulted from the government's ever-increasing control over the national economy. Article 81 of Iran's constitution forbids multinational corporations from taking over certain businesses and bans "concessions to foreigners or the formation of companies."

In addition, the government relies on energy exports as the main source of foreign-currency revenues and controls almost 90 percent of the economy. In such an environment, the private sector has been unable to thrive and has grown in recent years at a slower pace than that in neighboring countries.

FDI has increased sharply in recent years in countries such as Brazil and India because of their rapid economic growth, and in Nigeria and Egypt because their governments have committed themselves to economic reforms. But despite Tehran's efforts to convince the world otherwise, FDI into the Islamic republic has undoubtedly stagnated.

Creative Accounting?

According to 2008 figures, 13 of the G15 countries had amassed FDI of more than $10 billion each. Iran managed a meager $1.6 billion that year. During 2009, with the world reeling from the global economic crisis, Iran's FDI fell to not more than $900 million (compared to $41.5 billion for India).

In 2009, "The Economist" published its list of the 27 most attractive "emerging economies" for FDI. The list included Singapore, China, Hong Kong, South Korea, the Czech Republic, Russia, Malaysia, Turkey, and so on. There was no mention of Iran.

According to figures provided by Mehr news agency, Iran absorbed $24.3 billion in FDI between 1993 and 2007 without sharp fluctuations throughout that period. That steady trend, however, now seems likely to see a downturn as new sets of harsh international sanctions are imposed.

Behruz Alishiri, Iranian deputy minister of economic affairs and finance, claimed recently that the volume of transactions in Iran's investment market has increased by 10 percent since the ratification of the new UN Security Council sanctions against the country. Iran seems to have manufactured highly dubious foreign direct investments for 2009 to create the impression that UN and unilateral U.S. sanctions have been ineffective.

Now that the European Union has confirmed its own new sanctions against Iran, Tehran will have to be even more creative in its accounting.

Reza Taghizadeh is a regular contributor to RFE/RL's Radio Farda. The views expressed in this commentary are the author's own, and do not necessarily reflect those of RFE/RL