Russians Overtake Chinese to Top List of Foreign Investors in Iran

EghtesadOnline: Ever since the government of President Ebrahim Raisi took office in August 2021, Russia has made the biggest volume of investment in Iran, according to deputy economy minister Ali Fekri.

News ID: ۷۵۲۲۱۵

31 January 2023

Ever since the government of President Ebrahim Raisi took office in August 2021, Russia has made the biggest volume of investment in Iran, according to deputy economy minister Ali Fekri.

Putting the total volume of investments attracted in Iran at $5.95 billion during the period, the official, who doubles as the head of the state-run Organization for Investment and Economic and Technical Assistance of Iran, said: “Russians account for $2.7 billion of the sum. They’ve put the money in two oil projects,” ILNA reported.

Following Russia are the UAE, Turkey, China and Afghanistan, he added.

“Considering the circumstances, the investments have entered Iran through bureaux de change.”

Voicing dissatisfaction with the Chinese for their insignificant volume of investment in Iran, he said they have invested about $185 million in the country during the period. “We are not satisfied with this number, they have invested in small and medium-sized [projects] like our neighboring countries, mostly in transportation and transit terminals.”

This is while China and Iran have announced plans for cooperation in areas such as energy and infrastructure, after they signed a 25-year cooperation agreement.

The landmark agreement, which was signed in March 2021 and entered implementation phase on Jan. 14, was supposed to see the two countries expand cooperation in the fields of energy, infrastructure, production capacity, science and technology, and medicine and healthcare, according to a statement from China’s Foreign Ministry.

Bilateral cooperation was also expected to be expanded to third-party markets in the fields of agriculture, fisheries and cybersecurity.

The cooperation document had for the first time been discussed in 2015, when Chinese President Xi Jinping visited Iran. The agreement reportedly pledges Chinese investments of $400–600 billion.

Referring to Emirati investments in Iran, Fekri said the nationality of most of the investors from the UAE is not in fact Emirati. “They have mostly put their money in Iran’s industry and mining sector.”

*** FDI History

According to the Economic Studies Department of Tehran Chamber of Commerce, foreign investments in Iran started a downtrend from 2012-13 Iranian year, when the volume stood at $4.5 billion.

During 20 years to 2020-21, it reached its lowest level in 2015-16 with $945 million.

Following the signing of Joint Comprehensive Plan of Action (JCPOA) in 2015-16 Iranian year, foreign investment grew in 2016-17, but after that, due to the US policies and talk of the country's withdrawal from the JCPOA, the volume began to decline again and after the complete walkout of the US from the accord in fiscal 2018-19, it decreased sharply in 2019-20 to reach $1 billion.

In 2020-21, the volume stood at $1.4 billion, registering 39% increase compared to 2019-20.

Most foreign investments in Iran has been in the form of direct investment, the report noted, adding that investment in securities and stocks account for a small share of foreign investment.

In 2020-21, foreign investment in securities and stocks stood at $165 million, 69% higher compared to 2019-20 and accounted for about 12% of total foreign investment in Iran.

According to the United Nations Conference on Trade and Development, Iran attracted an estimated $1.425 billion in Foreign Direct Investment in 2021 to register about a 6% rise compared to $1.342 billion in 2020.

UNCTAD has put the volume of FDI inflows to Iran at $3.372 billion, $5.019 billion, $2.373 billion and $1.508 billion from 2016 to 2019.

Burgeoning Ties With Russia

Cooperation between Iran and Russia gained momentum last year, amid Western sanctions on both Moscow and Tehran. Throughout 2022, both sides reached a number of agreements expanding mutual cooperation, from barter supply deals for Iranian turbines, spare parts and aircraft equipment, to contracts for the joint construction of gas pipelines, according to RT.

Trade between the two countries surged by 15% last year, reaching $4.6 billion, Vyacheslav Volodin, the speaker of the State Duma, said at a government meeting last week.

According to the top lawmaker, the two countries are actively taking steps to build up mutual trade, which is “extremely important in the conditions of sanctions pressure on our countries.”

He also praised the memorandum on free trade between Iran and the Russia-led Eurasian Economic Union (EEU), which was signed last week, saying that the agreement will help expand Russia-Iran trade further.

According to Volodin, both countries should now focus on boosting the efficiency of mutual cooperation in the financial and banking sectors, in particular, by increasing the use of national currencies in settlements, by using the Russian ‘Mir’ and Iranian ‘Shetab’ payment systems.

“It is important to use settlements in national currencies more actively. Much has already been done in this regard – now the share of the ruble and the rial in mutual settlements exceeds 60%. The work on the joint application of national payment systems is being completed. This will minimize the impact of sanctions, but also, of course, address issues related to mutually beneficial cooperation,” Volodin stated.

Trade with Iran is significant for Russia on its own, but is also seen as a “logistical bridge” between Russia and the Middle East, South and Southeast Asia, due to Iran’s geographical placement, RT concluded.

*** Deal Signed for Joint Banking System

The central banks of Iran and Russia Sunday signed a deal to connect their national interbank communication and transfer systems to help boost trade and ease two-way bank transactions.

Per the deal, 52 branches of Iranian banks and four unnamed foreign banks will use Iran’s local interbank telecom system, known as SEPAM, to connect with 106 banks using Russia’s System for Transfer of Financial Messages or SPFS, the website of the Central Bank of Iran said.

Iran’s Shahr Bank and Russia’s VTB Bank will be involved in the related pilot program and other lenders will join gradually.

The agreement was signed at CBI by the deputy head for international affairs, Mohsen Karimi, and Vladislav Gridchin, on behalf of Russia’s central bank.

Speaking on the sidelines of the signing ceremony, Karimi said the deal is a big step forward in implementing counter-measures against banking sanctions between Iran and Russia. “The two local interbank systems cannot be sanctioned and their infrastructure are not controlled by western governments,” he was quoted as saying.

“The contract is the first step outlined in the join action plan of banking cooperation signed last year by the two central banks. This will pave the way for all Iranian banks to interact with Russian lenders.”

***Afghans Made Half of Foreign Investment in Iran Last Year: Envoy

Afghan nationals are responsible for half of Iran’s foreign Investment in 2022 alone, stated, Hassan Kazemi Qomi, the Iranian Ambassador to Afghanistan said recently.

“Afghan nationals in Iran play a pivotal role towards the national economy. Half of Iran’s foreign investment comes from them, therefore, the high capacity of Afghan citizens should be utilized when the country is facing difficulties in attracting foreign investment,” the Khama Press News Agency reported.

Qomi added that during the past year the United Arab Emirates expelled 700 Afghan businessmen from this country, whose capital was estimated at $30 million. "Unfortunately, we failed to attract this capital and embrace Afghan traders to invest in Iran.”

Currently, Iran is plagued with a major challenge in attracting foreign investment. To address the issue the Iranian government needs to come up with a comprehensive policy to ensure that Afghan business owners can legally run their businesses and other economic activities without facing hurdles. In the past, the bank accounts of Afghan citizens were blocked for vague reasons which was a big blow to foreign investment, the news agency wrote.

The estimated assets of Afghan businessmen and companies operating in Khorasan Razavi Province is around $1 billion, according to the announcement of the Association of Afghan Economic Activists in the northeastern Iranian province.

To capitalize on the existing opportunity by providing work permits, visas, and license to Afghan citizens, Iran can attract more foreign investors from Afghanistan, the region, and beyond, the report concluded, adding that Iran is the home of thousands of Afghan citizens including business people, students, and refugees. Besides the increasing problems Afghan refugees are currently faced with, they have lived in peace and harmony for many years in Iran.