Iranian tourism industry today upholds a raw potential awaiting an amazing expansion in the near future. While growth is ensured, the supporting allies, coinciding situations and the speed of events yet remain worthy of examination. Out of the neighboring countries, one would wonder how the recently strained relationship between Russia and Turkey could possibly reflect in Iranian tourism industry. What are the possibilities that the shift in political relations between Russia and Turkey may be a supporting factor in the expansion of Iran’s tourism industry?
The Turkish-Russian relation dates back to the Ottoman-Russian Empire times. Though turbulent for the most part, the two countries have a lengthy and engaged history together. Despite ups and downs and the engagement in many wars against each other, finally in 1920’s the two countries started developing a warmer relationship. Though many setbacks involved, the following decades gradually fortified the economical bond between the respective countries. By the fall of the Soviet Union in early 1990’s, the ties between the countries strengthened even further as they ranked amongst each other’s largest trade partners.
Turkey became the top destination for the Russian Tourists and Russia held a very high figure in Turkey’s tourism economy as three to four million Russians were visiting turkey yearly. Only about 4.4 million Russian including 3.3 million tourists visited Turkey in 2014. Turkey’s seaside resorts became one of the top destinations for Russian travelers. The zenith of Turkey Russian tourist relations lasted till the jet shoot down incident of November 2015 quickly put an end to it. The shocking incident was followed by unfortunate consequences taxing the positive tourist relations between Russia and Turkey.
On Nov 24th, 2015 Turkey shot down Russia’s war- plane in Turkish- Syrian border stating that the jet was in Turkey’s airspace. Shocked by the affair, Vladimir Putin, the president of Russia stated that Russia would never forget downing of the jet and called the event a stab in the back. Russia implemented a series of economic sanctions against Turkey right away and Russia’s state terrorism agency recommended suspending all tour package sales to Turkey. Furthermore, the foreign minister of Russia recommended Russians not to travel to Turkey at all and talked about restricting air travel to Russia. This created a destination void for Russian tourists and left many countries in the region including Iran seeking the opportunity to host Russian tourists.
As Iran is seeking to attract 20 million foreign tourists by the year 2025, the recent affairs in the region seem to coincide as expediting factors in this process. While Russia is looking for a tourist destination replacement, Iran is also hoping to host Russians. Many countries including Russia, warmly visited the Ninth international tourism exhibition in Tehran in February 2016. Russia’s extensive presence in this expo was a result of recent clashes with Turkey and Iran’s resumed cultural economic relations with Europe after the sanctions removal. Through the recent meetings, the agreements between Iran and Russia seem propitious in engaging in extended tourist exchange in the future.
The words of the head of Rostourism, Oleg Safonov, during a meeting with Dr. Morteza Movahed, the ministry of Iran’s tourism, were very promising regarding the tourist relations between Iran and Russia. Safonov stated that Iran is one of the safest places for Russian tourism and Russia was ready for closer cooperation in that field. He added that there are many beautiful places in Russia and Iran to visit and he was hoping that with further cooperation between the two countries, there would be more tourist exchange between Russia and Iran. He also added that Iran could fill the void that the Russian tour Industry is experiencing as a result of Mal relationship with Turkey and Egypt. Dr. Movahed also promised the best service in welcoming Russians in return.
Iran and Russia are cooperating to remove visa requirements to further facilitate travel between the two countries. In addition, Iran’s private airline Mahan Air launched direct flights between Tehran and Moscow on January 21st, 2016 accommodating more tourist exchange. During an Iran Daily interview, Yulia A. Mokhova, the acting director of Visit Russia, stated that Russia has plans to expand the media cooperation between the two countries to inform people of the possible tourist attractions. The positive recent agreements between Iran and Russia optimistically indicate the possibility of Iran replacing Turkey as a Russian’s tourist destination. The agreements to create closer tourism ties between Iran and Russia could be an expediting factor in the expansion of Iranian tourism industry.
There are lots of tourists traveling to and visiting Iran each year due to ancient and natural attractions located in this country. According to UNWTO (World Trade Organization) statistics, tourism industry in Iran is ranked 10th in historical and ancient attractions. Iran has also got the 5th rank in natural attractions among the countries worldwide.
Hoteling industry in Iran has an old history with great experience. There are more than 1,100 hotels providing guests with services in Iran. Among them there are 29 hotels which are five stars ranked and about 75 four star graded hotels. These hotels are in main cities of Iran such as Tehran, Tabriz, Isfahan, Kermanshah, Kerman, Mashhad, Kish and Qeshm. Also, the most expensive and top hotels are in Tehran, Kish and Isfahan.
Recently after nuclear deal, by lifting sanctions and as a consequence, providing potential opportunities in order to make profit, there are lots of foreign investors and business owners who are interested in Iran’s economic opportunities. Moreover, many traveler around the world are interested in Iran’s profitable opportunities so in order to be host for travelers, Iran should expand Hotel Industry.
On the other hand, because of tensions in Turkey and Middle East countries, visitor to Iran will increase drastically. Many investors as representative of businesses from other countries who are visiting Iran and investigating in the opportunities in order to participate in Iran’s markets. So, booking of hotels in Iran will potentially be increased. Also, Nowruz is a traditional holidays for Iran’s culture, through ancient years there were many tourists who came to Iran and visited the country’s natural attractions. In terms of Foreign Direct Investment, the government has also provided a series of incentives through the law on foreign investment in Iran under the name of Foreign Investment Promotion and Protection Act (FIPPA). By recent political and economic circumstances, all hotels in Tehran have been booked and there are no rooms left free anymore. This means that Iran’s tourism industry has potential to invest in.
Last but not least, in year 2016, tourism to Iran will outperform drastically, so there is an opportunity in order to observe a boost in this industry.
Toiran.com While the international strict sanctions caused the Iranian market to deteriorate for more than three decades resulting in significant depreciation of Rial’s value, pressing inflation and many other internal disturbances it caused exclusion of Iran from the global market and strained the tourism industry to go on a gridlock with the exception of health and religious tourism. The myths and propaganda accompanied with the sanctions caused the country to have only 1% of its tourism revenue till 2013 while Iran was ranked one of the top 10 destinations to see by the world’s media.
Fortunately, the landscape of Iranian market has dramatically changed within the last few months due to the agreement between the European union and Joint Comprehensive Plan of Action (JCPOA) to ease and cease many sectors of Iran related sanctions such as Finance and banking, Insurance, Oil, gas and petrochemicals, Shipping and ship building; transport and more. Due to this agreement and considering Iran’s wealth, vast significant business opportunities in Iran are guaranteed.
Iran is the last large emerging market with the second largest population in the region with about 80 million people. Iran ranks second in the world in natural gas and fourth in raw oil reserves. While opportunities in petroleum industries are transparent there a variety of emerging opportunities in the hospitality sector, shipping sector transactions and dealings with Iran’s private financial institutions. In addition the government has provided certain free zones like
Kish Island that offers tax exemption and protection for foreign investors. The opportunity to use Iran as an export hub in the region would offer an attractive opportunity for any international investor.
