Iran Business Forecast Report Q3 2008

Publication Date	May 2008
Publisher	Business Monitor
Product Type	Report
Pages	60
ISBN Number	1744-8867
Product Code	BMI02085

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Summary

International Sanctions Dominate The international crisis over Iran's uranium enrichment programme continues to overshadow the economy, political climate and business environment outlook. In the last few months both the US and UN have extended economic measures against the Islamic Republic, while Iran has defiantly boosted its nuclear capabilities. However, we still believe that the crisis will ultimately be solved through diplomatic channels, as both the Iranian and US administrations remain under too much domestic pressure to risk taking any controversial or provocative steps. More worryingly, it is getting harder for Iran to operate under the current measures and we retain our core scenario that in the long term, economic sanctions have the potential to severely damage the economy.

On the domestic front, the parliamentary elections on March 1 were the key event, and, in line with our expectations, the conservatives won a majority of seats. However, President Mahmoud Ahmadinejad will still face a tough time from the new parliament as moderate conservatives performed well and the reformist faction also made slight gains. Going forward, the president is likely to find it more difficult to force his populist policies through parliament, and with other candidates, such as Ali Larijani, now coming to the fore, the presidential election in 009 is likely to be a closerun contest.

While we expect real GDP growth to hold up in the short term - averaging . % between 008 and 01 - we retain our core scenario that in the long term, economic sanctions will weigh on Iran's growth potential. Indeed, we expect foreign investment, notably in the oil and gas sectors, to suffer, which will have a detrimental effect on economic growth. However, Iran already has its fair share of economic problems. Ahmadinejad's imprudent spending policies are adding to already high inflation - which is currently around 22.5% y-o-y - and putting further upside pressure on the domestic debt burden: two trends we expect to continue over the coming years.

The business environment continues to be influenced by the uncertain political backdrop and international sanctions. Indeed new economic measures from the US and UN are making it dif- ficult for domestic businesses to finance operations and starting to drag on foreign investment, as many Western firms are scrapping contracts in the country. On the plus side, Iran is increasingly developing certain areas of the business environment such as the tax regime, physical infrastructure and privatisation, as highlighted by Iran aluminium Company's IPO. However, by and large the reform process remains slow and some areas, especially corruption and the legal framework, require significant work.

Content

Executive Summary
- International Sanctions Dominate
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi's Political Risk Ratings
- Bmi View: Partial Results from The Parliamentary Elections in Iran Suggest That, as Expected, Conservatives Will
- Dominate The New Parliament
- Domestic Policy
- No Protest Vote, but Ahmadinejad Still under Pressure
List of Tables
- Table: Iran Political Overview
- Foreign Policy
- Nuclear Boost Defies International Sanctions
- Bmi View: Although The Un and US Have Been Increasing Diplomatic Pressure on Iran over The Country's Nuclear
- Enrichment Programme over The Last Few Months, The Islamic Republic Is Remaining Defiant and Continuing to
- Boost Its Nuclear Enrichment Capabilities
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi's Economic Risk Ratings
- Economic Activity
- Sanctions to Drag on Long-Term Growth Prospects
- While We Expect Real Gdp Growth to Hold up over The Short Term, on The Back of High Oil Prices and Foreign
- Investment from Asia, International Sanctions Will Drag on Iran's Long-Term Economic Potential and Growth
- Will Continue to Slow down to 3.6% by 2012
List of Tables
- Table: Economic Activity
- External Debt
- Foreign Debt Burden to Decline
- Although Foreign Debt Will Rise over The Coming Years, IT Will Fall as A Percentage of Gdp, down to 5.5% by 2012,
- as The Government Will Continue to Cut Back on Its External Borrowing While High Oil Prices Are Buoying Export
- Revenues
List of Tables
- Table: Foreign Debt
- Monetary Policy
- Inflation to Remain High as Spending Splurge Continues
- We Expect Inflation to Remain High over The Forecast Period with The Recent Dismissal of Economy and Finance
- Minister Davoud Danesh Jaafari A Clear Sign of President Mahmoud Ahmadinejad's Increasing Control over
- Economic Policy in The Run-up to The 2009 Presidential Election
List of Tables
- Table: Monetary Policy
Chapter 3: Special Report
- Business Outlook for Global Frontier Markets
- Growing Fast on The New Frontier
- The 41 States That Bmi Examines in A New Report on Our Online Service May Make up Only A Small Slice of The World
- Economy, but They Possess Characteristics That Will See Them Gain Importance in The Eyes of Investors and Global
- Businesses over The Coming Years. with High Gdp Growth Rates, Rapidly Rising Consumer Incomes and Burgeoning
- Commodity Resources, These 'Frontier Markets' Merit Attention
- Frontier Investment
- Potential and Pitfalls
- The Spectacular Macroeconomic Performance of Frontier Markets in Recent Years Has Been Matched by Mildly
- Successful Efforts to Deepen Capital Markets
List of Tables
- Table: Frontier Markets - Key Data and Projections for Top 10 Countries
- Table: Gdp per Capita, US$ (in Order of % Increase)
- Table: Diversify through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market Indices
- Regional Overview
- from Hidden Dragons to Final Frontiers
- Laos
- Neighbouring Economies The Key to Growth
- Laos's Gdp Growth Has Been Boosted in Recent Years as Neighbours China, Thailand and Vietnam Compete for Its
- Natural Resources. Gdp Expansion in 2007 Has Been Estimated at 7.6% and We See Annual Growth Remaining
- above 7% for Our Five-Year Forecast Period
- Yemen
- Huge Potential, but Don't Bank on Gcc Membership
- Markets Do Not Come Much More Frontier than Yemen, and, as Would Be Expected, There Is Huge Potential for
- Development, with The Prospect of Eventual Gcc Membership Likely to Act A Key Investment Pull
List of Tables
- Table: Yemen - Economic Activity
- Democratic Republic of The Congo
- Mining Industry to Drive Growth
- The Democratic Republic of The Congo's Mining Industry Will Be A Key Driver of Growth and Is Likely to Attract
- Significant Levels of Fdi, with Our Real Gdp Forecasts Standing at 8.3% and 7.9% in 2008 and 2009, Respectively
List of Tables
- Table: Democratic Republic of The Congo - Economic Activity
- Cuba
- Investment Prospects after Fidel
- The Accession of A New Leadership Structure in Cuba Has Sparked Excitement That The 45-Year-Old Trade Embargo
- with The US May Be Lifted and Cuba May Move toward Market Liberalisation
List of Tables
- Table: Cuba Macroeconomic Data and Forecasts
- Mongolia
- Minerals to Drive Economic Boom
- Mongolia Is in The Midst of A Massive Resource-LED Economic Boom That Should Lift Gdp Growth into The Double
- Digits and Underpin Robust Increases in Exports and Inflows of Foreign Investment Capital over The Long Term
List of Tables
- Table: Mongolia - Economic Activity
Chapter 4: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment
- Institutions
List of Tables
- Table: Bmi Business and Operational Risk Ratings
- Infrastructure
List of Tables
- Table: Bmi Legal Framework Ratings
- Market Orientation
List of Tables
- Table: Middle East & Africa, Annual Fdi Inflows
- Table: Bmi Trade Ratings
- Table: Iran Top Imports Sources
- Table: Iran Top Exports Destinations US$Mn
- Operational Risk
Chapter 5: Key Sectors
- Telecoms
List of Tables
- Table: Telecoms Sector - Mobile - Historical Data & Forecasts
- Autos
List of Tables
- Table: Iran Autos Sector - Historical Data and Forecasts