Iran Business Forecast Report Q1 2009

Publication Date	October 2008
Publisher	Business Monitor
Product Type	Report
Pages	69
ISBN Number	1744-8867
Product Code	BMI02927

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Summary

External Pressures, Domestic Problems

The international crisis over Irans uranium enrichment programme continues to overshadow the economy, political climate and business environment outlook. In the last few months the US has extended economic measures against the Islamic Republic, while Iran has defiantly boosted its nuclear capabilities. Nevertheless, we reiterate our core view that the crisis will be resolved diplomatically, although foreign investment, especially in the hydrocarbon sector, is likely to remain muted while the stand-off continues. Lower oil prices, resulting from a cooling global economy, present a significant risk to the domestic economy as a whole, and also to the government, which relies heavily on oil revenues.

Western states appear intent on pushing for further sanctions against Iran over its nuclear programme, although the fall-out from the recent conflict in Georgia makes new measures unlikely in the short-to-medium term. We do not believe Iran is currently producing nuclear weapons-grade uranium, and with International Atomic Energy Agency (IAEA) inspectors continuing to monitor Irans nuclear facilities it is unlikely the country could do so covertly. However, Iran is installing the necessary infrastructure so that if it chose to go nuclear, at a later date, it could do so relatively quickly. Moreover, the US and Israel, in particular, do not trust Tehran, and the risk that they will conduct a pre-emptive strike, although not our core scenario, is ever-present.

Real GDP growth will hold up over the forecast period, staying above 3.6% out to 2013/14. However, international sanctions will hinder investment into Irans underdeveloped oil and gas sector, inflation will remain high (albeit moderating somewhat next year), and the economy will not be insulated from the effects of the general global slowdown. Lower oil prices and an expansionist fiscal policy mean that we expect the central government fiscal deficit to balloon out to more than 12% in 2008-2009. Although able to fund its fiscal deficits using the Oil Stabilisation Fund for now, in the long term this course of action is unsustainable. Lower oil prices present a risk to our balance of payments outlook; if they were to fall to an average of US$50.00/bbl in 2009, Iran would likely turn out a current account deficit.

The business environment continues to be adversely affected by the uncertain political backdrop and international sanctions. The oil and gas sector is suffering from a lack of foreign direct investment (FDI) and capital imports, and although inward investment from Asia is going some way towards filling the gap left by Western firms, FDI inflows remain pitifully low. Tehran intends to sell a significant stake in its state-owned telecoms company, the Telecommunication Company of Iran, to a strategic investor, but by and large the privatisation process is moving extremely slowly. Moreover, some areas of the business environment, especially corruption and the legal framework, require significant work.

Content

Executive Summary
External Pressures, Domestic Problems
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Political Outlook
- Nuclear Programme: A Closer Look
- Despite Western suspicions, Irans nuclear programme does not appear to be directed towards producing nuclear weapons at present.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Sanctions And Global Slowdown To Weigh On Growth
- International sanctions and the global economic slowdown, in addition to lower oil prices and elevated inflation levels, will conspire to slow economic growth over the forecast period, from 4.9% in 2008-2009, to 3.6% in 2013-2014.
- Monetary Policy
- No Return To Orthodox Monetary Policy Soon
- The dismissal of Central Bank of Iran Governor Tahmasb Mazaheri by President Mahmoud Ahmadinejad is a negative development as far as the countrys inflationary outlook is concerned and presents upside risks to our
- 2008-2009 year-end consumer price inflation forecast of 22% y-o-y.
- Fiscal Policy
- Unfavourable Fiscal Outlook
- The central government will continue to pursue an expansionist fiscal policy over the forecast period, running up large deficits which, for now, will be financed using the Oil Stabilisation Fund.
- Balance of Payments
- Oil Price Drop: Severe Implications
- Most of Irans export revenues come from the oil sector and with little capacity to increase production levels the global oil price is of crucial significance to the balance of payments outlook.
Chapter 3: 10-Year Forecast
- The Economy To 2018
- Sanctions To Weigh On Long-Term Growth
- We are forecasting annual real GDP growth of 3.6% by 2013/14, and 3.1% by 2018/19, on the back of slowing oil production growth, a long-term easing in oil prices and economic sanctions, although Irans youthful population and oil wealth will ensure economic expansion holds up above 3.0%.
Chapter 4: Special Report
- Why The US Can Remain World Superpower
- Wealth Is Shifting East...
- The USs current financial woes will not necessarily undermine its position as a global superpower.
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- Petrochemicals
- Executive Summary
- Iran has maintained its fifth place rank in BMIs Middle East Petrochemicals Business Environment
- Rankings with 56.9 points.
- Freight Transport
- Executive Summary
- In our latest Iran Freight Transport Report, BMI concludes that shipping freight will grow by an average of
- 4.2% per annum in the 2008-2012 forecast period, on a par with the economy as a whole.
Chapter 7: BMI Global Assumptions
- Global
- United States
- Eurozone
- Japan
- China
- Commodities
Tables
- Table: Iran Political Overview
- Table: Economic Activity
- Table: Monetary Policy
- Table: Fiscal Policy
- Table: Various Oil Price Projections
- Table: Balance Of Payments
- Table: Iran Long-Term Macroeconomic Forecasts
- Table: Geopolitical Power Index
- Table: Bmi Business And Operational Risk Ratings
- Table: Bmi Legal Framework Ratings
- Table: Iran Top Import Sources
- Table: Top Export Destinations
- Table: Bmi Trade Ratings
- Table: Middle East & Africa, Annual Fdi Inflows
- Table: Iran Petrochemicals Sector Forecasts
- Table: Top Export Destinations, Us$Mn
- Table: Global Assumptions