After the reach of the agreement regarding the economic sanction lift on July 14th 2015, the president of Iran, Hassan Rouhani, happily announced that we have reached a “new level” in Iran’s relations with the world. Furthermore, the government of Iran announced a set target to attract 20 million tourists each year by 2025 as businesses are tending to find new opportunities in Iran.
It is evident that the government today is largely investing on the tourism sector more than any other industry. Associated press has announced: “A country rich in historical and cultural treasures, Iran will unveil an investment package of 1,300 projects in the coming days to attract foreign investment and boost the badly-hit tourism industry. Iran is home to 19 UNESCO-registered sites.” We have been witnessing large investments on airport expansion, purchasing airplanes, numerous hotels and shopping malls under construction.
We are expecting a tsunami of tourists as our firm has recently witnessed a lot of growth in requests for business trips in oil segment, automotive industry, construction, finance and more sectors. With Iran’s unfolding market we are hoping to see this advancement and growth sustain and expand much more and more every year.
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Toiran.com Iran is the must visit place of our time today because of so many distinctive and unexplored aspects of the country. These aspects include a unique and lengthy history with so many heterogeneous colorful cultures, extensive manmade and natural attractions and a market that is an untouched domain just about to expose itself to the rest of the world with endless business opportunities.
Iranian history dates back to the beginning of the mankind’s civilization. The remains of the former Persia today offers breathtaking sites such as Persepolis, amazing architecture styles of different eras and also cities such as Yazd that is said that it was the very first city ever built dating 7000 years back. Iran, today is formed from several different cultures and ethnic groups from Nomads to Kurds and Turks who preserve their own ethnical identities and speak different languages while are united and live peacefully together with a proud Iranian identity. People of Iran are very kind-hearted, hospitable and ready to open up and befriend the rest of the world.
As Iran is a four season country and because of its unique geographical location and its large-size land area there are so much natural attractions that remain a must see in Iran. Iran is located next to the largest lake in the world, the “Caspian Sea”, up north and next to the Persian Golf down south with so many fascinating Islands that have magnificent sites, nature and culture. The highest peak in the middle east and the highest volcano in Asia, “Damavand”, is located on the Alborz mountain chain in Iran. Iran has 22 fabulous ski slopes and resorts and a few of them are about only an hour drive from Tehran. The desert nature and life in Iran is breathtaking and the desert architecture is outstanding. Also the lush forests of up north with a varied wild life are thrilling and great to explore. These wide ranges of natural attractions also provide the opportunity for many leisure as well as sportive and adventurous activities such as skiing, scuba diving and desert safaris, bird watching and fishing.
Iran is a rich country with so many high potentials and great natural and human resources. Iran’s economy has remained an untouched domain as a result of the heavy sanctions excluding Iran from the rest of the world for so many years. Now the sanctions have lifted and Iran that is a gas and oil rich country with sixty percent of the population under the age 35 is just waiting to open up an amazing market to the world.
This article is prepared by Toiran.com that is an online platform proud to provide you with further extensive information on Iran.
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Iran is preparing for a tsunami of tourists. Masoud Soltanifar, Irans Cultural Heritage, Handicrafts and Tourism Organization chief said during an interview with the Associated Press. There is a large number foreign tourists willing to visit Iran as this country is set to begin implementing a landmark nuclear deal with world powers, he added.
One of the world’s most mountainous countries, Iran contains two major ranges of mountains, the Alborz with one of the highest peaks in Asia and the Zagros that cuts across the country extending from north west to the south east of the country. There is a vastly extended network of rivers in Iran most of which seasonally are filled with water running from Alborz and Zagros mountains. There is also a variety in terms of temperature, humidity and rainfall different from place to place and season to season in Iran. Ultimately, Iran with a numerous rich cultural and historical attractions can be a treasure to visit, in western eyes.
There is no doubt that the tourist industry has been a driving engine and one of the key factors to boost economic growth around the world as it affects a variety of sections including hoteling industry as well as transportation.
Tourism with the tremendous amount of income (over $3 trillion) has become one of the fast growing industries in the world in 2013, according to the World Tourism Organization. The number of tourists all around the world, has increased almost 8% to approximately 1.08 billion in 2013 compared to 2012, regarding the statistics released by WTO. It is worth considering that this amount is estimated to reach to 1.8 billion till 2030.
Considering this, Iran aims to host 20 million tourists a year by 2025, with expectations of growing the tourist industry to $30 billion. The government has also set some easing policies to facilitate entrance regulations and visa rules upon arrival of foreign travelers.
There are nearly 130 four star and five star hotels which need to be increased to 400 by 2025, however some of these hotels should be modernized. Likewise, the air transportation system needs to be renovated and new passenger planes should be bought to meet the global standards of this industry.
Last but not least, the tourism is considered to play a key role in the future of Iran and its economy, specifically after sanctions relief and It is expected to have investors both from public and private sectors eager to enter this industry during the years to come.
TSE (Tehran Stock Exchange) index has decreased 1,058.4 on Saturday (2016/11/06), it was a plunge after around one month of moderate trades. Still any obvious reason for that is not mentioned but in my opinion, mostly it is because of investors’ over-reaction. After JCPOA agreement, vision of investment for Iranian companies has changed and the horizon of investment has become bright, so liquidity was guided to stock market, value of shares for various companies increased dramatically. But gradually reverse pattern has emerged due to the correction has occurred about overreaction to the realistic effects of sanction lifts and no practical progress had happened. Problems in money transferring to Iran was a major reason to cool down investors. U-turn mechanism prohibit other countries to use US dollar while trading with Iran.
According to Financial Times, U-turn permitted US banks to process payments from Iranian entities so long as the transactions were initiated offshore and passed through the US only for dollar clearing before being routed back to banks offshore. The U-turn exemption was revoked in 2008 (Financial Times).
During 26th March to now, Ownership transfers of stocks are mainly bidding by individual investors and asking by institutional. Below diagram illustrates entering individuals and institutional to different industries.
Another factor that has major effect on stock markets is interest rate, higher interest rate in comparison with inflation rate in Iran make bank deposits profitable with minimum risk. Inflation rate of Iran is about 10% while interest rate is 18% (per year) so each investor can earn 8% free of risk by depositing money in banks. Furthermore, high interest rate causes enormous financial costs to Iranian firms. Combination of earning free risk profit and high financial costs will lead money to migrate from production to deposits.
Recently, news say that interest rate will be decrease to 16%, in valuation theory price of stocks has reverse relation with interest rate so when interest rate decreases, it causes stock market to have a growth.
It is important to mention that till now money and credit council decide how much will be the interest rate, but this is the first time that banks have lowered the interest rate by their own.
In conclusion, the existing gap between the banks` interest rate and inflation rate cannot last for long because the main target of officials is to bring the growth to economy and it is expected that the interest rate should be 2% higher than inflation. Therefore, it seems that we have to expect more decrease in interest rate by bank in a near future.
Introduction:
The mutual fund has attracted considerable interests in recent years. Considering the complexity and the risks involved of dealing with financial assets, mutual fund provides a setting, which enables investors to access a professionally managed and diversified portfolio including shares, bonds and other financial assets. As such, the performance of fund relies on various factors which are: the performance of portfolio managers, the performance of underlying shares, bonds and other financial assets included in the portfolio. Further, each shareholder participates proportionally in the gain or loss of the fund.
