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April 9, 2008 No.
424

Iran's Figures on Foreign Investment—Fiction Wrapped in Fantasy

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Introduction

Those who follow the economic news in Iran under the regime of President Mahmoud Ahmadenijad are often struck by the boasts regarding huge sums of foreign investments, often quoted in the billions of dollars. A fortnight ago, for example, the Tehran Times stated that the People’s Republic of China will be investing $92 billion in Iran’s oil and gas industry. These boasts seem to stand counter to reality. The Tehran Times’ statement, for example, is undercut by a piece on Saturday [February 2, 2008] in the Iranian daily I’timad which quoted the Deputy Foreign Minister Mahdi Mir Abu-Talibi, that Chinese banks, under American pressure have cut their business relations with the Iran banks for the last four months. Almost all Western and Japanese banks have done so already.

Pipelines Made of Pipe Dreams

One further suspects that many of the “pipelines” that the Iranians, in their eagerness to instill confidence in their economy, tout as carrying gas and oil are, in fact, only pipedreams. There is no evidence that a single inch of a new pipeline has been laid in recently and, indeed, there is no evidence of foreign investments in this sector. Iran desperately needs Western technology, which is obviously not available because of the sanctions. Thus, despite its enormous oil and gas reserves, Iran must import gas from Turkmenistan to heat its northern territory. When Turkmenistan cut the supply last month over pricing issues, millions of Iranians suffered from the bitter cold and Iran was forced to suspend the supply of natural gas to Turkey, which it is committed by bilateral agreement to provide. Iran must also import gasoline and diesel, mainly from India, to keep its urban drivers content.

Central Bank Reveals Absence of Foreign Investments

The fact of the matter is that no direct foreign investments are coming into Iran. And the source of this statement is no other than the central bank of Iran which, in a controversial report leaked to the reform Iranian daily Rooz, that the government has not been able to attract a single dollar of foreign investment since March of 2007. The report reveals that the government has offered foreign investors tens of projects but there have been no takers.

In the absence of foreign investors, Ahmadinejad’s government turned to companies owned by the Revolutionary Guards and other government agencies for investments. As a result, it has been able to announce that it had attracted $4 billion of investments in the oil and gas sectors last year. In reality, the central bank says the government was able, during last year, to draw $400 million from savings in foreign banks; these funds, obviously, do not qualify as foreign investment. Ahmadinejhad has accused his opponents of distorting the facts and claimed that foreign investments are “pouring on the country like rain.” We think it is a rain of illusions.

Iran Facing Economic Hardships

Iran is not poor by necessity; it is poor by choice. Billions of dollars of oil windfall profits were squandered on subsidies (including gasoline), a vast armament industry, including a clandestine nuclear program, and financing of terrorism in many hot spots of the world. Operating under the weight of U.N., but more potent, US sanctions, Iran is going through hard economic times despite the quintupling of oil prices in the last three years, and economic growth of about 6 percent in the last Iranian year (which ended in March 21, 2007). Inflation was running at more than 19 percent in 2007 compared with 12 percent in 2006, unemployment is high in general but extremely high among the 15-24 age group (estimated at more than 30 percent), 50 percent of the population is poor, and more than 20 percent live below the poverty line. Drug abuse is rampant, and hoards of intoxicated Iranians sleep on street pavements. Corruption is rampant, particularly among the Mullahs who are in charge of enforcing the rules of religious orthodoxy and religious piety. And, for all intents and purposes, the country is isolated.

*Dr. Nimrod Raphaeli is the Editor of www.memrieconomicblog.org

Endnote:

[1] To view this editorial on the MEMRI Economic Blog, visit: http://memrieconomicblog.org/bin/content.cgi?comment=30.