Hopeful Iranians are positioning themselves to take advantage of a surge in international investment into the country’s capital markets in the event of a resolution of the dispute over the country’s nuclear programme.
One investor described the outcome as being like “Turkey on steroids” – a reference to the way that country has become a major financial centre straddling Europe and the Middle East.
A deadline of November 24 has been set to reach a settlement between Iran and the US, China, Russia, Britain, France and Germany to resolve the long running standoff. Iran says its nuclear programme is purely for peaceful energy purposes but many in the West believe the Middle East country is building nuclear weapons capability.
The future of Iran’s economy hangs on an agreement being reached. Failure to find a comprehensive agreement by the deadline dooms Iran to greater social and economic woes that would threaten political order, said analysts.
Iran is no stranger to sanctions, but US and EU measures taken in 2012 have choked the life from Iran’s already strained economy, which contracted by 8.6% over the last two fiscal years, according to data from the Central Bank of Iran.
“We’ve had sanctions for 30 years,” Ali Amiri, a co-founder of new Iranian asset management business ACL, told Emerging Markets. “I started my career under sanctions. These are the only ones that matter to us.”
US and EU sanctions have prevented banks in those countries from doing business with Iran. But financial institutions from a host of other countries have refused to facilitate trade or investment with Iran for fear of US reprisal, said Amiri.
“When you have a critical mass of hundreds of premium financial institutions opting out of doing business with Iran the economy goes into choke mode,” he said. Amiri helped found ACL in anticipation of an end to the sanctions, and is cautiously optimistic there will be a resolution in November that will lead to progresss.
WAR OF PERCEPTION
But even with a successful negotiation, international financial institutions would still be wary of doing business with Iran because of potential US responses, he said.
“It’s a war of perception,” he said. “Right now the financial community perceives that doing business with Iran is too dangerous. The hope is that forums like the one taking place in London serve to lighten that.”
The first Europe-Iran forum takes place on October 15 and 16 amid hope that a thaw is coming between Iran and the West. But Garbis Iradian, the Institute for International Finance’s deputy director for Middle East and North Africa, told Emerging Markets there was only a 50% chance of a November agreement.
The lack of a comprehensive agreement in time for the November 24 deadline will consign GDP growth to 1%-2%, raise unemployment and widen fiscal deficits, Garbis said. The harsh economic and social consequences of such a situation could pose serious risks to political order.
But alternatively, Iradian believes an end to sanctions could unleash real GDP growth of 5%-6% between 2015 and 2017 and allow capital outflows to reverse course. This is exactly what Iranians like Amiri and foreign investors are hoping for. Iran’s stock market capitalisation as a percentage of GDP is around a third of the EM average, said Amiri. There are only around 200 foreign investors in the Tehran stock exchange, but more than 100 potential investors from aboard met Iran’s market authorities between April and August to express interest should the sanctions lift, Hassan Ghalibaf Asl, the stock exchange’s chief executive, said in a recent press conference. Given the country’s strong telecom, mining and oil sectors, the potential for growth is vast.