One of the most innovative mutual funds is Exchange Traded Funds (ETF). ETFs track an index, a commodity, bonds or baskets of assets like an index fund. While mutual funds are not tradable, ETF trades similar to a share on stock exchange during the market hours. As such, ETF prices tend to change during the trading hours. Given that ETFs offer a wide variety of investment choices, it is a great investment option for investors with limited knowledge about different types of financial markets. Nevertheless, the investment structure of ETF varies country by country. This article provides an introductory insight into the ETF market in Iran.
A relative comparison of ETFs and Mutual funds in Iran:
- While NAV for ETF is updated every 2 minutes during the trading hours, mutual funds trade based on their net asset value(NAV) prices of the next day.
- Unlike mutual funds, there is no limitation on the minimum investment required for ETFs.
- While it takes one to three working days for settlement of ETFs, it takes minimum 7 working days for mutual funds to settle.
Types of ETFs in Iran:
This section provides an insight into the various types of ETFs in Iran market.
- Equity ETFs:
The equity based ETFs is comprised of companies included in the Tehran Stock Exchange (TSE). These equity ETFs invest 70%-90% of the proportion of the underlying assets in stocks and 10%-30% allocated to alternative income sources. These kind of ETFs are generally suitable for investors with a high-risk appetite. In the table below the information about existing equity ETFs has been shown:
No. Fund Name Instrument(Symbol) Market Name Settlement Buy Commission sell commission 1 Aseman Armani Saham ETF ASAS(SSAF1) Farabourse(IFB) T+3 0.00486 0.00529 2 Tosse Andokhte Ayande ETF Atlas(SATF1) 3 Amin Tadbirgaran Farda ETF ALMAS(SALF1) 4 Sepehr Charisma ETF CHARIS(SSKF1) 5 Hasti Bakhsh Agah ETF AGAS(SAGF1) 6 Arman Atiye Derakhshan Mes ETF ATIMES(SMIF1) 7 Firooze Index ETF FIROOZE(CFIF1) Bourse(TSE) 8 Kardan ETF KARDAN(SKDF1) 9 Padash Tosse 1ETF SEPAS(SSPF1)In the graph below the performance of 3 mutual fund and also TSE Index has been shown. It is needed to consider that the reason for selecting these 3 funds out of 9 and comparing them with TSE index is life of them and they are the oldest equity fund in Iran.
- Fixed income ETFs:
These funds invest 90% of the underlying assets in fixed income assets and only 10% of the underlying assets in equities. Within short term, an investor is expected to gain 23% return on average per annum. Fixed income ETFs can provide investors with more reliable income stream and with minimum level of volatility. As such, these funds generally suit investors with low risk appetite. In the table below the information about existing fixed income funds has been shown:
No. Fund Name Instrument(Symbol) Market Name Settlement Buy Commission sell commission 1 Etemad Afarin Parsian ETF ETEMAD(FATF1) Farabourse(IFB) T+1 0.00097 0.00106 2 Ganjineh Ayandeh Roshan SAYAND(SGAF1) 3 Arman Ati Kosar ETF AKORD(FKOF1)The performance of one of the oldest fixed income fund and TSE Index has been shown in the graph below:
- Multi assets ETFs:
Multi assets ETFs includes fixed income securities (40%-60%) and equities (40%-60%). As such, these funds generally suit investors with moderate risk appetite. In the table below the information about existing multi assets funds has been shown:
No. Fund Name Instrument(symbol) Market Name Settlement Buy Commission sell commission 1 Sepehr Andishe Novin ETF SEPEHR NOVIN(CSNF1) Bourse(TSE) T+2 0.00097 0.00106 2 Arman Sepehr Ayandegan ETF Arman Sepehr(CASF1) Farabourse(IFB) 3 Sepehr Naft ETF Sepehr Naft (SSNF1) 4 Servat Afarin Parsian ETF Servat Afarin(CSAF1)The performance of 2 oldest multi assets fund and TSE Index has been shown in the graph below:
Conclusion:
Investors are generally risk averse and they require higher return when they are exposed to a higher level of risk. Perhaps the most attractive feature of ETFs for investors is diversification of the risks as ETFs tracks a wide range of financial assets including equities, bonds and commodities. In an emerging market such as Iran, ETFs provide an important setting for investors to easily access to the market. Given the high level of volatility observed in Iran’s equity market, foreign investors could invest in ETFs as a great instrument to access such a growing market.
The subject of cash dividend is one of the important topics for investors after the general meeting of a company. According to the reform of the Commercial Code of the Islamic Republic of Iran ratified in 1969, companies are obligated to prepare financial statements and to hold general meeting until four-month period after the end of the financial year. Moreover, the commercial code compels the companies to provide the exact date of profit sharing before the assemblies and the maximum time period for the payment of dividends is set at 8 months after the date of annual ordinary general meeting. This is while in Tehran Stock Exchange the problem of the amount of dividend as well as the time and method of payment is part of the objections and complaints of shareholders during the season of companies’ general meeting.
The season of companies’ meetings is considered as the time to present the yearly performance of companies. The approval of financial statements and also the cash amount of dividend is one of the instructions of this meeting. During recent years, shareholders have always been complaining about the dilemma of profit sharing. The complaint regarding the amount of the dividend and the timetable of their payment have been some of the main issues discussed during the meetings, which is due to the weakness of laws and regulations and investigations regarding any complaints will be very time-consuming. Despite the existing objections, former policies are still being pursued at Tehran Stock Exchange, which can be viewed as the direct result of lack of sufficient supervision over this part of companies’ activities. The time of profit sharing is one of the main problems that exist in the stock market and consists on average of a period of 3 to 8 months. This time is usually announced by the company within days before the general meeting. While the dividend is distributed to shareholders during a long period of time, on the opening day the amount of the dividend is deducted from the share value. This issue, which normally appears attractive, can be followed by sale pressure from shareholders. On the other hand, despite the publishing of the profit sharing timetable by companies, in some cases it has been seen that as a result of liquidity problems companies are not capable of paying dividend even at the designated dates. The method of payment of dividends is another problem that exists in this regard. Absence of relevant authorities and clear regulations in this regard can lead to confusion for shareholders in receiving their cash dividend. Each company necessitates its shareholders to declare an account number from a designated bank (according to the agreement between companies with various banks) in order to directly pay their dividends. In this situation, a shareholder that wants to receive dividends from a number of companies is required to open accounts in these banks.
Other companies that do profit sharing indirectly suggest other banks, and finding the names of these banks add to the problems of determining the timetable for profit sharing. As pointed out earlier, lack of clear and compelling regulations is among the factors that have aggravated the problems that exist in the Tehran Stock Exchange. The amount of the cash dividend is another problem that has led to shareholders’ protest. In this regard, shareholders’ complaints especially the real ones regarding cash dividends is seen less at the meetings. This is while the boards of directors of the companies usually consider much less sums. In analyzing this problem in comparison to the one stated before it should be noted that the departure of liquidity from companies is a factor that eventually diminishes their strength in development plans and creates financial problems for the company in the years ahead. As a result of this issue, companies will be obligated to obtain financial facilities with very high interest rates in present situations. The increase in companies’ costs as a result of these high interests will hamper the successful performance of the company. Liquidity problems will also prevent companies to carry out timely payment of dividends in the future years.
