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FRANKFURT 18TH EURO FINANCE WEEK
CHALLENGES FACING IRANIAN ECONOMY & FOREIGN INVESTOR
Hossein Abdoh Tabrizi
www.finance.ir
NOVEMBER 18, 2015
CURRENT ECONOMICAL SITUATION
Stagflation situation was a heritage of the last Government
Current government economical
policies
Negative oil shock
Negative demand shock
Credit crunch
INFLATION RATES
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
0%
10%
20%
30%
40%
50%
60%
Inflation Rates
LAST TWO YEARS INFLATION
13-3
13-5
13-7
13-9
13-1
114
-114
-314
-514
-714
-9
14-1
115
-115
-315
-515
-70.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
REAL GDP SHRINKAGE
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
0
1,000,000,000
2,000,000,000
3,000,000,000
4,000,000,000
5,000,000,000
6,000,000,000
7,000,000,000
8,000,000,000
GDP (Billion Rials)
GDP (current) GDP (constatnt 1997)
Billion
Ria
ls
REAL GDP GROWTH RATES
-10
-5
0
5
10
15
20
25
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
RECESSION
Recession in recent years dominated the economy mainly because of two reasons:
1.Negative Aggregate Demand Shock
2.Credit Crunch
NOMINAL BUDGET VS. REAL BUDGET
1384 1385 1386 1387 1388 1389 1390 1391 1392 13930
500,000
1,000,000
1,500,000
2,000,000
2,500,000
بودجۀN عمومی دولت (میلیارد ریال) )1392 = 100بودجۀN تعدیل شده (
GENERAL GOVERNMENT NET LENDING/BORROWING
2004
-300,000.00
-200,000.00
-100,000.00
0.00
100,000.00
200,000.00
300,000.00
General government net lending/borrowing National currency Bil-lions
GENERAL GOVERNMENT GROSS DEBT
20040.00
200,000.00
400,000.00
600,000.00
800,000.00
1,000,000.00
1,200,000.00
1,400,000.00
General government gross debt National currency Billions
CREDIT CRUNCH
2007 2008 2009 2010 2011 2012 2013
-20
-10
0
10
20
30
40
8.35
-16.38
35.05
6.593.36
-5.71-3.77
Real Growth of Banks’ Assets
%
ASSET AND EQUITY OF IRANIAN BANKS
1385 1386 1387 1388 1389 1390 1391 13920
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
Nominal Asset and Nominal Equity
Asset (nominal) Equity (nominal)
Bill
ion
ria
ls
CREDIT CRUNCH
2007 2008 2009 2010 2011 2012 2013
-30
-20
-10
0
10
20
30
40
50Growth of Doubtful and Bad Debts
%
DOMESTIC CREDIT TO PRIVATE SECTOR
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0 Domestic credit to private sector
Iran, Islamic Rep. Low incomeMiddle income High income: nonOECDHeavily indebted poor countries (HIPC) High income: OECD
% o
f G
DP
REAL INTEREST RATE2
00
1
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
-25
-20
-15
-10
-5
0
5
10
15
Export Commercial and ServicesReal Estate IndustryAgriculture
BANK SECTOR CLAIMS TO GDP (PERCENT)
2006 2007 2008 2009 2010 2011 2012 20130
2
4
6
8
10
12
14
16
18
Claims to GDP Claims to Gdp-without Oil
INCOME PER CAPITA GROWTH RATE (PERCENT)
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
-20
-15
-10
-5
0
5
10
15
20
Income per capita growth rate
Income per capita growth rate
Axis Title
HOUSEHOLD SIZE
1370
1372
1374
1376
1378
1380
1382
1384
1386
1388
1390
1392
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Rural Urban
UNEMPLOYMENT RATES
2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
2
4
6
8
10
12
14
16
18
Total Urban Rural
%
ACTIVE LABOR
2006 2007 2008 2009 2010 2011 2012 2013 2014 201530
32
34
36
38
40
42
44
46
Total Urban Rural
%
NUMBER OF WORKING FORCE IN FAMILIES
2011 2012 2013 20140
10
20
30
40
50
60
70
Number of working force in families
0 1 2 3 and more
INVESTMENT OPPORTUNITIES IN DIFFERENT AREAS
Oil and Gas & Energy Saving Industries
Road and Urban Development
Mining Industry
Branding, Retail, and Tourist Industry
Services (Financial Services, IT)
FINANCING METHODS
Oil
Off-taking Products and Services
Restructuring (Privatization Organization)
Government Budget & Development Fund
Private Sector Capabilities
INVESTMENT RISKS
Lack of sound rules and compliance in banking
sector
Exchange rate risk
2005
-1
2005
-3
2006
-1
2006
-3
2007
-1
2007
-3
2008
-1
2008
-3
2009
-1
2009
-3
2010
-1
2010
-3
2011
-1
2011
-3
2012
-1
2012
-3
2013
-1
2013
-3
2014
-1
2014
-30
10,000
20,000
30,000
40,000
Market exchange rate (national currency)
INVESTMENT RISKS
2005
-1
2005
-4
2006
-3
2007
-2
2008
-1
2008
-4
2009
-3
2010
-2
2011
-1
2011
-4
2012
-3
2013
-2
2014
-1
2014
-40
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
Gold Coin Price (national Currency)
INVESTMENT RISKS
Lack of hedging instruments like futures market
No rating agency for the corporations and
financial products
TWISTED SOCIOECONOMICS FEATURES
Numerous regulations
More serious taxing in the upcoming years
More Serious money laundry regulation
TIPS
Selecting a credible local partner.
Preparing decent business models.
Partially financing is a key factor for higher
chances to have projects in Iran.
Real Estate recession and Real Estate Bubble is
still on, so this should be included in making
investment decision on real estate in Iran.
TIPS
Governors and mayors are extremely optimistic about all the
projects in their region, but there must be a detailed evaluation of
those business plans.
Overall banking situation is not good mainly because of dominant
high interest rates and the bulk of toxic assets. So choosing the
right bank to buy into or to work with is a difficult decision to
make.
Government of Iran owes almost nothing to the world, and its
credit standing is high and you can count on it, if working with
the Government.
TIPS
Iran is not a member of WTO yet, and the
Government discourages import of end goods and
services. Setting up assembly line is a way around
it. Tariffs are high, so it is recommended to
produce inside the Country.
Learn about subsidy structures; businesses like
electricity are not based on market economy.