Will Iran's New Move to Lure Foreign Investors Work?

EghtesadOnline: Iran recently eased conditions for foreign investors, based on which foreign citizens can reside in the country by bringing sizable investments.

News ID: ۷۴۶۰۹۳

13 October 2018

However, a senior private sector representative believes that cumbersome regulations that spoil the doing business climate will largely prevent the move from reaching its desired goal.

In a meeting of the High Council of Economic Coordination on Oct. 2, it was approved that foreign citizens can obtain a residence permit to stay in Iran for five years, if they bring at least $250,000 to the country for the purpose of investment. The council is headed by President Hassan Rouhani and also consists of the heads of the judiciary and parliament, which gives its decrees utmost importance and validity.

The decree went largely unnoticed since it was part of a host of other measures that bestowed the Central Bank of Iran with the authority to intervene in the foreign exchange market, issue foreign currency bonds, tame unruly quasi-state firms that refuse to repatriate their foreign currency yields, and engage in open market operations, Financial Tribune reported.

All the above measures are part of a large concerted effort by the heads of state to strengthen Iran's national currency. The rial has lost about two-thirds of its value since the start of 2018 due to psychological effects related to a unilateral US withdrawal from Iran's nuclear deal with world powers in May and larger underlying issues in the national economy.

Before the new minimum investment amount was set, foreign citizens could obtain a permit to stay in Iran for three years if they invested at least $300,000 in the country. So the council both reduced the minimum investment amount and increased the residence period to attract more money under the prevailing difficult economic conditions. The question now is how successful the measure will prove to be.

Not so much, according to a financial expert and a senior private sector representative.

> Need to Improve Doing Business Climate

"At first look, a five-year residence for $250,000 worth of investments would seem ideal for someone who is unaware of the economic conditions of the country," said Hossein Salahvarzi, a deputy head of the Iran Chamber of Commerce, Industries, Mines and Agriculture.

"But if we take a closer look, we'll see that it will not prove attractive to foreign investors and fail to be effective," he was also quoted as saying by the official news website of ICCIMA.

According to the official, Iran has strict and deterring regulations for absorbing investments that are significantly complicated even for local investors, let alone any interested foreign party.

They include ownership, company registration, investment code obtainment and tax barriers, just to name a few, which are only made worse by the long and difficult bureaucratic process.

Salahvarzi said the decree is a step in the right direction, which could prove helpful in the future, but opined that he does not put too much hope into it at least in the short term.

Evidence of that sentiment is the latest World Bank report that ranks Iran at a dismal 120th in terms of climate of doing business.

To come up with the ranking, the international financial institution evaluates a host of factors, namely distance to frontier score, business extent of disclosure index, new business density, new businesses registered, losses due to theft and vandalism, firms that do not report all sales for tax, time to import and time required to register property.

"The main question is whether Iran's climate of doing business is fundamentally suitable to lure foreign investors, especially under conditions where other countries, most notably our neighbors such as Turkey, have changed their conditions to attract foreign investors?" he said, pointing out that Iran can only succeed if it reforms its faulty regulations.

"We must admit that the risks of investment are very high in our country," Salahvarzi concluded.

> Facing Major Competition by Turkey

In mid-September, neighboring and allied Turkey, itself dealing with an ongoing currency crisis due to tensions with the US, downgraded its minimum investment amounts required to hand out citizenship.

The minimum investment necessary to qualify for Turkish citizenship is now $250,000, down by three quarters from the initial minimum requirement of $1 million. Investors may choose from a variety of options, including real estate, bank deposits, job creation and capital investments.

The new investment requirements are for real estate $250,000 (down from $1 million); for bank deposits $500,000 (down from $3 million); for capital investment $500,000 (down from $2 million).

For the job creation option, 50 jobs are now sufficient, down from 100.