It is apparent that the average dividend during the recent years has been around 75%, which is high among Iranian companies. In reality, according to the theory of signaling if the management of the company is confident about the arrival of cash flow in the future as well as the surplus of resources, it will perform profit sharing. However, this is not very popular among stock exchange companies and in some cases it has been seen that in order to obtain more popularity among shareholders and to respond to the needs of major shareholders, the management of the company will share dividends even through seeking loans.
These actions will result in weakening of the financial structure of the company, and in addition high amount of loans during economic boom has resulted in the reduction of the company’s ability to repay its debt to banks and in such conditions profit sharing does not seem to be a very rational solution for the companies. In present economic situation it can be stated that for companies that do not have any management or operational problems, profit sharing can be harmful for future performance since a major part of their resources will go out and even the management will be obligated to seek loans in order to compensate for these losses. Therefore, profit sharing in such situations does not necessarily guarantee shareholders’ benefit.
Considering the above mentioned arguments, it is apparent that legal structure and requirements concerning the issue of profit sharing should be earnestly pursued by the judiciary branch and the Securities and Exchange Organization, and also investors by considering long term benefits of the company should vote for profit sharing. On the other hand, those investors who seek shares with high return should primarily investigate the liquidity and financial claims of a company before purchasing any of its shares.
One of the attractive markets for investment in Iran is the real estate market. But how do we assess the outlook for this market? During the past decades, the price of property has experienced a rally, which lead to weakened purchasing power, and therefore the average time needed for owning a property in Iran in the most optimistic situation would have been 10 years. However, the average time needed for owning a property in most of developed countries is between 3 to 5 years. The price of property in Iran has been influenced by a variety of factors, some of which will be examined below:
Population Growth: The growth rate of population in Iran during the post revolution years has increased significantly, so that at the end of the 1360s (1980s), Iran’s population had doubled compared to that of the year 1978-79, with the year 1985 showing the highest birth rate. After 1989-90 and with the implementation of the family control policies, growth rate of the population started a declining trend which has continued until today. Presently, the average age for marriage in Iran is 27 years for men and 25 years for women (some sources declare higher numbers) which, demonstrates that the peak year for the demand of the married population has been the year 2012, after which the demand of this generation has started to decline. Another point is regarding the demand of the unmarried population which shows a rising trend, but is also most influential in the demand for smaller units. Taking into account the population peak and the decreasing birth rate, it seems that this part of demand will also start a declining trend.
Final Price: During the past years, production limitations, demand pressures and liberalization policies all resulted in a significant growth in the price of production inputs in Iran. In this regard, we can point out the limited production of cement in 1989 thereafter. During these years, due to the launch of various development projects and an increase in housing construction and the limitation in production, the price of cement experienced volatility in the free market, and therefore the pricing for this product started to be determined by the officials. This resulted in prioritizing the construction of cement producing units, which in turn led to a sharp increase in the production of cement and therefore created a surplus in the supply of this product. As a result of this issue, expectations for the growth in the price of cement have been low. Iron girders and round bars are part of industries that have been included in the liberalization policy and their prices are determined based on the exchange rate for dollar and other international exchange rates, and regarding the adopted policies and also forecasts concerning global prices little growth is expected in this sector. Other industries such as tiles, faucets and valves, etc are experiencing the same situation. Another point that should not be overlooked is the price of land relative to the final price of the property which, regarding its close dependence to the property, has the same prospect.
Taxes and vacant residential units: Statistics show that more than 400 thousand vacant residential units exist in Tehran. This high number has resulted in more sensitivity towards this issue and has brought up the topic of taxes on these units. Moreover, discussions surrounding the subject of taxes on transactions have been proposed and it seems that they are likely to become law. However, the technique of obtaining this tax still remains vague. By levying this tax the housing market will experience a drop in the number of deals and the supply of vacant residential units, which can influence the prices in the real estate market.
Mortgage loans: The amount of mortgage loans has been stable for a long time but has been increased in the last two years. This increase however, has not been a strong stimulus for the demand for houses. Presently, this loan only covers a small portion of the total price of a residential unit while the ratio of mortgages to the income of families is still a high number. In other words, these loans have high PTI and low LTV. Another point regarding these loans is their rate of return. Currently, there are two methods for obtaining these loans: 1) opening a deposit for a fixed period of time and then obtaining the loan, 2) purchasing housing mortgage rights. In both methods the effective rate of return for obtaining the loan is higher than other loans. For instance, in the second method, the person pays an amount higher than 10% of the obtained loan in order to purchase these securities and the bank takes a 17.5% interest for this loan, making the effective interest rate on these loans higher than 29%, which is a high rate compared to rates of return on other types of loans. Presently, payment of mortgage loans is carried out exclusively by Maskan Bank and other banks and leasing companies have limitations vis-à-vis the payment of mortgage loans and this is a major problem existing in the mortgage market.
Based on the above mentioned issues, the housing market is not assessed as a suitable market for investment and it is expected that in the long run it yields a lower rate of return for investors compared to the rate of inflation. Considering the price trend in the housing market since 2011 until now reveals that despite an increase in prices during 2012 and 2013, as a result of the subsequent drop in prices during 2014 and 2015, the percentage growth in property prices has lagged behind the inflation rate. It is noteworthy that in this report we have only discussed the investment in property and the topic of construction does not follow the same trend, which will be discussed in another occasion.
Base Volume is used to control dealings and prohibiting huge fluctuations in stock exchanges. Base Volume is assert only for the stocks which is listed in Bourse market of Tehran Stock Echange (TSE). TSE has 2 major markets which are Bourse and Farabourse, Base Volume is active only in Bourse market of TSE, in Farabourse no Volume base exists.
Base Volume of companies listed in Bourse market of TSE is calculated by multiplying 4/10000 to the number of shares outstanding. Maximum value of base volume is 10 billion Rials and its minimum is 500 million Rials, the number of base volume for each company is calculated by using the closing price in the last trading day of week, then this number will be considered as the base volume for the next week.
Example: assume that company A’s 4/10000 ratio is 3 million shares, if this volume is multiplied by the closing price of the last trading day which was 6,000 Rials, the result is 18 billion Rials. Through the instruction the ceiling should be 10 billion Rials, so for this company the 4/10000 ratio is omitted and the maximum number -10 billion Rials- enters to the calculations, after all, for calculating next week base volume, 10 billion Rials is divided to the closing price of last trading day of week (10,000,000,000/6000=1666667) and the number of base volume is 1,666,667.
On the other side, imagine that a company has 125 million outstanding shares 4/10000 ratio for it, is equal to 50,000 and the closing price of last trading day of week was 5,000 Rials. Product of closing price and volume is 250 million Rials which is less than the defined bottom (500 million Rials). Base volume of this company will be determined by dividing the 500 million Rials (bottom value) to closing price, the result which is 100,000 will be considered as the base volume for the next week.
Interesting point:
Suppose that a company’s shares all days of a week are traded in the range of +5%, in the end of week closing price of it has the growth of 27%, through the described instruction its base volume for the next week will be decreased which help it to experience the positive returns easily. Otherwise if a company is experiencing a week of negative price, its base volume for the next week will be increased, it prevent the stock decline easily.
