International Trade in Iran

News Related to International Trade in Iran

Business outline for Iran

Main Industry Sectors

Agriculture contributes nearly 10% to the GDP but employs one-third of the active population. Only 10% of the land is arable and primitive farming methods are still used. The main crops are pistachios (world largest producer), wheat, rice, oranges, tea, and cotton. Illicit cultivation of the opium poppy is fairly common. Iran is rich in mineral resources, mainly: oil (4th largest producer in the world), and gas (2nd place in reserves in the world), copper, lead, zinc, etc.
Oil production represents 10% of the GDP. Industrial and mining sectors contribute nearly 26% to the GDP. The textile industry is the second most important after the oil sector. Other major industries are sugar refining, food-processing, petro-chemicals, cement, and construction. Traditional handicrafts such as carpet weaving and the manufacture of ceramics, silk, and jewelry are also important to the economy.
The services sector contributes to nearly half of the GDP.

Economic Overview

The Iranian economy is largely dominated by the public sector which controls nearly 80% of it. The private sector is therefore relatively limited. The economy is very dependent on the oil income which represents nearly 80% of exports and 60% of its revenues. In this context, an increase or a decrease in oil prices can have a great influence in the state's revenues. In order to diversify its economy and become less dependent of its oil sector, the government has decided to privatize and open to foreign investment most of the sectors of its economy. However, the progress on this issue has been slow. On one side, it still exists a real political resistance to a genuine privatization, while on the other, the current environment (international tensions due to nuclear power, interventionism of the State) creates hesitation among the private and foreign investors in taking risks. Nevertheless, reforms are essential. The public sector does not have resources to create the jobs required to reduce the unemployment rate which is estimated at nearly 15% of the active population (30% among the youth). The other major problem in the country is inflation which increases the prices of consuming goods, and this creates social problems and fears of public riots.

Iran was isolated from the international scene due to the United States' embargo. The country was not affected directly by the financial crisis of 2008-2009. It has, however, undergone through a reduction in oil prices which has caused a contraction of the country's income. In 2009, The Islamic Republic of Iran has also been affected by the greatest political crisis since the accession to the revolution in 1979 because of the general protest linked to the re-election of president Ahmadinejad, which provoked a flood of demonstrations followed by a strong repression. All these events, have considerably ruined the charm of the country in terms of foreign investment.

Domestic tensions in the core of the country's power might mark 2011 and could have an impact on the the economic situation of the country.  The actual economic situation is very bad with very few positive perspectives for 2011.  Inflation is climbing up and unemployment continues to increase, these facts are provoking the active forces of the country and notably, the young citizens, to leave Iran.

FDI in Figures

The flows of foreign investment in Iran remain very weak compared to the enormous potential that the country can offer. This is due to several factors: the state's supremacy in the economy, external political risk (American embargo, economic sanctions, nuclear crisis) as well as internal (impoverishment of the population, social risks, inflation, crisis of the political regime), and heavy bureaucracy in all sectors.

Foreign investment was developed a little during the era of Khatami who offered an international opening to many foreign companies, notably French and Italian, which invested in oil and gas projects. However, the rate of investment in the country remains very associated to the political context and it is very difficult to predict the global situation of Iran in the next following years.

FDI Government Measures

A new law on incentive and protection of foreign investment and another one simplifying taxation have been voted in 2002. In 2004, a modification of articles 43 and especially 44 of the Constitution authorized the government to privatize many sectors, which had been previously protected, such as banking, transport  and oil and gas industries in the downstream of the industry.
Sixteen special economic zones as well as six free-trade zones have been also introduced in the Iranian territory.

In order to attract foreign investment as well as obtaining knowledge, buy-back systems have been established in which the revenues of the foreign investor partner can be repatriated in the means of goods and services produced by the project. In terms of investment, the Iranians offer privileges to investors who can provide long term strategies and transfer of technologies.

Country Strong Points

Iran benefits of great potentials which are currently under-exploited due to its isolation on the international scene.

Iran represents an important market (70 million inhabitants) with a young population eager of consuming foreign products. It is a solvent market with an enormous need of consumer goods, equipment and large infrastructure projects (electricity, water, accommodations, transport, etc). Production costs (work, energy, etc) are low.

Iran, because of its geographical location, is also an ideal base for exports in the region and its energy resources are very attractive to foreign investment.

Country Weak Points

Iran hurts from its international isolation and this fact has an undeniable impact on its economy.

The influence of the State in the economy is very important with numerous organizations linked to the state and disposing of funds and important budgets without coherent management. Corruption is wide-spread in the country.

Geopolitical tensions, particularly with Israel and domestic instability are also major risk elements.

Foreign Trade Overview

Iran is a member of the Organization of Petroleum Exporting Countries (OPEC). The share of foreign trade (exports + imports) in the country's GDP is nearly 50%, with oil accounting for 80% of the exports income. The top three export partners of Iran are: Japan, China and the European Union. Besides oil, Iran mainly exports pistachio nuts, carpets, petro-chemical products, organic chemicals, aluminum, and plastic materials. Its top three import partners are: the United Arab Emirates (which plays the role of re-exporting center), Germany and France. The main goods imported are: machinery, iron & steel, electric & electronic equipment and cereals.

The Iranian population is young and foreign consumption goods are in high demand, which could offer a dynamic market for imports into the country.  It is important to mention that a large part of these foreign products are smuggled into the country through Dubai.