Major Economic Indicators
- Iran is the second largest economy in the Middle East and North Africa (MENA) region after Saudi Arabia and the second most-populated country after Egypt. Tehran, located in north-central Iran, is the capital and largest city with a population of more than 8 million.
- Iran has the world’s fourth largest proven crude oil reserves and second largest natural gas reserves. The country’s economy consists of a large state-owned sector (including many energy companies) and smaller agricultural and services sectors, largely run by a number of government co-operatives and private operators. Economic growth is driven primarily by oil and gas exports, which form the bulk of government revenue.
- In January 2016, nuclear-related sanctions against Iran were removed after an agreement was sought in July 2015 between Iran and the P5+1 (the UN Security Council’s five permanent members plus Germany). Along with the release of frozen assets held in international accounts, estimated at around US$100 billion, this Joint Comprehensive Plan of Action (JCPOA) agreement with Iran on nuclear non-proliferation helped restore the business connections with the West, though the US’s primary sanctions, which ban US persons and companies from engaging with Iran, remain in place. Many European companies have started re-entering Iran in sectors spanning transport, oil and gas, banking and finance and retail.
- In the quarter ending June 2016, Iran’s non-oil GDP expanded by 4.4% year-on-year (YOY), with agriculture, industry and services growing by 4%, 8.8% and 2.9% respectively. With higher oil exports expected after lifting of the UN sanctions, along with lower business costs due to resumed trade and financial connection with the West, Iran’s GDP growth is projected at 4.5% in 2016 according to the IMF.
- Following years of limited access to external capital, the Iranian government is now keen to attract foreign direct investment (FDI) in a number of sectors, especially where new equipment and technology are in high demand. An annual FDI target of US$50 billion is set out in Iran’s sixth Five-year Development Plan for 2016-2021. It is further expected that Iran will create investment opportunities of US$1.5 trillion between 2016 and 2025 for local and international investors.
- Iran offers attractive incentives to foreign investors such as tax holidays and import customs exemptions, Sectors including oil and gas, industry and mining, transport, agriculture, ICT, tourism and health are the main FDI promotion areas. Free zones and special economic zones (SEZs), many of which are industry-specific, are scattered across the country and provide additional incentives in attracting FDI.
- Iran’s cumulative FDI climbed 5% YOY to US$43 billion in 2014. Based on statistics from China’s Ministry of Commerce, China’s FDI stock in Iran surged to US$3.48 billion in 2014 from US$715 million in 2010, with the bulk directed to the oil and gas sector. Chinese companies, notably China National Petroleum Corporation and the Sinopec Group, have won major oil exploration contracts in Iran, including the oil field projects in Masjed Soleyman and Yardarvaran.
- One recent example of Iran-China oil co-operation is the development of Abadan in Khuzestan Province, which houses the largest refinery in Iran. Under the US$1.2 billion agreement signed with the state-owned National Iranian Oil Refining and Distribution Company (NIORDC) signed in September 2016, a Sinopec subsidiary will undertake the project aimed at improving the quality of the refinery by-products.
- Iran lies on the China-Central Asia-West Asia (CCAWA) Economic Corridor under the Belt and Road Initiative (BRI) and is expected to benefit from the BRI focus on infrastructure development and technology collaboration. In the visit of Chinese President Xi to Iran in January 2016, the two countries agreed to increase bilateral trade by more than tenfold to US$600 billion in the next decade, with co-operation areas including energy, trade and industry. In February 2016, the first direct cargo train from Shanghai arrived in Tehran, completing a journey of some 10,000 km.
- Located in Southern Asia and bordering the Persian Gulf, the Caspian Sea and the Gulf of Oman, Iran prides itself as a gateway to a regional market of more than 400 million people, spanning Afghanistan, Iraq, Turkey, Russia and the Central Asia countries. While the BRI is intended to enhance land and sea connectivity with countries along its key routes, the International North-South Transport Corridor (INSTC), jointly established by Iran, India, and Russia in 2000, aims to connect the Indian Ocean and Persian Gulf to the Caspian Sea via Iran, and onward to northern Europe via St. Petersburg in Russia. As a multi-modal transport corridor, INSTC will make Iran a key link in connecting the three founding members and 11 other state members.
- With oil and gas exports far outstripping imports of industrial supplies and capital goods, Iran has continuously run a trade surplus. China has been Iran’s leading trading partner for six consecutive years as Chinese firms gradually displaced those from the US and EU in the wake of sanctions. In 2015, Iran-China trade stood at US$33.9 billion, and has reached US$14.1 billion in the first half of 2016. Iran’s other key trading partners include Turkey, Korea and the UAE. Most imports are subject to 10%-25% tariffs while certain raw materials and machinery are exempted. Iran has signed free trade agreements (FTAs) with Venezuela and Sri Lanka, and is proposing FTAs or securing and upgrading preferential agreements with India, Pakistan and Turkey.
- In the first eight months of 2016, Hong Kong's total exports to Iran went up by 20.6% YOY to US$99 million. Major export items included telecom equipment and parts (US$27 million, 27% of total, +84.8% YOY), civil engineering and contractors’ plant and equipment (US$10 million, 9.6% of total, +12.3% YOY), miscellaneous chemical products (US$9 million, 9% of total, +360.8% YOY) and electrical apparatus for electrical circuits (US$4 million, 3.6% of total, +13.5% YOY).
- Hong Kong's imports from Iran dropped by 24.2% YOY to US$133 million in the same period. Major import items included fruit and nuts (not including oil nuts), fresh or dried (US$124 million, 93.2% of total, -27.2% YOY) and spices (US$4 million, 2.7% of total, +218.8% YOY).
More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides.