Iran

iran_country_profile.jpg

Iran Country profile

July 2016

Iran lags behind most neighbouring economies for per capita income and creditworthiness. But growth and the business climate are broadly in line with the regional average.  It is the second largest economy in the Middle East and North African region (MENAP).  The oil-dependent economy has been hit hard by international sanctions in response to its nuclear program, and then the 56% oil price slump over the last year. International relations are improving after Iran and P5+1 world powers reached an historic accord to curb Iran's nuclear program allowing for the eventual lifting of sanctions.

Figure

Economic outlook

International relations have improved culminating in the historic accord signed with the P5+1 world powers in July 2015. The sanctions imposed on Iran’s oil exports, imports and access to international financing in response to Iran’s nuclear program have crimped growth over the last three years. A complete lifting of the sanctions would support Iran’s quarantined oil and financial sectors. This could in turn spur a sharp economic recovery and sizeable foreign capital inflows, and restore access to more than US$100b in frozen assets. The Institute for International Finance estimates that growth could double as a result—from about 3% in FY2016 to 6% in FY2017. But sharp falls in oil prices will partly offset the positive lift from lower sanctions. 

Favourable demographics and abundant energy resources (Iran has the world’s second largest gas reserves and fourth largest oil reserves) also bode well for the long term outlook. But without employment opportunities for the large population, Iran will not be able to lift its living standards.

Figure

Iran gained upper-middle income status in 2009 and per capita incomes are currently around US$5,000, similar to Jamaica and Macedonia. Yet despite recent rises, youth unemployment remains a problem with 1 in 5 youths unemployed. Some 750,000 youths enter the labour market every year, and many struggle to find jobs.

Figure

Business climate

Iran has an OECD country credit grade of 6 and is not rated by the three major ratings agencies. The OECD rating underlines Iran’s vulnerability to business, financial and economic setbacks.

The World Bank gives Iran an ease of doing business rank of 118 out of 189 countries. It underperforms the regional average in some categories, but outperforms on enforcing contracts, getting credit and starting a business.

Figure

Iran scores poorly on the World Bank’s governance indicators. It is in the bottom quartile on most measures and scores particularly poorly on regulatory quality and ‘voice and accountability’.  Government mismanagement, inefficiencies and a burdensome regulatory environment are particular drawbacks.

Figure

Bilateral relations

Iran is Australia’s 66th largest trading partner in 2014-2015. Australian merchandise exports were worth US$115m in 2014-2015, down 62% on a year ago. Shipments to Iran are predominantly wheat, meat, wool and dairy. The current sanctions make trade and investment difficult. That said, sheep exporters could increase shipments to Iran following recent bilateral negotiations over health protocols for animals. Strong population growth will present opportunities for Australian agricultural exporters. Imports were worth a meagre US$34m in 2014-2015, and comprised mainly carpets, fruits and nuts.

Figure

Service exports and bilateral investment with Iran remain negligible; but Iran’s vast oil and gas fields could present opportunities for Australian firms, particularly if sanctions are lowered. BHP Billiton considered investing in a pipeline that ran from Iran to Pakistan in 2003; but sanctions derailed that opportunity. Iranian student enrolments in Australia remain modest at just over 3,000 (0.5% of total enrolments) in 2015. 

Figure

Useful links

Department of Foreign Affairs

Country brief

Austrade

Market profile