Foreign Direct Investment in Iran: Wikis


Note: Many of our articles have direct quotes from sources you can cite, within the Wikipedia article! This article doesn't yet, but we're working on it! See more info or our list of citable articles.


From Wikipedia, the free encyclopedia

Foreign direct investment in Iran hit a record $10.2 billion in 2007 from $4.2 billion in 2005 and $2 million in 1994.[1] In 2009 Iran invested $793 million abroad and received $7.854 billion at home.[2]

Foreign Direct Investment in Iran has been hindered by unfavorable or complex operating requirements and by international sanctions, although in the early 2000s the Iranian government liberalized investment regulations. In the early 2000s, foreign investors have concentrated their activity in a few sectors of the economy: the oil and gas industries, vehicle manufacture, copper mining, petrochemicals, foods, and pharmaceuticals. Iran absorbed 24.3 billion dollars of foreign investment from 1993 to 2007 ($34.6 billion for 485 projects from 1992 to 2009).[3][4] Foreign transactions with Iran amounted to $150 billion between 2000 and 2007 worth of major contracts and both private and government lines of credit.[5] Iran had $62 billion worth of assets held abroad (2007).[6]

In the 1990s and early 2000s, some indirect oilfield development agreements were made with foreign firms. Buyback contracts in the oil sector, for instance, were arranged in which the contractor funded all the investments, and then received remuneration from the National Iranian Oil Company (NIOC) in the form of an allocated production share, then transferred operation of the field to NIOC after a set number of years, at which time the contract was completed.



US dollar/Iranian rial historical exchange rates (2003-2008)

Foreign investment hit a record $10.2 billion in the Iranian year 2007 from $4.2 billion in 2005 and $2 million in 1994.[1] Asian entrepreneurs headed by China made the largest investments in the Islamic state by investing in 40 out of 80 projects funded by foreigners.[7][8] The largest amount of foreign investment was in the industrial sector, including food and beverage, tobacco, textiles, clothing, leather, chemical, steel and oil derivates. The figure exceeded $8.76 billion. Water, electricity and gas sector ranked second, attracting $874.83 million. In the third place, the real estate sector absorbed more than $406 million. Investments in service, telecommunication and transportation as well as mines reached $193 million, $14.3 million and $14.2 million respectively. Asian countries invested $7.666 billion in various projects followed by several multinational consortia. Investments by these multinational companies exceeded $1.39 billion (in four projects). Although European entrepreneurs were involved in 34 projects, they invested only in the range of $1.2 billion in the Islamic Republic. American countries also committed $12.329 million in the country; while investments by African states registered close to four million dollars.[7]

Net FDI inflows amounted to $901 million in 2008.[9] Iran attracted $1.6 billion in direct investments from abroad in 2008 despite a 20% decrease in the global flow of direct foreign investment.[10] Turning to Vision 2025, the plan has set an investment target of $3.7 trillion within two decades of which $1.3 trillion should be in the form of foreign investment.[11]

Major investors

Among developed nations, the most active investors have been Germans, Norwegian, British, French, Japanese, Russian, South Korean, Swedish, and Swiss companies. The Swedish Svedala Industri has played a major role in developing Iran’s copper mines since the late 1990s while Tata Steel of India has been investing in the steel sector. The Kia, Nissan, Peugeot, and Renault auto companies have licensing agreements with Iranian auto manufacturers. Nestlé of Switzerland and Coca-Cola and Pepsi-Cola of the United States have joint ventures with Iranian companies. Total, Statoil, Shell, Gasprom, and Lucky Goldstar of South Korea have been active in Iran’s natural gas industry. Iran’s constitution prohibits direct concession of petroleum rights to foreign investors. Alcatel of France, MTN Group of South Africa and Siemens of Germany gained major telecommunications contracts in 2004 and 2005, respectively.[12]

Business environment

According to the head of Organization for Investment, Economic and Technical Assistance of Iran (OIETAI), in 2008 Iran ranked 142 among 181 countries in terms of working conditions last year. Iran stands 96 in terms of business start, 165 in getting permits, 147 in employment, 147 in registering assets, 84 in getting credits, 164 in legal support for investments, 104 in tax payment, 142 in overseas trade, 56 in feasibility of contracts and 107 in bankruptcy.[13]

Iran is OPEC’s second largest oil producer. It has approximately 9% of world oil reserves (some 94 billion barrels). It has the second largest reserves of natural gas in the world at some 812 trillion cubic feet. Iran also possesses enormous mineral resources, including coal, copper, iron, zinc and gold. This has spawned a number of processing industries, particularly steel. Iran is already the third largest producer of copper in the world.

