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From:  MEED (Middle East Business Intelligence)

  • Published: 21 November 2007 12:43 GMT
  • Last Updated: 14 April 2009 14:28

Should Iran accept the offer of enriched uranium supplied by the GCC or should it continue its own uranium enrichment programme thereby escalating its conflict with the West?

Soon the Iranian government will have to decide. The US administration has given Iran until the beginning of December to stop its enrichment programme or give weapons inspectors full access to all its nuclear facilities.

The stakes could not be higher. The United Nations Security Council has already imposed sanctions on Bank Sepah, the state-owned bank that handles the finances of Iran's different military forces. In October, the US imposed its own sanctions on Bank Melli, the country's largest bank, Bank Mellat, Bank Saderat, and the Islamic Revolutionary Guard Corps (IGRC). Washington accuses all three banks and the IGRC of encouraging the proliferation of nuclear weapons. If Iran does not do what Washington wants by December, the US government and its European allies, France and the UK, will ask the UN to extend its sanctions to cover the IGRC and the three banks.

Sanctions could cause problems for Iran's economy. The Supreme Leader Ayatollah Ali Khamenei wants to privatise 80 per cent of the country's many state-owned companies over the next eight to 10 years. To do so, he needs foreign investment. The US sanctions prevent both American companies and any companies listed on a US stock exchange from dealing with Iran's banks and (because of the sanctions on the IGRC) almost every other business in the country.

Unless Iran does what the US wants, Khamenei has to attract investors that do not care about the sanctions.

Table: Iran at a glance

Full Name:

Islamic Republic of Iran




1,648,000 sq km (636,293 sq miles)



Head of state:

Ayatollah Ali Khamenei


Iranian Rial (IR) ($1 = IR 9,298).


89% Shi'ite Muslim, 10% Sunni Muslim, 1% Zoroastrian, Jewish, Christian, Baha'i


Farsi (official) Kurdish (other) Azeri (other)

International organisations:

Arab League, IAEA, IMF, OIC, OPEC, WTO (observer), UN



How supreme is Iran's Supreme Leader? In October, Ayatollah Ali Khamenei, only the second Supreme leader since Iran's 1979 Islamic Revolution, made no public comment when the chief nuclear negotiator was replaced with a personal friend of President Mahmoud Ahmadinejad. Khamenei has the final say over national security policy, but the president appoints the chief nuclear negotiator.

Ahmadinejad replaced Ali Larijani, a man believed by many in the West to be a pragmatist, with Saeed Jalili, the deputy foreign minister. In Iran, the chief nuclear negotiator is the secretary of the Supreme National Security Council, a group of presidential appointees.

Presidential elections: 2009
Parliamentary elections: 2008

Government officials

  • Supreme Leader: Ayatollah Ali Hoseini Khamenei

  • President: Mahmoud Ahmadinejad

  • Speaker of the Islamic Consultative Assembly (Majles): Ali Ardeshir Larijani

  • Secretary of the Cabinet: Masud Zaribafan

  • First Vice President: Parviz Davudi

  • Vice President for Atomic Energy: Qolam Reza Aqazadeh- Khoi

  • Vice President for Cultural Heritage & Tourism: Esfandiar Rahim Mashaie

  • Vice President fo Enviromental Protection: Fatemeh Javadi

  • Vice President for Executive Affairs: Ali Saidlu

  • Vice President fo Legal & Parlimentary Affairs: Mohammed Reza Rahimi

  • Vice President for Management & Planning: Mansour Borqei

  • Vice President for Martyrs & War Veterans: Hosein Dehqan

  • Vice President for National Youth Organisation: Hojjat ol-Eslam Ali Akbari

  • Minister of Agricultural Jihad: Mohammad Reza Eskandari

  • Minister of Commerce: Masoud Mirkazemi

  • Minister of Communication & Information Technology: Mohammad Soleimani

  • Minister of Cooperatives: Mohammad Abbasi

  • Minister of Culture & Islamic Guidance: Mohammad Hossein Saffar Harandi

  • Minister of Defence & Logistics: Mostafa Mohammad-Najjar (explicit approval of Supreme Leader needed before appointment can be made)

  • Minister of Economy & Finance Affairs: Shams-ed-Din Hoseini

  • Minister of Education: Ali Reza ali-Ahmadi

  • Minister of Energy: Parviz Fattah

  • Minister of Foreign Affairs: Manouchehr Mottaki

  • Minister of Health & Medical Education: Kamran Bagheri Lankarani

  • Minister of Housing & Urban Development: Mohammad Saeedikia

  • Minister of Industries & Mines Supervisor: Ali Akbar Mehrabian

  • Minister of Intelligence: Gholam Hossein Mohseni-Ejehei (explicit approval of Supreme Leader needed before appointment can be made)

  • Minister of Interior: Sadeq Mahsuli

  • Minister of Justice: Gholamhossein Elham

  • Minister of Labour & Social Affairs: Mohammad Jahromi

  • Minister of Petroleum Supervision: Gholamhossein Nozari

  • Minister of Roads & Transportation: hamed Behbahani

  • Minister of Science, Research, & Technology: Mohammad Mehdi Zahedi

  • Minister of Welfare & Social Security: Abdolhossein Mesri


The Supreme Leader wants to liberalise Iran's economy, but many Iranians are standing in his way. Ayatollah Ali Khamenei has called for most state-owned enterprises to privatise 80 per cent of their equity over the next eight to 10 years. Khamenei has named some 240 enterprises that he wants to see privatised by the end of the current Iranian year in March 2008.

