World | Middle East

August 21, 2015

Iran Prepares to Lure Foreign Investors After Nuclear Deal

When Iran’s Revolutionary Guards Corps took over the nation’s telecommunications monopoly in 2009, the move was denounced as another dark step in the hard-line military group’s seizure of the levers of power.
Excavating machines near Zanjan. Experts say that mining in Iran has the potential to become a $60..

Excavating machines near Zanjan. Experts say that mining in Iran has the potential to become a $60..

“It’s not just a matter of the Guards dominating the economy, but of controlling the state,” Alireza Nader, an expert on Iran and the co-author of a comprehensive RAND Corporation report on the Revolutionary Guards, said at the time.

Last month, however, the company, the Telecommunication Company of Iran, was put up for sale, as the Revolutionary Guards now seem more interested in cashing in on what Iranian leaders are hoping will be a flood of foreign investment if a nuclear deal with world powers gains final approval and sanctions are lifted.

And it is not just the Revolutionary Guards. During the past decade, well-connected Iranian investors amassed undervalued assets in poorly executed and frequently corrupt rounds of privatization, buying insurance companies, hospitals, refineries and public utilities, among other things previously run — usually poorly — by the state.

But with Western sanctions putting an ever-tightening stranglehold on the Iranian economy, finding buyers for the assets became next to impossible, especially in recent years. In the absence of outside investors, and no deep-pocketed private buyers in the country, Iranian investment companies fronting for state pension funds, military cooperatives and religious foundations bounced shares back and forth on the Tehran Stock Exchange just to make small profits.

“They had no one to sell to inside Iran but now, with the nuclear deal done, everything is falling into place,” said one well-established Iranian-American consultant who asked to remain anonymous because his business activities are punishable under United States law as long as sanctions remain in place. “A lot of people here have started pulling out their calculators.”

The potential sell-off began to take shape in July, as the nuclear agreement began to move toward a conclusion, economists say. That was when the Etemad-e-Mobin investment company, part of a cooperative fund belonging to the Revolutionary Guards Corps, put the Telecommunication Company of Iran on the selling block.

The fund’s chief executive officer, Mostafa Seyyed Hashemi, told the Tabnak website that bidding for the company — which Iranian news media reported was acquired after Etemad-e-Mobin’s strongest competitor was barred from the auction — would start at the $7.8 billion it paid in 2009.

That the company could put itself up for sale to the highest bidder, foreign or domestic, might seem impossible in a country founded on an anti-Western revolutionary ideology. However, a law passed with little fanfare in 2002 and mostly forgotten since then as sanctions and anti-Western feelings piled up practically rolls out the red carpet for foreign buyers.

This seems to be so even though Iran’s supreme leader, Ayatollah Ali Khamenei, has said repeatedly since the signing of the nuclear agreement last month that his country is not for sale, particularly not to United States buyers.

The 2002 law, the Foreign Investment Promotion and Protection Act, is remarkably liberal, giving foreigners 100 percent ownership rights, residence visas valid for three years and the opportunity to transfer their profits out of the country in foreign currencies. It offers a number of tax exemptions that, in certain conditions, can rise to 100 percent of an enterprise’s profits.

Yet, Iran has a long history of changing laws on the fly, or simply ignoring them when that suits the establishment’s purposes. In an effort to reassure investors, the act guarantees that the government will pay compensation for any investments in projects that are nationalized or expropriated, though it does not say exactly how much.

Economists warn that investing in a country like Iran is not as straightforward as it is in the West. The Iranian economy is riddled with conflicting interests, they say, and those in power are typically interested in obtaining foreign cash without giving up power.

“Here our officials are minister, regulator and seller at the same time,” said Saeed Laylaz, an economist. “Their goal is to get foreign funds, but in their hearts they are not ready to give away their influence.”

Nevertheless, Iranian officials have gone out of their way in recent weeks to emphasize that once sanctions are lifted, nothing stands in the way of foreigners snapping up assets.

Speaking in Austria in July, the influential minister of industries and mines, Mohammad Reza Nematzadeh, met with potential investors during a business opportunities event, Reuters reported. The minister presented a strictly pro-market package. Mentioning roads, hospitals and factories, he promised his audience that basically everything except the country’s national oil company theoretically was for sale.

There is little question that Iran needs the money, $185 billion to update the petrochemical sector alone, officials say. It also needs a new airline fleet of as many as 400 planes and further investments in almost every aspect of the economy and infrastructure.

Yet, critics of President Hassan Rouhani’s government, the main driving force behind Iran’s foreign and economic diplomacy, say that many top officials in his reformist government have vested business interests, a common feature of almost the entire Iranian political elite.

According to the semiofficial Fars news agency, Mr. Nematzadeh is himself a well-known businessman, privately active in the petrochemical industry.

“The fact is that many laws have been made outside of the public eye, by a small group, often to the advantage of that group,” said Hossein Raghvar, a professor of economics at Al Zahra University in Tehran.

Many business owners have expressed concerns about the prospect of a fire sale of Iranian assets. Sadjad Ghoroghi, for one, who runs a mining company in Zanjan in northwestern Iran, says he had long dreamed of finding a foreign investor willing to help expand his operations. Iran is thought to have rich deposits of zinc, copper and gold, and experts say that mining has the potential to become a $60 billion industry, equal in size to the country’s oil industry.

“We need technology and investment. All investors are welcome, also Americans, if their policies allow it,” said Mr. Ghoroghi, 34, who is a member of the Zanjan and Tehran chapters of the Chamber of Commerce.

But the foreign investment law, even for his taste, is way too liberal for Iran, he said. “This hasn’t been thought through,” he said. “When ordinary people find out, they will say the country is being sold out. I can’t really disagree.”

Mr. Ghoroghi also worries that the law will be pared back too much, once conservatives in the government realize how much freedom it is affording foreign investors. “If that happens, Iran’s dream of investments will end before it can really begin,” he said. “No one will trust us after that.”

Mr. Raghvar said that there had been an increasing intersection between business and politics in Iran. That marriage of interests may be taken for granted in other parts of the world, he said, but not in the Islamic Republic. “The difference here, of course, is that we had a revolution in Iran to uplift the poor and keep foreigners out.”

Text by The New York Times
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