Experts predict economic growth for Iran

Photo: Experts predict economic growth for Iran / Commentary

By Sara Rajabova

Some international organizations predicted economic growth in Iran after the country and the P5+1 Group reached an agreement over Tehran's nuclear program.

A while ago, the International Monetary Fund (IMF) in its first regular assessment of Iran after more than two years predicted a positive growth in country's economy before the end of 2015.

The foreign companies from time to time voice their intention to resume their activity especially in Iran's energy sector. Furthermore, the parliamentary delegations and high-ranking officials of several European countries visited Iran to discuss possible investments in the country.

Senior fellow at Nanyang Technological University's S. Rajaratnam School of International Studies, James M. Dorsey, told AzerNews that easing of sanctions would allow Iran to achieve economic growth.

"While the IMF certainly has an interest in encouraging Iran to work towards a successful resolution of the nuclear issue, it also is accountable for its predictions," he noted.
"It comes as no surprise that an easing of sanctions would allow Iran to achieve economic growth. In fact, it would be surprising if that was not the case," Dorsey underscored.
Professor of economics at U.S. Northeastern University, Kamran Dadkhah, also said these predictions can be justified.

Dadkhah told AzerNews that the Iranian economy has great potentials for flourishing and becoming one of the top 20 economies in the world. He said, however, the Iranian economy is currently in a sorry state suffering from high unemployment rate, high inflation, and negative growth rate.

"In large part, the misery of the Iranian economy was brought about by wrongheaded ideas such as Islamic Economics, and by mismanagement and corruption. For a long time these shortcomings were partially concealed by spending the oil revenues. The level and intensity of mismanagement and corruption reached unprecedented heights during the eight years presidency of Mahmood Ahmadinejad. He followed a populist economic policy that has brought devastation to many Latin American countries like Venezuela. According to statements by Iranian officials, Ahmadinejad's government received $700 billion during its tenure in office and spent it on imports, largess to other countries particularly Syria, or lost it through corruption. In addition, he printed money and spent it. In 2013 the amount of currency in circulation and the amount of liquidity in the Iranian economy were more than five times what they were in 2005," Dadkhah said.

He further noted that the sanctions, particularly oil and financial sanctions exacerbated the situation and were like petrol splashed on fire.

"In response to Iran's nuclear activities, economic sanctions against the country were intensified. Oil revenues declined, and the United States Treasury's financial sanctions deprived Iran from accessing its revenues or transferring funds internationally," Dadkhah said.

He said the upshot was that when Ahmadinejad left office the inflation rate was more than 40 percent, official unemployment rate was above 10 percent, millions were underemployed. Also, the economy had shrunk more than 5 percent in 2012 and was still in decline during the first 11 months of the current Iranian year (which started on March 21, 2013).
Dadkhah cited three reasons for the positive outlook depicted by the IMF.

"First, the United States and other countries have eased sanctions, and Iran has been allowed to access some of its blocked oil revenues. It is hoped that the nuclear negotiations would succeed and more sanctions are lifted. That would give a boost to the Iranian economy. Second, because of the new government's expressed intention of coming to terms with the world, and improving the economic conditions, a positive attitude and hope of better future have been created among Iranians. Such expectations can help economic activity. Finally, the economic team of the new president seems to have the right ideas about the economy and have distanced themselves from populist ideas of the previous administration. Thus, it is not unreasonable to expect that the economy, after two years of decline, show improvement by 2015," Dadkhah noted.
Iran's exports tend to rise, foreign companies want to return
Iranian Foreign Minister Mohammad Javad Zarif said recently Tehran can be a reliable supplier of energy resources to European countries, urging the foreign companies to invest in his country.
Besides, after Iran and six countries started the implementation of Geneva deal, Iran's exports faced a boost.
Touching upon this issue, S.Rajaratnam School's senior fellow Dorsey said assuming that negotiations with the five permanent members of the UN Security Council plus Germany brings success, Iran will see a softening of the sanctions and an increase of exports.
"In addition, some countries that are less concerned about the sanctions or Iran's nuclear program or want to have a first-in-the-door advantage are eager to expand their economic and commercial relations with Tehran," Dorsey said.

He further noted that the foreign companies are positioning themselves for a lifting of sanctions.

"In that sense, it is real. At the same time, they will be careful not to violate the sanctions because that would undercut their efforts. The negotiations are ongoing. As a result, re-engagement of foreign companies is a process that takes progress in the talks into account," Dorsey said.

Meanwhile, Dadkhah said if the negotiations are successful and more sanctions are lifted, an increase can be expected in both Iran's oil and non-oil exports.

"Of course, in addition to lifting of the sanctions, Iran has to do its best to attract foreign capital and technology. More important, the Iranian economy is in need of fundamental reforms. In particular, the economic activities of the Islamic Revolutionary Guard Corps (IRGC) should be curtailed. Regarding international trade, Iran has to adopt a free floating exchange rate and make efforts to join the World Trade Organization," Dadkhah said.
He also added that given Iran's oil and gas reserves, foreign companies' return to the country's economy is realistic.

Dadkhah, however, said in the past decades Iran's energy industry has suffered from a lack of investment, adding Iran's oilfields haven't been properly maintained.

"Finally, the technologies in these fields are obsolete. Iran's energy sector is in need of hundreds of billions of dollars worth of investment and introduction of up to date technology. All these have to come from foreign investors. So far Iran has taken a preliminary step by revising the blueprint of contracts with foreign oil companies. But foreign firms will not invest in Iran as long as Washington objects to it," Dadkhah noted.

He further noted that foreign companies need to feel that their investment in Iran is safe and not subject to vagaries of Iranian politics or the whims of the IRGC.

"So we can expect the companies to get ready and take preliminary steps to open the door for the future investment in Iran's energy sector, but nothing significant will happen till the conditions listed above are met," Dadkhah said.

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