Shawn Donnan, World Trade Editor
Central bank chief Valiollah Seif says the eventual lifting of US and EU sanctions will create a “new condition” for Iran. With Iran’s economy beset by plunging oil prices, international sanctions, anaemic growth and a banking sector saddled with high levels of non-performing loans, the central bank governor has plenty to worry about.
But Valiollah Seif insists the eventual lifing of US and EU sanctions agreed as part of this summer’s landmark nuclear deal with Iran will transform a country that has since 1979 been subjected to one form of US penalty or another. Delegations of investors from Asia and Europe have in recent months begun arriving to do deals in a country previously considered out of bounds..
Much has been made of interest from international oil companies but other industries are also eyeing opportunities. Novo Nordisk, the Danish pharmaceuticals group, plans to build a 70 million (US dollars) manufacturing facility in Iran and international banks have been testing the waters. Mr Seif is also keen to draw much-needed international investment into roads and other infrastructure….
A locally trained economist who spent more than 30 years as a banker in Tehran before taking over at the central bank in 2013, Mr Seif offers a more orthodox view of the global economy than might be expected.
Much of Iran’s economic future will hinge on its unimpeded return to global oil markets once sanctions are lifted and what the government in Tehran hopes will be a flood of new investment in the energy sector.
But Mr Seif is conscious that crude prices of below $50 a barrel has created a difficult environment for commodity producing countries. If being an oil producer was once a guarantee of riches, the slide from above $110 a barrel last year has left many once flush governments exposed. The lesson, he believes, is that oil producers such as Iran need to diversify for a future independent of oil prices..
Putting Iran’s economy back on a firmer footing has been one of President Hassan Rouhani’s key tasks since he gained power in 2013. Mr Seif and the rest of Mr Rouhani’s economic team have won praise from the IMF for restoring growth, taming inflation and starting to tackle some difficult reforms.
But putting the Iranian economy back on track is likely to take many years. The IMF also warned that anticipation of an end to sanctions was hurting Iran’s economy, with consumers and businesses delaying purchases and investment decisions until it were confirmed.
After growing 3 per cent in the Iranian year that ended in March, the economy contracted during the first half of this year and is expected to grow marginally at best over the 12-month period.
Mr Seif, like the IMF, blames the oil shock for much of the slowdown and expects Iran’s economy to grow about 5 per cent next year.
Given the circumstances, he says the Rouhani government should be given credit for restoring some level of confidence in the economy and managing the shocks it has been presented with. The lifting of sanctions, he says, will also show just how damaging the measures have been… Over time, Mr Seif predicts, foreign investment will boost productivity and bring new life to Iran’s manufacturing sector and its wider economy…
Courtesy: Financial Times