Iran´s future is looking bright

Doubtlessly Iran has a lot to look forward to ever since the international trade sanctions were lifted last week.

Perhaps the most immediate benefit will be the unfreezing of assets abroad, worth anything between $32 billion and $60 billion, depending on the source of information. Apparently it is Iran`s plan to spend a lot of this money on infrastructure, including railways, airports and aircraft; already there is a deal being struck with Airbus to buy 114 new planes, and Iran officials say there is an intention of buying a total of 400. These investments in infrastructure will not only make the country more competitive but will create thousands of quality jobs as well.

A lot of the remainding money shall be destined to straighten out the country’s banks, which were apparently pushed near bankruptcy by the previous government of Ahmadinejad.

The government’s priority is currently to triple production of oil, from 500,000 barrels per day (b/d), to about 1.5m b/d. Eventually it may get back to the 3m-4m b/d it used to produce before sanctions. However, because of the lowering world prices, oil will be less profitable than before.

In fact, most estimates agree on a GDP that could grow by 5-8% a year, despite the oil prices because the truth is, Iran’s economy is far more diverse than that of other oil producing countries such as Saudi Arabia, its regional rival.

Also, industry should benefit in the short and mid-term, because in the past years, businesses in this country have not had access to credit, having to pay up-front for imports. But Iran is now going to be readmitted to the global banking system and payment networks such as SWIFT, thus the costs of imports will go down.

Over the longer run Iran should be able to attract back foreign investment, which has fallen in recent years. Renault and Peugeot, which have a long history in Iran, are already back. The most attractive industries are food and drink, pharmaceuticals and other consumer goods. Many Iranians want European brands rather than the Chinese ones that dominated the market under sanctions.

What happens in the next few weeks will be crucial in determining the direction that Iran takes over coming years and will be a guide to understand the speed of the economy’s response to the lifting of sanctions.

On the political arena, next month the country votes for members of the Assembly of Experts, a committee that in turn will choose the next supreme leader, who outranks the president. Stability in these issues will be key for the full and satisfactory recovery of the Iranian economy.

Source: THE ECONOMIST

iran oil rig

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