Good morning our loyal readers and traders. We want to start this week with some important news on "Growth of Iran's economy and direct foreign investments" Last month the president Donald Trump has made negative announcement towards this Islamic Republic, despite this fact the economy is still...
The Iranian situation: one of the new American president’s best feats. On the 13th of October last month, Donald Trump has declared that Iran was not respecting its stated commitment in the context of the 2015 Vienna Agreement, and has issued the idea to breach it. He’s now blaming Tehran to « violate the spirit » of this agreement due to its destabilizing role in the Middle East.
However, according to the Director General of the International Atomic Energy Agency (IAEA), Mr. Amano, Iran is living up to its commitments when it comes to the agreement. Agency’s inspectors don’t have any problem in terms of their verification exercises. Trump’s surprising statement gives to the US Congress 60 days to take up a final position in order to restore or not the economic sanctions, which have been lifted just after the conclusion of the agreement. If Americans withdraw from this agreement, Iran would do the same.
Iran seemed to be launched on the economic development way, but will certainly be weakened by this new crisis. The moderated religious Hassan Rohani was re-elected this year for a second mandate and stands at the head of the Islamic Republic of Iran since 2013. On the 3rd of august, he took his oath in front of the Parliament and attended his own confirmation ceremony, made by the Supreme leader Ayatollah Ali Khamenei. Rohani’s political priorities for his second mandate will be the improvement of the economic situation and of the Iranians’ standard of living, as well as the guarantee of equality before the law for every citizens of Iran.
But Rohani needs more time. He already set a goal of reducing the parastatal groups during his first mandate, because they remain deeply present within the country’s economy. Unfortunately, Iranian presidential mandate lasts only 4 years, and didn’t allow Rohani to reach his goals. Let’s hope he will be able to continue to pursue his internal reform in the next 4 years. The President also needs to boost foreign investments in Iran if he wants them to reach 50 billions of dollars per year because they didn’t exceed 4 billions of dollars by year since 2000 according to the World Bank.
Let’s focus on the current situation to understand more about this second mandate’s issues…
A hopeful but fragile deal
The famous « Comprehensive Plan of Action » has been signed on the 14th of July of 2015 between the Islamic Republic of Iran and the « P5+1 » world’s powers (UN Security Concil’s five permanent members + Germany). It aims to prevent Iran from developing the atomic bomb. In return, both Americans and Europeans have lifted their economic sanctions towards Iran, which enabled the country to get back its frozen foreign currency deposits. America’s recent statement could cause the restoration of all the sanctions and, at the same time, a revival of arms race. We should also remind to ourselves that Saudi Arabia stands against Iran’s geopolitical expansion in Middle East, and that the State of Israel considers the Islamic Republic as a direct threat for its existence.
This reversal of matters already has a big impact on the Iran’s internal affairs. Indeed, the old anti-American feeling came back in the Iranians opinions. Inhabitants finds Trump’s statements really offensive: he described them as « victims » and « hostages » of a « fanatical regime ». His words encourage all the Iranian regime’s opponents to claim their patriotism. Trump has just wiped out 8 years of efforts implemented by Obama’s Administration, who was clearly in favor of a rapprochement between United States and Iran. Moreover, this surprising turn of events doesn’t helping to improve foreign invests in Iran, which is struggling to take off due to majors European banks’ shyness towards some American sanctions still in place.
Economic difficulties remains present
To this day, foreign banks remain a bit skeptical about the deal’s issues, but also about the Iranian system’s opacity and bureaucracy. Unfortunately, that’s not the only obstacle to Iran’s economic take-off. Indeed, unemployment rate tremendously rose and became a real negative point. This rate, which was already extremely high, took 2% and dropped from 10.5% to 12.4% after first Rohani’s mandate. That’s not all, these numbers come directly from the Government and, according to some economists, concern only unemployed persons « without an occupation ». If we listen to them, the real number should be circa 35% and young Iranian could be the first concerned. If Rohani affirmed that he has created between 700 000 and 1 200 000 new jobs in 4 years at the head of the country, they seem to be not enough to meet the growing demand. For his Conservative opponents, the Rohani’s « rapid economic growth » is more caused by a strong rise in oil exports volume than by an employment-creating economic recovery.