Calculation of closing price:
Formula of closing price is as follows 
Which
P1 is closing price of previous day
P2 is closing price of current day
is weighted average price of current day
N is number of shared traded
M is base volume of the company
If N/M is bigger than 1, it will be considered equal to 1.
Mortgage backed security (MBS) is a type of asset-backed security backed by mortgages of residential houses as their collateral. This is while these securities can be secured by automobile mortgages (auto-backed securities), mortgages of constructed houses, accounts receivables, credit cards debt (mortgages), etc. In other countries mortgage backed securities are backed by any type of assets (except for the US where these securities are special due to their prevalence and the large portion of fixed Income market allocated to them). The simplest kind of securities secured by mortgage is asset backed securities secured by mortgages. The market for this financial instrument has been expanded ten times and its transactions have presently reached the amount of 1.5 trillion dollars. The guarantor of back-up of MBS is the circulation of cash derived from guaranteed mortgages. These securities are actually backed by purchasing real estates and properties acquired through mortgages. For instance, when owners of properties pay a monthly amount for their mortgage, these installments through an appropriate and previously determined method are paid to a third party that has purchased the MBS securities.
In Iran mortgage backed securities are issued in two different categories, namely mortgage- backed government bonds and lease-based Sukuk (Sukuk Al Ijara). Regulations concerning these instruments are separately compiled in the Securities and Exchange Organization. One of the most important factors in developing these types of instruments for financing banks has been the determination of risk in each of these instruments. Throughout the world, ranking of these securities is performed by credit rating agencies; however, in Iran lack of these financial institutions makes it impossible to evaluate them. An alternative solution is using the evaluation systems by banks’ clients in order to obtain important information with respect to the possibility of default risk by the clients. Non existence of such systems in most of the country’s banks makes it impossible to evaluate the actual price as well as the risk of these securities. Recently, the Central Bank of Iran has announced its agreement to issue the amount of 3 thousand billion IRR of mortgage-backed securities backed by house loan facilities by the Maskan Bank. According to Iran’s Economic news, in a meeting by the special committee of Coordination Headquarters for Economic Affairs, members of the Committee emphasized on the employment of house loan securities and the performance of secondary transactions in the securities and Exchange Market in order to accelerate a boom in the housing and capital markets.
According to the same report, in this committee Deputy Minister of Roads and Urban Development, President of Securities and Exchange Organization, and the CEO of Maskan Bank were also participated and they agreed to make it possible to generalize the issuance of certificates of Housing Loan Priority to other banks after acquiring the required license from the Central Bank. Moreover, the opportunity for leasing companies in the housing domain, in condition that these companies do not use bank resources and after acquiring the necessary permit from the Central Bank, was discussed and agreed upon in the meeting.
This report indicates that, following the previous decisions and policies adopted and announced by the Money and Credit Council, implementing new and complementary measures and policies in the housing domain are vital, and in this regard instruments for issuing house loan securities from the beginning of the present year have come to attention and will soon become operational.
Bank reserve ratio
It is a part of bank deposits which the bank won’t lend to its customers. The mentioned part should be held internally or deposit with the central bank. The minimum reserve requirement is established by central bank so that, this organization could execute both expansionary and contractionary monetary policy by cutting and increasing reserve ratio. The last regulation about reserve rate in Iran has established in 1972 According to this regulation, Reserve Requirement Ratio (RRR) is one of the CBI’s indirect instruments of monetary policy. Banks are obliged to deposit part of their liabilities in the form of deposit with the CBI. Through increasing/decreasing this ratio, the CBI contracts/expands the broad money. According to Article 14 of the Monetary and Banking Law of Iran, the CBI is authorized to determine RRR within 10 to 30 percent depending on banks’ liabilities’ composition and field of activity.
The theory that a reserve requirement can execute as a tool of monetary policy is frequently found in economics sources. The higher the reserve requirement is set, the theory supposes, the less funds banks will have to loan out, leading to lower money creation and perhaps ultimately to higher purchasing power of the money previously in use. The effect is multiplied, because money obtained as loan proceeds can be re-deposited; a portion of those deposits may again be loaned out, and so on. The mentioned phrase is exactly the definition of multiplier effect of money.
The last regulation about reserve rate in Iran has established in 1972. During last 10 years, bank reserve ratio has been decreased gradually, for instance the bank reserve rate had been decreased from 17 percent in 2007 to 10 percent in 2015. However, the reserve rate was about 30 percent in last years in order to control liquidity and bankruptcy.
According to Ali Taybenia, the minister of economy of Iran’s recent press conference, the government plans to decrease reserve ratio to zero because he believes this monetary instrument is an out of date instrument in international economy.
To conclude after cutting bank reserve ratio from 13 to 10 percent recently, the Central Bank of Iran intends to cut it one more time and the bank reserve regulation is being revised after 43 years. This approach improves banks` power in lending money and could decrease interbank rate in near future which might lead to significant decrease in banks` interest on loans.
It is not surprising that many international investors, investigating the Iranian market for possible profit opportunities, have become interested in fixed income securities and deposits. The reality of investing in fixed income instruments around the globe has become a frustrating experience since ZIRP and NIRP solutions employed by most influential central banks in the world has pushed yields of fixed income securities to least in history by any measure. Currently, treasuries of some most developed markets are being traded at negative YTM implying that you pay a price to keep the value of your money intact in the future. The irony is that these negative yields of, for example, German and Japanese bonds are in currencies that are under pressure by monetary policy makers to lose their value.
Many institutional and retail investors used to invest in fixed income securities and the market participants are disappointed by very low yields and seeking higher rates of return in equities, emerging markets, or even high risk investment positions such as corporate junk bonds. Thus, as with other investments with higher risk than US treasuries or JGBs, it makes sense for those investors to have a look for Iranian fixed income market, which, at least on the paper, provides both high yields and secured position. That’s why they come and investigate how they could invest in fixed income assets. However, there are risks affecting the real exposure of those investors to those assets as such they might become hesitant at some point.
There are various issues to be considered tangible in real world. One significant issue is a collection of risks embodied in those securities such as country specific risk and exchange risks. It seems that it would take some time until international investors resolve concerns about those risks. The second issue is about the scale of market. The current size of securitized fixed income assets listed by SEO is about USD 3.3 Billion including short term government treasuries, which is too little to be touchable by sound international investors without causing market disturbance. The third issue is related to lack of rating agencies and proper foundation to determine preferred yields. Currently most fixed income assets are traded within very narrow yield boundaries regardless of associated risks.
Taking into account the eagerness of investors to fixed income assets, along with the very potential of attracting capital through those securities, the Iranian market has a way to resolve issues on that matter. However, just like other capital markets around the world, fixed income securities will be the first gateway and also the most accepted path of coming international investment into the capital market.