Iran has made the development of non-oil exports a priority. The country has the advantage of a broad domestic industrial base, an educated and motivated workforce and geographical location, which gives it access to an estimated population of some 300 million people in Caspian markets, Persian Gulf states and countries further east.

Laws concerning foreign companies

Generally speaking, Iran has two types of laws concerning foreign companies. The first are laws that address issues concerning foreign companies directly such as the Foreign Investment Promotion and Protection Act (FIPPA) and the second are general laws of which certain articles or by-laws address foreign companies, for instance the Taxation Law and the Labor Law. Foreign legal entities must pay taxes on all taxable income earned through investments in mainland Iran or from direct or indirect (through agents, branch offices, etc) activities in mainland Iran, at the flat rate of 25% as mentioned in Article 47 of the amendment law.[14]



Following months of dispute between the Parliament and Guardian Council, the Expediency Council ratified the final version of a new foreign investment law in Iran coined as the Foreign Investment Promotion and Protection Act (“FIPPA”) on 26 May 2002. Under FIPPA and similar to the previous foreign investment law, commercial risks are not covered but any expropriation or nationalization will be compensated by the government. In some cases, if an act of the government disrupts the business activity, the government will be under obligation to make payments for any loan installments that are due on behalf of the project company. The law also permits more options for repatriation of profits in hard currency combined with a broader definition of foreign investment. Notably, FIPPA allows for international arbitration in legal disputes.[9]

For the first time, project financing schemes such as buy back agreements and BOT projects (only under an operator status) are specifically covered under the foreign investment law.[15] Under the FIPPA, any foreign natural or legal person – including Iranian expatriates -- importing capital in Iran will enjoy the benefits and privileges of this law as long as:

  • The investment leads to economic growth, promotes technology, promotes quality of products, increases employment opportunities, increases exports and entering the international markets.
  • The investment does not jeopardize national security and public interests or harm the environment or interrupt national economy or disrupt products of domestic investments.
  • The investment does not involve the granting of any special rights resulting into a monopoly.
  • The value ratio of goods and services produced by aggregate of foreign investments does not exceed 25% in each economic sector and in each economic branch shall not exceed 35%. FIPPA will be applicable based on the nationality of the Foreign Capital as opposed to the investor. As long as the capital comes from foreign sources, any one importing it will be eligible for FIPPA protection including Iranians residing in Iran or abroad.

Free Trade Zones and Special Economic Zones

As of January 2010, there are six free trade zones and 16 special economic zones in Iran. [16] For legal and tax purposes, opening a representative office in Iran, by itself, is not considered foreign direct investment.

Name Authority in charge Type Location
Anzali Free Trade Zone
Chabahar Free Trade Zone Chabahar
Kish Free Trade Zone Kish Island
Arvand Free Trade Zone Khorramshahr
Aras Free Trade Zone East Azarbaijan
Qeshm Free Trade Zone Qeshm Island
Bushehr Special Economic Zone Bushehr
Lorestan Special Economic Zone
Sirjan Special Economic Zone
Sarakhs Special Economic Zone
Payam Payam Aviation Special Economic Zone
Salafchegan Astan Quds Razavi Special Economic Zone
Persian Gulf Mines and Metals National Iranian Steel Company Special Economic Zone
Persian Gulf Shipbuilding ISOICO Special Economic Zone
Arge-e-Jadid Special Economic Zone
Pars Special Energy Economic Zone PSEEZ Special Economic Zone Bushehr
Petrochemical Special Economic Zone NIPC/Petzone Special Economic Zone Mahshahr
Shiraz Electric and Electronics Special Economic Zone Shiraz
Yazd Textile Industries Special Economic Zone Yazd
Bandar Amirabad Behshahr Special Economic Zone
Bandar Bushehr Special Economic Zone Bushehr
Bandar Shahid Raja'ee Special Economic Zone

Potential Approaches to the Market

There are seven types of juridical entity or company which can be established under the Iranian Commercial Code. From among all these different types, Joint Stock Company, in which the capital is divided by shares, is the most common and acceptable type of company which can be recommended to foreign investors (For further information please refer to "Establishing a Joint Stock Company in Iran" published by OEITAI).

