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September 2004 / No. 31


Economy

Interaction for Integration in the Global Economy

Safdar Hosseini, Minster of Economic Affairs and Finance

Profound economic developments in the past decade have made globalization an undeniable reality. In today’s global economy we are witnessing development of global trade on the basis of relative advantages and a constant move of capital toward more profitability. In this process, stable and dynamic political and economic systems enjoying relative advantages account for a major part of the process.

In this regard, Iran enjoys all key factors for playing its deserved role not only in the Middle East, but also in the whole world because the country is a good place for economic activities, especially investment. Being located on the crossroads of Middle East, Central Asia, Caucasus, Western Europe as well as the international transit corridor, having inexpensive skilled manpower, low cost of energy and other production inputs, huge underground resources, advantages resulting from state policies including a fixed and low tax rate and numerous tax exemptions, an up-to-date legal frame for accepting foreign capital which have been invigorated through bilateral and multilateral agreements as well as commercial, customs and tax arrangements are major economic advantages available to those willing to engage in economic activities in Iran.

Iran enjoys all key factors for playing its deserved role not only in the Middle East, but also in the whole world because the country is a good place for economic activities.

On the other hand, the above advantages combined with extensive economic reforms during recent years have provided a more favorable environment for economic activities. Major steps taken by the government during recent years include improving taxation system through reducing tax rates and reorganizing that system, accumulation of duties, canceling a lot of state monopolies in such important fields as electricity, transportation, banks, insurance, credit institutes, etc, encouraging privatization, reforming the forex system, eliminating tariff barriers and rationalization of tariffs along with deregulation and adoption of customs procedures to facilitate exports and imports, establishing a Forex Reserve Fund and granting financial facilities to the private sector to support that sector, approving a law for encouragement and protection of foreign investments, as well as issuing participation bonds and forex bonds to cover needed developmental expenses of the government.

Those measures along with the detente policy and expansion of relations with other countries in the region and the world has led to reduced economic and political risk of the country and promoted its credit, improved the atmosphere for economic activities, elevated competitive capabilities of domestic products, increased non-oil exports, boosted foreign investments and improved governance in the country.

Achieving a high economic growth rate during the past two years and continued prosperity of Tehran Stock Exchange for the third consecutive year, which has made it the second profitable bourse in the Middle East, increase in volume of foreign trade and forex reserves, reduced liabilities and most importantly, preserving positive economic outlooks has provided Iran with vast capacities for establishment and expansion of economic cooperation with other countries. On the whole, the prospect for structural reforms aimed at providing legal and institutional grounds inside and outside the country to boost foreign and private investments is quite bright.

Foreign investment is the one field that requires due attention not only because it helps create needed jobs to overcome the problem of unemployment, or to preserve oil and gas revenues or provide infrastructures needed by the public, but also because foreign investment supplies part of the country’s needed forex resources, transfers technology and up-to-date managerial skills, establishes access to global markets, increases governmental earnings, boosts manpower productivity, activates downstream and upstream industries, increases competitiveness of domestically made commodities, and reduces government’s forex commitments (as a substitute for foreign borrowing), thus leading to development of technology and economy in the country solving many existing problems.

Understanding this necessity, the government and Majlis (especially the Sixth Majlis) took essential steps for encouraging, facilitating and supporting foreign investments. Some of those steps aimed to create a suitable atmosphere for economic activities, while others aimed for the promotion of a good milieu for foreign investment. The most prominent of those steps was approving a law for encouragement and support of foreign investments, which indicated a consensus on the subject for the first time during 25 years that have passed since the revolution.

Based on the new law, there would be no limitation with regard to the type of investment or method of investment or even the specific field of foreign investment, or the share of that investment and the government will assure the principal and profit, make up for possible losses in case of nationalization or subsequent approval of laws that would stop foreign investment, purchase or pay subsidies on products made by foreign investors if the government is their sole customer and finally give them an equal standing with domestic investors. The total time for issuing investment permits for foreign investors has been reduced to 45 days and formalities have been pared down, thus elevating Iran’s international ranking for the attraction of foreign investment. In addition, foreign investors will be only treated by a single state body; that is, Iran Investment and Economic and Technical Aid Organization, which is related to the Ministry of Economic Affairs and Finance during the whole process of getting information, issuing permit, transferring capital and its return.

The above collection of economic advantages and facilities as well as legal incentives, have created a huge capacity for publicity activities by Iran’s foreign missions to depict a fair picture of the country’s situation in their respective countries. They must especially pay due attention to attracting entrepreneurs and capitalists by giving them enough information with regard to economic reforms made during recent years to encourage and protect foreign investments and inform them about numerous economic advantages of the country, contacting related economic bodies in Iran and finally guiding them with regard to investment opportunities in Iran, thus playing a great role in economic prosperity of their country. Undoubtedly, interaction with the private sector, which plays a pivotal role in the economic development of the country, will be a major factor to realize the above goal and Iranian embassies abroad can act as a connecting bridge between the private sector of our country and economic institutions in other countries.

At the same time, two points should be emphasized. Firstly, the 20-year outlook for the country and the Fourth Economic Development Plan has stressed “positive interaction with the global economy” as a prerequisite for the realization of quantitative goals of the plan. Secondly, during recent decades, embassies have turned into centers for promotion of economic and trade ties with other countries and economic diplomacy is the main axis of relations among countries. Therefore, we must try to promote Iran to its rightful status to avail of benefits of a globalized economy and market. Our embassies are doors to the outside world through which we can interact with other countries. Therefore, they shoulder a heavy responsibility and people of Iran are looking to embassies as a means of bringing prosperity to the domestic economy.

 

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