It is an overstated platitude that a Trump presidency would be an early end to JCPOA. The foundation for such a deduction is that Donald Trump is a far right republican nominee who is in favor of hard force against rivals and is anything but negotiator. It has not passed much time since Republicans finally accepted him as the front runner candidate. The RNC had put into effect all its power to hinder Trump advancing through candidacy before they finally submitted to him. There is one critical implication here connecting the acceptance of Donald Trump in the Republican establishment and what he would do to the nuclear deal. Republicans had been supporting Trump’s rivals Jeb Bush, Marco Rubio and mainly Ted Cruz by all their power, and at the same time been observing his political juggernaut conquering one state after another.
One of the great mysteries of current time might be Trump’s supporting base. Many analysts and political experts are confused how a billionaire businessman with such a skill at casting hate sentiment could conquer minds and hearts of a winning majority of republican primary voters. In my opinion, the answer to this confusion is not so out of reach, that is Donald Trump says what his supporters want to hear. In other words, what he projects is highly favorable by his voting base; otherwise they would not support him at all. He is not committed much to Republican establishment and does not see any reason to abide by their agenda but to follow his own. Therefore, if one wants to have an understanding of what trump might do with JCPOA, his agenda should be taken into account.
The nuclear deal is widely an accepted international deal approved not only by Iran and P5+1 but also by international institutions of IAEA and UN Security Council, although it is embedded within the deal that any party can claim non-performance, and, at least in theory, blowing up the deal by the whim of one party is not impossible. However, if we assume Iran’s commitment to JCPOA provisions, bringing up the case against the deal by American administration with nonsense reasons could really impose severe costs to the United States power and reputation in the world. If a US president wants to go that way, there should be strong incentives for him to do such a thing.
The nuclear deal has explicit enemies: Saudi Arabia, Israel and Republican establishment as well. Donald trump has shown in his rhetoric that he has not any respect for the Saudi government. He has clarified that the United States has not any single reason to support the stability of Saudi regime by American taxpayer’s money, which is exactly what his voting base strongly believes. He has insisted that while Saudis are sitting on god-knows amount of wealth, why destitute American taxpayer should pay for Saudi’s stability and peace. He also says similar things about Japan and Germany.
The point is although in classical view, Saudi Arabia is a friend and Iran is an enemy to US, Donald Trump does not believe in that custom in his agenda. He also does not believe that Russia is an enemy and China is a friend, since public opinion supporting him, mostly blue collar wagers, has no negative sentiment about Russia but considers China a threat to their jobs. Trump has said in word that he supports Israel, but, he actually has no obligation to Israel’s interests more than a small country in the MENA region for which no American taxpayer money should be expended, since American public cares much about anything but the security of Israel.
Thus, Trump has no real incentive to disrupt the Iran nuclear deal, because he does not really care much about those three parties against the deal. His main focus has been his grassroots supporters and their concerns, as once questioned about effectiveness of the nuclear deal, Trump did not say anything about Saudis, Israelis, and political issues but he insisted that Iran’s order for buying aircrafts from France-based Airbus instead of U.S.-based Boeing is an indicator of a failed Iran nuclear deal.
During the past years, Iran’s demographic structure has experienced major changes. According to the country’s 1956 census, Iran’s population was 18.95 million, which rose to 33.7 million in 1976. During the decade that followed and after the Islamic Revolution, Iran witnessed a significant rise in its population and with the rate of 3.9% it almost reached the level of 50 million. Within a few years, due the implementation of population control policies, the country’s population growth rate decreased by 1.61 percent in 2011 and as a result the population reached the level of 75 million. This demographic change during the recent years has resulted in raising the young population of the country, which is presently in transition towards their middle ages and eventually their old age.
Predictions regarding Iran’s demographic structure are depicted in the following diagrams:
As seen above, population’s mode in 2011 was in the boundary of 20-30 years, and it is predicted that within a few years population mode will shift to the higher boundary of 30-40 years and over, and during the years 2041-2051 population distribution will become monotonous. This fact has had a major impact on the industries in the stock exchange market and has created various opportunities for them as well as threats. In the sections below, the effect of this environmental factor on a few of these industries has been examined:
Housing and Mass Construction Industry:
During the past years, Iran faced a boost in the demand for housing due to the fact that the people who were born between the years 1980 and 1988 have been added to the demand force in the housing market. Now, the housing market has passed its demand peak and gradually the demand is declining. Therefore, companies that are active in this industry will have a blurred prospect of their future in case they continue their current trend. These companies invest mostly in housing units, so they face a decrease in the demand. In the commercial sector, considering the number of vacant commercial units and also per capita of active commercial units which has been estimated much higher than that of other countries, this sector does not seem that attractive either. It appears that only in the long run and by determining the change in the requirements of the market (regarding a change in the area of the units (squared meters), change in the purchasing power, as well as the quality of construction) these companies will be able to continue their activities.
Presently, in Iran’s capital market, the industry of housing and mass construction constitutes a little over 2% of the market value, and these companies represent a small portion of those active in the real estate market and it seems that these firms can experience a better performance in the future by increasing the productivity of their resources. An important point regarding these companies is the low final price of estate that can be considered as an absolute advantage for these companies compared to others.
Auto-Industry:
In this industry, similar to the housing industry, due to the demographic structure of the past years, there was a high demand which will stay stable at present levels in the future years. In previous years, despite the young population of the country, automobile producers were not able to respond to the specific need of this generation and manufacture sports cars. Now this generation has gradually obtained a monotonous distribution and therefore in order to respond to their needs, producers should consider a vast range of products. An element that can increase the demand for automobiles is the per capita of number of automobiles to the population, which is estimated to be low compared to Western countries. This factor along with the fact that many of the automobiles in the country are worn out and have outdated technology, are the main stimulus for boosting the demand, whose effect can be neglected in the long term.
Pharmaceutical Industry:
The rise in the middle aged and old population of the country, strongly affects the pharmaceutical industry which can experience a high boost by taking advantage of existing opportunities. By producing special medications, this industry can realize the requirements of the older generation and by making use of such opportunity it can guarantee a safe profit margin.
Steel and Base Metals Industry:
During the past years, the demand for these products has been higher than the country’s production, but this reality will change as a result of any adjustments in the demographic structure of the country. As mentioned in the sections for automobile and housing, these industries will face a stable demand in the future, a fact that will directly affect the demand for the steel and base metals industry. It appears that in Iran this industry, as in the rest of the world, is approaching its maturity and we cannot expect it to have a considerable growth. Regarding the steel industry, we should notify that companies that produce sheets and billets will attain a better growth compared to producers of girders and round bars.
Insurance Industry:
Looking at changes in the demographic structure of the population that is growing older, it is expected that in the coming years the demand for life insurance and medical insurances will strongly rise. This issue has been particularly perceptible in financial statements of insurance companies. An important point considering the insurance companies is the high profit margin of life insurance for these companies, which currently represents an insignificant portion of their insurance portfolio. In addition, increase in the penetration rate of insurance as well as the impact of cultural changes from changes in demographic structure of the country should not be overlooked.
In view of the topics discussed above, it seems that many of the industries that are affected by demographic changes should modify their methods and pursue new strategies. For some, participation in the international markets and increase in exports might be an appropriate strategy, while for others a boost in productivity and investing in new products can be the solution. As examined earlier, pharmaceutical and insurance industries can experience a suitable growth in the future. Other industries in the country are also affected by demographic and cultural changes, but were ignored in this report.
