It seems that after the implementation of the Joint Comprehensive Plan of Action and the removal of sanctions in the upcoming weeks, it would be primarily attractive for foreign investors in Iran to recognize and select the right industry as a target for their investments and mutual collaboration with Iran.
On the other hand, the expected positive trend in the capital market could be originating from optimistic expectations of economic agents regarding the execution of the Plan which has resulted in their new investments in Iranian capital market. Now the main question is what would be the common attribute of the industries selected by domestic investors and the ones foreign investors bear in mind? Moreover, how these commonalities can result in creating additional synergy as well as improved efficiency and higher stock values of the industries in the capital market?
By examining the results from negotiations between different countries that have travelled to Iran after the signing of the Joint Comprehensive Plan of Action and by studying the current situation around the world, also by assessing the results and outcomes of various conferences held inside or outside the country during this period, it can be expected that the following industries would be desirable for foreign investors:
- Automotive Industry and Automobile parts manufacturing
- Utilities and Infrastructure Industries
- Public Health and Medical Care, Pharmaceuticals
- Insurance and Financial Services
Now this question arises as to whether domestic players have the same understanding? Or the policy of growth and development in every industry is still followed by officials, economic players and investors in the country without taking into account the comparative advantages and the economic situation inside the country as well as outside? In case such convergence was being realized, development trend of the country, economic growth and splendor of the markets will recover and absorption of capital from inside of the country and outside along with the support from economic institutions and agents, can accelerate the country’s economic revival.
However, it does not seem like such convergence is being expected. In other words, many among economic agents within the domestic capital market are still attached to their past viewpoints, resulting in the current exhilaration in the market, which in the end will be detrimental for investors. Therefore, in these circumstances it is more than ever crucial to identify pioneering industries in the country which can lead the economic development from this point. To answer the question as to which industries can be the engines of the economy while at the same time be attractive for both domestic and foreign investors, we should take a look at opportunities as well as risks vis-à-vis the Iranian economy and the future trend in the world’s economy as a whole.
It is clear that the presence of educated and expert labor force, the existence of ample chances to invest for the development of the country’s infrastructure, and the government’s strategy and position in interactions with the international community in order to attract foreign investors, should be the primary and most crucial opportunities in front of foreign investors.
But the other side of the coin is threats these investors might encounter. In this situation the main task of government officials and policy makers of the country is to attract the trust of foreign investors on one hand, while diminishing these threats and turning them into opportunities. To give examples on these threats we can point out the lack of compiled and transparent information regarding official gateways, prolonged process of establishing a business in Iran and bureaucratic procedures in this regard, and the absence of a strong and independent private sector which can be effective in the country’s economy.
In addition to the above mentioned factors, credit rating of the country, its public institutions and domestic economic firms are factors that are primarily important for foreign investors. However, this is not a new matter and presently in any country it is essential for businesses that wish to become active in international markets to have a high credit rating and the most important thing in order to assess the rating of domestic institution and establishments is the existence of transparent and accountable information.
Credit assessment and availability of credit rating is not only crucial for businesses, but it is also an imperative factor for the government and governmental institutions in order to attract investment and financial resources. As a result, one of the main opportunities for collaboration between Iran and the international economic community is regarding the credit rating issue since none of Iranian firms or institutions has an international credit rating. The arrival of authentic and legitimate credit rating to the economic and financial environment of the country can have various consequences. On one hand, economic firms and institutions with high credit rankings will be able to enjoy financing with much lower costs, and on the other hand those with poor credit ratings and unhealthy balance sheets as well as industries without comparative advantage and any bright future, will become increasingly vulnerable.
Considering the significantly low level of Iran’s foreign debt, it seems that the country’s general credit rating in this regard will be high; hence the publishing of foreign exchange bonds (either by the government or by the private sector) can become a major platform for financing for the government and business firms. However, as mentioned earlier, such scale of financing should be performed in industries that have comparative advantage for the country and a positive impact on the growth and development of the country, while at the same are attractive for domestic and foreign investments, otherwise it will lead to irreversible accumulation of debt and will become a potential cause for future economic crises.
For instance, one of the first industries that can be the pioneer for the presence of foreign investors in the country, while being desirable for domestic agents at the same time is the financial and insurance industry. The reason being that in the world we live all economic activities in the real sector pass through the financial sector and the risk coverage by one of the most credit-worthy insurance companies (such as Hermes from Germany and SACE from Italy) is the background for the presence of different investors from inside Iran as well as outside its borders. On the other hand, financial industry in Iran compared to present international standards, is still to a large extent underdeveloped, thus indicating a high potential for attracting investment in this domain.
In conclusion, it seems that the outlook for economic development in Iran in contrast to the past cannot concentrate on all domestic industries, but the right selection of those with advantages for the country, can lead to both its economic development and the absorption of international investors. Based on these remarks, the awareness of active participants in Iranian capital market about these elements and the analysis of the future trend in Iranian economy can pave the way for a successful prospect for the country’s long-term investments.