Iran Business Forecast Report Q4 2009

Publication Date	July 2009
Publisher	Business Monitor
Product Type	Report
Pages	62
ISBN Number	not applicable
Product Code	BMI04096

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Summary

What Price Has Been Paid For Short-Term Stability? The fallout from June's disputed presidential elections and the government's heavy-handed response to the ensuing unrest has now begun to settle. Though the mass protests in Tehran (and elsewhere) were the largest demonstrations of public discontent in Iran since the Islamic Revolution thirty years ago, the government was in little danger of collapse, retaining as it did the loyalty of the security services. While stability is likely to persist, for now, recent events have nonetheless caused considerable damage to the regime. This damage could have a detrimental impact upon long-term political stability. The outlook for the economy is fairly gloomy too; we have lowered our GDP growth forecast for this year. Moreover, international sanctions will continue to preclude any significant uptick in foreign investment.

June's events have damaged the government. Firstly, widespread perceptions that the election was rigged in favour of incumbent President Mahmoud Ahmadinejad have eroded the regime's legitimacy in the eyes of much of the population. Second, it has become increasingly apparent that there are serious fractures within the regime hierarchy itself, which poses significant risks to longterm political continuity. We have consequently lowered our long-term political risk ratings for the Islamic Republic. Despite Iran's internal crisis, its nuclear programme will remain the focus of the West's diplomatic attentions. With Tehran continuing to expand its uranium enrichment facilities, stronger international sanctions could be imminent.

We have lowered our GDP growth forecast for FY2009/10, although we still expect the economy to avoid an outright contraction: we are pencilling in a sluggish 1.4% expansion this year. Thereafter, growth will pick up again: we forecast the economy to expand at an average rate of 3.2% over our five-year forecast period. Though we see oil production falling slightly, the slowdown will be primarily driven by weakness in the non-oil economy. Indeed, banking sector data indicates that loan growth has slowed sharply, and a number of leading indicators point to a possible contraction in the industrial sector.

The business environment continues to be adversely affected by international sanctions. FDI inflows remain pitifully low, although inward investment from Asia is going some way towards filling the gap left by Western firms. Indeed, state-owned Chinese companies have recently signed major oil and gas deals with Tehran. In recent months, small stakes in three state-owned banks have been offered to the public. The privatisation process could speed up as the government looks to finance large future fiscal deficits. However, the recent stripping of telecoms licences from both the UAE's Etisalat and the Kuwaiti-based Zain Group highlights the ongoing difficulties faced by foreign investors.

Content

Executive Summary
What Price Has Been Paid For Short-Term Stability?
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Long-Term Political Risk Rising
- Iran is likely to remain stable in the short-to-medium term, although June's disputed elections and the
- government's subsequent response has severely dented the latter's legitimacy
- Table: Political Overview
- Foreign Policy
- No Rapprochement And Tougher Sanctions
- Iran's nuclear programme, and not its domestic political dynamics, are of primary concern to the West
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Barely Expanding This Year
- We have revised down our FY2009/10 real GDP growth forecasts, primarily based on a small drop in oil output, a
- sharp slowdown in bank lending, and a number of indicators showing weakness in the industrial sector
- TABLE: ECONOMIC ACTIVITY
- Monetary Policy
- Second Ahmadinejad Term Bad News For Inflation
- Consumer price inflation has been on a downward trajectory in recent months: having peaked at 29.5% y-o-y last
- October, by May it had dropped to 15.0%
- TABLE: MONETARY POLICY
- Fiscal Policy
- Privatisations Will Not Drag Government Out Of Fiscal Hole
- The central government's fiscal deficit is set to widen this year, as lower global oil prices take their toll
- TABLE: FISCAL POLICY
Chapter 3: 10-Year Forecast
- The Iranian Economy To 2018
- Sanctions To Weigh On Long-Term Growth
- We are forecasting annual real GDP growth of 3.4% by 2013/14, and 3.0% by 2018/19, on the back of slowing
- oil production growth, a long-term stabilisation in oil prices, and economic sanctions; although Iran's youthful
- population and oil wealth will ensure economic expansion holds up above 3.0%
- TABLE: Long-Term Macroeconomic Forecasts
Chapter 4: Special Report
- The Fate Of ???Chindia'
- Overview
- Although China and India will continue to grow during the global recession of 2009-2010, they are not immune to
- the downturn, and face a number of risks in the near term
- China And India SWOT
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Table: BMI Business And Operational Risk Ratings
- Institutions
- Table: BMI Legal Framewo rk Ratings
- Infrastructure
- Market Orientation
- TABLE: MIDDLE EAST & AFRICA, ANNUA L FDI INFLOWS
- Table: BMI Trade Ratings
- TABLE: TOP EXPORT DESTINATIONS, US$MN
- Operational Risk
Chapter 6: Key Sectors
- Consumer Electronics
- Executive Summary
- Iran's domestic consumer electronics devices market, defined as including computing devices, mobile handsets
- and video audio and gaming products, was estimated to be worth around US$7.3bn in 2008
- Table: Consumer Electronics Overview
- Agribusiness
- High oil prices in recent years have enabled Iran to amass large foreign exchange reserves
- TABLE: IRAN Rice Production, Consumption & Trade
Chapter 7: BMI Global Assumptions
- Global Assumptions
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: GLOBAL & REGIONAL REAL GDP GROWTH
- TABLE: DEVELOPED MARKET EXCHANGE RATES
- TABLE: EMERGING MARKET EXCHANGE RATES