Overview of Iran’s Economy &Investment Opportunities in

Iran

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Overview of Iran’s Economy &Investment Opportunities in Iran

Hussein Nowruzi, Business Development

ConsultantEmail: hnnowruzi@gmail.com

January 2017

Golnar Shanehband, Market Analyst

Email: golnarsh@yahoo.com

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Outline

Iran Economy at a Glance

Investment Opportunities

Incentives for Foreign Investment in Iran

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Iran Economy at a Glance

18TH largest economy in the world

5Source : World bank; IMF, October 2015

*GDP per capita PP = $ 16.5 K

*GDP PPP = $ 1357 bn

Iran as the most promising economy in the MENA after the JCPOA

Iranian government in parallel to resolve the nuclear issue, mobilized all its energy and resources to do a better management of Iran’s economy

With all the hard work done, Iran’s economy has reached to a, relatively, stable condition: National currency (IRR/USD)▪ Annual change is 6% +

Inflation rate (9.5%, less than 10% after 26 years)

Iran’s economic growth rate20

1420

1520

1620

1720

1820

19

4.3

0.4

4.54.1 4.1 4.2

2.62.1

3.2 3.2 3.4 3.6

Iran MENA

6Source: IMF , 2016

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Diversified: Iran’s economy is much more than oil and gas

23% of gross value-added is from oil and gas Retail trade, real estate, construction, and professional

services together make up a larger share of the economy than oil and gas.

1995 2000 2005 2010 20140

102030405060708090

100

44 5367 75 77

56 4733 25 23

Sectoral contribution to Iran’s total gross value added(%)

other oil and gas 2014

Other; 28

Construction

Professional and

other services

Real estate

TransportRetail

Agriculture

Public sector10

9

86

28

555

Source: IHS Global Insight

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Education 1/3 of Iranian graduates have engineering-related

degrees Iran has as many engineering graduates each year as

the United States, almost a quarter million.

Mexico

Ukraine

Indonesia

South Korea

Japan

Iran

United States

Russia

China

India

0 200 400 600 800 1000 1200 1400 1600 1800114

130

140

148

168

234

238

454

757

1635

36% of Iran's graduating cohort in 2013received an engineering-related degree

Source: UNESCO Institute for Statistics

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A growing consuming class Aspiring consuming class: more than half of Iran's

households have income exceeding $20,000 As a proportion of the population, Iran has twice as

many households with annual income above $20,000 as China or India.

United States

Germany Turkey Iran Indonesia China India Brazil0102030405060708090

100

3 1 2 520

36 25 206 5 1438

5040 54

3541

69 59

50

27 22 193750

25 256 3 2 2 9

Household income distribution, 2015 (%)

<7.5 7.5-20 20-70 >70Income categories $ thousand, 2005 purchasing power paritySource: McKinsey Global Institute City scope

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A highly urbanised population 8 cities with more than 1 million

population Tehran’s gdp is larger than rio de

janeiro’s

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Entrepreneurial : A Centuries-Old Business Culture Lives On

There is no Amazon or Uber in Iran but that does not mean Iranians are digitally starved. On the contrary, local Iranian versions of all of these services have sprung up.

Entrepreneurs in Iran enjoy a status that is on a par with the United States and higher than in France.

Iranian entrepreneurs have developed local versions of global technology businesses

12Source: Griffon Capital, Iranian internal infrastructure and policy report, July 2014;

Takhfifan

Order Food online from the

best restaurants in Tehran

Reyhoon

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Strategic location for cross-border flows The pattern of Iran’s trade has changed

markedly. China today is the number-one partner,

accounting for almost 40 percent of all trade. Iran could become a hub for regional commerce Iran’s exports have fluctuated in recent years

but still amount to about one-third of GDP, on a par with Japan and Australia.

Cross-border flows for Iran have diminished but still account for more than 40 percent of GDP

Iran’s potential to revive the Silk Road

Iran is located at the nexus of east-west and north-south transit routes

Iran economic sectors strengths at a glance

15Source: UNCTAD, 2015; World Bank

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Investment Opportunities

Source: Organization for Investment, Economic and Technical Assistance of Iran (OIETAI)

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Oil and Gas status quo :

Iran’s one of the most important and leading sectors 136 billion barrel of proven reserves equal to the

10% of the world total proven petroleum reserves(4th largest oil reserves)

Production costs for Iran’s oil fields are among the lowest in the world

2nd gas reserves in the world with 940 trillion cubic feet in proven reserves

Gas will likely play a key role in Iran’s long-term development goals

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Oil and Gas Opportunities :

