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.