Just two enterprises, the National Iranian Copper Industries Company (NICICO) and Mobarakeh Steel Company, have been privatised so far. The Iranian Privatisation Organisation (IPO), which is overseeing the whole programme, floated five per cent of both companies on the Tehran Stock Exchange (TSE) to set the price for larger sales of equity. Retail investors showed a strong appetite for both companies. The TSE's liquidity has improved since the spring mostly because of new money that has been attracted by NICICO and Mobarakeh.

The privatisation programme has been less successful at attracting money from outside Iran. The IPO gives the market just three weeks' notice before it sells large shareholdings. When 20 per cent of NICICO was floated on the TSE in September, the only buyers were state-owned investors. Any foreign investors that had waited for the share issue were unable to act before the deadline.

The lack of timely information from the country's central bank also makes it difficult for foreign investors. Iran suffers from high inflation, but its central bank provides infrequent inflation updates and minimal information about the effect of inflation on different commodity prices.

Table: Economic indicators

($million, unless stated) 

 200520062007 (forecast)
GDP (at current prices)126,100194,800-
Non-oil GDP as % of GDP---
Population (millions)69.068.6-
Population growth (%)1.51.3-
GDP per capita ($)1,7503,223-
Real GDP growth (%)
Nominal GDP growth (%)21.017.3na
Inflation (%)14.610.2-
Unemployment (%)---
Trade balance20,00019,043-
Surplus/ deficit-5,500-60,854-
Surplus/ deficit as % of GDP-4.431.0-
External debt17,01414,800-
External debt as % of GDP13.57.5-
Sovereign ratings




Most of Iran's state-owned banks have helped to spread nuclear technology or financed terrorism, according to US secretary of state Condoleezza Rice. Iran's banks have been run differently from the banks in its neighbours since the Islamic Revolution. All commercial banks were nationalised in the aftermath of the revolution. According to the IMF, the Iranian government's six general banks and four specialist banks accounted for 98 per cent of the country's deposits at the end of March 2004.

Privately owned banks were only allowed back into Iran in 2001. So far, six have been set up. One of them, Parsian, has shown up the inefficiencies in the state-owned banks by successfully running a branch network with just one fifteenth of the branches of its government-backed rivals.

The IPO has said that Bank Mellat, Bank Saderat and Bank Tejarat will all be privatised. Bank Melli, which holds one-third of the country's assets, will remain in public hands. Melli had planned to launch a Eur 300m ($435m) mutual fund investing in the TSE by the end of this year. If the UN introduces sanctions against Bank Melli at its meeting in December, the First Persian Equities Fund will find it much harder to raise capital.

Oil and Gas

Iran's oil and gas sector has its own problems attracting foreign capital. National Iranian Oil Company (NIOC) must remain under state ownership under the terms of the 1979 constitution, but the oil ministry's other enterprises may be sold off. NIOC generates plenty of cash for the Iranian government, but it struggles to find foreign companies prepared to carry out much-needed exploration work.

The NIOC subsidiary responsible for developing the giant South Pars gas field was forced to use the National Oil Stabilisation fund to continue working. The Pars Oil & Gas Company was forced to turn to the emergency fund after an unnamed French bank withdrew $1.8bn of finance in August.

The IPO wants 92 enterprises owned by the oil ministry to privatise by the end of March 2008. In reality, one or maybe two will be privatised before the deadline. Fanavaran, a petrochemicals business, is the most likely to privatise.


Although Iran's oil and gas reserves attract the most attention, the country's industrial sector is far more important to the economy. Industrial output from manufacturing and construction grew at 7.6 per cent per year between 1960 and 2002. The industrial sector now accounts for 25 per cent of GDP, compared with the oil and gas sector's contribution of 13 per cent.

Output has grown dramatically, but productivity in the sector has failed to keep pace. An IMF report earlier this year on Iran's economic performance said there was evidence of "a low productivity of investment in the industrial sector, possibly reflecting trade restrictions and inefficient public sector investment".

Trading with Iran has been difficult since the Islamic Revolution. The IMF's trade restrictiveness index ratings ranks Iran's tariffs regime as the 11th highest out of some 193 countries. The average tariff on imported goods is 30 per cent.

The two privatisations to have taken place so far have both come from the industrial sector. Both have been successful for investors. The shares are comfortably higher than the price obtained by the government when they were sold.


Iran's telecoms sector may present the sweetest opportunity to investors. Telecommunications Company of Iran (TCI) had 20 million mobile phone customers at the end of September this year making it the Middle East's largest telecoms operator by number of customers. TCI also owns 30 provincial enterprises that control access to the fixed-line telecoms network in the different parts of the country. The IPO had planned to sell five per cent of TCI in September this year, but the sale was called off without giving a reason. The company may have failed to create a separate report and accounts for each of its subsidiaries.

TCI's mobile phone subsidiary, Mobile Company of Iran (MCI), is worth $4.2bn and the whole business some $16bn, according to Hamid-Reza Nikoofar, an adviser to the chief executive of MCI. The state-run telecoms operator hired an analyst to calculate the value of the enterprise earlier in the year. The price is very high for an operator active in a single market, but MCI, at least, is doing well commercially.

In late 2006, it faced competition for the first time when Irancell, a group of investors backed by South Africa's MTN Group launched Iran's second mobile phone operator. MTN executives have since said that MCI fought back more strongly than they had anticipated.

If TCI is privatised, the government will retain control of Data Company of Iran (DCI), the TCI subsidiary that controls access to the internet. Media, including the internet, is one sector where Iran's bureaucrats are guaranteed to continue exerting control.

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