In the last decade Iran’s oil & gas sector has received little investment, Many projects are waiting to be re-initiated and the offshore natural gas fields in South Pars (Persian Gulf) is critical to meet increasing domestic consumption

Around 62% of natural gas reserves are located in fields which have not yet developed

Local and foreign private investment and ownership is allowed in down and mid streamPrivate sector investment without ownership in the up stream is also allowed through contractual arrangements specifically buyback method by receiving remuneration fee through entitlement to oil and gas from developed fieldsIran is not making full use of gas reserves, Iran total proven gas reserves are triple United States but Its annual production is less than one-fourth the output in the United States (the largest producer)

Petrochemical Vast natural gas resources provide low-cost feedstock (80% ethane )

Even with uncertainties in global growth and petrochemical prices, Iran is likely to remain a profitable producer

whilst other Middle East producers are facing NGL shortages, Iran’s supply is expected to increase as gas production from South Pars rises, sustaining its advantage for decades.

With many ongoing mega projects, Iran's ethylene capacity will be doubled in 2020 (12.7 mt per annum)

developed infrastructure for exports and financial incentives under special economic zones at Mahshahr and Assaluyeh

To take advantage of the petrochemicals opportunity, foreign investment is needed to supplement local investment, increase utilization, and meet growing domestic demand with a broader product mix that includes end-use plastics and synthetic rubber.

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Mining Status quo:

Iran has deposits of more than 68 minerals that worth up to $700 billion.

The world 5th zinc reserves 7th reserves of copper Sarcheshme mine in Kerman province contains the world’s

second largest lode of copper ore. 9th reserves of Iron Significant reserves of lead, chromate, manganese, coal

and gold

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Mining Opportunities :

Almost 90% of all mines owned by the government and included in privatization program which provides a good opportunity for foreign investors contribution

The need for foreign investment and financing in steel and copper sector.Support of government for transfer of know-how and modern technology and equipment by the foreign investors.Possibility of 49% participation of IMIDRO (national specialized company in mining sector) with private investors in less developed regions

Most mines being located in the less developed areas variety of corporate and salary tax holidays and exemptions plus custom duties exemption are applied

Energy Status quo:

Iran ranks 8th(282 bn KWH) largest producer in the world 20th largest consumer of electricity in the world(231 bn

KWH) Iran is planning for at least 10% annual increase in the

installed capacity to meet the 7-9% annual demand growth

The huge domestic industrial and non industrial need for electricity and unique potential for exportation to neighboring countries 5 of which are currently receiving electricity supply from Iran

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Source: OIETAI

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Energy Opportunities:

As a priority, the government is seeking to diversify, modernize, and expand its electric system. Creating efficient utilities will involve maximizing the throughput of electricity and gas, (for example by converting simple cycle to combined-cycle power plants)

Iran is also focusing on attracting investment in renewable energy

The production gap is encouraged to be filled with investments by local private and foreign investors in the context of IPPs

Existence of required regulatory framework for the issuance of government payment guarantee and coverage of contractual commitments of government agencies as parties of PPAs

Coverage of all political risks of the IPPs and its operation by the government in case of foreign investors contribution

Water supply can also be increased to reduce the strain on existing sources:-Desalination plants could be paired with power plants-More facilities are needed for wastewater treatment

Tourism & Hospitality Status quo:

Iran is ranked 10th on potential tourism attractions and 5th on ecotourism

19 world heritage sites recognized by UNESCO A target of 2% of international tourists per year hosted by

the country in 2025 in the context of Iran 20 year vision The estimates show that US$ 50 billion of investment is

required to increase the capacity and develop the tourism industry

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Source: OIETAI

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Tourism & Hospitality Opportunities:

by 2035 Iran could need as many as 60,000 new hotel rooms

Large investments is required for development of accommodation facilities, roadside service complexes both for the infrastructure investments and providing professional management and trained human resources.Based on new tax incentives enforced from March 2016, Duration of tax exemption for Hospital & Hotels is 5 – 13 years

50% tax exemption with no time limitation for tourism projects

Extending financial facilities from government resources for tourism projects in prioritized areas

Source: OIETAI

Transport In rail, Iran has ambitions to be a nexus both for

east-west and north-south travel and transport Iran’s transport sector accounts for

approximately 6 % of the economy. With a well-connected road network and low fuel

costs, trucking accounts for more than three-quarters of total freight volume

Iran’s seaports also need to expand and modernize. The port of Bandar Abbas, which handles about 75%

of cargo passing through Iran’s Persian Gulf ports, is doubling its capacity.

