Iran's Investment Climate Less Secure Last Autumn

EghtesadOnline: Results of a study by the Majlis Research Center, the research arm of the parliament, indicate a decline in the security climate for investment and business last autumn (Sept-Dec 2018) compared to the summer of that year.

News ID: ۷۴۷۹۲۵

21 July 2019

Comparing hard data with results from surveys across various businesses, the powerful think tank presented the outcome of the research in terms of an investment security index.

Accordingly, the index stood at 6.43 points in autumn out of 10 (10 being the riskiest), up 0.11 point compared to the summer of 2018.

The study, published on the MRC website, is the fourth of its kind. The figure has been soaring from 5.98 reported for the fourth quarter of fiscal 2017-18 to 6.15 for the spring of 2018-19, and 6.32 last summer, according to Financial Tribune.

Decline in the business climate, among other things,  shows that the key factors contributing to a better and secure environment have apparently failed to improve.

MRC is of the opinion that stability and security of investment can be sustained in its entirety if macroeconomic variables (inflation and currency rates) are stable, or at least predictable.

In a safe business environment “regulations, decisions and procedures must be consistent, transparent and easy to implement”. If and when there are changes “all those concerned must be notified” within a reasonable timeframe and before implementation.

Also, a secure investment climate demands that the lives and property of all citizens are fully protected and ownership rights accurately defined and guaranteed, it said.

Role of Judiciary

Likewise, the judiciary and supervisory bodies need to function in a manner that renders encroachment on people’s intellectual and physical properties economically unviable and costly.

Drawing on cases of “undermining” investment security that are commonly expressed by business owners, the MRC report is based on seven indicators, namely government performance, macroeconomic stability, pledges, honesty, administrative transparency, ownership protection, stability and predictability of rules and executive procedures and immunity of people’s life and property.

Businesses pointed to three main factors that they said  contributed the most to downgrading the business environment:

(1) irresponsibility of government officials regarding the promises they make; (2) breach of legal rights in government offices; and (3) collusion and corruption in government interaction with business tycoons.

On the flip side, MRC reported theft, including cash, goods and machinery, violation of intellectual property rights plus the spread of smuggling as less influential factors on the business and investment environment as reported by business owners.

Poor performance regarding pledges that government officials make was rated among the worst factors that undermined the business environment for the third time in a row.

Walk the Talk

In order to help promote investment security, the MRC called on those in charge to make extra efforts to deliver on their promises and “avoid making pledges if they think they are hard to accomplish”.

In terms of the most and least suitable regions for business and investment, it said South Khorasan Province (6.12), Semnan Province (6.16) and Qom province (6.18) have the most desirable environment for existing and potential businesses.

Conversely, Tehran Province (6.86), Kohgiluyeh and Boyer-Ahmad Province (6.77) and Ilam Province (6.76) were rated to be the least appropriate in terms of investment security in the third quarter of last year.

MRC experts categorized businesses into nine sectors and sought the opinion of people active in each business regarding the degree of investment security.

Industrial sector, including all businesses pertaining to construction, had the worst rating (6.97) followed by livestock, aviculture and fishery (6.96) and services, including financial intermediation, banking, insurance etc. (6.89).

Energy-related industries, including crude oil, water, gas and power distribution and hospitality (hotels, restaurant and food) were jointly rated as the most secure sectors by business owners and both scored 6.78 points.

This was followed by agriculture, horticulture and forestry sector and communication and distribution sector (including transportation, warehouse management, wholesale and retail) sector, each respectively scoring 6.79 and 6.81 points.

In some of its interesting findings, the research body pointed to the two indicators of “keeping pledges” and “ownership protection” in Sistan and Baluchestan Province. It said the two regions topped the list with regard to the former indicator and did very poorly regarding the latter.

This is while, Tehran, Isfahan and Alborz provinces were among the worst performing regions when it came to “fulfilling promises.”