We can also attribute this huge instability of information to the Islamic Republic’s opacity. In fact, all the data we have is provided by the Government, which is not well known for its honesty. Every facts have been largely criticized during the 2017’s Presidential campaign. Indeed, a recent investigation of the NGO « Transparency international » reveals that Iran ranks 131 out of 176 countries on the list of the less corrupted countries in the world, which is a really bad grade and we must admit it. This corruption doesn’t help at all for any economic development and paralyzes all the banks because of doubtful debt accumulation: « toxic » loans and worthless titles represent 45% of their assets. Iranian banking system is clearly not adapted to the financing of risk capital operations.
Rohani meets his major opponents
However, we are still waiting for a trickle down from growth in the economy. Instead, we are currently facing a risen popular discontent against the government. This does not include all Ayatollah Ali Khamenei’s criticism, the Iran supreme leader, who actually is the real master of the country. He controls army, police, justice, media and even foreign policy. Rohani is just here for 4 years, but the Supreme leader is in the real driver’s seat. According to Amnesty International’s report of the 2nd of August, Iran is the leading country in terms of juvenile executions: we can count 160 minors that could be sentenced to death in 2014, and the United Nations estimate that the above numbers may be even higher. Controlled by the Ayatollah, justice and police agencies fall back on a virulent repression against human rights Iranian defenders. The fight against parastatal groups as Rohani’s program major point will be not be easier to achieve. In a state religion system, it definitely will not be easy for Rohani to reduce the Supreme Leader’s power.
The President’s second biggest opponent is none other than the new « POTUS ». Indeed, the Trump’s administration attitudes towards Iran do not stimulate foreign investors. There are still matters to settle between USA and Iran. We should also not forget that the Islamic Republic is partly based on the Anti-American feeling. During Rohani’s inauguration, the Supreme Leader seriously advised him to be uncompromising towards Donald Trump.
More recently, Rohani had to face new criticism from the former Lebanese Prime Minister, Saad Hariri. In fact, he declared his resignation on the 4th of November from Saudi Arabia where he’s currently hiding from the Government. Hariri blames Hezbollah and Iran for manipulating Lebanese domestic affairs. According to him, Tehran would have created « a state into another » to have the final say on Lebanese decisions. One more accusation which not embellishes the image of the Iranian regime.
There are undeniable signs of growth
Despite all the weak spots, it is impossible to deny that Iran is getting better day by day. Indeed, Rohani’s first mandate begins to pay off and to replenish empty state coffers. The President should thanks the big oil export recovery which gladly contributes to the recent enrichment of the country. These exports allowed increasing consumer products imports. According to Rohani, the economic growth rate now exceeds 6%, which is 8% more than in 2015. We can also notice that inflation keeps decelerating, the rate dropped from 40% to less than 10% in 4 years.
These last few years have allowed the oil sector’s development since 30 companies have been chosen in order to take part in it. The group has signed a 4,8 billion deal in July 2017 to develop South Pars project "a big gas field in the Persian Gulf", which is going to « drive the domestic market as of 2021 » if we listen to them. The lifting of economic sanctions also has allowed the modernization of Iran’s air fleet: the Government has signed 100 purchase contracts with Airbus and 80 with Boeing. Finally, others sectors as energy, telecoms, tourism and industry seem increasingly favourable for investments. Indeed, since 2002, a law protects foreign investors in Iran and allow global companies to open a branch office in the country and to control the entire capital.
Furthermore, even if we are still waiting for economic results of the nuclear deal, we can at least remove a threat of war for the next 4 years. Iranian regime became more reputable under Rohani’s presidency, especially in Europe. European and Asian delegations went to Iran the next day after the agreement has been signed.
It is a great gamble figuring out how to stimulate the economy despite the complex political landscape and the importance of religion. We can wonder if the president Rohani will be able or not to take up the challenge by preserving human rights of all his citizens while confronting the threats of his opponents. That remains to be seen. In the meanwhile, good luck Rohani!
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Written by Eva Bellet │Independent Geopolitics Analyst
Edited and Corrected
by Vee Venski
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