26Source: OIETAI

Infrastructure/Urban Solutions The government is eager to

upgrade its urban infrastructure

Companies in master planning, engineering, water and waste management and other sectors of urban solutions are in high demand

The government has been taking steps to reduce its subsidies for fuel and electricity

27Source: OIETAI

Retail/ Fast-Moving Consumer Goods (FMCG) Domestic brands dominate a high-consumption market Imports account for just 8 percent of all sales in fast

moving consumer goods, compared to more than 40 percent in India, Malaysia, Mexico, and Russia.

Iran has above-average retail sales per capita

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Automotive Total vehicle penetration in Iran is relatively

high (at 200 cars per thousand people, compared

with a peer average of 138) Iran has the potential to become a regional

automotive manufacturing hub for global brands that could meet the needs of neighboring countries To achieve this aspiration, automakers will need

to attract significant investment to upgrade production

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Pharmaceutical Iran has advanced scientific capabilities including

in stem-cell research and biotechnology Iran reportedly ranked fourth globally in stem-cell

research in 2015 and first in the region for production of biotechnology

Demand for many types of drugs is likely to increase in line with Iran’s demographics and disease burden Iran’s population will age over the next 20 years, with

individuals aged 50 to 64 growing from 12 percent of the population to 22 percent;

aged 65 and older will grow from 5 percent to 12 percent

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ICT Almost 1.5 mobile subscriptions for every person, mobile

penetration in Iran is more than 50 percent higher than in China, Mexico, and Turkey

MCI Hamrah-e-Aval, the 14th-largest post-paid telecommunications operator by number of subscribers in the world and the largest in the Middle East and South Asia

The penetration of fixed broadband has been growing rapidly and market is open for competition with hundreds of Internet service providers

Tehran has several advantages as a potential IT outsourcing hub (strengths include a large pool of engineering talent and low labor costs.)

The Iranian government has prioritized development of ICT as part of its five-year plan and has promoted several technology parks. include the Pardis Technology Park in Tehran, which houses more than

120 companies with more than 2,000 employees31

Iran ICT Key Facts

3G & 4G Rapid rollout of 3G and 4Gin the next 18 months country wide

57% Internet connectivityIn country

30m Mobile internet usersUnprecedented 3x growth

Highest Proportion of engineersPer capital in the world

Largest Number of engineersAfter Russia and the USA

WorldRecord

For number of researchArticles in 2005-2015

12 AcceleratorsAround the country

22 Technology ParksIn different cities

1.6% Share of the world’s market share

In science and technology

30% Iran’s e-commerce sector growing

By over 30% a year

Steel

The government has ambitions to triple steel production

Iran is an outlier in its use of direct reduced iron as the primary method of production only 4 % of global crude steel production

uses direct reduced iron which Iran has a share of 20%

It has a lower level of impurities compared to most types of scrap; however, its higher silica content affects productivity.

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Iran is the number-four cement producer and the top exporter in the world

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Cement Iran Cement competitive advantages:

Large production capacity distributed in the country

Low production cost Large and increasing domestic market size

Investment opportunities: Developing of Export Infrastructures& logistics Introducing New Products to the Market

(Concrete pavements, dry mortar, architectural construction elements ,…)

Energy saving projects ( WHRS,…) Entering new export markets

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Investment Facilities in Free Trade Zones

A 20 years tax exemption No visa for the entrance of foreigners Custom exemption for raw materials

and industrial machineries of producing units

Easy registration of Companies Easy circumstances for re-export and

transit of commodities Possibility of exporting products to the

mainland Long-term lease of the land for the

foreigners Suitable rates for the energy

consumption

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Investment Facilities In Industrial Parks

Preparation of suitable land for industrial projects in accordance with technical, engineering and new constructions methods

No need for permissions from various agencies and organizations

Be exempted from the municipalities Easy and fast access to facilities such as roads, water,

electricity… Use of software services from technology and business

centers such as technical, engineering and management consulting

Free of Charge services to take the construction permit and finish license

Reduced investment costs due to the organized common services

Rent/ purchase of ready-built Sites Payment of exploitation costs by cash and installment Reduction in price of land and facilities exploiting based on

project execution duration, job creation and productivity

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Incentives for Foreign Investment in Iran

Source: Organization for Investment, Economic and Technical Assistance of Iran (OIETAI)

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More information…Including: Introducing Iran macroeconomic

performance investment climate Areas of Opportunities The Regulatory Framework Visas & Work Permit and procedures to

obtain required permissions and licenses for doing business in Iran

Organization for Investment, Economic and Technical Assistance of Iran (OIETAI)

www.investiniran.irwww.iio.ir

IRAN INVESTMENT GUIDE

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Thank you For your attention