Iran Economy Gaining Steam
Jan. 16, 2017
Foreign investors have been flooding into the Iranian market since international sanctions against the country were lifted. But Donald Trump's presidency is tempering hopes for a full-fledged economic recovery.
Economic sanctions on Iran were lifted after a nuclear agreement was hammered out, and the government is rebuilding the economy by doubling oil exports. But Trump has pledged to annul the nuclear agreement, casting a shadow over the country's economic plans.
Certain parts of Iran’s economy have started to show a strong recovery in the year since the sanctions were lifted.
One British auto manufacturer started selling high-end sports cars in September. Even though the cheapest model costs about 90,000 dollars, the vehicles have sold well among business owners, who have prospered since sanctions were lifted.
"We’re seeking approval from the authorities to import vehicles with a higher cylinder capacity," says Avid Ommi, sales director at Lotus Cars Iran.
The Iranian government began to strengthen economic ties with other countries as soon as the sanctions were lifted. The government announced contracts worth close to half of the country’s annual budget -- the equivalent of about 45 billion dollars.
Among the businesses aiming to expand into Iran are many companies from the West, which strongly opposed Iran’s nuclear development. One of them, Royal Dutch Shell, has its eyes on Iran's huge oil and gas fields.
French carmakers have also made agreements to jointly manufacture vehicles. They want to get in on the Iranian government’s plan to increase auto production 3-fold.
Meanwhile, in the US, Trump has insisted that one of his top priorities was to dismantle the nuclear agreement. This triggered anger and dismay among people in Iran.
But last month, as if it were business as usual, Iran signed contracts with Europe’s Airbus and America’s Boeing to buy a total of 180 passenger planes. Iran is continuing to strengthen its economic relations with countries around the world.
Iranian Foreign Minister Mohammad Javad Zarif also visited Japan last month. He attended a business seminar in Tokyo and encouraged more investment in Iran.
"With the removal of sanctions, we have moved to positive 5 percent growth. The possibilities for cooperation between the two countries are immense. Japan has always been a well-respected partner in Iran," Zarif said.
He was accompanied by executives from more than 60 Iranian corporations. It was one of the biggest business delegations ever to visit Japan, indicating that Iran has high hopes of cooperation and collaboration with Japan.
At the same time, 4 large-scale international trade shows were held in Iran’s capital, Tehran. There were more than twice as many foreign participants as in 2015.
"Iran is a big country, 80 million people," said one French businessman there. "This is a good opportunity for us."
Noting foreign companies' desire to gain a foothold in Iran, the organizer of the event said the US election has had little effect on business.
"Iran’s international trade is increasing. Unlike the US, the 5 European countries can’t afford to ignore the Iranian market," said Mohammad Ghanbari, deputy managing director for exhibition affairs at the Iran International Exhibitions Co.
But some Iranian companies say the election has had a negative impact on their operations. One Iranian firm has negotiated with a European company to provide equipment for card payments. But now, his European counterpart is expressing caution, saying it wants to wait and see the policies of the new US administration toward Iran.
"The attitudes of European businesses have clearly changed," said Merrdad Lajevardi, the Iranian company's CEO. "Their most urgent concern is how much pressure the Trump administration will put on Iran."
NHK World's Tehran bureau chief Kentaro Shinagawa joins anchors Sho Beppu and Aki Shibuya in the studio.
Beppu: Following the lifting of the sanctions, Iran's economy is showing signs of improvement. How is the situation in the country's economy as a whole?
Shinagawa: The IMF projects that real GDP growth will rebound to 6.6 percent in the current fiscal year. Signs of improvement are visible: Last Thursday, the first of 100 planes that Iran Air, the country's flag carrier, ordered from Airbus after the sanctions were lifted, arrived in Tehran.
But the jobless rate among young people is up 3 percent, compared with the same period in 2015, so many people aren’t feeling the effects of the sanctions being lifted. Economic cooperation is moving ahead, but it will take time for business deals to go into effect.
The finance minister said last month that it will take another 2 or 3 years for the economy to recover to the state it was in before the sanctions were imposed. He’s asking for understanding.
Shibuya: As we reported earlier, Iran has indicated it wants the nuclear agreement to be kept intact so it can focus on economic reconstruction. Is the Iranian government worried that the incoming Trump administration might scrap the deal?
Shinagawa: President-elect Trump has appointed key personnel who take a hardline stance against Iran. Iran's Deputy Foreign Minister Abbas Araqchi has told reporters he thinks the new US administration could well make hostile moves. But the prevailing view among Iranian government officials and experts is that the US cannot unilaterally revoke the multilateral agreement.
The Iranian government, for its part, has said that Iran will honor its commitments as long as other parties honor theirs. On the other hand, the chief of Iran’s Atomic Energy Organization has said that if the accord is breached, Iran has the capacity to restore its nuclear program to its original state. The same official has been trying to keep the United States onside.
Beppu: The nuclear agreement and the lifting of the sanctions are recognized as the work of the current administration of President Hassan Rouhani, who is a moderate. What effect will a Trump administration have on politics in Iran?
Shinagawa: The Rouhani administration touted the nuclear deal and the lifting of the sanctions as great political achievements, so if Trump tears up the deal, the administration will be in a tight spot. If that happens, it will strengthen hardliners in Iran who stand against the Rouhani administration. The hardliners, who were hostile toward the West to begin with, opposed the moderate moves made by the administration.
After the nuclear agreement was signed, they criticized the administration, saying that the deal didn't benefit the Iranian people. They also claimed that the administration compromised too much with the West on the nuclear program, which had been a source of national pride.
Amid these circumstances, former President Akbar Hashemi Rafsanjani, who was an influential moderate, died on Jan. 8. With Iran’s next presidential election scheduled for May, President Rouhani and others in the moderate camp have lost a major backer.
Whether the current moderate political line can continue depends on the Rouhani administration's ability to ensure that the nuclear deal remains in place. It also hinges on the administration's ability to prevent the economic recovery from stalling, with some saying it's already proceeding too slowly.