First and foremost, it is crucial to realize that Iranian authorities insist on a long-term commitment and a transfer of technology as a requisite for getting a share in the market. Foreign companies are therefore advised to adopt a medium- to long-term strategy for the Iranian market. Iran will almost never honor the interests of a company that does not show long-term commitment. Tenders are strictly required for government contracts for purchasing or projects. These are rarely competitive. Breaking up contracts into smaller parts is a common practice to try and incorporate at least 30% of the contract's value in local capability and also to negotiate on specific prices.

Currently there are three main routes that a foreign company can follow to establish a long-term presence in Iran:

Joint Ventures

The Flower of the East Marina, a multi-billion dollar FDI project in the tourism sector in Iran.

One possible strategy is for the foreign company to enter into a joint-venture agreement with a public or private Iranian partner. The existing level of technology and infrastructure makes many Iranian companies suitable for expansion and development in conjunction with foreign companies. Many Iranian companies, especially those in the private sector, are currently actively seeking joint-venture partners both to fill their technological as well as management gaps. Others are looking for a revival of their company through foreign capital. Should a company decide to adopt this approach to the market, it is advisable to look for products and services that have both domestic demand as well as regional export potential. If a joint-venture company can earn hard currency through export of its goods, it will not be too dependent on the Iranian banking system for the repatriation of profits and dividends. It should be noted that some joint ventures consist purely of the transfer of technology to Iran by the foreign partner without any capital commitment. Since Iranian authorities are very keen on the introduction of modern technologies, this path can prove very constructive.


In February 2007 the government unveiled its new buyback-contract formula, which significantly extended the length of the contracts to as long as 20 years.[17] The buy-back scheme is a formula used by the Iranian government to attract foreign investment. Following the end of the Iran-Iraq war in 1988, Iran faced a major problem: it needed foreign investment if it did not want to lose its vital income from the oil and gas industry, yet its revolutionary ideology and Constitution forbid granting “concessions”. A compromise solution was found in 1989 with the First Five-Year Economic, Social and Cultural Development Plan. Under Note 29 of the said plan, the Iranian government is allowed to employ “buybacks” in its effort to meet the industrial and mineral needs in connection with exports, production and investment. Put in laymen terms, a buy-back transaction is a method of trade where plants, machinery, production equipment and technology is supplied (by a domestic or foreign private firm), in exchange for the goods that will be produced directly or indirectly by means of such facilities.[9]

Under this scheme, the foreign partner that makes the initial investment can repatriate the return on the investment (at a pre-agreed fixed rate) through goods and services produced by the project. While many foreign companies believe that this method is a mere financing instrument for Iran, it is more accurate to say that it is a compromise formula for foreign investment in the short-run. In the medium to longterm, more appropriate laws and regulations will probably replace the buy-back scheme. In other words, once the constitutional concerns have been dealt with, the foreign partners of buy-back agreements can take over the projects that they are involved in, or they can enter into a joint venture with an Iranian partner.[9]

Build-operate-Transfer (BOT)

This is a rather new possibility in the Iranian market. Recent regulations have also introduced the Build-Operate-Transfer (BOT) scheme for Iranian projects. In this scheme, the foreign partner invests in one project, which is then operated for a certain period of time by the foreign investor before it is fully transferred to the Iranian government. Iranian authorities are showing some flexibility regarding the BOT, which could potentially pave the way for more foreign investment in the market.[9]

See also


Select FDI projects in Iran:


Doing business in Iran:

Iran travel guide from Wikitravel - information on business etiquette in Iran


External links


Got something to say? Make a comment.
Your name
Your email address