According to Press TV, South Korean President Park Geun-hye has arrived in the Iranian capital Tehran for a historic visit to strengthen political and economic relations between the two countries.
Park landed in Mehrabad Airport on Sunday for a three-day official visit together with representatives from some 236 South Korean companies and organizations. She was welcomed by Iran’s Industry, Mines and Trade Minister Mohammad Reza Nematzadeh.
President Park was accorded an official welcome in Tehran on Monday on the first day of her three-day visit, heading South Korea’s biggest-ever traveling business delegation of over 230 executives.
The two presidents then sat for their first meeting since the establishment of diplomatic relations between the two countries in 1962.
Later in a joint news conference, Rouhani called for peace on the Korean Peninsula, saying Iran is opposed to the manufacturing of Weapons of Mass Destruction of any kind.
He said Iran and South Korea are set to boost their trade volume from the current six billion dollars to $18 billion as the two sides signed 19 cooperation agreements.
For her part, President Park called for further expansion of ties between Iran and South Korea in industrial, trade and cultural sectors.
South Korea has said it is eager to participate in Iran’s development projects and expand economic cooperation on communication technology, information, healthcare and culture.
World leaders have been visiting Tehran after the implementation of the nuclear agreement, dubbed the Joint Comprehensive Plan of Action (JCPOA), between Iran and the P5+1 group of countries in July 2015.
In a message on his Instagram account on Sunday, President Rouhani said Iran is open to foreign investment.
“Our economy will not get well unless we are able to attract investment,” he said.
“Today, these conditions have been provided and the leaders which travel to Iran bring with them representatives of scores of important trading companies,” Rouhani added.
East Asian nations are scrambling to boost economic links with Tehran after the country reached a nuclear agreement last year. China’s President Xi Jinping visited Iran in January and Japan signed an investment treaty with Iran a month later.
If you want to enter Iran, receiving visa will be essential. Procedure of getting visa from your home country is as follow:
1. Contact with an Iranian Travel Agency.
2. Your personal data will be sent to Iran Ministry of Foreign Affairs (IMFA) by the travel agency.
3. Your visa will then be authorized by the IMFA and IMFA will fax it to the Iranian Consulate near you.
4. Your travel agent gives you a visa authorization number with which you can refer to the consulate to get your visa. The visa authorization number, however, is valid only in the consulate you have asked them your visa to be issued in. The number they give you is just an “authorization”. This reference number means that your visa has been authorized and approved by the Ministry of Foreign Affairs but is not the visa itself.
5. Depending on your nationality, you may be required to present at the Iranian consulate in your country to have your fingerprints. British, Canadian, and American passport holders will have biometric check upon their arrival.
6. After your travel agent tells you your visa authorization number you should first get a visa application form from the consulate and follow the requirements of the application form (you may either personally go to the consulate to get the application forms or, if the service available, download it from the website of the Iranian embassy in your country).
7. Then, you should refer to the consulate to lodge your passports and application forms with the visa number they gave you (it can be either a physical presence or by post). Then it might take from 1-5 days for the consulate to issue your visa.
8. You may also need to provide a letter of recommendation from your embassy if you are applying outside your home country, a copy of your flight ticket to and from Iran and any student or press card.
Normally, all tourist visas issued by Iranian consulates have a 3-month validity. The visa allows you to stay in Iran for up to 30 days, although the duration of your visa is at the discretion of the Iranian Foreign Ministry.
Rarely, you may be asked to provide a letter from your employer or proof of fund. Visas are generally valid for three months which means you must enter Iran within three months of issue.
How can you get visa on your arrival to Iran?
A valid passport and a visa are required for the citizens of most countries who aim to travel to Iran. Citizens of all countries except Afghanistan, Bangladesh, Canada, Colombia, India, Iraq, Jordan, Pakistan, Somalia, the UK and the US can obtain a visa on arrival for 30 days at international airports, costing between 30-80 Euros. A proof of a health insurance valid in Iran might be necessary too.
It is generally possible to get an extension for the 15 days visa on arrival at the Police Office of Foreign Aliens in any major city of Iran. The extension gives you additional 15 days to your visa and it costs 300,000 Rials.
AS A NOTABLE EXCEPTION: The Kish Island, easily accessible from Dubai, does not require visas for visits of up to 14 days, including US nationals.
Sanctions: the pre-Implementation Day Structure
Prior to recent sanctions relief following Implementation Day on 16 January 2016, different sanctions regimes against Iran were applicable. The UN and the EU had issued multilateral/regional sanctions in the form of Security Council Resolutions implemented into national legislation and EU Regulations. Unilateral sanctions were also adopted by various countries in particular the United States, as well as Norway, Switzerland and Canada. The United States adopted very wide-ranging “primary sanctions” preventing US firms and entities from entering into most kinds of business with Iran, and non-limited “secondary sanctions” which are directed against non-US firms and entities engaging in business in certain sectors in Iran.
Background: the JPOA and JCPOA
In 2013, Iran and the P5+1 countries (China, France, Russia, the United Kingdom, the United States and Germany) agreed on the JPOA that was implemented in 2014 and which gave rise to limited sanctions relief under EU sanctions (Regulation 42/2014) and a similar suspension of US secondary sanctions.
On 14 July 2015, Iran and the P5+1 agreed on the JCPOA that provided for a comprehensive nuclear sanctions relief to be granted upon verification by the IAEA that Iran has complied with the nuclear-related commitments it had undertaken in the JCPOA. This was achieved on 16 January 2016 (”Implementation Day”).
Implementation Day: What does it mean?
All EU nuclear related sanctions were lifted on Implementation Day. In particular, the easing of sanctions marked the following:
- Freedom of transfer of funds;
- Reinstatement of SWIFT services;
- Delisting of most persons and entities; and
- Lifting of prohibitions on business operations such as those in the:
- Oil, gas and petrochemical industry and other energy related activities;
- Shipping, shipbuilding and transport sectors;
- Gold, other precious metals, banknotes and coinage market;
- Insuranceand Re-insurance services; and
- Automotive Sector.
US secondary sanctions were suspended, meaning that since Implementation Day, the US will no longer penalise non-US persons and entities who enter into business in almost all economic sectors in Iran. However, the US continues to prohibit non-US persons and entities from entering into business with persons and entities who remain on the List of Specially Designated Nationals and Blocked Persons (“SDN List”).
A “US Nexus”: How It May Affect You
US primary sanctions remain in place: persons and entities owned or controlled by US persons will continue to be generally prohibited from entering into Iran-related transactions.
Nonetheless, primary sanctions on civil aviation were lifted and US Persons will be able to enter into transactions with Iranian airlines for the sale of civilian passenger aircrafts, parts and components. Non-US persons may also sell aircrafts and civil aviation equipment having more than 10% US content to Iran. Primary sanctions are also lifted with regard to Iranian Carpets and Foodstuff, that is to say, US persons are permitted to purchase and import these goods directly from Iran.
More importantly, The United States has issued a “General License H”, which (i) allows non-US entities (including non-US subsidiaries of US entities) owned or controlled by US persons to engage in business transactions with Iran as far as US personnel in those entities do not involve in the activities related to Iran, and (ii) allows US persons to engage in activities concerning establishment or alteration of operating policies and procedures of a foreign entity owned or controlled by US persons and enters into permitted transactions with Iran under this license; and to provide automated globally integrated services (such as computer, accounting, email, telecommunications or other business support systems) to these entities.
