The FIPPA effect: foreign investment up

14 March 2003
International investors have taken a stronger interest in the Islamic republic since the approval of the Foreign Investment Promotion & Protection Act (FIPPA) in May 2002 and the subsequent release of by-laws clarifying passages of the main law. Figures revealed by the Iranian authorities show that projects worth up to $2,800 million have been approved to be carried out by foreign investors since the law came into force, with the bulk of the capital inflows being channelled into petrochemicals, industrial and mining projects.

Figures prepared by the Organisation for Investment, Economic & Technical Assistance of Iran (OIETAI), the Economy & Finance Ministry body in charge of foreign investment matters, show that a total of 123 projects were approved under FIPPA by the end of 2002. Mohammad Taheri, director-general for economic affairs at the Foreign Affairs Ministry and adviser to Economy & Finance Minister Tahmasb Mazaheri, says the interest expressed by international investors reflects a changing attitude towards the Islamic republic since the introduction of FIPPA.

'During the 20 years after the Islamic revolution, foreign investment amounted to about $4,000 million,' Taheri says. 'In the last four months alone, there have been applications to invest more than $4,000 million in Iran. This shows the eagerness of foreign investors to come here.'

However, industry sources say while the figures might indeed indicate a changing attitude towards investing into the Islamic republic, they are also misleading. 'When foreign companies apply to invest in Iran, they have to provide an estimate of the total potential investment required. But the level of investment specified might only be reached if a project is successfully completed over a certain time span,' says a Tehran-based foreign embassy official.

Analysts say the OIETAI figures therefore represent the total potential investment into Iran since FIPPA came into force, rather than the actual funds invested. In addition, OIETAI has incorporated financing and buy-back agreements into its statistics, which cannot be considered foreign investments as such.

Based on the OIETAI figures, European countries - led by Italy, Germany and the UK - have been at the forefront, committing more than $1,400 million to a number of projects across the Iranian economy. According to OIETAI, Canada could become the single largest investor at more than $1,000 million, largely based on the potential investment by mining specialist Zarcan Minerals, which is involved in the exploration, extraction and processing of non-ferrous metals in the province of Sistan-Baluchistan.

Away from mining, the metal, machinery and petrochemicals industries have generated the strongest interest among foreign investors, accounting for about 43 per cent of the approved $2,800 million.

While OIETAI's figures do not show the actual levels of foreign direct investment, analysts say the introduction of FIPPA has done much to enhance Iran's standing as a potential target for international investors. 'The investment climate has certainly improved,' says a Tehran-based foreign analyst. 'Together with the unification of the exchange rates and a new tax regime, FIPPA has added to a better investment environment.'

However, analysts say further improvements need to be made if the volume of foreign investment is to increase. Among the key issues to be tackled will be further clarifications and increasing transparency in Iran's legal system, as well as improving access to reliable trade data.

But there are other obstacles too. 'Regional developments do not help,' says the foreign embassy official. 'With Iraq and Afghanistan in the neighbourhood, investors are more careful now. Peace in the region would certainly make the country more attractive for foreign investment.'

Oliver Klaus

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