Zarif: Threefold FDI Rise on Back of Economic Diplomacy

In a parliamentary session on Wednesday to gain a vote of confidence as President Hassan Rouhani’s foreign minister for another four years, Mohammad Javad Zarif elaborated on economic achievements made under the moderate president.

The economic advances over the past four years, he said, were a result of Iran’s foreign policy, whose pinnacle was a deal reached between Tehran and world powers over Iran's nuclear program.

The deal, officially known as Joint Comprehensive Plan of Action, was signed in July 2015 and implemented as of January 2016. Its implementation led to the removal of international sanctions against Iran's economy in exchange for limiting the scope of its nuclear program.

“Instead of imposing costs, foreign policy has been serving to improve the economic wellbeing of Iranians,” he said in an address to an open parliamentary session.

“Numerous achievements have been gained, including normalization of oil sales by eliminating corrupt middlemen … opening the path for normalization of banking interactions and removal of hurdles to marine, air and rail transportation.”

Zarif cited data released by the Central Bank of Iran on increased foreign investment during Rouhani’s tenure, saying FDIs worth $11.8 billion were attracted over the past four years, adding that the figure stood at $3.4 billion and $3.9 billion in the first and the second terms of the former president, Mahmoud Ahmadinejad, respectively.

The Central Bank of Iran later published a report to confirm the accuracy of the figures cited by Zarif, adding that $11.8 billion of FDI under Rouhani pertain to 36 projects whose LCs have opened in the past four years.

In a report published in the runup to the anniversary of the implementation of the nuclear deal on January 16, 2016, CBI had elaborated on the details of foreign investments.

Water and energy (including renewables) projects had the largest share of FDI approved during the four-year period with $8.1 billion.

Services and tourism ($1.53 billion) and industries and mining ($1.53 billion) stood in the second and third places in attracting the largest amount of FDI.

FDIs were also approved in the sectors of agriculture ($512 million), transportation and telecommunications ($259 million) and construction ($6 billion).

Europe took the lead in the size of investment, with Spain investing in a $3.2-billion project, followed by Germany with $2.96 billion and China with $895 million.

The Iranian economy experienced an impressive 12.5% growth in the last fiscal year (March 2016-17). The growth, however, is attributed mainly to increased oil production following the removal of international sanctions against Iran over its nuclear program as of January 2016. GDP growth, exclusive of oil production, stood at 3.3%, according to CBI, as the oil sector registered a dramatic 61.6% growth.

Government data show Iran’s crude oil production reached 3.8 million barrels per day by the end of the last fiscal year from around 3 million bpd in the previous year.

Under sanctions, crude output fell to 2.5 million barrels daily and exports were limited to just above 1 million bpd to a few customers in Asia. However, Iran is allowed to pump an average of 3.8 million bpd by March 2018 under an OPEC deal aimed at eroding global inventories and lifting crude prices. On average, Iran exported 400,000 barrels daily, or 64 million liters per day, of oil byproducts to buyers in the Middle and Far East in the fiscal 2016-17, up from around 220,000 bpd in the previous fiscal year. Outbound shipments of oil byproducts are expected to rise by 200,000 barrels a day to 600,000 barrels daily in the current fiscal year, according to a report by the National Iranian Oil Products Distribution Company.

The “industry sector” expanded 6.9% last year—a remarkable improvement compared to the 4.6% contraction registered a year before. Production in the agriculture sector expanded by 4.2%. Construction was the only sector that contracted last year and registered a -13.1% growth

Iran’s economy emerged from recession in the fiscal 2014-15 with a 3% growth after two years of recession when the economy contracted 5.8% and 1.9% back to back, according to the Central Bank of Iran. Growth for the fiscal 2015-16 has been put at -1.6% by CBI.

Improved economic indicators were no doubt a reason why more than 24 million voted for Rouhani’s reelection in May. But the removal of sanctions has yet to show considerable change in people’s livelihood as unresolved challenges remain, including full integration of Iran's banking system with that of the world.

During his Wednesday speech, Zarif referred to his plans regarding “economic diplomacy", saying his ministry will try to “sustainably secure national interests amid instability in the region as well as in the world. And this will materialize if diplomacy revolves around the economy”.

He highlighted the role of the Foreign Ministry in creating coordination between the business community, companies and state and private entities, and the national interests.

Zarif said his ministry will help businesses enter the global and regional markets, and export their commodities and services; facilitate funding of the projects, pave the way for inflow of foreign investment and technology, and boost tourism.

A close look at Iran's non-oil trade during the first presidential term of Hassan Rouhani (August 2013-17) shows that the country's so-called non-oil trade deficit has noticeably shrunk during the four-year period going down from $90 billion under former president, Mahmoud Ahmadinejad (2009-13), to $9.6 billion under Rouhani.

Iran's non-oil exports during the first term of Rouhani's administration totaled $178.75 billion while imports stood at $188.45 billion. Non-oil trade balance, unprecedentedly, experienced a surplus during the last two years of Rouhani's four-year tenure. This is while Iran's non-oil exports during the previous government totaled $144.947 billion, with imports standing at $234.996 billion.

Data released by Luxembourg-based Directorate General of the European Commission, Eurostat, confirm Iran’s trade with Europe has been on the rise post sanctions.

Iran exported €2.77 billion worth of goods to the European Union in the first quarter of 2017, registering a sixfold rise compared with the preceding year’s corresponding period. The country imported €2.52 billion worth of commodities from the European Union during the same period recording a %56 rise year-on-year.