What Sanctions and Risks still remain?
What about a “Snap-back”?
According to the JCPOA, UN sanctions may be re-imposed by the Security Council if it is deemed that Iran has failed to comply with its commitments. If sanctions are re-imposed, they will not apply with retroactive effect to contracts signed in the interim. Both the United Sates government and the European Union, while emphasising the remoteness of a snap-back, as a matter of legal concern, have interpreted JCPOA snap-back provisions and clarified their likely impact as follows:
The US Government in its guidance issued after the JCPOA Implementation Day, stated that in the event of a snap-back, (i) it will not impose any penalty on companies who enter into legitimate contracts under JCPOA with Iran and Iranian persons after its Implementation Day; and (ii) Will work with foreign companies for minimizing the impact of re-imposition of sanctions.
EU, in the preamble to Regulation 2015/1861, which lifted sanctions pursuant to JCPOA, clearly provides for adequate protection for the execution of contracts concluded in accordance with the JCPOA while sanctions relief is in force, consistent with previous provisions when sanctions were originally imposed.
EU Information Note, issued on the occasion of Implementation Day, clarifies that contracts that are permitted after Implementation Day will not be targeted by the re-introduction of sanctions and in case of a Snap-back occurs, sanctions shall not have a retroactive effect which means that companies will be given due time to perform their contractual obligation.
- What Should You Do to Ensure Compliance?
- Business with persons and entities who remain listed as subject to the asset freeze under the EU sanctions for EU persons and entities continues to be prohibited. The listed entities include certain banks and other prominent companies. Due diligence as to contractual partners therefore remains necessary.
- If there is a US nexus such as a US presence of a company that exposes it to US secondary sanctions, or if any financing arrangement requires compliance with US sanctions, care should be taken not to contract with persons and entities on the SDN list.
- USD transactions that are cleared through the US financial system remain prohibited.
- US employees and directors must be ring-fenced from any Iranian business.
- The risk of snap-back should be provided for contractually.
Arbitration bodies: There are two main arbitration bodies in Iran:
-The Arbitration Centre of the Iran Chamber (“ACIC”) which was established by law in 2002 as an affiliate to the Iran Chamber of Commerce, but enjoys an independent legal personality. It was established for the settlement of domestic and international disputes
-The Tehran Regional Arbitration Centre (“TRAC”) which was established in 2004 as an independent international organization, under the auspices of the Asian-African Legal Consultative Organization (“AALCO”). The agreement between AALCO and Iran was signed in 1997 and came into force in 2004. TRAC commenced its activities in July 2005. TRAC Rules are essentially based on the UNCITRAL Rules.
The costs of arbitration fall into two categories: (1) a registration fee and administration costs, and (2) arbitrators` fees.
Arbitration Proceedings
Domestic arbitration is governed by specific provisions of the Iranian Code of Civil Procedure. International arbitration is governed by the Law of International Commercial Arbitration (“LICA”), which was adopted in 1997 and is based on the UNCITRAL Model law.
The parties may agree on the procedure that will govern their arbitration, provided that they are consistent with the public policy and good morals of Iran, and with the exception of certain mandatory provisions of LICA. LICA recognizes the principle of competence-competence, party autonomy in the choice of the applicable law, the appointment of arbitrator(s), language and seat of the arbitration.
An arbitral award can be set aside on limited grounds.
It must be noted that, under the Iranian Constitution, the referral of claims relating to public and state property, i.e. in practical terms claims relating to contracts between foreign parties and the Iranian State and government entities, require the prior approval of the council of Ministers and the Majlis before being referred to arbitration. The dispute resolution clauses in such cases should therefore be carefully drafted.
New York convention on recognition and Enforcement of Foreign Arbitral Awards
Iran ratified the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards which entered into force in Iran in 2002, with two reservation: (1) Iran will apply the Convention only to recognition and enforcement of awards made in the territory of another contracting State, and (2) Iran will apply the Convention only to disputes arising out of legal relationships, whether contractual or not, that are considered commercial under the national law.
Now that the Iranian economy is being ready to integrate with international environment and to experience a jump on absorbing international investment resources available, one significant issue shall not be neglected and that is many economists concur with the view that long-term economic trends should be in line with demographics and several debates bring up concepts of demographics as the most effective force of social and political transformations. Nonetheless, it may not be ignored that economics basically consist of supply and demand and demographics have a direct impact on both sides: Demand for goods and services and supply of workforce.
Current demographic position of Iran is a complicated one as on one hand, the most stake of population goes to young people in their working ages, and on the other hand the steep collapse of fertility rate and population growth implies a different outlook for coming decades. Thus, currently we are living in an opportunity window in which, by utilizing the most of working age population, we can stimulate economic growth to the levels not seen before. As people have most of their available resources in their working age, demand for goods and services could also be encouraged by having those people been employed in productive industries with suitable remuneration.
Now more than 70% of Iranian people are between 15 to 64 years, normally called active population, implying the existence of Demographic Window, which stays in place until 1430s by most probable projections of current and future population trends. The steep decline in fertility and population growth in Iran is a unique case with lots of explanations and suggestions most of them are partially true. However, without an application of magic, one certain outcome is that reproduction practices of 1970s and 1980s will not resurge in foreseeable future, and as a result current Demographic Window is definitely singular.
The core issue is how economics could make use of this opportunity. Most developed nations are noticing their working age population decline enforcing intermittent economic recessions in spite of mass execution of easing policies. Developing nations are in better shape but not as good as it should. East Asian countries which have compensated the weak contribution of western world in recent decades are also entering the end phase of their demographic window, as China for example peaks its workforce population before 2020.
Nonetheless, if one expects a prosperous consumer market in the future, it is not anything about saturated and overdeveloped United States, Europe, or even East Asia, but somewhere around Middle East and Africa: Besides Iran itself, countries with high rates of population growth and great number of working age people along with unutilized economic fundamentals and underdeveloped infrastructures are most viable markets for the future.
He said that priority of commercial management is that foreign firms, especially those knowledge-based companies to cooperate with domestic manufacturers to transfer technology and participation in manufacturing.
This move aims to produce strategic items in refining industry, transfer and distribution inside the country and these acts are in direction of resistance economy and strengthening domestic capability to attend regional markets.
Zeiyar said that Petroleum Ministry has determined 10 items in the list of strategic items and among them rotating machinery, turbine and compressor are related to refining and Distribution Company.
The company has added another 16 items among strategic goods in refining, transferring and distribution industry, he added.
Amir Khorramishad, IMIDRO Planning Director, said the Chinese NFC and Power China companies had announced their willingness for cooperation in meetings on the sidelines of the 7th International Infrastructure Investment and Construction Forum (IIICF), held in Macao June 2-3.
He said NFC Deputy Head, Junman Qin, and Power China’s CEO, Zhou Jiayi, had in separate meetings mulled opportunities of investment in Iranian mining sector as well as the infrastructural and power plant projects.
Junman Qin said his company is willing to be present in the Second Iran Mining Session in July.
